Posted by jimquinn on 05/06/09

Mott the Hoople and the Game of Life. Yeah, yeah, yeah, yeah
Andy Kaufman in the wrestling match. Yeah, yeah, yeah, yeah
Monopoly, twenty one, checkers, and chess. Yeah, yeah, yeah, yeah
Mister Fred Blassie in a breakfast mess. Yeah, yeah, yeah, yeah
Let's play Twister, let's play Risk. Yeah, yeah, yeah, yeah
See you in heaven if you make the list. Yeah, yeah, yeah, yeah

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bsp;            &nbs
p;             
             &n
bsp;      Man on the Moon - REM

The 1970's were a simpler time. As kids, we listened to All The Young Dudes by Mott the Hoople on our portable record players. We would cut Monkees' .98s from the back of our Raisin Bran cereal boxes. There were maybe ten TV stations we could watch. For entertainment we would play board games like The Game of Life, Monopoly, and Risk. I remember having a two day Risk match with friends from our neighborhood. Our parents didn't smother us with attention. We created our own fun. We organized our own roller hockey league with games played in our back alley and on the side streets of our neighborhood. We played half-ball against the back of our row homes. We organized our own pickup basketball games on the playground, running for three hours and refereeing the games ourselves. There were five baseball fields within a mile of our house where we could play for hours with our friends. When we played organized sports there were winners and losers. We routinely would leave the house in the morning and not return until dark. I was allowed to ride my bike the three miles to school through the cemetery and across highways and trolley tracks. Money didn't matter at all in generating happiness. We had enough for two weeks in Wildwood. That was more than enough for me. Between then and now, something has gone terribly astray.

Today, we can download Mott the Hoople songs in an instant, for $.99 onto our $250 iPods and then play them on our $100 iPod speaker system. For a mere $200 a month we can have the Comcast HD triple play bundle of 1,000 stations, HBO, Showtime, Cinemax, Starz, Sports packages, internet service and VOIP. Why play a board game and interact with other human beings when you can turn on your $399 PS3 console and kill as many fake human beings in 3 hours as possible. When you are tired of that game, just whip out the credit card and download a new game for $39.99. Our kids today are over scheduled, over indulged, over protected, and under prepared for the future we are leaving them. Today, we pay $200 per sport to sign our kids up at the age of 5 for little league baseball, ice hockey, soccer, football, and basketball. Kids get trophies for just playing. Everyone is a winner in the politically correct world of today. Kids don't have the time or inclination to organize their own pickup games. Kids catch a bus to a school that is two blocks way. A $10,000 vacation in Disney World or Cancun is now the standard family vacation. We're raising marshmallows and we are handing them a country that is in the midst of a debt induced death spiral. How did we get here?  

 Brain Gets Smart but Your Head Gets Dumb

The National Debt is currently $11.2 trillion or 80% of GDP for the 1st time since Harry Truman was President. Based on the usually underestimated CBO deficit estimates, the National Debt will exceed $14 trillion in 2012. The National Debt will be close to 100% of GDP for the 1st time since WWII. In the 1940's we were engaged in a war of survival and needed to borrow to produce the tanks, planes, ships and guns to win the war. There are a couple small differences between the 1940's and today. The government borrowed all the funds from its patriotic citizens through the issuance of war bonds. The Personal Savings Rate was 25% during the war. Today, we are attempting to borrow hundreds of billions from China, Japan, and the Middle East. The Personal Savings Rate has risen from below 0% to 4% today. At the end of the war, the United States dictated the economic future of the world, producing the goods the rest of the world needed. Today, we are the biggest debtor nation in the world. We no longer dictate the economic terms to the rest of the world. Our government and citizens have fallen for the same misguided advice. Live for today and don't worry about tomorrow.

