Wednesday, November 5, 2008

Barack Obama: Hope You Can Cling To

Barack Obama:  Hope You Can Cling To
By Steven Vincent

The American people-- through conditioning, habit and sloth --are consumers.  We consume a variety of products to fulfill needs both real and (primarily) perceived.  Marketers have discovered that through advertising we can be trained to decide which product to consume based on emotion rather than function. This includes political products, which are generally sold to us under the product category of "Politician".  Please watch the series, "The Century of Self" which details how techniques of psychological manipulation have been used to sell us all manner of products, including the Politician.  

Two dominant brands dominate the market for Politician products, the Republican and the Democrat.  In the case of either brand product, intensive research goes into designing the product and its marketing to appeal to the emotional needs of the consumer.  The product is not sold based on its functionality, since it has none other than to fulfill emotional desires and feelings.

Every aspect of the product is shaped to produce an effect.  The smile, the tilt of the head, the gesture, the stance, the wave, the cadence and intonation of voice--all are consciously cultivated and crafted.  As new market data becomes available, the product is updated to reflect the changes for maximum salability.

Barack Obama is a manufactured, packaged, marketed and sold product.  If you voted for Barack Obama, you consumed the Democrat brand politician product "Obama".  What is the function and purpose of the Obama product?  What emotional need does it fulfill?  To answer these questions, we must first identify the aims of the corporate manufacturers of the product.

At this point it's instructive to watch character Arthur Jensen's pivotal monologue in the film, "Network".  Here, Jensen informs Howard Beale of the nature of the world--that the world is a business and that democracy is an illusion.

Jensen's argument is undeniable except to those who make a religious practice of denial.  Those who are new to the fundamental truths of this world often experience outrage, as I did.  Why outrage?  Is it because we now see the injustice and tyranny of the System?  Perhaps.  Howard Beale was angered to madness by such revelations.  But at a deeper level our anger proceeds from disillusionment because we once held the belief that government is good and beneficent and now find that belief shattered.  It is not the specific facts of the System's brutality--the dead bodies, the ruined lives, the crushed dreams, the poisoned world--which truly enrages us.  It is the fact that we were so duped as to believe that the System existed to protect against such outrages.

It's interesting to note that the path of the awakened and the ignorant are both ruled by emotions.  In "The Matrix", Morpheus tells Neo, "You are a slave, Neo" and offers him a choice a a blue pill which will return him to blissful ignorance or a red pill which will reveal the truth. 

It is the choice between one product or another.  Neo chooses based on the emotional need fulfillment particular to himself.  He chooses to know truth.  The vast majority, however, will pay extra for the bliss of ignorance.  The System and its product design teams know this and so provide products which correspond to this reality in order to maximize sales and profit for the corporation and maintain the stability of the System itself.

Since a certain number of Neo class consumers wanted a "Truth" product which represented Hope and real Change, the free market for political product (such as it exists through the temporary crucible of the internet) eventually met this need in the form of a quiet, thoughtful doctor from Texas by the name of Ron Paul. The Truth Seekers became evangelists and co-creators of the Ron Paul product, developing it together to fulfill real needs for constitutional, accountable government, freedom from oppression, the end to war, prosperity and Hope for America.  Unfortunately, the Ron Paul product was not adopted by the greater part of the marketplace for politician products and so went the way of similar superior products, such as the electric car.

The System observed the spontaneous creation and development of the Ron Paul product and was at once intrigued and frightened.  It saw that there was a deep emotional need in the market for a Change-like product which inspired Hope and yet strategically were challenged by the demand for a politician of true substance.   Substance is very expensive and not profitable.

They set about the task of seizing control of this market for a Change and Hope politician.  They quickly designed a product, the Obama, which gave the consumer much of the same emotional gratification as the Ron Paul product without any of the costs associated with actual substance.  The corporate manufacturers of Politician products realized that most consumers will do anything to avoid taking the red pill of Truth which would cause them to see the Matrix for what it is--a system of enslavement.  These consumers are Comfort Seekers rather than Truth Seekers.  They could however be made to buy into a product which causes them to feel as though they had attained "Truth" while simultaneously denying reality.  In George Orwell's "1984", this form of mind control is known as "doublethink". 

