Saturday, February 14, 2015

Collapse of Global Trade? The Economic and Financial Lies are Getting Bigger.

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Yesterday we looked at the situations in both Ukraine and Greece, and how they are both out of money which makes them potential “flash points” for reality to set in.  What I’d like to talk about today are the various “slights of hand” and why a spade can never be called a spade.
Currently in the U.S., some (but certainly not all) of the recent economic numbers are showing an absolutely booming economy.  All you need to do is look at Friday’s unemployment numbers, they were clearly bogus.  The biggest driver of employment over the last five years has been the boom in the oil patch …which is now busted with 1,000′s of pink slips being handed out.  BLS revised the November and December numbers to show the fastest growth of employment for any three month period …so far this century!  Really?  Do you believe this in any fashion at all?
The economic and financial lies are getting bigger and bigger while the economy is shrinking and the financial position is more perilous.  The gap between the reality and the true conditions have never before in history been this wide.  Stocks are not allowed to drop, institutions are not allowed to fail, heck, financial institutions have been “told” not to mark to market as this would expose failures.  Inflation is understated, employment is overstated, gold is not allowed to rise and the game continues. Everything you now see and hear has one goal behind it, hide the reality at any and all costs.
The situation with Greece is very sticky for the West for several reasons.  Each and every one of them is because a Greek failure will expose the very ugly reality that the West is one big and interconnected series of Ponzi schemes constructed in pyramid fashion.  Greece cannot be allowed to fail because of what, how much, and who they owe.  In order for the reality to stay hidden, Greece absolutely must be forced to borrow more money so they have the ability to pay past debts.  Already this morning, a six month “trial balloon” extension has been floated.  If Greece is allowed to fail, other central banks (including and particularly the ECB) and many commercial banks will take some very real losses.  This CANNOT be allowed to happen because of the leverage factor and the fact that no more collateral exists within the system that’s not already encumbered.
You see, many assets have been hypothecated (lent/borrowed against) many times over, including Greek debt.  In case you don’t see the problem here, I will spell it out.  When something is “lent” out or “borrowed” more than one time, it is theft pure and simple.  This truth cannot in any fashion come to the surface because it will create a “call”.  The original owners will flood in and ask for their security, their asset, (think gold) back.  What do you think the world will look like when 100 or so “owners” of the same asset decide they will not be one of the suckers who are left with nothing?  This will be a bank run on a system-wide basis and include nearly any asset type you can think of.
The following analogy sums it up pretty well I believe.  This game works well …for a “while”.  It works “while” everyone is confident and no one asks any questions.  It works while no one at the poker table decides to cash in and leave with their chips.  It works well for as long as no one believes anyone else is cheating.  Actually, it even works when everyone knows that everyone else is cheating …as long as everyone is winning.  The problems begin when people start asking questions.  Questions begin when people start to lose money.  The answers are brutally ugly when discovered so it is imperative that no questions are allowed to be asked… and this is where we are today.  This is exactly what “official policy” is today.
The Chinese, the Russians, The BRICS nations and 135 other nations tagging along ALL know what the “answers” are.  They fully understand the casino is 100% rigged.  They understand that everything of value has already been borrowed against and in many instances, several times over.  This is why there have been so many trade and currency deals signed over the last year and a half …without U.S. involvement, approval or even “dollars”.
My personal opinion is this, a spade will very soon be exposed as the spade it is and all the theft, corruption and intentional fraud will be uncovered.  The relevant event could be anything.  It could be Greece failing to pay, leaving the EU or even being kicked out.  It could be a local currency blowing up which bankrupts someone in derivatives.  It could be the failure of a debt auction somewhere in the world.  It could be something already well known or not.  It could be a war.  It could come from the West or the East, and it could be an accident or even an intentional event.  It doesn’t matter “why”, the event is coming.  The event is coming because everyone knows that everyone knows the system is fraudulent.
Please don’t reply to me saying “no, not everyone knows, the sheeple are as asleep as always”.  I am talking about “countries”.  I am talking about the players that count.  The East et al absolutely knows they are dealing and trading in a lopsided and unfair system.  They know the West is massively leveraged and has been dealing unfairly for many years.  Even Western countries know this to be true, for example, why are countries repatriating their gold?  Because they hope there is enough still in the vault to cover what they originally deposited.  Like I said, everyone knows that everyone knows.
As mentioned yesterday, it is my opinion the East would prefer to allow the West’s failure to occur ”naturally” and not force the issue.  Time alone will do this.  The U.S. has been pushing for war at every turn.  A war will be pointed at as “the reason” everything failed.  A war will also be used to cover the tracks of the fraud.  This is not new thought and only the way it has always been.  Distract, pretend, and extend!
If you believe the meme of “recovery” or “growth”, all you need to do is look at this.  The Baltic dry index has just dropped to ALL-TIME lows!  This index is very basic and when broken down reflects the state of global trade.  Global trade has collapsed since the 2008 crisis began, unlike ever before.
This, after huge global deficit spending and monetization.  “Magic Policy” which we were assured would cure all ills has failed miserably and no amount of bogus economic reports can mask this fact.
Expect out of control markets, unimaginable financial failures and ultimately a breakdown of distribution and society itself.  The truth is, we have lived in financial fantasyland since 2007.  2008 came along, markets collapsed and the reset which should have occurred was aborted …only to become a much bigger and far more painful “inevitable” event now.  More debt, more money supply and of course less gold in Western vaults.  We in the West have spent, frittered, and given away 100′s of years worth of labor and savings of our forefathers.  This in an effort to resist living within our means and calling a spade a spade.  Spades are almost all that is left, all the other suits have been spent, lent and borrowed 100+ times over!

The drive to dismantle pensions in the United States

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States and municipalities throughout the United States are engaged in a frontal assault on the pension benefits of current and retired public employees. These attacks are proceeding with complete disregard for the law, riding roughshod over state constitutional protections safeguarding pension benefits that employees have earned over decades of toil.
Earlier this month, Judge Christopher Klein signed a confirmation order allowing the city of Stockton, California to go ahead with its plan to slash workers’ retirement benefits as part of a deal to exit bankruptcy. The agreement will eliminate health care benefits for municipal retirees while cutting pension benefits for new-hires and increasing employee pension payments.
In ruling that bankruptcy courts have the authority to slash current retirees’ pensions, Klein could not hide his enthusiasm. He declared that CalPERS, the state’s public employee pension system, “has bullied its way about this case with an iron fist.” But, he gloated, the pension fund “turns out to have a glass jaw.”
In Illinois, where Circuit Judge John Belz last year struck down a 2013 law that cut pensions for state workers, state officials are once again on the war path. Attorney General Lisa Madigan, a Democrat, is preparing to appear before the Illinois Supreme Court to argue that, even though the state constitution explicitly declares that public employee pensions “shall not be diminished or impaired,” the state’s “police powers” allow it to slash the benefits of current retirees in the name of “public safety.”
The argument is based on an authoritarian and absurd reading of the Tenth Amendment to the US Constitution, which states “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Illinois Democrats are arguing that this amendment allows the state to gut constitutionally protected pension benefits without even going through a bankruptcy court.
If this claim is accepted by the Illinois Supreme Court, it will set a precedent for every state in the US to go after the pensions of public employees.
In Pennsylvania, the state legislature is debating a bill that would freeze pension benefits for current and future retirees and replace pensions for new-hires with 401(k)-style pension plans. In Jacksonville, Florida, the state is planning major cuts in pensions for future retirees.
These moves—and similar actions in other states and cities—have followed from the precedent set by the Detroit bankruptcy, which began in July of 2013 and was completed last November. They vindicate entirely the warnings made by the World Socialist Web Site at the time of the bankruptcy filing.
On July 20, 2013, two days after the city filed for bankruptcy, the WSWS wrote:
The bankruptcy filing has national and international implications. Detroit will serve as a precedent for other cities across the country that have been financially crippled by the economic crisis. The use of the bankruptcy court to rip up pensions and health benefits will open the floodgates for similar attacks on millions of teachers, transit workers, sanitation workers and other municipal employees.
Just as Greece became the model for attacks on workers throughout Europe and beyond, the Detroit bankruptcy—which goes beyond even the brutal measures carried out in Greece—will set the pattern for the next stage in the attack on the working class in the US and internationally. At stake is every gain won by the working class through immense and often bloody struggle and sacrifice in the course of more than a century.
The attack on public employee pensions at the state and local level has been accompanied by a drive to dismantle what remains of pensions in the private sector. In December, Congress passed a law allowing multi-employer pension funds to slash benefit payments to current retirees, reversing decades of federal precedents dictating that the pensions of current retirees could not be cut.
The assault on pensions is entirely bipartisan, with Democrats and Republicans equally ruthless in attacking the working class. It is being coordinated by the Obama administration, which played a critical role in the Detroit bankruptcy.
The drive to dismantle pensions is one component of the Obama administration’s attack on workers’ wages and benefits, which includes the dismantling of employer-provided health benefits under the auspices of the Affordable Care Act and a systematic assault on wages that was launched with the restructuring of the auto industry in 2009.
The constant refrain is the claim that there is “no money” to pay for pensions. This is a lie.
Even the Washington Post—which noted the “change in the social contract” as “employers, private employers as well as governments, increasingly view the mushrooming cost of pensions as unbearable”—felt obliged to point out that “the push to reduce retirement benefits is coming despite not just a long run of robust stock market returns, but also a real estate rebound that is projected to fuel strong city revenue growth.”
The spectacular rise in stock prices has been fueled by the handout of trillions of dollars to the banks, which have been provided with an endless stream of virtually free money. At the same time, hundreds of billions have been made available to fund military operations around the world in the American ruling class’ relentless and reckless pursuit of global hegemony. This is to be paid for through a historic reversal in the social position of the working class.
As far as the ruling class is concerned, young people should have no future, workers should live on poverty wages, the unemployed should be left to starve, and the elderly should be pushed into an early grave.
What is most extraordinary is the absence of organized resistance. Here, the trade unions, which long ago transformed themselves into business enterprises, have played a critical role. At every step, they have collaborated with the Democrats and Republicans in undermining and attacking pensions. The Teamsters, for example, gave their full support to the federal law allowing pension funds to slash benefits. A host of unions in Illinois are supporting the Democrats’ suit to slash pension benefits. The unions played the critical role in suppressing opposition to the Detroit bankruptcy.
These right-wing organizations and the corrupt executives who control them are concerned only with protecting their financial interests as pension fund administrators. They are more than willing to slash the benefits of union members to keep the funds afloat.
Social tensions are building to the breaking point. The strike by US oil workers, despite the efforts of the United Steelworkers union to isolate and betray it, points to the growing militancy and combativeness of American workers, who have had it with decades of cuts in jobs, wages and benefits. To take forward this and the many other struggles to come, workers must be armed with a new political strategy, based on their independence from the pro-corporate trade unions, a break with the Democrats and the two-party system of American capitalism, and a program of reorganizing society to meet social need, not private profit.

Senators and Reps Launch Twitter Storm to Save Social Security from GOP Cuts

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Social Security’s defenders on Capitol Hill launched a social media storm on Wednesday, sending out flurry of tweets as the Senate Budget Committee held a morning hearing on closing a projected shortfall in Social Security’s disability program. The program has come under attack by the GOP because it needs to be replenished by 2016.

“The average disability insurance benefit is under $1200/mo - and for 30% of beneficiaries it's their entire income. #SocialSecurity [3],” tweeted Sen. Bernie Sanders [4], I-VT, who on Tuesday led a Senate briefing [5] on how to fund an overall expansion of all Social Security programs—from retirement to helping children who lose a parent.

“Be wary of a GOP sneak attack on Social Security. I’ve fought my entire career to protect it and will continue to,” tweeted Sen. Harry Reid [6], D-NV and minority leader[7].

Previously, any shortfall in the Social Security disability program has been covered by transferring funds from the much larger retirement account. But when Congress convened last month, the House’s new Republican majority adopted rules that prevented that fix—saying there was waste and fraud in the disability program. That pushed Social Security advocates to rush to the defense of the most popular federal government program, from standing up for disabled Americans who need that monthly assistance, to launching a counter campaign to expand longterm funding for the retirement program.

 “#SocialSecurity [3] is critical for millions of retirees, veterans & those with disabilities. Playing politics with its funds is not an option,” tweeted Sen. Ron Wyden [8], D-OR.

As these tweets and others were flying on Wednesday morning, the Senate Budget Committee heard from Carolyn Colvin, Acting Commisioner of the Social Security Administration, who did not mince words when asked by Sen. Jeff Merkley, D-OR, what a 20 percent cut in monthly disability benefits would mean to recipients.

“I don’t want to be dramatic, but I’ve worked with this population my whole career. I think we give them a death sentence,” Colvin said [9]. “You’re barely surviving. If you get a cut there, you’re not going to be able to survive.”

But Colvin's words did not appear to move Republican senators, who appeared to be reading from the same script where they protested that transferring funds from the retirement account to help the disabled before 2016 was "robbing Peter to pay Paul" or "kicking the can down the road," reported [9] The Hill, a Washington insider publication.

Exchanges like these, where real needs fall on Republican deaf ears, are why progressives in the Senate and House are not just pushing to fix the short-term funding gap in the disability program, but to make expanding Social Security as part of the solution to growing economic inequality in the country.  

“Expanding #SocialSecurity [3] must be a central component of fighting #inequality [10] http://bit.ly/16QyT1J  [11] via @SSWorks [12],” tweeted Rep. Alan Lowenthal [13], D-CA, referring to the larger and more long-term campaign to solidify all Social Secrity programs.

After 2033, retirement portion of the program will have to cut benefits—now averaging $1,290 a month—by about one-fourth unless more of the public's savings are set aside and held in trust by the government. That is because the populous Baby Boom generation is living longer that Social Security’s actuaries predicted decades ago. Unlike any other federal program, Social Security budgets on a 75-year timeline. That enables long-term funding adjustments to be made, but it also gives rise to Republican hyperbole that the program is going broke when in fact it’s not, and when there are fair options to fortify it.

“If the 1% paid the same rate as the rest of the US, Social Security would have $1.1 Trillion more today. #ScrapTheCap [14],” tweeted Sen. Sherrod Brown [15], D-OH, referring to the easiest way to solve the Social Security funding question.

Social Security is funded by a payroll tax on the the first $118,500 of one’s income. That is not widely known, as Nicole Woo, of the Center for Economic and Policy Research wrote in a very clear piece [16] for The Hill. In fact, the 1 percent of U.S. earners stopped paying their 2015 Social Security taxes today—February 11—Woo explained, showing the funding problem’s source and its solution:

“On Feb. 11, the top 1 percent of American workers finish paying their Social Security payroll taxes for the year. That’s because the maximum amount of annual earnings subject to the tax is capped at $118,500 (this level is adjusted for inflation each year). Yet most Americans don't know that there is a Social Security payroll tax cap, because most don’t make enough money to ever hit it.

“What this means, though, is that those who make twice the cap — $237,000 per year — pay the tax on only half of their earnings, and those who make over $1.2 million pay the tax on only one-tenth. In other words, those who are lucky enough to make more than $118,500 per year pay a lower Social Security tax rate than the rest of us.”

This fiscal reality is expressed in the slogan, “Scrap the Cap,” as the solution to the near- and long-term fiscal issues faced by Social Security. That’s why Rep. Jan Schakowsky [17], Di-IL, tweeted, “If richest paid the same rate as the rest of us, #SocialSecurity [3] would have $1.1T more today http://ampr.gs/1KFdxU6  [18] via@amprog [19] #ScraptheCap [20].”

The backdrop to this fight is the fact that America faces a retirement security crisis, where tens of millions of Americans—especially women and people of color—will rely on Social Security for 90 percent of their retirement income. Right now, the average monthly Social Security retirement payment, $1,290, is equal to a job paying $8.06 an hour. Nobody can pay all their bills and live without tremendous hardship at that level, which is why shoring up the program—and expanding benefits—is an inequality issue.

