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Archive for the ‘Revelation 6:6’ Category

Also see: Jimmy Carter claims today’s middle class Americans resemble the poor of the 1970s

from The New York Times:

AS bad as things in Washington are — the federal government shutdown since Tuesday, the slim but real potential for a debt default, a political system that seems increasingly ungovernable — they are going to get much worse, for the United States and other advanced economies, in the years ahead.

From the end of World War II to the brief interlude of prosperity after the cold war, politicians could console themselves with the thought that rapid economic growth would eventually rescue them from short-term fiscal transgressions. The miracle of rising living standards encouraged rich countries increasingly to live beyond their means, happy in the belief that healthy returns on their real estate and investment portfolios would let them pay off debts, educate their children and pay for their medical care and retirement. This was, it seemed, the postwar generations’ collective destiny.

But the numbers no longer add up. Even before the Great Recession, rich countries were seeing their tax revenues weaken, social expenditures rise, government debts accumulate and creditors fret thanks to lower economic growth rates.

We are reaching end times for Western affluence. Between 2000 and 2007, ahead of the Great Recession, the United States economy grew at a meager average of about 2.4 percent a year — a full percentage point below the 3.4 percent average of the 1980s and 1990s. From 2007 to 2012, annual growth amounted to just 0.8 percent. In Europe, as is well known, the situation is even worse. Both sides of the North Atlantic have already succumbed to a Japan-style “lost decade.”

Surely this is only an extended cyclical dip, some policy makers say. Champions of stimulus assert that another huge round of public spending or monetary easing — maybe even a commitment to higher inflation and government borrowing — will jump-start the engine. Proponents of austerity argue that only indiscriminate deficit reduction, accompanied by reforming entitlement programs and slashing regulations, will unleash the “animal spirits” necessary for a private-sector renaissance.

Both sides are wrong. It’s now abundantly clear that forecasters have been too optimistic, boldly projecting rates of growth that have failed to transpire.

The White House and Congress, unable to reach agreement in the face of a fiscal black hole, have turned over the economic repair job to the Federal Reserve, which has bought trillions of dollars in securities to keep interest rates low. That has propped up the stock market but left many working Americans no better off. Growth remains lackluster.

The end of the golden age cannot be explained by some technological reversal. From iPad apps to shale gas, technology continues to advance. The underlying reason for the stagnation is that a half-century of remarkable one-off developments in the industrialized world will not be repeated.

First was the unleashing of global trade, after a period of protectionism and isolationism between the world wars, enabling manufacturing to take off across Western Europe, North America and East Asia. A boom that great is unlikely to be repeated in advanced economies.

Second, financial innovations that first appeared in the 1920s, notably consumer credit, spread in the postwar decades. Post-crisis, the pace of such borrowing is muted, and likely to stay that way.

Third, social safety nets became widespread, reducing the need for households to save for unforeseen emergencies. Those nets are fraying now, meaning that consumers will have to save more for ever longer periods of retirement.

Fourth, reduced discrimination flooded the labor market with the pent-up human capital of women. Women now make up a majority of the American labor force; that proportion can rise only a little bit more, if at all.

Finally, the quality of education improved: in 1950, only 15 percent of American men and 4 percent of American women between ages 20 and 24 were enrolled in college. The proportions for both sexes are now over 30 percent, but with graduates no longer guaranteed substantial wage increases, the costs of education may come to outweigh the benefits.

These five factors induced, if not complacency, an assumption that economies could expand forever.

Adam Smith discerned this back in 1776 in his “Wealth of Nations”: “It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state.”

The decades before the French Revolution saw an extraordinary increase in living standards (alongside a huge increase in government debt). But in the late 1780s, bad weather led to failed harvests and much higher food prices. Rising expectations could no longer be met. We all know what happened next.

When the money runs out, a rising state, which Smith described as “cheerful,” gives way to a declining, “melancholy” one: promises can no longer be met, mistrust spreads and markets malfunction. Today, that’s particularly true for societies where income inequality is high and where the current generation has, in effect, borrowed from future ones.

In the face of stagnation, reform is essential. The euro zone is unlikely to survive without the creation of a legitimate fiscal and banking union to match the growing political union. But even if that happens, Southern Europe’s sky-high debts will be largely indigestible. Will Angela Merkel’s Germany accept a one-off debt restructuring that would impose losses on Northern European creditors and taxpayers but preserve the euro zone? The alternatives — disorderly defaults, higher inflation, a breakup of the common currency, the dismantling of the postwar political project — seem worse.

