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National Debt-Deficit Spending and Public Action

One of the greatest and ever-present frauds perpetrated by the financial elite and government upon the population is the notions being promoted about the meaning and potential effects upon the population and the economic and financial system of the National Debt, and continuous deficit spending.

They invariably call upon restraint, and belt tightening, and austerity plans. They call for reduction of Social security and other public benefits. They promote panic, and through fear try to persuade the public they should comply lest they lose everything altogether.

A “balanced budget” is unattainable if we’re to keep enough liquidity in the real economy to prevent a severe depression. A balanced budget means that we can cover all our current public and some private demands, and have enough left to pay the interest on government securities. It is mathematical impossible to retire the principal to the national debt, unless the production of the next 20 years is given to the financial elite who hold the loans. (20 years, is an imaginary estimate of how much debt is actually on the books of the financial elite; a guesstimate because none of these folks open up to audits, so we can only guess!)

Here are some of the false ideas:

1.      A government must live within its means, just as an individual does. This concept is easy for the public to understand, because they believe, without inspection, that the notion is reasonable.

That is not the case. An economic system is dependent on a monetary system where the money supply will support economic activity, trades, purchases, etc. In practice, the government has relegated by force of political circumstances to be the currency generator of last resort. But the financial entities, i.e.: banking, markets, mega-corporations, and Federal Reserve, require that the government go into debt so that new money can be released into the economy to permit the continued trade and transactions of the real economy.

This government debt is recorded under the heading of “government securities.” The “interest” that the government will have to pay for this borrowed money is what buyers are supposed to receive upon the time of redemption or expiration of the security. In reality, this is a method of transferring wealth, or the claim to wealth by the holders of the securities. In yet another more poignant reality, the real value of these securities can be no greater in real wealth than the sum total of the immediately disposable (liquid) money supply, divided by the productive capacity of the nation.

When you look at it this way, you can see that reduced production in the real economy makes the money have a lower redeemable worth in terms of goods and services. This it’s a self defeating process. But the intent is not to place claim upon wealth by actually purchasing it, but in holding the threat of the right to strategically decide when to purchase the production of the society.

Consider that the money supply is held in two large pools:

One, the financial markets, and financial institutions, in their vaults and bank accounts, in a relatively close system, so any excess in this pool can meticulously be controlled, and released or withheld from the real economy at will, and at the convenience or benefit of the financial markets, banking, and financial community and the wealthy elite.

The second one, is the real economy, companies, individuals’ savings, and held in bank account, and reserves for production, and so on.

Just like in a monopoly game, the ones who have more money have the power to direct and manipulate the game. At present, the financial community, and wealth oligarchy control in excess of 80% of the nation’s wealth, and they themselves represent about 20% of the population.

The more debt that is generated, as it is inevitable, through deficit spending, the greater the power of the wealthy elite to manipulate and blackmail the rest of the society becomes. But there is a point beyond which the whole system has to mathematically collapse. This is when the interest payable is every so much greater than the capacity for production by the real economy. Defaults are inevitable. Either the government continues to enter into more debt, or the real economy comes to a halt. What happens is in the control of the financial elite. They will threaten and even announce that they will foreclose on the debtor government. But they will never actually carry it out against a major world power, because that is the end of their own power and control, when no wealth can be produced at all. This ruins and ends the game of the wealthy elite. It is something that the wealthy will not allow. Their announcement to foreclose will be done to create an international disaster that will call for further international consolidation of elite wealth for greater control, outside the scrutiny of nation’s governments.

We really don’t have to worry about what their books show. None of these financial elite corporations are auditable by governments, or even if they are, they will present false information. So, a real audit may reveal that governments owe the financial elite 20 times the amount of money than the world is able to produce in one year. The point becomes irrelevant, for the intent is merely to retain control of the world’s economies in perpetuity. As much as they may have the power to increase the money supply to ten times the amount of money that government securities generate, through the application of the “fractional reserve system,” they already own the control of the system, and will use any advantage to maintain and consolidate that control.

We know that the billions government has given to the financial elite in the recent TARP and other concessions granted by regulation, has primarily landed in the financial markets’ pools. Thus, we see the “recovery” of financial markets, without a corresponding proportional recovery of the real economy, since none of it was “trickled” to the real economy’s recovery. It gave liquidity to those markets (casinos) so more trading amongst themselves could take place.

To rely on governments to fix this problem is pure folly. They will not; either because they bought into the false reality of debt created money, but also they’re simply the same wealthy elite that run the financial system, and move in and out of government in revolving doors.

Modern government budgeting is done on the strength of the question: “How much money do we have to spend on what?” This is the limitation placed upon societies’ governments by the financial elite. It is the wrong question, for it will never be enough to take care of all of the people’s needs.

Budgeting should be done on the following question: “What do we need to foster the wellbeing of the population, and what resources do we have to fill these needs.” It will be realized that there are enough resources on the planet to satisfy various needs to eliminate famine, and take care of everyone’s health, and to increase the necessary efficiencies to bring the social order out of the perpetual chaos that it now seem to perennially swim in.