“Expanding #SocialSecurity [3] must be a central component of fighting #inequality [10],” tweeted Rep. Matt Cartwright [21], D-PA, reflecting that sentiment.

“Expanding #SocialSecurity [3] = fighting #inequality [10]. Let's make it happen,” tweeted Rep. Jared Huffman, D-CA.

To expand the current benefits through 2088, payroll taxes—without scrapping the cap—would have to be raised by 2.88 percent, which is split between employers and employees. That’s a payroll check deduction of $2.12 a day for the average American income, $53,891 in 2014 [22], with the same employer contribution. (The 2.88 percent figure comes from Falling Short: The Retirement Security Crisis and What To Do About It, a new book [23] by Charles Ellis, Alicia Munnell and Andrew Eschtruth.) 

In other words, there are many low-impact options to not only deal with short-term cash flow issues, but to extend the current level of support for another 50-plus years—by a slight increase in payroll taxes; and then to increase monthly benefits—by scrapping the payroll tax cap.

As Sen. Sanders tweeted, “Raise taxes on the wealthy to expand #SocialSecurity [3] says @SenSanders [24]: http://bit.ly/16QGQ79  [25] #ScraptheCap [20] #inequality

Exposing the Republican Party's Playbook to Destroy Social Security

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In one of its first actions, the Republican House of Representatives of the 114th Congress, changed its rules to manufacture a Social Security crisis.  

GOP Representatives Tom Reed and Sam Johnson introduced a procedural rule change, which was buried on page 30 of 32 in House Resolution 5.   It forbids the House from transferring money between the Social Security Retirement Fund and the Social Security Disability Fund, a move that Congress has made 11 times in the past, irrespective of which party was in control. The result is that the Disability Fund, which is expected to run out of reserves next year, cannot be helped using money from the Retirement Fund.  Without this “easy fix”—as the New York Times called it—recipients of Social Security Disability will see a 19% cut in benefits.

At a glance, this move by the GOP-led House seems irrational, cynical and counterproductive.  But if you consider Jude Wanniski’s playbook, it makes complete sense.

Odds are you've never heard of Jude, but without him Reagan never would have become a "successful" president, Republicans never would have taken control of the House or Senate, Bill Clinton never would have been impeached, and neither George Bush would have been president.

When Barry Goldwater went down to ignominious defeat in 1964, most Republicans felt doomed (among them the then-28-year-old Wanniski). Goldwater himself, although uncomfortable with the rising religious right within his own party and the calls for more intrusion in people's bedrooms, was a diehard fan of Herbert Hoover's economic worldview. In Hoover's world (and virtually all the Republicans since reconstruction with the exception of Teddy Roosevelt), market fundamentalism was a virtual religion. Economists from Ludwig von Mises to Friedrich Hayek to Milton Friedman had preached that government could only make a mess of things economic, and the world of finance should be left to the Big Boys – the Masters of the Universe, as they sometimes called themselves – who ruled Wall Street and international finance.

Hoover enthusiastically followed the advice of his Treasury Secretary, multimillionaire Andrew Mellon, who said in 1931: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system. High costs of living and high living will come down... enterprising people will pick up the wrecks from less competent people."

Thus, the Republican mantra was: "Lower taxes, reduce the size of government, and balance the budget." The only problem with this ideology from the Hooverite perspective was that the Democrats always seemed like the bestowers of gifts, while the Republicans were seen by the American people as the stingy Scrooges, bent on making the lives of working people harder all the while making richer the very richest. 

This, Republican strategists since 1930 knew, was no way to win elections. Which was why the most successful Republican of the 20th century up to that time, Dwight D. Eisenhower, had been quite happy with a top income tax rate on millionaires of 91 percent. As he wrote to his brother Edgar Eisenhower in a personal letter on November 8, 1954: 

[T]o attain any success it is quite clear that the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it. The political processes of our country are such that if a rule of reason is not applied in this effort, we will lose everything--even to a possible and drastic change in the Constitution. This is what I mean by my constant insistence upon 'moderation' in government. Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt [you possibly know his background], a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid.
Goldwater, however, rejected the "liberalism" of Eisenhower, Rockefeller, and other "moderates" within his own party. Extremism in defense of liberty was no vice, he famously told the 1964 nominating convention, and moderation was no virtue. And it doomed him and his party. And so after Goldwater's defeat, the Republicans were again lost in the wilderness just as after Hoover's disastrous presidency. 

Even four years later when Richard Nixon beat Hubert Humphrey in 1968, Nixon wasn't willing to embrace the economic conservatism of Goldwater and the economic true believers in the Republican Party. And Jerry Ford wasn't, in their opinions, much better. If Nixon and Ford believed in economic conservatism, they were afraid to practice it for fear of dooming their party to another forty years in the electoral wilderness.

By 1974, Jude Wanniski had had enough. The Democrats got to play Santa Claus when they passed out Social Security and Unemployment checks – both programs of the New Deal – as well as when their "big government" projects like roads, bridges, and highways were built giving a healthy union paycheck to construction workers. Democrats kept raising taxes on businesses and rich people to pay for things, which didn't seem to have much effect at all on working people (wages were steadily going up, in fact), and that made them seem like a party of Robin Hoods, taking from the rich to fund programs for the poor and the working class. 

