It's party time for the guys in the tower of Babel
Sodom meet Gomorrah, Cain meet Abel
Have a ball y'all
-Elton John
Our resident Bonddad has gone to great lengths to emphasis the Savings Crisis in America. He's supplied us with numbers, quotes, and told us what the consequences are.
He's not alone either. Several other people here have always expanded on the issue, and financial journalists around the world have written ad nauseum about the issue. The Savings Crisis threatens the financial health of this country and deserves the attention. It also deserves a fix.
What is missing from all these words of warning is one very critical, very simple, very basic question that isn't being asked - why?.
Why is America's saving rate so low? It would seem to me that in order to fix the problem you have to find the cause, right? Now the most obvious cause you would think of would be the economy, and without a doubt - the economy sucks. However, that doesn't explain the Savings Crisis because the savings rate has been dropping for decades.
In fact, the first time people noticed that America's savings rate was dipping towards zero was back in 1998, in middle of a booming economy and strong employment. Bush's piss-poor economy has just made the savings rate worse. Therefore the root cause is elsewhere.
In the Blame-The-Victim political attitudes of today people might be tempted to point the finger at the public for being irresponsible. But the fact of the matter is that this isn't the root cause either.
The reason for America's long-term declining savings rate is the structure of the financial system itself.
How it all Started
To explain my point we have to take a step back first.
In 1896 William Jennings Bryant was a relatively unknown political candidate. But in July of that year he gave a speech at the Democratic convention that so excited the delegates that he rallied to win the nomination for President. What subject did he talk about that so inspired people of that day?
A war against Evil? Moral decay in America? Human-Animal hybrids? Nope. His speech was about monetary policy.
Mr. Carlisle said in 1878 that this was a struggle between "the idle holders of idle capital" and "the struggling masses, who produce the wealth and pay the taxes of the country"; and, my friends, the question we are to decide is: Upon which side will the Democratic party fight; upon the side of "the idle holders of idle capital" or upon the side of "the struggling masses"?
That is the question which the party must answer first, and then it must be answered by each individual hereafter. The sympathies of the Democratic party, as shown by the platform, are on the side of the struggling masses who have ever been the foundation of the Democratic party. There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below.
The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.
You come to us and tell us that the great cities are in favor of the gold standard; we reply that the great cities rest upon our broad and fertile prairies. Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country.
[note: Wall Street bankers, led by J.P. Morgan, threw their weight behind Republican candidate McKinley in order to end Bryan's silver threat. The Republican Party then rewarded Wall Street bankers with the Gold Standard Act of 1900. Later on this same group were responsible for the creation of the Federal Reserve.]
Those are stirring words, but they are about a subject few in America today could even define, much less be passionate about. Is that a negative reflection on the people of the 19th Century? No, it's a negative reflection on the people of today.
The voters of 1896 were much more informed about the subject of economics and how it effects their lives. A vast majority of Americans today are blissfully unaware how the global financial system operates.
The average American knows that something is wrong. The numbers don't add up. Someone is stealing from him/her. The angry white male that populates the Republican Party has reason to be angry, because they
are being stolen from. The numbers
don't add up. However, the angry, white male is lazy. They just want to be pointed at "the enemy", an enemy that is easily accessible and easy to understand.
So they rage against "welfare queens", immigrants, and gays. It never occurs to them that the most vulnerable of society aren't likely to be in a position to take advantage of them. With a little bit of effort they could discover that the source of their disquiet comes in the same form of what they try so hard to gather and collect - their stacks of paper money.
In the first installment of The Biggest Lie of all I explained that the fiat currency we use "is debt-based. In other words, every time that a FRN (or a dollar of credit) is created, a dollar of debt is created. Every FRN in existence is someone else's liability."
And that "Each taxpayer has been saddled with hundreds of thousands of dollars in liabilities and that is the only thing keeping the dollar from collapsing. You are an American taxpayer and therefore you are working your whole life to accumulate more of your own debt burden."
I now want to take that concept to the next level.
It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
-Henry Ford
If every dollar is a liability, mostly on ourselves, it doesn't take a strong grasp of economics to realize that interest on the existing debt will quickly overwhelm the borrower. In this case the borrower is the entire economy. A collapsing economy is in no one's best interest. So what is a central bankster to do?
There are only two solutions to unmanageable debt: 1) default (i.e. bankruptcy). That is the worst solution for a bankster because it means taking a huge loss. 2) inflation.
Inflation: A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.
In other words, more currency chasing fewer goods produces
price inflation. Price inflation is a symptom of monetary inflation, in the same way that a high temperature in a person is caused by a virus infection.
It's important to understand this because the M3, the broadest measurement of the monetary supply, has
doubled in less than 9 years. In other words, there is twice as many dollars out there than there while the economy has grown
far less.
By making dollars worth less through monetary inflation, the debt burden also lessens. Sounds like a good plan, huh? Wrong. Nothing that requires no effort is without a flaw.