But at this stage, the game is over; the financial elite have won total control of the economy, and will use their power to pressure the population into greater and greater submission. We see this in the news every day as we read about calls for new international economic controls. A recent one is the creation of the bancor, the IMF version of an international currency; taking more control out of nations into their bosom. They’ve already carried out their threats against Greece, and are threatening to move further against others, including the US. Bluff.

They will keep this up as long as they can keep the public submissive to their rule, through the mystical manipulation of the system.

It is now up to the public to shift the balance of power, with public action. The public now has nothing to lose to stand up to the system.

But before I detail a number of steps, let me remark that the public propaganda is designed to isolate defaulting debtors, and unemployed, so they feel socially inferior for having failed on some personal level. The idea is to create guilt, and get you to hide. You are guilty of nothing, except having been manipulated by the financial elite, with a system where you’re already factored in as an inevitable outcome. It has nothing to do with your personal ethics or integrity; you were in the percentile that was slated to fail and default. This is another money maker for them; in many instances, they can make more money if you default, than if you keep paying. Don’t feel guilty; feel justified, and act.

The first series of actions are designed to restore the liquidity to the real economy.

Here are steps that will go a long way. Foreclosures are expected to rise, thus it is the first item to be mentioned. Beware that the decision to take these actions will fill some nights of anguish and anxiety, but once the decision is made, the feeling of freedom from oppression will make you feel like a fresh person, and the anguish will vanish, because you’re now focused on clear action towards personal and social redemption. Take the bulls by the horn, and get all the support you can get.

1.    If you’re about to face foreclosure, do whatever legal action is available to you to stall the legal process from decreeing that your property is no longer yours.

2.    If you have been foreclosed, the marshal will come to enforce it, by a notice to be pasted on your front door. Do not evacuate your home. Form loose association with other neighbors that are in the same predicament; help one another resist the official action to vacate your house. Break the marshal’s locks. Now there aren’t enough marshals to repeatedly lock houses, nor to bring moving companies to move your furniture out into the street. When such attempts are made, use the help of your friends to block such action, or to move the furniture back into the house. Chances are that once a moving company sees that kind of resistance, they will be on the side of the people, and won’t carry out the action in the first place.

As a community supported activity, this will work in the long run because even the local law enforcement folks, being also common folk like ourselves, will refuse or pretend to enforce, but do nothing in the face of such large resistance.

3.     If you’re a renter, negotiate with your landlord to suspend any profit to him, and get him to lower the payments to maintenance cost, mortgage payments, local taxes, and insurance only. In most cases, this will reduce your rent to about 50% of what you’re paying now. If he is unwilling or unable, you should stop paying rent, or pay a small amount that you are able to pay. This will work in your favor when you go to court after being given notice to quit. Stall the official decree to vacate as long as possible. Don’t lie to courts by accusing landlords of ill will. Let the court know the financial stress you’re undergoing, and have no other place to go.

4.      If you are ordered to leave, stall and resist; get together with other people in the same predicament, including people who are being foreclosed and are about to lose their homes, and carry out the same form of resistance.

If you are offered a settlement to leave, make sure it is large enough to cover your near future which should include survival ability over at least a two year period, and take it in cash.

5.      If you are unemployed, go to your local businesses that provide the basic necessities, such as food, and staple necessities. Offer to work for free just to serve the community, and ask to be given a certificate of hours worked. This can be the basis for local scrip to be able to get goods and services from other local businesses so economic activity can be restored and basic services maintained. Several cities in the US, and other parts of the world have such “hour” scrip, and have been using it successfully for years. Check out their models, and emulate it. Business owners who honestly serve the community deserve your help, and in turn, they owe you their help and loyalty for mutual benefit. Continue to receive your unemployment benefits while you are not earning anything. You’ll have to fudge on your report to unemployment so you don’t get cut off.

6.      If you are one of those who have a huge line of credit with your bank, and are in debt to the hilt, cash out on your line of credit, take your proceeds in cash, and stop paying your debt. Join the community in mutual help to survive and bring about some degree of local revival. Help others in need. Sure, you’ll lose your credit rating probably for about 7 years. Don’t even bother to file bankruptcy. The Bush law on bankruptcy has been altered to fleece you, but the wealthy can keep everything… and you will be allowed nothing. You will be hounded and harassed to pay your debt. There are ways to keep these wolves at bay.

7.      If you need a home, and want to buy something, don’t follow the traditional methods of financing. This will make your search difficult, but in the end, with many people doing so, it will be the best way to ensure your future right of ownership.

Consider that in early American, a group of people got together and built a house in a few months, and it was more than adequate than what you can get today. This labor translated into approximately 10300 man-hours of work.  For one person (the buyer) to return in kind that work would take almost six years, if he used all his income to pay for it.  Modern cost of a single family home has been estimated at around 8000 man hours on the high side, considering some improved efficiencies. (There are other efficiencies that when factored in can bring the time to under 1500 hours!) If one paid back in equivalent man-hours, using about 30% of his income, he would pay back the principal in less than 15 years (20 years for the 10300).

