Submitted by Giordano Bruno of Neithercorp Press
Dangerous Economic Misconceptions
By Giordano Bruno
Neithercorp Press – 09/07/2010
For many years, economics in the U.S. has been approached with a ‘game show’ mentality. Wild and backwards speculations on financial growth have become the norm. The daily ‘Wall Street Journal’ and ‘Washington Post’ musings of international bankers and their servile lackeys are treated as divination, rather than the bamboozle they actually signify. If you play along and contribute to the mechanics of the great casino, then you are treated as a “serious” economist or analyst, regardless of how many times your advice has been completely off the mark, or how many middle-class nest eggs you destroyed in the process. If you question the conclusions of the pundits and talking heads, or, God forbid, question the validity of the system itself, you are immediately marginalized as a “kook” or “conspiracy theorist”. The workings of the mainstream financial world are more inbred than Hollywood and Washington D.C. combined.
Cable news providers like MSNBC and CNN have set the American people up for fall after fall; sometimes because they were blinded by their own bells and whistles, sometimes because they deliberately and blatantly lied in order to create engineered market sentiment. In the wake of the initial credit market collapse of 2008, these people, who didn’t see it coming and denied it was happening, still have their jobs, still have their TV shows and news columns, and, are still generally blowing smoke up our posteriors.
It’s not that the inhabitants of this country continue to trust the MSM (some do; seniors on prescription medication, yuppies on prescription medication, ignorant day traders who are often self-medicated, etc.), it’s just that the well established opposing views and arguments we in the Liberty Movement are exposed to by honest alternative news sources have not been properly presented in a forum that is widely visible to the average citizen. When was the last time you saw a Ron Paul, a Peter Schiff, a Gerald Celente, or a Max Keiser, etc. on a MSM financial program for any longer than ten minutes? When have we ever seen the opposing view given respectful consideration in a fairly moderated debate? Would any high level ghoul from Goldman Sachs, JP Morgan, or the private Federal Reserve, submit to an unbiased hour long televised discussion with any analyst from our side of the line?
On the few occasions in which Ben Bernanke was cornered in the highly controlled environment of Congressional hearings, he was either completely unable or unwilling to give a coherent response of any substance to the questions of Ron Paul. Anytime these men are taken out of the protective element of the worshipful MSM shell and actually challenged, their arguments fall apart.
In some fields of research, dishonesty and misconceptions can cost lives. In economics, dishonesty and misconceptions can cost MILLIONS of lives. Mainstream financial analysts (and the MSM in general) have lost all sense of responsibility for what they do, and thus, continue to put our society at risk and continue to lose vaster portions of their audience year after year. The problem is that the vacuum left behind by this mass exodus from the MSM has not yet been correctly filled with principled alternative news providers. We are growing everyday, but the information void is still ever present, and the memory hole continues to be exploited by global bankers. Some people don’t know where to turn, and have instead given up on looking for the truth altogether.
My only option has been to continue drilling away at the root points of disinformation, along with many other uncompromised researchers, and hope that consistency and perseverance win the day by accumulation and attrition.
With that strategy in mind, we will now examine the instabilities behind our current recession/depression. We will then follow by deconstructing the most prominent economic misconceptions surrounding them (often perpetuated by the MSM), along with those misconceptions you will probably hear in the near future…
Did Someone Say “Recovery”?
There are a handful of exceptions in history, but those aside, one of the safest generalizations one can make, is that governments lie. Why do they lie? Simple; because they are afraid of how the public might react if they knew the truth. Governments are often composed of men with a strong sense of self-interest, and an even stronger sense of self preservation. This drives them to put their own agendas over the wellbeing of the people they are supposed to serve. And, if it’s safe to bet that governments lie, it’s an even safer bet that international bankers, who have no principled ties to any country, lie more!
During the Great Depression, government officials, mainstream financial analysts, and global bankers, released press notices and interviews every year for over a decade, all claiming that “recovery” was just around the corner, that good times were back again. Then, we witnessed a world war. A third of the planet was leveled, but America (unlike most countries) came out with its industrial base still intact, and so, we called it a recovery (actually just a reallocation of world assets into one of the few un-scorched nations left) and happily skipped on our way towards the comparably decadent 1950’s.
