Guest Post: Waking Dreams End Unpleasantly
Submitted by Brandon Smith of Alt-Market.com,
Whenever I endeavor to explain America’s current economic situation to a person who likely receives most of his information from skewed mainstream news sources, I try to use two comparisons; the Great Depression, and Weimar Germany, because what we are experiencing is actually a combination of elements from both events. Some people, unfortunately, have little understanding of the Weimar hyperinflationary crisis, but at the very least, the imagery of the Great Depression is present in the minds of most Americans, if only through television and film.
When the depression is mentioned, they begin to grasp the gravity of our fiscal disaster, or at least what I am trying to convey. However, those slow on the draw almost always sneer at the validity of the threat. After all, during the Great Depression, there were bank runs, endless soup kitchen lines, roving masses of dirty homeless drifters looking for employment, shanty towns, and desperation everywhere. We’ve all seen the old stock black and white photos, and the America of today looks nothing similar…
We have shopping malls and imported fineries. We have sports cars and HDTV and video games and iPads and Disneyland and pharmaceuticals in every color of the rainbow! We have tract homes and gated communities and condos and beach houses and summer vacations and first-class flights and texting and nightclubs and lattes and credit cards! When we turn on cable news, what do we see? Progress! Glorious progress! All is in “recovery”. All is as it was yesterday. All is well…
For the average unaware citizen, as long as the commercials and the fast food continue, there is nothing to be concerned about. What they have overlooked is that in this country we have had for at least the past decade the illusion of prosperity, and nothing more. Our modern citizenry looks back at the Great Depression and sees a deteriorating exterior that matched the true state of the interior crisis. They look at today, and see a fresh, glimmering, glossy exterior that cleverly hides the rotting financial sinew underneath.
They do not grasp how today’s implosion could be worse than that of any crisis yet seen in our history while still maintaining a visual facade of working order.
In recent articles I discussed the black magic of the stock market, and summarized a position I have held for a very long time:
That the Federal Reserve has been injecting a very large percentage of its QE, or fiat stimulus, into the Dow in order to keep the market propped and seemingly prosperous. That this has been done by fueling international banks with capital and then allowing the institutions to flood stocks with purchase orders as well as direct interventions by the Fed itself.
What seemed obvious to those of us in independent economic analysis has been called “conspiracy theory” for the past few years. Finally, the cat has been let out of the bag by former Fed Chairman Alan Greenspan (the same man who admitted that the Federal Reserve is an independent entity that answers to no one, not even Congress, ending decades of misinformation). In the following interview, Greenspan states quite nonchalantly that “only the stock market matters”, meaning, that the market is no longer a reflector of legitimate economic health or decrepitude, rather, it has become a primary psychological driver. For Greenspan and the Fed, fundamental indicators like true supply and demand are of no importance. The market must be kept inflated at all costs, because its success, no matter how artificial, is the only thing keeping our system from breaking apart:
Richard Fisher of the Dallas Federal Reserve, clearly in response to Greenspan’s comments, openly admitted in a recent interview that the central bank has “artificially sustained markets”:
This is, of course, dangerously backwards. Strong data and legitimate profits are supposed to drive market psychology, which in turn is supposed to increase stock performance. Instead, the market is being manipulated in order to maintain a false sense of economic optimism and keep ignorant investors and consumers spending in the hopes that tomorrow will bring better tidings!
Interestingly, the latest minutes from the Fed indicate a “push for tapering” on bond market purchases, and a diminishment of QE, which is currently pumping over $85 billion per month into our fiscal structure. Part of this effort has been led by Fisher, who owns over $1 million in personal gold holdings (meaning it is doubtful the banker believes that the Fed will actually stop printing, or that the dollar is going to hold its value for much longer). I believe this is a bit of theater designed to remind the country how addicted to fiat we now are, as well as set the stage for the government alone (instead of the government in collusion with central bankers) to be blamed as the scapegoat for an inevitable collapse.
Both Greenspan and Fisher in their latest interviews subtly introduce the meme that government indecision and “partisan bickering” are the ultimate culprits behind the continuing dysfunction of the economy. Both parties do indeed play a role in the crisis, but not in the manner that central bankers assert. The government’s greatest crime was allowing the private Federal Reserve to operate with impunity and create the mortgage and derivatives bubble in the first place, while aiding it in policies of inflation and manipulation. The government is a danger to our fiscal system not because of “indecision”, but because it takes its marching orders from the Federal Reserve and colludes in now openly admitted market manipulation.
Will the Fed cut off the flow of stimulus? Possibly.
It is important to note that talk of a QE reduction has surfaced right as the Federal Government is set to make a decision on spending cuts and the raising of the national debt ceiling. The first cuts, now called the “sequester” (a nicer word for “austerity”), will be administered in early March, and will apparently affect everything from school teaching positions to employment at the Department of Defense. The White House claims that such cuts will damage the U.S. “recovery” and send the nation hurtling back into recession.
