Thursday, February 18, 2010

The Richest 1% Have Captured America's Wealth -- What's It Going to Take to Get It Back?

The U.S. already had the highest inequality of wealth in the industrialized world prior to the financial crisis -- and it's gotten even worse.
February 17, 2010 |
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This is Part II of David DeGraw's report, "The Economic Elite vs. People of the USA." Click here for Part I.

"The war against working people should be understood to be a real war.... Specifically in the U.S., which happens to have a highly class-conscious business class.... And they have long seen themselves as fighting a bitter class war, except they don't want anybody else to know about it." -- Noam Chomsky

As a record amount of U.S. citizens are struggling to get by, many of the largest corporations are experiencing record-breaking profits, and CEOs are receiving record-breaking bonuses. How could this be happening, how did we get to this point?

The Economic Elite have escalated their attack on U.S. workers over the past few years; however, this attack began to build intensity in the 1970s. In 1970, CEOs made $25 for every $1 the average worker made. Due to technological advancements, production and profit levels exploded from 1970 - 2000. With the lion's share of increased profits going to the CEO's, this pay ratio dramatically rose to $90 for CEOs to $1 for the average worker.

As ridiculous as that seems, an in-depth study in 2004 on the explosion of CEO pay revealed that, including stock options and other benefits, CEO pay is more accurately $500 to $1.

Paul Buchheit, from DePaul University, revealed, "From 1980 to 2006 the richest 1% of America tripled their after-tax percentage of our nation's total income, while the bottom 90% have seen their share drop over 20%." Robert Freeman added, "Between 2002 and 2006, it was even worse: an astounding three-quarters of all the economy's growth was captured by the top 1%."

Due to this, the United States already had the highest inequality of wealth in the industrialized world prior to the financial crisis. Since the crisis, which has hit the average worker much harder than CEOs, the gap between the top one percent and the remaining 99% of the US population has grown to a record high. The economic top one percent of the population now owns over 70% of all financial assets, an all time record.

As mentioned before, just look at the first full year of the crisis when workers lost an average of 25 percent off their 401k. During the same time period, the wealth of the 400 richest Americans increased by $30 billion, bringing their total combined wealth to $1.57 trillion, which is more than the combined net worth of 50% of the US population. Just to make this point clear, 400 people have more wealth than 155 million people combined.

Meanwhile, 2009 was a record-breaking year for Wall Street bonuses, as firms issued $150 billion to their executives. 100% of these bonuses are a direct result of our tax dollars, so if we used this money to create jobs, instead of giving them to a handful of top executives, we could have paid an annual salary of $30,000 to 5 million people.

So while US workers are now working more hours and have become dramatically more productive and profitable, our pay is actually declining and all the dramatic increases in wealth are going straight into the pockets of the Economic Elite.

If our income had kept pace with compensation distribution rates established in the early 1970s, we would all be making at least three times as much as we are currently making. How different would your life be if you were making $120,000 a year, instead of $40,000?

So it should come as no surprise to see that we now have the highest inequality of wealth in the industrialized world and the highest inequality of wealth in our nation's history. The backbone of America, a hard working middle class that has made our country a world leader, has been devastated.

Now that we have a better understanding of how our income has been suppressed over the past forty years, let's take a look at how the economy has been designed to take the limited money we receive and put it into the hands of the Economic Elite as well.

Costs of Living

Other than in the workplace, in almost all our costs of living the system is now blatantly rigged against us. Let's take a look at it, starting out with our tax system.

In total, the average US citizen is forced to give up approximately 30% of our income in taxes. This tax system is now strategically designed to flow straight into the hands of the Economic Elite. A huge percentage of our tax dollars ultimately end up in their pockets. The past decade proves that -- whether it's the Republicans or the Democrats running the government -- our tax money is not going into our community, it is going into the pockets of the billionaires who have bought off both parties - it is obscene.

For an example of how this system flows to the Economic Elite, just look at the Wall Street "bailout." The real size of the bailout is estimated to be $14 trillion - and could end up costing trillions more than that. By now you are probably also sick of hearing about the bailout, but stop and think about this for a momentÖ Do you comprehend how much $14 trillion is?

What could be accomplished with this money is almost beyond common comprehension.

And this is just the tip of the iceberg that has hit us. On top of the trillions given to the Wall Street elite, we already have a record $12.3 trillion in national debt - and we now have to pay $500 billion in interest to the Economic Elite on this debt every year, yet another way they are milking us dry. When you add in unfunded liabilities owed, like social security payments, we actually owe a stunning $74 trillion. That adds up to a debt of $242,000 for every man, woman and child in America.

Trillions more, 25% of taxpayer dollars allocated to military spending goes unaccounted for every year, not to mention the billions spent on overcharging and outright fraud. During the War on Terror, the Economic Elite have used our tax money to build a private army that has more soldiers deployed than the US military - a congressional study revealed that 69% of the "US" fighting forces deployed throughout the world in our name are in fact private mercenaries, 80% of them are foreign nationals. Private contractors regularly get paid three to five times more than our soldiers, and have been repeatedly caught overcharging and committing fraud on a massive scale. A congressional investigation revealed this and strongly recommended that we seize wasting tax dollars on these private military contractors. However, under Obama, there has actually been a drastic increase in total tax dollars spent on them.

In 2009, just over $1 trillion tax dollars were spent on the military, it's safe to say that at least $350 billion of that was needlessly wasted.

When you research our tax system you see an unprecedented level of waste and fraud rampant throughout most expenditures. Our tax system is a national disaster of epic proportions. It is literally an organized criminal operation that continues to rob us in broad daylight, with zero accountability.

Politicians and mainstream "news" outlets will not tell you this, but most every serious economist knows that due to so much theft and debt created in the tax system, the only way to fix things, other than stopping the theft and seizing the trillions that have been stolen, will be for the government to cut important social funding and drastically raise our taxes. Other than the record national debt, many states are running record deficits and ìbarreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services.î Our nation's biggest state economies, like California and New York, are the ones in most trouble.

To merely say that things will not be improving economically is to be a delusional optimist. The truth that you will not hear: we have been hit by an economic deathblow and the United States lay in ruins.

It's not just this criminal tax system; the theft is now built into all our costs of living.

Trillions more in our spending on food and fuel has been stolen due to fraudulent stock transactions and overcharging. Just ten years ago, in 2000, American families paid 7% of our income on food and fuel. We now pay 20%. This drastic increase is primarily driven by fraudulent market manipulation that drives up stock prices. Congress uncovered this in 2006, as part of the Enron investigation they found that companies manipulated the oil market to create major spikes in stock values, and then they didn't do anything about it - nothing to see here, just move on.

As mentioned before, we have the most expensive health care system in the world and we are forced to pay twice as much as other countries, and the overall care we get in return ranks 37th in the world. On average, US citizens are now paying a record high 8% of their income on medical care.

Part of the reason why foreclosure rates are so high is because the percentage of income Americans pay on their housing has risen to 34%.

So for these basic necessities - taxes, food, fuel, shelter and medical bills - we have already lost 92% of our limited income. Then factor in ever-increasing interest rates on credit cards, student loans, rising prices for cable, internet, phone, bank fees, etc., etc., etcÖ. We are being robbed and gouged in all costs of living, in every aspect of our life. No wonder bankruptcies are skyrocketing and the amount of people suffering from psychological depression has reached an epidemic level.

The American worker is screwed over every step of the way, and it all starts with the explosion in the cost of a college education. This is one of the Economic Elite's most devastating weapons. To have any chance of succeeding in this economy, it is commonly believed that you must attend the best college possible. With the rising costs involved, today's students are graduating with record levels of debt from student loans. At the same time, the unemployment rate among recent college graduates has risen higher than the national average, and those that do find work are making significantly less than they expected to make. This combination of extreme debt and reduced pay has crippled an entire generation right from the start and has put them in a vicious cycle of spiraling debt that they will struggle with for the rest of their lives. The most recent college graduates are now known as a "lost generation."