Today, we face a far more dangerous scenario than the Great Depression ever was, but the strategy of skewed statistics and denial by the elites has remained pretty much unchanged. Unsupported talk of recovery fumes from every word and every pore of the establishment media, and the investment community to some extent has even been convinced that if they “wish” for recovery hard enough, if they think happy thoughts, it will materialize, all without any effort, any sacrifice, any suffering, like magic. Unfortunately, fairy dust and fiat alone are not going to undo the slowly accumulated damage that our economy has sustained for the past several decades. Below, are the reasons why…
Employment Near Great Depression Levels
In the past week, the Obama Administration has preemptively claimed victory on two fronts; a military pullout in Iraq, and the American economy (and conveniently right in time for Labor Day I might add). Of course, he “exaggerated” the pullout in Iraq. There are still 50,000 troops on the ground, and the troops he did pull out are merely being replaced with private mercenary contractors like those from Blackwater. So, in Iraq, nothing has changed. The administration’s proclamation that they have “stopped the bleeding” in terms of the economy is a similar misrepresentation of the facts. Its not that they have stopped the bleeding, America has almost bled out!
Counting U-6 measurements of those not considered by the Labor Department as unemployed because they are either off jobless benefits or are working part time, the jobless rate of the U.S. has hovered near 20% for over a year at least. During the Great Depression at its peak, unemployment reached 25%, but even this comparison is misleading. The population of the U.S. during the 1930’s was around 122 million, meaning far less working age adults than there are today in our population of 310 million people. In fact, the actual number, not percentage, of unemployed and underemployed today far exceeds that of the Great Depression. The number of desperate people, the critical mass of poor in a country, can have a far more insidious effect on its social environment than the abstract historical “percentage”, at least in my view.
Given the real state of unemployment, why has there been such euphoria over the economy in the past few days? Well, August private employment numbers from the Labor Department of 67,000 jobs created “beat Wall Street estimates”, that’s why. Set aside the fact that 121,000 temporary government jobs were cut equaling an actual net loss of 54,000 jobs. At least the privet sector is alive, right? Wrong. Here’s the rub…
Mainstream analyst estimates have become an incredibly pervasive delusion among investors and the public lately, a delusion that now has the financial sector dancing to whatever tune the government and the central banks wish to play.
Analysts forecast monthly unemployment reductions or increases based on….? Certainly weekly unemployment benefits filings are a part of the prediction process, and perhaps a few other statistics which are questionable themselves, but at bottom, these estimates are a blind guess involving very little concrete math. A guess completely subject to the whims of the analysts themselves. This “guess” is then for some reason treated as a legitimate reference point by the entire market for determining the health of the economy. It becomes a purely fabricated psychological indicator with no basis in reality. Want to pump up the stock market for a couple weeks? Why not guess lower job creation than is liable to occur. Or, if you are the Labor Department, tweak the numbers up a little above estimates and then “revise” them down in another month or two after everyone has forgotten. Bankers and economists projected 40,000 new private sector jobs created in August. Labor Department numbers were 27,000 above that. Result: stock market jubilee and a declaration that the recovery is in full swing.
The market has become so addicted to the use of arbitrary monthly analyst estimates that they have forgotten to look at the bigger picture, the real and fundamental reference points compiled over decades and used for gauging the actual state of the economy. Below is a graph from Clusterstock which very clearly and concisely illustrates EXACTLY how our jobs market is doing by comparing the percent of job losses to peak employment today, along side the same statistics from every recession after WWII:
When one looks at the broader comparisons of our financial situation, he discovers that a 67,000 job boost isn’t even a drop in the bucket. In our current state, 300,000 to 400,000 jobs a month would have to be generated for at least three years straight in order to reach employment levels similar to those of 2006-2007, before the collapse was fully triggered.
Even if significant job loss has stopped (which is unlikely), no economy can recover without first reducing its static 20% unemployment rate. The longer this portion of the populace remains out of work, the harder it will be for the government to continue welfare and unemployment programs (modern day soup kitchens). Once these programs falter, the rampant poverty they obscured will become highly visible.