Imagine you are a counterfeiter, and you live in an economy that has $1 Million dollars in it. You print off $1 Million more dollars that are perfect in quality and start spending it. The person who benefits most from your counterfeiting is you since the money only cost you the value of the paper and ink. The people that benefit the 2nd most are the people who recieve your "money" directly because they can use it before most of that flood of new money hits the general market. But once that money is fully circulating the value of
all dollars are going to drop to half. The people that will suffer are the people who are furthest from the entry-point of this new flood of money. That includes people on fixed incomes and savers mostly. But also wage earners.
To put it more simply, when there is monetary inflation going on there is going to be a transfer of wealth from the general public to the people/groups closest to the source of that inflation.
I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs.
If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.
-Thomas Jefferson
Think about that for a moment. We've all heard how the Federal Reserve (and other central banks) target inflation. In other words, they want a certain amount of price inflation. But all price inflation is really a symptom of monetary inflation. Only a single private institution has the power to legally print money - the Federal Reserve. Therefore the Federal Reserve is intentionally causing inflation which has the effect of stealing wealth from the general public and enriching the banksters and the corporations that operate around them (as TJ said above).
The Lie: Part II
I hope that really pisses you off, because it certainly pissed me off when I finally realized how it all worked.
If you are a bankster it is important that the general public not be aware that they are being stolen from. So the first thing you do is to keep the public ignorant of what causes price inflation. That's where the right-wing media comes into play. For example, here they blame "Welfarism" and "Labor Union Pressures" for price inflation. The whole idea is idiotic, but you don't need everyone to buy it - only 51% of voters.
The second thing you do is to disguise how much inflation is out there. For instance, you redefine what inflation is. Economists used to measure the amount of monetary stock to see how much inflation is in the market. Then they started to only look at the CPI. Now they are focusing on only the Core CPI (CPI minus energy and food). They've gotten so far away from the actual definition of inflation that they can hardly be taken seriously anymore.
Fun With Numbers
You see, we've conquered inflation. Well, that's what you'll read from many sources out there.
What we've really done is to conquer the management of inflation numbers. How did we do that? By changing how the CPI is calculated. Let me show you an example:
Notice how if we used the same price inflation calculations from just 15 years ago the headline inflation rate would be doubled. Imagine what that would do to your mortgage rates. Imagine what that would do to people's wage demands.
But if you think that is bad, you ain't heard nothin' yet!
Economics John Williams broke down all the major economic numbers, and what he found wasn't pretty.
"Real unemployment right now -- figured the way that the average person thinks of unemployment, meaning figured the way it was estimated back during the Great Depression -- is running about 12%. Real CPI right now is running at about 8%. And the real GDP probably is in contraction."
Imagine your nightly news explaining that unemployment and inflation tonight was actually more than double what you thought it was. It would certainly change your expectations, not to mention the fate of your elected representative.
Williams differentiates between two data-manipulation practices. One is "systemic manipulations, where methodologies are changed." That's done in order to align the government's view of the world with the world, i.e., make things look better than they are. The second practice is out-and-out fudging of the data to produce whatever result is desired. Williams describes instances where various administrations have literally reverse-engineered the data to achieve that result (though politics is not the main purpose of the article).
For those not familiar with "substitution," he explains the practice's evolution in the CPI calculations. The concept of substitution was a concoction of Alan Greenspan and Michael Boskin, who basically argued that if one item were too expensive, consumers would substitute that with a cheaper one. Williams' response: "The problem is that if you allow substitutions, you aren't measuring a constant standard of living. You're measuring the cost of survival. You can keep substituting down and have people buy dog food instead of hamburger. It happens. But that's not the original concept behind the CPI."
Think that's bad? It gets worse.
In fact, if that were done and the government used GAAP accounting, the deficits for 2003, 2004, and 2005 would each have been around $3.5 trillion. That's a trillion, not billion. In 2004 alone, the deficit on an accrual basis would have been $11.1 trillion, due to a huge one-time spike for setting up the Medicare drug benefits. In essence, as he points out, we're piling up additional liabilities in an amount roughly equivalent to our total GDP every three years.
[...]
In other words, if you really looked at the data and understood them, you'd see that what appears in the headline numbers is nowhere near what the real supporting data show. Our financial condition is a ticking time bomb. What none of us knows is when it implodes.
So let's get back to Bonddad's dilemma on the savings rate - why are people not saving any money?
While they might arrive at the decision not to save money for various reasons, the fact of the matter is that the way the system is designed
"saving money is for suckers".
I don't know about you, but I get 1% on my savings account. That means I lose about 2.5% each year to headline inflation on every dollar I keep in that account. In reality, I lose nearly 7% each year. I must be the biggest dummy around to even bother to have a savings account. OTOH, if I borrowed much more money than I could possibly pay back, as long as I can keep the creditors at bay, then I am playing the system exactly the way it was designed to be played.
And that is what inspired me to write this diary.
In a society with a moral financial system, savers would be rewarded, and reckless debtors would be punished. After all, you want to reward things that help society, and punish things that hurt society, right? Real wealth is generated from saving and investing, not from consuming.
Our financial system is immoral. It's unfair. It constitutes theft from the most productive of our society, and rewards the parasites of society. Through conscious, or unconscious means, destructive values are being forced into our society through the financial system.
When someone asks you "What is wrong with America today?", you can hold up a Federal Reserve Note to them and say, "This is what is wrong with America today."