The American dream has turned into a nightmare. The economic system is a sophisticated prison cell; the indentured servant is now an indebted wage slave; whips and chains have evolved into debts.

"There are two ways to conquer and enslave a nation. One is by sword. The other is by debt." --
John Adams

Concealing National Wealth

"Liberty in the concrete signifies release from the impact of particular oppressive forces; emancipation from something once taken as a normal part of human life but now experienced as bondage... Today, it signifies liberation from material insecurity and from the coercions and repressions that prevent multitudes from participation in the vast cultural resources that are at hand."-- John Dewey

When you take the time to research and analyze the wealth that has gone to the economic top one percent, you begin to realize just how much we have been robbed. Trillions upon trillions of dollars that could make the lives of all hard working Americans much easier have been strategically funneled into the coffers of the Economic Elite. The denial of wealth is the key to the Economic Elite's power. An entire generation of massive wealth creation has been strategically withheld from 99% of the US population.

The US public doesn't have any understanding of how much wealth has been generated and concentrated into the hands of the Economic Elite over the past 40 years; there is no historical frame of reference. This withholding of wealth is truly the greatest crime against humanity in the history of civilization.

What could be done with all the money that has been hoarded by the Economic Elite is extraordinary!

Let's consider what we could do with the money that has been stolen from us? On top of what should be our average six-figure yearly income, we could have:

* Free health care for every American,
* A free 4 bedroom home for every American family,
* 5% tax rate for 99% of Americans,
* Drastically improved public education and free college for all,
* Significantly improved public transportation and infrastructure,

The list goes on...

This is not some far-fetched fantasy. These are all things that Franklin D. Roosevelt talked about doing in the 1940's, long before the explosion of wealth creation in our technologically advanced global economy. The money for all this is already there, stashed into the claws of the Economic Elite. The denial of wealth to the masses is the key to the Economic Elite's power. Outside of outdated and obsolete economic models and theories -- and incredibly short-sighted greed -- there is no reason why all this money should be kept in the hands of a few, at the immense suffering and expense of the many.

If Americans could just understand how much wealth is being withheld from us, we would have a massive uprising and the Economic Elite would be swept away, into the history books alongside the evil despots of the past.

This is Part II of David DeGraw's report, "The Economic Elite vs. People of the USA." Click here for Part I Read the rest of the series on Amped Status.

The United States Is In Deep Doodoo!

Michael Rivero

The following article was first written in 1998. I am relinking it here not so much as to say "I told you so", but to point out that the long term economic future of the United States was obvious, or should have been obvious, to the people who are awarded lofty degrees and paid huge salaries to comprehend such things. Instead, the economists persisted in explaining away the visible signs of gathering troubles and earned their salaries by justifying why the policies that robbed the poor to give to the rich should continue unabated.
United States Congressional Record - March 17, 1993 - Vol. #33, page H-1303 - Speaker- Rep. James Traficant, Jr. (Ohio) addressing the House:

"Mr. Speaker, we are here now in chapter 11. Members of Congress are official trustees presiding over the greatest reorganization of any Bankrupt entity in world history, the U.S. Government. We are setting forth hopefully, a blueprint for our future. There are some who say it is a coroner's report that will lead to our demise."


Imagine for a moment that someone inherits a farm. Let's say that the farm has good topsoil, a good well, good breeding stock, good seed, and excellent farm equipment in good repair. Prior to passing into the control of the present owner the farm did a good business selling vegetables, meat, and dairy products to the local market, and it made a small profit.

But let us suppose for a moment that the present owner of the farm doesn't understand farming, or isn't even really interested in learning. The present owner has no objection to standing around looking good, so he stays at the farm, standing in front of it, looking good to passers by.

Of course, the bills still come in, so our farmer puts them on his credit card. When that bill comes due he uses another credit card, Then another. Pretty soon the interest payments alone are higher than his bills and the banks get nervous and call him. No problem. Our farmer sells the tractor, takes the money around to the various credit cards, the food store, the utilities, and pays off all his bills. Then he stands around in front of the farm looking good to passers-by, the lord of his domain.

Well, the bills still come in. Again the credit cards get loaded up. So, this time our farmer sells the harvester. Then later on, the cattle, then the chickens, then the seeds, then he leases the well to his neighbor and finally sells the top soil from his farm to another farm down the road whose soil is getting tired. The cash is taken around to the various creditors, the food store, the utilities, etc.

Now at this point, our farmer thinks everything is okay. The bills are paid, he has a little cash in his pocket, and everything is fine.

Of course, you know better. The farm simply does not exist any more; it's just an empty lot with a few buildings, and soon they will be gone as well. The path from the farmer's present condition to seizure of the property for unpaid taxes is a foregone conclusion, even if the farmer doesn't look far enough ahead to see it.

Poor, dumb, stupid farmer.

That farmer is our government, and our business leaders.

Just as our hypothetical farm has lost its soil, livestock, seed, and farm equipment, America has lost its manufacturing ability. Short sighted business leaders, with as little interest in manufacturing as our farmer had in farming, decided their own personal bonuses would be higher if they simply sold their factories rather that ran them. After WW2, the 27 American TV companies including Zenith, Emerson, RCA, GE, etc. led the world in TV technology. Then, the owners of the patents on TV technology decided they didn't need to dirty their hands by actually making the TV sets themselves any more, and they started selling licenses to manufacture, which the Japanese bought.

By 1987, the only remaining American TV company was Zenith. The patent holders get their money, but the American products which can be sold overseas are gone, along with the jobs to make them. (Today Zenith is owned by a Korean electronics company.)

The same happened in high-tech electronics. The integrated circuit was invented in the United States. But rather than focus on selling integrated circuits, the companies that owned that technology sold the machines to MAKE integrated circuits around the world, and now America sells very few chips anywhere. The patent holders have their money, but the cash flow from sales of manufactured goods, and the jobs that go with them, are gone. When Seymour Cray needed custom chips for his supercomputers, he had to order them from Japan.

The same thing has been happening in aviation. The airplane was invented in the United States, and through the 60s, we sold a lot of them around the world. But lately, all aircraft sales to foreign countries involve "offsets", a portion of the core technology that gets licensed to the purchasing nation and gets manufactured there. Bit by bit, the core technology gets bled off, taking with it jobs, and cash flow from the sale of those manufactured products. Along the way, the rights to manufacture American inventions outside America leak away on a steadily increasing basis. Even the mighty F-16 is now being manufactured overseas, under license.

To cover the loss of manufacturing jobs, our government has invented the catch phrase "service economy". This is the idiotic notion that we don't need to actually sell manufactured products; that we can grow and prosper our nation by doing each other's laundry for a fee. To conceal the loss of manufacturing jobs, the government has legislated into existence thousands upon thousands of useless paper-shuffling jobs, and declared their necessity by fiat. The most obvious is the income tax which has been so obfuscated by the government that half of you had to rely on an outside expert to figure out just what all those incomprehensible words really meant. By this device, the government has replaced those jobs that made products to sell with an equal number of jobs that produce nothing whatsoever of any worth, except to keep the unemployment figures down. This over-burdening of the American people with gratuitous regulations and paperwork has accomplished nothing except to obfuscate the loss of manufacturing jobs, and to transform the American character from innovators and inventors creating new products to that of minor clerks, peeking under each other's seat cushions for lost change.