Housing Market Is Never Coming Back
Some might consider this statement to be rather brash. I disagree. According to the data, it is highly unlikely that we will see the housing market return to even a semblance of its former glory in our lifetimes. I often hear MSM analysts claim on a monthly basis that housing has bottomed, only to have home prices fall yet again, or mortgage rates hit record low after record low:
The establishment often tries to turn these numbers on their ear, as if they are a good thing. Record low mortgage rates are touted as investment candy. “Surely”, they say, ”such low rates will lure homebuyers out in droves.” However, as of the closing of August 2010, and the end of the homebuyer tax credit, there has been no real estate frenzy, and sales have fallen to the slowest pace on record, all during summer months when home buying is traditionally supposed to increase:
This long last gasp of the real estate sector is not just limited to residential property. Commercial property is also plunging in value and retail spaces are emptying at a substantial rate. The overall property value of American malls and shopping centers fell 11% in the second quarter of this year alone:
This has caused some to suggest even more government capitalization of banks to protect them from further property declines:
So, no recovery in employment, and no recovery in real estate; the two most important factors necessary for a legitimate revitalization of the U.S economy. Is there some golden bit of good financial news Obama knows that we don’t. I doubt it. But let’s continue…
FDIC Blackhole Bailout
Anyone who says the stimulus measures ever stopped doesn’t know what they are talking about. We actually have several “blackhole bailouts”; bailouts with undefined limits or no limits at all, draining money from the American taxpayer continuously. One would be the endless bailout of Fannie Mae and Freddie Mac, which will require more and more stimulus every quarter as the housing market continues to disintegrate. Another, would be the rarely spoken of bailout of the FDIC, which has been in the red for quite some time now. Just as Fannie and Freddie’s bailout is dependent on the constant default of mortgage loans, the FDIC’s bailout is predicated on the constant default of banks.
Last year, analysts estimated that we would see approximately 140 bank closures in 2010. It is now the beginning of September and already 118 banks have been shuttered, well on our way to surpassing the 140 bank estimate:
Keep in mind that all of these banks are closing while the FDIC is broke! Meaning, every penny the FDIC pays out to insured account holders is supplied by the Treasury, which is also broke! Where do they get the money? Where else? The Federal Reserve issues the money out of thin air. Where is this leading? One of two scenarios: either the Fed ends its printing and the FDIC goes bankrupt, causing a run on the banks, or, the Fed continues to print more fiat until the dollar is rendered absolutely worthless on the world market.
For those who think healthier banking is just around the corner, the FDIC expanded its “secret” list of troubled banks this year to over 800!
This has some of the smarter investors questioning if the bailouts will EVER end. The answer is ‘no’. At least, not until the government defaults, or our currency implodes, which we will discuss in a moment.
Stock Market Hanging By A Thread
The stock market is perhaps the worst possible indicator of the true health of the economy. No system is more prone to manipulation and engineered equity floods. Some Americans rarely if ever question why or how stocks increase or decrease in overall strength, all they know is, green means “good”, and red means “bad”. As long as they see green once or twice a week, they are content.
In a market not under duress by central banks, the Dow is supposed to reflect the profit health and viability of the companies that make up its index. However, in our current market, this is rarely the case. In fact, stock values for the past several months are far above what they should be when considering the low profits and massive debts of our corporate infrastructure. Some estimate using the P/E Ratio (price to earnings ratio), that stocks are at least 30% overvalued. I think that if we take into account the fact that most banks and funds hold toxic equities worth nothing and count them as AAA rated assets, it is more likely that stocks are 50% to 60% overvalued, and the Dow could easily lose this much in the near future.
The number of investors actively trading in the Dow also affects its “moods”. The lower the market volume, the more wild stocks tend to swing. This is because more and more market value is being determined by fewer and fewer people. The volume of this August was approximately 30% lower than the volume of August, 2009:
What this means is, many average investors are pulling out of stocks completely, leaving the big boys even greater dominance of the playing field, and greater ability to drive values up or down at will.
Larger corporations also use subversive tactics to drive up their short term stock value at the expense of long term stability. One such tactic is to forcefully expand through acquisitions of smaller companies in other fields that they cannot really afford. A good example is HP and Dell’s crazed bidding war for 3Par, or BHP’s bid for Potash:
These companies could easily develop along the same guidelines as the companies they are spending incredible sums to purchase, IF they had the long term capital to do so. They don’t. And so, we will see top corporations drive harder and harder to devour smaller companies in order to drive up their own share values all while knowing they cannot continue to sustain themselves in the long run. Google alone has already announced 18 acquisitions so far this year:
As for average investors, where is all their money going if not into stocks? Investors are snapping up bonds of all types (except municipals which are a death trap), and of course, gold, which is holding near record highs despite all the predictions made against it by the MSM:
This trend has been developing for many months now, and it should come as no surprise that stocks have lost investor trust. It should also come as no surprise that due to this trend the dreaded “Hindenburg Omen” recently reared its ugly head not once, but twice within the span of 30 days!
