In a phenomenon I would call the Montana Index, the US rich (primarily erstwhile GOP Bu$hco supporters) are expatriating the US in record numbers (30,000+/month) for choice locations such as the Cayman Islands, Costa Rica, the Virgin Islands, or Paraguay , or... any place but the urban US. Those who stay behind are heading for the hills of places like Montana .
According to the US Census Bureau, as reported in the 2000 Statistical Yearbook of the Immigration and Naturalization Service (6.2 MB download), by the Bureau of Citizenship and Immigration Services (BCIS), formerly the Immigration and Naturalization Service (INS), the wealthy are leaving the United States in record numbers. According to that report, last year, roughly 363,000 US citizens and permanent residents quietly left the United States permanently. Now granted, not all of those 363,000 expatriates were rich. But, think about it. How many do you think were poor? How many do you think were even middle class? [repub biased source ] [gummnt statistics]
I know this first because I was born and raised in Montana, and have been watching the rich construct their billionaires‘ clubs in high places only accessible by helicoptor for years. My classmates and friends are the construction people who build for the likes of Ted Turner, Bill Gates, and Henry Kissinger in addition to a list of "household name" movie stars ad nauseum.
Secondly we live in Mexico, and are watching US people stream into this area outside Guadalajara like a torrent. Normally this is the off season, when everyone goes back up north. Every day now, the roads are choked with vehicles with US tags. The realtors can’t find enough hours in the day to do business.
I disagree with the above website which credits the exodus to tax woes, for there is more to it than that. This diary is my attempt as an artist (not an economist!) to render a portrait of what now works as money worldwide: the credit bubble. I hope this will become a good "primer" about the credit bubble for those who are phobic of financial media. I will keep this diary fairly short, and follow up with more as I get feedback from readers. With apologies to sophisticated economics readers, I have constructed the diary in this way because it is imperative that the layman come to understand the US' role in international economics. The attached links are suitable for those used to reading financial media.
So What is the "Credit Bubble" fuss all About?
To translate here, people in the financial media are beginning to say that all the debt/deficit games are starting to fold like a house of cards.
It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.
(...)
The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.
(...)
Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the "reformed" 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market. [source]
What does "Bubble" Mean?
Briefly:
"World wealth isn't growing, world DEBTS are growing and the place they are growing the fastest is the US which is the sole terminus of world trade at this point. The biggest growth industry today is selling debt instruments.
(...)
It's all just... debt piled on debt piled on debt piled on debt — repeat ad infinitum. America's equities portfolio = 1% assets, 99% pure helium. [source]
It is my observation that the rich are running from two core problems: 1) they see the monster they have created with the global credit bubble (too much money-lending to all the wrong people, in a nutshell), and 2) when the bubble pops, they see a worse monster in the administration (Bu$hco) who will be in place to wreak whatever economic terror they see fit upon the whole planet. Through the Patriot Act(s) many asset confiscation laws have been set in place, one thing certainly frightening the rich of the US.
The war in Iraq is part of a two-headed monster. The other head, mostly invisible to the US public, is the credit bubble.
There is also reasonable fear of global wrath against the US when the credit bubble pops. Because the entity known as the "credit bubble" is what is supposedly paying for all this war.
I realize this is difficult to understand for the beginner. A simplified explanation of this follows in a little bit... I am trying to avoid parlance.
The parlance is really the problem in understanding the situation. To me, the parlance problem is that there are so many different terms for and variations on the simple concept of "debt.".
Why try to understand this? It is imperative to understand the debt situation if one is to understand many of the objectives, fears and strategies of our Congress. We may not be capable of seeing why the Iraq war doesn’t simply end, because we don’t see the debt matrix to which all the proceeds are attached. Congress, on the other hand, are mostly born rich. Most Democrats come from working class families. We don’t get up in the morning to wonder what to do with a million dollars, we get up to worry about paying a mortgage. Probably most of us don’t even know people who have millions of dollars to fret over, therefore we are unfamiliar with the "finance" realm. Hold onto this one idea: the "finance" industry is all about money-lending, or debt.
It is truly staggering that none of the "mainstream" political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the U.S. economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein/ Samuelson articles came out, there was a huge progressive conference in Washington, D.C., called "Taming the Corporate Giant." Not a single session was devoted to financial issues.[source]
Doug Noland exhorts us on the folly of just following the FED:
I’ll plead once again that the issues of "money", Credit, and inflation are much too vital to the long-term health of free-market democracies to be left to a select group of policymakers and "ivory tower" dogma. I would instead argue that it is imperative that citizens become sufficiently educated on the perils of Credit inflation, financial excess, and unsound "money." This would provide our only hope against the inflationary tendencies of politicians, the Fed, and the Financial Sphere – tendencies that turn highly toxic when mixed with high octane contemporary "money." Whether by design or, perhaps more
likely, his theoretical indoctrination, Dr. Bernanke’s inflation discussion continues to evade and obfuscate when it comes to the central monetary issues of our day.
What, understanding money and international economics key to protecting democracy?
Yes.
How "Wealth is" "Created"
Let’s start at the bottom of the economic food chain: we saw a credit card application booth at Costco in Guadalajara with an impressive line of first-time-ever Mexican credit card customers responding to the promise of 12 months interest free, no income proof necessary (and just imagine the interest whammy at the end). In the checkout line maybe 80 percent of purchases (televisions, computer goods, food, clothing) went onto the cards. Stuffed trunks tied down, goods teetering away on tops of cars... looked like a haul to us. All we saw was debt as we worried for prudence.
