G
Gandalf Grey
Guest
"Are we headed for another Great Depression". My talks with Elaine Meinel
Supkis
By Mike Whitney
Created May 10 2007 - 4:59pm
Question: I've been getting get more and more e-mails from people who are
worried that the policies of the Bush administration will bring about a
severe economic downturn or, perhaps, even another Great Depression. Do you
believe that the problems in the real estate market, the falling dollar, the
massive current account deficit, or the shaky hedge fund industry are likely
to cause major meltdown?
Elaine Meinel Supkis: Great Depressions like the one that hit in 1929 are
very rare. They usually happen only after two great empires exhaust their
finances. WWI involved two of the biggest industrial powers in a massive
death-struggle that didn't destroy their industries but wrecked their
currencies and beggared their workers. Russia was a major empire but a minor
industrial power so when the workers there revolted, the loss of this
sector's industrial base had much less impact than the collapse of Germany's
currency and its huge war debts.
This chart is from one of my most dog-eared books, one of the greatest works
explaining relative power and why empires collapse, 'The Rise And Fall Of
The Great Powers' by Paul Kennedy. The chart shows how England, the leading
nation in the world, supposedly the richest, spent the most money during
that grinding, depressing stalemate of a war.
Germany spent $3.9 billion less than England. Inflation since 1913 has been
ferocious. This probably would represent well over several trillion dollars
in today's currency. Even today, no nation can take a financial hit that big
and stay solvent. Europe's industrial production fell 30% and the US,
fattened off of billions of dollars of loans to all parties in Europe, lived
high and mighty during the 1920's. But with industrial production lagging,
Europe spiralled downwards. The US cheerfully gave everyone more and more
loans and the promise of being repaid was fantastic! Why, these were
basically AAA subprime loans.
Then Germany couldn't pay and kept asking for better terms. This was OK with
the US but not with bankrupt England or France. So they demanded full
payments and Germany defaulted. This triggered the Great Depression. Even
though the US was now the world's largest manufacturing power, our currency
was mostly for home use so the British had to keep the pound strong. Trying
to do this made things worse.
And so it is today: our empire won't retreat from its distant borders but
these same borders are bankrupting us for we never recovered from the
Vietnam War, we literally papered over the mess which remained and continues
to poison our nation. The military/industrial complex is not making us rich,
it is making us poorer. And the paper being laid over all this is the same
paper the Germans used in 1924 to paper over their own bankruptcy: printed
money.
When an empire does what we are doing today, society falls apart. And if
this happens, there is no easy way out. Individuals can avoid the worst by
avoiding debts but outside of that simple thing, there is no other answer.
Of course, the true answer is a strong working class that believes in unity
and not underselling each other. Alas, the USA has a long and tragic history
of slavery. And the legacy of this culture divides the nation and half loves
slavery and enables wretched working conditions and thinks the road to
wealth is via cheap labor.
Germany has an advantage here: their recent attempt at slavery, the Nazi
empire, was a total disaster and they don't want a repeat. I only wish the
USA felt the same way. For no nation gets very rich for very long if the
working class is poor and can't work their way into the middle class.
Question: Would you explain what is meant by "reserve currency" and how it
serves the greater political interests of the United States? Do you think
that preserving "dollar hegemony" was an important part of the decision to
go to war with Iraq?
Elaine Meinel Supkis: It may sound trite but thinking about great banking
matters as if it is one's own bank account no matter how small, works.
Namely, it is dangerous for anyone to live life where everything is juggled
and there isn't a penny to spare. Then something bad happens and boom. You
go bankrupt. This is why savings accounts matter and why inflation is so
deadly. No one in their right mind keeps a savings account because it can't
grow, it shrinks!
The Federal Reserve was set up to maintain a reserve funds that supposedly
wouldn't be touched by politicians. But alas, this is a fiction. Just like
your own bank account, if one is married and sharing an account and one
party keeps raiding it and spending it on guns and cars or fur coats or
whatever, it runs out of funds and then something bad happens like a
hurricane hits, and the cupboard is bare.
In the case of empires, a way to gage solvency is, how big is their own
reserves compared to the size of these same currency reserves held by
potentially hostile rivals? In the case of the USA, we send dollars out as
fast as we can print them. If too many people getting this flood of money,
around $800 billion a year now!!!!!! If they don't keep a big chunk in bank
vaults, the value of the dollar drops. So they keep it in reserve, in case
of a 'rainy day'. Like 9/11.
And if we think of these funds as boats, then China has Noah's Ark, Japan
has an aircraft carrier, Europe has a holiday cruise liner, Russia has a
very fancy yacht and the USA has a rowboat made out of an old bathtub. That
is leaking.