Americans loved it. And every time Republicans railed against these programs, they lost elections. Everybody understood at the time that economies are driven by demand. People with good jobs have money in their pockets, and want to use it to buy things. The job of the business community is to either determine or drive that demand to their particular goods, and when they're successful at meeting the demand then factories get built, more people become employed to make more products, and those newly-employed people have a paycheck that further increases demand.

Wanniski decided to turn the classical world of economics – which had operated on this simple demand-driven equation for seven thousand years – on its head. In 1974 he invented a new phrase – "supply side economics" – and suggested that the reason economies grew wasn't because people had money and wanted to buy things with it but, instead, because things were available for sale, thus tantalizing people to part with their money. The more things there were, the faster the economy would grow.

At the same time, Arthur Laffer was taking that equation a step further. Not only was supply-side a rational concept, Laffer suggested, but as taxes went down, revenue to the government would go up! Neither concept made any sense – and time has proven both to be colossal idiocies – but together they offered the Republican Party a way out of the wilderness.

Ronald Reagan was the first national Republican politician to suggest that he could cut taxes on rich people and businesses, that those tax cuts would cause them to take their surplus money and build factories or import large quantities of cheap stuff from low-labor countries, and that the more stuff there was supplying the economy the faster it would grow. George Herbert Walker Bush – like most Republicans of the time – was horrified. Ronald Reagan was suggesting "Voodoo Economics," said Bush in the primary campaign, and Wanniski's supply-side and Laffer's tax-cut theories would throw the nation into such deep debt that we'd ultimately crash into another Republican Great Depression.

But Wanniski had been doing his homework on how to sell supply-side economics. In 1976, he rolled out to the hard-right insiders in the Republican Party his "Two Santa Clauses" theory, which would enable the Republicans to take power in America for the next thirty years. Democrats, he said, had been able to be "Santa Clauses" by giving people things from the largesse of the federal government. Republicans could do that, too – spending could actually increase. Plus, Republicans could be double Santa Clauses by cutting people's taxes! For working people it would only be a small token – a few hundred dollars a year on average – but would be heavily marketed. And for the rich it would amount to hundreds of billions of dollars in tax cuts. The rich, in turn, would use that money to import or build more stuff to market, thus increasing supply and stimulating the economy. And that growth in the economy would mean that the people still paying taxes would pay more because they were earning more.

There was no way, Wanniski said, that the Democrats could ever win again. They'd have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections.

When Reagan rolled out Supply Side Economics in the early 80s, dramatically cutting taxes while exploding (mostly military) spending, there was a moment when it seemed to Wanniski and Laffer that all was lost. The budget deficit exploded and the country fell into a deep recession – the worst since the Great Depression – and Republicans nationwide held their collective breath. But David Stockman came up with a great new theory about what was going on – they were "starving the beast" of government by running up such huge deficits that Democrats would never, ever in the future be able to talk again about national health care or improving Social Security. And this so pleased Alan Greenspan, the Fed Chairman, that he opened the spigots of the Fed, dropping interest rates and buying government bonds, producing a nice, healthy goose to the economy. 

Greenspan further counseled Reagan to dramatically increase taxes on people earning under $37,800 a year by increasing the Social Security (FICA/payroll) tax, and then let the government borrow those newfound hundreds of billions of dollars off-the-books to make the deficit look better than it was. Reagan, Greenspan, Winniski, and Laffer took the federal budget deficit from under a trillion dollars in 1980 to almost three trillion by 1988, and back then a dollar could buy far more than it buys today. They and George HW Bush ran up more debt in eight years than every president in history, from George Washington to Jimmy Carter, combined. Surely this would both starve the beast and force the Democrats to make the politically suicidal move of becoming deficit hawks.

And that's just how it turned out. Bill Clinton, who had run on an FDR-like platform of a "new covenant" with the American people that would strengthen the institutions of the New Deal, strengthen labor, and institute a national health care system, found himself in a box. A few weeks before his inauguration, Alan Greenspan and Robert Rubin sat him down and told him the facts of life: he was going to have to raise taxes and cut the size of government. Clinton took their advice to heart, raised taxes, balanced the budget, and cut numerous programs, declaring an "end to welfare as we know it" and, in his second inaugural address, an "end to the era of big government." 

He was the anti-Santa Claus, and the result was an explosion of Republican wins across the country as Republican politicians campaigned on a platform of supply-side tax cuts and pork-rich spending increases. Looking at the wreckage of the Democratic Party all around Clinton by 1999, Winniski wrote a gloating memo that said, in part: "We of course should be indebted to Art Laffer for all time for his Curve... But as the primary political theoretician of the supply-side camp, I began arguing for the 'Two Santa Claus Theory' in 1974. If the Democrats are going to play Santa Claus by promoting more spending, the Republicans can never beat them by promoting less spending. They have to promise tax cuts..."

Ed Crane, president of the Libertarian CATO Institute, noted in a memo that year: "When Jack Kemp, Newt Gingich, Vin Weber, Connie Mack and the rest discovered Jude Wanniski and Art Laffer, they thought they'd died and gone to heaven. In supply-side economics they found a philosophy that gave them a free pass out of the debate over the proper role of government. Just cut taxes and grow the economy: government will shrink as a percentage of GDP, even if you don't cut spending. That's why you rarely, if ever, heard Kemp or Gingrich call for spending cuts, much less the elimination of programs and departments."