In the United States, which ostensibly has the right institutions (if not the political will) to deal with its economic problems, a potentially explosive fiscal situation could be resolved through scurrilous means, but only by threatening global financial and economic instability. Interest rates can be held lower than the inflation rate, as the Fed has done. Or the government could devalue the dollar, thereby hitting Asian and Arab creditors. Such “default by stealth,” however, might threaten a crisis of confidence in the dollar, wiping away the purchasing-power benefits Americans get from the dollar’s status as the world’s reserve currency.

Not knowing who, ultimately, will lose as a consequence of our past excesses helps explain America’s current strife. This is not an argument for immediate and painful austerity, which isn’t working in Europe. It is, instead, a plea for economic honesty, to recognize that promises made during good times can no longer be easily kept.

That means a higher retirement age, more immigration to increase the working-age population, less borrowing from abroad, less reliance on monetary policy that creates unsustainable financial bubbles, a new social compact that doesn’t cannibalize the young to feed the boomers, a tougher stance toward banks, a further opening of world trade and, over the medium term, a commitment to sustained deficit reduction.

 

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“The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse.”

from The New York Times:

The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.

THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.

As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another — smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (“clean” energy, biotechnology) and, above all, bailing out Wall Street — they have now succumbed to overload, overreach and outside capture by powerful interests. The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating “demand,” even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.

The culprits are bipartisan, though you’d never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.

Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed.

Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today.

This explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply. The Fed, which celebrates its centenary this year, fueled a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.

Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedman’s penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash. What became known as the “Greenspan put” — the implicit assumption that the Fed would step in if asset prices dropped, as they did after the 1987 stock-market crash — was reinforced by the Fed’s unforgivable 1998 bailout of the hedge fund Long-Term Capital Management.

That Mr. Greenspan’s loose monetary policies didn’t set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia. By offshoring America’s tradable-goods sector, the Fed kept the Consumer Price Index contained, but also permitted the excess liquidity to foster a roaring inflation in financial assets. Mr. Greenspan’s pandering incited the greatest equity boom in history, with the stock market rising fivefold between the 1987 crash and the 2000 dot-com bust.

Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They — China and Japan above all — accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. We’ve been living on borrowed time — and spending Asians’ borrowed dimes.

This dynamic reinforced the Reaganite shibboleth that “deficits don’t matter” and the fact that nearly $5 trillion of the nation’s $12 trillion in “publicly held” debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy.

The explosion of the housing market, abetted by phony credit ratings, securitization shenanigans and willful malpractice by mortgage lenders, originators and brokers, has been well documented. Less known is the balance-sheet explosion among the top 10 Wall Street banks during the eight years ending in 2008. Though their tiny sliver of equity capital hardly grew, their dependence on unstable “hot money” soared as the regulatory harness the Glass-Steagall Act had wisely imposed during the Depression was totally dismantled.

Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington, with Wall Street’s gun to its head, propped up the remnants of this financial mess in a panic-stricken melee of bailouts and money-printing that is the single most shameful chapter in American financial history.

There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006. The Great Fear — manifested by the stock market plunge when the House voted down the TARP bailout before caving and passing it — was purely another Wall Street concoction. Had President Bush and his Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood firm, the crisis would have burned out on its own and meted out to speculators the losses they so richly deserved. The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding.

Instead, the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous. The auto bailouts, for example, simply shifted jobs around — particularly to the aging, electorally vital Rust Belt — rather than saving them. The “green energy” component of Mr. Obama’s stimulus was mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent.

Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster.

But even Mr. Obama’s hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour. Fast-money speculators have been “purchasing” giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.

If and when the Fed — which now promises to get unemployment below 6.5 percent as long as inflation doesn’t exceed 2.5 percent — even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs’ profits. Notwithstanding Mr. Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making.

While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Office’s estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washington’s delusions.

Even a supposedly “bold” measure — linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index — would save just $200 billion over a decade, amounting to hardly 1 percent of the problem. Mr. Ryan’s latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net — Medicaid, food stamps and the earned-income tax credit — is another front in the G.O.P.’s war against the 99 percent.

Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today. Since our constitutional stasis rules out any prospect of a “grand bargain,” the nation’s fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches.

The future is bleak. The greatest construction boom in recorded history — China’s money dump on infrastructure over the last 15 years — is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand. The American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.

THE state-wreck ahead is a far cry from the “Great Moderation” proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown “seems likely to be contained.” Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices — a form of inflation that the Fed fecklessly disregards in calculating inflation.

These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.

All this would require drastic deflation of the realm of politics and the abolition of incumbency itself, because the machinery of the state and the machinery of re-election have become conterminous. Prying them apart would entail sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100 percent public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll. It would also require overturning Citizens United and mandating that Congress pass a balanced budget, or face an automatic sequester of spending.