So, with most of our manufacturing now gone, just what DOES America make? Trouble, mostly. With 4% of the world's population and 18% of the economy, we have 50% of all the lawyers, all looking to make a killing by looting those few industries that still call America home (like Microsoft). Kids don't want to be scientists and engineers; they've seen how little such people are valued in our country. Based on recent history, kids see the "big bucks" are in corporate law, specifically investment banking, leveraged buyouts, greenmail, junk bonds, in short what other countries describe as "trying to make money grow by shaking it side to side".

With America's ability to actually produce products that can compete on the open world market in decline, it's no wonder that the balance of trade is the problem it is. Nobody buys our export products because we just don't make that many any more, and like or not, we have to buy our appliances from the people who make them, which are NOT Americans. (When Ampex invented the VCR, they didn't even bother trying to find an American company to make it, they immediately sold the rights to Japan).

So, what do all these countries on the plus side of the trade imbalance do with their surplus billions? Well, they have been loaning it right back to us!

Our government engages in a practice politely called "deficit spending". Other terms which would aptly describe the practice include "counterfeiting" and "check kiting", but it all comes down to the same thing; spending money one does not actually have.

What would be a prison offense for a normal citizen was rendered legal for the government by the Federal Reserve Act. This was not a popular piece of legislation. In fact the Democrats had campaigned in 1912 on a platform of rejection of the creation of a private bank in charge of a fiat money system. Nevertheless, on December 23, 1913, taking advantage of the absence of congressmen opposed to the creation of a fiat monetary system during the Christmas break, the Federal Reserve Act was passed.

Years later, during the great depression, Congressman Louis T. McFadden (who served twelve years as Chairman of the Committee on Banking and Currency) asked for congressional investigations of criminal conspiracy to establish the privately owned 'Federal Reserve System'. He requested impeachment of Federal officers who had violated oaths of office both in establishing and directing the Federal Reserve -- imploring Congress to investigate an incredible scope of overt criminal acts by the Federal Reserve Board and Federal Reserve Banks. McFadden even suggested that the Federal Reserve deliberately triggered the great stock market crash of 1929, in order to eventually force the passage of the Emergency Banking Act of March 9, 1933, which suspended the gold standard.

In describing the FED, McFadden remarked in the Congressional Record, House pages 1295 and 1296 on June 10, 1932:

"Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal reserve banks. The Federal Reserve Board, a Government Board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government. It has done this through the misadministration of that law by which the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it".

Why all the fuss over the gold standard?

Well it goes back to the original Founding Fathers and the meaning of the word "dollar". "Dollar" is actually a weight measure of silver, 371.25 grains, to be exact. Our American silver dollars are actually heavier, since other metals were added for durability. But that 371.25 grains of silver WAS the dollar, matching in weight an unbroken chain of accepted monetary units that reached back through the Spanish Milled Dollar, the Dutch Daller, back to the German Thaler; the product of a silver mine which sold its product in coins of an exact weight. The Coinage Act of 1792 defined our dollar to exactly match in weight the silver dollars in use around the world, and then defined the gold dollar to be that amount of gold which would equal the worth of silver in a silver dollar, 24.75 grains, 1/15 the weight of the silver in a silver dollar.

US Silver Dollar US Gold Dollar (same scale)

So, what's wrong with this? Nothing really. When you, as a citizen, hold a silver dollar or a gold dollar in your hand, you hold that actual worth of metal. Nothing the government can do can change the worth of the money in your control.

Take the Roman Silver Denarius pictured above. The Roman Empire is long gone, but the money that Rome issued still has worth because the coins themselves had inherent worth. Long after the collapse of the empire, Roman silver coins were still used as money, because the silver in the coin itself did not depend on the issuing government for its worth.

Of course, carrying around too much coin can be bothersome, so many nations, including our own, issued paper notes as a convenience. But that paper currency of the nation was just a convenience. The gold and silver certificates were merely "claim checks" for the equivalent weight of gold or silver held in the treasury, and which would be produced on demand when the certificate was presented. But in the end, the lawful dollar of the United States was 371.25 grains of silver, or 24.75 grains of gold.

The problem with this system from the point of view of the government or the banks is that it limits the amount of money they can work with. When the bank runs out of silver or gold (or the equivalent certificates) it can no longer lend any more money with which to earn interest. When the government runs out of gold or silver (or the equivalent certificates) it can no longer spend money (just like the rest of us).

The immediate effect of ending the gold standard was that with the paper dollar no longer legally dependent on 371.25 grains of silver or 24.75 grains of gold, more paper dollars (now called "Federal Reserve Notes") could be printed, their actual worth no longer under the control of the citizens but under the control of the issuing central bank, based on the total number of dollars printed (or created as credit lines) divided by the estimated worth of the nation's assets. The more dollars which are created out of thin air, the less each one is worth.

A federal Reserve Note.

The swindle of the system is simple. The Federal Reserve Bank hires the US Treasury to print up some money. The Federal Reserve only actually pays the treasury for the cost of the printing, they do NOT pay $1 for each 1$ printed. But the Federal Reserve turns around and loans out that money (or credit line) to banks at full face value, those banks which have exhausted their deposits then loan that Federal Reserve fiat money to you, and you must repay it in the full dollar value (plus interest) in work product, even though the Federal Reserve printed that money for pennies, or created it out of thin air in a computer.

As the Federal Reserve overprints more money, the money supply inflates, and too much money starts chasing too few goods and services, which means prices go up. But contrary to the charade put on by the Federal Reserve, inflation doesn't just come and go due to some arcane sorcery. The Federal Reserve can halt inflation any time it wants to by simply shutting down those printing presses. It therefore follows that both inflation and recession are fully under the control of the Federal Reserve. This means the cycle of inflation and recession is an intentional one; a gigantic heartbeat that pumps paper certificates out to the working class, while pumping real wealth in to the owners of the banks.

Over time, that excess of printing has destroyed the value of that dollar you think you have. If you want to know by just how much, go out and try to purchase 371.25 grains of silver right now. Usually, the deterioration is gradual. Sometimes, it has to be obvious, such as the 1985 devaluation (done to halt the trade imbalance) which triggered the Japanese real-estate grab in this country.

Many politicians have attempted to reverse this process.

During the term of Abraham Lincoln, the banks demanded high interest to fund the civil war, reaching as high as 24% to 36%. Lincoln, rather than sell the country into permanent debt on the interest bearing bank notes, ordered the US Treasury to issue new legal tender popularly called Greenbacks, that funded the civil war without incurring huge interest debts. The system worked so well there was popular support for continuing the system after the end of the war, but issuance of the Greenbacks was halted after Lincoln was assassinated.

John F. Kennedy issued an Executive Order 11110, requiring the Treasury Department to start printing and issuing silver certificates for the silver then remaining in the US Treasury. Kennedy understood, as did Lincoln, that by returning to the constitution, which states that only Congress shall coin and regulate money, the soaring national debt could be reduced by not paying interest to the bankers of the Federal Reserve System, who print paper money then loan it to the government at interest. This was the reason he signed Executive Order 11110 which called for the issuance of $4,292,893,815 in United States Notes through the U.S. Treasury rather than the Federal Reserve System.

John F. Kennedy's United States Note.

That same day, Kennedy signed a bill changing the backing of one and two dollar bills from silver to gold, adding strength to the weakened U.S. currency.

Kennedy's comptroller of the currency, James J. Saxon, had been at odds with the powerful Federal Reserve Board for some time, encouraging broader investment and lending powers for banks that were not part of the Federal Reserve system. Saxon also had decided that non-Reserve banks could underwrite state and local general obligation bonds, again weakening the dominant Federal Reserve banks".