China has $1.3 trillion in its reserves and is therefore, King of the
Mountain. Japan has $900 billion and is no longer holding new currency so
all the red ink in trade is no longer staying away, it is floating back home
to here, as inflation. Europe has about $600 billion and Russia, $330
billion. The USA has only $66 billion and the numbers released today by the
Federal Reserve shows that number is DROPPING. Yikes.
Question: President Bush has said that he intends to make his tax cuts
"permanent" even though they have produced enormous deficits. At the same
time the Federal Reserve has kept interest rates below the real rate of
inflation and increased the money supply to approximately 10% per annum. Are
these policies designed to maintain a healthy economy with a potential for
strong growth or are they the means for transferring wealth from working
people to the "very rich"?
Elaine Meinel Supkis: How do they 'transfer' wealth? Through unfair taxes.
Under Reagan, American workers, worried about the eventual baby boomer
retirement event horizon, decided to double taxes on Social Security. This
pile of money was instantly, less than a year later, leaped upon and
devoured by our corrupt government. They insantly gave unfair tax cuts to
the upper incomes and basically used SS excess funds to pay for the
government.
This worked OK until Bush took over. He and the GOP have run up debts so
high, they added half a trillion a year in red ink and over the last six
years, this is nearly $3 trillion and our national debt stands at nearly $9
trillion. During the last major money crisis, the 1972 collapse of the
Bretton Woods concord, we had a national debt of not even $1 trillion. We
have not had 900% inflation so I would say, this debt that the GOP rang up
consisted of taking taxes out of the hides of the working class and handing
it on a golden platter to the rich who, incidentally, buy bonds.
But no more! Today, the chief buyer of bonds is the Treasury itself. Next is
China!
Question: Will you explain how the inflationary policies of the Federal
Reserve are causing the stock market to soar and what the potential dangers
are for the global economic system?
Elaine Meinel Supkis: Oh, that is so simple! In 2003, interest rates were
dropped to 1% despite inflation of +5%. Instantly, the value of all assets
shot upwards as bankers moved money along as fast as possible since the Fed
undercut their own interest rates! So mortgages were below the rate of
inflation. But this didn't make enough money so banks and other entities
offered loans to bad risks who had to pay a higher rate. As inflation rages,
they need to give loans to worse and worse customers who pay over 11%
interest!
Alas, the fly in this ointment is exactly that: risky customers can't pay
back loans! They go bankrupt and everyone acts like a good little domino and
over they fall, one after another. Right now,the crashing sound of dominoes
falling is like the hissing of waves on a distant shore but it is rapidly
approaching. We can certainly hear it coming.
Question: Last week, reports showed that US manufacturing unexpectedly rose
in March. However, the Financial Times said that, "The rise in the ISM index
is impossible to square with either the regional surveys released over the
past few weeks or our medium-term yield-driven model. We think it is quite
likely that in their next iterations the ISM will drop sharply." Do you
think the government is deliberately falsifying data on manufacturing to
make the economy look stronger than it really is? Could they be doing this
in areas as well, such as money supply, inflation, employment, and GDP?
Elaine Meinel Supkis: Do alligators bite? Of course, they lie all the time.
Some things were sacred and they didn't lie about them. The M3 data that
shows how much money the Fed prints as well as how much is in circulation,
etc, just last year, they announced, 'No one is really interested in these
numbers and they are too hard to compile.' Like a drunken, gambling spouse
declaring there is no need to balance the check books or look into the bank
accounts, so it is here. Many people yelled about the M3 numbers being
suppressed but to no avail, of course.
Onwards! Since they are lying about basic bank accounting, they have to lie
about everything else or people will figure out, something smells rotten in
Denmark, DC.
They redrew the rules for figuring out inflation so it no longer tracks
inflation. This is so they can cheat retirees and have fake interest rates
and thus, steal from granny and gramps and starve school children while
lining their own pockets.
Question: Do you believe that the extraordinary "police-state" measures
enacted by the Bush administration (Patriot Act, Military Commissions Act,
repeal of habeas corpus, NSA "surveillance" of American citizens without
court order) are intended to address the threat of terrorism or the social
disorder that may arise in response to an economic collapse?
E.M.S.: They planned this for a long, long time. Do note that the 'war on
drugs' was launched as we lost the Vietnam War. Thanks to inflation and a
collapsing currency as well as a sudden hike in oil prices due to the US
hitting the Hubbert Oil Peak here in 1972, there was great unrest. I saw
some of this right up close. Once, when the lights went out in NYC during a
thunderstorm of all things, riots and looting spread like wildfire. My
community was nearly burned to the ground and all the businesses destroyed.