So you should attempt to purchase a home contracting directly with owners; and repayment should be offered in man-hours of work.

This is a fair value for fair value. But the concept is contrary to the desire for profit by sellers; a rare private seller would accept this type of contract, unless he really has no need for the money, and doesn’t mind the delay and the payment method. It could be easily done when the seller is a family member, or a parent. At the same time, it behooves a private seller to see the brilliant logic to what’s being proposed, and go ahead and concede that he’s taken his “profit” out of the property in the free enjoyment of the property over many years. Remember, profit is an attempt to gain more than one has given in value. We have become so accustomed to believe that interest is a rational concept, that we believe we must have it. Profit, just like interest, requires more money or value be generated to pay the one that claims the right to it. The only real, honest, and valid “profit” is in the increased efficiencies that produce more wealth for more to share.

For developers the concept is also likely to be rejected for some time. However, if this is the type of offer everyone is making, and no other sales are being made, they will start to realize that these offers are in earnest, and they will be able to plan on the value of a person’s man-hours of work. Better this, than a real economy collapse. When all players realize that a stable future is more viable than to exercise greed to have an advantage over other is more desirable, profit itself will not even enter as concept into a transaction.

The “payment in ‘man-hours’ is more reliable and more stable, because it does not fluctuate regardless of what happens to the currency. However, at some point, when the abundance of resources and productivity is realized, money will become obsolete as a medium.

Those are basically all the necessary steps that will go a long way to pulling back into the real economy its own resources from the financial elite.

There are no steps needed to save the financial system. There are only precautions to defend against the extraordinary force and power they will muster to prevent the public from regaining control.

They will appeal through PR campaigns to protect investors from the losses these actions will bring about. Don’t listen. The every-present innocent investor, who is the scapegoat of corporate abuse, is no other than the 20% of their own, who are already holding 80% of the wealth hostage, and in that, 80% of the population. Sure, the 80% will be made to suffer by having their investment degraded, and causing losses to the general public; so it maybe a worthwhile precaution to cash out of that financial markets if you’re not legally obligated to stay in it, and can’t access your money.

They will tighten the screws on governments, and may even demand that these bring troops to control the populations, and bring about Marshal Law, and operate out of pocket edicts, i.e.: police whim to confiscate, and abuse, kill and destroy property.

They will sabotage their own infrastructure to prevent it from being used for the public benefit.

These are things one can extrapolate to be the counteraction taken by the wealthy elite to suppress public action.

I believe the above steps could be incredibly effective towards regaining people’s power and control over their own lives. I’m advocating passive resistance, and cautioning against taking any violent action against others, in the process.  Yet, if I’m deemed to be the bringer of dire actions that may be seen as effective against the wealthy elite, attempts will be made to silence and discredit me. Maybe friends and family will advocate for me in the ensuing court battles if they take place at all, and I’m not simply disappeared.

On the other hand, I am probably just a crazy voice in the desert and deemed too insane for people to listen, and dismissed. I’m more accustomed to the latter view; but then again, I’ve not advocated much in the past.