It would also require purging the corrosive financialization that has turned the economy into a giant casino since the 1970s. This would mean putting the great Wall Street banks out in the cold to compete as at-risk free enterprises, without access to cheap Fed loans or deposit insurance. Banks would be able to take deposits and make commercial loans, but be banned from trading, underwriting and money management in all its forms.

It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.

That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.

David A. Stockman is a former Republican congressman from Michigan, President Ronald Reagan’s budget director from 1981 to 1985 and the author, most recently, of “The Great Deformation: The Corruption of Capitalism in America.”

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I believe this will be the most likely outcome due to the rampant GREED of the Banking Industry and Wall Street. The level of debt in the world today is unprecedented and the only way for the world to crawl out from under this debt load is for governments to take over the printing of money and cancel all private debts.

from The Daily Telegraph:

One could slash private debt by 100pc of GDP, boost growth, stabilize prices, and dethrone bankers all at the same time. It could be done cleanly and painlessly, by legislative command, far more quickly than anybody imagined.

The conjuring trick is to replace our system of private bank-created money — roughly 97pc of the money supply — with state-created money. We return to the historical norm, before Charles II placed control of the money supply in private hands with the English Free Coinage Act of 1666.

Specifically, it means an assault on “fractional reserve banking”. If lenders are forced to put up 100pc reserve backing for deposits, they lose the exorbitant privilege of creating money out of thin air.

The nation regains sovereign control over the money supply. There are no more banks runs, and fewer boom-bust credit cycles. Accounting legerdemain will do the rest. That at least is the argument.

Some readers may already have seen the IMF study, by Jaromir Benes and Michael Kumhof, which came out in August and has begun to acquire a cult following around the world.

Entitled “The Chicago Plan Revisited“, it revives the scheme first put forward by professors Henry Simons and Irving Fisher in 1936 during the ferment of creative thinking in the late Depression.

Irving Fisher thought credit cycles led to an unhealthy concentration of wealth. He saw it with his own eyes in the early 1930s as creditors foreclosed on destitute farmers, seizing their land or buying it for a pittance at the bottom of the cycle.

The farmers found a way of defending themselves in the end. They muscled together at “one dollar auctions”, buying each other’s property back for almost nothing. Any carpet-bagger who tried to bid higher was beaten to a pulp.

Benes and Kumhof argue that credit-cycle trauma – caused by private money creation – dates deep into history and lies at the root of debt jubilees in the ancient religions of Mesopotian and the Middle East.

Harvest cycles led to systemic defaults thousands of years ago, with forfeiture of collateral, and concentration of wealth in the hands of lenders. These episodes were not just caused by weather, as long thought. They were amplified by the effects of credit.

The Athenian leader Solon implemented the first known Chicago Plan/New Deal in 599 BC to relieve farmers in hock to oligarchs enjoying private coinage. He cancelled debts, restituted lands seized by creditors, set floor-prices for commodities (much like Franklin Roosevelt), and consciously flooded the money supply with state-issued “debt-free” coinage.

The Romans sent a delegation to study Solon’s reforms 150 years later and copied the ideas, setting up their own fiat money system under Lex Aternia in 454 BC.

It is a myth – innocently propagated by the great Adam Smith – that money developed as a commodity-based or gold-linked means of exchange. Gold was always highly valued, but that is another story. Metal-lovers often conflate the two issues.

Anthropological studies show that social fiat currencies began with the dawn of time. The Spartans banned gold coins, replacing them with iron disks of little intrinsic value. The early Romans used bronze tablets. Their worth was entirely determined by law – a doctrine made explicit by Aristotle in his Ethics – like the dollar, the euro, or sterling today.

Some argue that Rome began to lose its solidarity spirit when it allowed an oligarchy to develop a private silver-based coinage during the Punic Wars. Money slipped control of the Senate. You could call it Rome’s shadow banking system. Evidence suggests that it became a machine for elite wealth accumulation.

Unchallenged sovereign or Papal control over currencies persisted through the Middle Ages until England broke the mould in 1666. Benes and Kumhof say this was the start of the boom-bust era.

One might equally say that this opened the way to England’s agricultural revolution in the early 18th Century, the industrial revolution soon after, and the greatest economic and technological leap ever seen. But let us not quibble.

The original authors of the Chicago Plan were responding to the Great Depression. They believed it was possible to prevent the social havoc caused by wild swings from boom to bust, and to do so without crimping economic dynamism.

The benign side-effect of their proposals would be a switch from national debt to national surplus, as if by magic. “Because under the Chicago Plan banks have to borrow reserves from the treasury to fully back liabilities, the government acquires a very large asset vis-à-vis banks. Our analysis finds that the government is left with a much lower, in fact negative, net debt burden.”