This, the rulers fear a lot. But no number of police can stop it if it
happens. I have seen up close when a whole city revolts. More than once,
including in Europe in 1968. The new, right wing French President will learn
this the hard way next year. There will be riots and insurrections there.
Question: Can you explain--in simple "layman's" terms--the effect of Japan's
low interest "carry trade" on the U.S. stock market? Is this practice
inflating the value of securities in foreign markets? What are the risks?
How is it affecting the euro?
E.M.S.: Europe lends money for more than 5% interest. So does the USA now
although the financiers are getting worried about this and are egging on the
Fed to lower rates back down to 1%. This is pure insanity. Japan has near
zero inflation because they have decided to utterly destroy the purchasing
power of the people in Japan who are living worse and worse off if they are
below the top 20%. Many are now homeless. It is pathetic.
The world's #2 economic power that holds the world's #2 FOREX reserves can't
give pay raises to anyone earning below $10 an hour because this will 'cause
inflation' and so they get to live on the street and starve. Great. Anyone
can eliminate inflation by enslaving the workers. Then they get cut out of
the profits entirely and can't buy things and thus, can't cause inflation!
This is the plan being readied for us! We get to live in shanties while the
rich live in palaces. And we won't buy anything while they have a zillion
servants earning practically nothing. Sort of like England, circa 1914.
Bush and his gangsters hosted the Queen of England who loves him because he
is making her very rich via Carlyle. And the royals of England didn't care
if they starved their subjects who lived like savages under the rule of the
royals. We are sliding backwards, not moving forwards here.
Question: Consumer spending is 70% of US- GDP, and yet, workers wages have
not kept pace with the real rate of inflation. This has led to increased
borrowing on the part of the American consumer. Now that housing prices have
flattened out; consumers can no longer draw on their home equity for their
spending. This has resulted in a huge spike in credit card spending. For
example, "first-quarter profits at MasterCard surged 70% to a record $214.9
million following a 19% jump in transactions." (Peter Schiff) As the weary
American consumer is forced to curtail his spending, GDP will shrink and
foreign investment will dry up. Are we likely to see "capital flight" from
American markets or are foreign investors still confident in America's
resilience?
E.M.S.: In most places, housing prices are falling by 30%! All the people
who responded to ads about getting cheap loans are now discovering they
can't use their homes as ATM machines and simply re-finance over and over
again. The house is supposed to be an asset: if you have to sell it to pay
bills or move because of a job situation, if the debt is greater than the
selling price, you go bankrupt. And this is happening all over the place
now. And it will impact on buying.
Last year, Americans took out half a trillion in extra loans on the house!
The surge in MasterCard (gads, Snidely Whiplash!) charges is because banks
are no longer giving loans to people who are too deep in debt. The money
that flowed there is flowing into the stock market just like it always does
during the first half of an inflationary binge.
The second half is when the stocks collapse like they did in 1974. Then we
see a 5 year bear market. Housing markets ALWAYS take 5+ years to recover
from a bubble. But this last bubble launched by 1% Fed interest rates will
take 20 years to recovery in most places.
Question: You have stated in your blog that the Federal Reserve is "buying
back its own debt". Would you explain how this works and whether it is
intended to confuse the public about the real value of their currency?
(In your blog you say: "The US is the fulcrum for world trade. As the yen
goes down (the yuan is so low, even as it gains, it is very minimal), the
euro goes up. This is crushing the dollar because the US is printing money
like mad to keep commerce flowing at home since it is bleeding red ink in
trade and in government spending. Most of the bonds issued by our own
government are bought by our own government. The only entity to buy much of
that on the open market today is China. Japan is selling its hoard of US
bonds.)
E.M.S.: Yes, aside from forcing Social Security to buy government bonds, the
Treasury sells them to the Feds. This is Peter selling to Paul who then
gives it back to Peter only it shrinks in value during this time. The Fed
and Treasury can play this game to infinity. The only country to nearly
reach that upper limit was Germany in 1924. They added more and more zeros
to the money they printed every hour, day and night until they ran out of
room on the bills. Literally! Then they simply cancelled the money! Bang. It
was gone. Forever.
If no one stops us, we will do this just the same way.
Question: Wall Street reacts with wild enthusiasm every time two
mega-corporations merge. These mergers always seems to generate boatloads of
new credit from maximizing leverage and "creative financing".. You say in
your blog that this is "also a sign of impending collapse. For every pfennig
of this is debt-loaded and is seeking a stable currency and high interest
rates." What do you think are the hidden dangers of these mergers?
