Wall Street Admits That A Cyberattack Could Crash Our Banking System At Any Time

The Economic Collapse
by Michael Snyder

Cyberattack - Public DomainWall Street banks are getting hit by cyber attacks every single minute of every single day.  It is a massive onslaught that is not highly publicized because the bankers do not want to alarm the public.  But as you will see below, one big Wall Street bank is spending 250 million dollars a year just by themselves to combat this growing problem.  The truth is that our financial system is not nearly as stable as most Americans think that it is.  We have become more dependent on technology than ever before, and that comes with a potentially huge downside.  An electromagnetic pulse weapon or an incredibly massive cyberattack could conceivably take down part or all of our banking system at any time.

This week, the mainstream news is reporting on an attack on our major banks that was so massive that the FBI and the Secret Service have decided to get involved.  The following is how Forbes described what is going on…

The FBI and the Secret Service are investigating a huge wave of cyber attacks on Wall Street banks, reportedly including JP Morgan Chase, that took place in recent weeks.

The attacks may have involved the theft of multiple gigabytes of sensitive data, according to reports. Joshua Campbell, supervisory special agent at the FBI, tells Forbes: “We are working with the United States Secret Service to determine the scope of recently reported cyber attacks against several American financial institutions.”

When most people think of “cyber attacks”, they think of a handful of hackers working out of lonely apartments or the basements of their parents.  But that is not primarily what we are dealing with anymore.  Today, big banks are dealing with cyberattackers that are extremely organized and that are incredibly sophisticated.

The threat grows with each passing day, and that is why JPMorgan Chase says that “not every battle will be won” even though it is spending 250 million dollars a year in a relentless fight against cyberattacks…

JPMorgan Chase this year will spend $250 million and dedicate 1,000 people to protecting itself from cybercrime — and it still might not be completely successful, CEO Jamie Dimon warned in April.

Cyberattacks are growing every day in strength and velocity across the globe. It is going to be continual and likely never-ending battle to stay ahead of it — and, unfortunately, not every battle will be won,” Dimon said in his annual letter to shareholders.

Other big Wall Street banks have a similar perspective.  Just consider the following two quotes from a recent USA Today article

Bank of America: “Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future.”

Citigroup: “Citi has been subject to intentional cyber incidents from external sources, including (i) denial of service attacks, which attempted to interrupt service to clients and customers; (ii) data breaches, which aimed to obtain unauthorized access to customer account data; and (iii) malicious software attacks on client systems, which attempted to allow unauthorized entrance to Citi’s systems under the guise of a client and the extraction of client data. For example, in 2013 Citi and other U.S. financial institutions experienced distributed denial of service attacks which were intended to disrupt consumer online banking services. …

“… because the methods used to cause cyber attacks change frequently or, in some cases, are not recognized until launched, Citi may be unable to implement effective preventive measures or proactively address these methods.”

I don’t know about you, but those quotes do not exactly fill me with confidence.

Another potential threat that banking executives lose sleep over is the threat of electromagnetic pulse weapons.  The technology of these weapons has advanced so much that they can fit inside a briefcase now.  Just consider the following excerpt from an article that was posted on an engineering website entitled “Electromagnetic Warfare Is Here“…

The problem is growing because the technology available to attackers has improved even as the technology being attacked has become more vulnerable. Our infrastructure increasingly depends on closely integrated, high-speed electronic systems operating at low internal voltages. That means they can be laid low by short, sharp pulses high in voltage but low in energy—output that can now be generated by a machine the size of a suitcase, batteries included.

Electromagnetic (EM) attacks are not only possible—they are happening. One may be under way as you read this. Even so, you would probably never hear of it: These stories are typically hushed up, for the sake of security or the victims’ reputation.

That same article described how an attack might possibly happen…

An attack might be staged as follows. A larger electromagnetic weapon could be hidden in a small van with side panels made of fiberglass, which is transparent to EM radiation. If the van is parked about 5 to 10 meters away from the target, the EM fields propagating to the wall of the building can be very high. If, as is usually the case, the walls are mere masonry, without metal shielding, the fields will attenuate only slightly. You can tell just how well shielded a building is by a simple test: If your cellphone works well when you’re inside, then you are probably wide open to attack.

And with electromagnetic pulse weapons, terrorists or cyberattackers can try again and again until they finally get it right

And, unlike other means of attack, EM weapons can be used without much risk. A terrorist gang can be caught at the gates, and a hacker may raise alarms while attempting to slip through the firewalls, but an EM attacker can try and try again, and no one will notice until computer systems begin to fail (and even then the victims may still not know why).

Never before have our financial institutions faced potential threats on this scale.

According to the Telegraph, our banks are under assault from cyberattacks “every minute of every day”, and these attacks are continually growing in size and scope…

Every minute, of every hour, of every day, a major financial institution is under attack.

Threats range from teenagers in their bedrooms engaging in adolescent “hacktivism”, to sophisticated criminal gangs and state-sponsored terrorists attempting everything from extortion to industrial espionage. Though the details of these crimes remain scant, cyber security experts are clear that behind-the-scenes online attacks have already had far reaching consequences for banks and the financial markets.

In the end, it is probably only a matter of time until we experience a technological 9/11.

When that day arrives, will your money be safe?

The Economic Collapse

The Impending Catastrophe: “It’s Not Difficult To See This Coming”

SHTFplan
by Karl Denninger

The following analysis and commentary have been contributed by Karl Denninger and The Market Ticker. Karl is the author of Leverage: How Cheap Money Will Destroy the World in which he discusses the ill-use of leverage and how it is destroying the global economy, as well as where all of this will lead. The result is ugly: the value of everything—including gold—falls, and even personal safety is at risk in a world where there is limited money even for essentials like food and fuel.


It’s not difficult to see this coming, if you bother to look.

There is no rule of law any more if you’re a government employee — or one of those protected by same.

Let’s put together just a partial list:

  • Health care.  Monopoly and/or cartel behavior of any sort is supposed to be illegal under 15 USC (Sherman and Clayton Acts) if market power exists.  When you’re flat on your ass with a heart attack in process there is no market; ergo, it exists.  Ditto when you were just stung by a scorpion, or when the so-called “treating facility” refuses to present you with a price before they have you on the operating table — and they told you that the operation was immediately necessary to save your health and/or life.  That’s essentially all procedures except for elective, cosmetic ones — where there is actual competition and prices have fallen over time.  All of this behavior, from charging $60,000 for two $100 vials of scorpion antivenom, charging someone $9,000 to bandage a finger or billing a routine $10-30 test at $10,000 is part and parcel of this, and in any unprotected line of business everyone involved would do 10 years of prison time and be fined $1 million each.
  • Government agencies, such as the IRS and NSA.  The number of times that have been documented in which perjury has been committed, a crime, (cough-Clapper-cough!) is too long to list.  We now find out that in the IRS targeting investigation not only is there a backup of Lerner’s computer (as I originally asserted there had to be) but IRS lawyers admitted to the intentional destruction of the data on her BlackBerry after the investigation began.  For you or I that would immediately result in an obstruction of justice felony charge leveled against everyone involved – including Lerner herself.  Well, where is it?
  • Education.  Cartel behavior at its finest.  You can find virtually any sort of knowledge and lectures on any topic you wish online nowdays.  Yet without obtaining them at a price infinitely higher than those freely available, the exact same material I might add and often delivered by the exact same professors, your knowledge is deemed immaterial and worthless.  This occurs due to cartel behavior between universities and businesses — again, something that should bring immediate prosecution under 15 USC.  Well, where is it?
  • Education again.  Not content to try to force you to pay them something they also conspire to force you to pay more.  Once you’re a captive sucker you get hammered on all sides; you are first told to file a FASFA in which your parents must disclose their assets and income, never mind that you’re an adult.  Then, if you’re not poor, despite this being sold to you as being a means of obtaining “aid”, you are offered only loans, which are not aid at all.  This particular cartel behavior includes the government as they will attempt to force you to file one even to claim things they say are earned, such as “Bright Futures” scholarships!  Once you get to class it’s even worse; your son or daughter who paid the full price (and had to borrow the money and thus pay interest too!) is sitting next to a kid who paid little or nothing.  How?  Your son or daughter was effectively forced to buy his tuition!  Communism at its finest, all at gunpoint.
  • So-called “law enforcement.”  Point a gun at another person when you are not legally permitted to shoot (e.g. to stop a forcible felony in process) and you are arrested and charged with assault with a deadly weapon (or aggravated assault in some jurisdictions.)  The identical behavior was documented on video and still camera images all over Ferguson by the police; where are the indictments?
  • Banks.  Swindle someone out of $10,000 and it’s grand theft, extortion, fraud or any one of a dozen other crimes, all serious felonies.  Hell, all you have to do is a pass a bad check in many jurisdictions to wind up on the wrong end of a felony indictment!  It has been proved that myriad large banks sold securities to customers representing them as “good investments” when in fact their own internal emails document that their staff called them “vomit” (and other similar names) — that is, they knew they were worthless.  Where are the indictments?
  • The Federal Reserve.  The Federal Reserve Act specifically charges the FOMC with regulating both money and credit so as to maintain stableprices, moderate long term interest rates and maximum employment.  Maximum employment may be a loosely-defined goal as may “moderate” long-term interest rates but stable is not a fuzzy word.  The Federal Reserve has willfully and intentionally violated this mandate serially since its inception.  You have about 3-4% of your earnings power stolen every single year as a consequence.  Where are the indictments?
  • Ben Bernanke has admitted that (in his view) virtually all systemically important financial firms were on the edge of collapse in 2008.  This, he cites, is justification for his extraordinary policy moves.  There’s a problem — his mandate is to regulate said money and credit systems all the time, not just in a crisis.  That filing is an admission that both he and the NY Fed failed to do so; that is, they failed to perform their statutory duty.  Why aren’t both he and Tim Geithner in prison, seeing as he made this admission before a court in a sworn filing?

Here’s the problem with this sort of behavior and the protection of same: Civility in general only exists because you, I, and most of the rest of society willingly conform our behavior to the law.  

There are not enough cops, no matter what sort of badge and uniform they wear, to enforce the law otherwise.  If any material percentage of the population decides to behave as these people in their protected circumstances have and do the entirety of law and order collapses instantly.

Well, why is it that you permit the above to occur?  Why did you allow it to develop?  Why do you still allow it?

And how long will it before all of this theft and fraud renders you unable to keep your head above water?

Let me explain that for you: For most people you’re already unable.

Look at the stock market, as one example.  There is more margin debt outstanding than cash in accounts as of today, and in fact this margin is worse than ever before in history (yes, even worse than in 2007.)  In other words, but for the claimed paper value of said certificates the market is factually bankrupt right now on a gross, “every man” basis!

Almost 20% of the gross domestic product of this nation (that is, everything produced) is siphoned off by the health care “system” with its grift, extortion and abuse.  That’s nearly one dollar in five!  A look at other developed, first-world nations (e.g. Japan) discloses that we should be able to buy our health care for somewhere between 1/10th and 1/5th of what we pay today.  Were that to be the case there would be no need for Medicare, Medicaid or health insurance — Obamacare or otherwise! Medicare is a great example; you’re responsible for 20% of the cost, by default, and you must pay a premium to the government.  But if your care was anywhere from 1/5th to 1/10th of today’s price you would actually pay less than the co-pay and deductible you pay today and you wouldn’t pay any premium at all!  In other words, even for the old guy or gal that currently is “on the dole” and allegedly “getting something” you’d be better off financially without Medicare were all of these acts to be prosecuted instead of protected!  Whether you’re rich, poor, young or retired, this scam steals from you each and every day without delivering any more value than it would without the theft.

Take the scam out of education and the cost collapses.  Now you could flip pizzas to pay for college as you could in the 1970s and early 80s before those schemes were instituted.  Prosecute The Federal Reserve Board and Banks and the price of assets, including houses would collapse — probably by 75% or more.  Not only does this mean you could buy a house for far less but for those who choose not to or who can’t rents would come down by 3/4 as well!

Why do you need Section 8 and other similar programs when your cost of housing is cut to a tiny fraction of what it is today?

You don’t!

If you believe that the cost of food hasn’t skyrocketed in the last five years you’re not paying attention.  It has.  Ditto for energy.  Oh yes, those are “excluded” from “inflation” numbers, but you have to buy them anyway.

So what happens when you can’t make the income balance against the outflow?  You borrow money in some form or fashion.

Yet that simply puts you further in the hole.

And that’s what’s been going since roughly 1980:

impending catastrophe

Of course borrowing against nothing, that is, creating credit with nothing behind it, looks good initially because it makes it appear you can keep buying things.  Unfortunately that credit comes with both a requirement to repay it and interest; the latter is a huge problem because over time it compounds just as do earnings.

The usual chestnut is that borrowing stimulates production and is of net benefit.  But the facts are that when borrowing accumulates faster than output that assertion is proved false; what is really going on is that people are borrowing to either consume or speculate.  The former permanently destroys value and the latter leaves you exposed to instant insolvency since the alleged “price” of what you speculate on has been disconnected from its value and is now largely (or even entirely!) predicated only on what someone else will pay.

The majority opinion appears to be that as long as you can get your little piece of the grift, whether it be Medicare, Food Stamps, Section 8 or a rising stock market it’s all ok.  Ask yourself — is that actually true or are you deluding yourself?  Are you falling behind despite getting your little piece of the grift or are you getting ahead?  What about your children?  Are they able to get ahead?  Is the same sort of investment you made 20 or 30 years ago credible as a means for them to obtain results similar or superior to what you obtained, or are they staring down a black hole of indebtedness while pulling coffees at Starbucks?  How about that “new car”; nearly $40,000 today as a “median” price and loan terms extending toward eight years — when just a little while ago the normal term was four.  How’s the job market in your area?  More importantly than the number of jobs — how’s the pay and how does that compare against the increase in health care, food, fuel and insurance expenses you must pay every day just to remain solvent?

Think about it for a while.

