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The Collapse of a 300 Year Ponzi Scheme
All the king’s men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.5 The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 – until the whole world has now become mired in debt to the bankers’ private money monopoly. As British financial analyst Chris Cook observes:
"Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth’s resources."6
The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people’s money. Fortunately, we don’t need the credit of private banks. A sovereign government can create its own.
Rather than creating a separate public banking corporation called the RFC, the nation’s financial apparatus could be streamlined by simply nationalizing the privately-owned Federal Reserve; but again, Congress may not be prepared to go that far. Since there is already successful precedent for establishing an RFC in times like these, that model could serve as a non-controversial starting point for a new public credit facility. The G-7 nations’ financial planners, who met in Washington D.C. this past weekend, appear intent on supporting the banking system with enough government-debt-backed "liquidity" to produce what Jim Rogers calls "an inflationary holocaust." As the U.S. private banking system self-destructs, we need to ensure that a public credit system is in place and ready to serve the people’s needs in its stead.
In addition, the financial crisis is now rapidly spreading to the real economy. Die Zeit warns: “The next tsunami of the real economy is already on the roll.” This will contribute to the frictions and conflicts between the most powerful industrial nations.
In the Süddeutsche Zeitung, Stefan Kornelius already sees a crisis of the entire world order and writes: “The self-devaluation of the US unfolded in all of its dynamic in the vacuum of the pre-election period.... Europe, politically already eager to decouple is struggling with its own ties. The shining idea of the West has faded; new participants are standing in the wings. The financial crisis is turning into a crisis of the world order; this is shown by the panic-drive conferences in Washington and Paris.”
Such crises—the replacement of old power constellations by new ones—have never taken place peacefully in history. The current financial crisis is an expression and result of a profound crisis of the entire capitalist order.
Politics, Finance and Consumer Sentiment
With the November 4 election approaching, pocket book issues show up in consumer sentiment polls and have incumbents worried. Especially Republicans seen as mostly to blame. The October 15 Reuters/Zogby Index on the mood of the country plunged from 96.3 in September to 89.7 currently. Approaching a record low 87.7 number. The poll also gave George Bush his lowest ever job approval rating at 21%. Congress scored just above its worst reading at 10%. Zogby called the results "a double-whammy" and compared the public mood to the Great Depression's early years.
An October 6 - 8 Gallup tracking poll showed much the same results. A similarly dramatic difference from the previous month:
-- in September, 38% of respondents rated current conditions poor; in October, the number jumped to 59%;
-- in September, 78% expected conditions to worsen; in October, 90% were negative.
Gallup commented that the polling data trend suggests that "consumer confidence is reaching historic lows." Further, "given the current financial crisis and associated recession, it is likely to take some dramatic efforts to turn consumer confidence around." Gallup numbers vary up and down weekly. However, given the state of things and strong likelihood they'll worsen before improving, expect the trend ahead to stay decidedly negative. Meaning bad news for incumbents being blamed.
Maybe not for the most important job according to investigative journalist Greg Palast. He uncovered convincing evidence that the 2000 and 2004 presidential elections were stolen and now has a new article titled "It's Already Stolen." It follows his joint year-long investigation with Robert F. Kennedy, Jr. revealing "a systematic program of 'GOP vote tampering' on a massive scale." They cite:
-- swing-state Colorado Republican Secretaries of State "have quietly purged one in six names from their voter rolls;" a shocking "ten times the average state's rate of removal;"
-- among newly registered voters, "more than 2.7 million have had their registrations REJECTED under new procedures signed into law by George Bush;" individuals affected are largely blacks and Latinos; likely to vote Democrat;
-- "a fired US prosecutor....accus(ed) leaders of his own party, Republicans, with criminal acts in an attempt to block legal voters...."
-- in 2004, a little known practice called "caging" purged 1.1 millions voters; it's used to suppress minority voters by delisting them for failing to answer "do not forward" registered mail sent to homes they're away from for various reasons; Palast predicts far greater "caging" this November; and
-- post-2004, "states used dubious 'list management' rules to scrub at least 10 million voters from their roles."
Palast and Kennedy believe Republicans intend to steal the 2008 presidential election. Much like they did in 2000 and 2004. They state: "Republican operatives - the party's elite commandos of bare-knuckle politics (are) systematically disenfranchis(ing) Democrats. If Democrats are to win (in November), they must not simply beat John McCain...they must beat him by a margin that exceeds the level of GOP vote tampering."
If the latest Pew Research poll numbers are accurate and hold, Obama appears headed to do precisely that, and on November 5 headlines will read: "President-elect Obama." On October 21 (based on October 16 - 19 polling), Pew noted that "Barak Obama's lead over John McCain has steadily increased since mid-September," and he now "enjoys his widest margin yet over McCain among registered voters, at 52% to 38%" with 10% undecided or for other candidates. "When the sample of voters is narrowed to those most likely to vote, Obama leads by 53% to 39%."
Palast and Kennedy are on top of vote tampering whoever wins in November. They released a 24-page full-color comic book called "Steal Back Your Vote." It's available in print or can be downloaded on "StealBackYourVote.org."
Dirty politics and fraudulent finance are close bedfellows. Together they explain much about the current economic crisis. Its effect on ordinary people, and what might be expected ahead. Given the current climate (vote tampering notwithstanding), it should be a slam dunk election for Obama. People in distress mostly blame incumbents. It showed in 1932 when Franklin Roosevelt trounced Herbert Hoover carrying 42 of the (then) 48 states. A majority 57.4% to Hoover's 39.7% and 472 Electoral College votes to 59.
Given it was three years after Wall Street crashed. In July that year the Dow average had lost 89% of its peak valuation, and in August unemployment reached 25%. Using realistic figures, it's half that number today. But increasing to where it may reach alarmingly high levels before the current downturn bottoms.
Few today expect the 1930s to repeat, but economic conditions are worsening. Housing, consumption affecting retail sales, and production dropping 2.6% in September. The largest monthly decline since May 1980. The Philadelphia Fed said its manufacturing index plunged at the fastest pace in its 40-year history to a minus 37.5 reading. The sector overall had job cuts every month since July 2006.
It may be 2010 at the earliest before conditions stabilize. Consumer sentiment is near record lows. Millions of homeowners face foreclosure. Loss of income. Jobs and inadequate social safety net protections are in place for backup. People are worried, angry and with good reason. Yet if Palast and Kennedy are right, Republicans may retain the White House given the level of fraud they uncovered. It says much about our faux democracy and offers faint hope for better times in 2009.
Future Prospects - Bleak and Growing Bleaker