Wednesday, April 15, 2009

Why this Crisis May be Worse than the Great Depression

by Len Hart, The Existentialist Cowboy

About one percent of the nation owning more than about 90 percent of the rest of us combined not only foresaw the impending crash but planned to benefit from it. GOP types have traditionally gotten rich by playing 'last man out loses'! A race to be first to 'get out' has triggered many a panic creating bargains to be picked up, fortunes to be made on the inevitable upside. The big difference now is that --this time --there may not be an upside.

The sheer size of this crisis is worrisome. During the Great Depression, the US still had viable industries that had not yet been exported to China by way of the Bushes and Wal-Mart. The US manufactured automobiles, refrigerators, radios and, later, televisions sets. The steel industry created Pittsburgh. Autos made Detroit. America's work and labor were the sources of its wealth. The right wing exploitation and export of that wealth is the source of our current poverty, the financial collapse and our impending slide into third world status. An increasingly tiny elite is the cancer upon the body politic and economic.

The US oligarchy demonstrates why it so foolhardy to transfer so much wealth to so few so quickly. These 'few' foresaw the crisis and triggered it by bailing out early. It is left to the rest of us to pick up the tab.

Something like 50 trillion dollars in derivative debt is far bigger than even the stock market. Derivatives are collateralized debt obligations, leading to the erroneous conclusion that 'debt is money'. The current crisis is proof that it is not. Moreover, anyone who has ever taken a course in accounting knows the accounting equation: net worth = assets - liabilities. That the money changers swapped these instruments did not change the accounting equation. Money owed you is not money in the bank --a lesson that is, of late, very expensive.
Many have said that 'we are doomed'! Our borrowing will be financed by our own savings. Already, Beijing is poised to become the financial capital of the world.

We can thank Wal-Mart and GOP policies for that outcome. In previous articles, I have traced the rise of the Axis of Wal-Mart/China to the faustian bargain Bush Sr cut with Chinese poohbahs as he paved the way for Nixon's infamous visit to the Forbidden city back in 1973. The quick rule of thumb: whenever the US is betrayed, you can be sure to find a GOPPER in hiding whenever the shit hits the fan.

Lately, it has become fashionable to 'spread the guilt' around! What's up with that? I suspect another scheme, another right wing tactic. Fact is GOP 'trickle down' policies have had the measurable effect of enriching just one percent of the nation's population. When the GOP has been caught holding the blood-dripping dagger over the corpse I am in no mood to listen to crap like: 'but Democrats are 'bad' too!' Not this time! Democrats were in office but eight years out of thirty! But in those measly eight years the trend in which wealth flows upward was reversed only to be undone by Bush Jr.

So --if you wish to dilute the open/shut case against Reagan/Bush/Bush Jr cite me some facts and spare me the bullshit!

It was not so long ago that a Democratic president had left to his incompetent GOP successor a whopping budget surplus, a growing economy, the lowest unemployment in decades, and --for Republicans --the most worrisome trend of all: the rich were no longer getting richer as they had done during the Reagan/Bush years. I can think of only one group of people who are most miserable when times are good! REPUBLICANS!

Historically, Republicans have always benefited from recessions.
  1. Recessions are not caused by declining stock markets but seem always to be accompanied by them and are often predicted by them. Republicans play the game of 'last man out wind', taking their profits in numbers that often cause the panic. Only insiders benefit. Others are forced to take their losses.
  2. A depressed market becomes an opportunity for the elite oligarchs to get back in. This elite, in fact, controls the market. Everyone else is exploited by the oligarchs.
  3. It is easy to make money 'selling short' if you have an insider's knowledge of the market. That fortunes were made short-selling subsequent to the 911 attacks seems to me persuasive, perhaps conclusive evidence that 911 was an inside job. What was known by whom and when? No wonder Bush covered up 911. The answer to those questions would have exposed a murderous conspiracy, perhaps 'insiders' inside Bush's criminal and treasonous administration.
  4. Unemployment always rises during times of recession. Should they survive, companies will hire from a larger labor pool at lower wages, lower salaries, reduced benefits, and less vacation or sick time. The GOP despises the Clinton years --not because they were bad but because they were good years and fondly remembered. Europe after the Black Death has that much in common with the Clinton years. The labor supply had been depleted by plague. A would-be employer often had to accede to a worker's demands--better working conditions, more money, a place to live! The serfs had been freed and it was the beginning of the end for Feudalism. I had hoped that a less traumatic cataclysm would have already freed modern day "corporate serfs." Alas! My hopes are dashed. If the US survives at all, you can rest assured that the ruling elite will hire from an impoverished and growing labor pool. Wages and salaries are sure to be inadequate and, as a result, the 'recovery' (should there be one) will be slower for it.
  5. Only the oligarchs benefit when many businesses go out of business during depressions which have the effect of 'weeding out' the competition, consolidating oligarchical gains. A conservative, therefore, is someone who supports a free market when it benefits him and the oligarchy at every other time.
  6. Recessions are not always accompanied by a decline in prices. As many businesses fail, competition is decreased and higher prices result. Given the demand for a particular product, a company may actually earn more money selling fewer units. The difference comes out of your ass. Such demand is called: inelastic, i.e. revenues increase as prices increase --even if total sales should fall.