The indicator has a 92% success rate in predicting a considerable stock market decline, and the probability of a major stock market crash after a single Omen is around 24%. Establishment analysts have attempted to shrug off the indicator, or apply a “modern take” to the definition of an actual Hindenburg Omen, so as to dilute its meaning and the warning. But this is what they have always done from the Great Depression to today; plant the seeds of false hope in an economy clearly on the verge of failure.
Asia Will Not Pick Up U.S. Slack
The prevailing argument in the MSM is the globalist one; that the fall of the U.S. consumer is a natural part of global “harmonization”, and that devaluation of the U.S. dollar is a “good thing” because it will “force” the east to begin purchasing more U.S. goods, driving up our exports and manufacturing leading to an “industrial rebirth” in America. There is absolutely no logical basis for this argument.
Essentially, establishment economists want us to believe that Asia is going to pick up where the American citizen left off as the new super-consumers, and we will jump right back into our post WWII role as manufacturing giants, all in time to head off any major crisis in the world economy. This is a fantasy.
While it is true that America must eventually return to its industrial roots if we are to survive, our manufacturing capability is almost non-existent compared to what is required to make such a transition in the short term. MSM talking heads argue that the U.S. has the greatest manufacturing capability on Earth, but what they fail to mention is that the vast majority of our factories are on foreign soil, not here in the U.S.! After outsourcing all our manufacturing capability to the third world, it could take a couple decades to rebuild our home industry to effective levels, and this is a conservative estimate considering our country has no savings and is drowning in debt.
China has shown it has no intention of turning to the U.S. for goods they could easily make themselves or import through the new ASEAN trading bloc, which is really just the foundation for an Asian Union, eventually relying on the Yuan as its reserve currency. Chinese trade has increased almost 50% this year with ASEAN, not the U.S.
While China’s non-bond investments in the U.S. have dropped 47%:
If the Obama Administration is so interesting in building a better trade relationship with China and convincing them to purchase our exports, as they have claimed in the past, you would think they would try to involve themselves further in the activities of ASEAN. Instead, Obama failed to name any ambassadors to the major ASEAN trade conference last month in Vietnam. This only caused China and other Eastern nations to feel slighted and ignored by the U.S; always a good idea to thumb your nose at someone before asking them to buy your stuff:
The financial and political moves by China show not a reversal of roles as exporter nation and importer nation, but a complete separation of the two economies, an ending of substantial economic interaction or reliance. The developments in Treasury bonds and the Chinese currency only reinforce this fact.
Japan, China, ASEAN, And The Dollar
The U.S. Dollar continues to exist for one reason and one reason only; habit. As the World Reserve Currency, the dollar has been entrenched across the globe as the primary trade mechanism. It holds psychological significance among investors not because it is stable but simply because it has played this role for so long. The common assumption is that this role will not change anytime soon. What most Americans don’t know though, and what the MSM rarely talks about, is that the dollar’s role has already changed. In light of endless quantitative easing measures, mushrooming U.S. debt, and Obama’s harebrained new plan for FDR-like public works programs which we cannot afford, the time has come to pay the piper.
Investors are abandoning the dollar as a safe haven and are now treating it as a “funding currency”, a middle-man investment for the purchase of higher yield assets, much like the Japanese Yen or the Swiss Franc. It was only a matter of time:
The Chinese Government has now publicly warned that they will be diversifying out of U.S. Treasuries (they already have been for months) and that this will result in “some” devaluation in the dollar:
China has ramped up cross-border Yuan transactions with other countries making their currency more viable as a trade mechanism, and making the dollar less necessary:
Both the U.S. and EU governments are practically begging China to allow a fast appreciation in the Yuan, which could only be precipitated by a dump of their Treasury reserves and a considerable devaluation of the dollar:
And most startling (but not all that unexpected), is the incredible amount of PR the Yuan is getting as a reserve currency from international banks and corporations. Global banks, including Citigroup and JP Morgan, are launching “roadshows” promoting trade using the Yuan or “Renminbi” instead of the U.S. dollar! That’s right! Global bankers are now openly pushing for the dollar to be replaced by the Yuan in international trade:
(Special Note: The article above was also published on CNN.com in full, but has since been removed)
Even McDonalds is now selling Yuan denominated bonds:
There is absolutely no doubt, China is spreading the Yuan everywhere. Inflationary effects are already occurring because of this move:
The only way to avoid severe negative effects on the average Chinese citizen is to allow an unprecedented surge in the Yuan’s value in order to increase consumer buying power in line with inflation. Again, the best and most efficient way for China to make this happen is to dump their U.S. Treasury Bond holdings.