In the Quest for Profit-#2-Chapter 1

Chapter 1



(Note: Throughout this paper, the word money is used with the meaning of checks, coins and paper, credit cards, and other common instruments that have the power to generally claim goods and services on demand.)
Profit is the engine that drives our economic and social machinery. It is the one idea that almost anyone understands. It is also the guiding principle to moral behavior, and personal policy for survival and advancement. But is it that well understood? A principle that engenders so much contradiction and dismay casts doubt to the existence of a common understanding and agreement.  Thus we should examine the concept of profit more thoroughly, as well as its relationship to other economic components.
The root of the word profit gives us a clear idea on what its original meaning was: Pro-ferre, from the Latin pro, meaning forward and ferre, to carry. Some modern words have the same root as it implies “transportation” or movement. In our case, profit is to carry excess production for future use.
From ancient times profit would simply represent products left over after one has consumed his fill during a time, usually, a season. Under Joseph, Egypt managed the grain production so there would be enough for the entire population during the times of famine. Any one individual would soon come to understand that if surplus is not accumulated for future use, one could come to starve.
The Pharaoh acquired custody of the grain stored in his granaries but the grain was produced by a big part of the population. To whom did the profit belong? Who had the right to say how it would be used?  What history does tell us is that whoever had the military might to enforce his will, would decide how profits would be managed. When marauding tribes sacked the populations of farm communities, although anyone today would easily agree that the right to its own profit belongs to those who produced it and for their own society, the fact remains that violence, and force has determined the rule of law.
In modern thought, most people understand “profit” as the difference of income (input, receipts, etc.) greater than output = profit, or some kind of surplus. Whether you think about this of product-service exchange or as money, it becomes clear that it is mathematically impossible for everyone that is participating in a trading system to have surpluses when what’s been produced is totally consumed over the production cycle.
In other words, if everybody got to consume all they needed, and there was nothing left over, then no one has profited. If one producer had an output greater than could be consumed by all the participants in the system, his surplus would show. Who should get this? If no thought had been given to this point, the result would be random; maybe the person that produced it will have some product surplus; maybe the producer felt he had an buying advantage because he could offer more for what he got, so somebody else ended up with some of the surplus.
In a monetary system, the profit shows up as someone having had more money coming in then they had spent. Modern moral drive is charge as much as others will tolerate, and pay out as little as you can get away with. This is modern marketing technology. If you just came into the system, you will probably find that you sold everything, and spent more than you had, in order to have your own needs fulfilled. So you’ll have to borrow. Next production cycle you will try to get more per unit, so you hopefully end up with a surplus to cover last cycle’s loss, as well as have profit for this cycle. This again is mathematically untenable, and it is impossible for everyone to make a profit. Some will gain, others will lose.
The value system is purely subjective, obeying the need to have more so you will have an input greater than your output. With money, it becomes more complex because of factors beyond your control, such as “how much will the money supply be so you can claim your fair share when you go to market. If the money supply was doubled, but the general production was the same, and nobody is told about this, they will eventually become aware when some buyers ask for significantly larger quantities than they’ve asked for in previous cycles, and after a point the whole picture will be clear; however, they will end up with a loss for the current trading-production cycle. Only those who knew of the money supply increase, and got their hands on some of the extra money will be the winners.
Without a unit of value measurement, or at least, production cost measurement, the system will always benefit those who know and get the money surpluses before the market opens.
Unit of Value Measurement
Consider a scenario where a man and his family raised cattle. Another family built stone dwellings. How would they negotiate a trade where the second family would build a dwelling for the cattle rancher? How many cows would the cattle family want to pay for a dwelling; and would want the builder want to receive? Consider another scenario where the cart maker is considering building the cattleman a 2 wheel buggy. What will the cattleman offer or the cart maker ask for? Consider yet another scenario for the exchange of a rabbit leather jacket for a given amount of meat and vegetable dumplings.
Ten out of ten people try to figure out how much money should the product cost, often unrelated to the underlying time and effort invested; but when pressed for direct trade, without money, they invariably arrive at the common denominator of time and effort to determine the value of their own work, which they will be willing to give for the work of another. Those surveyed said they would give about one month’s supply of dumplings for one rabbit leather jacket. Whether this is good trade or not, will be evaluated by both sides after repeated trades; when both have a better sense of each other’s time and effort, eventually they strike what both consider an equitable exchange.
Time and effort are hours of work and skill level. An unskilled worker will spend x number of hours to produce a product; a skilled one, will produce the same product in a fraction of the time.
What you intuitively know or expect to happen is that you should get enough to meet your basic needs, including your future costs of production. Using a “time” factor for production that everyone knows, and can easily relate to, one has a basic rule of thumb as to how to charge and what to pay for things.
This concept alone should help you to evaluate time and cost of what you buy or sell. It is a stop gap, while we create a replacement system.

New Forward

It was my original intent to write a complete book before releasing any information, partly because of my own profit motive, and partly to cover the cost of my time. However, the concepts I intend to present are too vital to be subjugated to my need for personal benefit or even covering my costs.

As the book or series title may suggest, it promises to be an expose of profit as the underlying human distortion which perverts all decent human values, for the sake of a very artificial construct that necessarily stimulates the greed that creates the sustainability for the concept.

If I claim to want to free others from the profit yoke, I should at least enjoy myself some degree of freedom from it to share. Therefore, I have decided to release this information free of charge, and hope that the more basic and decent human characteristic will in some way reward me with enough basic necessities so I can have enough power and energy to spread the message as broadly as possible.

Original Forward

In an effort to bring some sanity into our world, social, economic, and political, it is necessary to find an entry point which resonates with the reality of almost everyone in the civilized, semi-civilized, and even primitive world. That entry point, the key to initiate dialogue with the least interested, most indolent individual, is something widely understood by nearly every person alive: profit. The old adage should be, “Profit makes the world go round.”

I believe that a clear definition and understanding of profit as it relates to other economic components, and related social, and political components will provide a path for logical understanding and clear conclusions that should lead to a broad range of solutions, which would be inescapable demand implementation, currently difficult if not totally hampered by the broad misunderstanding or lack of understanding of fundamentals, contaminated by illogical, yet broadly taken for granted not only by professionals who prefer to adhere to the status quo, as well as self proclaimed reformers, who can’t think beyond tweaking the current system.

It is the intent therefore, not to expound an infinite number of microscopic details about the economy, but to stabilize the fundamentals, so further discussion and resolution can be achieved. If consensus can be achieve in underlying principles, and the foundation of a matter, then, its expansion and detailing must necessarily follow when in line with the fundamentals.

Any event can then be compared or measured in terms of its alignment to the fundamental, and misalignments are clearly visible therein.


Top Priority-Economics

Issues abound, and to their champions, their issue is the most vital of them all. However, there is a common denominator behind all issues, and this is the struggle for power, survival, and in practice, for economic safety if not superiority.