Unless someone blows the whistle or exercises some clout, the increasingly tiny elite of just one percent of the US population will be even richer at the end of this ruinous and tragic financial collapse. You can be sure the oligarchs foresaw the collapse and hastened it. You can be sure that they alone will benefit from it as they have benefited from every other such crisis in US history.

Depressions are defined by a 'contraction' of the supply of money. It has been asked: 'where did all the money go?'. Much of it was exported to offshore bank accounts in anticipation of a domestic collapse. But much of that money didn't really exist. It was just paper. It became fashionable to consider DEBT as money. But debt is not money and never was. Anyone who has ever considered the significance of the accounting equation --capital equals assets MINUS liabilities knows the truth of it. Nor is 'debt' money for those holding the paper. Loans are good only when backed up by collateral or, in some cases, one's earnings and ability to re-pay. As in all crashes, a 'bill' has come due but cannot be paid.

If debt is not money, what is? A question that was debated just prior and during the Great Depression and, again, in the 1980s. At that time, there were attempts to create a stable ERM --an Exchange Rate Mechanism for European currencies. A gold standard was also discussed. In both cases, it was 'labor' that sucked up the costs of implementation which consisted of efforts to force manufacturers to keep costs down. Again --it is not wealth that trickles down. It is 'costs' that always trickle down and labor is always expected to suck up the costs and consequences of such schemes.

More recently, a 'gold standard' was discussed. Who would have borne the costs of such a scheme when it became clear that the US cannot back up but a fraction of its 'currency' with gold? Ron Paul, I believe, advocated a tax rebate for precious metals purchases. That would have hastened the collapse by encouraging a run on the dollar! But, in fact, the ordinary working person does not invest in precious metals and, if he had done, the decline in consumer spending would have brought about the collapse of our economy even sooner and, arguably, the effects would have been even worse.

Following is a PBS NEWS HOUR Interview with Nassim Nicholas Taleb of October, 21, 2008. A Famous economist, Taleb authored "The Black Swan". Also appearing on the video is Dr. Mandelbrot, professor of Mathematics. Both point out several reasons that make the current crisis worse, more serious than the Great Depression.



7 comments:

SadButTrue said...

"If debt is not money, then what is?"

That my friend, is the Trillion dollar question. Or is it 10 Trillion? 50? It depends on who you ask, and it seems as if every time you ask the number goes up.

Never have so many been screwed so deeply by so few.

Anonymous said...

There are only two things wrong with the economy and indeed, with America itself. Eliminate those two things and America and the economy will be just fine. Those two things are:

1) Republicans, and

2) Democrats.

Len Hart said...

Money is traditionally defined in the following terms: " ... a good that acts as a medium of exchange in transactions. Classically it is said that money acts as a unit of account, a store of value, and a medium of exchange."

So --why is debt NOT money? For one thing you cannot carry DEBT around in your pocket. A 'store of value' implies INHERENT value like the value that is traditionally ascribed to Gold. The 'unit of value' criterion seems to put a fine point on it. 'Second mortgages' may have value but ONLY in terms of REAL money. I would also add that REAL money must be portable. You should be able to carry it in your pocket and exchange it for goods at the corner 7-11 or (God help us) Wal-Mart. The paper on which is written the terms of a 'second mortgage' won't even buy you a Coca-Cola.

Many things have been called 'money' --sea shells, hides, beads, et al. But all of them were characterized by the fact that the bearer of them held more than the mere promise of someone else to pay him a 'said' sum at some point in time.

Anonymous said...

This is a really well written piece, but I think it is a little too forgiving of past democratic administrations and misrepresentative of their role in the current crisis we face.