E.M.S.: That happened in Germany, too. Everyone merged as money moved faster
and faster and inflated more and more. Bubbles inflate because currency
inflates. They are one and the same. And mergers are caused by money
bubbles.
Question: What do you think the real rate of inflation is?
E.M.S.: Inflation is around 10% now. How do we know? The Federal Reserve
just demanded banks hold 10% of their currency rather than rush it out the
door. This reserve ratio is always a good indicator of inflation. In China,
it was raised to 11% last week. Japan sets theirs at 0%, of course. They are
insane.
Question: Is there a chance that the dollar could collapse?
E.M.S.: I hate to say this but I have a whole book of dead currencies my
family has collected this last 180 years. From 1848 to today, in the USA,
Germany, China, Japan, etc. Many 'pay the holder in gold' bonds. All worth
something as historic documents but all ended up being worthless. Hope
springs ever eternal and bad money is like winter: it always is around the
corner.
Question: In 1966, Alan Greenspan wrote an article called "Gold and Economic
Freedom" in which he described the events leading up to the stock market
crash of 1929 and the Great Depression. In his essay he says:
"When business in the United States underwent a mild contraction in 1927,
the Federal Reserve created more paper reserves in the hope of forestalling
any possible bank reserve shortage. More disastrous, however, was the
Federal Reserve's attempt to assist Great Britain who had been losing gold
to us because the Bank of England refused to allow interest rates to rise
when market forces dictated (it was politically unpalatable). The reasoning
of the authorities involved was as follows: if the Federal Reserve pumped
excessive paper reserves into American banks, interest rates in the United
States would fall to a level comparable with those in Great Britain; this
would act to stop Britain's gold loss and avoid the political embarrassment
of having to raise interest rates.
The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the
economies of the world, in the process. The excess credit which the Fed
pumped into the economy spilled over into the stock market-triggering a
fantastic speculative boom. Belatedly, Federal Reserve officials attempted
to sop up the excess reserves and finally succeeded in braking the boom. But
it was too late: by 1929 the speculative imbalances had become so
overwhelming that the attempt precipitated a sharp retrenching and a
consequent demoralizing of business confidence. As a result, the American
economy collapsed. Great Britain fared even worse, and rather than absorb
the full consequences of her previous folly, she abandoned the gold standard
completely in 1931, tearing asunder what remained of the fabric of
confidence and inducing a world-wide series of bank failures. The world
economies plunged into the Great Depression of the 1930's."
Hasn't the Federal Reserve created similar "speculative imbalances" today
through its increases in the money supply, its low interest rates, and the
massive liquidity it pumped into the housing bubble? And, haven't the
deregulatory policies of the Fed exacerbated our current account
deficit---forcing US exports to compete with countries that artificially
lower the prices of their manufactured goods by manipulating their
currencies?
If the economic policies of the Federal Reserve and the Bush administration
are deliberate, than how can we say that the destruction of the dollar and
the subsequent crushing of the American middle class are accidental?
Greenspan's essay proves that he fully understood the implications of
"excess credit" and "excessive paper reserves" and yet he persisted with the
same destructive policies for 6 years. So---Is the housing bubble merely the
"unintended consequence" of the Fed's policies or is it the clearly
calculated goal?
E.M.S.: Hahaha. The preacher telling us how to avoid the evils of drug abuse
and hanging out with prostitutes comes to mind, doesn't it? The very
moralists warning us about our sins are usually the worst sinners.
I'll never forget Congress praising Greenspan and telling him they should
stuff him and use him as a scarecrow for this would mean no one would ever
question him about finances! Well, I say, hang him high. He is a criminal.
He destroyed our economic might. Treason, it is! And all those people who
betrayed us in order to make a mighty empire on our backs and bank accounts
should be held accountable! There is no excuse for this mess! It was
fixable. But alas, too many people are making too much money off of it the
way it is now and they won't stop no matter what. Just like their latest
imperial wars: endless.
I wish I could say something happy here but history is a bitch who laughs at
us all. We should listen to her.
Elaine Meinel Supkis (Bio)---Born at Yerkes Observatory, grew up on many
observatory mountains and secret government testing grounds, burr under the
saddle of the Real Rulers of America since childhood, family black sheep
with three bags of wool, pulled down more than one politician in life,
winner of the "Struck by Lightning Indoors" award for most hits in lifetime,
three direct and seven glancing blows. Now living on a mountain with horses
and cats and dogs and chickens and a husband. Yikes.
http://elainemeinelsupkis.typepad.com/daily_news/ [1]
_______
Mike Whitney
--
NOTICE: This post contains copyrighted material the use of which has not
always been authorized by the copyright owner. I am making such material
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political, human rights, democracy, scientific, and social justice issues. I
believe this constitutes a 'fair use' of such copyrighted material as
provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107
"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson
Supkis
By Mike Whitney
Created May 10 2007 - 4:59pm
Question: I've been getting get more and more e-mails from people who are
worried that the policies of the Bush administration will bring about a
severe economic downturn or, perhaps, even another Great Depression. Do you
believe that the problems in the real estate market, the falling dollar, the
massive current account deficit, or the shaky hedge fund industry are likely
to cause major meltdown?