George W. Bush embraced the Two Santa Claus Theory with gusto, ramming through huge tax cuts – particularly a cut to a maximum 15 percent income tax rate on people like himself who made their principle income from sitting around the pool waiting for their dividend or capital gains checks to arrive in the mail – and blowing out federal spending. Bush even out-spent Reagan, which nobody had ever thought would again be possible. And it all seemed to be going so well, just as it did in the early 1920s when a series of three consecutive Republican presidents cut income taxes on the uber-rich from over 70 percent to under 30 percent.

In 1929, pretty much everybody realized that instead of building factories with all that extra money, the rich had been pouring it into the stock market, inflating a bubble that – like an inexorable law of nature – would have to burst. But the people who remembered that lesson were mostly all dead by 2005, when Jude Wanniski died and George Gilder celebrated the Reagan/Bush supply-side-created bubble economies in a Wall Street Journal eulogy:"...Jude's charismatic focus on the tax on capital gains redeemed the fiscal policies of four administrations. ... [T]he capital-gains tax has come erratically but inexorably down -- while the market capitalization of U.S. equities has risen from roughly a third of global market cap to close to half. ... These many trillions in new entrepreneurial wealth are a true warrant of the worth of his impact. Unbound by zero-sum economics, Jude forged the golden gift of a profound and passionate argument that the establishments of the mold must finally give way to the powers of the mind. ... He audaciously defied all the Buffetteers of the trade gap, the moldy figs of the Phillips Curve, the chic traders in money and principle, even the stultifying pillows of the Nobel Prize."

In reality, his tax cuts did what they have always done over the past 100 years – they initiated a bubble economy that would let the very rich skim the cream off the top just before the ceiling crashed in on working people. The Republicans got what they wanted from Wanniski's work. They held power for thirty years, made themselves trillions of dollars, cut organized labor's representation in the workplace from around 25 percent when Reagan came into office to around 8 of the non-governmental workforce today.

Next year, when the Disability Trust Fund runs out of money, the GOP’s plan is for force Democrats to become the anti-Santa, yet again. If Congress does nothing because the “easy fix” is unavailable due the Republican rule change, Disability Santa will take a 19% cut.

Reed said of his rule change, “Anyone who cares about finding a fair solution for both the catastrophically disabled who depend on SSDI and senior citizens who depend on Social Security knows that we must find a long-term solution which protects both of them rather than a short term band aid which threatens them both.” It is clear that the GOP plan is to use this unnecessary, manufactured crisis as an opening to “reform” Social Security - translated: cut and privatize.  Thus, forcing Democrats to become the Social Security anti-Santa a different way.

When this happens, Democrats must remember Jude Wanniski - and accept neither the cut to disability payments, nor the entree to Social Security “reform.” They must demand the the House rule be changed back, and that the fix used many times in the past, be used again.

Our House of Cards

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As John Williams (shadowstats.com) has observed, the payroll jobs reports no longer make any logical or statistical sense. Ask yourself, do you believe that retailers responded to the very disappointing Christmas season by rushing out in January to hire 46,000 more retail clerks?

Perhaps those 46,000 retail jobs is the BLS telling us that they have to come up with new jobs to report whether or not there are any.

GoldFeb6_10min [1]

As we have reported on a number of occasions, whenever the price of gold in the futures market starts to rise, massive uncovered shorts are suddenly dumped on the market. As the shorts dramatically increase the supply of future contracts all at once, the supply overwhelms demand, and the price of gold is driven down despite the fact that the demand for gold in the physical market is strong. (Remember, the price of gold is determined in the futures market in which contracts are largely settled in cash and seldom in gold. The physical market is where gold bullion is purchased, not paper claims on gold for speculation.)

Last Friday the attack on gold was coordinated with the announcement of the suspicious jobs report. The price of gold was hit hard with an avalanche of uncovered gold futures contracts dumped at the same time that the U.S. Government’s Bureau of Labor Statistics (BLS) released what can only be described as an incorrect employment report. The avalanche of paper contracts that were dumped onto the Comex (both the trading floor and electronic trading computer system) took the price of gold down $39 in three hours, with most of the price hit occurring in the first 40 minutes after the jobs report was released.

The volume of contracts that traded after 8:00 a.m. on the Comex was unusually high for a Friday, running about 60% above Thursday’s volume for the same time period.   Such departures without cause from normal trading patterns are indicative of market manipulation, and Friday’s price smash capped a week in which the price of gold was taken lower every day at 8:30 a.m. after the release of economic reports, most of which reflected a deteriorating condition of the U.S. economy.

Gold is a refuge in times of uncertainty. With yen, dollars, and euros all being created at a faster rate than goods and services are being produced, with both stock and bond prices at bubble levels, gold is definitely an attractive refuge. Confidence in gold would pull money out of the rigged markets for financial instruments and make it more difficult to maintain the appearance that all is well. To attack gold simultaneously with issuing a happy jobs report doubles the encouragement to remain invested in financial paper and to continue to hold the over-printed currencies.

The expectation is that more money will be printed. The prices of troubled sovereign debt have been bid unrealistically high because of expectations that quantitative easing by the European Central Bank will result in central bank purchases of the troubled sovereign debt. In the US the 100 percent and more than 100 percent auto loans have been securitized and sold as investments. Borrowers whose trade-in value is less than their remaining loan can borrow more than the purchase price of the new car in order to pay off the old car loan.

The lenders made their money on loan fees, but as defaults rise the securitized loans and associated derivatives will likely require a bailout like the securitized mortgages.