Obama is, in a sense, correct. However, I would point out that the federal cuts alone will not be the catalyst for collapse. The Federal Reserve’s move to reduce QE in conjunction with cuts would be the true trigger of fiscal calamity…a controlled calamity with a purpose…
America’s financial and social systems only function today because of one thing – government spending. The government is “officially” indebted in the amount of $16 trillion. Unofficially, the number is closer to $120 trillion. These massive liabilities have been accrued mainly through entitlement programs and state welfare. Foreign investment in U.S. Treasury bonds does not produce anywhere near the capital needed to maintain such programs, which is why the Federal Reserve is now the world largest holder of U.S. debt (surpassing even China). Without the Fed’s endless printing and bond buying schemes, the government cannot continue entitlement programs, and, it cannot feed money to dependent states. These programs are the only thing keeping the illusion of a normal economy alive.
To give you a sense of what I mean (keep in mind that real numbers are likely much worse than reported statistics)…
Despite talk of recovery, U.S. poverty levels have hit all time highs. Over 50 million Americans are below the official poverty line:
In 2009, food stamp enrollment stood at around 32 million Americans. Today that number has grown to around 48 million; a 50% increase in only 5 years:
The number of citizens on federal disability is at record highs, climbing to almost 9 million people, and has expanded every month for the past 192 months:
Requests for emergency food assistance are on the rise in most cities across the country, and homeless numbers continue to climb:
Now ask yourself this: How many people in this country rely on government money for most if not all of their survival needs?
Without government funding, and without the fiat printing press at the Federal Reserve to feed that funding, the veil of financial recovery fades away, not just in the stock market, but everywhere. All the poverty that has remained hidden for the past five years will suddenly be visible on our streets and doorsteps. Welfare programs to individuals and to states ARE the modern day soup lines. When they go, those reliant on them have nowhere to turn.
Already, homeless shelters in numerous states are suffering from funding shortfalls and many are closing their doors:
Food Banks are stricken with heavy demand and a dwindling supply. Interestingly, government cuts to food bank spending are being blamed on high food prices due to the latest “drought”. No mention of inflation caused by dollar devaluation, of course:
The lesson here is that no one, not even the government, has the ability to “spend their way out of debt”. And no one, including central bankers, has the ability to cure economic collapse by printing money out of thin air. But the bankers already know this…
The Fed is discussing QE reductions in the face of a “burgeoning recovery”, but they know as well as you and I that the fundamentals show no economic improvement whatsoever. Why else would they manipulate the stock market with fiat stimulus? Why else would they manipulate bond markets with fiat stimulus? Why else would they keep interest rates at near zero and throw essentially free money at international banks? Because this is their only means of hiding the reality they know to be true.
Why would they suddenly decide to reduce QE when they KNOW that the result will be the fast moving exposure of true instability with the U.S.?
There are two reasons that I would make such a move if I were them…
First, they have done this song and dance before; allowing markets to dive in the face of a prospective end to stimulus, and then jumping in to save the day with even larger fiat injections. The Fed’s decision to spread the rumor of QE cuts just before the government is to decide on austerity measures and the debt ceiling is no accident. The combination of Fed cuts and government cuts may be a deliberate effort to create a shock event that leads to the next stage of U.S. implosion. Government cuts and “party conflict” (fake party conflict) will provide cover for the real cause of destabilization; the Fed’s shut down of the fiat life support machine. The masses blame the lack of government “compromise”, and the Fed moves back in later with even more overwhelming QE measures, slowing the crisis slightly.
Second, the Fed and the globalists at the seat of our government may very well be preparing the populace for a default scenario. Central banks around the world have been purchasing record amounts of gold, and establishing bilateral trade agreements that remove the dollar as the world reserve currency. They are undoubtedly getting ready for extreme devaluation in the U.S. dollar.
If QE is cut, or restricted to the point where debt obligations cannot be maintained, then this is exactly what will happen. Again, government indecision and partisan debate will be blamed for the disaster while the Fed remains the “innocent bystander” who “tried to warn us all of what would happen…”
The propaganda message sent to the public is:
Government decentralization is going to destroy you. Politics must be centralized and streamlined and checks and balances must be removed if you are to survive. Politicians are unqualified to handle economic policy because they care too much about the opinions of citizens, who are too stupid to understand economic policy. All fiscal decisions should be handled by the banking elite without interference so that they can remain “objective”. The American economy is in need of a complete overhaul, and the American people need to hand over their economic sovereignty if they wish to continue any semblance of a comfortable living standard.
In the end, the madness of debt spending is going to annihilate this country anyway. Fiat printing and infinite QE will eventually result in the dumping of our currency as the world reserve, causing devaluation and hyperstagflation. Stimulus and the monetization of government liabilities are crippling us. The problem is, this nation is irrevocably dependent on such measures. Cuts will result in almost similar catastrophe, but on a faster time frame and perhaps a slightly shorter duration (depending on who runs the show in the aftermath). I’ve been saying it since 2008 – there is no easy way out of this situation. There is no silver bullet solution. There will be struggle, and there will be consequence. It is unavoidable. All we have to decide now is how we will respond when the inevitable disaster comes.
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