No issue can be resolved, political, educational, social, without addressing its economic components. Sure, we have bought and paid for legislations, back-room deals, corruption, personal and corporate greed, and power cliques working assiduously to retain their advantages, and to reduce the advantage of others. Sure we have political leaders packaged and sold to the highest bidders, with little or no moral or ethical consideration.

All issues, however, are allowed, driven, and in fact encouraged by our existing economic system, that purportedly engender from political ideology, is in fact the same, with minor variations that prop up that political system’s ideological concepts, but with the identical result regardless of political theory or practice.

The Root Causes

It would require more extensive understanding of our system to become painfully aware of the built-in elements in the existing system which are designed to assign and distribute and re-distribute wealth, to the sectors of the society the economic authorities and power brokers want the wealth to go. I am in the process of exposing every minute detail of how this happens and how exactly the system works. (see first article: The Ethics of Economics) But I thought it important to put on the center of attention the key elements that perpetuate and promote the process in a separate essay, so that a) readers will have an idea of where I am going with other writing, and b) if this brief essay be easily understood, it would help many realign their personal, social, and political priorities.

The voiced purpose of economic policy and controls by governments, and economic authorities is to try to maintain a fairly balanced economic system. This in effect refers to a relatively stable movement of goods and services by attempting to maintain equivalent financial instruments (money, credit, etc.) in some level of equivalence between the two, and thus control inflation, or prevent recessions.

What exists in fact, is an utter inability or reticence to take the necessary steps to eliminate inequities. The evidence of this can be seen in any news paper or magazine, in any article on finance or the economy. Most governments and banking controlling authorities have a stated goal of a certain amount of inflation, around 0.5% per year, as a tolerable goal.



Issues abound, and to their champions, their issue is the most vital of them all. However, there is a common denominator behind all issues, and this is the struggle for power, survival, and in practice, for economic safety if not superiority.

No issue can be resolved, political, educational, social, without addressing its economic components. Sure, we have bought and paid for legislations, back-room deals, corruption, personal and corporate greed, and power cliques working assiduously to retain their advantages, and to reduce the advantage of others. Sure we have political leaders packaged and sold to the highest bidders, with little or no moral or ethical consideration.

All issues, however, are allowed, driven, and in fact encouraged by our existing economic system, that purportedly engender from political ideology, is in fact the same, with minor variations that prop up that political system’s ideological concepts, but with the identical result regardless of political theory or practice.

The Root Causes

It would require more extensive understanding of our system to become painfully aware of the built-in elements in the existing system which are designed to assign and distribute and re-distribute wealth, to the sectors of the society the economic authorities and power brokers want the wealth to go. I am in the process of exposing every minute detail of how this happens and how exactly the system works. (see first article: The Ethics of Economics) But I thought it important to put on the center of attention the key elements that perpetuate and promote the process in a separate essay, so that a) readers will have an idea of where I am going with other writing, and b) if this brief essay be easily understood, it would help many realign their personal, social, and political priorities.

The voiced purpose of economic policy and controls by governments, and economic authorities is to try to maintain a fairly balanced economic system. This in effect refers to a relatively stable movement of goods and services by attempting to maintain equivalent financial instruments (money, credit, etc.) in some level of equivalence between the two, and thus control inflation, or prevent recessions.

What exists in fact, is an utter inability or reticence to take the necessary steps to eliminate inequities. The evidence of this can be seen in any news paper or magazine, in any article on finance or the economy. Most governments and banking controlling authorities have a stated goal of a certain amount of inflation, around 0.5% per year, as a tolerable goal.


Summers Predicts there will be Three or Four Major Depressions in your Life Time, and many other crises in between

Looking back, one would be able to compare today how things to come were according to Larry Summers just six months ago:

April 24 (Bloomberg) — Lawrence Summers, director of the White House National Economic Council, spoke on April 24, 2009, at the Inter-American Development Bank in Washington, and gave his interpretation of the crisis, the policy response, and its results so far, and the opportunities he sees. (Bloomberg video:

Given that the political landscape of United States and most other countries is guided by the same principles and concepts of conventional economic wisdom, and there are no alternative economic theory afoot with any kind of political clout as to bring about any major changes to the conventional system (some drumming in the distance, but a long way off), it would be wise to use his “predictions” as personal and corporate guidelines in planning one’s business and life.

As one of the most important components of the economy, He sees what he calls a self-equilibrating system, regulated by supply and demand, as one of the major components of economics, which is right the vast majority of the time; but that it will fail three to four times in a century. He repeats the concept a couple of times, and gives it as the reason Keynes wrote his “General Theory” of economics.

Translated into personal terms, every citizen is at risk of getting caught two to three times in his life, as a victim to these depressions. Thus, it is appropriate and prudent, as a normal course of living and planning for one’s future that one should take them into consideration in personal and business plans; and include in these plans the preceding and succeeding years.