Well the years start coming and they don't stop coming
Back to the rule and I hit the ground running
Didn't make sense not to live for fun
Your brain gets smart but your head gets dumb

 The ice we skate is getting pretty thin
The waters getting warm so you might as well swim
My world's on fire how about yours
That's the way I like it and I never get bored

             &n
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p;             
         All Star - Smash Mouth

Based on the chart below it is clear that our heads got dumb starting in the early 1970s and with the onslaught of our "smart" MBA brains to Wall Street in the early 1990s, securitization led the charge to our ultimate destruction. Consumer credit outstanding grew from $169 billion in 1975 to $2.6 trillion in 2008, a 1,400% increase in 33 years. Over this same time frame US GDP grew from $1.6 trillion to $14 trillion, a 800% increase. Personal consumption expenditures rose from $1.0 trillion to $10 trillion, a 900% increase. Consumer expenditures accounted for 63% of GDP in 1975 versus 70.5% in 2008.  Houston, we've got a problem. When Nixon closed the gold window in 1971, the Federal Reserve was free to print as many dollars as they desired with no constraints. It took a little while to get going, but once consumers and politicians realized they could spend whatever they wanted today with no adverse consequences, they were off to the races. I find it amusing that with consumers owing $2.6 trillion in consumer debt (approx. $23,000 per household), unemployment soaring, wages stagnant, home prices plummeting, and retirement savings obliterated, the talking heads on CNBC are calling for a consumer led recovery in 2009. An unsustainable trend will not be sustained. Regression to the mean has commenced.

The most revealing aspect of the consumer debt outstanding statistics between 1975 and 2008 is the fact that up until 1990 consumer borrowing was done through traditional outlets of commercial banks, finance companies and credit unions. The wizards of Wall Street took consumer debt to a new level in the early 1990s. These geniuses figured out with their financial models they could package consumer debt into pools and sell it to pension funds, mutual funds, little towns in Norway, and anyone who wanted a great return with "no risk". This new financial product led to a surge in credit card issuance by the major players in the industry. The MBAs assured everyone that even debt from subprime borrowers could be turned into gold by packaging it just so. Like any ponzi scheme, this consumer debt scheme needed more and more debt issuance to cover the increasing bad debt in the portfolios. Once the market for buying the pools of toxic debt seized up in 2008, the game was over. Another interesting aspect is that while the coming crisis was clearly seen by smart analysts like John Hussman, John Mauldin, and Jeremy Grantham in 2005, Commercial Banks and the Government ramped up their lending by 24% between 2005 and 2008. Credit unions, savings institutions and non-financial businesses decreased their risk exposure. The biggest and brightest made the riskiest bets at the exact wrong time. Did they do this because they knew the Fed would bail them out? I think the proof has been borne out.  

Consumer Credit Outstanding1

(in billions of dollars)

1. Covers most short- and intermediate-term credit extended to individuals, excluding loans secured by real estate.

2. Outstanding balances of pools on which securities have been issued; these balances are no longer carried on the balance sheets of the loan originators. n.a. = not available.

Source: Federal Reserve Board. Web http://www.federalreserve.gov/default.htm.

Credit Card With No Limit

 I'll need a credit card that's got no limit
And a big black jet with a bedroom in it

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         Rockstar - Nickleback

We all deserve to live like rock stars. We just need a credit card with no limit. If you can't get one credit card with no limit, get 20 credit cards with a $10,000 limit on each and the sky's the limit. According to myfico.com, the average consumer has a total of 13 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, and bank cards) and installment loans (auto loans, mortgage loans, student loans). Of these 13 credit obligations nine are likely to be credit cards and four are likely to be installment loans. Between 1980 and 2000 13.5% to 15.5% of American's disposable income went towards debt payments for mortgages, credit cards, auto loans and personal loans. From 2000 until 2008, with the help of the Federal Reserve, the top 10 credit card issuers, the auto financing arms of GM, Ford & Chrysler, and President Bush's defeat terrorism by buying an SUV cheerleading, consumer debt payments skyrocketed to 18% of disposable income. Disposable personal income in 2008 was $10.6 trillion. Therefore, consumers paid $1.9 trillion towards debt obligations. To achieve normalcy, consumers will need to reduce their obligations to 15% of disposable income. This would require a reduction in debt payments of $300 billion. A massive consumer deleveraging will be required to reach this level. 