Elaine Meinel Supkis: Great Depressions like the one that hit in 1929 are
very rare. They usually happen only after two great empires exhaust their
finances. WWI involved two of the biggest industrial powers in a massive
death-struggle that didn't destroy their industries but wrecked their
currencies and beggared their workers. Russia was a major empire but a minor
industrial power so when the workers there revolted, the loss of this
sector's industrial base had much less impact than the collapse of Germany's
currency and its huge war debts.
This chart is from one of my most dog-eared books, one of the greatest works
explaining relative power and why empires collapse, 'The Rise And Fall Of
The Great Powers' by Paul Kennedy. The chart shows how England, the leading
nation in the world, supposedly the richest, spent the most money during
that grinding, depressing stalemate of a war.
Germany spent $3.9 billion less than England. Inflation since 1913 has been
ferocious. This probably would represent well over several trillion dollars
in today's currency. Even today, no nation can take a financial hit that big
and stay solvent. Europe's industrial production fell 30% and the US,
fattened off of billions of dollars of loans to all parties in Europe, lived
high and mighty during the 1920's. But with industrial production lagging,
Europe spiralled downwards. The US cheerfully gave everyone more and more
loans and the promise of being repaid was fantastic! Why, these were
basically AAA subprime loans.
Then Germany couldn't pay and kept asking for better terms. This was OK with
the US but not with bankrupt England or France. So they demanded full
payments and Germany defaulted. This triggered the Great Depression. Even
though the US was now the world's largest manufacturing power, our currency
was mostly for home use so the British had to keep the pound strong. Trying
to do this made things worse.
And so it is today: our empire won't retreat from its distant borders but
these same borders are bankrupting us for we never recovered from the
Vietnam War, we literally papered over the mess which remained and continues
to poison our nation. The military/industrial complex is not making us rich,
it is making us poorer. And the paper being laid over all this is the same
paper the Germans used in 1924 to paper over their own bankruptcy: printed
money.
When an empire does what we are doing today, society falls apart. And if
this happens, there is no easy way out. Individuals can avoid the worst by
avoiding debts but outside of that simple thing, there is no other answer.
Of course, the true answer is a strong working class that believes in unity
and not underselling each other. Alas, the USA has a long and tragic history
of slavery. And the legacy of this culture divides the nation and half loves
slavery and enables wretched working conditions and thinks the road to
wealth is via cheap labor.
Germany has an advantage here: their recent attempt at slavery, the Nazi
empire, was a total disaster and they don't want a repeat. I only wish the
USA felt the same way. For no nation gets very rich for very long if the
working class is poor and can't work their way into the middle class.
Question: Would you explain what is meant by "reserve currency" and how it
serves the greater political interests of the United States? Do you think
that preserving "dollar hegemony" was an important part of the decision to
go to war with Iraq?
Elaine Meinel Supkis: It may sound trite but thinking about great banking
matters as if it is one's own bank account no matter how small, works.
Namely, it is dangerous for anyone to live life where everything is juggled
and there isn't a penny to spare. Then something bad happens and boom. You
go bankrupt. This is why savings accounts matter and why inflation is so
deadly. No one in their right mind keeps a savings account because it can't
grow, it shrinks!
The Federal Reserve was set up to maintain a reserve funds that supposedly
wouldn't be touched by politicians. But alas, this is a fiction. Just like
your own bank account, if one is married and sharing an account and one
party keeps raiding it and spending it on guns and cars or fur coats or
whatever, it runs out of funds and then something bad happens like a
hurricane hits, and the cupboard is bare.
In the case of empires, a way to gage solvency is, how big is their own
reserves compared to the size of these same currency reserves held by
potentially hostile rivals? In the case of the USA, we send dollars out as
fast as we can print them. If too many people getting this flood of money,
around $800 billion a year now!!!!!! If they don't keep a big chunk in bank
vaults, the value of the dollar drops. So they keep it in reserve, in case
of a 'rainy day'. Like 9/11.