Anyone looking at these prospects is tempted by gold, but a rising gold price could bring down the fiat currencies and, thus, must be prevented.

In other words, those who have rigged the system know that it is a house of cards.

HSBC documents reveal criminal conspiracy of banks and governments

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On Sunday, international news outlets the Guardian and Le Monde, working with the International Consortium of Investigative Journalists (ICIJ), published articles based on their analysis of leaked files showing that the Swiss private banking arm of HSBC, Europe's largest bank, functioned for years as a tax evasion and money laundering firm.
The company ran a branch that gave out “bricks” of hundreds of thousands of dollars in cash in foreign denominations and provided its wealthy clientele with advice on how to commit tax fraud, according to the reports.
These facts have for years been been in the possession of international financial regulators and governments throughout the world—including those of Britain, France and the United States—which systematically covered them up. Neither the bank, nor its executives, nor any of the clients that utilized its tax dodging services have been criminally prosecuted.
No one should believe that HSBC is an aberration; there is no doubt that similar practices are carried out by all major international financial institutions. The HSBC files have unearthed a cesspool of corruption, criminality, bribery and collusion that pervades the entire capitalist system and the governments that defend it.
The HSBC revelations are only the latest in a series of scandals involving virtually every major financial institution. These have included the selling of fraudulent subprime mortgage-backed securities, illegal foreclosures, commodities fraud and the manipulation of LIBOR and international foreign exchange benchmarks.
HSBC was one of the institutions whose greed and lawlessness plunged the world into a crisis in 2008 from which it has never recovered, cost millions of people their jobs and launched a wave of austerity all over the world involving the slashing of workers wages’ and social benefits.
The list of people who used HSBC’s services include corporate executives, fundraisers and major donors to American, British and Australian political parties, and politicians from at least 17 countries, including Britain.
The trail of dirty money reaches as high as former US President Bill Clinton. British business tycoon Richard Caring, who once picked up more than five million Swiss francs in cash from the bank, donated $1 million to Clinton’s foundation from his Swiss bank account.
The report by the ICIJ notes that the month before Caring made his donation, he “funded a champagne and caviar extravaganza at Catherine the Great’s Winter Palace in St. Petersburg, Russia, flying in 450 guests to be entertained by Sir Elton John and Tina Turner and addressed by Bill Clinton.”
It also notes that Charles Barrington Goode, a major fundraiser for the Liberal Party and chairman of ANZ bank, one of Australia’s largest financial institutions, held an account with the bank under a false name for three decades.
In addition to “legitimate” businessmen and high-ranking politicians, HSBC’s services were used by drug kingpins, weapons smugglers and traffickers in illegal “blood diamonds.” Reviewing the reports, it is impossible to determine where the criminal underworld ends and the ruling class of bankers and corporate CEOs and their millionaire political front-men begins.
While no bank executives or wealthy clients have been prosecuted, the one person out of this morass of criminality who faces serious legal consequences is the whistleblower who exposed them.
In 2009, an HSBC technical employee named HervĂ© Falciani came to realize that HSBC’s private bank was operating a huge tax evasion operation, and began collecting information to provide to Swiss authorities, which showed no interest.
He subsequently turned files pointing to tax fraud by some 130,000 people over to the French police, who shared them with other governments, including that of Britain and America. Falciani has since been charged with violating Switzerland’s bank secrecy laws and carrying out industrial espionage.
In 2010, then-French Minister of Finance Christine Lagarde provided a list of 2,000 suspected tax evaders to the Greek government, and the list subsequently came into the possession of Greek magazine publishers, who printed it. They were subsequently charged, then found not guilty, of breaching privacy laws.
A portion of the files accumulated by Falciani were recently obtained by Le Monde and shared with the ICIJ and other newspapers. The files cover some 30,000 accounts holding nearly $120 billion in assets.
In the UK, more than 3,000 people have been investigated based on Falciani’s files, but the government has brought no charges against any of them.
Perhaps the biggest cover-up has been carried out in the United States, where in 2012 the Justice Department agreed to a $1.2 billion “deferred prosecution” settlement with HSBC on charges of money laundering for Mexican drug cartels, never mentioning the fact that the US government had evidence the bank helped its clients evade taxes.
One of the leading architects of the settlement with HSBC, Loretta Lynch, at that time the US attorney for the Eastern District of New York, is now the Obama administration’s nominee to replace Eric Holder as attorney general. The Reverend Lord Stephen Green, HSBC’s chief executive during the period covered by the files, was subsequently appointed the UK’s minister of state for trade and investment.
The British Labour Party, which was in power at the time that thousands of members of the British ruling class used HSBC to dodge their taxes, declared, “What is truly shocking is that [UK officials] were made fully aware of these practices back in 2010 but since then very little has been done.”
The revelations are particularly striking in the baseness of the criminality they depict. After all, these people already make millions of dollars by paying workers poverty wages, slashing the pensions of the elderly and privatizing public assets. Do they really need to cheat on their taxes too? Is it really necessary, as the documents detail, for them to smuggle “bricks” of cash in some cases amounting to millions of dollars?
For the global financial elite, the line between “legitimate” business activity and political donations on the one hand, and fraud, theft and bribery on the other, does not exist. Capitalist society is run by thieves and criminals, who see the law as a minor inconvenience. In the immortal words of Leona Helmsley, “Only the little people pay taxes.”
We would ask those who still believe the social order exposed by these documents can be somehow reformed: Where would you start? Would you appeal to the politicians, who are all bought with political donations from financial criminals? Or to regulatory agencies, which have systematically covered up these crimes? Or the courts, which bring charges against whistleblowers while shielding financial criminals?
The entire structure of contemporary society, from major corporations to governments to regulators, is controlled by multi-billionaire financial oligarchs.
The only way to bring to justice the major banks like HSBC, and the millionaires and billionaires who used its services to commit fraud, is a complete reorganization of society. The ill-gotten wealth that corrupts every public institution must be seized, major corporations must be nationalized, and every existing state replaced with a workers’ government whose first task will be the establishment of democratic control over the basic forces of economic life.

Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?

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Over the past decade, there has been only one other time when the value of the U.S. dollar has increased by so much in such a short period of time.  That was in mid-2008 – just before the greatest financial crash since the Great Depression.  A surging U.S. dollar also greatly contributed to the Latin American debt crisis of the early 1980s and the Asian financial crisis of 1997.  Today, the globe is more interconnected than ever.  Most global trade is conducted in U.S. dollars, and much of the borrowing done by emerging markets all over the planet is denominated in U.S. dollars.  When the U.S. dollar goes up dramatically, this can put a tremendous amount of financial stress on economies all around the world.  It also has the potential to greatly threaten the stability of the 65 trillion dollars in derivatives that are directly tied to the value of the U.S. dollar.  The global financial system is more vulnerable to currency movements than ever before, and history tells us that when the U.S. dollar soars the global economy tends to experience a contraction.  So the fact that the U.S. dollar has been skyrocketing lately is a very, very bad sign.
Most of the people that write about the coming economic collapse love to talk about the coming collapse of the U.S. dollar as well.
But in the initial deflationary stage of the coming financial crisis, we are likely to see the U.S. dollar actually strengthen considerably.
As I have discussed so many times before, we are going to experience deflation first, and after that deflationary phase the desperate responses by the Federal Reserve and the U.S. government to that deflation will cause the inflationary panic that so many have written about.
Yes, someday the U.S. dollar will essentially be toilet paper.  But that is not in our immediate future.  What is in our immediate future is a “flight to safety” that will push the surging U.S. dollar even higher.
This is what we witnessed in 2008, and this is happening once again right now.
Just look at the chart that I have posted below.  You can see the the U.S. dollar moved upward dramatically relative to other currencies starting in mid-2008.  And toward the end of the chart you can see that the U.S. dollar is now experiencing a similar spike…
Dollar Index 2015
At the moment, almost every major currency in the world is falling relative to the U.S. dollar.
For example, this next chart shows what the euro is doing relative to the dollar.  As you can see, the euro is in the midst of a stunning decline…
Euro U.S. Dollar
Instead of focusing on the U.S. dollar, those that are looking for a harbinger of the coming financial crisis should be watching the euro.  As I discussed yesterday, analysts are telling us that if Greece leaves the eurozone the EUR/USD could fall all the way down to 0.90.  If that happens, the chart above will soon resemble a waterfall.
And of course it isn’t just the euro that is plummeting.  The yen has been crashing as well.  The following chart was recently posted on the Crux
Yen Dollar from the Crux
Unfortunately, most Americans have absolutely no idea how important all of this is.  In recent years, growing economies all over the world have borrowed gigantic piles of very cheap U.S. dollars.  But now they are faced with the prospect of repaying those debts and making interest payments using much more expensive U.S. dollars.
Investors are starting to get nervous.  At one time, investors couldn’t wait to pour money into emerging markets, but now this process is beginning to reverse.  If this turns into a panic, we are going to have one giant financial mess on our hands.
The truth is that the value of the U.S. dollar is of great importance to every nation on the face of the Earth.  The following comes from U.S. News & World Report
In the early ’80s, a bullish U.S. dollar contributed to the Latin American debt crisis, and also impacted the Asian Tiger crisis in the late ’90s. Emerging markets typically have higher growth, but carry much higher risk to investors. When the economies are doing well, foreign investors will lend money to emerging market countries by purchasing their bonds.
They also deposit money in foreign banks, which facilitates higher lending. The reason for this is simple: Bond payments and interest rates in emerging markets are much higher than in the U.S. Why deposit cash in the U.S. and earn 0.25 percent, when you could earn 6 percent in Indonesia? With the dollar strengthening, the interest payments on any bond denominated in U.S. dollars becomes more expensive.
Additionally, the deposit in the Indonesian bank may still be earning 6 percent, but that is on Indonesian rupiahs. After converting the rupiahs to U.S. dollars, the extra interest doesn’t offset the loss from the exchange. As investors get nervous, the higher interest on emerging market debt and deposits becomes less alluring, and they flee to safety. It may start slowly, but history tells us it can quickly spiral out of control.
Over the past few months, I have been repeatedly stressing that so many of the signs that we witnessed just prior to previous financial crashes are happening again.
Now you can add the skyrocketing U.S. dollar to that list.
If you have not seen my previous articles where I have discussed these things, here are some places to get started…
The warnings signs are really starting to pile up.
When we look back at past financial crashes, there are recognizable patterns that can be identified.
Anyone with half a brain should be able to see that a large number of those patterns are unfolding once again right before our eyes.
Unfortunately, most people in this world end up believing exactly what they want to believe.
No matter how much evidence you show them, they will not accept the truth until it is too late.