President Obama, Ben Bernanke, and Timmy Geithner need the consumer to keep doing their part in this colossal ponzi scheme. They want consumers to borrow and spend as if nothing has happened in the last 18 months. Consumer spending has accounted for 70% of our $14 trillion GDP, or close to $10 trillion. In order for the Americans to have a chance at a decent standard of living in their old age, they will need to reduce annual spending by $1 trillion per year and use that money to pay off debt. According to the Nilson Report at the end of 2008, Americans' credit card debt reached $972.73 billion. That number includes both general purpose credit cards and private label credit cards that aren't owned by a bank. The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008. To get consumer debt as a percentage of GDP to a manageable level of 13% will require deleveraging in the neighborhood of $700 billion. This doesn't include mortgage debt. These aren't the green shoots you'll hear from Larry Kudlow.

You may think all of this credit card debt is spread throughout the banking system. Wrong my friend. According to the Nilson Report, the top 10 U.S. credit card issuers held an 87.6% market share of $972.73 billion in general purpose card outstanding in 2008. That includes Visa, MasterCard, American Express, and Discover. See if you recognize any of these fine institutions.

General purpose credit card outstandings market share 2008

            Bank            &nbs
p;             
             &n
bsp;          Taxpayer Funding

1. JPMorgan Chase - 21.22%            &n
bsp;            &nbs
p;       $25 bil.
2. Bank of America - 19.25%            &n
bsp;            &nbs
p;        $52.5
3. Citigroup - 12.35%            &n
bsp;            &nbs
p;             
        $50
4. American Express - 10.19%            &n
bsp;            &nbs
p;     $3.4
5. Capital One - 6.95%            &nb
sp;             
;             &
nbsp;     $3.6
6. Discover - 5.75%            &nb
sp;             
;             &
nbsp;          $0
7. Wells Fargo - 4.21%            &nb
sp;             
;             &
nbsp;    $25
8. HSBC - 3.47%            &nb
sp;             
;             &
nbsp;            &nb
sp; $0
9. U.S. Bank - 2.14%            &nb
sp;             
;             &
nbsp;        $6.6
10. USAA Savings - 2.02%                          &n
bsp;          $0

These 10 banks control virtually the entire credit card market. These 10 banks have taken $166 billion of taxpayer money while continuing to send out 5 billion credit card solicitations per year. The Federal Reserve demands these banks keep the credit flowing. Fitch's Charge-Off Index, which tracks the write-down of uncollectable debt by credit card firms, climbed 101 basis points to a record 8.41% in February. That eclipsed the prior mark of 7.52% reached in November 2005 during the spike in bankruptcy filings. Credit card delinquencies shot to a record high of 4.33% in February.

Meredith Whitney, the outstanding bank analyst, had this to say, "This is the most interesting topic for me out there, which is credit card lines. So, there are about $4.2 trillion in unused credit card lines. And there are about $840 billion of used credit lines. In the fourth quarter alone, half a trillion dollars of lines were cut from the consumer -- half a trillion. As Americans face layoffs and pay cuts, they're turning to their credit cards to make up the difference. These cuts in unused credit lines amount to cuts in compensation." Her gloomiest forecast is for a 50% cut in unused credit lines. The cutting of credit lines and absolute need for consumers to reduce debt will put a lid on the consumer economy for the next five years.

Hilltop Houses Driving Fifteen Cars

 'Cause we all just wanna be big rockstars
And live in hilltop houses driving fifteen cars

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         Rockstar - Nickleback

 Americans love their cars. Americans are their cars. The impression of achievement and elevated social status are conveyed by the car you drive in the minds of many Americans. If you want your neighbors, friends, work colleagues and perfect strangers to think you are a success, just tool around in a $50,000 Mercedes SUV. This damn economy is forcing these socially conscious auto worshippers from following their normal two year trade up cycle. The result is that auto sales have plummeted from an annual rate of 16 million to a current rate of less than 10 million. These short sighted people have allowed the temporary psychological benefits of driving a car they can't afford to outweigh their long-term financial future. Millions have made this choice. Now that the debt bubble has imploded, the government is pouring billions of taxpayer funds into the auto financing companies like GMAC to try and re-inflate the bubble. Only a fool would buy into it. Luckily, this country has no shortage of fools.