The IMF paper says total liabilities of the US financial system – including shadow banking – are about 200pc of GDP. The new reserve rule would create a windfall. This would be used for a “potentially a very large, buy-back of private debt”, perhaps 100pc of GDP.

While Washington would issue much more fiat money, this would not be redeemable. It would be an equity of the commonwealth, not debt.

The key of the Chicago Plan was to separate the “monetary and credit functions” of the banking system. “The quantity of money and the quantity of credit would become completely independent of each other.”

Private lenders would no longer be able to create new deposits “ex nihilo”. New bank credit would have to be financed by retained earnings.

“The control of credit growth would become much more straightforward because banks would no longer be able, as they are today, to generate their own funding, deposits, in the act of lending, an extraordinary privilege that is not enjoyed by any other type of business,” says the IMF paper.

“Rather, banks would become what many erroneously believe them to be today, pure intermediaries that depend on obtaining outside funding before being able to lend.”

The US Federal Reserve would take real control over the money supply for the first time, making it easier to manage inflation. It was precisely for this reason that Milton Friedman called for 100pc reserve backing in 1967. Even the great free marketeer implicitly favoured a clamp-down on private money.

The switch would engender a 10pc boost to long-arm economic output. “None of these benefits come at the expense of diminishing the core useful functions of a private financial system.”

Simons and Fisher were flying blind in the 1930s. They lacked the modern instruments needed to crunch the numbers, so the IMF team has now done it for them — using the `DSGE’ stochastic model now de rigueur in high economics, loved and hated in equal measure.

The finding is startling. Simons and Fisher understated their claims. It is perhaps possible to confront the banking plutocracy head without endangering the economy.

Benes and Kumhof make large claims. They leave me baffled, to be honest. Readers who want the technical details can make their own judgement by studying the text here.

The IMF duo have supporters. Professor Richard Werner from Southampton University – who coined the term quantitative easing (QE) in the 1990s — testified to Britain’s Vickers Commission that a switch to state-money would have major welfare gains. He was backed by the campaign group Positive Money and the New Economics Foundation.

The theory also has strong critics. Tim Congdon from International Monetary Research says banks are in a sense already being forced to increase reserves by EU rules, Basel III rules, and gold-plated variants in the UK. The effect has been to choke lending to the private sector.

He argues that is the chief reason why the world economy remains stuck in near-slump, and why central banks are having to cushion the shock with QE.

“If you enacted this plan, it would devastate bank profits and cause a massive deflationary disaster. There would have to do `QE squared’ to offset it,” he said.

The result would be a huge shift in bank balance sheets from private lending to government securities. This happened during World War Two, but that was the anomalous cost of defeating Fascism.

To do this on a permanent basis in peace-time would be to change in the nature of western capitalism. “People wouldn’t be able to get money from banks. There would be huge damage to the efficiency of the economy,” he said.

Arguably, it would smother freedom and enthrone a Leviathan state. It might be even more irksome in the long run than rule by bankers.

Personally, I am a long way from reaching an conclusion in this extraordinary debate. Let it run, and let us all fight until we flush out the arguments.

One thing is sure. The City of London will have great trouble earning its keep if any variant of the Chicago Plan ever gains wide support.

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2 Chronicles 7:14 :

if my people, who are called by my name, will humble themselves and pray and seek my face and turn from their wicked ways, then will I hear from heaven and will forgive their sin and will heal their land.

from The End of The American Dream:

Have you ever wondered why things have been going so badly for the United States in recent years?  Our economy is falling apart, we have been plagued with heat, drought and endless natural disasters, our cities are absolutely crumbling, we just keep getting involved in even more wars and Americans are more anxious and more overweight than ever before.  So why are so many bad things happening to America?  Why do we lead the world in so many bad categories?  Why does nothing seem to be going right?  Are we under some kind of a curse?  It is almost as if we have entered a “perfect storm” that just keeps getting worse.  In the old days it would seem like something bad would happen to the United States every once in a while, but now massive problems seem to be hitting us in rapid fire fashion.  At this point, many Americans have “crisis fatigue” because our problems never seem to end.  Each new crisis just seems to overlap with all of the other problems that are still going on.  So why is this happening, and what is our country going to look like if our problems continue to multiply at this rate?

The following are some of the bad things that are happening to America right now….

Heat And Drought 

This summer, thousands of new high temperature records have been set all over the country, and weather conditions are much drier than normal in most of the nation.

In fact, the drought that we are experiencing right now is being called the worst drought in more than 50 years.  More than 1,000 counties in the United States have already been declared to be official disaster areas, and there is no end to the drought in sight.

All over America this drought is killing the corn and this is causing the price of corn to soar.  The following is from a recent Financial Post article….