Kennedy's E.O. was never implemented following his assassination, and shortly afterwards, United States silver coins were taken out of circulation and replaced with the copper clad slugs in use today. These two events, the failure to print new silver certificates, and the substitution of worthless slugs for our silver coins, may explain why the Warren Commission included on its panel John J. McCloy, a man with no experience in crime, law enforcement, or national security, but who had been the President of the Chase Manhattan Bank.

It should be noted that the banks themselves are still using the gold standard. Accounts are still settled between major national banks by the transfer of gold bullion.

So here we are with a bank that legally counterfeits the money you borrow but expects a full value (plus interest) repayment. But what's good for the Federal Reserve is good for the government itself, and this is where we get back into that funny word "deficit spending". The government spends more money than it takes in. It has for many years now. The Federal Reserve, being the only lawful source of this fiat money, prints up the excess cash the government needs (or manufactures a credit line in a computer). This extra cash is treated as a loan, in order to keep the government overspending from further eroding the worth of the dollar in the world market. The government (meaning the taxpayers) is on the hook for the full face value, plus interest.

But there's another problem. The government is borrowing so much money that it drives the interest rates up! You pay MORE interest on your mortgage, car loan, and credit cards, because the government cannot balance its books. That extra interest you pay is therefore another hidden tax. The government, in its "generosity", gives you a tax credit on mortgage interest that is higher because of their own borrowing!

During the 80s, as exports dropped, and jobs moved from manufacturing to lower paying "service sector" jobs, the US tax base declined. In order to keep the jobless rate from rising, a massive defense program called the Strategic Defense Initiative was cranked up, but since this program produced no exportable product, it produced no taxable sales revenues, and hence the money poured into the project accelerated the government decline into debt. Because manufacturing was on the decline, fewer start-up companies were approaching the lending institutions, so the government loosened up the rules (while increasing the insurable deposit limit) to allow "investments" in more high risk ventures, most of which turned out to be frauds, or worse, money laundering operations for drug criminals. This includes Whitewater, Flowerwood, and Castle Grande. Despite shifting the S&L loss primarily onto the taxpayers (to reassure foreign investors that the taxpayers still made America a safe place to park their surplus cash) the government plunged further into debt.

In the 12 years of the Reagan/Bush(I) administrations, the United States went from being the world's largest creditor nation to the world's largest debtor. Many of those nations which had enjoyed huge trade surpluses started loaning that profit back to the United States with the stipulation that we work on our manufacturing, clean up our infrastructure, raise taxes, in short, clean up our act, so that investment in America makes sense!

However, we didn't quite do that.

There has been some shuffling around to try to conceal the real scope of the problem. Over the last several years, the Federal Government has been sending less tax money back to the states than it takes in in taxes. This means that the states have to borrow MORE money to cover their obligations. The net result is that the debt is being transferred to the states, to conceal its true size. The government will easily admit to a $3 trillion "publicly held" debt, grudgingly concede that it's "unfunded liability" brings that number to almost $7 trillion, but the real hard truth is that total government debt, state and federal, is now over $14 trillion dollars, or about 50,000 for every man, woman, and child inside the United States. Since 1960, the taxpayers have shelled out $15 trillion in interest payments alone, while the principal continues to rise.

Yet another stunt the government has pulled is to "borrow" from the various trust funds under its control. Some $2 billion has vanished from the trust accounts of Native Americans (presently suing the Departments of the Interior and Treasury), and nearly ¾ of a TRILLION dollars has been removed from your Social Security retirement trust fund and spent in the last 8 years.

If the government has to borrow your retirement money when things are supposed to be so good, under what conditions can it repay the money? Or is that government IOU in your retirement account merely a promise to either tax you a second time or stiff you on the benefits you thought you were paying for?

In the last 8 years, during what are supposed to be record setting good times, the Federal government has nearly DOUBLED its debt load. The estimated interest on the debt equals all the personal income tax paid by all Americans. Our government is so deep in debt that it cannot get out.

This brings us to the issue of collateral. We've borrowed so much money the lenders are getting nervous. Back during the Johnson administration Charles DeGaulle demanded the United States collateralize the loans owed to France in gold and started carting out the bullion from the treasury. This caused several other nations to demand the same and President Nixon had to slam the gold window closed or the treasury would have been emptied, since the United States was even then in debt for more money than the treasury could cover in gold.

But Nixon had to collateralize that debt somehow, and he hit upon the plan of quietly setting aside huge tracts of American land with their mineral rights in reserve to cover the outstanding debts. But since the American people were already angered over the war in Vietnam, Nixon couldn't very well admit that he was apportioning off chunks of the United States to the holders of foreign debt. So, Nixon invented the Environmental Protection Agency and passed draconian environmental laws which served to grab land with vast natural resources away from the owners and lock it away, and even more, prove to the holders of the foreign debt that US citizens were not drilling. mining, or otherwise developing those resources. From that day to this, as the government sinks deeper into debt, the government grabs more and more land, declares it a wilderness or "roadless area" or "heritage river" or "wetlands" or any one of over a dozen other such obfuscated labels, but in the end the result is the same. We The People may not use the land, in many cases are not even allowed to enter the land.

This is not about conservation, it is about collateral. YOUR land is being stolen by the government and used to secure loans the government really had no business taking out in the first place. Given that the government cannot get out of debt, and is collateralizing more and more land to avoid foreclosure, the day is not long off when the people of the United States will one day wake up and discover they are no longer citizens, but tenants.

The following map shows the current extent of all lands grabbed by the government under the guise of environmentalism.


click for full size image

In short, the United States is in deep trouble. We have lost a huge amount of our manufacturing capacity, and those products we still make do not compete well on the world market, despite the steady devaluation of the dollar. In short we have vast debts to pay and little to pay them with. Like the foolish Farmer we have sold the machinery that allowed us to prosper, and we stand around shaking our investment portfolios back and forth in the hopes that the money inside will somehow grow all by itself. It won't. It never has. The very best that can be said is that money gets moved from one person to the other.

Those nations and banks to whom we owe money have been very patient indeed with us. They know that our economies are so tightly entwined that what hurts America will hurt them. But sooner or later, possibly after a market crash, someone, in order to pay their own debts, will demand their loans to the United States be paid. Rather than get caught with "bad paper", there will be a run on the United States government.

In addition to the government debt of $14 trillion, our businesses are home to trillions more in foreign investment, kept here by the promise that the American taxpayer will be made to cover all losses. But with our manufacturing in decline and our schools producing far more lawyers than anything else, it should be obvious to the prudent observer that the American taxpayer, even if so inclined, may not be able to cover the losses of their own government, let alone a foreign investor. That has to be making them nervous as well.

This brings us to the "equities markets", most notably the stock market. Over the last several years a constant media harangue has assured us that the soaring numbers of the stock market are the sole measure of how good our economy is. But close examination of those high-priced stocks reveals that most are heavily over-valued; their price the result of market forces rather than underlying worth (earnings ability). Amazon.com, as one example, has had a terrific run-up of its stock price, even though the company itself has yet to show a profit.

The government has admitted to using covert means to prevent a market downturn; to keep the stock prices at an artificially high and overvalued level, in order to wave those impressive numbers about as "proof" that everything is okay so that the taxpayers go back to work and pay more taxes. But in order to keep those stock prices up above their actual worth, demand must be maintained to keep the prices high. In other words, NEW investors must constantly be brought into the bottom of the pyramid to keep the prices of the stocks at the top from dropping. Hence the onslaught of commercials luring neophyte investors into the stock market via "online trading". Like any Ponzi scheme, the stock market will collapse when no more new buyers can be dragged in at the bottom. As the market starts to stutter, governments (most recently Britain) have moved to dump huge reserves of gold onto the world market to depress gold prices and deter investors from deserting the stock market for gold.