Then once again contemplate this: For how long as you going to allow all of the above to continue?  Will you allow it to continue right up until civility is lost entirely or will you demand that it stop and that those committing these acts face the same charges and penalties that you or I would for the same offenses?

impending-collapse

This analysis and commentary have been contributed by Karl Denninger and The Market Ticker. Karl is the author of Leverage: How Cheap Money Will Destroy the World in which he discusses the ill-use of leverage and how it is destroying the global economy, as well as where all of this will lead. The result is ugly: the value of everything—including gold—falls, and even personal safety is at risk in a world where there is limited money even for essentials like food and fuel.

SHTFplan

Fed Vice Chairman Warns: Your Bank May Seize Your Money to Recapitalize Itself

SHTFplan
by Mac Slavo

At the height of the financial crisis in 2008 the U.S. government forced some of the countries largest banks to take “bailout” funds amounting to billions of dollars in order to keep them from going bankrupt. It was a move designed to not only keep too-big-to-fail financial institutions afloat, but one that would inspire confidence and keep American consumers spending. As a result, the last several years have seen stock markets reach record highs with Americans continuing to rack up personal debt for real estate, vehicles, education, and consumer goods as if the financial crisis never happened.

But the purported recovery may not be everything that government officials and influential financial leaders have made it out to be.

Recent comments delivered by Federal Reserve Vice Chairman Stanley Fischer suggest that not only are global and domestic economies still struggling, but the U.S. government itself is preparing financial contingency plans in anticipation of another widespread economic event.

However, this time around, according to Fischer, the government won’t be bailing out financial institutions in need of cash. Instead, failing banks will turn directly to their unsecured creditors when they need money. And within this context, that means you.

The recession that began in the United States in December 2007 ended in June 2009. But the Great Recession is a near-worldwide phenomenon, with the consequences of which many advanced economies continue to struggle. Its depth and breadth appear to have changed the economic environment in many ways and to have left the road ahead unclear.

Work on the use of the resolution mechanisms set out in the Dodd-Frank Act, based on the principle of a single point of entry–though less advanced than the work on capital and liquidity ratios–holds the promise of making it possible to resolve banks in difficulty at no direct cost to the taxpayer.

As part of this approach, the United States is preparing a proposal to require systemically important banks to issue bail-inable long-term debt that will enable insolvent banks to recapitalize themselves in resolution without calling on government funding–this cushion is known as a “gone concern” buffer.

Full text and video available at FederalReserve.gov

Though Fischer doesn’t detail exactly what “bail-inable long term debt” actually is, one only needs to look to Europe, namely Cyprus, to understand what he means.

When the Cypriot banking system collapsed because of an inability to service its debt in 2013, the government forced bank depositors to cover the debts. This led to banks forcibly seizing funds from depositor accounts in order to pay their debts.

According to the Fed Vice Chairman, the U.S. government is now proposing similar rules, following in the footsteps of Europe and Japan, who have already prepared such measures.

The bottom line is that financial, economic and monetary policymakers in the United States are fearful that another crisis, perhaps even worse than what we saw in 2008, is going to be playing out in the very near future. Otherwise, why would they find it necessary to take the drastic step of forcing bank depositors to act as a backstop for their financial institutions?

But this time around, it won’t be the government that bails them out directly. Instead, if you have an account with the bank, you are an unsecured creditor for that institution, just like the people of Cyprus were for their banks. And when that bank inevitably comes under pressure because of an inability to cover their debts, it is you who will become the bailout mechanism.

It’s not hard to imagine how this scenario might play out the next time around.

At the first hint of another crisis we’re going to see panic that will make 2008 look like a picnic. First, stock markets will sell off en masse across the world as a scramble to not be the last one out takes hold of investors. This, in turn, will lead to liquidity problems at major financial institution across the country. As banks run out of cash to cover the tens of billions of dollars they need to service their existing debt, they will turn to the new policies described by Stanley Fischer.

What this means is that one morning you could wake up and see ten or twenty percent of your funds transferred out of your account and exchanged for long-term debt (like a bond) with the promise that the bank will pay it back to you at a later date.

The immediate result, as you might expect, will be widespread bank runs, just as we saw in Europe when Cypriot depositors got hit. But, there will be no cash to be had save a few hundred dollars here and there, as banks will limit ATM withdrawals and will likely shut their doors to customers.

This, of course, would have an effect similar to what we recently saw in Ferguson, except riots and looting will be taking place in every major city across the country.

And though it may seem like an impossible scenario to envision in today’s peaceful and stable America, the U.S. military and Department of Homeland Security doesn’t think so. For the last several years they have been war-gaming and simulating widespread economic collapse scenarios and they’ve been stockpiling everything from armored vehicles to riot gear in over 8,000 counties across the United States in preparation for the civil unrest that would explode from coast to coast.

Tess Pennington, author of The Prepper’s Blueprint, warns that when a crisis like this hits and people lose everything they have, “a person’s anger rules their actions and their thoughts.” When that anger takes over, the people will turn on each other and on their government. “They defy government, because the government is the one that took those freedoms and rights away.”

The government knows this and they have prepared significant contingency plans for such an event.

When it happens, it will be too late for those who did not have the foresight to prepare for it.

  • Do you have extra cash on hand in case the banks shut down?
  • Have you acquired a secondary mechanism of exchange such as gold or silver in case your funds become inaccessible?
  • Do you have an emergency food stockpile in case bank merchant systems go down and grocery stores are unable to process transactions?
  • Are you prepared to shelter in place so as to avoid the looting, violence, and government detentions that will be happening in your local neighborhood?
  • Are you prepared to defend yourself if the violence spreads to your front door?

Now is the time to be ready. The government is. You should be too.

SHTFplan

It Begins: Council On Foreign Relations Proposes That “Central Banks Should Hand Consumers Cash Directly”

Zero Hedge

… A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money

      – Ben Bernanke, Deflation: Making Sure “It” Doesn’t Happen Here, November 21, 2002

A year ago, when it became abundantly clear that all of the Fed’s attempts to boost the economy have failed, leading instead to a record divergence between the “1%” who were benefiting from the Fed’s aritficial inflation of financial assets, and everyone else (a topic that would become one of the most discussed issues of 2014) and with no help coming from a hopelessly broken Congress (who can forget the infamous plea by a desperate Wall Street lobby-funding recipient “Get to work Mr. Chariman”), we wrote that “Bernanke’s Helicopter Is Warming Up.”

The reasoning was very simple: in a country (and world) drowning with debt, there are only two options to extinguish said debt: inflate it away or default. Anything else is kicking the can while making the problem even worse. Because while the Fed has been successful at recreating the world’s biggest asset bubble (in history), it has failed to stimulate broad, “benign” demand-pull inflation as the trickle down effects of its “wealth effect” have failed to materialize 6 years after the launch of the Fed’s unconventional monetary policies.

In other words, a world stuck in the last phase before complete Keynesian collapse, had no choice but to gamble “all in” with the last and only bluff it had left before admitting the economic system it had labored under, one which has borrowed so extensively from the future to fund the present that there is no future left, has failed.

The only question left was when would the trial balloons for such monetary paradrops start to emerge.

We now know the answer, and it is today.

Moments ago a stunning article appearing in the “Foreign Affaird” publication of the influential and policy-setting Council of Foreign Relations, titled “Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People.” 