The great American consumer has changed their car buying habits over the decades. In the 1970's they saved up the 20% down payment and then financed the remaining balance over 3 or 4 years. With an average loan of $4,000 to $8,000, the burden was not great. After 4 years, they owned the car free and clear. They would then drive their American built car until it fell apart, usually around 90,000 miles. In 2008, the average new car loan topped out near $30,000. In comparison, the median home price was $17,000 in 1970. 

The $30,000 average car loan was made manageable by the "creative" auto financing arms of the Big 3 extending loans to 6 or 7 years. This worked fine for the trader uppers in our society. They wouldn't be caught dead driving a 7 year old car. It was a beautiful deception. Car buyers deluded themselves that the debt didn't matter and the car companies deluded themselves that the loans would be repaid. A perfect combination to sell 16 million cars per year for all eternity. When the return customer came into the dealership to trade up after two years, the dealers were perfectly willing to roll the unpaid loan balance into the new deal. Presto!!! We've got millions driving cars with a Loan-To-Value of 140%. How could this possibly fail? According to JD Power, there are now 6 million people who are underwater on their car loan. When this Ponzi scheme collapsed, car sales plummeted 40% and GM and Chrysler have been revealed as bankrupt disasters.

This brings us to the most irrational financial move anyone can make, leasing a car. Estimates are that 25% to 30% of all car sales have been leases. This is 4 to 5 million per year. The most leased cars in 2008 according to LeaseTrader.com were:

             &n
bsp;            &nbs
p;             
             &n
bsp;      MSRP

1. BMW 3 Series            &n
bsp;            &nbs
p;    $40,000
2. Mini Cooper            &n
bsp;            &nbs
p;        $25,000
3. Mercedes C Class            &nb
sp;          $35,000
4. Toyota Camry              &n
bsp;            &nbs
p;    $25,000
5. Cadillac CTS             
;             &
nbsp;      $40,000
6. Mercedes SL Class            &nb
sp;        $50,000            &
nbsp;        
7. Land Rover LR3             
;             &
nbsp; $50,000
8. Lexus IS 250             
;             &
nbsp;      $35,000
9. BMW X Series            &n
bsp;            &nbs
p;    $40,000
10. Mercedes GL Class            &nb
sp;      $60,000

This list substantiates that most people's need for appearing more successful outweighs the benefits of living within your means and saving for the future. Personally, I want to be financially secure rather than appear to be financially secure. I'm evidently in the minority. A car loan payment over four years that would normally be $399 a month can be $249 a month with a lease, which is very appealing to those who insist on driving a new car. The difference is that you own the car after four years with a loan. With a lease you become an indentured servant, forever indebted to the car company master. The financial reasons for not leasing are numerous:

1. A lease starts a trend of perpetually paying a car payment. If you never paid a car payment and the average car payment in America was $350 a month, putting that $350 a month in a mutual fund that made 10% would become $791,171 in 30 years.
2. If you get in an accident and the vehicle is totaled, you'll still be responsible to pay back the full lease contract amount. Even if the insurance company gives you back less than what you owe to the dealership, you'll be responsible for the full amount.
3. Many times, the lease agreement will be for 5 years/60,000 miles. So, if you go over that 60,000 and keep it until the 5 years is up, you'll pay a penalty for every mile over 60,000 miles. Most people use well over 12,000 per year.
4. If you lose a job or experience a heavy time of financial hardship and cannot afford the payment anymore, the dealership will recover the car, sell it an auction, and if they sell it for less than you owe for the lease agreement, you will be legally responsible to pay the difference.
5. The car is not yours, yet they still make you pay for the maintenance of it. Again, you can't claim the car as an asset. It is technically still an asset of the dealership that leased it to you.
6. If you decide to take the option to buy the car at the end of the lease term, you'll have paid much more than the cost of the car even if you had financed it.

In order to get ahead in life you need to invest in assets that appreciate, not depreciate. Does the appearance of wealth and success really outweigh actually being wealthy and successful? Driving a $50,000 car doesn't guarantee happiness. If it did, we'd be the happiest country on earth. Looking marvelous is a shallow, shortsighted way to go through life. That is fine for those who choose that route, but I'm tired of picking up the pieces of their shattered lives with my tax dollars.