How did Bill Clinton give the US a budget surplus? By cutting entitlement programs, such as the welfare reform bill. He also contributed to the decline of labor and industry by passing NAFTA and so-called 'free' trade agreements, a Bush-the-Elder creation, by the way. Clinton moved the democratic party to the right by jumping in bed with big business to boost and swing more corporate and Wall Street donors to the Democratic Party. And derivative speculation? Good ol' Bill sacked the one person that said the deregulation of such things would lead to the disaster we are currently in: Brooksley Born. Also, Bill is responsible for the Financial Modernization Act of 1999 as well as the smashing of Glass-Steagall. To me, this guy is an enemy of the working class, not a friend. He paved the way for junior to run the whole thing off the rails.

And Obama? If the democrats are better than republicans, why is he giving even more trillions than Bush to the financial crooks on Wall Street and in turn proposing a program of austerity on the rest of rest of us? The answer: These bastards are no different. Corporate Power and Wall Street have taken over.

Thanks! I really like this blog, and I am sorry if I misinterpreted your intent.

Tom Dennen said...

Enough is enough.

911 was an agonizingly apparent false flag, part of an ongoing American criminal policy and Obama is just an elaborate way to take your eye off the ball.

This piece is not too long, but Texas has now cast the die by invoking the tenth Amendment and we need to get a move on because the Basic Arguments for a Legitimate American Revolution apply even more so now, so please read this.

There are many revolutionary strategies but these are the two basic strategies for legitimate revolution, one already started by Texas governor Rick Perry (and the Oklahoma senate) affirming the sovereignty of those states (and counting):

“I believe that our federal government has become oppressive in its size, its intrusion into the lives of our citizens, and its interference with the affairs of our state,” Gov. Perry said.

“That is why I am here today to express my unwavering support for efforts all across our country to reaffirm the states’ rights affirmed by the Tenth Amendment to the U.S. Constitution. I believe that returning to the letter and spirit of the U.S. Constitution and its essential 10th Amendment will free our state from undue regulations, and ultimately strengthen our Union.” (google his speech at: http:www.youtube.com/watch?v=0LHrIxc-QyE

***

“Work is the basis for all well-being, while monopoly and cartels are obstacles for the beneficial processes.” – Adam Smith, ‘The Wealth of Nations’ – 1776 (The year Congress declared the United States of America independent.)

There are two peoples in America today: We the People, and the people running the illegitimate regime called the federal government, illegitimate because it does not represent us, the People.

Those two peoples need to separate from one another.

The current illegitimate American government is carrying on its illegitimacy with the money from your work using your money to wage imperialistic, materially beneficial wars instead of directing it toward your well-being where it belongs for the simple reason that it is your money.

The material benefits of your work are going to the companies (the monopolies and cartels) that make the products and systems used for war – tanks, guns, planes, weak body armor, all through monopolistic no-bid contracts to cartels and so on – but not for your well-being.

Your money was not used to maintain the New Orleans levees. Your money was not used to clear out the California underbrush now burning and so devastating that state.

Your money has not been used to maintain your roads, schools, bridges, and medical schemes.

Your money is not being used for your well-being.

You can change that by holding your money back until it is spent on your well-being – After all is said and done, it is your money!

And you can legitimally, constitutionally, withhold it by not paying taxes that are not used for your benefit. The Tea Parties are just a beginning.

Ask your firm to pay for your work in cash that you can put directly toward your well-being.

Put the cash under the mattress, buy (and learn how to use) a gun to protect it – you still have that Constitutional right to bear arms thanks to the present Supreme Court.

But you may soon have to protect those rights and other rights once guaranteed by your Constitution.

TAXES ARE ILLEGAL

The Sixteenth Amendment to the United States Constitution was possibly never properly ratified (ignore Wikipedia) and if not, there is no legal imperative or obligation to pay taxes to the federal government. See, Tax protester constitutional arguments

So basically, you do not legally have to pay taxes if you believe they are imposed outside of Constitutional Law.

The reason you think you do is because you believe your money has been spent on your well-being for all these years, looking after you and your interests and your family’s interests and your country’s state and regional interests.

You have been paying taxes because you believe that.

But your money is not going toward your benefit; it is going toward the benefit of another country’s interests, and then to the interests of the monopolies and the cartels of Big Business, Big Government, Big Armament and Big Pharma (which, as you have no doubt heard, is murdering you and your children for your money – The single biggest cause of death in America is the ‘Health Care’ system!)

It’s a sad state of affairs, but it makes the present sitting government illegitimate not only in terms of it not working in the interests of your well-being, but also of it saddling you with an interesting legal doctrine that covers the illegality of it, with historical precedents:‘Odious Debt’.

What if all this global debt was illegal and we, the people, can prove it and get out of it profitably by invoking the Doctrine of Odious Debt?