Some years back I worked on the film version of "The Day The Bubble Burst", and in between playing a stock broker, I got to spend some time with the show's consultant, Mr. William Hupt, who had been on the trading floor in 1929 as it all fell apart. He still had, framed, that last strip of ticker tape that ushered in the Great Depression, and he shared some stories which have a bearing on what is going on today.

The first story Bill shared is that there had been early indications of a dangerously over-valued market, running too deep on margin, and like the Plunge Protection Team, the largest investment houses, in particular the House of Morgan, attempted to reverse the early corrections by purchasing large blocks of stock in order to create market demand and drive the prices back up. It worked all but the last time.

The second story Bill shared was that a friend of his, riding up to his office in September of 1929, overheard the elevator operator chatting about his own stock portfolio, and his investments. Something about that image of an elevator operator playing the market set off warning signals, and Bill's friend immediately liquidated his entire portfolio, just in time to miss the great crash. Many people, including the actor Charlie Chaplin, had recognized the "recruitment" of that segment of society that did NOT have risk capital as new investors as a desperate attempt to prop up an overvalued market, and got out in time to save their own personal fortunes.

In the end, there is no such thing as a free lunch. You cannot make money grow in value by shaking it back and forth from one bank to another. You cannot prosper a nation by doing each other's laundry, or filling out their government mandated and greatly obfuscated paperwork, or flinging stock certificates around which may have as little real worth as Federal Reserve Notes. To make money, to show a profit, you must make products that somebody else wants to buy, and sadly, that is a capability the United States has allowed to slip away in great measure. The "service economy" was political propaganda to make the public believe that the decline of our manufacturing ability was a good thing.

Our nation is broke, bankrupt, and having sold much of its machinery and technology (or given it away to political donors), is unable to easily return to those endeavors which once made our nation great. Our infrastructure is in decay (the percentage of roads in the US with major damage doubled last year alone), our public schools unable to produce a workforce able to function in a high-tech manufacturing environment, and those managers end engineers with manufacturing experience have in great part been lured away to other nations. The severity of our total government debt has reached a point where the promise that the taxpayers can be made to cover any foreign investment loss rings hollow, because we can no longer pay the debts our government has now.

Our nation is in trouble. We don't make many of the products we used to make. Consequently we don't have the products to sell that we used to. We don't even make most of the products we need ourselves (like that computer you're staring at this very moment). Result: we have a massive trade imbalance. Cash is flowing out of the nation, and it's not coming back in anywhere near as fast. There's no way to spin it; that is a major problem. Our nation is becoming poorer, it is hopelessly in debt, and all the artificial escalation of stock prices cannot conceal that.

And as the artificially pumped up stock market continues to decline, the true scale of the economic horror which is the product of decades of government corruption, will become apparent to all.


A very good book on the subversion of our money system is, "Money" by Jim Ewert, and is available at http://www.principiapub.com

Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6 a.m. While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA).

After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) and continued his search for a good paying AMERICAN JOB.

At the end of yet another discouraging and fruitless day, Joe decided to relax for a while. He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can't find a good paying job in.....AMERICA.....


See also:

Who's Responsible for the National Debt
How Much is a Trillion?
The US Government is Dying

Red, White and Blue Storm Rising

Illinois Senate holds private meeting at statehouse

Democratic Senate President John Cullerton backed down today after facing criticism for closing the Senate doors for a private briefing for lawmakers, saying he wouldn't do it again.

"But you know what, since everybody seems to be pretty upset about it – it's not that big a deal – we just won't do it anymore. We'll go back to our separate ways of having our own separate party caucuses," Cullerton told reporters this afternoon.

UPDATE by Ray Long at 12:10 p.m. -- meeting ended.

A highly unusual closed-door meeting of the state Senate lasted about an hour and a half today, and participants said many of the chamber's 59 Democrats and Republicans attended to hear a presentation on budgeting and the economy from national experts.

Lawmakers barred reporters from the meeting, saying it was a joint gathering of the Democratic and Republican caucuses that was not required to be public under the state Constitution or open meetings law. Reporters were offered the opportunity to get the information from the budget experts at a post-meeting news conference, but Democratic and Republican leaders said they wanted the meeting private to encourage a frank exchange between public officials.

Donald Craven, a longtime attorney for the Illinois Press Association who also has represented the Chicago Tribune on open government issues, said the meeting should have been open no matter how big or small the topic.

"The topic is not important," Craven said. "If the Senate can go into a joint caucus to talk about this topic, what's the logical extreme?

"Can they also go into a joint caucus to debate the budget bill? Can they go into a joint caucus to debate the hundreds of other bills that go before the state Senate?" Craven asked.

State Senate President John Cullerton did not answer questions when he left the meeting, noting a news conference would follow, but he did not attend it.

UPDATE AT 10:42 a.m. by Ray Long -- Senate president bars reporters from meeting; Republican leader endorses privacy to encourage bipartisan cooperation.

Illinois Senate President John Cullerton, D-Chicago, refused this morning to allow reporters into a meeting of the entire Senate to hear experts discuss budgets and the national economy.

"You know you're not invited," Cullerton said before entering the second floor hearing room.

When a Tribune reporter tried to walk into the hearing room after Cullerton, the Senate sergeant at arms stood in front of the door and denied entry.

Cullerton told reporters he was "very disappointed" in the Tribune report about the closed meeting, saying the gathering was a "joint caucus" of Democratic and Republican senators that is allowed to be closed under the Constitution. That is a point disputed by government transparency advocates.

"You're missing the whole point," Cullerton said.

"This is meant to be one where just the senators are there to get information, but where they can also feel they can ask questions and ...have a free exchange of ideas without having to be worried about what the press might report," Cullerton said.

Cullerton dismissed the idea that allowing the entire Senate to hear a briefing from the National Conference of State Legislatures on state budgets and the economy should be open. He said he wanted reporters to see the information but that it would be presented in a press conference afterward.

"I know you guys are trying to show that we're all bad down here and that (lawmakers are) secret and that we're trying to do things in a bad way," Cullerton said.

"Yeah, you're right. We've never had it before. I'm proud of it because we're trying to bring people together socially and in the working atmosphere," Cullerton said. "So I'm not trying to keep the media out of our business. You can ask anybody what they want to afterward, what they think, what the materials were."

Cullerton said there would be no vote on Senate business and that the full Senate meeting behind closed doors does not represent a Committee of the Whole, which is required to be open to the public.

"I'm sorry that it doesn't fit into your theme," Cullerton said.

Before he entered the room, Sen. Lou Viverito, D-Burbank, said, "If it were me, I'd let you right in there because I'd be anxious for you to hear the good things I've got to propose."

The Republicans' Senate leader, Christine Radogno of Lemont, supported Cullerton's plan to bar the public and media, saying it was part of an effort to promote more cooperation between Democrats and Republicans.

"It's funny because I often hear from my constituents 'I wish you guys would just get in a room and try to figure things out,'" Radogno said. "We want to be sure that people feel relaxed about asking any questions that they want to without feeling the pressure that it's going to be reported."

Radogno said the session was aimed at being an informational presentation by budget experts.

"It's legal and hopefully it will lead to some positive action," she said.

Posted by Ray Long at 6:00 a.m.

The Illinois Senate plans to meet behind closed doors this morning to hear a presentation by experts about state budgets and the national economy, a move that open government advocates called baffling.

The unusual secret gathering is being billed as a "joint caucus" of the majority Democrats and the minority Republicans, two groups that represent the entire 59 members of the Illinois Senate. The caucuses routinely meet separately to plot partisan strategy, and the public is not invited. But a joint meeting is very rare.