Illusions

The biggest and most dangerous illusion for Americans today is that everyone deserves to be a winner. Everyone does not deserve a trophy just for playing. If you screwed up, didn't work hard, didn't save for a rainy day, and didn't save for your retirement, then you lose. The winners studied, worked hard, lived within their means, and saved for the future. The winners have the option to help the losers through charitable means. If the government forces the winners to pay for the bad choices of the losers, our economic system is worthless. This is the reason that anger is building in the country. The Tea Parties were not about taxes. They were about anger towards our government for rewarding the profligate at the expense of the frugal.

Comedian Andy Kaufman died in 1984 at the age of 35 from lung cancer, even though he never smoked a day in his life. Did he really die? Did we really put a man on the moon? Andy was the master of illusion. Audiences never knew whether he was serious or joking. Next time you are at a truck stop take a look around. Andy might be there with Elvis. The American government and its citizens have to get over their illusion that they can spend their way to prosperity. According to Zillow.com 33% of all homeowners with a mortgage owe more than the home is worth. At least 67% of all homeowners with a mortgage have 15% equity or less in their homes. The average household has $23,000 of consumer debt. Six million car "owners" owe more than the car is worth. The median 401k balance is less than $15,000. Any economic recovery that is dependent on consumers to borrow and spend will just be a fool's errand. The illusion of prosperity is coming to a tragic end.

   Hey Andy, did you hear about this one?

Posted 05/10/09 JohnnyYuma61 Covington, TN

Lots of numbers and charts, Jim. It's interesting that while everyone was trying to "keep up with the Jones', the Jones' had a dirty little secret. They were broke too. I was talking to a friend the other day about Keynesian economics and how it proposed that a country could spend itself out of a recession. She asked, "Do you think it will work?" I said, we're gonna find out.

Posted by jimquinn on 05/01/09

Hey Andy, did you hear about this one? Tell me, are you locked in the punch?
Hey Andy, are you goofing on Elvis? Hey baby, are we losing touch?
If you believed they put a man on the moon, man on the moon
If you believe there's nothing up my sleeve, then nothing is cool

<
/em>            &nbs
p;             
             &n
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p;       Man on the Moon - REM

The conspiracy theorists of the world believe the U.S. government faked the landing of Apollo 11 on the moon. They also believe 9/11 was an inside job, ordered by operatives within the government. The rationale of these acts was to distract the masses from the disastrous Vietnam War and the plummeting stock market, while escalating their control over the American people. I believe I have uncovered the largest conspiracy in history. The government wants you to believe that banks are recovering, housing has bottomed, stimulus works, borrowing leads to prosperity and war leads to peace. President Obama and his cronies at Treasury and the Federal Reserve are trying to mislead the public regarding the health of our banking system. If you believe their spin on these issues, I have a structurally deficient bridge in Brooklyn I'd like to sell you.

The government has something up its sleeve this time. They are perpetrating the greatest fraud in the history of the world. The conspirators are Barack Obama, Timothy Geithner and the Treasury Department, Ben Bernanke and the Federal Reserve, Sheila Baer and the FDIC, and Barney Frank and the Democratic Congress. They have colluded to commit taxpayer funds to enrich bankers that brought down the financial system, without getting Congressional approval. They have delayed foreclosures and have tried to artificially prop up the housing market. They have poured billions of stimulus pork into the states praying for some of it not to be wasted. They have confiscated billions in taxpayer funds, bestowed them on reckless banks and forced them to lend it to anyone with a pulse, again. The outrage from the public during the TARP confiscation, made it crystal clear to courageous Congressmen they didn't want to vote on something requiring fortitude and bravery again. They have outsourced their obligation to safeguard their citizen's tax dollars to unelected bureaucrats at Treasury and the Federal Reserve. They have already sacrificed their obligation to declare war to the Presidential branch. What is the point of having a Congress?  