NEVER ENDING DEBT EQUALS SLAVERY AND IF WE ARE FORCED TO BUY INTO IT – IT IS DEBT BY COERCION AND THEREFORE ODIOUS..

Let’s start with the legalities of usury, which is compound interest, which Albert Einstein said was “the most powerful force in the universe."

Usury has been against the laws of every society from biblical times to the Roman Empire, after which the laws seem to have disappeared because they raise the legal concept of ‘Odious Debt’.

Odious Debt is a powerful legal doctrine, which holds that debt incurred by a regime for purposes that do not serve the interest of the nation, or the people of that nation’s ruling regime, should not be enforceable, as the debt was not incurred by the nation or its people, but solely by the interests of the regime.

I cannot buy something in your name for my own use and make you pay for it.

Such debts are considered by this doctrine to be personal debts of the individuals running the regime that incurred them and not debts of its peoples.

This concept is analogous to the invalidity of any contract signed under coercion or any confession taken under torture.

In 1824 Barings Bank signed a deal with Argentina’s first president, Bernardino Rivadavio, which ended after the ratification of debt as an economic policy in 1979 by a military dictatorship, in the financial collapse of one of South America’s richest countries after almost two hundred years of impoverishment and debt.

The debt was used to control the country’s finances, enrich the country’s bankers and empty the country- which means its people - of its wealth, much the same as that which is happening in the former, now ‘debt-ridden’ African colonies, Europe, England, America and most of the western world.

Debt is an avoidable curse.

Today, America’s sub prime borrowers, as well as ordinary, everyday, 20-year mortgage (death cage) borrowers across the planet, former tenants of the huge empty office and mall shop spaces are in the grip of Odious Debt.

Regardless of monetary theories, results can be taken as fact: Usurious indebtedness as a financial, political and economic policy needs the collusion of the leaders of those sectors of society which produce generations of politicians, technocrats, bureaucrats (and bankers) who favor banks and international institutions over the people – those individuals who are the producers of commodities, their work, which should be to their benefit.

After the Viet Nam war Argentina was somehow $53b in debt, half of which was owned by multinational corporate private enterprise, the other half by banks.

Who borrowed the money? The people?

No. The illegal Argentinean regime contracted the debt. Must the people (along with their grandchildren) pay back an Odious Debt not taken out knowingly by them?

No. But I think that today, we the people need a global representative (and a platform) to argue for the peoples of this stolen planet against any further odious debt and the abrogation of any such debt so far illegally incurred.

“If the public does not benefit, then there is no public debt.”

The doctrine was formalized in a 1927 treatise by Alexander Sack, a Russian emigré and legal theorist. It was based upon 19th Century precedents including Mexico's repudiation of debts incurred by Emperor Maximilian's regime. But, the best legal precedent was the denial by the United States of the Cuban people’s liability for debts incurred by the Spanish colonial regime. Such nice irony.

According to Sack: "When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, and to suppress a popular insurrection, etc, this debt is odious for the people of the entire state.

”This debt does not bind the people of the nation; it is a debt of the regime, a personal debt contracted by the rulers, and consequently it falls away with the demise of the regime.“

The reason why these Odious Debts cannot attach to the territory of the state - the people, you and I - is that they do not fulfill one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the beneficial needs of and in the interests of the peoples of the State - you and I, the taxpayers.

Odious Debts, contracted and utilized for purposes, which, to the lenders' knowledge, are contrary to the needs and the interests of the peoples of the nation, are not binding on those peoples – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded if they were in the interests of the advancement of the people and not the banking and military industrial elites.

Those lenders have therefore committed a hostile act against the people of the regime to which they lend money, and cannot afterwards expect a nation’s people, which has freed itself of a despotic regime to assume these Odious Debts, which are the personal debts of the former rulers - but we, The People must first free ourselves from this regime in order to argue this Doctrine.

The African Third World debt is, to me, completely odious.

Very simply, the predatory lending we all know about now was spread across the Third World, indebting its people, through mostly illegal regimes (which also benefited from the theft of the wealth people created by their work, which should have been used to their benefit, but was in fact stolen through Odious Debt.)

Patricia Adams, executive director of Probe International (an environmental and public policy advocacy organization in Canada), and author of Odious Debts: Loose Lending, Corruption, and the Third World's Environmental Legacy (from which came much of the content herein), has stated that there is a solution:

“…by giving creditors an incentive (Jail would be a good one) to lend only for purposes that are transparent and of public benefit, future tyrants will lose their ability to finance their armies, and thus the war on terror and the cause of world peace will be better served.”