In it we read the now conventional admission of failure by Keynesians, who however, unwilling to actually admit they have been wrong, urge the even more conventional solution: do more of the same that has lead to the current financial cataclysm, only in this case the authors advocate no longer pretending that the traditional monetary channels work but to, literally, paradrop money. To wit:

To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

 

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

A third, and most important outcome, would be the one we have forecast from the beginning of this ridiculous central bank experiment: “hyperinflation” (which is not simply runaway inflation as it is often incorrectly designated –  it is outright evisceration of the prevailing monetary system), which has been avoided for now, but which is inevitable in a world in which only the wholesale destruction of the fiat reserve currency is the one option left to inflate away the debt overhang.

So without further ado, here is the first official trial balloon – the article that one day soon will be seen as the canary in the paradropmine, and the piece that will finally get the rotor of Bernanke’s, now Yellen’s infamous helicopter finally spinning. Highlights ours:

Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People

From Foreign Affairs, by Mark Blyth and Eric Lonergan

In the decades following World War II, Japan’s economy grew so quickly and for so long that experts came to describe it as nothing short of miraculous. During the country’s last big boom, between 1986 and 1991, its economy expanded by nearly $1 trillion. But then, in a story with clear parallels for today, Japan’s asset bubble burst, and its markets went into a deep dive. Government debt ballooned, and annual growth slowed to less than one percent. By 1998, the economy was shrinking.

That December, a Princeton economics professor named Ben Bernanke argued that central bankers could still turn the country around. Japan was essentially suffering from a deficiency of demand: interest rates were already low, but consumers were not buying, firms were not borrowing, and investors were not betting. It was a self-fulfilling prophesy: pessimism about the economy was preventing a recovery. Bernanke argued that the Bank of Japan needed to act more aggressively and suggested it consider an unconventional approach: give Japanese households cash directly. Consumers could use the new windfalls to spend their way out of the recession, driving up demand and raising prices.

As Bernanke made clear, the concept was not new: in the 1930s, the British economist John Maynard Keynes proposed burying bottles of bank notes in old coal mines; once unearthed (like gold), the cash would create new wealth and spur spending. The conservative economist Milton Friedman also saw the appeal of direct money transfers, which he likened to dropping cash out of a helicopter. Japan never tried using them, however, and the country’s economy has never fully recovered. Between 1993 and 2003, Japan’s annual growth rates averaged less than one percent.

Today, most economists agree that like Japan in the late 1990s, the global economy is suffering from insufficient spending, a problem that stems from a larger failure of governance. Central banks, including the U.S. Federal Reserve, have taken aggressive action, consistently lowering interest rates such that today they hover near zero. They have also pumped trillions of dollars’ worth of new money into the financial system. Yet such policies have only fed a damaging cycle of booms and busts, warping incentives and distorting asset prices, and now economic growth is stagnating while inequality gets worse. It’s well past time, then, for U.S. policymakers — as well as their counterparts in other developed countries — to consider a version of Friedman’s helicopter drops. In the short term, such cash transfers could jump-start the economy. Over the long term, they could reduce dependence on the banking system for growth and reverse the trend of rising inequality. The transfers wouldn’t cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them.

EASY MONEY

In theory, governments can boost spending in two ways: through fiscal policies (such as lowering taxes or increasing government spending) or through monetary policies (such as reducing interest rates or increasing the money supply). But over the past few decades, policymakers in many countries have come to rely almost exclusively on the latter. The shift has occurred for a number of reasons. Particularly in the United States, partisan divides over fiscal policy have grown too wide to bridge, as the left and the right have waged bitter fights over whether to increase government spending or cut tax rates. More generally, tax rebates and stimulus packages tend to face greater political hurdles than monetary policy shifts. Presidents and prime ministers need approval from their legislatures to pass a budget; that takes time, and the resulting tax breaks and government investments often benefit powerful constituencies rather than the economy as a whole. Many central banks, by contrast, are politically independent and can cut interest rates with a single conference call. Moreover, there is simply no real consensus about how to use taxes or spending to efficiently stimulate the economy.

Steady growth from the late 1980s to the early years of this century seemed to vindicate this emphasis on monetary policy. The approach presented major drawbacks, however. Unlike fiscal policy, which directly affects spending, monetary policy operates in an indirect fashion. Low interest rates reduce the cost of borrowing and drive up the prices of stocks, bonds, and homes. But stimulating the economy in this way is expensive and inefficient, and can create dangerous bubbles — in real estate, for example — and encourage companies and households to take on dangerous levels of debt.

That is precisely what happened during Alan Greenspan’s tenure as Fed chair, from 1997 to 2006: Washington relied too heavily on monetary policy to increase spending. Commentators often blame Greenspan for sowing the seeds of the 2008 financial crisis by keeping interest rates too low during the early years of this century. But Greenspan’s approach was merely a reaction to Congress’ unwillingness to use its fiscal tools. Moreover, Greenspan was completely honest about what he was doing. In testimony to Congress in 2002, he explained how Fed policy was affecting ordinary Americans:

“Particularly important in buoying spending [are] the very low levels of mortgage interest rates, which [encourage] households to purchase homes, refinance debt and lower debt service burdens, and extract equity from homes to finance expenditures. Fixed mortgage rates remain at historically low levels and thus should continue to fuel reasonably strong housing demand and, through equity extraction, to support consumer spending as well.”

Of course, Greenspan’s model crashed and burned spectacularly when the housing market imploded in 2008. Yet nothing has really changed since then. The United States merely patched its financial sector back together and resumed the same policies that created 30 years of financial bubbles. Consider what Bernanke, who came out of the academy to serve as Greenspan’s successor, did with his policy of “quantitative easing,” through which the Fed increased the money supply by purchasing billions of dollars’ worth of mortgage-backed securities and government bonds. Bernanke aimed to boost stock and bond prices in the same way that Greenspan had lifted home values. Their ends were ultimately the same: to increase consumer spending.

The overall effects of Bernanke’s policies have also been similar to those of Greenspan’s. Higher asset prices have encouraged a modest recovery in spending, but at great risk to the financial system and at a huge cost to taxpayers. Yet other governments have still followed Bernanke’s lead. Japan’s central bank, for example, has tried to use its own policy of quantitative easing to lift its stock market. So far, however, Tokyo’s efforts have failed to counteract the country’s chronic underconsumption. In the eurozone, the European Central Bank has attempted to increase incentives for spending by making its interest rates negative, charging commercial banks 0.1 percent to deposit cash. But there is little evidence that this policy has increased spending.

China is already struggling to cope with the consequences of similar policies, which it adopted in the wake of the 2008 financial crisis. To keep the country’s economy afloat, Beijing aggressively cut interest rates and gave banks the green light to hand out an unprecedented number of loans. The results were a dramatic rise in asset prices and substantial new borrowing by individuals and financial firms, which led to dangerous instability. Chinese policymakers are now trying to sustain overall spending while reducing debt and making prices more stable. Like other governments, Beijing seems short on ideas about just how to do this. It doesn’t want to keep loosening monetary policy. But it hasn’t yet found a different way forward.