 Nothing Up Their Sleeve

 Hey Andy, did you hear about this one? Tell me, are you locked in the punch?
Hey Andy, are you goofing on Elvis? Hey baby, are we losing touch?
If you believed they put a man on the moon, man on the moon
If you believe there's nothing up my sleeve, then nothing is cool

             &n
bsp;            &nbs
p;             
             &n
bsp;      Man on the Moon - REM

 Barack Obama and his henchmen in Treasury and the Federal Reserve have chosen to play for time, pretend the banking system is solvent, and hope that the average American doesn't care. As long as the ATM still spits out $20 bills, everything is OK. The International Monetary Fund has estimated total credit write-downs of $4.1 trillion, with $2.7 trillion in U.S. institutions. McKinsey has concluded that there are still $2 trillion of toxic assets sitting on the books of U.S. banks. Nouriel Roubini, who has been correct from the beginning, estimates total losses on loans made by U.S. financial firms and the fall in the market value of the assets they are holding will reach $3.6 trillion ($1.6 trillion for loans and $2 trillion for securities). The U.S. banks and broker dealers are exposed to half of this figure, or $1.8 trillion; the rest is borne by other financial institutions in the US and abroad. With $2 trillion of write-offs to go, how could Treasury Secretary Timothy Geithner make the following statement to a Congressional panel last week, "Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators."? Is he lying or shading the truth? Does it matter?

 

 

Roubini's estimate of $1.8 trillion more losses for U.S. banks will cause a slight problem for the U.S. banking system. The entire U.S. banking system has only $1.4 trillion of capital. Therefore, the U.S. banking system is effectively insolvent. Mr Geithner would contend that he was not lying. There are 8,500 banks in the United States. The top 19 banks control 45% of all the deposits in the country. These are the banks that are insolvent. Mom & Pop Bank in Louisville, Kentucky didn't create toxic loan instruments that infected the worldwide economic system. The vast majority of the 8,500 banks in the country are in good shape. Citigroup, Bank of America, Wells Fargo and the other "Too Big To Fail" banks destroyed the economic system. The Fed, Treasury, and FDIC are already backstopping or supplying 70% of the entire banking system balance sheet. It is time to allow the well run banks to take the deposits of the horribly run banks. The $1.8 billion of future losses do not include the commercial real estate losses, credit card losses and losses from the next wave of mortgage resets in 2010 that will wash over these banks.  

 

            Click to enlarge

 

Source: Tyler Durden - Zero Hedge

 Of course we all know that the "Too Big To Fail" banks all reported profits better than expected in the last two weeks. CNBC said so. Let's examine these tremendous profits.

 Bank of America reported profits of $4.2 billion.

•  $1.9 billion came from the gain on sale of CCB shares.
• $2.2 billion came from marking to market adjustments of Merrill Lynch notes.
• Non-performing assets were $25.7 billion compared to $7.8 billion one year ago, a 329% increase in one year.

 

Without these convenient accounting adjustments, Bank of America would have lost money. Andrew Ross Sorkin pointed out in a recent NYT article:

 

"With Goldman Sachs, the disappearing month of December didn't quite disappear (it changed its reporting calendar, effectively erasing the impact of a $1.5 billion loss that month); JP Morgan Chase reported a dazzling profit partly because the price of its bonds dropped (theoretically, they could retire them and buy them back at a cheaper price; that's sort of like saying you're richer because the value of your home has dropped); Citigroup pulled the same trick."

 

The first quarter bank profits were faked. They were manufactured as a public relations effort to convince the country that the big banks are in fine shape. If the banks are in such good shape why has the government had to use taxpayer funds to rollout the two dozen rescue plans listed below. And now we breathlessly await the results of the stress tests.

 

Click to Enlarge

Source: Tyler Durden - Zero Hedge

The FSP (Financial Stability Plan for those not in the know) rolled out by Tim Geithner was supposed to save our banking system. The plan was described by Treasury as:

 

Increased Transparency and Disclosure: Increased transparency will

facilitate a more effective use of market discipline in financial markets. The

Treasury Department will work with bank supervisors and the Securities and

Exchange Commission and accounting standard setters in their efforts to

improve public disclosure by banks. This effort will include measures to

improve the disclosure of the exposures on bank balance sheets. In

conducting these exercises, supervisors recognize the need not to adopt an

overly conservative posture or take steps that could inappropriately constrain

lending.

 

Coordinated, Accurate, and Realistic Assessment: All relevant financial

regulators - the Federal Reserve, FDIC, OCC, and OTS - will work

together in a coordinated way to bring more consistent, realistic and forward

looking assessment of exposures on the balance sheet of financial

institutions.

 

Forward Looking Assessment - Stress Test: A key component of the Capital

Assistance Program is a forward looking comprehensive "stress test" that

requires an assessment of whether major financial institutions have the

capital necessary to continue lending and to absorb the potential losses that

could result from a more severe decline in the economy than projected.

 It is fascinating that in the first paragraph they specifically state they don't want to be overly conservative. Which of the top 19 banks in the country have run their businesses in an overly conservative manner in the last ten years? Has the Federal Reserve been overly conservative in the last ten years? Have the SEC and FDIC been overly conservative in the last ten years? Have consumers, homebuilders, credit card companies and retailers been overly conservative for the last ten years? If there was ever a time to be overly conservative, it is now. It is also nice to know Treasury wants accuracy and better disclosure, but then twists the arm of the FASB to relax mark to market rules, so banks can continue to lie about the value of "assets" on their books. They allow Goldman Sachs to bury the fact that they left December out of their financial results deep in their footnotes. Shockingly, Goldman lost $1.5 billion in December. They continue to allow banks to report one time gains as part of ongoing operations, but billions in losses that are recorded quarter after quarter are not from ongoing operations. The morons on CNBC report whatever the banks say, no questions asked.

 Stress Test Sham

This brings us to the stress tests for the 19 biggest banks in the land. The most stressful conditions are supposed to be 10% unemployment and a 20% further fall in home prices. That doesn't sound too stressful to me. Considering the government reported figures are a manipulated lie, we already have unemployment between 15% and 20% in the real world. A 20% further decline in home prices is a given. The Case Shiller futures index forecasts that the New York Metro area will fall by 31% by the end of 2010. The massive overhang of housing inventory, the coming onslaught of mortgage resets in 2010, and the millions of foreclosures in the pipeline guarantee at least 20% further downside in housing prices. I have a feeling these 19 banks are going to need to study a little harder for their test. Professor Geithner is giving them an open book take home exam and gave them the answers. They will still flunk.

 

 

William Black is a former senior bank regulator. He is currently an Associate Professor of Economics and Law at the University of Missouri. Mr. Black held a variety of senior regulatory positions during the S&L crisis. He managed investigations with teams of examiners reporting to him, redesigned how exams were conducted, and trained examiners. He calls the stress tests conducted on the 19 biggest banks in the country a complete sham. In his own words:

 

• If you did a real stress test, as Geithner explained them, you wouldn't just have a $2 trillion hole -- you'd impose regulatory capital requirements of 50%. (FYI, the regulators have the power to set HIGHER individual capital requirements based on unusually large risks at a particular bank.)

 

• You can't conduct a meaningful stress test without reviewing (sampling) the underlying loan files and it seems likely that the purchasers of securitized instruments (not just mortgages) do not even have the loan file data. Moreover, loss ratios vary enormously depending on the issuer, so even a bank that originates (or has purchased a bank that originates) similar product cannot simply take its own loss rate and extrapolate it to the measure the risk on the value of securitized credit instruments.

 

• It is vastly more difficult to examine a bank that is engaged in accounting control fraud. You can't rely on the bank's books and records. It doesn't simply take more, far more, FTEs -- it takes examiners with experience, care, courage, and investigative instincts and abilities. Very few folks earning $60K are willing to get in the face of the CEO and CFO making $25 million annually and tell them that they are running a fraudulent bank and they are liars. FYI, this is one of the reasons, why having "resident examiners" never works. The examiners don't even get to marry the natives. They get to worship God's anointed. Effective examination is good for you, but it is very unpleasant, ala a doctor's finger up your rectum. It requires total independence. So, the examination force doesn't have remotely the numbers or the relevant experience and mindset to examine the largest banks with the greatest problems.