Chicago Board of Trade corn for December delivery has soared 54% since mid-June, reaching a contract high of US$7.78 on Monday and approaching its record price near US$8.

Soybeans for November delivery soared to a new contract high of US$15.97 before slipping back a few cents.

Crop watchers were alarmed that corn rated poor-to-very poor jumped to 38%, versus 30% last week and 11% a year ago.

The record high for the price of corn is just $7.99 a bushel.  Many believe that the price of corn will soon blow well past that price and could eventually reach $10 a bushel.

Unfortunately, there is not much hope on the horizon.  It is being projected that these very hot and very dry conditions will persist well into August.

Wildfires

The extreme heat has also been responsible for an unusual number of wildfires in the western United States this year.  The recent horrific wildfires in Colorado made headlines all over the nation.

Sadly, these wildfires are part of a rising trend.  The truth is that the 6 worst years for wildfires in the United States ever recorded have all happened since the year 2000.

So what is causing this to happen?

What is causing so much of the country to go up in flames?

Tornadoes

Earlier this year, many areas of the heartland of America were absolutely ripped to shreds by very powerful tornadoes.

More tornadoes happen in the United States than anywhere else in the world, and unfortunately we have seen a tremendous amount of tornado activity in this country in recent years.

In 2009, there were 1146 tornadoes in the United States.

In 2010, there were 1282 tornadoes in the United States.

In 2011, there were 1691 tornadoes in the United States.

Overall, 2011 was the worst year for natural disasters in U.S. history.

So where will 2012 rank when everything is all said and done?

Fukushima

Radiation from the Fukushima nuclear disaster will be affecting Americans for many years to come.

Most Americans do not think much about Fukushima anymore, but the truth is that Fukushima is still putting out a tremendous amount of radiation, and that radiation travels eastward towards us.

A couple of months ago, one reporter discovered that radiation levels in rain falling on Los Angeles were five times above normal.

But we don’t hear about this in the mainstream media, do we?

One recent study concluded that the highest concentration of Fukushima radiation in the Pacific Ocean will eventually be just off the west coast of the United States.

But our “authorities” tell us that there is no reason to be concerned, so most Americans will continue to ignore the incredible tragedy that continues to unfold at Fukushima.

If you are not sure what to think about what is going on at Fukushima, perhaps the following statistic will get your attention….

Recent tests have shown that 36 percent of all children living in the Fukushima Prefecture in Japan have abnormal growths on their thyroid glands.  After the Chernobyl disaster, less than 2 percent of all children living in the area surrounding Chernobyl were found to have abnormal growths on their thyroid glands.

Economic Collapse

The last recession was the worst economic crisis that America has faced since the Great Depression, and our economy has never even come close to recovering from it.

Now we are on the verge of another global financial meltdown that appears likely to be even worse than the last one.

Peter Schiff, the president of Euro Pacific Capital, says that the U.S. economy is headed for a crisis that will make the recession of 2008 and 2009 look like a walk in the park.

So what is going to happen if the economy goes into the toilet and unemployment skyrockets much higher than it is now?

That is frightening to think about.

Poverty Explosion

Even during this “economic recovery”, poverty in America continues to soar.

For example, since Barack Obama has been president the number of Americans on food stamps has risen from 32 million to 46 million.

Overall, 49 percent of all Americans live in a home where at least one person receives benefits from the federal government according to the U.S. Census Bureau.  That is an all-time record high.

The Death Of American Cities

The United States once had dozens of great manufacturing cities that were the envy of the entire globe.

Today, many of those cities have degenerated into crime-ridden, drug infested holes.

Things have gotten so bad in Detroit that thousands of homes are literally being torn down in an effort to “make the city safer”….

As the next step in an April deal between financially strapped Detroit and the state of Michigan, Governor Rick Snyder is finalizing a plan to tear down thousands of abandoned houses in a bid to make the city safer.

Detroit has been hard-hit over the past four decades by a steep drop in population, a steadily eroding tax base and crippling budget deficits, resulting in countless barren streets punctuated by vacant lots and burned-out buildings.

Increase In Crime

Have you noticed that crime is on the rise in many of our communities?

The murder rate in Chicago is up 38 percent so far this year, and justifiable homicide rose by 79 percent in Detroit during 2011.

Criminals are getting bolder and are doing things that we have not seen before.

For example, on Saturday night a mob of 300 teens invaded a Wal-Mart in Jacksonville, Florida and went absolutely wild.  They started stealing stuff, breaking stuff and throwing food at each other without any concern for what the security guards would do.

When have we ever seen stuff like this happen in America before?

America already has the highest incarceration rate in the world and the largest total prison population on the entire planet by a very wide margin.

How many more people do we plan to lock up?