And if we think of these funds as boats, then China has Noah's Ark, Japan
has an aircraft carrier, Europe has a holiday cruise liner, Russia has a
very fancy yacht and the USA has a rowboat made out of an old bathtub. That
is leaking.
China has $1.3 trillion in its reserves and is therefore, King of the
Mountain. Japan has $900 billion and is no longer holding new currency so
all the red ink in trade is no longer staying away, it is floating back home
to here, as inflation. Europe has about $600 billion and Russia, $330
billion. The USA has only $66 billion and the numbers released today by the
Federal Reserve shows that number is DROPPING. Yikes.
Question: President Bush has said that he intends to make his tax cuts
"permanent" even though they have produced enormous deficits. At the same
time the Federal Reserve has kept interest rates below the real rate of
inflation and increased the money supply to approximately 10% per annum. Are
these policies designed to maintain a healthy economy with a potential for
strong growth or are they the means for transferring wealth from working
people to the "very rich"?
Elaine Meinel Supkis: How do they 'transfer' wealth? Through unfair taxes.
Under Reagan, American workers, worried about the eventual baby boomer
retirement event horizon, decided to double taxes on Social Security. This
pile of money was instantly, less than a year later, leaped upon and
devoured by our corrupt government. They insantly gave unfair tax cuts to
the upper incomes and basically used SS excess funds to pay for the
government.
This worked OK until Bush took over. He and the GOP have run up debts so
high, they added half a trillion a year in red ink and over the last six
years, this is nearly $3 trillion and our national debt stands at nearly $9
trillion. During the last major money crisis, the 1972 collapse of the
Bretton Woods concord, we had a national debt of not even $1 trillion. We
have not had 900% inflation so I would say, this debt that the GOP rang up
consisted of taking taxes out of the hides of the working class and handing
it on a golden platter to the rich who, incidentally, buy bonds.
But no more! Today, the chief buyer of bonds is the Treasury itself. Next is
China!
Question: Will you explain how the inflationary policies of the Federal
Reserve are causing the stock market to soar and what the potential dangers
are for the global economic system?
Elaine Meinel Supkis: Oh, that is so simple! In 2003, interest rates were
dropped to 1% despite inflation of +5%. Instantly, the value of all assets
shot upwards as bankers moved money along as fast as possible since the Fed
undercut their own interest rates! So mortgages were below the rate of
inflation. But this didn't make enough money so banks and other entities
offered loans to bad risks who had to pay a higher rate. As inflation rages,
they need to give loans to worse and worse customers who pay over 11%
interest!
Alas, the fly in this ointment is exactly that: risky customers can't pay
back loans! They go bankrupt and everyone acts like a good little domino and
over they fall, one after another. Right now,the crashing sound of dominoes
falling is like the hissing of waves on a distant shore but it is rapidly
approaching. We can certainly hear it coming.
Question: Last week, reports showed that US manufacturing unexpectedly rose
in March. However, the Financial Times said that, "The rise in the ISM index
is impossible to square with either the regional surveys released over the
past few weeks or our medium-term yield-driven model. We think it is quite
likely that in their next iterations the ISM will drop sharply." Do you
think the government is deliberately falsifying data on manufacturing to
make the economy look stronger than it really is? Could they be doing this
in areas as well, such as money supply, inflation, employment, and GDP?
Elaine Meinel Supkis: Do alligators bite? Of course, they lie all the time.
Some things were sacred and they didn't lie about them. The M3 data that
shows how much money the Fed prints as well as how much is in circulation,
etc, just last year, they announced, 'No one is really interested in these
numbers and they are too hard to compile.' Like a drunken, gambling spouse
declaring there is no need to balance the check books or look into the bank
accounts, so it is here. Many people yelled about the M3 numbers being
suppressed but to no avail, of course.
Onwards! Since they are lying about basic bank accounting, they have to lie
about everything else or people will figure out, something smells rotten in
Denmark, DC.
They redrew the rules for figuring out inflation so it no longer tracks
inflation. This is so they can cheat retirees and have fake interest rates
and thus, steal from granny and gramps and starve school children while
lining their own pockets.
Question: Do you believe that the extraordinary "police-state" measures
enacted by the Bush administration (Patriot Act, Military Commissions Act,
repeal of habeas corpus, NSA "surveillance" of American citizens without
court order) are intended to address the threat of terrorism or the social
disorder that may arise in response to an economic collapse?
E.M.S.: They planned this for a long, long time. Do note that the 'war on
drugs' was launched as we lost the Vietnam War. Thanks to inflation and a
collapsing currency as well as a sudden hike in oil prices due to the US
hitting the Hubbert Oil Peak here in 1972, there was great unrest. I saw
some of this right up close. Once, when the lights went out in NYC during a
thunderstorm of all things, riots and looting spread like wildfire. My
community was nearly burned to the ground and all the businesses destroyed.