At a point in his speech, he states that these problems will not be solved overnight, as they were not created overnight. Let’s add a conservative two years in front of the Depression and another two years after. So, 15 years of anyone’s life is likely to be tied up in surviving depressions. But that’s not all.

Towards the end of the speech, about revisiting a regulatory system which at least in “certain respects has been a failure,” he mentioned the 1987 crisis-S&L debacle, the commercial real estate problems of the early 90′s, the Mexican crisis, Asian Crisis, LTCM crisis, the technology bubble, the event at Enron, and the current crisis, and states says these are too many for a 20 year period “for the lives of hundreds of thousand to have been wrenched and disrupted by the workings of a financial system in which they had no important role.”

What are the chances of getting caught in any one of these crises, which, whether major or minor crisis, translate for the average individual a loss of income, or equity? I’m talked to people who got caught and lost in one or more of these crises. One person lost $37,000 with the S&L debacle; $150,000 in commissions during the commercial real estate problems of the early 90’s; lost job and income during the technology bubble; and finally with some 60% periods of unemployment after the technology bubble burst. These losses do not include indirect fall-out, such as cost of retraining, or changing careers, and so on.

In the most stringent interpretation of American Values, my friend brought it all upon himself, because he should have seen it all coming, and would have been prepared for it. Most of us, however, would be more generous and focus on the notion that government exist to protect the individuals against internal or external assault and crimes that reduces and threatens his person, property, and other civil and social rights. Regardless of how it’s worded in the law, it is a crime to deprive or otherwise confiscate an individual’s property and wealth, property, and other freedoms or rights.

However, crime against the citizenry is now institutionalized and seen as a normal operating mode. Therefore, a prudent citizen today has to plan his own protection against these assaults, one of which are the fact that he will encounter at least 2 major depressions, and one or two “minor” ones in between them during his working adult life. That adds up to some 60% of the working adult’s life struggling from one crisis to the next.

You can’t blame people for not paying attention to those who end up suffering during these crises. After all, it’s a small percentage of the population, and the rest have more than enough to do trying to themselves stay afloat. Out of 300 millions American, one or two million people whose financial life has been destroyed, is not, statistically, such a bad thing, is it? Financial death can’t be compared to murder, can it? Not to mentions real loss of life due to the inability to finance ones life through healthcare and other life support resources. On top of all that: if they failed in their personal responsibility and planning, they paid the price for their failure.

Mr. Summers then sums up the problem with economics: “Periodically at the end of period of financial excess, the economies are pushed into a territory where its self sustaining properties cannot be relied upon. Therefore the policy has to counteract the vicious cycles, into a circle, and replace fear with confidence.”

He slides by some of the key sources of the problems, but details some of the fallout, such as credit crunch, housing, unemployment, production. In essence he wants to give us the impression that the on-going recession/depression is a natural economic phenomenon, and his solutions, the ONLY alternative he sees.

He sees no viable alternative to a strategy of seeking to maintain demand, provide funding to market, strengthen financial intermediaries, contain vicious cycles in the housing market, and support the flow of credit. He asserts that there is the critical need to support the financial intermediary functions, assuring financial intermediaries are adequately capitalized with the views inherent in the current situation, which is an objective of the stress test.

In simple terms, what he told us in April are in full fruition in August and will continue as this Administration’s tack for the rest of the term: Give the lion’s share of government financing to the financial communities, and the wealth will trickle down to the economy. An interesting turn of words caught my attention in his remarks, when he used the term “intermediaries,” as if the economy could not function without intermediaries.

When he discussed “results” he used the word “mixed” and mentioned that production is running at a level significantly below shipment portending an upwards movement from the operation of the inventory cycle; hardly basis for optimism, but some bit of respite from pessimism. By August 4, 2009, in his “Memorandum” to Congress on the Status Report on Rescuing and Rebuilding the American Economy, several glaring holes become visible:

These points are:

  • “Importantly, the Recovery Act will gain momentum over time, peaking during 2010 with about 70 percent of the total stimulus provided in the first 18 months. Five and a half months after the passage, we are on track to meet that timeline.”

To the casual observer, in reading news, and other media, the Affordable Home Financing program appears to be one of greatest activity. It is projected to satisfy all applicants by the end of five years. Other programs in the Recovery Act, much as the Housing one, are siphoned through “intermediaries” (read: financial community, banks). These legislations involve much regulation to be issued by the various secretaries to detail implementation and establishing tight qualification requirements. Take the Affordable House program: The legislation itself is a wonderful piece of PR, but the essence of its application is contained in the Secretary’s guidelines, which in 17 pages of details ensure that a servicer (read: financial institution, bank, et al.) will not only not lose anything from the existing contract, but will be further rewarded at the end, with packing into a balloon payment at the time of the sale of the home, practically every concession made. (The effect is pushing the same housing bubble into repeating again in five or so years.) Add to that a predominance at interpreting what is interpretable in the banks favor, for example, the guidelines require that the services escrows real estate taxes and insurance payments, they are adding this onto the monthly payments of the “modified loan” rendering the monthly payment higher than before in instances.