Meanwhile, even many Americans that are not considered to be “criminals” are becoming very cold-hearted.  Just check out what happened in Arlington, Virginia recently.  A video surveillance camera captured footage of numerous people walking right past a man that had just been hit by a car and was dying on the sidewalk.  He was lying face down and bleeding and nobody even went up to him to see if he was okay.

If you were in a similar situation, would you stop to help that man?

Gang Violence

All over America gangs are taking over local communities.

According to the FBI, there are now a total of 1.4 million gang members living in America.  Just since 2009, that number has risen by 40 percent.

To get an idea of how deeply Mexican drug cartels have infiltrated our cities, just check out the maps on this article.

As I wrote about the other day, there are only 200 police officers in Chicago’s Gang Enforcement Unit to go up against an estimated 100,000 gang members living in the city of Chicago right now.

With numbers such as those, it is easy to see how violence in many of our cities could spiral out of control very, very quickly.

War

The United States continues to get pulled into more wars, and the conflicts that we are already involved in never seem to end.

Just today, 22 NATO supply trucks were destroyed in Afghanistan.  The war in Afghanistan has already lasted much longer than World War II did, and there is no end in sight.

Meanwhile, Barack Obama has gotten the U.S. military involved in conflicts in Yemen, Somalia, Pakistan and a whole bunch of other places.  The following is from a recent Wired article….

The center of the US drone war has shifted to Yemen, where 23 American strikes have killed an estimated 155 people so far this year. But you wouldn’t know about it — or about the cruise missile attacks, or about the US commando teams in Yemen — by reading the report the White House sent to Congress about US military activities around the globe. Instead, there’s only the blandest acknowledgement of “direct action” in Yemen, “against a limited number of [al-Qaida] operatives and senior leaders.”

The report, issued late Friday, is the first time the United States has publicly, officially acknowledged the operations in Yemen and in nearby Somalia that anyone with internet access could’ve told you about years ago. But the report doesn’t just fail to admit the extent of the shadow war that America is waging in the region. It’s borderline legal — at best. The War Powers Resolution of 1973 requires the president to inform Congress about any armed conflicts America is engaged in. Friday’s report isn’t just uninformative about Yemen. It doesn’t even mention the US campaign in Pakistan, even though the Defense Secretary says America is “at war” there.

So what is next? . . . . . . .

Read the full article here.

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from The American Dream:

Global leaders have tried just about everything that they can think of, but the coming global financial catastrophe continues to march steadily toward us.  We have seen “stimulus packages”, quantitative easing, bond buying, interest rate cuts, emergency economic summits, bailout packages for banks, bailout packages for entire nations, “Operation Twist”, unprecedented government intervention in business and massive amounts of new government debt and yet nothing seems to revive the global economy.  In fact, it looks like we are rapidly heading into the second dip of a “double dip recession”.  Unfortunately, many believe that this next dip will be more like a full-blown depression.  All over the world, top economic experts are warning that we are facing an unprecedented crisis of debt and insolvency that will result in a global financial catastrophe.  The eurozone is drowning in debt, the U.S. government is drowning in debt and major banks all over the globe are drowning in debt.  Global authorities have been trying to patch the system together and keep it going, but the incredible damage that all of this debt has done is now becoming apparent to everyone.  The global debt bubble that has fueled prosperity in the western world for the last several decades is getting ready to burst, and when that happens the chaos that will result will be absolutely horrifying.

The following are 19 warnings about a coming global financial catastrophe….

read the full article here.

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from The Guardian:

The world risks sliding into a 1930s-style slump unless countries settle their differences and work together to tackle Europe’s deepening debt crisis, the head of the International Monetary Fund has warned.

On a day that saw an escalation in the tit-for-tat trade battle between China and the United States and a deepening of the diplomatic rift between Britain and France, Christine Lagarde issued her strongest warning yet about the health of the global economy and said if the international community failed to co-operate the risk was of “retraction, rising protectionism, isolation”.

She added: “This is exactly the description of what happened in the 1930s, and what followed is not something we are looking forward to.”

The IMF managing director’s call came amid growing concern that 2012 will see Europe slide into a double-dip recession, with knock-on effects for the rest of the global economy. “The world economic outlook at the moment is not particularly rosy. It is quite gloomy,” she said.

Since arriving in Washington in the summer, Lagarde has been forced to cut her organisation’s forecasts for global growth next year and is now putting pressure on countries outside the eurozone – including Britain – to play their part in containing Europe’s sovereign debt crisis.

An IMF plan, agreed at the Brussels summit last week, involves obtaining €200bn (£168bn) from European countries and then asking the rest of the world to contribute. Beijing has so far proved reluctant to join in a rescue of the eurozone and has said it is up to Europe to sort out its own problems.