The spokeswoman for Senate President John Cullerton, D-Chicago, said the event will be closed because the presentation to be given by the Denver-based National Conference of State Legislatures will not fall under the state Constitution's requirements to be open.

But David Morrison, a top official with the Illinois Campaign for Political Reform, said the move doesn't make sense.

"Setting aside the legal issues, I can't imagine what the NCSL is going to say that's so top secret that the general public will not be allowed to hear it," Morrison said.

The Constitution says, "Sessions of each house of the General Assembly and meetings of committees, joint committees and legislative commissions shall be open to the public.

Sessions and committee meetings of a house may be closed to the public if two-thirds of the members elected to that house determine that the public interest so requires; and meetings of joint committees and legislative commissions may be so closed if two-thirds of the members elected to each house so determine."

Cullerton's spokeswoman, Rikeesha Phelon, said in an email, "Since a caucus is neither a legislative session or committee meeting, the public meeting and notice requirements of the constitution do not apply."

Patty Schuh, the spokeswoman for Senate Minority Leader Christine Radogno, R-Lemont, said the event was an initiative of Cullerton's majority Democrats and that "they want it closed." Schuh said she did not anticipate public business will be conducted.

Donald Craven, a longtime attorney for the Illinois Press Association who also has represented the Chicago Tribune on open government issues, disagreed with lawmakers' interpretation.

"A joint caucus is a meeting of the Senate as a whole, either as the Senate or as a committee of the whole," Craven said. "This is not a social gathering. This is designed to discuss public business."

The same conclusion was reached by Charles N. Wheeler III, who has followed Senate activities for four decades as a statehouse reporter and journalism professor at the University of Illinois Springfield.

"What prompts this idea for secrecy?" Wheeler asked, saying it sets a "bad precedent."

"This is not homeland security coming to brief the legislative leadership on plans to secure the capitol in the case of a terrorist attack," said Wheeler. He said he could not recall the two caucuses in the Senate ever meeting together behind closed doors for such a presentation.

Did Goldman Sachs help Britain hide its debts too?

Much noise this morning surrounding the news that Goldman Sachs (and a number of other banks) allegedly helped Greece to hide the full scale of its ballooning government debts through financial jiggery-pokery over the past decade or so. Eurostat has now demanded an explanation from the Greeks for $1bn of currency swaps it says it was unaware of (though Greece seems to be insisting the authorities did know).

The original story about Goldman’s involvement appeared in Der Spiegel last week (though the theme has been the subject of investigation by the excellent euro blog A Fistful of Euros for some time), and over the weekend the New York Times produced an excellent feature filling in the gaps. One of the more intriguing lines from that latter piece says: “Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.”

So, the obvious question goes, what about the UK? Did Britain hide its debts? Was Goldman Sachs involved? Should we panic?

To which the answers, respectively, are: yes, yes and no. Britain has been finding various ways to hide its debt off its balance sheet for years; Goldman Sachs was one of the prime movers in this industry, through its infrastructure arm; but the fact is we (and by extension, one presumes, investors) have known about this for quite some time. The chief modus operandi here was the private finance initiative, something which helped the Government remove just south of £50bn from the official balance sheet. Goldman was a big player in the industry. But let’s not get carried away by vampire squid criticism here – it was one of many players in a well-established industry. *

Plus, there is a difference between this and securitisation, one of the things the Greeks indulged in. PFI involves giving the private sector the right to build and maintain public infrastructure, and to pay them a fee for the service; securitisation involves the private sector not in the delivery but only the financing of the service. And although PFI is financial sleight-of-hand, it is not quite as eye-deceiving as the securitisation the Greeks apparently took part in. In fact, the Government itself provides a handy spreadsheet of all the PFI deals (including whether they are on or off balance sheet – most are off).

So has Britain indulged in much pure securitisation? Not according to the ONS, which points out that aside from those securitisation deals inherited from Northern Rock and Bradford & Bingley etc there were only a few pure securitisation packages carried out by the public sector (London Underground and London and Continental Railways being a couple) but that they are all on balance sheet. The Treasury also denies the use of Greek-style currency swaps of the type Goldman Sachs apparently helped organise all those years ago, allegedly without telling Eurostat.

However, this whole episode underlines two important broader lessons. First, that what matters in this case is confidence and transparency. Unlike Greece, Britain has, for the meantime at least, still got the confidence of investors, and this is not merely because those investors think the people and politicians are resigned to major deficit cuts, but because they trust the statistics more than the euro ones . Or at least, they are aware of what is on and off balance sheet. This newspaper (and many others) have been banging on about off-balance sheet liabilities for years. In Greece, on the other hand, there were episodes of outright chicanery, which the incoming government has felt able to kitchen sink. Were the UK government to admit to any similar stuff (and of course that is possible) it would be an almost certain route to a fiscal crisis.

Second, whether secretly or openly, governments across Europe have done as much as possible over the past decade to push debt off their balance sheets. Now, while there are decent explanations as to why you would want to involve the private sector in providing and managing services, one suspects these moves have often been with the intention of shoving a lot of the financial pain onto the next lot.

As Martin Weale of the National Institute for Economic and Social Research puts it: “No rational person would buy a car and think it doesn’t cost anything because you spread the payments over five years. Someone who believes in magic might.”

This episode serves as a reminder of the scale of this effort to shift debt offstage, and of how many different avenues politicians explored in order to live today, pay tomorrow. For those who believe that we’ve just come to the end of an endemic super credit cycle, this episode provides yet more supporting evidence.

* PS I should have added: Goldman, while active in the PFI industry, was not as important a player as some of the other banks – including Barclays and HSBC. Though it was support services and construction firms (eg Serco, John Laing to name two) which benefited most from the industry.

Gerald Celente on CNN Radio 10 Feb 2010 1/2

Click this link ..... http://eclipptv.com/viewVideo.php?video_id=10162

Peter Schiff, Currency crisis imminent

Click this link ...... http://eclipptv.com/viewVideo.php?video_id=10174

Sarah Palin 9/11 Truther controversy explodes

Click this link ...... http://eclipptv.com/viewVideo.php?video_id=10169

FDIC Opens A Massive New Office Near Chicago Just To Handle The Coming Tidal Wave Of Midwest Bank Closings They Are Expecting

Is the Midwest about to see a massive wave of bank closings? That is apparently what the FDIC is expecting. The FDIC is opening up a massive new satellite office in the Chicago area that will be dedicated to managing receiverships and liquidating assets from failed Midwest banks. This new facility will occupy 7 floors in an 11 floor building. The office space that the FDIC is leasing is well over 100,000 square feet and will employ approximately 500 temporary employees and contractors. This is a huge expenditure by the FDIC. So will there really be so many bank failures over the next couple of years in the Midwest that a 100,000 square foot facility is required to deal with it?

Apparently someone at the FDIC thinks so.

But this is not the first time the FDIC has done something like this.

The FDIC has already opened similar offices in Irvine, California and Jacksonville, Florida. Each time, the number of bank failures in those states increased dramatically after the FDIC opened those facilities.

So what is going to cause such a massive wave of bank failures that the FDIC will need hundreds of new employees just to deal with it?

Well, as we have reported previously, the financial powers in the U.S. are now moving to reduce the money supply, hoard cash and tighten credit. All of those things cause a slowdown in economic growth.

At the same time, a gigantic "second wave" of adjustable mortgages is scheduled to reset starting this year. This could push the U.S. economy into "part 2" of the housing crisis. Just check out the chart below....

In fact, one new study has been released that estimates that 5 million houses and condominiums on which mortgages are now delinquent will go through foreclosure and be put on the market within the next few years.

Another devastating housing crisis would absolutely destroy the vast majority of small to mid-size banks in the United States. In such a scenario, the FDIC would definitely be able to make use of the new facilities that they are opening up around the United States.

