Wise Up - The Crash Course

Chapter 5: Our House of Cards Economic System

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Chapter 5 - Our House of Cards Economic System

For Further Information:

Red Alert: The Second Wave Of The Financial Tsunami - Since the last quarter of 2008, unrelenting currency warfare has been waged by the key global economies and while this competition thus far has been non-antagonistic, it will soon be antagonistic because the inherent differences are irreconcilable. The consequences to the global economy will be devastating and for the ordinary people, massive unemployment and social unrest are assured.

Is The Global Economy a Ponzi Scheme? - Yes, homo “sapiens” sapiens have constructed the grandest of Ponzi schemes, whereby current generations have figured out how to live off the wealth of future generations.

Selected Readings:

Mainstream Economics = Pseudo Science

(From: Temporary Recession or the End of Growth?)

by Richard Heinberg - Published Aug 6 2009 by richard.heinberg.com

Ecologist Charles Hall, among many others, has argued that the discipline of economics, as currently practiced, does not constitute a science, since it proceeds primarily on the basis of correlative logic rather than through the building of knowledge by a continuous, rigorous process of proposing and testing hypotheses. (21) While economics uses complex terminology and mathematics, as science does, its basic assertions about the world—such as the principle of infinite substitutability, which holds that for any resource that becomes scarce, the market will find a substitute—are not subjected to careful experimental examination. (It is worth noting that Hall and others have made the effort to lay the conceptual foundations for a new economics based on scientific principles and methods, which they call “biophysical economics.” (22)

Why Governments Around the World Have Been Desperate to Restart Growth

(From: Who Woke the Dragon?)

http://www.financialsense.com/fsu/editorials/schoon/2009/1020.html

by Darryl Schoon | October 20, 2009

Capitalism, however, requires constant economic expansion and when capitalist economies contract, they collapse in a monetary phenomenon called a deflationary depression.

This is the reason economists in credit-based economies fixate on economic growth. In credit-based economies stagnant growth leads to parcus nex, economic death. Without growth, capitalist economies cannot survive as levels of constantly compounding debt, created by previously issued credit, will overwhelm a country’s productive capacity to service and/or retire that debt.

Constantly compounding debt is therefore the devil’s whip which necessitates the continual expansion of credit-based economies; and, to ensure that expansion, capitalism needs to constantly recycle its savings. When savings are not recycled, economies slow and recessions and/or depressions result.

What Is a “Green Economy?”

Herman Daly - Professor at the School of Public Policy of University of Maryland

March 28, 2010

Recently we have grown, or rather “swollen”, by expanding the symbolic realm of finance. Debt is a mere number (like negative pigs) and can easily grow faster than the real wealth (positive pigs), by which it is expected to be redeemed. Wall Street has bought and sold an astronomical number of negative pigs-in-a-poke – they have “sold bets on debts and called them assets”, as Wendell Berry succinctly put it. We have recently experienced the failure of this fraudulent attempt to force expansion. Yet we have so far been unable to imagine any policy other than restarting the old growth economy for another round. After the next crisis we should try to avoid the Ponzi scheme of growth and build a steady state economy – a green economy that is sustainable, just, and sufficient for a good life.

Economists: Another Financial Crisis on the Way

Nonpartisan Group Led by Nobel Winner Calls for Stronger Financial Reforms

By MATTHEW JAFFE
March 2, 2010

http://abcnews.go.com/Business/economists-warn-financial-us-economy/story?id=9990828&source=patrick.net

The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

"Risk-taking at banks," the report cautions, "will soon be larger than ever."

20 reasons Global Debt Time Bomb explodes soon

Commentary: Which trigger will ignite the Great Depression II?

By Paul B. Farrell, MarketWatch

http://www.marketwatch.com/story/our-debt-time-bomb-is-ready-to-go-ka-boom-2010-02-02?pagenumber=1

World GDP at constant prices, which grew at an annual rate of 5.2 percent in 2007, according to the IMF, moderated to 3.0 percent in 2008 before shrinking by 1.1 percent in 2009. International trade dropped by an estimated 11.9 percent for the year -- a decline not seen in the postwar era.

We've been brought to this position via the Fractional Reserve Banking System. The

growth of the money system is at 5.8% - stopped briefly over the Depression of 1929. The monetary system has to grow or it will collapse. In order to grow everyone needs to buy more and more—essentially a pyramid scheme. The real value is the natural capital of the planet formed by nature.

We need to have more and more purchasing power to keep the current situation going.

Milton Freedman advocated 100% reserve system – can only lend the money to one person at a time. Fractional Reserve System - $1 in bank, can be lent to 10 people at the same time. Everyone has to find the money to pay the interest.

From the Revolutionary War through 2009, the U.S. government accumulated $12 trillion in debt. And then, in one year, President elect and President Obama restored to office the very people who had engineered the fraud. With the squid’s preferred team in place in the White House, at the US Treasury and at the Department of Defense, President Obama led the gifting and lending of an additional $12 Trillion to the great vampire squid (Mitch's note: this expression refers to the worlds largest banks).

Let me underscore the enormity of this number again. An amount equivalent to all the debt we had accumulated in 252 years and numerous wars we gave or lent to the squid in one year.

The Squid to Main Street: “Drop Dead!”

Capital it would seem is available only for squid speculation. The real economy is a source of capital for the squid. It is no longer a use of capital. Hence, drain on communities and the failure to reinvest in serious innovation and long term U.S. growth accelerated during 2009.