This, the rulers fear a lot. But no number of police can stop it if it
happens. I have seen up close when a whole city revolts. More than once,
including in Europe in 1968. The new, right wing French President will learn
this the hard way next year. There will be riots and insurrections there.
Question: Can you explain--in simple "layman's" terms--the effect of Japan's
low interest "carry trade" on the U.S. stock market? Is this practice
inflating the value of securities in foreign markets? What are the risks?
How is it affecting the euro?
E.M.S.: Europe lends money for more than 5% interest. So does the USA now
although the financiers are getting worried about this and are egging on the
Fed to lower rates back down to 1%. This is pure insanity. Japan has near
zero inflation because they have decided to utterly destroy the purchasing
power of the people in Japan who are living worse and worse off if they are
below the top 20%. Many are now homeless. It is pathetic.
The world's #2 economic power that holds the world's #2 FOREX reserves can't
give pay raises to anyone earning below $10 an hour because this will 'cause
inflation' and so they get to live on the street and starve. Great. Anyone
can eliminate inflation by enslaving the workers. Then they get cut out of
the profits entirely and can't buy things and thus, can't cause inflation!
This is the plan being readied for us! We get to live in shanties while the
rich live in palaces. And we won't buy anything while they have a zillion
servants earning practically nothing. Sort of like England, circa 1914.
Bush and his gangsters hosted the Queen of England who loves him because he
is making her very rich via Carlyle. And the royals of England didn't care
if they starved their subjects who lived like savages under the rule of the
royals. We are sliding backwards, not moving forwards here.
Question: Consumer spending is 70% of US- GDP, and yet, workers wages have
not kept pace with the real rate of inflation. This has led to increased
borrowing on the part of the American consumer. Now that housing prices have
flattened out; consumers can no longer draw on their home equity for their
spending. This has resulted in a huge spike in credit card spending. For
example, "first-quarter profits at MasterCard surged 70% to a record $214.9
million following a 19% jump in transactions." (Peter Schiff) As the weary
American consumer is forced to curtail his spending, GDP will shrink and
foreign investment will dry up. Are we likely to see "capital flight" from
American markets or are foreign investors still confident in America's
resilience?
E.M.S.: In most places, housing prices are falling by 30%! All the people
who responded to ads about getting cheap loans are now discovering they
can't use their homes as ATM machines and simply re-finance over and over
again. The house is supposed to be an asset: if you have to sell it to pay
bills or move because of a job situation, if the debt is greater than the
selling price, you go bankrupt. And this is happening all over the place
now. And it will impact on buying.
Last year, Americans took out half a trillion in extra loans on the house!
The surge in MasterCard (gads, Snidely Whiplash!) charges is because banks
are no longer giving loans to people who are too deep in debt. The money
that flowed there is flowing into the stock market just like it always does
during the first half of an inflationary binge.
The second half is when the stocks collapse like they did in 1974. Then we
see a 5 year bear market. Housing markets ALWAYS take 5+ years to recover
from a bubble. But this last bubble launched by 1% Fed interest rates will
take 20 years to recovery in most places.
Question: You have stated in your blog that the Federal Reserve is "buying
back its own debt". Would you explain how this works and whether it is
intended to confuse the public about the real value of their currency?
(In your blog you say: "The US is the fulcrum for world trade. As the yen
goes down (the yuan is so low, even as it gains, it is very minimal), the
euro goes up. This is crushing the dollar because the US is printing money
like mad to keep commerce flowing at home since it is bleeding red ink in
trade and in government spending. Most of the bonds issued by our own
government are bought by our own government. The only entity to buy much of
that on the open market today is China. Japan is selling its hoard of US
bonds.)
E.M.S.: Yes, aside from forcing Social Security to buy government bonds, the
Treasury sells them to the Feds. This is Peter selling to Paul who then
gives it back to Peter only it shrinks in value during this time. The Fed
and Treasury can play this game to infinity. The only country to nearly
reach that upper limit was Germany in 1924. They added more and more zeros
to the money they printed every hour, day and night until they ran out of
room on the bills. Literally! Then they simply cancelled the money! Bang. It
was gone. Forever.
If no one stops us, we will do this just the same way.
Question: Wall Street reacts with wild enthusiasm every time two
mega-corporations merge. These mergers always seems to generate boatloads of
new credit from maximizing leverage and "creative financing".. You say in
your blog that this is "also a sign of impending collapse. For every pfennig
of this is debt-loaded and is seeking a stable currency and high interest
rates." What do you think are the hidden dangers of these mergers?