Speaking at the State Department in Washington, Lagarde said: “There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies, that will be immune to the crisis that we see not only unfolding but escalating.

“It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking some action.”

Lagarde said that the scale of the eurozone crisis, and its implications for other countries, meant that Europe’s governments could not tackle it alone. “It is going to require efforts, it is going to require adjustment; and clearly it is going to have to start from the core of the crisis at the moment, which is obviously the European countries, and in particular the countries of the eurozone,” Lagarde said.

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from der spiegel:

Fear is spreading through the financial markets as investors pull their money out of the crisis-stricken euro-zone countries. With Chancellor Angela Merkel opposed to using the ECB’s firepower to solve the crisis, the monetary union appears increasingly in danger of breaking apart. Some economists are even arguing for Germany to reintroduce the deutsche mark.

Euro bonds? French President Nicolas Sarkozy apparently isn’t familiar with the term. He talks and talks, but he never mentions euro bonds. And then it’s Italian Prime Minister Mario Monti’s turn. Euro bonds? Never heard of them. Or at least he says nothing about them in his speech. The next speaker is German Chancellor Angela Merkel, who wouldn’t dream of mentioning euro bonds.

It is last Thursday, and the three European leaders have just had lunch together in Strasbourg and are giving a press conference on the subject of the euro. It must have been an amazing lunch, full of unity, harmony and understanding.

Or at least that’s the way they describe it. And when something is that pleasant, it makes complete sense not to talk about euro bonds, even though they are now the central issue in the debate over the euro crisis. Merkel is opposed to the idea and Sarkozy and Monti are in favor, but they don’t want to say as much.

Of course, there is, as always, a journalist around who is leery of the harmonious mood, which is why he asks about the bonds that everyone knows about but isn’t mentioning. Merkel says that she hasn’t changed her opinion on the issue, but without actually uttering the distasteful words. Sarkozy mentions the Rhine River, tells a joke about a hypochondriac, talks and talks and finally says that he and his counterparts will certainly come to an agreement. But he doesn’t mention euro bonds by name.

And then it’s Monti’s turn again, and what does he do? He does use the word euro bonds, but then he quickly switches to a new, more attractive synonym, noting that he would not be overly opposed to “stability bonds.” His words reveal that there is indeed a serious conflict within the euro zone.

Hopelessly Divided

Nothing works in Europe without Merkel. And the German chancellor isn’t just opposed to euro bonds. She also refuses to accept a move by the European Central Bank (ECB), backed by the French in particular, to buy up the bonds of ailing euro-zone countries on a much larger scale than it has done to date, in order to bring down the yields on those bonds. But that was not an official topic in Strasbourg, where Sarkozy assured his fellow leaders that France respected the independence of the ECB.

The staged harmonious mood stands in sharp contrast with reality. In the middle of its biggest crisis, Europe is hopelessly divided. One summit follows the next, and they all end with conciliatory statements and avowals, but not with any shared plan for how to save the euro.

The situation could hardly be any more dramatic. The European monetary union threatens to implode unless something happens soon. The ambitious project that was supposed to permanently unify the continent will have failed, with dramatic consequences for Europe and the rest of the world. Countries would go bankrupt, banks would have to be rescued once again, and the economy would sink into a recession that would last for years.

The moment of truth is approaching, now that the end game for the euro has begun. But what will happen now? In the coming weeks, but particularly in the first quarter of 2012, the ailing European countries will have to raise massive amounts of money. In Italy alone, more than €110 billion ($145 billion) in old debt is set to expire, which will have to be refinanced (see graphic). But who is going to give these countries fresh capital at the moment?

Losing Confidence

Investors have lost confidence in the euro-zone countries and in their ability to rescue the common currency. Not even the recent changes of government in Italy, Greece and Spain have been enough to persuade them otherwise.

There is a growing sense of fear, both in the financial markets and in government offices. Even serious bankers who exude confidence in public admit privately that the monetary union could soon fall apart.

The previous bailout attempts have been worthless, they say, noting that Europe must finally reach for the only weapon whose firepower is endless, the European Central Bank. The ECB must finance the debtor nations, even if its own constitution bars it from doing so. The central bank has enough money, and it can also print money if necessary.

Most European leaders share this realization by now — all except Merkel. She remains resistant, concerned about the central bank’s independence and monetary stability. She is also staunchly opposed to all attempts to pool the debts of euro nations through jointly issued debt known as euro bonds.