But if you’re rich it’s no problem that the goods are gone. It is now debt. Debt is money. It is what is bought/sold on Wall Street every day.
Probably before the year is finished, this bunch of debt will be bought/sold many times over.
Costco could arguably sell the debt for not only its full retail value, it could add an assumed value of future interest to the price. They could assume half the credit card customers would not pay back in a year’s time, and would owe interest payments. Someone really might buy it on that assumption, it happens all the time.
The next buyer could likewise hold the debt awhile, making hypothecated interest returns fill out his asset sheet. And on, and on.
This is indeed oversimplified, but now imagine someone buys not only this Costco debt, but also 100 debt schemes just like it. Or 1,000, or 10,000. That is, credit card debt in Hong Kong among first time card holders, maybe in Tokyo too, etc.
This "bundle" of debts could be sold to the manager of your company’s pension portfolio. This could become what is expected to bring you a pension check based on future pay-back of all the debt. And you can see how shaky that is.
I will come back to the Costco debt example in particular, but for now, realize that when you hear "equities," "bonds," "hedge funds" or many such terms from the finance world, they very well may be talking about a "bouquet" of such debts. Once all that debt gets onto Wall Street or into the international finance realm, those debts are now called assets.
How could debt be called an asset?
The answer is a question: what is money?
In 1972 Nixon took the US off the gold standard. Before that the idea that every dollar you saw was backed up by a certain amount of gold. Remember all those bars of gold in the Treasury we used to see in early education films? Well forget those images. That’s over.
Basically the value of most currencies worldwide are pegged to the value of the dollar. The US dollar became a de facto world economic government by its role as the international reserve currency. While this link is outdated for some purposes, there is an excellent discussion of the dynamic of trade.
Because the US dollar is the native currency to US people, most people in the US never understand the kind of economic tyranny that can be wreaked upon the world by the dollar’s status, nor the kind of economic mischief that is possible when the dollar is not linked to the value of any tangible good. I am going to table that for a subsequent diary, but mark the thought.
So if the dollar is not backed up by gold, then what? This is the part that should have us in great alarm, because through abuse of finance its value the dollar is backed only by debts. Should we be unable to pay our debts, we are in deep trouble with the entire world.
Doug Noland:
Our Founding Fathers were incredibly wise and masterful statesmen. When it came to the scourge of the abuse of power, unsound money ranked right up there with tyranny. They were hard money men who would be appalled by the current state of monetary affairs, the power concentrated in the hands of the Wall Street "money"-men, and the untenable debt load we owe to foreign governments and financiers.
The dollar is only as good as the promises are to repay the debts attached to it. Worse, because of electronic banking plus the situation where debt is used as collateral to guarantee more debt!, debt can infinitely be multiplied in a long system of collateralizations of more debt (briefly told). Debts attached to the dollar simply are multiplied ad infinitum.
This is the point at which all the debt used to fund the war suggests a system of paying for war not entirely unlike counterfeiting. In the case of a counterfeiting operation, nothing backs up the money. In this case, it is getting strained too thin.
Noland:
Today, "money" or "liquidity" cannot even be adequately defined, let alone monitored and regulated. Worse yet, in this Credit-induced boom-time euphoria, rabid ideologues (ok, think Kudlow and Laffer) equate free markets in goods and services (the Economic Sphere) with a "free" marketplace in unrestricted finance (the Financial Sphere). Checks and Balances and the Separation of Powers are recognized as absolutely paramount to a healthy democracy, yet these principles are somehow viewed with intense disdain when it comes to modern finance-based Capitalism. To be sure, when exuberance in the private-sector’s capacity to create wealth (and expand finance!) reaches its most fanatical extremes, there will be general antipathy toward any effective governmental monetary control. A great amount of historical precedent has me convinced that unchecked money and Credit pose the greatest risk to free market Capitalism.
What about the "credit bubble" popping? It relates to the situation where everyone goes to the bank to demand hard cash instead of, for instance, stocks, bonds, equities, what have you. If there is a "run" on the banks, if something about the nature of the US makes all those who have bought US Treasury notes (T-notes are an IOU from the US Treasury), such as China, were to demand repayment at once... we would be in trouble.
As long as the "finance" (meaning debt) industry continues to allow a system to go unchecked whereby debt collateralizes debt ad infinitum, the possibility of paying our debts ever becomes more impossible.
In that event, one bankruptcy follows another follows another... until there is a global crisis.
Please feel free both to answer the poll and comment below. I have a feeling a lot of people are going to need help understanding these issues, and others will be offended at the removal of parlance. Here is my start at helping people understand the situation and I hope it helps.
If anyone still is unable to understand anything here after visiting any links do not be shy about speaking up. I mean to keep at this until more people understand our nation’s situation, no matter how many diaries it takes.
And to you readers who are more sophisticated than I - many - I ask you to please kick in on questions, help to clarify things. I am exhausted, and this might make around three dozen attempts to make the credit bubble intelligible to the layman. Your participation is invaluable. Thank you.
With hearty invitation to more sophisticated readers to post comments taking my illustrations to a more respectable level, in the spirit of troll-rating the practices of finance, a recipe:
12 eggs
1 c. milk
Whip eggs in milk in a large bowl with high speed electric mixer until a buoyant froth overflows the mixing bowl and slathers the countertop, no longer possibly described as liquid. Cover entire countertop and floor with froth, if possible.
Or:
10 full bottles foaming bath product of your choice
One hot bath
Draw hot bath pouring all ten bottles in right at the start beneath forceful water stream. Allow massing hills of bubbles to liberally overflow onto floor.