The Founding Fathers Fought the Revolutionary War to Stop the Type of Militarized Police We Now Have In the U.S.

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Founders Versus Ferguson …

Former Congressman – and Cleveland mayor – Dennis Kucinich wrote a must-read post yesterday:

The Boston Massacre of March 5, 1770, was a catalyst toward the American Revolution. Five civilians were killed by the British soldiers. The Declaration of Independence, in condemning the offenses against liberty by George III, stated:

He has kept among us, in times of peace, standing armies without the consent of our legislature.

He has affected to render the military independent of and superior to civil power.

He has combined with others to subject us to a jurisdiction  foreign to our constitution, and unacknowledged by our laws; giving his assent to their acts of pretended legislation:

  • For quartering large bodies of armed troops among us
  • For protecting them, by mock trial, from punishment for any murders which they should commit on the inhabitants of these states

Indeed, the top expert on the militarization of America’s police forces – Washington Post writer Radley Balko, who has testified to Congress and written books on the subject – confirms that the Founders would have seen the militarized police as an unconstitutional standing army:

Balko starts with the provocative proposition that police as we know them in modern America are unconstitutional. “The Founders and their contemporaries would probably have seen even the early-nineteenth-century police forces as a standing army, and a particularly odious one at that,” Balko writes. “Just before the American Revolution, it wasn’t the stationing of British troops in the colonies that irked patriots in Boston and Virginia; it was the England’s decision to use the troops for everyday law enforcement.”

Balko links that decision to the oft forgotten Third Amendment, which forbids the quartering of troops in Americans’ homes against their will during peacetime. The Third Amendment is rarely litigated, and the Supreme Court has never heard a case primarily concerning the amendment, but Balko argues that it was included in the Bill of Rights out of a larger concern that a standing army could be used for the purposes of enforcing the law.The actual quartering of British troops in the private homes of colonists was rare…It was the predictable fallout from positioning soldiers trained for warfare on city streets, among the civilian populace, and using them to enforce law and maintain order that enraged colonists.”

In a post headlined, “Militarized Police: The Standing Army the Founders Warned About“, New American notes:

In an essay published in the Wall Street Journal last August, Radley Balko presented chilling and convincing evidence of the blurring of the line between cop and soldier:

Driven by martial rhetoric and the availability of military-style equipment — from bayonets and M-16 rifles to armored personnel carriers — American police forces have often adopted a mind-set previously reserved for the battlefield. The war on drugs and, more recently, post-9/11 antiterrorism efforts have created a new figure on the U.S. scene: the warrior cop — armed to the teeth, ready to deal harshly with targeted wrongdoers, and a growing threat to familiar American liberties.

Balko rightly connects the menace of the martial police with the decline in liberty and a disintegration of legal boundaries between sheriffs and generals:

Americans have long been wary of using the military for domestic policing. Concerns about potential abuse date back to the creation of the Constitution, when the founders worried about standing armies and the intimidation of the people at large by an overzealous executive, who might choose to follow the unhappy precedents set by Europe’s emperors and monarchs.

A Google search for the following phrase turns up over 250,000 hits, including articles from across the spectrum, such as Newsweek, Daily Kos, the American Conservative and Truth-Out:

“standing army” Ferguson

The same search yields thousands of images.  A comparison of photos of soldiers in war zones in Iraq and Afghanistan and police in Ferguson shows they are virtually indistinguishable.

Indeed:

Someone identifying himself as an 82nd Airborne Army veteran, observing the Ferguson police scene, comment[ed] that “We rolled lighter than that in an actual warzone” …

(Background.)

Remember, the Founding Fathers repeatedly warned against standing armies.

Of course, it would be bad enough if the militarized police forces were only used in genuine emergencies. But Balko notes that the authorities have become “very antagonistic toward the very idea of free speech and the First Amendment“.  And militarized swat teams are being used against people who commit copyright infringement … or credit card fraud.  They’re being used “for routine warrant service in … nonviolent crimes“.

And Balko notes:

SWAT teams today are overwhelmingly used to investigate people who are still only suspected of committing nonviolent consensual crimes.

And Ellen Brown argues that the police are being militarized to protect of the financial elites:

When depositors cannot access their bank accounts to get money for food for the kids, they could well start breaking store windows and helping themselves. Worse, they might plot to overthrow the financier-controlled government. Witness Greece, where increasing disillusionment with the ability of the government to rescue the citizens from the worst depression since 1929 has precipitated riots and threats of violent overthrow.

Fear of that result could explain the massive, government-authorized spying on American citizens, the domestic use of drones, and the elimination of due process and of “posse comitatus” (the federal law prohibiting the military from enforcing “law and order” on non-federal property). Constitutional protections are being thrown out the window in favor of protecting the elite class in power.

Postscript: The Founding Fathers also fought the Revolutionary War for other reasons, such as stopping:

Interestingly, 3 times as many American colonists supported King George of England during the Revolutionary War as support our own Congress today.

Posted in Politics / World News | 2 Comments

Congress Members Who Approve Militarization of U.S. Police Receive 73% More Money from Defense Industry

Congress Is For Sale to the Highest Bidder

Americans of all stripes oppose the militarization of U.S. police forces.

For example:

  • A new Pew research poll shows that a plurality of people think that the police have gone too far in Ferguson, Missouri

So why does Congress continue to approve militarization? For the same reason that Congress members vote for NSA spying on Americans and go easy on Wall Street criminals: money.

Maplight reports that congress critters opposing Congressman Grayson’s bill to demilitarize police receive 73% more money than those voting for it:

International Business Times explains:

The group’s new report looked at a June congressional vote on legislation, offered by U.S. Rep. Alan Grayson, D-Fla., that would have blocked the Pentagon from spending resources on transferring military hardware to local police agencies. The bill was defeated 62-355.

According to data compiled by Maplight, the lawmakers “voting to continue funding the 1033 Program have received, on average, 73 percent more money from the defense industry than representatives voting to defund it.” In all, the average lawmaker voting against the bill received more than $50,000 in campaign donations from the defense industry in the last two years. The report also found that of the 59 lawmakers who received more than $100,000  from defense contractors in the last two years, only four voted for Grayson’s legislation.

Good ‘ole fashion corruption

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Does THIS Explain the “Snipers” Shadowing the Occupy Protests?

Was the Government Prepared to Deploy Snipers If the Occupy Protests Gained Momentum?

TruthDig reported last year:

“Did the FBI ignore, or even abet, a plot to assassinate Occupy Houston leaders?” asks investigative reporter Dave Lindorff at WhoWhatWhy. “What did the Feds know? Whom did they warn? And what did the Houston Police know?”

A Freedom of Information Act request filed by the Washington, D.C.-based Partnership for Civil Justice Fund yielded an FBI document containing knowledge of a plot by an unnamed group or individual to kill “leaders” of the Houston chapter of the nonviolent Occupy Wall Street movement.

Here’s what the document said, according to WhoWhatWhy:

An identified [DELETED] as of October planned to engage in sniper attacks against protestors (sic) in Houston, Texas if deemed necessary. An identified [DELETED] had received intelligence that indicated the protesters in New York and Seattle planned similar protests in Houston, Dallas, San Antonio and Austin, Texas. [DELETED] planned to gather intelligence against the leaders of the protest groups and obtain photographs, then formulate a plan to kill the leadership via suppressed sniper rifles. (Note: protests continued throughout the weekend with approximately 6000 persons in NYC. ‘Occupy Wall Street’ protests have spread to about half of all states in the US, over a dozen European and Asian cities, including protests in Cleveland (10/6-8/11) at Willard Park which was initially attended by hundreds of protesters.)

Paul Kennedy of the National Lawyers Guild in Houston and an attorney for a number of Occupy Houston activists arrested during the protests said he did not hear of the sniper plot and expressed discontent with the FBI’s failure to share knowledge of the plan with the public. He believed that the bureau would have acted if a “right-wing group” plotted the assassinations, implying that the plan could have originated with law enforcement.

“[I]f it is something law enforcement was planning,” Kennedy said, “then nothing would have been done. It might seem hard to believe that a law enforcement agency would do such a thing, but I wouldn’t put it past them.”

He added that the phrase “if deemed necessary,” which appeared in the bureau’s report, further suggests the possibility that some kind of official organization was involved in the plan.

Texas law officials have a history of extreme and inappropriate violence.

***

Kennedy has seen law enforcement forces attempt to secretly entrap Occupy activists and disrupt their activities in the city. He represented seven people who were charged with felonies stemming from a protest whose organizing group had been infiltrated by undercover officers from the Austin Police department. The felony charges were dropped when police involvement with a crucial part of that action was discovered.

A second document obtained in the same FOIA request suggested the assassination plans might be on the plotters’ back burner in case Occupy re-emerges in the area.

When WhoWhatWhy sent an inquiry to FBI headquarters in Washington, officials confirmed that the first document is genuine and that it originated in the Houston FBI office. Asked why solid evidence of a plot never led to exposure of the perpetrators’ identity or arrest, Paul Bresson, head of the FBI media office, deflected the question. According to WHoWhatWhy, he said:

The FOIA documents that you reference are redacted in several places pursuant to FOIA and privacy laws ….

Lindorff wants us to note that “the privacy being ‘protected’ in this instance (by a government that we now know has so little respect for our privacy) was of someone or some organization that was actively contemplating violating other people’s Constitutional rights—by murdering them.”

***

When the Houston Police department was asked about its knowledge of the plot, public affairs officer Keith Smith said it “hadn’t heard about it” and directed future questions to the Houston FBI office.

The obvious question to ask in attempting to determine the identities of the planners is this: Who has sniper training? A number of Texas law enforcement organizations received special training from Dallas-based mercenary company Craft International, which has a contract for training services with the U.S. Department of Homeland Security. The company was founded by a celebrated Army sniper who was killed by a combat veteran he accompanied to a shooting range.

Remington Alessi, an Occupy Houston activist who played a prominent role in the protests and hails from a law enforcement family, agrees with attorney Kennedy that the plot likely did not originate with a right-wing group. “If it had been that, the FBI would have acted on it,” he said. “I believe the sniper attack was one strategy being discussed for dealing with the occupation.”

A new Army report may shed light on the sniper issue. As Paul Joseph Watson reports:

A document released by the U.S. Army details preparations for “full scale riots” within the United States during which troops may be forced to engage in a “lethal response” to deal with unruly crowds of demonstrators.

***

The 132-page document, titled U.S. Army Techniques Publication 3-39.33: Civil Disturbances (PDF), was written in April 2014 and recently obtained by Public Intelligence.

The document makes it clear that the techniques detailed therein are to be applied both outside and inside the “continental United States (CONUS)” in the event of “unruly and violent crowds” where it is “necessary to quell riots and restore public order.”

***

The most shocking aspect of the document is the fact that it describes the deployment of a “lethal response” directed against “unarmed civilians,” including “sniper response” and “small arms direct fire.”

Under the heading “sniper response,” the document states, “Ensure that target leaders or troublemakers are targeted,” in addition to a passage which states, “Exploit the psychological effect of an attack.”

Under the heading “small arms direct fire,” the manual states, “Escalate gradually, starting with a small caliber, single round and work up to a large caliber, automatic.”

Another graphic which depicts “escalation of trauma” directs soldiers how to use “riot batons” in order to cause the necessary level of injury or death to the subject. “Deadly force final target areas” include the back of the neck, the solar plexus, the neck, the spine and the head.

***

Although the document makes reference to the Constitutional rights of American citizens it goes on to stress that such protections are null and void under a state of emergency, asserting that Posse Comitatus, which is supposed to limit the power of the federal government to use military personnel domestically, “does not apply” under declared “emergency authority” or “When the need for the protection of federal property or federal functions exists.”

It is important to stress that this training manual applies to U.S. Army operations in foreign countries as well as domestically on U.S. soil. Indeed, section 2-18 of the document goes into detail about domestic protests such as the 1999 anti-WTO demonstration in Seattle.

And see this.

Did the U.S. government deploy snipers to the peaceful Occupy protests in order to “engage in sniper attacks against protestors … if deemed necessary”, and to “kill the leadership via suppressed sniper rifles”?  If so, what would have made sniper attacks “necessary” in the eyes of the government … if they gained momentum and were on the verge of being successful?

If these sound like over-the-top questions, please remember that:

  • The government and big banks joined forces to violently crush the Occupy protests
  • Militarized police were deployed in Miami during a WTO protest in 2003, at the Democratic National Convention in 2004, at the Republican National Convention in 2008, in Miami in 2011, and at many other protests
Posted in Politics / World News | 2 Comments

Peak Inequality: The .01% And The Impoverishment Of Society

By David DeGraw.

This is an adapted excerpt from my new book, The Economics of Revolution.

ERtitle

I: The Ultra-Rich .01%
II: The Systematic Impoverishment of Society
III: Economic Slavery
IV: Hidden Wealth & Shadow Banking
V: The Aristocracy & The Death of Liberty

An extensive analysis of economic conditions and government policy reveals that the need for significant systemic change is now a mathematical fact. Corruption, greed and economic inequality have reached a peak tipping point.  Due to the consolidation of wealth, the majority of the population cannot generate enough income to keep up with the cost of living.  In the present economy, under current government policy, 70% of the population is now sentenced to an impoverished existence.

Let’s take an in-depth look at the evidence.

I: The Ultra-Rich .01%

q1To see how corrupt the United States government has become, just follow the money.  According to the most recent Federal Reserve Flow of Funds report, US households currently have an all-time high $82 trillion in overall wealth.  If that wealth were spread out evenly, every US household would now have $712k.  However, as of the end of 2013, the median household only had $56k in wealth.  From 2007 – 2013, overall wealth increased 26%, while the median household lost a shocking 43% of their wealth. If median wealth continues to decline at this rate, over 50% of US households will be bankrupt within the next decade.

The fact that the majority of households are losing so much wealth in a time of record-breaking overall wealth demonstrates how systemically corrupt the economy has become.  To begin to grasp the scale of corruption, let’s analyze how much wealth has been consolidated within the economic top 1% of the population.

01percentThe latest comprehensive look at wealth distribution data reveals that the “ultra-rich” economic top 0.01% of US households now has an all-time high 11.1% of overall wealth. The next tier, the 0.1% – 0.99% has 10.4%, and the top 1% – 0.9% has 18.3%.  In total, the top 1% now has an all-time high 39.8% of wealth.

When we correlate wealth distribution percentages with the $82 trillion in overall wealth reported by the Federal Reserve, it reveals that the top .01% has a stunning $9.1 trillion in wealth. In total, the top 1% has a mind-blowing $32.6 trillion.

To begin to comprehend wealth of this magnitude, one trillion is equal to 1000 billion. $32.6 trillion written out is $32,600,000,000,000.00.

Having that much wealth consolidated within a mere 1% of the population, while a record number of people toil in poverty and debt, is a crime against humanity.  For example, it would only cost 0.5% of the 1%’s wealth to eliminate poverty nationwide.  Also consider that at least 40% of the 1%’s accounted for wealth is sitting idle. That’s an astonishing $13 trillion in wealth hoarded away, unused.

Once you truly understand how much $32.6 trillion is, and realize how just a fraction of that wealth could dramatically evolve society for the benefit of all, the argument for significant systemic change is solid. However, as scandalous as these statistics are, they do not factor in trillions of dollars more in unaccounted for offshore wealth, which makes the overall situation sound significantly better than it actually is and hides the true depth of the crisis from popular consciousness.  (We will analyze hidden wealth in section 4.)

Looking toward the future, current trends reveal that the rate in which inequality is growing is increasing rapidly. Overall wealth increased by $1.5 trillion in the first quarter of 2014. If wealth keeps increasing at the current rate, there will be an increase of $6 trillion in 2014.  How will this wealth be distributed? If you look at income gains since 2009, 95% of them have gone to the top 1%.

We Are The 99.99%

There are now many people within the top 1% who are much closer in wealth to the middle class than they are the ultra-rich. Greed has grown so extreme that even within the top 1% inequality is soaring. The top 1% of the 1%, the .01%, now has 28% of the 1%’s wealth.  When you factor in hidden wealth, they have an estimated 33% of the 1%’s wealth.  An individual must have over $100 million in wealth to be in the .01%.

In 1980, the richest .01% was already consolidating wealth at a systemically unhealthy rate.  Since then, they have more than quadrupled their share of overall wealth. Meanwhile, households who fall between the top 10% and the top 0.1% have actually been losing their share of overall wealth.

As the ultra-rich .01% amasses unprecedented wealth, they are forcing the overwhelming majority of the population into extreme economic insecurity and ever-increasing debt.

II: The Systematic Impoverishment of Society

q2If you are struggling to get by and running up debt to make ends meet, it is not your fault. It is the intentional outcome of government policy and economic central planning. In the present economy, it is impossible for 70% of the working age population to earn enough income to afford basic necessities, without taking on ever-increasing levels of debt, which they will never be able to pay back because there are not enough jobs that generate the necessary income to keep up with the cost of living.

For every 3.4 working age people, there is only one that can generate an income high enough to cover the cost of living without taking on debt.  In total, only 20% of the overall population currently generates enough income to sustain the cost of living.  As a result, poverty and declining living standards are much more prevalent throughout US society than the government and corporate media report.  Let’s take a look at the reality behind mainstream propaganda…

The US Government & Statistical Fraud

The government engages in outright statistical fraud on the most often cited economic indicators, from the unemployment rate to poverty and inflation rates.  Even the use of the Gross Domestic Product measurement as an indicator for overall economic health is incredibly deceptive.

The mainstream media not only incessantly repeats these bogus measurements, they drastically underreport the growing epidemic of poverty.  According to a study by Fairness and Accuracy in Reporting, “on average, someone affected by poverty appeared on any nightly news show only once every 20 days…. An average of just 2.7 seconds per 22-minute nightly news program was devoted to segments where poverty was mentioned.”

On the rare occasion when poverty is actually mentioned, the government’s Census Bureau poverty rate of 15% may be cited. When it comes to the overall employment situation, you will hear the Bureau of Labor Statistics’ unemployment rate, which is presently hovering around 6%. While these statistics are alarming, they drastically undercount the severity of the present crisis.  Those two statistics are pure propaganda and mask the economic suffering of over 222 million US citizens.

Before analyzing the employment situation, let’s look at how the government calculates the poverty rate.  The methodology behind the federal poverty rate was designed in 1963. It is incredibly outdated and significantly undercounts how much it costs to live in today’s economy. It uses the extremely flawed Consumer Price Index (CPI) inflation rate to establish the poverty threshold. Many vital economic statistics that the government reports are based on this fraudulent inflation rate.

To give a more positive impression of overall economic health, the government has “revised” the methodology behind the CPI rate over 20 times since 1970.  The CPI currently has inflation rising at a 2% annual rate.  If inflation was calculated the way it was in 1980, the current rate would be 10%. When you take a deeper look into how this difference impacts vital economic statistics, it reveals a much different picture of the US economy.

Cost of Living

ERpeak1While the government claims a 2% annual inflation rate, the actual cost of living has been skyrocketing.  Here’s the reality of the situation…

The US now has the most expensive healthcare system in the world. There has been a 22% increase in out-of-pocket hospital expenses over the past year. In the first quarter of 2014, healthcare spending rose at the fastest pace in 10 years. The cost of giving birth has tripled since 1996, childbirth out-of-pocket expenses increased fourfold from 2004 to 2010.  The cost of childcare increased by 70% from 1985 to 2011.  From 1994 to May 2014, the cost of childcare has been more than double the CPI inflation rate.

The overall cost of raising a child has risen 40% in the past decade, not counting the cost of college.  Since 1986, the cost of college tuition has increased by 498 percent, compared to the 117% CPI inflation rate over that timeframe. Student loan debt has increased threefold over the last decade. The amount of money students are borrowing to pay tuition bills doubled from 2005 to 2012.

Looking at basic food costs, from 2002 to 2012, total CPI inflation was 28%. Consider the following price increases over that timeframe:  Eggs 73%, Ground Beef 61%, Turkey 56%, White Bread 39%, Spaghetti & Macaroni 44%, Peanut Butter 40%, Coffee 90%, Orange Juice 46%, Apples 43%, Margarine 143%.

This dramatic rise in the basic cost of living, the amount of money that people need to survive, which is all but ignored by the CPI in the federal poverty threshold calculation, only reveals part of the government’s deception on poverty.  Beyond the fraudulent inflation measurement, the Census Bureau does not adequately account for the differences in cost of living based on geographic locations.  For instance, the cost of living in large population states like New York and California, as compared to the costs in more rural lower population Southern and Midwestern states.

When you realistically account for real inflation and geographically based cost of living, how much does it cost to cover basic necessities?

The Economic Policy Institute (EPI) has the most comprehensive look at the costs of living and how much money a family needs to cover basic necessities based on the city they live in. The EPI accounts for the costs of housing, food, healthcare, childcare, transportation and taxes.  They do not factor in the costs of a college education or retirement.

Based on EPI calculations, a family of four needs to make $63,364 a year to cover basic necessities.  Compare that to the government’s Census Bureau calculation using the CPI inflation rate and non-geographic accounting, which puts this threshold for a family of four at a mere $23,600.

In relation to the government’s poverty rate, the Economic Policy Institute’s numbers sound extremely high.  However, they use very modest costs.  For example, they use Topeka, Kansas as their median family budget area and calculate the cost of housing for a family of four at only $692 a month. When you analyze geographically based costs, you can see how expensive it is for a family to live in larger population cities:

  • New York HUD Metro FMR Area: $94,676
  • Los Angeles-Long Beach: $74,605
  • Chicago-Naperville-Joliet: $73,055
  • Philadelphia-Camden-Wilmington: $77,928
  • Washington, DC: $89,643
  • San Francisco: $82,639
  • Phoenix: $68,742
  • San Diego-Carlsbad-San Marcos: $71,673
  • San Jose-Sunnyvale-Santa Clara: $77,619

To give more context, USA Today recently analyzed how much moderate costs of living for a family of four are today. They calculated that the average family needs to generate an annual income of $130k.  Their estimate was more than double the median EPI cost of $63k, primarily because they factored in the costs of owning a home, one car, retirement and education.

Now, consider that the current annual median household income is only $51k per year.  While overall wealth and the cost of living have skyrocketed, median household income has declined 8.3% since 2007 and 9% since 1999.  To further demonstrate how dramatically the cost of living has truly risen since 2007, while median household income declined 8.3%, their overall wealth declined 43%.

For more historical context and to further demonstrate how corrupt the government and economic system have become; if household income had kept pace with the overall economy since 1970, the current annual median would be $95k, almost double what it presently is.  On top of that, it was normal to have only one wage-earner per household in 1970, as compared to two now.

Extreme Poverty

stock2If we look at the government poverty threshold for what it truly is, an indicator of extreme poverty, then it has a little more legitimacy. As the National Center for Children in Poverty reported on the government’s poverty threshold, “Research shows that, on average, families need an income of about twice that level to cover basic expenses.”

When we count the percentage of the population at double the government’s poverty threshold as living in poverty, the poverty rate explodes from 15% of the population to 47%. Now you can see one of the reasons why the government falsifies the inflation rate.  The government will not make this long overdue adjustment because that would mean they have to admit that 150 million people are currently living in poverty and simply cannot afford the cost of basic necessities.

According to the Census Bureau, 28% of children are now born into poverty.  This marks a dramatic increase from an already alarming 25% in 2008.  In total, the Census Bureau reports that 22% of children live in poverty. However, when we make the proper adjustments to the methodology of the poverty rate, an even more horrifying 45% of children live in poverty. That means there are currently 33,389,063 US children living in households that cannot afford basic necessities.

It would take only 0.3% of the 1%’s wealth to lift every one of these children out of poverty.

Overall, from 2000 to 2010 the Census Bureau found that the percentage of people living in poverty-stricken neighborhoods grew from 18.1% to 25.7%. Extrapolating out to today, we can estimate that 82 million people presently live in extreme poverty-stricken neighborhoods.

Extreme poverty-stricken neighborhoods can become a relic of the past with 0.5% of the 1%’s wealth.

For a deeper understanding of why poverty is growing so rapidly while overall wealth is also growing, let’s analyze the government’s fraudulent unemployment statistics.

Unemployment & Underemployment

Other than the deceptive poverty rate, unemployment is much worse than the 6% that the government reports.  The 6% rate does not include part-time workers who need full-time work, long-term unemployed people who have not been able to find work for over six months, and “discouraged workers” who do not consistently look for work. When you account for those groups, as the Bureau of Labor Statistics (BLS) did until 1994, the real unemployment rate is currently 23.2%.

For an example of how deceptive government unemployment reporting is, the BLS June 2014 jobs report decreased the unemployment rate and was portrayed in the mainstream media as a very positive result with 288k jobs added.  However, in June, 523k full-time jobs were eliminated, and 800k part-time jobs were added, providing the illusion of job growth and a reduction in the government’s unemployment rate.  Due to this trend, there are now over 7.5 million underemployed workers who are “part-time for economic reasons” because they have had their hours cut and/or cannot find full-time employment. None of these people are counted in the official government unemployment total.

Since 2007, well-paying paying jobs have become rare and low-paying full-time, part-time and temporary jobs have replaced them.  This has also been a downside of the new healthcare law, as companies are cutting back full-time employment so they don’t have to pay for workers’ healthcare. In total, 50% of jobs created over the past three years are “low-paying,” mostly in retail, food service or temporary help.  Low-paying jobs pay 80% or less of median wages.

The bottom line, in a nation of 318.6 million people, with a working age population of 213 million people, there are now only 118 million full-time jobs and 28 million part-time jobs, according to the BLS. However, also according to the BLS, there are currently only 106.6 million full-time workers.  In other words, it is impossible for half of the working age population to get a full-time job. On top of that, of the current 118 million full-time jobs, 47% of them generate annual salaries below $35k per year.

III: Economic Slavery

q3Beyond unemployment and underemployment, the percentage of full-time working poor has grown significantly.  US workers are presently producing twice as much wealth per work hour than they were in 1980.  Instead of median incomes doubling since then, they have stagnated. The gap between wealth production and median income is now at an all-time high.

Based on the latest available individual level income data, 40% of workers make less than full-time minimum wage workers made in 1968, roughly $20k per year according to the suppressed CPI inflation rate. More realistic adjustments for inflation will reveal a much higher total. For example, the current federal minimum wage is $7.25 an hour. If minimum wage had kept pace with overall income inflation since 1968, the minimum wage would now be $21.16, which means a full-time minimum wage worker would now be making $44k a year.  However, the median annual wage is only $27,519.  Based on income inflation, only 22% of the working age population and 15% of the overall population currently have an annual income higher than a full-time minimum wage worker had in 1968.

The average person needs to generate $35k in annual income to cover the cost of basic necessities.  Looking at the actual spending habits of the average worker, you need to generate an income of $42k to cover annual expenses. If we use $35k as our threshold for a living wage, only 30% of the working age population and 20% of the overall population generate an annual income over $35k.  For every 3.4 working age people, there is one that generates an income high enough to cover the cost of basic necessities without taking on debt.

Keep in mind, that does not factor in the cost of paying off student debt.  Average student debt is presently $29,400.  If paid off over a 10-year period, at an average 4.6% interest rate, it costs $306 per month, $3672 annually. In this situation, a person needs to make an annual income of $38,672 to cover the cost of living plus their student debt. Only 27% of the working age population and 18% of the overall population generate that much income. For every 3.7 working age people, there is one that can sustain the cost of basic necessities plus the average student loan debt without taking on more debt.

Therefore, in the current economy, 73% of people with student debt will not be able to pay it back while also maintaining the cost of living, without going deeper into debt.  The US government has sentenced you to a lifetime of ever-increasing debt and ever-declining living standards.

Mathematically Eliminated from the American Dream

AmericanDreamFor a worker to cover their own cost of living and the cost of one child, they will need to make roughly $45k a year.  Only 22% of the working age population and 15% of the overall population currently generate enough income to support one child.  For every one person that can generate enough income to sustain the cost of basic necessities for themselves and one child, there are 4.5 working age people.

Now, think back to the American dream that prevailed from the 1950s – 70s.  Each family had one wage-earner supporting three children and one other adult who would care for the children.  While this was considered the “American dream,” it is also the basis of a healthy society.

How healthy is our society and how many people can afford to live the American dream in today’s economy?

With today’s cost of living, just to cover basic necessities it will cost $80k per year to pull this off in the median family area, Topeka, Kansas.  In the current economy, only 5.8% of the population can currently generate enough income to live the traditional American dream in Topeka.  Clearly, we are not in Kansas anymore.

Levittown, New York was the first suburb that gave birth to the American dream.  Try pulling off the American dream in its birthplace and it will cost $125k a year.  Only 2% of the population can pull that off.

Once again, these baseline costs do not take college or retirement costs into account. With the reduced costs in childcare, due to one person in the family focused on taking care of the children, they can at least put some money away for college, as long as they don’t go away for vacation and none of their children go to a private school.

Beyond these baseline costs, looking at moderate costs for a family of four owning a home in a median family area, with one car, education and retirement costs factored in, it will cost $130k a year.  Add a third child and a second car into the mix and it will cost roughly $150k a year.  Only 1.46% of the overall population makes over $150k per year. In other words, in the current economy, the average traditional American Dream is only attainable for the 1%.  The 99% has been mathematically eliminated from the traditional American Dream.  If they want to have a family and own a home, they are now sentenced to a lifetime of economic insecurity and ever-increasing debt.

As for retirement, if you American dreamers think you are going to retire at 65, it’s time to wake up.

There Is No Escaping

According to the National Institute on Retirement Security, “the median amount a family nearing retirement has saved for their post-work lives is $12,000.”  As 76 million Baby Boomers are due to retire, the real toll of this economic crisis is going to hit home in a huge way.

Up until now, Social Security has been the savior. Currently 57 million people receive Social Security benefits. In the present economy, that works out to two full-time workers for every one person collecting benefits. Adding 76 million to the 57 million people currently drawing benefits would mean 133 million retirees to 118 full-time jobs.  Even factoring in death rates, with new full-time jobs a rarity in today’s economy, having one retired person to one full-time worker will soon be a reality.

In fact, Social Security is already giving out more money than it is taking in. From 2010 – 2012, there was a $150 billion deficit. However, the Social Security trust fund is supposed to have a $2.7 trillion in surplus.  In reality, all that money was already spent on wars, bailouts and tax cuts for the rich.  As Charles Hugh Smith explains, “when Social Security runs a deficit, the Treasury funds it by selling Treasury bonds, the same way it funds any other deficit spending. If the Treasury can’t sell bonds, the phantom nature of the Trust Fund will be revealed.”

Given the corruption in Washington and the current fiscal debate, the likelihood of Social Security maintaining it promised returns is minimal. On top of that, the dramatic rise in healthcare costs and decline in full-time jobs make the current system inadequate and unsustainable.  According to the Census Bureau, 54% of people over age 64 would be living in poverty without Social Security.

The probability that the more fortunate members of the Baby Boom generation will collect full pensions and be able to sell off their assets to cover the cost of basic necessities in this economy is also highly problematic. In “The Happy Story of Boomers Retiring on Their Generational Wealth Is Wrong,” Charles Hugh Smith sums up the situation:

“[Boomers’] wealth will shrivel once they start selling assets en masse. The reality is neither Gen-X nor Gen-Y have the savings, income or desire to buy bubble-level assets from their elders. This reality has been papered over for the past 5 years of super-low interest rates, which have enabled unqualified buyers to buy overpriced assets with modest income. Once the defaults start pouring in (and/or interest rates rise), the reality will become visible: you can’t cash in your wealth if there are no buyers.

There are numerous other fatal flaws with the happy story that 76 million Boomers can retire on full pensions and live off their home equity and stock portfolios…. Pension funds based on annual returns of 7.5% will be unable to fund the promised pensions when annual returns decline to negative 5%. As John Hussman has explained, every asset bubble in effect siphons off all the future return: when the bubble finally pops, average annual returns are subpar or negative for years.”

Another Wave of Foreclosures on the Horizon

Since 2007, over 5.5 million families have lost their homes to foreclosure.  The impact of that is horrifying to think about.  The decision to bailout the banks to the extent that they were able to give out all-time record salaries and bonuses to the very people who caused the crisis, while millions of American families were thrown out of their homes is the epitome of tyranny and corruption.

Unfortunately, the foreclosure crisis is far from over. Six million families are still underwater on their mortgages, and this number will increase.  Their average negative equity is a shocking 33%. As Ellen Brown recently summed it up, “40% of mortgages nationally are either underwater or nearly so, meaning more is owed on the home than it is worth. Seventy percent of homes that are deeply underwater wind up in default. Worse, second mortgages are due for a reset. Over the next several years, principal payments will be added to interest-only payments on second mortgages taken out during the boom years. Many borrowers will be unable to afford the higher payments. The anticipated result is another disastrous wave of foreclosures.”

Looking at the overall picture, mortgage debt-to-wages is more than double the historic average.  To make matters even worse, the Federal Reserve has been fraudulently inflating housing prices.  As part of their wealth extraction operation they currently own $1.7 trillion in Mortgage-backed securities and $2.4 trillion in Treasury securities. (We will take a close look into how the Federal Reserve has been artificially propping up asset values for the benefit of the top economic .01% and the determent of everyone else in Part 2.)

The Illusion of Prosperity & A Tsunami of Debt

The inevitable insolvency of the overwhelming majority of the population hasn’t hit home yet because they have taken on ever-increasing levels of debt to maintain the illusion of prosperity.  Other than the staggering national debt that the corrupted government has run up, US citizens have now taken on $12 trillion in personal debt.

On average, that’s $50k of debt for every US citizen over the age of 17.  Again, it cannot be stated enough, in the current economy under present government policy, it is impossible for this debt to be paid off while maintaining the cost of basic necessities.  Therefore, overall debt will continue to skyrocket.  Even if interest rates on these debts dropped to 0%, as the Federal Reserve has done for a select few of their friends on Wall Street, there is no way for people to earn enough income to keep up with cost of living, let alone pay back their debts.  On top of that, the already usurious interest rates on these debts are increasing. In fact, the spark that set off the global financial crisis in the first place is heating up once again:

“During the first quarter [of 2014], 3.7 million credit cards were issued to subprime borrowers, up a head-scratching 39% from a year earlier, and the most since 2008. A third of all cards issued were subprime, also the most since 2008….  In the first quarter, the average [interest] rate was 21.1%, up from 20.2% a year ago, while prime borrowers paid an average of 12.9% on their credit cards, and while banks that are lending them the money paid nearly 0%.”

If current trends continue and current policies remain in place, 90% of the US population is heading for insolvency.  That may sound like an exaggeration that is too absurd to be true.  However, as the Guardian recently reported in an article headlined, “The Coming Debt Tsunami:”

“So why look down the road – say, to 2017 – and worry?  Here’s why: because the debt held by American households is rising ominously. And unless our economic policies change, that debt balloon, powered by radical income inequality, is going to become the next bust….

Falling government deficits are being replaced by rising debts on everyone else’s ledgers…. the majority of Americans – the 90% – will once again do what was done before: borrow, and then borrow more.   By early 2017… it should be apparent that we’re reliving an alarming history. Middle- and low-income households have been following a trajectory of an ever-higher ratio of debt to income….

The evidence demonstrates that the de-leveraging of the very rich and the indebtedness of almost everyone else move in tandem; they follow the same trend line.  In short, there’s a strong and continuous correlation between the rich getting richer, and the poor – make that the 90% – going deeper into debt…. The more – proportionally – that the top 10% has prospered, saved and invested (naturally, the gains found their way into the financial markets), the more the bottom 90% has borrowed….

Insolvency for the 90% has become… ‘the new normal’. Unsustainable? Of course….  Under the current disastrous economic and tax policies, we can look forward to rapid increases in debt for both corporations and households from at least 2015 to 2017: a tsunami of debt.”

ERpeak1The first wave of the coming tsunami of debt has already begun to wash ashore. For the first time since the depth of the recession, credit card debt is now rising faster than wage growth, yet another ominous indicator of what’s to come.

Crimes Against Humanity

Behind all of the statistics presented in this report is immense physical and psychological trauma. The stress of economic insecurity compounds the problem by leading to health problems, which dramatically increase costs of living.  Economic insecurity drives people to expensive healthcare, medications, drug use and crime. Beyond the moral and humanitarian imperative, recent studies prove that the cost of poverty to overall society is far higher than the cost of eliminating poverty.

The shortsighted greed of the .01% is causing the unnecessary suffering of an unprecedented number of people.  Their consolidation of wealth has created a system of economic slavery.  In a wealthy and technologically advanced society, it is a crime against humanity for a majority of the population to be toiling in extreme debt, poverty, unemployment and low-wage jobs.

IV: Hidden Wealth & Shadow Banking

q4The evidence presented in this report thus far makes a very solid mathematical case for significant systemic change. However, to get a more complete understanding of how corrupt the global economic system is, we also need to factor in wealth that is hidden from public view. Disregarding trillions of dollars in hidden wealth just because the wealthy have the ability to illegally hide it is an absolute injustice. It is completely ignoring a critical aspect of what is now the greatest theft of wealth in human history.

Hidden wealth estimates vary widely. Many of them only take a partial look at the most basic methods of offshoring wealth.  Given the unprecedented growth of wealth over the past generation, the secretive methods used to hide it have evolved far beyond well-known tax havens in Switzerland and small-island jurisdictions such as the Bahamas.  While estimates based on banking secrecy and tax havens help to give us a more accurate picture of overall wealth, they do not give a total view.

Research by Gabriel Zucman, which analyzed banking secrecy, estimated that “around 8% of the global financial wealth of households is held in tax havens.”  If we correlate this 8% with the $82 trillion in accounted for wealth reported by the Federal Reserve, that would be an additional $6.6 trillion for the wealthy, bringing the richest 1% up to roughly $39 trillion in overall wealth.

However, to get a more complete understanding of the reality of the situation, the most wide-ranging look into hidden wealth was done in 2012 by economist John Henry in partnership with the Tax Justice Network (TJN).  They estimated that there was $21-$32 trillion hidden globally at the end of 2010. As shocking as that sounds, that estimate still did not give a complete view of hidden wealth.  As they put it, “We consider these numbers to be conservative. This is only financial wealth and excludes a welter of real estate, yachts and other nonfinancial assets owned via offshore structures.”

We also need to consider that overall US household wealth is up 30% and has increased by $25 trillion since the end of 2010. Globally, High Net Worth Individual investible wealth has increased 19% since then, and has begun to accelerate at a record pace.  In 2013, it increased globally by 14%, with a 17% increase in North America, which is now at an all-time high.  Given these factors, and several others that will be explained below, the higher TJN estimation of $32 trillion in 2012 is conservative today.

Correlating TJN’s wealth estimates with US distribution percentages is not an exact science but it gives a much more accurate total of overall wealth than excluding it.  Based on TJN’s estimation, Ultra High Net Worth Individuals (UHNWI) accounted for 48% of hidden wealth.  If we correlate that to the overall estimate of $32 trillion, it equates to $15.4 trillion for the UHNWI population. The US accounts for 35% of the UHNWI population, which correlates to $5.4 trillion.  In the next tier, High Net Worth Individuals (HNWI) also accounted for 48% of hidden wealth.  The US currently has 42% of the HNWI population, which correlates to $6.5 trillion.  The additional 4% of hidden wealth is estimated to be held below the economic top 1% of the US population, which correlates to roughly $538 billion.

This brings the estimated total of hidden US wealth to $12.4 trillion, with $11.9 trillion of that held within the top 1%.  We can now estimate that the top .01% has $14.5 trillion in wealth, the top .1% has $26.4 trillion and in total the top 1% has $44.5 trillion.

After we factor in estimated hidden wealth, the top 1%’s share of overall wealth increases from 39.8% to 46.9%.  To glimpse the scale of theft, if hidden wealth were spread out evenly over every US household, that would be an extra $111k per household, increasing average household wealth to $823k.  That is approximately 15 times greater than the 2013 median household with only $56k in wealth.  Also consider that the estimated $12.4 trillion that the wealthy have stashed away is roughly equivalent to the $12 trillion in total household debt.

After revealing the 1%’s $32.6 trillion in accounted for wealth, estimating that they have another $11.9 trillion in hidden wealth may seem like an unnecessary risk that will invite attacks to undermine the credibility of this analysis. That is an understandable reaction.  However, in the grand scheme of things, that reaction is based on a dangerously naïve understanding of the global economic system.  In reality, if we ever get a full look at hidden wealth, the top 1% could more realistically own 50% of overall wealth.  It would not be surprising if the top 1% actually has $50 trillion in wealth, with $18 trillion of that held by the .01%.

Hopefully, government apologists, establishment economists, mainstream pundits and well-paid public relations experts will attack these numbers.  Public awareness of hidden wealth and the total amount of accounted for wealth that the ultra-rich have is an urgent priority.  Debate over these numbers will further highlight the absurdly corrupt and scandalous nature of the entire system.

Here’s how TJN summed up the situation:

“Despite taking pains to err on the conservative side, the results are astonishing. First, this hidden offshore sector is large enough to make a significant difference to all of our conventional measures of inequality.  Since most of missing financial wealth belongs to a tiny elite, the impact is staggering.

For most countries, global financial inequality is not only much greater than we suspected, but it has been growing much faster…. it turns out that this offshore sector – which specializes in tax dodging is basically designed and operated, not by shady no name banks located in sultry islands, but by the world’s largest private banks, law firms, and accounting firms, headquartered in First World capitals like London, New York, and Geneva.

Our detailed analysis of these banks shows that the leaders are the very same ones that have figured so prominently in government bailouts and other recent financial chicanery….  it is scandalous that official institutions like the Bank for International Settlements, the IMF, the World Bank, the OECD, and the G20, as well as leading central banks, have devoted so little research to this sector. This scandal is made worse by the fact that they already have much of the data needed to estimate this sector more carefully.”

fed1The bottom line, there is overwhelming evidence proving that the Federal Reserve, global central banking system and the US government are a front for the ultra-rich.  In short, we know that the biggest players on Wall Street engaged in trillions of dollars in fraudulent activity and the Federal Reserve created trillions of dollars out of thin air, mostly in secrecy, to cover it up and continue the looting of wealth. Instead of holding people accountable, the US government bailed them out.

The stock market is now a blatantly rigged wealth extraction operation.  To name just a few of the more well known rigging operations; high frequency trading, dark pools, Quantitative Easing (QE) and the Zero Interest Rate Policy (ZIRP), which gives interest free money to a select handful of “primary dealers” on Wall Street.  All of these highly corrupt schemes enrich the .01% at the expense of the overwhelming majority of the population.

Shadow Banking

Another major aspect of the wealth extraction operation that the public is not allowed to see, which also makes the $12.4 trillion in hidden wealth a conservative estimate, is the shadow banking system.  The .01% participates in a secret unregulated derivatives market that is worth an estimated $2010 trillion in notional value. The global financial crisis was a result of this secret market, which features credit default swaps.  The truth is, the public and the government have no idea what is happening within this market, and neither do economists who try to reveal how much wealth the .01% truly has.  Look behind the curtain of the Federal Reserve and shadow banking system and the true neo-feudal nature of the global economy is revealed in spectacular fashion.

A public understanding of how much wealth the ultra-rich truly have will create a critical mass of people who are aware that the global economy and US government have zero legitimacy. The essential elements that keep this scam going are the extensive propaganda system that paid off and uninformed mainstream media pundits uphold, and a military, intelligence and police complex that protects the perpetrators of the greatest theft of wealth in human history.  As far as the corrupt government is concerned, the theft of trillions is too big to reveal.  If the people have to suffer as a consequence, so be it.

The emperor has no clothes. He’s standing right in front of you, with $50 trillion in wealth, as you go deeper into debt and toil in economic insecurity.

V: The Aristocracy & The Death of Liberty

q5From the “monied aristocracy” to the “Gilded Age” and the “Roaring 20s,” extreme wealth inequality has always threatened freedom and democracy. Many of the most respected US presidents have highlighted the fight against concentrated wealth as the first priority of a free society.  Even in times of war, presidents have referred to bankers as being a bigger threat to the country than enemies on the battlefield.

Visionaries and leaders such as Buckminster Fuller and President Franklin D. Roosevelt saw the modern advancement of technology and increase in productivity and wealth creation occurring.  They began to envision a near future where people could regain their freedom from the dreary compulsion of industrialism.  Roosevelt proposed an Economic Bill of Rights that would guard against unhealthy levels of inequality and guarantee economic security for every citizen. He equated the concentration of wealth to “fascism” and “gangster rule.”  Upon accepting his second nomination as President, before World War II started, Roosevelt declared a war for economic freedom against the .01%.  He compared the wealthiest members of society to the British monarchy during revolutionary times:

“… the average man once more confronts the problem that faced the Minute Man…. The savings of the average family, the capital of the small-businessmen, the investments set aside for old age – other people’s money – these were tools which the new economic royalty used to dig itself in…. For too many of us the political equality we once had won was meaningless in the face of economic inequality.

A small group had concentrated into their own hands an almost complete control over other people’s property, other people’s money, other people’s labor – other people’s lives…. Against economic tyranny such as this…. the collapse of 1929 showed up the despotism for what it was…. The royalists of the economic order have conceded that political freedom was the business of the government, but they have maintained that economic slavery was nobody’s business….

These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the flag and the Constitution. In their blindness they forget what the flag and the Constitution stand for. Now, as always, they stand for democracy, not tyranny; for freedom, not subjection; and against a dictatorship by mob rule and the over-privileged alike….

America we are waging a great and successful war. It is not alone a war against want and destitution and economic demoralization. It is more than that; it is a war for the survival of democracy…. I accept the commission you have tendered me. I join with you. I am enlisted for the duration of the war.”

The war against the .01% was temporarily derailed when World War II began.  However, even at the height of WWII, during Roosevelt’s 1944 State of the Union address, he kept the focus on the .01% and said that they were “the greatest problem” facing the nation.  He called out “a noisy minority” which “maintains an uproar of demands for special favors for special groups.”  He described them as, “pests who swarm through the lobbies of the Congress and the cocktail bars of Washington, representing these special groups as opposed to the basic interests of the Nation as a whole….”

Roosevelt saw World War II as an extension of the deeper battle against “economic slavery,” wealth inequality and the .01% who prevailed in the 1920s and led the nation into the Great Depression.  Here’s another excerpt from his 1944 State of the Union address:

“We are united in determination that this war shall not be followed by another interim which leads to new disaster… that we shall not repeat the excesses of the wild twenties… if history were to repeat itself and we were to return to the so-called ‘normalcy’ of the 1920′s — then it is certain that even though we shall have conquered our enemies on the battlefields abroad, we shall have yielded to the spirit of Fascism here at home….”

When looking at the unprecedented level of wealth inequality in today’s society, it is obvious that “the spirit of Fascism” has prevailed.  Instead of increased productivity and wealth being a very good thing for overall society, the shortsighted greed of the .01% has systematically taken the increase in wealth for themselves, robbing everyone else of a life of liberty, economic security and freedom.

The “gangster rule” that Roosevelt warned against is now the norm.  The .01% acts with impunity, totally above the law, engaging in trillions of dollars in fraudulent activity without being held accountable. In fact, they are rewarded with all-time recording-breaking bonuses and ever-increasing wealth.

The .01% “economic royalists” hand down their dictates through centrally planned economic policy and government legislation designed to keep the population economically insecure, subservient and enslaved in debt.  Through their ownership of mainstream media companies they keep the masses in ignorance, wholly unaware of the paradigm shift in technology and wealth creation that should have provided economic security and made life much more enjoyable for everyone well over a generation ago.

We now live in a neo-feudal society. The evidence is undeniable.  The indentured servant is now the indebted wage slave. A recent scientific study revealed that the United States government is subservient to the whim of the .01%.  Political office is now merely a stepping-stone and initiation process that politicians go through to be accepted into the aristocracy.

The .01% aristocracy is exactly what the first American Revolution was against. It was Thomas Jefferson’s understanding of the aristocracy’s ability to consolidate wealth and subvert government that led him to believe that every generation required its own revolution.  Here are two prophetic quotes from Jefferson:

“Our country is now taking so steady a course as to show by what road it will pass to destruction, to wit: by consolidation of power first, and then corruption, its necessary consequence.”

“I hope we shall take warning from the example and crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.”

In discussing “the spirit of the people” and the need to “nourish and perpetuate that spirit,” Jefferson also said, “I am not among those who fear the people. They, and not the rich, are our dependence for continued freedom. And to preserve their independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude.”

Peer passed propaganda and you will see that the aristocratic “spirit of fascism” has conquered the “spirit of the people.”  As wealth and power have been consolidation in unprecedented fashion, the overwhelming majority toils in servitude” and “perpetual debt.”  Economic tyranny is the new normal.

The Coming Revolution

q6We present this report as a declaration of the causes which impel our separation from a corrupt and oppressive government. After analyzing current policies and economic conditions, it is now evident that the systematic exploitation of a majority of the population will continue without redress.

The need for significant systemic change is now a mathematical fact. Corruption, greed and economic inequality have reached a peak tipping point. As more people grow aware of the deliberate systemic nature of their unnecessary suffering, exploitation and oppression, there will soon be a critical mass who will insist upon nothing less than absolute revolution. The delusional political class and mainstream media uphold the status quo as if it is insurmountable.   In reality, it is highly unstable, unsustainable and collapsing at an increasing rate.

q7Revolution is inevitable.

ERpeak1

 

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Are Capital Inflows Propping Up U.S. Markets?

It seems likely that significant capital inflows are helping prop up asset valuations in the U.S.

Nobody really believes the official narrative that the “recovery” is powering the remarkable strength of U.S. stocks, bonds and real estate. The real Main Street economy is quite obviously struggling, outside the energy and Federal government sectors, and so many see the Federal Reserve’s free money for financiers (a.k.a. quantitative easing) bond and mortgage-buying programs as the real reason bond yields have declined and stocks have soared.

This view has the strong merit of relying on the basics of supply and demand: if the supply of nearly free money expands while the quantity of stocks, bonds and real estate shrink, remain stable or expand at lower rates than nearly free money, the flood of liquidity will push the price of assets higher.

The Fed’s suppression of interest rates has generated another powerful incentive to buy assets that generate some sort of yield: with safe Treasuries yielding so little, “risk-on” assets like stocks and junk bonds have soared due to strong demand.

But the notion that the Fed is the single cause of U.S. markets’ strength doesn’t quite explain why the Fed’s massive reduction in QE from $85 billion/month to $25 billion/month hasn’t sent markets dependent on the Federal Reserve’s free money for financiers into a tailspin.

For an example of what the Fed’s tapering should do if it is indeed the dominant causative factor, we need only look at what happened to peripheral capital markets in 2013 when the Fed started tapering: they tanked as speculative inflows dried up.

This leads us to wonder if capital inflows into the U.S. aren’t a largely overlooked driver of rising U.S. markets. Capital inflows are certainly a factor in the buoyancy of U.S. real estate, as various estimates peg recent Chinese purchases of U.S. housing at $22 billion–and this is only a snapshot of a much larger flow of capital flowing into the U.S. real estate market from Russia, the mideast and Asia.

While capital inflows into U.S. stocks are difficult to monitor, U.S. stocks provide the same relative safety to global capital as U.S. real estate: a strong rule of law, liquid markets, and a lower risk of bail-ins, confiscations and prison sentences for ill-gotten gains reaped overseas.

Please note the phrase relative safety: there are no absolutes when it comes to central banks and states, but as conditions deteriorate elsewhere, the flexibility and wealth of the U.S. provides a relative security that may not match Switzerland, but it offers other benefits, for example, a broad and deep range of assets for sale.

Much has been made of global capital leaving U.S. Treasury bonds. For example,Foreigners Dump Record Amount of US Securities, But Who the Heck Is Still Buying? (Wolf Richter).

For years, observers have seen the massive Treasury holdings of China as a potentialfinancial weapon: were China to dump a trillion dollars of Treasuries, that would crush the global market for U.S. bonds. (I have always held the Fed could issue a fresh $1 trillion and buy the lot in one fell swoop.)

The discussion of major foreign holders of Treasury Securities, i.e. foreign states and central banks, often overlooks one key driver of this trade: states seeking to weaken their own currency to boost exports sell their own currency and buy U.S. dollars. This increases the supply of their own currency, pushing the value lower, while the increased demand for dollars pushes the value of USD higher.

In terms of currency pairs, this weakens the currency of the buyer of Treasuries in relation to the dollar.

This is the root of the beggar thy neighbor approach to weakening one’s currency at the expense of one’s trading partners. But since every central bank that issues new credit-money effectively weakens its currency, this game has limits, as every major central bank has pursued easy-money policies such as quantitative easing.

In other words, major holders of U.S. Treasuries such as China and Japan have an over-riding incentive to keep buying Treasuries: keeping their currency either stable or weak vis-a-vis the U.S. dollar.

Private capital could well be selling Treasuries in order to buy “risk-on” assets such as corporate bonds, stocks or real estate, but there are other reasons for managers of private foreign capital to keep cash in U.S. Treasuries: the market is very liquid, and ownership of Treasuries is also a bet that the dollar will strengthen in relation to other currencies.

Given the increase in geopolitical tensions and other conditions–for example, Fed tapering–this is not a bad bet. Consider the trading range of the U.S. dollar since the 2008 global financial meltdown: the USD has drifted in a relatively narrow band.

Put these various factors together and it seems likely that significant capital inflows are helping prop up asset valuations in the U.S.


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