It seems that Japan, the second largest holder of U.S. debt, may not be far behind China in this respect. The Yen has recently risen to a 15 year high against the dollar, causing the Japanese Government to discuss the possibility of a currency intervention. However, Japan is well aware that if the U.S. is so adamant about Chinese currency manipulation, it will be just as disruptive over Japanese currency manipulation:
Without help from the U.S. and the EU, a currency intervention in Japan would surely fail. Japan, unlike China, has not re-engineered its economy for greater consumption and has maintained its traditional export relationship with the U.S. This has resulted in dismal revenues and a continuous deflationary spiral in the Japanese economy. So what is Japan to do? Every move by international banks to pump up China, along with the U.S. Government’s demand that China allow a quick appreciation in the Yuan despite the obvious negative effect it will have on the dollar suggests to me that there is a deliberate strategy by global bankers to end our currency’s world reserve status and debase our financial system, but, it also looks as though the Japanese people are being prepared at the same time to accept full membership in ASEAN.
This has been discussed by the Japanese for some time, but the cultural divide between China and Japan is still very strong. Making the Japanese populace highly dependent on China for economic stability may not go over well without prompting:
It appears that Japan, just like the U.S., is being positioned
between the proverbial “rock and a hard place”. If they continue to
rely on poor U.S. consumption, if investors continue to pour into the
Yen as a safer hedge than the dollar, Japan will face dire deflationary
consequences, especially if the EU and the U.S. do not support a Yen
intervention. The only option left to them (rather conveniently) is to
conform to the ASEAN trading bloc. Why is this bad for the U.S.? The
side effect of this move would probably entail the Japanese dumping of
U.S. Treasuries, right on top of China’s. This means the end of the
The World Hurts More Without The Truth
My favorite propaganda trend in the mainstream media today is one directed at researchers like myself who expose the darker side of our economic and political environment. The term “Apocalypse Porn”, or “Doomer Porn”, is rising as the preferred Ad hominem attack on Liberty Movement writers, in place of “conspiracy theorist” which doesn’t seem to be working for them anymore. The MSM apparently spends more time trying to develop ‘memes’ like this than they do actually researching the so called news they propagate. The insinuation is that we either embellish data to make it seem more frightening than it actually is, or, that by reporting on valid but terrible news, we are a “danger” to society, because we perpetuate fear. Basically, it is the beginnings of an argument for suppression of 1st Amendment rights.
The reason the information we report on is disturbing is not because it is “bad”, but because it is TRUE. There are children who could make the distinction, but some full grown men and women seem to have difficulty with the concept. When the establishment says that we as researchers and alternative media do not have a right to spread facts that might upset you, what they are also saying is that you as an American cannot be trusted to act responsibly and constructively with the facts you are given. They are saying that they need to protect you from yourself. Who ever gave them permission to take on that job?
The Doomer Porn argument rings hollow because what I state here in these articles is entirely subject to your verification. If I embellish, or lie, I will be caught, and thus, my writing becomes meaningless. If I tell the truth, the hard truth, it is not up to me or the MSM or anyone else accept yourself to decide what you will do with it.
Perhaps the greatest misconception of all, especially in economics, is that bad news encourages bad events. That the truth is hazardous, and for the economy to remain healthy, the establishment must continue to lie. The presumption that our financial system is so dependent on our mass psychology is complete nonsense. The dollar is being fundamentally debased whether or not we blindly “believe” the dollar is fine. Our country is facing unserviceable national debts whether or not we force ourselves to think positive thoughts. The stock market is exceedingly overpriced and primed for collapse even if you and I ignore all the warning signs and drink margaritas on white sandy beaches all day with big dumb smiles on our faces. Two plus two equals four no matter what the psychological state of our society is. The facts are not subject to my “good vibes” or “bad vibes”, and if this is the best argument MSM pundits can make against legitimate alternative financial analysts, then I think they need to pack it up and leave the thinking to more adequate men.
Without confronting the stark reality of our situation, be it economic, political, or social, we will never be able change things for the better. Ignorance is not bliss. The ignorant always end up paying a steep price. The U.S. economy is going to experience some rather horrifying repercussions, for the actions of the elites who seek to derail our culture and replace it with another, and for the publics’ continued lack of vigilance to those actions. In my next article, I will be discussing possible solutions to all of the dilemmas I describe above, but first and foremost on the list is developing the ability to accept the nature of the situation as it stands, and not as we would like it to be. Life has never worked that way, and finance is no different.
You can contact Giordano Bruno at: firstname.lastname@example.org