Consumers of the "Obama" politician product are buying a sense that they have bucked the System by choosing a Change and Hope labeled product.  Yet they are purchasing the emotional feeling associated with the product only.  In a world of brutal realities, Barack Obama is 'Hope You Can Cling To".

Barack Obama is the pasteurized, processed food substitute of politics.  He gives the appearance of being real, is easily consumable by large numbers, gives a sense of momentary gratification and makes consumers feel good about themselves.   Obama is a new iPod.  Or a shiny SUV.  Or a Double Moccachino Latte.  He is a vacation far away from the hard work of reality to Fantasy Island.  

Obama is a convenience that buys the consumer four more years to slumber in doublethink denial that we live in anything other than a dictatorship of elite interests led by the international bankers who bankrolled the marketing of a phony Hope and Change product all the way to #1 market share.

Tonight, the American people have purchased a bill of goods. OK, America.  You bought it.  Now Obama will break it.  How long will the denial last?

Your Friend in Freedom,

Steven Vincent

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The Corrupt Origins of Central Banking in America

The Corrupt Origins of Central Banking in America

Daily Article by | Posted on 11/5/2008

First Bank of the United States, Philadelphia, 1791Central banking has been a corrupt, mercantilist scheme and an engine of corporate welfare from its very beginning in the late 18th century. The first central bank, the Bank of North America, was "driven through the Continental Congress by [congressman and financier] Robert Morris in the Spring of 1781," wrote Murray Rothbard in The Mystery of Banking (p. 191). The Philadelphia businessman Morris had been a defense contractor during the Revolutionary War who "siphoned off millions from the public treasury into contracts to his own … firm and to those of his associates." He was also "leader of the powerful Nationalist forces" in the new country.

The main objective of the Nationalists, who were also known as Federalists, was essentially to establish an American version of the British mercantilist system, the very system that the Revolution had been fought against. Indeed, it was this system that the ancestors of the Revolutionaries had fled from when they came to America. As Rothbard explained, their aim was

To reimpose in the new United States a system of mercantilism and big government similar to that in Great Britain, against which the colonists had rebelled. The object was to have a strong central government, particularly a strong president or king as chief executive, built up by high taxes and heavy public debt. The strong government was to impose high tariffs to subsidize domestic manufacturers, develop a big navy to open up and subsidize foreign markets for American exports, and launch a massive system of internal public works. In short, the United States was to have a British system without Great Britain. (p. 192)

An important part of the "Morris scheme," as Rothbard called it, was "to organize and head a central bank, to provide cheap credit and expanded money for himself and his allies. The … Bank of North America was deliberately modeled after the Bank of England." The Bank was given a monopoly privilege of its notes being receivable in all tax payments to state and federal government, and no other banks were permitted to operate in the country. It "graciously agreed to lend most of its newly created money to the federal government," wrote Rothbard, and "the hapless taxpayers would have to pay the Bank principal and interest."

Despite these monopolistic privileges, a lack of public confidence in the Bank's inflated notes led to their depreciation and the Bank was privatized by the end of 1783. But Morris did not give up on his scheme. He recruited a young Alexander Hamilton to serve more or less as his political puppet within the Washington administration. (Rothbard called Hamilton "Morris's youthful disciple.") In fact, the reason why Hamilton became Treasury secretary, despite having no reputation at all in the field of finance, was the recommendation by Morris to George Washington. (During the Revolutionary War, when he was an aide to Washington, Hamilton took the time to write Morris a 30-page letter proclaiming that he agreed with every one of his ideas about protectionist tariffs, corporate subsidies, and a government-run bank to finance them.)

Morris and his fellow Nationalists wanted a king-like chief executive who would rule over a mercantilist empire, just as the king of England ruled over his mercantilist empire. They, of course, would be the ones to advise and instruct the "king" and benefit financially from such an empire. So their young protégé Hamilton commenced his seven-year crusade to overthrow the first US constitution — the Articles of Confederation — by calling for a new constitutional convention to supposedly "revise" the Articles of Confederation. At the convention, Hamilton laid out his (really Morris's) plan: a permanent president who would appoint all the governors and who would have veto power over all state legislation. Under such a plan, state sovereignty would have been destroyed, and there would have been no escape from the central government's high taxes, protectionist tariffs, heavy debt, and foreign-policy imperialism — the agenda of the Nationalists.

The Hamilton/Morris plan was defeated, of course, as was the proposal made at the convention to include a central bank among the delegated powers to the federal government. But the government was more highly centralized, as "the Nationalist forces pushed through a new Constitution" and "were on their way to re-establishing the mercantilist and statist British model…" (p. 193). They begrudgingly acquiesced in a Bill of Rights in return for the anti-Federalists' support for the new Constitution. And most importantly, writes Rothbard,

A critical part of their program was put through in 1791 by their leader, Secretary of the Treasury, Alexander Hamilton, a disciple of Robert Morris. Hamilton put through Congress the First Bank of the…. United States…. modeled after the old Bank of North America [whose]….longtime president and former partner of Robert Morris, Thomas Willing of Philadelphia, was made president of the New Bank.

In making his case to President Washington for the constitutionality of a central bank, which had been explicitly rejected at the constitutional convention, Hamilton invented the idea of "implied powers" of the Constitution. These were "powers" that were not expressly delegated to the federal government in the document, but could be "implied" by clever lawyers like Hamilton. This of course became a roadmap for the total destruction of constitutional limitations on the powers of the federal government.

The First Bank of the United States "promptly fulfilled its inflationary potential," Rothbard writes in his History of Money and Banking in the United States (p. 69). It issued millions of dollars in paper money and demand deposits "pyramiding on top of $2 million in specie." The Bank invested heavily in the US government, and "The result of the outpouring of credit and paper money by the new Bank of the United States was … an increase [in prices] of 72 percent" from 1791–1796.

Northern merchants provided the main political support for Hamilton's Bank, whereas southern politicians like Jefferson supplied most of the opposition to it, seeing it as nothing more than a vehicle for financing an American version of the corrupt British mercantilist system, which would be destructive of liberty and prosperity. They were right, of course, and remain right to this day.

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Sunday, November 2, 2008


by Krassimir Petrov, PhD
Prince Sultan University, Saudi Arabia

November 2, 2008


The mainstream media and Wall Street have reached the consensus that the current credit crisis is the worst since the post-war period. George Soros’ statement that ”the world faces the worst finance crisis since WWII” epitomizes the collective wisdom. The crisis is currently the ultimate scapegoat for all the economic evils that currently plague the global financial system and the global economy – from collapsing stock markets of the world to food shortages in third world counties. We are repeatedly assured that the ultimate fault lies with the Credit Crisis itself; if there were no Credit Crisis, all of these terrible things would never have happened in the economy and the financial markets.

The most extraordinary thing is that the mainstream media has never attempted to compare the current economic environment to the one preceding the Great Depression. In essence, it is assumed outright that the Great Depression can never possibly happen again, ever, thus obviating the need for such a comparison. I actually believe that the macroeconomic fundamentals today are much worse, so that we are in for a protracted period of economic depression – a depression much worse than the Great Depression, a depression that would likely be remembered in history as “The Second Great Depression” or The Greater Depression, as Doug Casey has called it so aptly. Here is why I believe that this is the case.

Duplicating Mistakes from the Great Depression

At its core, the environment of the 1990s, and the response of the Fed to the tech-telecom bust has created an economic environment that has encouraged the repetition of the very same mistakes that led to the Great Depression. Here is a concise summary of widely recognized mistakes of the 1920s, without going into the details, with obvious parallels in the current environment:

  • Asset Bubbles – first in the stock market during the 1990s, then in real estate during the 2000s, pretty much mirroring the stock and real estate market bubbles of the 1920s.
  • Securitization – although not in the very “ultra-modernistic” form and shape of the 2000s, with slicing and dicing of pools and tranches of seniority, it was widely recognized in the 1930s that securitization during the 20s drove the domino effect in the U.S. financial system during the Great Depression.
  • Excessive Leverage – just like in 2008 the topic du jour is “deleveraging”, so the unwinding of leverage during the 1930s was the driver of forced liquidations and financial pain. Of course, it was very clear back then that the root of the problem was not deleveraging per se, but the excessive leverage that took place prior to the deleveraging process. “Investment Pools” were then instrumental in both the securitization and excessive leverage, just like the Hedge Funds of today.
  • Corrupt Gatekeepers – we know well that the Enrons and Worldcoms were aided and abetted by the accounting firms – those same firms that were supposedly the Gatekeepers of the financial community, yet handsomely profited from the boom while neglecting their watchdog functions. In the current financial crisis, we also know that the rating agencies were also making hay during the boom. Very similar were the issues during the 1920s that led to the establishment of the SEC and other regulatory bodies to replace the malfunctioning “gatekeepers” at the time.
  • Financial Engineering – we are led to believe that financial engineering is a rather recent phenomenon that flourished during the New Age Finance Era of the last 15 years, yet financial engineering was prevalent in the 1920s with very clear goals: (1) to evade restrictive regulations, (2) to increase leverage, and (3) to remove liabilities from the books, all too familiar to all of us today.
  • Lagging Regulations – just like the regulatory environment lagged the events of the 1920s and regulations were introduced only after the Great Depression had obliterated the U.S. financial system, so we are yet to see new regulations addressing the causes of the current crisis. Understandably, regulations should have foreseen today’s financial problems and should have been introduced before the crisis.
  • Market Ideology – back in the 1920s, just like in the last two decades, the market ideology of “laissez faire”, which Soros quite appropriately described as “Market Fundamentalism”, has swept the financial markets. Of course, the free market knows the best, but the reality is that the money market is not really free – when the Fed determines the cost of money (interest rates), and can fix this cost for as long as it wants, then all sorts of financial imbalances can be sustained without the discipline imposed by the market. This can lead to all sorts of problems that we actually have to face today.
  • Non-Transparency – back in the 1930s, it was widely recognized that businesses and especially financial institutions lacked transparency, which allowed for the accumulation of significant imbalances and abuses. Today, financial markets and institutions have intentionally compromised transparency in a number of ingenious, or better disingenuous, accounting trickeries and financial gimmicks, like off-balance-sheet entities (SIVs), hard-to-understand derivatives, and opaque instruments with mind-boggling complexity. Today CEOs and Chief Risk Officers of major financial institutions cannot figure out their own risk exposures. Originally, lack of transparency was designed to fool the markets; ironically, modern-day financial executives have gotten to the point of fooling themselves.

Worse than the Great Depression

So, why Worse Than The Great Depression? What makes me believe that the current depression will be worse than the Great Depression? I present six of the most important fundamentals that are “baked in the cake” and that suggest of a Greater Depression.

  1. Overvalued Real Estate. The real estate market has been driven by a number of innovations in real estate finance. Overvaluation in real estate implies overvaluation in real estate financial instruments; an implosion of real estate prices implies an implosion in those instruments. It is widely recognized by economists that the Case-Shiller Index is a good proxy for the prices of real estate. A widely-recognized chart from 1890 to 2007 tells the story. The chart makes it crystal clear that the current overvaluation of real estate in real terms grossly exceeds the one during the 1920s. The coming correction in real estate will be protracted and gut-wrenching, with an expected cumulative effect that is much worse than the Great Depression.


  2. Total U.S. Credit. Credit makes leverage: the more credit in the financial system, the more leveraged it is. Today’s total U.S. credit relative to GDP has surpassed significantly the levels preceding the Great Depression. Back then, the total amount of credit in the financial system almost reached an astonishing 250% of GDP. Using the same metric today, the debt level in the U.S. financial system surpassed 350% in 2008, while the level in 1982 was “only” 130%. As Charles Dumas from Lombard Street Research put it quite aptly, "we've had a 30-year leveraging up of America, ending in an unchecked orgy." 

    The chart below shows a dramatic buildup of debt (leverage) in the 1920s and a deleveraging from 1930 to 1945 (or 1952). Then it shows a consistent buildup of debt afterwards, with a dramatic rise since the 1990s, and surpassing in 2000 the previous peak in 1929. The chart shows the level of 299% at the end of 2005, but the level has already reached 350% by 2008.

    Of course, leveraging, as already indicated above, must necessarily be followed by deleveraging.

    The best way to think about leverage is to compare it with using drugs, while deleveraging is like detox. The problem is not that the detox is killing the patient who has abused drugs for years; what is really killing the patient is the drug abuse itself. However, one thing is clear – the patient must either go through a painful detox or die; the same applies for the financial system – it must either deleverage or implode.

  3. Explosion of Derivatives. Derivatives have been likened by Warren Buffet to “financial weapons of mass destruction”. The notional amount of total derivatives, as well as “Value at Risk” (VaR), has skyrocketed in recent years with the potential to destabilize the financial system for decades. To put it more allegorically, derivatives hang like a sword of Damocles over the financial system.

    A comparison with the 1920s is difficult to make. mostly Derivatives back then were extensively used, although not widely understood. Given that I am not aware of any statistics of derivatives for the period of the 1920s, a meaningful comparison based on hard data is admittedly impossible. Nevertheless, I would venture to make an intelligent guess that the size of modern-day derivatives is hundreds or even thousands of times larger relative to the size of the economy in comparison to the 1920s. Some of the latest reports indicate that the total notional value of derivatives outstanding surpasses one quadrillion dollars. To put this into perspective, this amounts to almost 100 times the GDP of the U.S. economy.

    The chart below shows the explosion of derivatives in the U.S. banking system. You can see that in 1991 the notional value of the derivatives was about the size of the U.S. GDP. By 2006 the size has grown to about 10 times the GDP, vastly outgrowing the real economy.

    The chart below shows an even more telling picture. It shows world GDP and world’s notional value of derivatives. Again, while there is no direct comparison with the 1920s, it is clear that the overall level of derivatives has skyrocketed during the last two decades and presents risks that were simply not present at the onset of the Great Depression. The unwinding of these derivatives could only be compared with a nuclear explosion in the financial system.

  4. Dow-Gold Ratio. The Dow-Gold ratio represents the most important ratio between the relative prices of financial assets and real assets. The Dow component represents the valuation of financial assets; the gold component – of real assets. When leverage in the financial system increases significantly, so does this ratio. A very high ratio is interpreted as an imbalance between financial and real assets – financial assets are grossly overvalued, while real assets are grossly undervalued. It also implies that a correction eventually will be necessary – either through deflation, which implies deleveraging and a collapsing stock market, or through inflation, which implies stagnant stock market for many years and steadily rising prices of real assets, commodities, and gold, usually associated with stagnant economy and typically resulting in stagflation. The first case—deflation—occurred during the 1930s, while the second case—stagflation—occurred during the 1970s.

    The graph below illustrates the above concepts. The very high Dow-Gold Ratio in 1929 was followed by the Great Depression, while the higher level in 1966 was followed by the stagflationary 70s. It is evident from the chart the peak in 2000 surpassed the previous two peaks in 1929 and 1966, so this provides a reasonable expectation that the forthcoming return to “normalcy” will be more painful than the Great Depression, at least in terms of cumulative pain over the next 10-15 years.

  5. Global Bubbles. It is impossible to make direct comparison with the 1920s, but today the global economy is rife with bubbles. Back then in the 1920s, the U.S. had its stock and real estate bubbles, while the European economies were struggling to rebuild from the devastations of WW1 that ended in 1919. I am personally not aware of any other bubbles during this period, although I welcome reader feedback on this topic.

    Today the picture is very different. The U.S. economy had a stock market and real estate bubble that has surpassed its own during the 1920s. Colossal US current account deficits have fuelled extraordinary growth in global monetary reserves. As a result, Europe has real estate bubbles across the board, from the U.K. and Ireland, throughout the Mediterranean (Spain, France, Italy and Greece), to the entire Baltic region (Latvia, Lithuania, and Estonia) and the Balkans (Romaina and Bulgaria). Even worse, many Asian countries (China, Korea, etc.) also have their own stock and property bubbles, only with the exception of Japan, which is still in the process of recovering from its own during the 1980s. Thus, during the 1920s only the U.S. suffered from gross financial imbalances, while today the imbalances have engulfed the whole world – both developed and developing. It stands to reason that the unwinding of those global imbalances is likely to be more painful today than it was during the Great Depression due to both size and scope.

  6. Collapsing Bretton Woods II. The global monetary system was on a quasi-gold standard during the 1920s. Back then dollars and pounds were convertible to gold, while all other currencies were convertible to dollars and pounds. An appropriate way to think about it is that of a precursor to the Bretton Woods from 1945-1971. What is important to understand is that while the system was fiat in nature, gold imposed significant limitations to credit expansion and leveraging.

    Somewhat similar was the role of Bretton Woods that lasted from 1945 to 1971. The dollar was tied to gold, while all other fiat currencies were tied to the dollar. Just like the interwar period, gold imposed some limitations on credit and financial imbalances.

    We now live in what has been termed Bretton Woods II. Essentially, this is a pure fiat dollar standard, where all currencies are convertible to dollars, either at fixed or floating exchange rates, while the dollar itself is convertible to “nothing”. Thus, the dollar has no limitations imposed to it by gold, so without the discipline of gold, the current global monetary system has accumulated significantly more imbalances than ever before in modern capitalism. These imbalances show up in the international monetary system as unsustainable trade deficits (and surpluses), skyrocketing official dollar reserves in some European and many Asian central banks, and the proliferation of Sovereign Wealth Funds; more generally, these imbalances result in a myriad of bubbles, overleveraging, and other maladjustments already discussed above.

    Today Bretton Woods II is in the process of disintegration. The world is slowly but steadily losing its confidence in the dollar as the world reserve currency. A flight from the dollar is in progress and the collapse of the global monetary system is imminent. As Bretton Woods II disintegrates and a new system replaces it, the process of readjustment will be necessarily more painful than the respective process during the Great Depression.

    A caution on terminology is necessary here. While the literature over the last 10-20 years has widely recognized the term “Bretton Woods II”, in September-October of 2008 the term was widely used by the media to describe a proposed international summit with the goal of reconstructing a new international monetary system designed from scratch, just like “Bretton Woods”. Instantly dubbed by the media “Bretton Woods II”, this term could be potentially very confusing as it could mean very different things to different people. The interested reader should consult Wikipedia’s Bretton Woods II where both meanings are explained in detail.


Since August of 2007 we have witnessed the relentless escalation of the credit crisis: a steady constriction of credit markets, starting with subprime mortgage-backed securities, spreading to commercial paper, then to interbank credit, and then to CDOs, CLOs, jumbo mortgages, home equity lines of credit, LBOs and private equity markets, and then generally to the bond and securities markets.

While the media describes the problem as one of illiquidity and confidence, a more serious analysis indicates that boom-time credit has been employed unproductively and so losses must be incurred. In other words, scarce capital has been misallocated, poorly invested, and effectively wasted. No amount of monetary or fiscal policy can fix the errors of the past, just like no modern treatment can quickly restore to health a drug addict debilitated from a decade-long drug abuse.

Based on indicators like (1) global real estate overvaluation, (2) indebtedness, (3) leverage, (4) outstanding derivatives, (5) global bubbles, and (6) the precariousness of the global monetary system, I would argue that the accumulated imbalances in the current period surpass significantly those preceding the Great Depression. I therefore conclude that the coming U.S. (and possibly) global depression will be of greater magnitude than the Great Depression of the 1930s. It likely suggests that we are entering a historic period that will likely be known as The Greater Depression.

Investor beware! Only gold can protect you from the ravages of another Depression!