The broader global economy, meanwhile, may have already entered a bond bubble and could soon witness a stock bubble. Housing markets around the world, from Tel Aviv to Toronto, have overheated. Many in the private sector don’t want to take out any more loans; they believe their debt levels are already too high. That’s especially bad news for central bankers: when households and businesses refuse to rapidly increase their borrowing, monetary policy can’t do much to increase their spending. Over the past 15 years, the world’s major central banks have expanded their balance sheets by around $6 trillion, primarily through quantitative easing and other so-called liquidity operations. Yet in much of the developed world, inflation has barely budged.

To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

MAKE IT RAIN

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

Such an approach would represent the first significant innovation in monetary policy since the inception of central banking, yet it would not be a radical departure from the status quo. Most citizens already trust their central banks to manipulate interest rates. And rate changes are just as redistributive as cash transfers. When interest rates go down, for example, those borrowing at adjustable rates end up benefiting, whereas those who save — and thus depend more on interest income — lose out.

Most economists agree that cash transfers from a central bank would stimulate demand. But policymakers nonetheless continue to resist the notion. In a 2012 speech, Mervyn King, then governor of the Bank of England, argued that transfers technically counted as fiscal policy, which falls outside the purview of central bankers, a view that his Japanese counterpart, Haruhiko Kuroda, echoed this past March. Such arguments, however, are merely semantic. Distinctions between monetary and fiscal policies are a function of what governments ask their central banks to do. In other words, cash transfers would become a tool of monetary policy as soon as the banks began using them.

Other critics warn that such helicopter drops could cause inflation. The transfers, however, would be a flexible tool. Central bankers could ramp them up whenever they saw fit and raise interest rates to offset any inflationary effects, although they probably wouldn’t have to do the latter: in recent years, low inflation rates have proved remarkably resilient, even following round after round of quantitative easing. Three trends explain why. First, technological innovation has driven down consumer prices and globalization has kept wages from rising. Second, the recurring financial panics of the past few decades have encouraged many lower-income economies to increase savings — in the form of currency reserves — as a form of insurance. That means they have been spending far less than they could, starving their economies of investments in such areas as infrastructure and defense, which would provide employment and drive up prices. Finally, throughout the developed world, increased life expectancies have led some private citizens to focus on saving for the longer term (think Japan). As a result, middle-aged adults and the elderly have started spending less on goods and services. These structural roots of today’s low inflation will only strengthen in the coming years, as global competition intensifies, fears of financial crises persist, and populations in Europe and the United States continue to age. If anything, policymakers should be more worried about deflation, which is already troubling the eurozone.

There is no need, then, for central banks to abandon their traditional focus on keeping demand high and inflation on target. Cash transfers stand a better chance of achieving those goals than do interest-rate shifts and quantitative easing, and at a much lower cost. Because they are more efficient, helicopter drops would require the banks to print much less money. By depositing the funds directly into millions of individual accounts — spurring spending immediately — central bankers wouldn’t need to print quantities of money equivalent to 20 percent of GDP.

The transfers’ overall impact would depend on their so-called fiscal multiplier, which measures how much GDP would rise for every $100 transferred. In the United States, the tax rebates provided by the Economic Stimulus Act of 2008, which amounted to roughly one percent of GDP, can serve as a useful guide: they are estimated to have had a multiplier of around 1.3. That means that an infusion of cash equivalent to two percent of GDP would likely grow the economy by about 2.6 percent. Transfers on that scale — less than five percent of GDP — would probably suffice to generate economic growth.

LET THEM HAVE CASH

Using cash transfers, central banks could boost spending without assuming the risks of keeping interest rates low. But transfers would only marginally address growing income inequality, another major threat to economic growth over the long term. In the past three decades, the wages of the bottom 40 percent of earners in developed countries have stagnated, while the very top earners have seen their incomes soar. The Bank of England estimates that the richest five percent of British households now own 40 percent of the total wealth of the United Kingdom — a phenomenon now common across the developed world.

To reduce the gap between rich and poor, the French economist Thomas Piketty and others have proposed a global tax on wealth. But such a policy would be impractical. For one thing, the wealthy would probably use their political influence and financial resources to oppose the tax or avoid paying it. Around $29 trillion in offshore assets already lies beyond the reach of state treasuries, and the new tax would only add to that pile. In addition, the majority of the people who would likely have to pay — the top ten percent of earners — are not all that rich. Typically, the majority of households in the highest income tax brackets are upper-middle class, not superwealthy. Further burdening this group would be a hard sell politically and, as France’s recent budget problems demonstrate, would yield little financial benefit. Finally, taxes on capital would discourage private investment and innovation.

There is another way: instead of trying to drag down the top, governments could boost the bottom. Central banks could issue debt and use the proceeds to invest in a global equity index, a bundle of diverse investments with a value that rises and falls with the market, which they could hold in sovereign wealth funds. The Bank of England, the European Central Bank, and the Federal Reserve already own assets in excess of 20 percent of their countries’ GDPs, so there is no reason why they could not invest those assets in global equities on behalf of their citizens. After around 15 years, the funds could distribute their equity holdings to the lowest-earning 80 percent of taxpayers. The payments could be made to tax-exempt individual savings accounts, and governments could place simple constraints on how the capital could be used.

For example, beneficiaries could be required to retain the funds as savings or to use them to finance their education, pay off debts, start a business, or invest in a home. Such restrictions would encourage the recipients to think of the transfers as investments in the future rather than as lottery winnings. The goal, moreover, would be to increase wealth at the bottom end of the income distribution over the long run, which would do much to lower inequality.

Best of all, the system would be self-financing. Most governments can now issue debt at a real interest rate of close to zero. If they raised capital that way or liquidated the assets they currently possess, they could enjoy a five percent real rate of return — a conservative estimate, given historical returns and current valuations. Thanks to the effect of compound interest, the profits from these funds could amount to around a 100 percent capital gain after just 15 years. Say a government issued debt equivalent to 20 percent of GDP at a real interest rate of zero and then invested the capital in an index of global equities. After 15 years, it could repay the debt generated and also transfer the excess capital to households. This is not alchemy. It’s a policy that would make the so-called equity risk premium — the excess return that investors receive in exchange for putting their capital at risk — work for everyone.

MO’ MONEY, FEWER PROBLEMS

As things currently stand, the prevailing monetary policies have gone almost completely unchallenged, with the exception of proposals by Keynesian economists such as Lawrence Summers and Paul Krugman, who have called for government-financed spending on infrastructure and research. Such investments, the reasoning goes, would create jobs while making the United States more competitive. And now seems like the perfect time to raise the funds to pay for such work: governments can borrow for ten years at real interest rates of close to zero.

The problem with these proposals is that infrastructure spending takes too long to revive an ailing economy. In the United Kingdom, for example, policymakers have taken years to reach an agreement on building the high-speed rail project known as HS2 and an equally long time to settle on a plan to add a third runway at London’s Heathrow Airport. Such large, long-term investments are needed. But they shouldn’t be rushed. Just ask Berliners about the unnecessary new airport that the German government is building for over $5 billion, and which is now some five years behind schedule. Governments should thus continue to invest in infrastructure and research, but when facing insufficient demand, they should tackle the spending problem quickly and directly.