The German chancellor is increasingly isolated. At home, she must defend any concessions to save the euro against her coalition partners, the business-friendly Free Democratic Party and the conservative Christian Social Union (the Bavarian sister party to Merkel’s Christian Democratic Union). She must convince members of parliament from her own party and abide by the rules set by Germany’s Constitutional Court in its far-reaching decisions on the euro crisis. The FDP is creating alarm by polling its members on the party’s position on the crisis. In other countries, Merkel is seen as a stubborn defender of German interests who hasn’t recognized how serious the situation is — and is therefore jeopardizing the entire monetary union.

Jacques Attali, who used to be an adviser to former French President François Mitterrand, paints the concerns of partner countries in a particularly drastic light. After the two world wars, says Attali, it is “now Germany, once again, that holds the weapons for the entire continent’s suicide in its hands.” If Germany doesn’t change its position, says Attali, “there will be a catastrophe.”

Europe’s Failed Attempts to Save the Euro

From the foreign perspective, the situation is clear: Rescuing the euro depends on Germany, which merely has to abandon its resistance to pooling debt. But this sort of “liability union” would not only contradict the so-called no-bailout clause of the European treaties, under which no euro-zone country can be held liable for the debts of another, but it would also be particularly dangerous for the Germans. As Europe’s largest economy, Germany would shoulder the biggest burden and, in the end, could even be plunged into ruin with the rest of the euro zone.

Merkel is also concerned that the debt-stricken nations would immediately revert to their old bad habits if they felt that their rescue was certain. For this reason, the Germans only want to approve aid in return for strict conditions.

The chancellor has behaved very cautiously from the start. She has made an incrementalist approach the cornerstone of her crisis management, and has always insisted there would be no bold stroke that would slice through the Gordian knot. She wants to think about solutions in terms of an end result. But what if this end result remains so nebulous that tiny steps are in fact the only alternative?

As a result, the efforts to manage the crisis have hobbled along from one summit meeting to the next, without any evidence of lasting success. International investors have set their sights on more and more ailing countries, which in turn have been forced to pay higher rates on their sovereign bonds.

Timid Steps

The instruments and programs with which Merkel and her counterparts have sought to control the crisis have proved to be too timid. Because the first bailout package for Greece was inadequate, it was followed by a second one. The European bailout fund was also enlarged. But because the fund still isn’t fully functional, the ECB is constantly intervening in the bond markets, buying up Italian and Spanish sovereign debt to stabilize yields.

But the chronic stopgap measures have failed to reestablish confidence in the monetary union. There have also been glaring inadequacies in crisis management, as a result of infighting over competencies as well as jealousies between the European Commission and national governments, the ECB and the politicians, and among the central banks of individual countries.

There is also no love lost among the senior-most representatives of the European Union and the euro zone. European Commission President José Manuel Barroso envies European Council President Herman Van Rompuy for his prominent position, while Van Rompuy in turn challenges Euro Group President Jean-Claude Juncker’s authority. All of this infighting leads to strife, ambiguities and a cacophony of voices.

Barroso’s hapless actions are a case in point. Less than two weeks after the crisis summit in late July, he settled his scores with the European heads of state and government, saying that their resolutions were not far-reaching enough, and that their implementation was deficient. The intervention did not exactly build confidence in Europe’s ability to get its act together, and the risk premiums on some European government bonds rose significantly as a result.

Too Small

Even worse than the disharmony is the fact that the euro zone’s backstop fund, the European Financial Stability Facility (EFSF), is not functioning correctly. It was originally set up for crisis-ridden peripheral euro-zone members, but it was soon clear that it was too small even for that. The member states had to add additional guarantees so that the EFSF’s effective lending capacity could actually reach €440 billion as originally planned.

But even that amount was quickly stretched to its limits. The markets were not in the least bit impressed by the Europeans’ commitment. A few weeks ago they targeted two countries, Italy and Spain, which would overburden the EFSF if they had to be bailed out.//

In the future, the EFSF’s remaining funds of €250 billion are to be leveraged, or increased, to between four and five times their current value, using complex financial constructs involving the participation of private investors. The reasoning is that this could also protect countries like Italy or Spain, in the event that they are faced with liquidity problems due to turbulence in the euro zone. If necessary, the funds could also be used to prevent banks from collapsing.

But the euro rescuers did not take investors into account when they were doing their calculations. During his recent promotional tour of state-owned funds in China and investors in Japan, EFSF chief executive Klaus Regling, who had hoped to persuade Asian investors to put their money into the bailout fund, encountered noticeable reticence. The managers of the large investment funds apparently no longer trust the Europeans to get their problems under control.

To make the new instruments more attractive, the EFSF itself must become more heavily involved than planned. This would reduce the necessary leverage considerably. At a meeting of euro- zone finance ministers this week, Regling intends to present solutions that amount to only a doubling or, at most, a tripling of the EFSF funds. . . . . . .

read the full article here.

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