The political reality is that the U.S. government is deeply dependent on the squid to finance growing deficits, engineer global economic warfare and manage markets in the precious metals, oil, commodities and financial markets. So with U.S. unemployment over 10% (says the government) or 20% (says John Williams at www.shadowstats.com, a far more reliable source) and significant unemployment around the globe, the great vampire squid couldn’t care less what the man in the street thinks.

As Dick Cheney said about deficits, “they don’t matter.”

Listen closely to the words of our 12 "Dr. Dooms." For a moment, take off your rose-colored glasses, step out of your denial, see the Great Depression 2 dead ahead, really look at the future our "Dr. Dooms" see in their "Doomsday Scenarios:"

1. Faber: The 'American Empire' has peaked, is on a decline

Hong Kong economist Marc Faber says "the average life span of the world's greatest civilizations has been 200 years ... Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline."

2. Grantham: Learned nothing, doomed to repeat past, only bigger

Money manager Jeremy Grantham warns that our irrational nightmare will repeat. A year ago we came dangerously close to the "Great Depression 2." Unfortunately, we've "learned nothing ... condemning ourselves to another serious financial crisis in the not too-distant future."

We had our bear-market rally. Next, historical cycles plus our irrational behavior guarantees another, bigger global meltdown. We "learned nothing."

3. Stiglitz: Wall Street creating short respite before next crash

Nobel economist Joseph Stiglitz recently warned: Unless Wall Street's incentive system is drastically reformed, "the financial sector will only try to circumvent whatever new regulations we put in place. We will simply have a short respite before the next crisis." Warning, nothing's changed, it's worse: Lobbyists run Obama, Congress and the Fed.

4. Johnson: Running out of time before Great Depression 2

Yes, "we're running out of time ... to prevent a true depression," warns former IMF chief economist Simon Johnson. The "financial industry has effectively captured our government" and is "blocking essential reform," and unless we break Wall Street's "stranglehold" we will be unable prevent the Great Depression 2.

5. Ferguson: Fed's easy money fuels new bubbles, meltdowns

In the 400-year history of the stock market "there has been a long succession of financial bubbles," says financial historian Niall Ferguson. Who's the culprit? The Fed: "Without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks."

Another bubble (and crash) is virtually certain, thanks to Washington's $23.7 trillion explosion in debt, the Fed's support for the $670 trillion shadow banking system and Wall Street lobbyists getting superrich thanks to Wall Street's insatiable greed.

6. Taleb: Fed haunted by ghost of Greenspan's failed Reaganomics

When Obama reappointed Bernanke, Nassim Taleb, risk-management professor and author of "The Black Swan," warned of a new disaster: "The world has never, never been as fragile," yet Obama reappoints an economist who "doesn't even know he doesn't understand how things work." New proof? At last week's American Economic Association, Bernanke was still shifting the blame: "The best response to the housing bubble would have been regulatory, not monetary."

Wrong: He conveniently forgets he was advising Bush earlier, did nothing. Now Obama's stuck with a Greenspan clone and an insane ideology focused solely on saving a failed banking system by flooding the world with inflated dollars guaranteed to trigger another meltdown

7. Soros: Dollar dead as a reserve currency, nest eggs dying

Billionaire investor George Soros' "New Paradigm:" America's 25-year "superboom ... led to massive deregulation ... blindly chasing free markets ... unleashed excessive greed ... created the dot-com and credit meltdowns" and a "shadow banking system" of derivatives.

"The system is broken. The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency," warns Soros. "We're now in a period of wealth destruction. It is going to be very hard to preserve your wealth in these circumstances."

8. Hedgers: make billions shorting stupid politicians, bankers

Soros isn't alone. Lots of hedge fund buddies made hundreds of millions and billions betting on the stupidity of Washington with the Fed's cheap-money policies. Alpha magazine reports that four hedgers made more than $1 billion each in 2008. The top-25 "managers made $464 million each on average last year ... a kingly sum, especially during a year of global recession, stock market wipeouts and vanishing wealth."

9. Shiller: Dot-com, subprime meltdowns, 'third episode' next

Economist Robert Shiller a "Dr. Doom?" Remember a decade ago with "Irrational Exuberance?" Now he's warning: "Bubbles are primarily social phenomena. Until we understand and address the psychology that fuels them, they're going to keep forming. We recently lived through two epidemics of excessive financial optimism, we are close to a third episode, only this one will spread irrational pessimism and distrust -- not exuberance."

10. Kaufman: Irrationality replaced reason, science, technology

Henry Kaufman was Salomon's chief economist and "Dr. Doom" for 24 years: "Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunications? Why can we land men on the moon with pinpoint accuracy, yet fail to steer our economy away from the rocks? Why do our computers work so well, except when we use them to manage derivatives and hedge funds?"

Kaufman warns: "The computations were correct, but far too often the conclusions drawn from them were not." Why? Selfish, myopic politicians and bankers.

11. Biggs: Sell everything, buy guns, food, head for the hills

In his 2008 bestseller "Wealth, War and Wisdom" former Morgan Stanley research guru Barton Biggs warns us to prepare for a "breakdown of civilization ... Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc ... A few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage." Biggs sounds like an anarchist militiaman.

12. Diamond: Nations ignore obvious till it's too late, then collapse

The end will be swift. In our age of short-term consumerism and instant gratification, few hear the warnings of our favorite evolutionary biologist, Jared Diamond. Societies fail because they're unprepared, will be in denial till it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

The warnings were everywhere in 2008, but Greenspan, Bernanke and former Treasury Secretary Henry Paulson were in denial: It will happen again with Obama. Downstreaming problems will fail. Future bubbles get too big, crashes more deadly.