If cash transfers represent such a sure thing, then why has no one tried them? The answer, in part, comes down to an accident of history: central banks were not designed to manage spending. The first central banks, many of which were founded in the late nineteenth century, were designed to carry out a few basic functions: issue currency, provide liquidity to the government bond market, and mitigate banking panics. They mainly engaged in so-called open-market operations — essentially, the purchase and sale of government bonds — which provided banks with liquidity and determined the rate of interest in money markets. Quantitative easing, the latest variant of that bond-buying function, proved capable of stabilizing money markets in 2009, but at too high a cost considering what little growth it achieved.

A second factor explaining the persistence of the old way of doing business involves central banks’ balance sheets. Conventional accounting treats money — bank notes and reserves — as a liability. So if one of these banks were to issue cash transfers in excess of its assets, it could technically have a negative net worth. Yet it makes no sense to worry about the solvency of central banks: after all, they can always print  more money.

The most powerful sources of resistance to cash transfers are political and ideological. In the United States, for example, the Fed is extremely resistant to legislative changes affecting monetary policy for fear of congressional actions that would limit its freedom of action in a future crisis (such as preventing it from bailing out foreign banks). Moreover, many American conservatives consider cash transfers to be socialist handouts. In Europe, which one might think would provide more fertile ground for such transfers, the German fear of inflation that led the European Central Bank to hike rates in 2011, in the middle of the greatest recession since the 1930s, suggests that ideological resistance can be found there, too.

Those who don’t like the idea of cash giveaways, however, should imagine that poor households received an unanticipated inheritance or tax rebate. An inheritance is a wealth transfer that has not been earned by the recipient, and its timing and amount lie outside the beneficiary’s control. Although the gift may come from a family member, in financial terms, it’s the same as a direct money transfer from the government. Poor people, of course, rarely have rich relatives and so rarely get inheritances — but under the plan being proposed here, they would, every time it looked as though their country was at risk of entering a recession.

Unless one subscribes to the view that recessions are either therapeutic or deserved, there is no reason governments should not try to end them if they can, and cash transfers are a uniquely effective way of doing so. For one thing, they would quickly increase spending, and central banks could implement them instantaneously, unlike infrastructure spending or changes to the tax code, which typically require legislation. And in contrast to interest-rate cuts, cash transfers would affect demand directly, without the side effects of distorting financial markets and asset prices. They would also would help address inequality — without skinning the rich.

Ideology aside, the main barriers to implementing this policy are surmountable. And the time is long past for this kind of innovation. Central banks are now trying to run twenty-first-century economies with a set of policy tools invented over a century ago. By relying too heavily on those tactics, they have ended up embracing policies with perverse consequences and poor payoffs. All it will take to change course is the courage, brains, and leadership to try something new.

Zero Hedge

Must See Charts and Analysis: This Is Your Recovery And This Is Your Recovery Without Drugs

SHTFplan
by Jim Quinn

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson

Does this chart portray an economic recovery in any way? Wages have been stagnant since the START of the supposed recovery in 2010. Real median household income, even using the highly understated CPI, is on a glide path to oblivion. You just need to observe with your own two eyes the number of Space Available signs in front of office buildings, strip centers and malls across America to realize we have further to fall. Low paying, part-time burger flipping jobs aren’t going to revive this debt saturated economic system. But at least the .1% are enjoying their Federal Reserve created high. Fiat is a powerful drug when administered in large doses to addicts on Wall Street.

The S&P 500 has risen from 666 in March of 2009 to 1,972 today. That is a 196% increase in a little over five years. During this same time, real household income has fallen by 7%. There have been a few million jobs added, while 11 million people have left the labor market. According to Robert Shiller’s CAPE ratio, the stock market valuation has only been higher, three times in history – 1929, 1999, and 2007. He seems flabbergasted by why valuations are so high. Sometimes really smart people can act really dumb.

The Federal Reserve balance sheet was $900 billion before the 2008 financial crisis. Today it stands at $4.4 trillion. The Fed has increased their balance sheet by 220% since the March 2009 market lows. Do you think there is any correlation between the Fed puppets printing $2.4 trillion and handing it to their Wall Street puppeteers, who used their high frequency trading supercomputers and ability to rig the markets so they never lose, and the third stock bubble in the last 13 years? It’s so self evident that only an Ivy League economist or CNBC anchor wouldn’t be able to see it.

sp500fedbal

Let’s look at the amazing stock market recovery without Federal Reserve heroine pumped into the veins of Wall Street banker addicts. If you divide the S&P 500 Index by the size of the Federal reserve balance sheet, you see the true purpose of QE1, QE2, and QE3. It wasn’t to save Main Street. It was to save Wall Street. Without the Federal Reserve funneling fiat to the .1% banking cabal and creating inflation in energy, food, and other basic necessities for the 99.9%, there is no stock market recovery. The recovery has occurred in Manhattan and the Hamptons. It’s been non-existent for the vast majority of people in this country. The wealth effect and trickle down theory have been disproved in spades. The only thing trickling down on the former middle class from the Fed is warm and yellow.

sp500fedbalratio

The entire stock market advance has been created on record low trading volumes and record high levels of monetary manipulation. Even though the Federal Reserve has driven senior citizens further into poverty with 0% interest rates, those with common sense have refused to be lured back into the lion’s den. They have parked record levels of fiat in no interest bank and money market accounts. They are tired of being muppets.

Quantitative easing was supposed to force little old ladies into the stock market and consumers to spend their debased dollars before they lost more value. The spending would revive the dormant economy just as the Keynesian text books promised. It didn’t happen. The peasants haven’t cooperated. Quantitative easing and ZIRP sapped the life from the middle class as their wages have stagnated and their living expenses have skyrocketed. Mission Accomplished by the Fed. Of course, the CNBC bimbos and shills would declare this $10.8 trillion to be money on the sidelines ready to boost the stock market ever higher. I love that storyline. It never grows old.

The MSM, government and Wall Street continue to flog the story about a housing recovery. It’s been nothing but a confidence game based upon the Fed’s easy money and the Wall Street scheme to buy up foreclosed properties with the Fed’s money. The scheme was to artificially boost home prices by restricting home supply through foreclosure manipulation, in order to allow the insolvent Wall Street banks to get out from under their billions in toxic mortgage loans.

Shockingly, the Case Shiller home price index has soared by 25% since 2012 despite first time home buyers being virtually non-existent and mortgage applications plunging to 14 year lows. How could that be? Don’t people need mortgages to buy houses? Isn’t real demand necessary to drive prices higher? Not when Uncle Ben and Madam Yellen are in charge of the printing press. Housing bubble 2.0 has arrived. I wonder if the Federal Reserve balance sheet increase of 50% since 2012 have anything to do with the new housing bubble.

It seems a similar result is obtained when dividing the Case Shiller Index by the size of the Fed’s balance sheet. The real housing market for real people is worse than it was in 2009. The national home price increase has been centered in the usual speculative markets, aided and abetted by the Fed’s easy money, managed by the Wall Street hedge funds, and exacerbated by the late arriving flippers who will be left holding the bag again. The Fed/ Wall Street scheme has priced young people out of the market and has failed to ignite the desired Keynesian impact. Investors/flippers account for 34% of all home sales. Foreigners with no knowledge of value metrics account for 30% of all home sales. The lesson of history is that most people don’t learn the lessons of history. The 2nd housing bubble in seven years is seeking a pin.