E.M.S.: That happened in Germany, too. Everyone merged as money moved faster
and faster and inflated more and more. Bubbles inflate because currency
inflates. They are one and the same. And mergers are caused by money
bubbles.
Question: What do you think the real rate of inflation is?
E.M.S.: Inflation is around 10% now. How do we know? The Federal Reserve
just demanded banks hold 10% of their currency rather than rush it out the
door. This reserve ratio is always a good indicator of inflation. In China,
it was raised to 11% last week. Japan sets theirs at 0%, of course. They are
insane.
Question: Is there a chance that the dollar could collapse?
E.M.S.: I hate to say this but I have a whole book of dead currencies my
family has collected this last 180 years. From 1848 to today, in the USA,
Germany, China, Japan, etc. Many 'pay the holder in gold' bonds. All worth
something as historic documents but all ended up being worthless. Hope
springs ever eternal and bad money is like winter: it always is around the
corner.
Question: In 1966, Alan Greenspan wrote an article called "Gold and Economic
Freedom" in which he described the events leading up to the stock market
crash of 1929 and the Great Depression. In his essay he says:
"When business in the United States underwent a mild contraction in 1927,
the Federal Reserve created more paper reserves in the hope of forestalling
any possible bank reserve shortage. More disastrous, however, was the
Federal Reserve's attempt to assist Great Britain who had been losing gold
to us because the Bank of England refused to allow interest rates to rise
when market forces dictated (it was politically unpalatable). The reasoning
of the authorities involved was as follows: if the Federal Reserve pumped
excessive paper reserves into American banks, interest rates in the United
States would fall to a level comparable with those in Great Britain; this
would act to stop Britain's gold loss and avoid the political embarrassment
of having to raise interest rates.
The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the
economies of the world, in the process. The excess credit which the Fed
pumped into the economy spilled over into the stock market-triggering a
fantastic speculative boom. Belatedly, Federal Reserve officials attempted
to sop up the excess reserves and finally succeeded in braking the boom. But
it was too late: by 1929 the speculative imbalances had become so
overwhelming that the attempt precipitated a sharp retrenching and a
consequent demoralizing of business confidence. As a result, the American
economy collapsed. Great Britain fared even worse, and rather than absorb
the full consequences of her previous folly, she abandoned the gold standard
completely in 1931, tearing asunder what remained of the fabric of
confidence and inducing a world-wide series of bank failures. The world
economies plunged into the Great Depression of the 1930's."
Hasn't the Federal Reserve created similar "speculative imbalances" today
through its increases in the money supply, its low interest rates, and the
massive liquidity it pumped into the housing bubble? And, haven't the
deregulatory policies of the Fed exacerbated our current account
deficit---forcing US exports to compete with countries that artificially
lower the prices of their manufactured goods by manipulating their
currencies?
If the economic policies of the Federal Reserve and the Bush administration
are deliberate, than how can we say that the destruction of the dollar and
the subsequent crushing of the American middle class are accidental?
Greenspan's essay proves that he fully understood the implications of
"excess credit" and "excessive paper reserves" and yet he persisted with the
same destructive policies for 6 years. So---Is the housing bubble merely the
"unintended consequence" of the Fed's policies or is it the clearly
calculated goal?
E.M.S.: Hahaha. The preacher telling us how to avoid the evils of drug abuse
and hanging out with prostitutes comes to mind, doesn't it? The very
moralists warning us about our sins are usually the worst sinners.
I'll never forget Congress praising Greenspan and telling him they should
stuff him and use him as a scarecrow for this would mean no one would ever
question him about finances! Well, I say, hang him high. He is a criminal.
He destroyed our economic might. Treason, it is! And all those people who
betrayed us in order to make a mighty empire on our backs and bank accounts
should be held accountable! There is no excuse for this mess! It was
fixable. But alas, too many people are making too much money off of it the
way it is now and they won't stop no matter what. Just like their latest
imperial wars: endless.
I wish I could say something happy here but history is a bitch who laughs at
us all. We should listen to her.
Elaine Meinel Supkis (Bio)---Born at Yerkes Observatory, grew up on many
observatory mountains and secret government testing grounds, burr under the
saddle of the Real Rulers of America since childhood, family black sheep
with three bags of wool, pulled down more than one politician in life,
winner of the "Struck by Lightning Indoors" award for most hits in lifetime,
three direct and seven glancing blows. Now living on a mountain with horses
and cats and dogs and chickens and a husband. Yikes.
http://elainemeinelsupkis.typepad.com/daily_news/ [1]
_______
Mike Whitney
--
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"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson