Living on a Lifeboat: What repression keeps us from discussing something as important?

Living on a lifeboat

Garrett Hardin | Garrett Hardin Society | 1974

This article appeared in BioScience, vol 24(10), pp. 561-568 and in The Social Contract, Fall 2001 issue. Currently available in Stalking the Wild Taboo.

Susanne Langer (1942) has shown that it is probably impossible to approach an unsolved problem save through the door of metaphor. Later, attempting to meet the demands of rigor, we may achieve some success in cleansing theory of metaphor, though our success is limited if we are unable to avoid using common language, which is shot through and through with fossil metaphors. (I count no less than five in the preceding two sentences.)

Since metaphorical thinking is inescapable it is pointless merely to weep about our human limitations. We must learn to live with them, to understand them, and to control them. "All of us," said George Eliot in Middlemarch, "get our thoughts entangled in metaphors, and act fatally on the strength of them". To avoid unconscious suicide we are well advised to pit one metaphor against another. From the interplay of competitive metaphors, thoroughly developed, we may come closer to metaphor-free solutions to our problems.

No generation has viewed the problem of the survival of the human species as seriously as we have. Inevitably, we have entered this world of concern through the door of metaphor. Environmentalists have emphasized the image of the earth as a spaceship -Spaceship Earth. Kenneth Boulding (1966) is the principal architect of this metaphor. It is time, he says, that we replace the wasteful "cowboy economy" of the past with the frugal "spaceship economy" required for continued survival in the limited world we now see ours to be. The metaphor is notably useful in justifying pollution control measures.

Return of the Population Time-Bomb || Too many People: Earth's Population Problem

Return of the population timebomb

It has become taboo over recent years, but population, not consumption, really is the key to managing our use of the world's resources

John Feeney | guardian.co.uk

Monday, 5 May 2008

Only since 1800, in the last 0.1% of the history of Homo sapiens, has the human population shot into the billions. Now at nearly 6.7 billion, with 9 billion looming 40 years away, few environmentalists seem to care.

Yet the population-environment link is clear. Our environmental impact, as gauged by total resource consumption for a country or the world, is the product of population size and the average person's consumption.

Today's crumbling environment, racked by climate change, mass extinction, deforestation, collapsing fisheries and more is evidence our total consumption has gone too far. We are destroying our life-support system. In ecological terms we are in "overshoot" of Earth's "carrying capacity" for humans, our demand exceeding the planet's absorptive and regenerative capacities.

To avert catastrophe, we need to reduce both factors in the equation: our numbers and per person consumption.

The Humpty Dumpty Economy | The Collapse of '09 | The Quiet Coup: The Wall Street-Washington Corridor Banana Republic

"We are out of money." Barack Obama May 23, 2009: Obama openly says what anyone with common sense has known for quite some time: the US is broke, and will not be able to honor its financial and fiduciary obligations.

“Quantitative Easing” it is called. As a refresher for readers with real lives and better things to do, QE is how central banks describe what is essentially an act of counterfeiting. They buy bonds with money created – electronically – specifically for that purpose. Abracadabra – “money” comes into being.

We thought the Bubble Epoch was the peak in claptrap and illusions. But we were only in the foothills. The feds now pretend to bail out the economy by giving money to companies that pretend to be concerned, run by people who pretend to know what they are doing. And when they run short of money, they create more of it, pretend it is real…and pretend they can tell it what to do.
~ Germany launches Gold-To-Go ATM's | Ladies & Gentlemen: the US Is Insolvent: “We are out of money.” Obama May 23, 09 | Avalanche of Claptrap Illusions ~

______________________________________________________________

Forecast 2005: The Humpty Dumpty Economy

Jesse's Café Américain

The current trend in the United States economy is not sustainable. This is a realization that will penetrate the national consciousness slowly and unevenly. Most economists agree on how this cycle will end (even if it is only privately), but the great debate is in the details of how, and most importantly, when.

If one does not accept that the situation is unsustainable, and believes that things can continue on endlessly just as they are, with the United States consuming the bulk of the world’s savings and production because of who we are, then perhaps this is symptomatic of the national epidemic we now suffer which the ancient Greeks called hubris.

"Where else will they put their surplus if not our debt? To whom will they sell their goods if not to us? Who will teach them how to live, and govern them?" History shows that even if such trends last far beyond most expectations, eventually a day of reckoning arrives, in some frequently repeated patterns of systemic failure....

Things rarely reach a turning point when we expect it. A true sea change is slow to permeate the mentality of most people, because our experience is that what happened yesterday will happen again tomorrow, and a long cyclical turn occurs gradually and incrementally. We forget what happened even a few years ago.

Predictions of a continuance of recent trends are the common currency of most pundits...

However, and this is a common sense notion that has been nearly forgotten by our generation, we have the ability to act in such a way so as to make the improbable more likely to occur, to tempt fate by our actions. For example, there is a certain probability of sustaining an automobile accident in the normal course of our daily activities. High risk behaviors, such as speeding excessively or drinking while driving, increase the chance of an accident. If one engages in high risk activity, and nothing unusual happens, we become emboldened and think that since we were able to drink moderately and drive last month, so we can drink and drive this month and thereafter. Perhaps next month we drink a little more for an indulgence, and again nothing happens. This cycle continues until something changes our behavior, or simply ends when we literally hit the wall.

It would be our contention that the US is like such a driver, and we have been economically tempting fate with increasingly risky behaviors. We are persuaded that there is almost nothing we cannot do, almost nothing that can happen, that is beyond our control. It is the propensity for people to increase and repeat what they have been doing over time, to tempt fate through repeated and increasingly risky behavior, and to forget the possibility of a sequence of unfortunate events if you will, that gives rise to memorable events in history...

Predicting the failure of a complex system is not easy. One can examine it as a whole, and determine that it will fail, and often calculate what must change in order to allow the system to function more reliably. But it is often beyond our power to calculate exactly how it will fail, and consequently when it will fail.

This does not invalidate the observation that the system will ultimately fail. It merely underscores the unpredictability of timing a failure with the degrees of freedom inherent in a calculation with a large number of exogenous variables. It is not easy to predict exactly when a chronic DWI will demolish their automobile, but it
remains relatively predictable to say that they will do so as long as they maintain
their current mode of behavior....

There are four major types of tipping points:

• Demand: a break in the level of consumption in the US caused by the unwillingness or ability of households to incur further debt to support consumption beyond real wage growth
  
  
• Supply: a major disruption in the supply of an essential commodity like energy, food, or raw materials, or even the realization that a major commodity is in shorter supply than expected, such as silver or oil.
  
  
• Monetary: an inability of foreign central banks to continue to monetize the US trade deficit and budget deficit through the recycling of
  their trade surplus into US debt securities.
  
  
• Systemic failure: the failure of a major counter party that threatens the US financial system, particularly in the hugely leveraged derivatives market.

Two of the seals, Demand and Systemic Failure, have been broken, and the horsemen unleashed. Next comes Monetary, and then Supply, which is a Pale Horse.

There is still time to end this spiral of decline.

Source: Jesse's Americain Cafe

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The Collapse of ‘09

Daily Reckoning | By Gerald Celente

03/19/09 Rhinebeck, New York The "Panic of ‘08" will be followed by "The Collapse of ‘09." In 2008, when the world’s largest financial firms and equity markets crumbled, Wall Street’s woes preoccupied the media.

In 2009, the focus will broaden to include a range of calamities that will leave no sector unscathed. Next in line is retail, which accounts for some 70 percent of consumer spending, 26 percent of which is holiday sales.

After the numbers are tallied to reveal a dismal retail Christmas, more big chain bankruptcies will follow. Besides leaving masses unemployed, defunct retailers will leave behind thousands of empty stores. Who will rent them? Nobody!

Add to these empties commercial space vacated by defunct financial firms and an array of troubled businesses, from restaurants to architectural firms, to high tech operations, to offset printers, etc., etc. The inescapable result (that we predicted over a year ago and is only now being discussed in the business media) is a commercial real estate bust that will be costlier, wreak greater havoc and prove more intractable than the residential market decline.

Because most people don’t live and shop on Wall Street, the "Panic of ‘08" was viewed by Main Street as if from afar - even though many were losing money. But when commercial real estate crashes it will hit much closer to home. The depressive atmosphere of thinly shopped, half-vacant malls will strike emotional chords and all the senses.

In office buildings, vacant floors and empty cubicles will dampen the workday spirit of the still-employed; ever present reminders of laid-off friends and colleagues and of the fragility of employment.

Abandoned, untended business and industrial parks will highlight the already mournful scene. In cities studded with soaring towers and new construction predicated on eternal economic growth, streets lined with "For Rent/For Sale" signs will complement stilled cranes and uncompleted buildings.

As retail and commercial real estate collapse, the credit card sector and all its interrelated processing and back office support businesses will suffer and be forced to scale back. Hordes of consumers who have been living off credit cards and racking up debt to the limit will lack the funds to service their debt… much less pay it off, and they will be forced to default. Given the nearly $3 trillion in consumer debt at risk (excluding auto and mortgage) an inevitable default snowball will add momentum to the in-progress Collapse of ‘09.

While we alone predicted the "Panic of ‘08" (and even took out the domain name "Panicof08.com" on 7 November 2007), we are not alone in predicting a Depression.

The "D" word is being uttered - in some cases by those who have the most to lose and whose best interests are not served by spreading gloom and doom. "The world and country are in a depression," said celebrity tycoon Donald Trump. He then later softened the blow, downgrading it to a "virtual depression."

"Virtual" to the few who will never have to worry where the next dollar will come from, it will be painfully real and hardly virtual to the multitudes who are and will be worrying. The virally proliferating Greatest Depression is the Trend of Trends for 2009.

Even so, beware! Over the course of free-falling 2009, the word from most official sources will be "recession," and from the few mainstream trophy pessimists,
"deep recession."

For example, the oft-quoted naysayer, Nouriel Roubini, New York University professor of economics, forecasts a two year recession … not Depression. On the sunnier side of Wall Street, the Federal Reserve predicts the US economy will contract only through the middle of 2009 and pledged, "In any event, the Committee agreed to take whatever steps were necessary to support the recovery.”

What "steps?" The Bernanke Two-Step? Adjust interest rates or print more money? Neither stopped the credit crisis from worsening, the real estate market from tanking or the stock markets from crashing.

It was Fed finagling, Washington deregulation and Wall Street’s compulsive gambling that created the crisis. To trust or to seriously consider pronouncements, analyses and predictions made by any of these sources is an exercise in willful self-deception. Yet, with pensions, IRAs, 401ks, stocks and mutual funds evaporating, many of those most affected deny reality and take hope that forecasts made by proven incompetents will miraculously restore their losses.

Throughout the many years leading up to what we term the "Greatest Depression," The Trends Research Institute provided copious data and Globalnomic analysis to support our forecasts of economic upheaval. In the past year alone, we have provided so much hard evidence (housings starts, home sales, foreclosures, bankruptcies, bank failures, unemployment figures, stock indices, leading economic indicators, retail sales, etc.) that further elaboration should be superfluous.

Those waiting to hear the "D" word from economic experts, talking heads and TV anchors before taking action will most certainly regret their indecisiveness.

Absent from the economic scenarios ranging from second quarter recovery, deep recession and "virtual" depression are the multiplicity of social, environmental, health, political, emotional/psychological and geopolitical factors that point beyond just Depression. They point to The Decline and Fall of Empire America.

Well before Inauguration Day, Barack Obama was cast as the next Franklin Delano Roosevelt. If he follows in FDR’s footsteps he could freeze deposits by declaring a "holiday" to stop a run on the banks. While FDIC insurance may cover deposits, even after banks reopen, withdrawal amounts may be restricted. (As the Argentine government did in 2001-2002.)

Author’s Note: Suspicious of the soundness of the banking system, I requested to withdraw a substantial sum from our Key Bank account, leaving funds sufficient to cover ongoing business operations. First they tried to dissuade me, then they stonewalled me, and finally they turned openly hostile.

I was forced to sign a series of documents, including one acknowledging that since I was carrying a large sum I could be the target of a robbery. To enhance that possibility, the teller slammed down the bag of cash on the counter and publicly announced the sum.

Despite repeated requests in the days preceding my withdrawal to get the cash in hundreds, they gave it to me in twenties, making for a bag five times the size and more robber-friendly. When I complained to the bank manager who had processed the request, the response amounted to "take it or leave it."

This will not be an isolated event. If you attempt to withdraw a large chunk of money from your account, negotiate the details in advance and anticipate possible hassle and obstruction.

We’ve heard similar accounts from clients and Trends Journal subscribers who, over the past several months, tried to close out mutual funds, 401ks and assorted sinking equities. They were dissuaded, cajoled, belittled and arm-twisted by brokers desperate to keep their accounts. Many caved in under the pressure, didn’t close them and lost most of what they had.

So, we leave you with a Greatest Depression consideration: How safe is your money? How sound is your bank? At the end of November, Citigroup, once America’s largest bank, was on the rocks. Fifty-two thousand employees were laid off. In just three days its stock lost more than half its value. Rumors swirled that Citi was so desperate they were looking to sell or split up the company.

Is your money deposited in a local bank whose reputation you can bank on? Are you with a teetering giant or a poorly-managed regional? If either of the latter, it would be in your best interest to assess the risks.

Take some out if you think there is risk; take it all out if you think there’s high risk. You may consider spreading it around and even banking abroad … after all, this is the Global Age.

Source: Daily Reckoning

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The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

The Quiet Coup: The Wall Street-Washington Corridor Banana Republic

The Atlantic | Simon Johnson

Image credit: Jim Bourg/Reuters/Corbis

One thing you learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your “clients” come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You’re never at the top of anyone’s dance card.

The reason, of course, is that the IMF specializes in telling its clients what they don’t want to hear. I should know; I pressed painful changes on many foreign officials during my time there as chief economist in 2007 and 2008. And I felt the effects of IMF pressure, at least indirectly, when I worked with governments in Eastern Europe as they struggled after 1989, and with the private sector in Asia and Latin America during the crises of the late 1990s and early 2000s. Over that time, from every vantage point, I saw firsthand the steady flow of officials—from Ukraine, Russia, Thailand, Indonesia, South Korea, and elsewhere—trudging to the fund when circumstances were dire and all else had failed.

Every crisis is different, of course. Ukraine faced hyperinflation in 1994; Russia desperately needed help when its short-term-debt rollover scheme exploded in the summer of 1998; the Indonesian rupiah plunged in 1997, nearly leveling the corporate economy; that same year, South Korea’s 30-year economic miracle ground to a halt when foreign banks suddenly refused to extend new credit.

But I must tell you, to IMF officials, all of these crises looked depressingly similar. Each country, of course, needed a loan, but more than that, each needed to make big changes so that the loan could really work. Almost always, countries in crisis need to learn to live within their means after a period of excess—exports must be increased, and imports cut—and the goal is to do this without the most horrible of recessions. Naturally, the fund’s economists spend time figuring out the policies—budget, money supply, and the like—that make sense in this context. Yet the economic solution is seldom very hard to work out.

No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

In Russia, for instance, the private sector is now in serious trouble because, over the past five years or so, it borrowed at least $490 billion from global banks and investors on the assumption that the country’s energy sector could support a permanent increase in consumption throughout the economy. As Russia’s oligarchs spent this capital, acquiring other companies and embarking on ambitious investment plans that generated jobs, their importance to the political elite increased. Growing political support meant better access to lucrative contracts, tax breaks, and subsidies. And foreign investors could not have been more pleased; all other things being equal, they prefer to lend money to people who have the implicit backing of their national governments, even if that backing gives off the faint whiff of corruption.

But inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.

The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterday’s “public-private partnerships” are relabeled “crony capitalism.” With credit unavailable, economic paralysis ensues, and conditions just get worse and worse. The government is forced to draw down its foreign-currency reserves to pay for imports, service debt, and cover private losses. But these reserves will eventually run out. If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah. The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.

Eventually, as the oligarchs in Putin’s Russia now realize, some within the elite have to lose out before recovery can begin. It’s a game of musical chairs: there just aren’t enough currency reserves to take care of everyone, and the government cannot afford to take over private-sector debt completely.

So the IMF staff looks into the eyes of the minister of finance and decides whether the government is serious yet. The fund will give even a country like Russia a loan eventually, but first it wants to make sure Prime Minister Putin is ready, willing, and able to be tough on some of his friends. If he is not ready to throw former pals to the wolves, the fund can wait. And when he is ready, the fund is happy to make helpful suggestions—particularly with regard to wresting control of the banking system from the hands of the most incompetent and avaricious “entrepreneurs.”

Of course, Putin’s ex-friends will fight back. They’ll mobilize allies, work the system, and put pressure on other parts of the government to get additional subsidies. In extreme cases, they’ll even try subversion—including calling up their contacts in the American foreign-policy establishment, as the Ukrainians did with some success in the late 1990s.

Many IMF programs “go off track” (a euphemism) precisely because the government can’t stay tough on erstwhile cronies, and the consequences are massive inflation or other disasters. A program “goes back on track” once the government prevails or powerful oligarchs sort out among themselves who will govern—and thus win or lose—under the IMF-supported plan. The real fight in Thailand and Indonesia in 1997 was about which powerful families would lose their banks. In Thailand, it was handled relatively smoothly. In Indonesia, it led to the fall of President Suharto and economic chaos.

From long years of experience, the IMF staff knows its program will succeed—stabilizing the economy and enabling growth—only if at least some of the powerful oligarchs who did so much to create the underlying problems take a hit. This is the problem of all emerging markets.

Becoming a Banana Republic

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.



Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.


The Wall Street–Washington Corridor

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.

These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni—including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson—not only placed people with Wall Street’s worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service.

Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008—attended by top policy makers from a handful of rich countries—at which the chair casually proclaimed, to the room’s general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker.

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.

Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.

As more and more of the rich made their money in finance, the cult of finance seeped into the culture at large. Works like Barbarians at the Gate, Wall Street, and Bonfire of the Vanities—all intended as cautionary tales—served only to increase Wall Street’s mystique. Michael Lewis noted in Portfolio last year that when he wrote Liar’s Poker, an insider’s account of the financial industry, in 1989, he had hoped the book might provoke outrage at Wall Street’s hubris and excess. Instead, he found himself “knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share. … They’d read my book as a how-to manual.” Even Wall Street’s criminals, like Michael Milken and Ivan Boesky, became larger than life. In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country—and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom—trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:

• insistence on free movement of capital across borders;
  
  
• the repeal of Depression-era regulations separating commercial and investment banking;
  
  
• a congressional ban on the regulation of credit-default swaps;
  
  
• major increases in the amount of leverage allowed to investment banks;
  
  
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
  
  
• an international agreement to allow banks to measure their own riskiness;
  
  
• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.


America’s Oligarchs and the Financial Crisis

The oligarchy and the government policies that aided it did not alone cause the financial crisis that exploded last year. Many other factors contributed, including excessive borrowing by households and lax lending standards out on the fringes of the financial world. But major commercial and investment banks—and the hedge funds that ran alongside them—were the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an ever-increasing volume of transactions founded on a relatively small base of actual physical assets. Each time a loan was sold, packaged, securitized, and resold, banks took their transaction fees, and the hedge funds buying those securities reaped ever-larger fees as their holdings grew.

Because everyone was getting richer, and the health of the national economy depended so heavily on growth in real estate and finance, no one in Washington had any incentive to question what was going on. Instead, Fed Chairman Greenspan and President Bush insisted metronomically that the economy was fundamentally sound and that the tremendous growth in complex securities and credit-default swaps was evidence of a healthy economy where risk was distributed safely.

In the summer of 2007, signs of strain started appearing. The boom had produced so much debt that even a small economic stumble could cause major problems, and rising delinquencies in subprime mortgages proved the stumbling block. Ever since, the financial sector and the federal government have been behaving exactly the way one would expect them to, in light of past emerging-market crises.

By now, the princes of the financial world have of course been stripped naked as leaders and strategists—at least in the eyes of most Americans. But as the months have rolled by, financial elites have continued to assume that their position as the economy’s favored children is safe, despite the wreckage they have caused.

Stanley O’Neal, the CEO of Merrill Lynch, pushed his firm heavily into the mortgage-backed-securities market at its peak in 2005 and 2006; in October 2007, he acknowledged, “The bottom line is, we—I—got it wrong by being overexposed to subprime, and we suffered as a result of impaired liquidity in that market. No one is more disappointed than I am in that result.” O’Neal took home a $14 million bonus in 2006; in 2007, he walked away from Merrill with a severance package worth $162 million, although it is presumably worth much less today.

In October, John Thain, Merrill Lynch’s final CEO, reportedly lobbied his board of directors for a bonus of $30 million or more, eventually reducing his demand to $10 million in December; he withdrew the request, under a firestorm of protest, only after it was leaked to The Wall Street Journal. Merrill Lynch as a whole was no better: it moved its bonus payments, $4 billion in total, forward to December, presumably to avoid the possibility that they would be reduced by Bank of America, which would own Merrill beginning on January 1. Wall Street paid out $18 billion in year-end bonuses last year to its New York City employees, after the government disbursed $243 billion in emergency assistance to the financial sector.

In a financial panic, the government must respond with both speed and overwhelming force. The root problem is uncertainty—in our case, uncertainty about whether the major banks have sufficient assets to cover their liabilities. Half measures combined with wishful thinking and a wait-and-see attitude cannot overcome this uncertainty. And the longer the response takes, the longer the uncertainty will stymie the flow of credit, sap consumer confidence, and cripple the economy—ultimately making the problem much harder to solve. Yet the principal characteristics of the government’s response to the financial crisis have been delay, lack of transparency, and an unwillingness to upset the financial sector.

The response so far is perhaps best described as “policy by deal”: when a major financial institution gets into trouble, the Treasury Department and the Federal Reserve engineer a bailout over the weekend and announce on Monday that everything is fine. In March 2008, Bear Stearns was sold to JP Morgan Chase in what looked to many like a gift to JP Morgan. (Jamie Dimon, JP Morgan’s CEO, sits on the board of directors of the Federal Reserve Bank of New York, which, along with the Treasury Department, brokered the deal.) In September, we saw the sale of Merrill Lynch to Bank of America, the first bailout of AIG, and the takeover and immediate sale of Washington Mutual to JP Morgan—all of which were brokered by the government. In October, nine large banks were recapitalized on the same day behind closed doors in Washington. This, in turn, was followed by additional bailouts for Citigroup, AIG, Bank of America, Citigroup (again), and AIG (again).

Some of these deals may have been reasonable responses to the immediate situation. But it was never clear (and still isn’t) what combination of interests was being served, and how. Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple.

Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions. Many observers suspected that the purpose was to overpay for those assets and thereby take the problem off the banks’ hands—indeed, that is the only way that buying toxic assets would have helped anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved.

Instead, the money was used to recapitalize banks, buying shares in them on terms that were grossly favorable to the banks themselves. As the crisis has deepened and financial institutions have needed more help, the government has gotten more and more creative in figuring out ways to provide banks with subsidies that are too complex for the general public to understand. The first AIG bailout, which was on relatively good terms for the taxpayer, was supplemented by three further bailouts whose terms were more AIG-friendly. The second Citigroup bailout and the Bank of America bailout included complex asset guarantees that provided the banks with insurance at below-market rates. The third Citigroup bailout, in late February, converted government-owned preferred stock to common stock at a price significantly higher than the market price—a subsidy that probably even most Wall Street Journal readers would miss on first reading. And the convertible preferred shares that the Treasury will buy under the new Financial Stability Plan give the conversion option (and thus the upside) to the banks, not the government.

This latest plan—which is likely to provide cheap loans to hedge funds and others so that they can buy distressed bank assets at relatively high prices—has been heavily influenced by the financial sector, and Treasury has made no secret of that. As Neel Kashkari, a senior Treasury official under both Henry Paulson and Tim Geithner (and a Goldman alum) told Congress in March, “We had received inbound unsolicited proposals from people in the private sector saying, ‘We have capital on the sidelines; we want to go after [distressed bank] assets.’” And the plan lets them do just that: “By marrying government capital—taxpayer capital—with private-sector capital and providing financing, you can enable those investors to then go after those assets at a price that makes sense for the investors and at a price that makes sense for the banks.” Kashkari didn’t mention anything about what makes sense for the third group involved: the taxpayers.

Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change. As an unnamed senior bank official said to The New York Times last fall, “It doesn’t matter how much Hank Paulson gives us, no one is going to lend a nickel until the economy turns.” But there’s the rub: the economy can’t recover until the banks are healthy and willing to lend.


The Way Out

Looking just at the financial crisis (and leaving aside some problems of the larger economy), we face at least two major, interrelated problems. The first is a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate. The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support.

Big banks, it seems, have only gained political strength since the crisis began. And this is not surprising. With the financial system so fragile, the damage that a major bank failure could cause—Lehman was small relative to Citigroup or Bank of America—is much greater than it would be during ordinary times. The banks have been exploiting this fear as they wring favorable deals out of Washington. Bank of America obtained its second bailout package (in January) after warning the government that it might not be able to go through with the acquisition of Merrill Lynch, a prospect that Treasury did not want to consider.

The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.

In some ways, of course, the government has already taken control of the banking system. It has essentially guaranteed the liabilities of the biggest banks, and it is their only plausible source of capital today. Meanwhile, the Federal Reserve has taken on a major role in providing credit to the economy—the function that the private banking sector is supposed to be performing, but isn’t. Yet there are limits to what the Fed can do on its own; consumers and businesses are still dependent on banks that lack the balance sheets and the incentives to make the loans the economy needs, and the government has no real control over who runs the banks, or over what they do.

At the root of the banks’ problems are the large losses they have undoubtedly taken on their securities and loan portfolios. But they don’t want to recognize the full extent of their losses, because that would likely expose them as insolvent. So they talk down the problem, and ask for handouts that aren’t enough to make them healthy (again, they can’t reveal the size of the handouts that would be necessary for that), but are enough to keep them upright a little longer. This behavior is corrosive: unhealthy banks either don’t lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and as it does, bank assets themselves continue to deteriorate—creating a highly destructive vicious cycle.

To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.

Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC “intervention” is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.

The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivership—recognizing reality—and transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump banks—cleansed and able to lend safely, and hence trusted again by other lenders and investors—could then be sold off.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5 trillion (or 10 percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole.

This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.

This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.

To ensure systematic bank breakup, and to prevent the eventual reemergence of dangerous behemoths, we also need to overhaul our antitrust legislation. Laws put in place more than 100 years ago to combat industrial monopolies were not designed to address the problem we now face. The problem in the financial sector today is not that a given firm might have enough market share to influence prices; it is that one firm or a small set of interconnected firms, by failing, can bring down the economy. The Obama administration’s fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelt’s trust-busting.

Caps on executive compensation, while redolent of populism, might help restore the political balance of power and deter the emergence of a new oligarchy. Wall Street’s main attraction—to the people who work there and to the government officials who were only too happy to bask in its reflected glory—has been the astounding amount of money that could be made. Limiting that money would reduce the allure of the financial sector and make it more like any other industry.

Still, outright pay caps are clumsy, especially in the long run. And most money is now made in largely unregulated private hedge funds and private-equity firms, so lowering pay would be complicated. Regulation and taxation should be part of the solution. Over time, though, the largest part may involve more transparency and competition, which would bring financial-industry fees down. To those who say this would drive financial activities to other countries, we can now safely say: fine.


Two Paths

To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time. If the U.S. were just another country, coming to the IMF with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises that I’ve mentioned ended relatively quickly, and gave way, for the most part, to relatively strong recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets.

Emerging-market countries have only a precarious hold on wealth, and are weaklings globally. When they get into trouble, they quite literally run out of money—or at least out of foreign currency, without which they cannot survive. They must make difficult decisions; ultimately, aggressive action is baked into the cake. But the U.S., of course, is the world’s most powerful nation, rich beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own currency, which it can print. As a result, it could very well stumble along for years—as Japan did during its lost decade—never summoning the courage to do what it needs to do, and never really recovering. A clean break with the past—involving the takeover and cleanup of major banks—hardly looks like a sure thing right now. Certainly no one at the IMF can force it.

In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.


Simon Johnson, a professor at MIT’s Sloan School of Management, was the chief economist at the International Monetary Fund during 2007 and 2008. He blogs about the financial crisis at baselinescenario.com, along with James Kwak, who also contributed to this essay.

Source: The Atlantic

Population, Resources, and Human Idealism, by Richard Heinberg; Energy Bulletin/MuseLetter

“... World population growth is widely recognized within the Government as a current danger of the highest magnitude calling for urgent measures...... it is of the utmost urgency that governments now recognize the facts and implications of population growth, determine the ultimate population sizes that make sense for their countries and start vigorous programs at once to achieve their desired goals.”
“... population factors are indeed critical in, and often determinants of, violent conflict in developing areas. Segmental (religious, social, racial) differences, migration, rapid population growth, differential levels of knowledge and skills, rural/urban differences, population pressure and the spatial location of population in relation to resources -- in this rough order of importance -- all appear to be important contributions to conflict and violence... Clearly, conflicts which are regarded in primarily political terms often have demographic roots. Recognition of these relationships appears crucial to any understanding or prevention of such hostilities.”
“...there is general agreement that up to the point when cost per acceptor rises rapidly, family planning expenditures are generally considered the best investment a country can make in its own future.”
~ National Security Study Memorandum 200: Implications of Worldwide Population Growth ~

__________________________________________

Population, Resources, and Human Idealism

by Richard Heinberg, Museletter

Urinetown is a funny, smart, Tony Award-winning musical. Its action takes place in a city of the future where, as the result of severe and ongoing water shortages, private toilets have been banned. A giant corporation, the Urine Good Company (UGC for short), is in charge of all pay-per-pee services. The gradually escalating price is still affordable to a well-off few, but teeming masses of poor have to scrape together piles of spare change every day in order to take care of their private business. This, announces policeman-narrator Officer Lockstock, is “the central conceit of the show.”

The cast includes a greedy villain (Caldwell B. Cladwell, the CEO of UGC), a courageous hero (Bobby Strong, a poor lad who works for UGC collecting fees at a down-scale public toilet), and a big-hearted heroine (Hope, Cladwell’s daughter). Bobby and Hope fall in love; Strong leads a rebellion against UGC; the “terrorists” take Hope hostage. She sings the uplifting “Follow Your Heart,” assuring herself and everyone else that love will win the day, but every line is tongue-in-cheek. Though Bobby is soon killed by UGC minions, Hope manages to gain ultimate power, disposing of her father and telling her followers that the time of deprivation is over. In the last scene, she sings the fervent anthem “I See a River,” envisioning a new era when all can pee as much as they like, whenever they like, wherever they like. However, by the end of the scene the entire cast—excepting the narrator—has perished in an ecological catastrophe. Officer Lockstock’s epilogue tells the sorry tale:

Of course, it wasn’t long before the water became silty, brackish, and then dried up altogether. Cruel as Caldwell B. Cladwell was, his measures effectively regulated water consumption. . . . Hope, however, chose to ignore the warning signs, choosing instead to bask in the people’s love as long as it lasted. Hope eventually joined her father in a manner not quite so gentle. As for the people of this town? Well, they did the best they could. But they were prepared for the world they inherited . . . . For when the water dried up, they recognized their town for the first time for what it really was. What it was always waiting to be . . .

The Chorus sings: “This is Urinetown! Always it’s been Urinetown! This place it’s called Urinetown!” And with their unison cry of “Hail Malthus!”, the curtain falls.

The entire play is a send-up of the musical comedy genre, and the audience goes home laughing at gags and humming memorable tunes. Many reviewers have emphasized the infectious zaniness of the play, seemingly missing its explicit message (that idealism and good intentions are insufficient responses to problems of population pressure and resource depletion). Maybe that’s just as well: Urinetown succeeds so well as comedy and theater that even people utterly immune to its insights still have a good time; thus more people are drawn to see it, including those who do “get it.”

So what’s the significance of the play’s last line, “Hail Malthus”?

* * *

Thomas Malthus (1766–1834) was a British political economist who theorized that unchecked population growth must eventually outstrip increases in food production. His most famous writing was the Essay on Population (1798), in which he explained in simple terms the connection between population pressure and human misery. The following passage from “The History of Economic Thought” website () summarizes his ideas succinctly:

Actual (checked) population growth is kept in line with food supply growth by “positive checks” (starvation, disease and the like, elevating the death rate) and “preventive checks” (i.e. postponement of marriage, etc. that keep down the birthrate), both of which are characterized by “misery and vice.” Malthus’s hypothesis implied that actual population always has a tendency to push above the food supply. Because of this tendency, any attempt to ameliorate the condition of the lower classes by increasing their incomes or improving agricultural productivity would be fruitless, as the extra means of subsistence would be completely absorbed by an induced boost in population. As long as this tendency remains, Malthus argued, the “perfectibility” of society will always be out of reach.

No wonder the term Malthusian almost always has negative connotations. Indeed, Malthus became anathema to utopians of the left and right, who envision a world with no limits. He has been reviled as a “hard-hearted monster,” a “prophet of doom,” and an “enemy of the working class.”

The summary goes on:

In his much-expanded and revised 1803 edition of the Essay, Malthus concentrated on bringing empirical evidence to bear (much of it acquired on his extensive travels to Germany, Russia and Scandinavia). He also introduced the possibility of “moral restraint” (voluntary abstinence which leads to neither misery nor vice) bringing the unchecked population growth rate down to a point where the tendency is gone.
In practical policy terms, this meant inculcating the lower classes with middle-class virtues. He believed this could be done with the introduction of universal suffrage, state-run education for the poor and, more controversially, the elimination of the Poor Laws and the establishment of an unfettered nation-wide labor market.
He also argued that once the poor had a taste for luxury, then they would demand a higher standard of living for themselves before starting a family. Thus . . . Malthus is suggesting the possibility of “demographic transition,” i.e. that sufficiently high incomes may be enough by themselves to reduce fertility.

Malthus believed that a general famine would occur in the near future unless his policies were implemented; in this he was clearly wrong. There have indeed been localized famines in the decades since his death (e.g., in Ireland, the Soviet Union, China, North Korea, and Ethiopia), but these have provided only a minor brake on global population—which has surged by over 500 percent in the interim. This failure of prediction is the main cudgel wielded by generations of Malthus-bashers, who attribute the growth of world food production over the past century-and-a-half primarily to human ingenuity. As knowledge expands, so does our ability to sustain more people.

But increased knowledge and cleverness can account for only a portion of the added global human carrying capacity. The main factor has been the use of fossil fuels for clearing land, pumping irrigation water, fueling tractors and other farm equipment, fertilizing soils, killing pests, and transporting produce ever further distances to support people in remote urban centers who would otherwise be unable to sustain themselves. Malthus could hardly have foreseen the contributions of fossil fuels to economic expansion and population growth during the past two centuries. And so, taking into account the inevitable, now-commencing winding down of that brief, incomparably opulent fossil-fuel fiesta, it may be better to say that Malthus wasn’t wrong, he was just ahead of his time.

But if the depletion and decline of fossil fuels proves Malthus to have been ultimately correct in his forecast of human dieoff, what does that say for the rest of his message—his calls to abolish the Poor Laws and thus end “welfare as we know it,” and his implicit view that the “perfectibility of society will always be out of reach”?

* * *

William Stanton is a retired geologist and contemporary author who has taken up Malthus’s mantle in a well-researched but grim and controversial book, The Rapid Growth of Human Populations, 1750–2000. In it, he compiles population data on virtually every nation: each page features a country chart accompanied by a paragraph or two describing the unique historical circumstances that caused the line on the graph to assume its particular shape. Want to know the population history of the Maldives? The chart and explanatory paragraphs are on page 196. This typically takes up about half of each page; the other half is devoted to the running text, a sometimes highly opinionated discussion of population and resources.

As a thorough and proud Malthusian, Stanton takes an uncompromising stance toward multiculturalism, the welfare state, and immigration: he considers conventional liberal attitudes toward these subjects forms of “sentimentality” that only make humanity’s problems worse. Here are some representative passages from pages 73–74:

Compassion is a luxury available to people enjoying peace and plenty, who are confident of their place in society. . . . They apply it to the hungry, needy, or oppressed. It makes them feel virtuous—until the needy try to take advantage of the givers. . . .
Human ‘rights’ often conflict with each other. For example, if a couple insists on their ‘right’ to have lots of babies, the family that results may lose its ‘right’ to enjoy a comfortable standard of living. . . .

In a more recent essay, “Oil and People,” published in the ASPO newsletter #55 (July 2005) , Stanton writes:

So the population reduction scenario with the best chance of success has to be Darwinian in all its aspects, with none of the sentimentality that shrouded the second half of the 20th Century in a dense fog of political correctness. . . . The Darwinian approach, in this planned population reduction scenario, is to maximise the well-being of the UK as a nation-state. Individual citizens, and aliens, must expect to be seriously inconvenienced by the single-minded drive to reduce population ahead of resource shortage. The consolation is that the alternative, letting Nature take its course, would be so much worse.
The scenario is: Immigration is banned. Unauthorised arrives are treated as criminals. Every woman is entitled to raise one healthy child. No religious or cultural exceptions can be made, but entitlements can be traded. Abortion or infanticide is compulsory if the fetus or baby proves to be handicapped (Darwinian selection weeds out the unfit). When, through old age, accident or disease, an individual becomes more of a burden than a benefit to society, his or her life is humanely ended. Voluntary euthanasia is legal and made easy. Imprisonment is rare, replaced by corporal punishment for lesser offences and painless capital punishment for greater.

In a reply comment, also posted on the website under the title “Triumph of the Will(iam),” writer “guamanian” opines:

William Stanton’s Essay “Öl und Volk” is best read in the original, preferably out loud in a shrill Austrian accent with suitable stiff-armed gestures and much goose-stepping. . . . Invoking Victorian-parlour Social Darwinism, and railing against “the Western world’s unintelligent devotion to . . . human rights and the sanctity of human life,” Stanton presents as a solution to energy descent the classic Fascist (or Corporatist) State, in which the powerless individual serves the homeland, for the greater good of, if not all, then at least of some.

Other readers offered similar comments. Colin Campbell had the last word in the discussion:

I think [Stanton] was proposing some sort of managed decline (as for example by hanging criminals) rather than just letting Nature take its course in which the strong eat the weak. I think he was simply suggesting how Britain might react and achieve in isolation the reduction imposed by Nature. I don't think there was anything particularly xenophobic: the Nigerians would be equally free to solve their same problem however they might. . . .

* * *

Al Bartlett, retired professor of physics at the University of Colorado, developed a lecture in the early 1970s that he has since delivered over 2000 times. Titled Arithmetic, Population, and Energy, the talk takes his audience along on an exploration of the meaning of steady growth (so many percent per year)—which is of course the sacred basis of all modern economies. As Bartlett makes clear, no steady rate of growth in population or resource consumption is sustainable.

During the course of the lecture, he asks, “Well, what can we do about this? What makes the population problem worse, and what reduces it?” On the screen he projects a slide with two columns of words. On the left-hand column are the principal factors leading to population growth; on the right, factors leading to a decrease of population.

Table of Options

Increase populations*******************Decrease Populations
Procreation ****************************Abstention
Motherhood *************************** Contraception/Abortion
Large Families *************************Small families
Immigration ***************************Stopping Immigration
Medicine ******************************Public Health
Sanitation *****************************Disease
Peace *********************************War
Law and Order *************************Murder/Violence
Scientific Agriculture *****************    Famine
Accident Prevention *******************  Accidents
Clean Air ***************************** Pollution (Smoking)


Ignorance of the Problem

Bartlett notes that population growth will cease at some point: the mathematics assures us of that (otherwise, in just a few centuries, the entire surface of the planet would be covered with humans). Moreover, we need not do anything to solve the population problem: nature will take care of that for us. Sooner or later, from the right-hand column nature will choose some method or methods of limiting human numbers. But the options chosen may not be to our liking. The only way we can avoid having to live with (or die by) nature’s choices is to proactively choose for ourselves which options from the right-hand column we would prefer voluntarily to implement. Hesitating in our choice, or failing to implement it, leads us directly back to nature’s options.

* * *

Toward the end of his lecture, Bartlett quotes Isaac Asimov, from an interview with Bill Moyers recorded in 1989. Moyers asked Asimov, “What happens to the idea of the dignity of the human species if this population growth continues at its present rate?” Asimov replied:

It will be completely destroyed. I like to use what I call my bathroom metaphor: if two people live in an apartment and there are two bathrooms, then both have freedom of the bathroom. You can go to the bathroom anytime you want to stay as long as you want for whatever you need. And everyone believes in freedom of the bathroom; it should be right there in the Constitution. But if you have twenty people in the apartment and two bathrooms, no matter how much every person believes in freedom of the bathroom, there is no such thing. You have to set up times for each person, you have to bang on the door, Aren’t you through yet? and so on. In the same way, democracy cannot survive overpopulation. Human dignity cannot survive [overpopulation]. Convenience and decency cannot survive [overpopulation]. As you put more and more people onto the world, the value of life not only declines, it disappears. It doesn’t matter if someone dies, the more people there are, the less one person matters.

Urinetown, indeed.

* * *

All of this is dreary and distressing, and that’s why most people prefer simply to avoid the topic. None of us wants to have to choose anything from Bartlett’s second column. Even the most agreeable items (abstention, abortion, contraception, and small families) are controversial, especially if proposed as anything other than individual, voluntary options. Stopping immigration is enormously controversial, as immigrants already often face discrimination in many forms. In each case, one or another group would object that human rights are being sacrificed. Yet nature does not negotiate: the Earth is a bounded sphere, and human population growth and consumption growth will be reined in. So it appears we must give up at least some human rights if we are to avoid nature’s choices—which have traditionally consisted of famine, disease, and war.

Should we then throw human rights to the wind, as Stanton seems to do? Capital punishment, corporal punishment, compulsory infanticide or abortion—wouldn’t adopting these as policy be equivalent to rolling back two or more centuries of gains in humanitarian thinking and social practice? And could such policies ever gain hold in a truly democratic society, or does the avoidance of demographic collapse thus also imply authoritarian governance?

I don’t think it has to. And I’m not about to give up on humanitarianism. But there is an essential lesson here. If we want peace, democracy, and human rights, we must work to create the ecological condition essential for these things to exist: i.e., a stable human population at—or slightly less than—the environment’s long-term carrying capacity.

This is a lesson that ancient humans internalized, to one degree or another. But during the first half of the fossil-fuel era we could afford to forget it: we were creating new temporary carrying capacity left and right. We could dream of “freedom of the bathroom”—human rights to food, education, health care, housing, and so on—no matter how many of us there were. Now, as that phantom carrying capacity is set to disappear, and as the human population is overshooting the natural limits of topsoil, water, fish, and fuels, the ideals we have come to hold are being threatened.

I do not advocate an absolute ecological determinism (as Stanton comes very close to doing): even given population pressure and resource depletion, some societies do better than others (at least temporarily) at maintaining a humane social environment. Peak Oil doesn’t necessarily lead to Soylent Green — unless we ignore the lesson.

To do so—to think that we can advocate for human rights, peace, and social justice while ignoring their necessary ecological basis—is both intellectually dishonest and ultimately self-defeating.

The longer we put off choosing the nicer methods of achieving demographic stability, the more likely the nasty ones become, whether imposed by nature or by some fascistic regime. Urine Good Company might represent a mild version of what could actually be in store if we let the marketplace, corporations, and secretive, militaristic governments come up with eugenic solutions to our population dilemma.

The proponents of fascistic “solutions” (I’m not suggesting that Stanton is in that category, by the way) are likely to justify their calls for war and ethnic cleansing with an appeal to human nature: we must abandon our recently acquired squeamishness and sentimentality and do what any self-respecting cave-man would have done when faced with a resource crisis—make sure that it is they who starve or are exterminated, and that it is our genes that are passed along.

Human nature does indeed contain the potential for demographic competition, even to the point of genocide. But it is important to remember that the real “cave men”—our hunter-gatherer ancestors—lived by sharing and enjoyed a gift economy. Our modern “sentimentality,” in the form of concerns for equity and the welfare of those who would otherwise be left behind, is rooted in ancient sensibilities.

Yet while hunter-gatherers embodied the egalitarian ideal, we must remember that their ethic also included the imperative to hew to ecological limits. Infanticide was the last resort when contraception and the suppression of fertility through extended lactation and maintenance of low levels of body fat failed.

An ethic of human rights, of sharing, and of equity without a practically expressed awareness of ecological limits is a setup for disaster. But demographic competition by way of fascism, as a response to population-resource crises, is an admission of failure; and it is less an expression of human nature than of the ugly habits formed through the past few thousand civilized years of extreme inequality, hierarchy, and authoritarianism.

The longer we wait, the fewer our options. Social liberals and progressives who fail to talk about population and resource issues and propose workable solutions are merely helping to create their own worst nightmare.

Source: Energy Bulletin

The [BIS/Zimbabwe Economics/Global Debt-Slavery Central Banking] Tower of Babel Economy

It is important to notice that these world scholars who believe in the "useless eater" philosophy are neither right nor left. They will use both Fascism and Communism, as long as they can control the population of the earth. Anyone who supports their goals is richly rewarded, but beware the one who stands in their way.

Contrary to what most conspiracy theorist think, it is not one group (Illuminati, Free masons, Club of Rome, etc), but rather the four hundred odd "Think Tanks" across the world with their learned academics, financiers, religious leaders and politicians who eventually draw up these policies who are responsible for it. These "Think Tanks" are the bodies to which both the left and right wings are attached…but who or what is the brain?

One of these "Think tanks" is the Catholic military order known as the Jesuits. Their leader is Peter Hans Kolvenbach, a Dutchman, also known as "The most powerful man on earth" or "The 'Black' Pope". Chances are you have never heard of him. The Jesuit order played a big role in "Liberation Theology" in South America and Africa where communists took over and killed millions of ‘useless eaters’.
~ The Philosophy of the ‘Useless Eaters’ || Why There is Nothing Wrong with Being a Racist ~

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Tower of Babel Economy

The economy resembles a financial tower of Babel. And it is starting to crumble.

By Robert Morley, The Trumpet.com

July 1, 2008

In an inflationary economy, big numbers quickly lose the shock factor.

Over the course of just a few years, a single banana becomes 10 times more expensive than what a four-bedroom home used to cost. A simple two-ply square of toilet paper sells for $417, while a full roll is priced at more than $140,000. And don’t even torture yourself by guessing how much a gallon of gas can go for under these conditions. The numbers get so big, not only do people stop trying to understand them, they begin to ignore them.

So it is alarming that the latest report from the Bank of International Settlements (bis) went largely unnoticed.

According to the BIS, the number of outstanding derivative contracts in the global marketplace soared by double-digit percentages last year. Anything going up by double digits should elicit interest in and of itself, but in this case it is the sheer magnitude of the numbers involved that raises red flags.

The bis reported the total amount of outstanding derivatives has reached a practically incomprehensible $1.28 quadrillion. Yes, you read that correctly—quadrillion! And as astounding as this astronomically huge number is, the actual totals are even bigger because this number does not include derivatives related to the commodity markets (which the bis says it can’t track because values aren’t available).

A quadrillion dollars is hard to wrap your mind around. It takes a thousand trillion to make a quadrillion. Start with 1 million and multiply by 1,000, then multiply by 1,000 again, then multiple by 1,000 yet a gain—and then finally you get to 1 quadrillion. You can think of it as more than 92 times the value of all goods and services produced in America during 2007, or almost 20 times global gross domestic product.

Don’t be surprised if you haven’t heard of derivatives. Outside of banking circles they are less known, but you can think of them as essentially unregulated, high-risk credit bets. Although a more traditional definition might be that they are financial contracts designed to enhance returns, reduce costs, or transfer risk on loans, investments and other assets from a protection buyer to a protection seller, without transferring the underlying asset.

When derivatives first came into vogue, they were largely used to help individuals and businesses reduce risk—kind of like an insurance package—pay a bit more now, and have coverage later.

The example Kevin DeMeritt, president of Lear Financial, uses is of a farmer utilizing a futures contract to “hedge” his crop of beans, so that when the time to sell comes, the farmer is assured of a set price. In this case he might buy a futures contract, which is a promise to deliver a portion of his crop at a set price regardless of the price of beans come harvest time. If the price of beans goes up, the farmer only receives the contract price on his hedged portion of his crop—losing the difference. But if the price of beans falls, the futures contract still pays out the agreed-upon price. Thus the farmer can plan on how much money he will receive at harvest time and can budget accordingly.

The danger now becoming evident is that the derivatives market isn’t just farmers and other business people trying to protect against risk. The market is increasingly dominated by industries of “investors” and hedge funds that only exist to make money through derivative speculation. And a big part of that speculating is done with borrowed money.

“Unlike the earnest farmer … many of today’s institutions use futures, forwards, options, swaps, swaptions, caps, collars and floors—any kind of leverage device they can cook up—to bet the h- - - out of virtually anything,” confirms DeMeritt (emphasis mine throughout).

But when you play with borrowed money, the risk of getting burned beyond recovery increases rapidly.

According to DeMeritt, the majority of the $1.28 quadrillion in derivatives is “owned” on somewhere near 95 percent margin!

That has got to be “one of the scariest phenomena in economic history,” he says.

In case you are wondering, 95 percent margin means that for every dollar speculators have spent betting on derivatives, approximately 95 cents of that money was borrowed. For $5,000, a hedge fund speculator can control $100,000 worth of credit derivatives.

All this leverage is great if you are on the winning side of the bet—but if you are not, your principal can be quickly destroyed. Borrowed money works both ways.

“The one lesson history teaches in the financial markets is that there will come a day unlike any other day,” says the Wall Street Journal. “At this point the participants would like to say all bets are off, but in fact the bets have been placed and cannot be changed. The leverage that once multiplied income will now devastate principal.”

But making this derivatives tower of Babel all the more dangerous is the fact that, instead of reducing risk, a growing number of analysts warn that derivatives traders are actually concentrating it—and concentrating it here in America.

Out of the top 10 commercial banks with derivatives (as of last September), nine are American. Of the top 25, all but five are U.S. corporations.

And a look at their massive exposure shows that even a small miscalculation or stumble in the capital markets could be a recipe for unprecedented disaster. For example, according to the U.S. Department of the Treasury, JP Morgan Chase bank has $1.244 trillion in assets. Yet, it has a mind-boggling $91.73 trillion in derivatives contracts on its books. A person could buy the whole bank for a comparatively paltry $129 billion.

That means that if JP Morgan was exposed to just 1.3 percent of its outstanding derivative contracts, and things went wrong, it would be completely insolvent. That doesn’t take into account any other liabilities JP Morgan already has on its books.

When Long-Term Capital Management went bust in the late 1990s, people thought that the ensuing financial crisis was bad—but that will be nothing if the current derivatives tower ever collapses.

Long-Term Capital Management leveraged $4 billion into $100 billion in assets. This $100 billion became collateral for $1.2 trillion in derivatives exposure! With all that leverage, it only took a minute market move to make them insolvent several times over.

The current derivatives tower absolutely dwarfs the Long-Term Capital Management failure.

It is a mountain of borrowing on top of borrowing, leveraged debt upon debt. And when it is all said and done, no one really is sure who owes how much to whom. It is utter confusion. That is why the Federal Reserve stepped in so quickly when investment bank Bear Stearns began to collapse.

“Fed’s Rescue Halted a Derivatives Chernobyl” is how Ambrose Evans-Pritchard characterized the situation in the Telegraph. Warren Buffet calls derivatives “Financial Weapons of Mass Destruction.”

“It’s going to get far worse than anyone wants to admit. Even respected newsletter writers hesitate to suggest the truth,” says economic analyst Bob Moriarty. “It’s the end of the financial system, as we know it. Central banks might be able to paper over a few trillion dollars but the fraud is 10 times what they can paper over.”

As Moriarty indicates, U.S. financial markets are nothing more than a huge Long-Term Capital. All it will take is a shock to the stock or bond markets, or maybe sharply rising interest rates due to a run on the dollar, and the major counter parties to the derivatives contracts will fail. And when that happens, living in America all of a sudden won’t be so easy after all.

Already, stresses are appearing in the system. The housing bubble is deflating, taking the financial integrity of America’s biggest banks with it. Margin calls are hitting and billions in bank reserves and debt-fueled speculation are being wiped out. And as the economy threatens to be sucked down the deflationary drain, the government is inflating like crazy to try and buoy the markets and keep consumers from cracking under record debt loads. But ultimately, the Federal Reserve’s response is probably doomed to failure; the stresses on the system are too large. The opposite forces of deflation and inflation will not balance each other out. Rather they will rip apart varying sectors of the economy, leaving a worst-case scenario for everyone to deal with: devaluing home equity for home owners, falling dollar, soaring costs for food, gasoline, energy, commodities, and a rising cost for mortgages and other credit. It won’t be pretty!

For many years, Herbert W. Armstrong warned his readership that one day people would wake up and find a collapsed economy, a devalued dollar, and skyrocketing inflation. All these trends are already in place. Expect them to intensify.

The system is cracking. The tower of Babel is about to fall, and the resulting confusion will only make matters worse.

The good news is that once the coming collapse has run its course, all the fraud and corruption will have been purged from the system. The replacement will be a new economic order—one based on sound fundamentals and free from greed and deceit.

Source: The Trumpet PDF(013)]

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What does one TRILLION dollars look like?

All this talk about "stimulus packages" and "bailouts"...

A billion dollars...

A hundred billion dollars...

Eight hundred billion dollars...

One TRILLION dollars...

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I'd take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like.

We'll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slighty fewer have owned them. Guaranteed to make friends wherever they go.









A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.









Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.








While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...










And $1 BILLION dollars... now we're really getting somewhere...









Next we'll look at ONE TRILLION dollars. This is that number we've been hearing so much about. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.

You ready for this?

It's pretty surprising.

Go ahead...

Scroll down...



















Ladies and gentlemen... I give you $1 trillion dollars...





(And notice those pallets are double stacked.)

So the next time you hear someone toss around the phrase "trillion dollars"... that's what they're talking about.

Source: Word(P05):167KB

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What is the Mandrake Mechanism?: It's the most important financial lesson of your life!!

The Creature from Jekyll Island (Excerpt)

THE MANDRAKE MECHANISM . . . What is it?

It is the method by which the Federal Reserve creates money out of nothing; the concept of usury as the payment of interest on pretended loans; the true cause of the hidden tax called inflation; the way in which the Fed creates boom-bust cycles.

In the 1940s, there was a comic strip character called Mandrake the Magician. His specialty was creating things out of nothing and, when appropriate, to make them disappear back into that same void. It is fitting, therefore, that the process to be described in this section should be named in his honor.

In the previous chapters, we examined the technique developed by the political and monetary scientists to create money out of nothing for the purpose of lending. This is not an entirely accurate description because it implies that money is created first and then waits for someone to borrow it.

On the other hand, textbooks on banking often state that money is created out of debt. This also is misleading because it implies that debt exists first and then is converted into money. In truth, money is not created until the instant it is borrowed. It is the act of borrowing which causes it to spring into existence. And, incidentally, it is the act of paying off the debt that causes it to vanish. There is no short phrase that perfectly describes that process. So, until one is invented along the way, we shall continue using the phrase "create money out of nothing" and occasionally add "for the purpose of lending" where necessary to further clarify the meaning.

So, let us now . . . see just how far this money/debt-creation process has been carried -- and how it works.

The first fact that needs to be considered is that our money today has no gold or silver behind it whatsoever. The fraction is not 54% nor 15%. It is 0%. It has traveled the path of all previous fractional money in history and already has degenerated into pure fiat money. The fact that most of it is in the form of checkbook balances rather than paper currency is a mere technicality; and the fact that bankers speak about "reserve ratios" is eyewash. The so-called reserves to which they refer are, in fact, Treasury bonds and other certificates of debt.

Our money is "pure fiat" through and through.

The second fact that needs to be clearly understood is that, in spite of the technical jargon and seemingly complicated procedures, the actual mechanism by which the Federal Reserve creates money is quite simple. They do it exactly the same way the goldsmiths of old did except, of course, the goldsmiths were limited by the need to hold some precious metals in reserve, whereas the Fed has no such restriction.

The Federal Reserve is candid. The Federal Reserve itself is amazingly frank about this process.

A booklet published by the Federal Reserve Bank of New York tells us:

"Currency cannot be redeemed, or exchanged, for Treasury gold or any other asset used as backing. The question of just what assets 'back' Federal Reserve notes has little but bookkeeping significance."

Elsewhere in the same publication we are told: "Banks are creating money based on a borrower's promise to pay (the IOU) . . . Banks create money by 'monetizing' the private debts of businesses and individuals."

In a booklet entitled Modern Money Mechanics, the Federal Reserve Bank of Chicago says:

In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper. Deposits are merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face amount.

What, then, makes these instruments -- checks, paper money, and coins -- acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and real goods and services whenever they choose to do so. This partly is a matter of law; currency has been designated "legal tender" by the government -- that is, it must be accepted.

Excerpt: The Creature from Jekyll Island [Word(P48):260KB]
Research Resources:

• Rep. L. McFadden & President Andrew Jackson vs. Federal Reserve Money Master Banksters
  
• Secrets of the Federal Reserve: The London Connetion, by Eustice Mullins [PDF(P326):1608KB]
  
• Secrets of Global [NIEO] Debt Slavery: Global Banking: The Bank for International Settlements, by Patrick Wood, NWV
  
• Secrets of the Temple: How the Federal Reserve Runs the Country, by William Grieder, former assistant managing editor of the Washington Post
  
• Documentary: Final Warning: History of New World Order, by David Allen Rivera (02:42:31) [Word(P529):2533KB]
  
• Documentary: Money Masters: How International Bankers Gained Control of the Federal Reserve
  
• Documentary: Wake Up Call: Federal Reserve, Bilderberg Group, Trilateral Commission, Illuminati, Problem-Reaction-Solution
  
• Gold Derivative Banking Crisis: Gold Rush 21: GATA's warnings to Senate & House Banking Committee, Fed. Res. Bank & Treasury Sec.