If ever you needed proof of the confidence game in its full glory, the chart below from Zero Hedge says it all. Mortgage rates have been falling for the past year, home builders have been reporting soaring confidence about the future, and the National Association of Realtors keeps predicting a surge in home buying any minute now. One small problem. Mortgage applications are in free fall, new home sales are at 1991 levels, and existing home sales are falling. Home prices have peaked and are beginning to roll over. The Wall Street hedgies are all looking to exit stage left. Young people are saddled with over a trillion of government issued student loan debt and millions of older subprime borrowers have been lured into more auto loan debt. Home sales will be stagnant for the next decade.

Quantitative easing will cease come October, unless Yellen and Wall Street can create a new “crisis” to cure with more money printing. By every valuation measure used over the last 100 years, stocks are overvalued by at least 50%. By historical measures, home prices are overvalued by at least 30%. Ten year Treasuries are yielding 2.4%, while true inflation is north of 5%. With real interest rates deep in negative territory, the bond market is even more overvalued than stocks or houses. These simultaneous bubbles have been created by the Federal Reserve in a desperate attempt to keep this debt laden ship afloat. Their solution to a ship listing from too much debt was to load it down with trillions more in debt. The ship is taking on water rapidly.

We had a choice. We could have bitten the bullet in 2008 and accepted the consequences of decades of decadence, frivolity, materialism, delusion and debt accumulation. A steep sharp depression which would have purged the system of debt and punished those who created the disaster would have ensued. The masses would have suffered, but the rich and powerful bankers would have suffered the most. Today, the economy would be revived, saving and investing would be generating needed capital for expansion, and banks would be doing what they are supposed to do – lending money to businesses and individuals. Instead, the Wall Street bankers won the battle and continue to pillage and loot the national wealth while impoverishing the masses.

The arrogance, hubris and contempt for morality displayed by the ruling class is breathtaking to behold. They think they are untouchable and impervious to norms followed by the rest of society. They may have won the opening battle, but will lose the war. Discontent among the masses grows by the day. The critical thinking citizens are growing restless and angry. They are beginning to grasp the true enemy. The system has been captured by a few malevolent men. When the stock, bond and housing bubbles all implode simultaneously, all hell will break loose in this country. It will make Ferguson, Missouri look like a walk in the park. I wonder if the occupants of the Eccles building in Washington DC will get out alive.

“It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford

Charts provided by Confounded Interest

recovery-on-drugs

SHTFplan

Can The U.S. Go Bankrupt?

Alt-Market
by Bob Livingston

uncle sam

When an individual goes bankrupt, he has spent more than his income. His debts and the interest on those debts exceed all the income he has to such a degree that they are beyond his ability to repay.

Most people believe that national governments go bankrupt because they spend too much or spend more than their income. This is what colleges and universities teach and propaganda media parrot. Furthermore, when governments “overspend,” they call it “deficit spending.” But there is no such thing as national bankruptcy as the word “bankruptcy” implies or as it applies to the individual.

There are certain key words and phrases cleverly put into use to conceal the source of government finance: Federal budget, government spending, government deficit and Federal income tax. Believe it or not, none of these terms relates to government finance. But they do cover government fraud on an unbelievable scale.

The terms Federal budget, government spending and government deficit are meaningless when the Federal government and the central bank (Federal Reserve) create money in the form of paper and numbers called credit, in unlimited amounts. The government does not want public knowledge of its monetary trickery. This is why universities teach “accounting” and “finance.”

A simple axiom: To go broke or bankrupt in the national government sense implies that there is a finite or limited supply of money available to national governments. But money does not exist, and no one has ever proven that it does. People think that paper “dollars” are money. In truth, no one has ever seen a dollar. A dollar is not a thing. It is a unit of measurement the same as the terms quart or ton.

Don’t believe me? Will you believe the Federal Reserve’s own publications from the 1970s?

  • “Today, most coin and currency is ‘fiat’ money — money by virtue of government declaration and public acceptance. Fiat money isn’t valuable in itself and doesn’t represent a claim on gold or silver. Fiat money is acceptable because people know money’s true value is its purchasing power — its ability to buy goods and services.” — The Story Of Money, p. 19, Federal Reserve Bank of New York.
  • “Coin and currency are ‘Legal Tender,’ money the Government says has to be accepted if offered to settle a debt. But that approval doesn’t make cash any more ‘real’ than checkbook balances.” — I Bet You Thought… p. 7, Federal Reserve Bank of New York
  • “Neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper. Deposits are merely book entries. Coins do have some intrinsic value as metal, but far less than their face amount… What, then, makes these instruments — checks, paper money, and coins — acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for real goods and services whenever they choose to do so.” — Modern Money Mechanics, p. 3, Federal Reserve Bank of Chicago
  • “Currency backing isn’t relevant in today’s economy. Currency cannot be ‘redeemed,’ or exchanged, for Treasury gold or any other asset used as backing. The question of just what assets ‘back’ Federal Reserve notes has little but bookkeeping significance.” – I Bet You Thought…, p. 11, Federal Reserve Bank of New York
  • “Commercial banks are important financial institutions because they can create money — checkbook money. When we borrow $200 at a local bank to buy a washing machine, we sign an I.O.U. and the banker writes a slip for a $200 addition to our checking account. No one has any less money on deposit, but we have more. The banker has bought our I.O.U. with new demand deposits -­ checkbook money -­ which were created. Bank credit and checkbook money have both increased $200.” — Money and Economic Balance, p. 177, Federal Reserve of New York

The method of money creation is witchcraft. It has been witchcraft for thousands of years. Modern economists and sophisticated eggheads only imagine that they understand money.

Yet nothing that affects our lives could be so all-important. Money is not a dull subject, because the study of money is a study of tyranny. It makes a mockery out of human freedom, property ownership and the accumulation of wealth.

Once we understand money, we then know that any imagined personal freedom that we have is a license or privilege given by the government which can be taken away by the government. The purpose of money is to transfer wealth from the producers to the nonproducer money creators.

John Maynard Keynes revealed a lot in his book, Consequences of the Peace, published in 1919. He stated, “If governments should refrain from regulation (taxation), the worthlessness of the money becomes apparent and the fraud upon the people can be concealed no longer.”

Keynes said in this statement that the system of income tax covers the fraud of the government printing press. What does this mean? It means that the government and its partner the Federal Reserve is printing money (creating credit) out of nothing and paying it into circulation for whatever the government wants, whether it be a fleet of ships or an army or to keep the people fat and happy. To cover the fraud of massive confiscation of wealth with printing press money, we have an income tax system.

The income tax system has a very serious purpose, but contrary to what Americans think the income tax has absolutely nothing to do with funding the government. The income tax is a consumption tax. The income tax regulates consumption. Note Keynes’ word “regulation” above. The income tax system penalizes those who are successful. It is a social and economic leveling system.

The income tax also is used to take as much “money” out of circulation as possible. The more “money” taken out through the income tax, the more the money creators can create. The less “money” there is, the better it keeps its imagined value.

  • “Too much money results in excess spending. When consumers, businesses and governments spend excessively, they compete for the available supply of goods and services and force prices up. When prices rise, the purchasing power of money falls. To keep purchasing power strong, then, the supply of money must not increase too rapidly.” — I Bet You Thought…, p. 111, Federal Reserve Bank of New York

The Federal government funds itself with “printing press money.” The income tax does not fund the Federal government. Almost nobody knows this, but it is extremely important to understand. The power to create money is the source of government force and bureaucratic tyranny in our lives.

What does all this mean to us? It means that we live under an authoritarian system and we are at its mercy. The Federal government has monopoly power to create money (credit or debt) backed by force. And it disguises this system from the people with the income tax system explained above. Simply stated, corporate government is transferring unbelievable and unimaginable wealth to itself with “money” that it creates and which costs nothing. Does this not make “organized crime” look like Sunday school?

This is how and why world wars are financed that cost millions of young lives. This is how social and economic policy is forged into so-called public policy, a euphemism for government social engineering and government force.

“Public policy” is government force in our lives based on monopoly power to create “money.”

So can governments experience economic collapse? Yes, but no one is aware of how it comes about. That’s because it is not a bankruptcy as is generally understood.

Here’s how it happens: The process of government “money” creation is a concealed scheme of consuming (stealing) the national wealth. In effect, the government creates its own wealth — not from taxes, but by creating “money” and using it to fund the government and to transfer wealth from the people to itself. The simple equation is that when governments consume all the national wealth of the people, then the government collapses.

Governments produce nothing, so governments must live off of the producers. It is the nature of governments to grow bigger and bigger and consume more and more of the national wealth. Do you see this happening?

At some point, government overconsumes the national wealth and collapses. Government finally consumes more than the people can produce.

So then, modern bankruptcy of national governments is not overspending. It is overconsumption of the national wealth.

Via Personal Liberty Digest

If This Keeps Up, They Will Have To Start Putting Armed Guards On Food Trucks

The Economic Collapse
by Michael Snyder

Food Truck - Public DomainThe basic necessities in life just keep getting more expensive.  On Tuesday, Hershey announced that the price of all of their chocolate bars is going to go up by about 8 percent.  That is particularly distressing to me, because I am known to love chocolate.  But if it was just chocolate that was becoming significantly more expensive perhaps that would be okay.  Last month, it was coffee.  J.M. Smucker, one of the largest coffee producers in the United States, announced that it planned to raise coffee prices by about 9 percent.  And Starbucks has announced a bunch of price increases across the board on their coffee products.  Of course we could all survive without chocolate and coffee, but as you will see below just about every food category is becoming more expensive.  If this keeps up, could we eventually see armed guards in grocery stores and on food trucks?

On Wednesday, Robert Wenzel of the Economic Policy Journal shared some new data that has just been released by the federal government about food inflation over the past year.  Without a doubt, these numbers are quite startling…

According to the latest data released today by the Bureau of Labor Statistics, year-over-year gains in some food products at the producer level have been truly spectacular.

Eggs for fresh use are up 33.9%.

Pork is up 28%.

Processed turkeys are up 20.4%.

Dairy products are up 10.7%.

Fresh and dry vegetables are up 8.4%.

Fresh fruits and melons are up 7.5%.

Unfortunately, paychecks for most American families are not going up at similar rates.

What that means is more pain when we make our trips to the grocery store.  Things have gotten so bad that even the mainstream media is running stories about this.  For example, this excerpt comes from a recent CNBC article

“I try to do all my local errands in one day and go up to the mall,” said Helon Rapfogel of New Jersey. “I used to go maybe twice or three times a week, and now I just go one day a week, if that much. And I try to consolidate things.”

Rapfogel said that higher costs for food and gas are hitting her overall budget.

“You sacrifice things. Like not doing an ice cream run during the week with the kids. [That could] hurt the local retailers, and we don’t want to do that … but we may have to,” she said.

At the grocery store, meat, dairy and fruit prices are all up substantially. People are even paying more for lattes at their local coffee shops. And it’s not just food—gas prices have jumped sharply on geopolitical unrest, and at the moment there’s no relief in sight.

So why is all of this happening?

Well, the truth is that a lot of factors have combined to produce something of a perfect storm.

First of all, we should talk about Federal Reserve money printing.  Since the last financial crisis, the Fed has been on an unprecedented money printing spree.  This has dramatically pushed up the prices of stocks, commodities and just about everything else.  It was naive to think that we wouldn’t eventually see substantial food inflation as well.  Just look at what “quantitative easing” has done to M1 since the last recession…

M1 Money Supply 2014

When you have more dollars chasing roughly the same amount of goods and services of course prices are going to go up.

It is just basic economics.

But according to Federal Reserve Chair Janet Yellen, there is absolutely no reason to be concerned.  The following is a video of her telling the press her view on inflation that I shared in a previous article

But crazy Fed money printing is not the only reason why food prices are going up.

The endless drought in the western half of the country is severely hurting food production as well.  The size of the U.S. cattle herd has shrunk for seven years in a row, and it is now the smallest that it has been since 1951.  And the drought is hitting the state of California particularly hard, and considering the fact that it produces nearly half of all of our fresh produce that is more than a little bit alarming.  Yes, we are more technologically advanced that we used to be, but we are not advanced enough to overcome an epic multi-year drought in half the nation.

In addition, we are also dealing with the worst pork virus to ever hit the United States right now.  Porcine epidemic diarrhea has already wiped out about 10 percent of the pig population in the U.S., and approximately 100,000 more are dying each week.  As you saw above, pork prices are already up 28 percent over the past 12 months, and if a solution is not found to this virus the price increases are going to get much worse.

Down in Florida, citrus growers are facing a horrific outbreak of citrus greening disease.  The U.S. Department of Agriculture says that orange production in the U.S. will be down 18 percent compared to last year, and it is expected that this will be the worst crop in close to 30 years.

Another plague known as the TR4 fungus has hit banana production.  According to CNBC, this horrible fungus may eventually completely wipe out the variety of bananas that we eat today…

Banana lovers take note: The world’s supply of the fruit is under attack from a fungus strain that could wipe out the popular variety that Americans eat.

“It’s a very serious situation,” said Randy Ploetz, a professor of plant pathology at the University of Florida who in 1989 originally discovered a strain of Panama disease, called TR4, that may be growing into a serious threat to U.S. supplies of the fruit and Latin American producers.

“There’s nothing at this point that really keeps the fungus from spreading,” he said in an interview with CNBC.

While there are nearly 1,000 varieties of bananas, the most popular is the Cavendish, which accounts for 45 percent of the fruit’s global crop—and the one Americans mostly find in their supermarkets.

For decades, Americans have been able to go to the grocery stores and fill up their carts with massive amounts of very inexpensive food.

But just because it has been that way for so many years does not mean that it will be that way in the future.

Right now, there are 49 million Americans that are dealing with food insecurity, and that number will only get worse as food prices go even higher.

It is getting to the point where it is not too hard to imagine desperate people holding up food trucks and robbing grocery stores in order to feed themselves and their families.

Let us hope that we don’t see anything like that any time soon, but we are moving in that direction.

Just a few years ago, the notion that we could ever see armed guards on food trucks or in grocery stores in the United States was absolutely unthinkable.

But now, it is not so crazy.

The Economic Collapse