In other words, it should be illegal for anyone to sell me something to me for my use to buy it in your name and expect you to pay for it.

On the other hand, she adds, “If the repayment of interest on legitimate, non-odious debt was applied to a reduction of the original capital (i.e. non-usurious interest) by national, federal or international law or other regulatory lending system, the problem would at the very least be minimized, depending on the regularity and amount of capital recovered as part of interest payments.

”Also, if ‘pooling’ or accumulation of non-working capital were limited and an excess of earnings or profit be forced into use as in corporate social consciousness programs, the processes involved in the alleviation of poverty could be far better served than they are now.“

My own theory that the embedded ‘growth requirement’ of modern capitalist business arose from a postindustrial population expansion which eventually slowed down and is now stopped at what has become known a Zero Population Growth (ZPG).

An understanding of this ‘embedded growth’ could also have some positive applications if the ‘embedded growth’ requirement is removed and sustainability is substituted.

That Capitalist driver, population expansion, is gone.

First World Populations are stabilizing. We are now in a situation where fair, not odious, financial balance must be sought.

I said there were two strategies for legal, Constitional revolution:

The next level of revolution is from the individual states, like Texas, invoking the Tenth Amendment and another law that once protected us, called the Posse Comitatus Act is brought back to the people.

The Posse Comitatus Act and the Insurrection Act substantially limited the powers of the federal government to use the federal military for local or state law enforcement – and a legitimate revolution with legitimate grievances against a government more and more perceived to be an illegitimate one will, of course, be against that illegitimate government’s‘ recent new laws and the removal of traditional Constitutional protections and that regime will act against any action which may be perceived to threaten its legitimacy.

So it could get pretty hectic, with maybe some shooting unless the individuals in the military can be persuaded that the people have legitimate grievances.

In other words, if you revolt against a United States government that you consider illegitimate, that government cannot Constitutionally use its armies to put down your revolution. But the Bush regime changed that, to you, the people’s detriment.

It will in all likelyhood, with the construction of prison camps all across this wonderfull land try to stop us. But this Constitutional right of ours to also simply protest against a government perceived to be illegitimate and therefore criminal is enshrined in the Posse Comitatus Act, which gives power to the State Militias to protect your tax revolt against the armies of an illegitimate federal government.

If an illegitimate federal government tries to put down a popular revolution or insurrection, the governor of your state has a local standing army in place (the State Militia) to protect you from that illegitimate government’s use of your own troops against you.

No longer, except for the process which Texas has begun.

Your Constitutional right to a local Posse Comitatus (State Militia) to fight an illegitimate federal government has been taken away from you.

It has come to that.

The next step should be a referendum calling for all states’ governors to ratify amendments to state Constitutions reinstating the Posse Comitatus Act state by state and, like Texas, declare sovereignty from the United States Government.

As Americans, We the People are now extremely vulnerable, but legally in the right, which is an American tradition. We are the Good Guys.

And right now, no one on this planet believes that.

We need the basis of our well-being, the benefits of our work, returned to us.

Unless we take back the basis of our well-being, the work that we do and make sure that it once again serves us and not monopoly or cartels, we are slaves.

Here’s the key:

IN CONGRESS, JULY 4, 1776
The unanimous Declaration of the thirteen united States of America
"When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation."

Another key is that we all have to act together.
And soon.

Len Hart said...

Tom Dennen said...

TAXES ARE ILLEGAL'We' (we are told) went to war because of 'Taxation without representation'.

Now --who REALLY believes that he is fairly or legitimately represented in a Congress that is IGNORED by the MIC and where REPS and SENS are literally BOUGHT AND SOLD by K-Street?

SadButTrue said...

I like that quote from Adam Smith (via Tom Dennen) and I think it defines money better than the dictionary definition from Len.

“Work is the basis for all well-being, while monopoly and cartels are obstacles for the beneficial processes.” – Adam Smith

You can see some considerable agreement with this quote from Lincloln:

"Labor is prior to, and independent of, capital.
Capital is only the fruit of labor,
and could never have existed if Labor had not first existed.
Labor is superior to capital,
and deserves much the higher consideration." -- Abraham Lincoln

And even this one from Karl Marx:

"Capital is dead labor, which, vampire-like, lives only by sucking living labor, and lives the more, the more labor it sucks." -- Karl Marx

They all agree that money is merely a token to represent the labor that goes into production of goods and services. The fact that CEOs of America's largest companies are now paying themselves the average yearly wage per HOUR without producing any goods or services shows how far the system has been removed from a healthy state.