Under the $75 billion program, called Making Home Affordable, lenders are eligible for taxpayer subsidies to lower the mortgage payments of distressed borrowers. Of the top 25 participants in the program, at least 21 specialized in servicing or originating subprime loans, according to the center, a nonprofit investigative reporting group funded largely by charitable foundations. (There is more; you should read in detail).

In Summary, since the Administration’s whole policy view is toward the protection of the intermediaries, and since the intermediaries have shown a great deal of reticence in cooperating in making any concessions, or even comply with the law, and the administration is unable, unwilling or slow in enforcing or getting compliance, the various other programs in the Recovery Act, can be expected to parallel the Home Affordable program.


  • “The positive stock market performance since earlier this year is helping to restore substantial losses in household wealth. For example, since the stock market bottomed out on March 9, 2009, the typical 401(k) account is up about 30%.”


This means if you had a 401(k) of 10,000, and as most people lost around 80% as a result of the collapse, you ended up with $2,000. Now with the 30% jump, you have achieved a modest recovery of $600. Now that’s progress!

Consider further, however, that what’s traded in the financial and stock markets represent real wealth in the real economy. Has there been a 30% rebound of real production, and new employment that produced the increase in the stock values? Hardly! It’s all the government guarantees and TARP (Troubled Assets Relief Program) money, and free money and concessions to the intermediaries with which the just re-inflated the stock markets. No real gain of wealth; just larger numbers for the same wealth.


  • “ After GDP plummeted at a -6.4% rate in the first quarter, the economy’s pace of contraction slowed markedly in the second quarter. Private forecasters have estimated that the Recovery Act added more than 3 percentage points to second quarter GDP.”


The first quarter GDP for 2009 is barely finalized, and the second Quarter can only be estimated or extrapolated. But understanding the flow of cash, over the last six months, just paying attention to what happens around us, without looking at official statistics, we know a number of things: Big or bigger government expenditures. These enlarge the GDP; big money for the financial community. Some have already surprisingly reported profits. While the GDP doesn’t contain the value of the assets traded in the markets, they do contain the income inured therein. With all the TARP money and other guarantees given to the financial community by the Fed and the government, there has been plenty of money to re-start big trading in the financial markets. In fact, some of the big boys have reported to expect large profits for the recent quarters.

Mr. Summers alluded at the fact that our financial system has changed to where savings and deposits represent about 20% as a source of liquidity to the markets. A more significant element is the process of securitization which makes up the 80% or so. A quick and dirty way of understanding that is: a) Bank makes loans, gets a contract which expects certain income. b) Bank packages these loans, in a way that they can be sold to other financial institutions which will sell them in the financial markets, all over the world. C) Bank will receive new cash for that contract, and now has more to lend. This multiplies the liquidity almost ad infinitum.

There are other facilities given brokerage firms and other financial institutions where they can accept almost any type of asset, and give out cash in return. The Fed has also become a buyer of these assets as well. These processes give rise to huge sources of liquidity which has predominantly added liquidity to the financial markets, and considering the speed of liquidity increase, spurred the bubble. When there are no more real assets upon which to base new liquidity, then, they can take any financial assets, and create liquidity with that by securitizing that; selling new securitized assets, which can again be bundled and securitized into new assets, then sold, which can be again bundled and securitized into new assets, then sold, which can again be… you get the point; endlessly inflating the financial markets into bigger and bigger “wealth” which in the end won’t buy a slice of bread.

Another point Summers touched upon was “leveraging” followed by quick de-leveraging, as things that caused the present financial crisis. When we talk about leveraging, we are talking about increasing the control power of money, where a fraction of an asset value in cash will suffice to buy it, and control it.

One more element worth mentioning is High Frequency Trading (HFT), which is not new, the use of which has advanced more and more over the last ten years. Computer trading with various pre-set parameters, using various clever algorithms can buy in microseconds; be held for a few minutes, and resold at a profit. This process has the effect of increasing available liquidity for trading, which means more trading using the same money with resulting higher and higher income. It has been said that some 70% of trading in the financial markets is HFT.

All these practices represent multipliers to the money supply. Consequently they increase the income in the financial markets and financial communities, bringing the GDP higher. At the peak of the bubble the financial community represented about 40% of the GDP. Now, with the huge sums given to them, they have and can create enough liquidity to rev up trading to suggest an upswing in national production, and the illusion of new wealth.

Wealth is real products, and the ability to acquire them. 401 (k) will some day be converted back to cash, and the owners will use it to buy physical good, and pay for services in the real world, the real economy. Will they be able to buy a loaf of bread? Not if real products are not produced, no matter how large the figure they take out. So far, nothing, absolutely nothing has been done to open companies back up, and put people back to work.

On the other hand, in the super-casino of the nation, the game is for power over wealth and resources, not with the desire or need to acquire them for their own use, or for the common good, but for the right to control them. What will they control when there’s nothing being produced?