There are even rumors that the big bankers do not intend for most small and mid-size bankers to survive the coming crisis. There are whispers that the big bankers see all of this economic turmoil as a great opportunity to "consolidate" the banking industry.

So what should you and your family do to get prepared? Get out of debt and get rid of any unnecessary expenses. Try to start developing alternate streams of income and come up with a plan for what you will do if you lose your job.

The reality is that hard times are coming and a lot of people are going to lose their homes and their jobs. Don't just blindly trust "the system" - now is the time to make sure that you and your family will be prepared even if a total economic collapse happens.

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion

WASHINGTON--The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy.

"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we...if we..." said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this--this so-called 'money'--really matters at all."

"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."

According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, "Oh my God, he's right. It's all a mirage. All of it--the money, our whole economy--it's all a lie!"

Screams then filled the Senate Chamber as lawmakers and members of the press ran for the exits, leaving in their wake aisles littered with the remains of torn currency...

Revealed: Goldman Sachs’ mega-deal for Greece

With the help of Goldman Sachs, Greece has been using giant swaps deals to ensure its national debt ratios meet EU targets. But these deals are likely to prove controversial. By Nicholas Dunbar

Ever since the deficit and debt rules for eurozone member states were drawn up in the early 1990s, there have been persistent rumours and allegations that governments have used derivatives to get around them. For some time, economists have argued that the combination of strict external targets with considerable local autonomy in sovereign debt management almost inevitably leads high-deficit countries towards derivatives.

It is now widely known that since 1996, Italy’s Treasury has regularly used swaps transactions to optically reduce its publicly reported debt and deficit ratios. Such trades remain controversial, and were the subject of fierce debate in late 2001, when Italian academic Gustavo Piga published a paper accusing eurozone countries of ‘window dressing’ their public accounts using derivatives (Risk January 2002, page 17).

Now, Italy has been joined by the Hellenic Republic of Greece, as evidence emerges of a remarkable deal between the public debt division of Greece’s finance ministry and the investment bank Goldman Sachs. The deal is not only likely to reopen an old debate on public accounting for derivatives, but also sheds light on the way banks charge clients for taking credit and market risk exposure.

Intended to rein in fiscal profligacy among aspiring eurozone entrants, the Stability and Growth Pact (SGP) – established in 1996 – sets two important targets for member states: a debt/GDP ratio of less than 60% and a deficit/GDP ratio of less than 3%. Of the two, the second is considered more important. Countries that show persistent breaches of the 3% target are liable to pay heavy fines to Brussels of up to 0.5% of GDP under the so-called Excessive Deficit Programme (EDP). Performing the key regulatory role of determining whether the targets have been met is the European Statistical Office (Eurostat).

Greece, which joined the single currency in early 2001, resembles mid-1990s Italy in certain respects. Until recently it was a country of high deficits and high inflation, and for this reason did not bother joining the first wave of eurozone countries in 1998. In the run-up to joining the eurozone, Greek inflation and budget deficits fell sharply, and GDP grew as the incumbent socialist government pursued a policy of UK-style public-sector reform. However, like Italy, Greece’s debt/GDP ratio has remained high, at over 100%, and as a result its interest costs are the highest in the eurozone.

Public statement

In November 2001, the Greek finance ministry’s public debt division made a public statement about its debt management strategy. It acknowledged that its debt was a ‘critical macroeconomic parameter’, and pledged to reduce debt servicing costs by means that included ‘the extensive use of derivatives’. Apparently, this was not enough for Brussels. In February 2002, the European Commission pointed out future deficit forecasts by Greece relied ‘primarily’ on achieving reductions in interest costs. It called for Greece to reduce its ‘very high’ debt ratio, and to provide ‘more detailed information on financial operations’.

Although Greece’s public debt division points out that it uses 18 derivatives counterparties, there is no doubt that the division, which is headed by Christopher Sardelis, has a particularly close relationship with Goldman Sachs. Indeed, the account has been handled personally at Goldman Sachs by Antigone Loudiadis, the London-based European head of sales for the firm’s fixed-income, currencies and commodities unit. Highly respected by other dealers, Loudiadis has enjoyed a successful career at Goldman, joining the firm’s partnership committee and attaining her present position in 2000. According to sources, by early 2002, Loudiadis and her team put together a deal aimed at alleviating Greece’s problem of debt ratios and high interest costs.

The transactions agreed between the Greek public debt division and Goldman Sachs involved cross-currency swaps linked to Greece’s outstanding yen and dollar debt. Cross-currency swaps were among the earliest over-the-counter derivatives contracts to be traded, and have a perfectly routine purpose in debt management, namely to transform the currency of an obligation.

For example, an issuer with foreign fixed-rate debt might choose to lock in a favourable exchange rate move. To do this, it could swap a stream of fixed domestic currency payments for a stream of foreign currency ones, referenced to the notional of the debt using the prevailing spot foreign exchange rate, with an exchange of the two notionals at maturity. Because they are transacted at spot exchange rates, cross-currency swaps of this type have zero present value at inception, although the net value (and credit exposure of either counterparty) may subsequently fluctuate.

However, according to sources, the cross-currency swaps transacted by Goldman for Greece’s public debt division were ‘off-market’ – the spot exchange rate was not used for re-denominating the notional of the foreign currency debt. Instead, a weaker level of euro versus dollar or yen was used in the contracts, resulting in a mismatch between the domestic and foreign currency swap notionals. The effect of this was to create an upfront payment by Goldman to Greece at inception, and an increased stream of interest payments to Greece during the lifetime of the swap. Goldman would recoup these non-standard cashflows at maturity, receiving a large ‘balloon’ cash payment from Greece.

Since neither Goldman nor Greece will comment on the deal, much of the details remain vague. It is not clear which exchange rates were used in the actual contracts. Under the terms of a similar ‘off-market’ deal transacted by Italy in 1997, the exchange rates prevailing at the time of the underlying bond issue were used, which would have made sense in the case of Greece since the deal happened after a period of euro strengthening against the yen and dollar.

Although the overall deal is believed to have consisted of three or four individual transactions or tranches, according to sources, the total cross-currency swap notional was approximately $10 billion, with tenors ranging from 15 to 20 years. While the size of upfront payment to Greece’s public debt division is not clear, it seems the total credit risk incurred by Goldman Sachs was roughly $1 billion. Effectively, Goldman Sachs was extending a long-dated illiquid loan to its client.

Goldman Sachs is known for its conservative approach to credit risk, and chose to hedge its exposure to Greece by immediately placing the risk with a well-known investor in sovereign credit: Frankfurt-based Deutsche Pfandbriefe Bank (Depfa). According to sources, Depfa entered into a credit default swap with Goldman Sachs, selling $1 billion of protection on Greece for up to 20 years. Depfa declined to comment.

Total charge

Details have also emerged of the way Greece’s public debt division was charged for the transaction. According to market sources, the total charge was approximately $200 million. This charge can be broken down into several components. First, Greece was charged for the credit risk in the transaction. Long-dated Greek government bonds were trading at a spread of 30 basis points in 2002. A billion-dollar investment in such bonds, purchased in asset swap form and held for 20 years, would yield about $60 million. According to Risk’s sources, Depfa demanded a substantial premium for taking on what was in effect an illiquid, privately placed loan.

Second, Greece paid a principal risk charge to Goldman Sachs for its market risk exposure. Although standard euro/dollar and euro/yen cross-currency swaps are highly liquid instruments that trade at tight bid-offer spreads in the interbank market, such large, off-market transactions cannot be hedged in this market without significantly moving the price against the dealer. Goldman Sachs may have hedged some of the risk using futures, forwards and interest rate swaps, while retaining substantial cross-currency and interest rate basis risks in its portfolio. Of course, the ultimate profit and loss experienced by Goldman Sachs on the transactions remains unknown.