The undeniable flaw of a debt based, (except, technically, HFT’s) i.e.: loans which sooner or later must be retired, or rolled over, makes for unavoidable defaults, which will periodically have to collapse, and allow the cycle to start again, with one important effect: wealth has been again shifted from the lower 90% of the population to the top 1%, which are already holding or controlling 80% or more of the wealth.

So far, no problems have been solved. We’ve thrown billions to refill the casino, so they could keep on gambling. We can expect yet another bubble, and no doubt the next leg of the crash.

In the Baseline Scenario, a blog of professional economists, Simon Johnson presents some poignant comments, his evaluation of Summer’s, visible in the Administration’s actions: and

This quote from Howard Zinn, from ‘A People’s History of the United States,’ first published 1981, is very appropriate to allow one to predict how if unchanged, the social fabric will rend under the weight of so much moral decay:

“The American system is the most ingenious system of control in world history. With a country so rich in natural resources, talent, and labor power the system can afford to distribute just enough wealth to just enough people to limit discontent to a troublesome minority. It is a country so powerful, so big, so pleasing to so many of its’ citizens that it can afford to give freedom of dissent to the small number who are not pleased. There is no system of control with more openings, apertures, flexibilities, rewards for the chosen.

There is none that disperses its’ control more complexly through the voting system, the work situation, the church, the family, the school, the mass media & none more successful in mollifying opposition with reforms, isolating people from one another, creating patriotic loyalty.”

The causes and flaws in the system that caused the collapse are many and interwoven, to where problems exacerbated the others mutually. As it has been often said, we can’t run the same experiment over and over and expect different results.


Economic Recovery Not in Sight

We must focus on the real statistics of an economic system: Production, and this is tied to employment. The statement that unemployment has slowed up, or hasn’t increased any further is publicly known to be an outrageous lie. Any drop in the unemployment count is the people who ran out of benefits and are dropped off the count. Why does the Administration keep sounding off on this note? The traditional media continues with its traditional blather of meaningless chatter, and not an ounce of outrage, and no sounds of alarm.

The productive capacity of the population is further being eroded by the failure of the Home Affordable Financing Program. Large numbers of people are being disqualified for bogus reasons which don’t even appear on the guidelines that could disqualify them. It has become clear that the financial community, banks, et al., gain from driving people into bankruptcy and foreclosure. They make a better fee on foreclosures than on loan modifications, and other home saving programs.

People’s survival are thus threatened, and their ability to work dragged on by the despondency that a weak President as much as he talks he cares, can’t or wont do anything but whine at the bankers he put in place to run the programs that aren’t   running.

Without real increase in production of physical in the real economy, the gains seen in the stock markets are no more than more paper, inflated by lavish TARP bailouts, accounting shenanigans, and Fed throwing more and more money into the system. It should be clear that no matter how high stocks rise, if the companies they represent continue to fire people, and rely on making “accounting” or paper profits, when it comes to cash in the high priced stocks and bonds, the bread isn’t there for the purchasing; we can be certain that there’s no recovery in sight.

Money isn’t production. Products, real products, food, buildings, desks, knives, butter are production. The rising stocks will add to the GDP’s increase (or halted decline); but rest sure that they will only be numbers which will not represent real wealth, but just inflation in the financial markets. Wealth is NOT being created. It’s being destroyed: foreclosures end up with abandoned and vandalized homes the value of which keeps dropping, until the they have to be bulldozed as the final wealth destruction. People need homes, but they can’t have the homes that are built and left abandoned. What is this? Is it the result of the application of good sense on the part of the financial community, and the Administration? The Stimulus legislation has been structured so almost the entirety of it is managed and channeled through the financial community, banks, et al. The level of cooperation has been such that a few more millions homes will be foreclosed upon, because they didn’t want to modify loans and dragged their feet to make sure those in dire situation can’t be saved in time, further driving them into desperation and reduced ability to produce.

For now the solution lies in the public understanding these things, and refused to be fooled by empty words from legislators which have been bought, and paid for by the financial community. Stay angry (if even quietly so) and keep writing to the President, and anyone you can think of. Talk about this with your friends. Tell them what you understand, and stimulate debate.

We shall not see a shred of recovery unless, and until we focus on our people’s well-being, their productive capability, and putting them back to work, and not in do-little or nothing public works, but in real industry where we are building things once more. People need things; they need things, and often can’t get it because it’s no longer produced… such as good health, good medical service, as an example to be real and hit home with most readers… but also industrial and commercial products; there are many products that are no longer available. There are engineering skills, and technical products and shops that have disappeared over the last 20 years.

Talk won’t do… even our own in telling what’s going on. That’s just to prepare the minds of people to deal with truth and reality. Immediate action in the form of direct funding of production is far better than what’s being done now.We got to open the purses that are now being drained in a sterile group of financial market, and offer it to people to rebuild the companies they have had to close down, and hire the people that have been fired, and get people back to work. Put out an announcement that any company that presents a half decent business plan for products that our society really needs, will be financed, and employee salaries guaranteed (or better yet paid directly by government agency), and get the production going again…