Equally murky is the exact effect of Goldman Sachs’ transactions on Greece’s publicly reported national accounts. Since the deficit was a comfortable 1.2% of GDP in 2002, it is more likely that the cashflows were either used to help lower the debt/GDP ratio from 107% in 2001, to 104.9% in 2002 (by funding buybacks) or to lower interest payments from 7.4% in 2001 to 6.4% in 2002. But why did the large negative market value of the swaps not appear on the liability side of Greece’s balance sheet?

The answer can be found in ESA95, a 243-page manual on government deficit and debt accounting, published by the European Commission and Eurostat in 2002. As revealed by Piga, the drafting of ESA95’s section on derivatives was the subject of fierce arguments between the government statisticians and debt managers of certain eurozone countries.

The statisticians wanted derivatives-related cashflows to be treated as financial transactions, with no effect on deficit or interest costs, and with the derivatives’ current market value stated as an asset or liability. The debt managers opposed this, insisting on having the freedom to use derivatives to adjust deficit ratios. The published version of ESA95 reflects the victory of the debt managers in this argument with a series of last-minute amendments.

In particular, ESA95 states in a page-long ‘clarification’ that ‘streams of interest payments under swaps agreements will continue… having an impact on general government net borrowing/net lending’. In other words, upfront swap payments – which Eurostat classifies as interest – can reduce debt, without the corresponding negative market value of the swap increasing it. According to ESA95, the clarification only covers ‘currency swaps based on existing liabilities’.

Legitimate transaction

There is no doubt that Goldman Sachs’ deal with Greece was a completely legitimate transaction under Eurostat rules. Moreover, both Goldman Sachs and Greece’s public debt division are following a path well trodden by other European sovereigns and derivatives dealers. However, like many accounting-driven derivatives transactions, such deals are bound to create discomfort among those who like accounts to reflect economic reality. For example, the Greece-Goldman deal may be of interest to credit rating agency Standard & Poor’s, which upgraded Greece’s long-term debt from A to A+ in June 2003.

Among other derivatives dealers, the deal is bound to create envy at Goldman Sachs’ skill in solving the risk management needs of such an important client. As long as the current Eurostat rules do not change, the use of derivatives in deficit and debt management by eurozone sovereigns is likely to flourish. The planned expansion of the eurozone to include 15 east European countries may lead to especially rich pickings for dealers able to seize such opportunities.


© Incisive Media Investments Limited, 2010. All rights reserved.

'US gave up war plans because of Iran's might'

A senior Iranian commander says the country's military might forced the US into giving up its plans to launch an attack against Iran.

“When the US realized the capabilities of Iran's armed forces and the military maneuvers they can hold, it changed its mind and gave up plans to attack Iran," the Commander of Iran's Ground Forces Brig. Gen. Ahmad-Reza Pourdastan said.

He noted that the US has carried out terrorist attacks in order to use them as pretexts to launch wars in the Middle East to control the world economy.

“The US planned and carried out the 9/11 attacks with support from Zionists," Fars news agency quoted Pourdastan as saying on Wednesday.

“The US claimed that terrorists have carried out the attacks in order to find a pretext for presence in the [Middle East] region," he stated.

The Iranian general noted that the US invasion on Iran was planned to take place after the US occupation of Iraq and Afghanistan.

MGH/RE

Yet Another Congressman Questions 9/11

Congressman Jason Chafetz just said that we need to be vigilant and continue to investigate 9/11.

A nutjob, right?

Maybe.

But he joins quite a few other Congressmen:

  • Former U.S. Republican Congressman and senior member of the House Armed Services Committee, and who served six years as the Chairman of the Military Research and Development Subcommittee Curt Weldon has shown that the U.S. tracked hijackers before 9/11, is open to hearing information about explosives in the Twin Towers, and is open to the possibility that 9/11 was an inside job
And 9/11 Commissioners:
  • And the Senior Counsel to the 9/11 Commission (John Farmer) - who led the 9/11 staff's inquiry - recently said "At some level of the government, at some point in time...there was an agreement not to tell the truth about what happened". He also said "I was shocked at how different the truth was from the way it was described .... The tapes told a radically different story from what had been told to us and the public for two years.... This is not spin. This is not true."
And senior intelligence officers:
  • Former military analyst and famed whistleblower Daniel Ellsberg recently said that the case of a certain 9/11 whistleblower is "far more explosive than the Pentagon Papers". He also said that the government is ordering the media to cover up her allegations about 9/11. And he said that some of the claims concerning government involvement in 9/11 are credible, that "very serious questions have been raised about what they [U.S. government officials] knew beforehand and how much involvement there might have been", that engineering 9/11 would not be humanly or psychologically beyond the scope of the current administration, and that there's enough evidence to justify a new, "hard-hitting" investigation into 9/11 with subpoenas and testimony taken under oath.
  • A 27-year CIA veteran, who chaired National Intelligence Estimates and personally delivered intelligence briefings to Presidents Ronald Reagan and George H.W. Bush, their Vice Presidents, Secretaries of State, the Joint Chiefs of Staff, and many other senior government officials (Raymond McGovern) said “I think at simplest terms, there’s a cover-up. The 9/11 Report is a joke”, and is open to the possibility that 9/11 was an inside job.
  • 20-year Marine Corps infantry and intelligence officer, the second-ranking civilian in U.S. Marine Corps Intelligence, and former CIA clandestine services case officer (David Steele) stated that "9/11 was at a minimum allowed to happen as a pretext for war", and it was probably an inside job (scroll down to Customer Review dated October 7, 2006).
  • A decorated 20-year CIA veteran, who Pulitzer-Prize winning investigative reporter Seymour Hersh called "perhaps the best on-the-ground field officer in the Middle East”, and whose astounding career formed the script for the Academy Award winning motion picture Syriana (Robert Baer) said that "the evidence points at" 9/11 having had aspects of being an inside job
  • Professor of History and International Relations, University of Maryland. Former Executive Assistant to the Director of the National Security Agency, former military attaché in China, with a 21-year career in U.S. Army Intelligence (Major John M. Newman, PhD, U.S. Army) questions the government's version of the events of 9/11.
And other government officials:
  • Former Deputy Secretary for Intelligence and Warning under Nixon, Ford, and Carter (Morton Goulder), former Deputy Director to the White House Task Force on Terrorism (Edward L. Peck), and former US Department of State Foreign Service Officer (J. Michael Springmann), as well as a who's who of liberals and independents) jointly call for a new investigation into 9/11
  • President of the U.S. Air Force Accident Investigation Board, who also served as Pentagon Weapons Requirement Officer and as a member of the Pentagon's Quadrennial Defense Review, and who was awarded Distinguished Flying Crosses for Heroism, four Air Medals, four Meritorious Service Medals, and nine Aerial Achievement Medals (Lt. Col. Jeff Latas) is a member of a group which doubts the government's version of 9/11
  • Director of the U.S. "Star Wars" space defense program in both Republican and Democratic administrations, who was a senior air force colonel who flew 101 combat missions (Col. Robert Bowman) stated: "If our government had merely [done] nothing, and I say that as an old interceptor pilot—I know the drill, I know what it takes, I know how long it takes, I know what the procedures are, I know what they were, and I know what they’ve changed them to—if our government had merely done nothing, and allowed normal procedures to happen on that morning of 9/11, the Twin Towers would still be standing and thousands of dead Americans would still be alive. [T]hat is treason!"
If he's nuts, Congressman Chafetz is in good company. And see this and this.