 

• Examiners certainly can't do the stress testing that Geithner describes or evaluate the reliability of a large bank's proprietary stress test. If they were serious about constructing reliable stress tests, which they aren't, you'd require their analytics to be made public. You'd have the industry fund independent investigations by rocket scientists chosen by a committee selected by the regulators of the soundness of the analytics. You'd also have the industry fund competitions to rip them apart (a bit like we hire legit hackers to test security by trying to defeat it) and show where they produce absurd results. The geeks would have a field day (that would probably last a decade). There are probably zero examiners that have the modeling skills required to evaluate the most sophisticated stress test models. The concept that there are 100 examiners with these skills, suddenly freed up from all other duties, assigned to CONDUCT stress tests is a lie.

 On Monday we will see how much transparency and disclosure the Treasury and Federal Reserve will provide regarding the not so stressful tests. Obama's minions have been hinting that six banks have failed. Sheila Baer stated that the $110 billion left in the TARP kitty should be enough to cover the capital shortfalls. This is a lie. As we saw previously, the U.S. banking system will need close to $1 trillion more capital to stay viable. If the Federal Reserve was so keen on disclosure and transparency, why haven't they released the names of the banks that have borrowed from them, and the collateral provided for the loans? Because the Fed has taken worthless toxic paper onto their books and loaned newly printed dollars against the worthless paper. The taxpayers are on the hook.

Fraudulent Fed

Ben Bernanke has a number of obligations as head of the Federal Reserve. Among his mandates are:

 

To strike a balance between private interests of banks and the centralized responsibility of government

• To supervise and regulate banking institutions
• To protect the credit rights of consumers

To manage the nation's money supply through monetary policy to achieve:

• maximum employment
• stable prices, including prevention of either inflation or deflation

To maintain the stability of the financial system and contain systematic risk in financial markets

Let's assess how Helicopter Ben Bernanke and Mad Dog Alan Greenspan have fulfilled their mandates. They were supposed to supervise and regulate banking institutions. They apparently slipped up slightly on this mandate. It appears that letting banks regulate themselves was a slight miscalculation on Mr. Greenspan's part. The man who never saw a bubble in his life had this to say:

 "The presumption that you could incrementally defuse a bubble was a fantasy. Clearly, you cannot defuse these things, unless you hit them right on the head and break the economy. Essentially, break the potential profitability that is engendering that sort of stuff. We could have basically clamped down on the American economy, generated a 10 percent unemployment rate. And I will guarantee we would not have had a housing boom, stock market boom or indeed a particularly good economy either."

 So, Greenspan stepped aside as banks sold adjustable rate negative amortization loans to subprime borrowers with no proof of income or assets required. The job of an independent responsible Central Banker is to take the punch bowl away before the party gets out of hand. The politically connected fawning Greenspan chose to spike the punch bowl with 1% interest rates and exhorting the party goers to take out adjustable rate mortgages. Free market capitalism with no rules was the path to prosperity in his mind. The Greenspan Put was in place. Party like it was 1999 and he'd clean up afterwards. Instead, the American taxpayer is stuck with the bill and Greenspan gets $100,000 per self serving speech.

 Mr. Greenspan made his biggest mark with his hands off attitude regarding derivatives. His quote from May 2005 will get him into the Federal Reserve Hall of Fame: 

 "The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions .... Derivatives have permitted the unbundling of financial risks."

Would you pay this dude $100,000 for his words of wisdom? Didn't this man have hundreds of PhDs gathering wads of information about the practices of our biggest financial institutions? He was either the most incompetent Federal Reserve Chairman in history, or he was in the back pocket of the banking cartel. Take your choice. The major banks became gambling casinos run by multi-millionaire MBAs, tooling around in their private jets, using derivatives as the chips in their trillion dollar game of craps. When these Masters of the Universe MBAs rolled snake eyes, the world wide financial system collapsed. Mandate #1 was not a success story.

Mandate #2 was to protect the credit rights of consumers. Considering Americans have lost $10 trillion of net worth in the last 18 months due to the Federal Reserve mismanaging interest rates, failing to properly regulate banks, and allowing mortgage brokers to mislead millions of immigrants into mortgages they didn't comprehend, it appears they may have failed on mandate #2. Now, Ben Bernanke has lowered interest rates to 0% in an attempt to enrich the major banks at the expense of senior citizens living on a fixed income. Investors who were receiving 5% on their money market deposits in 2007 are now receiving less than 0.5%. Ben would prefer that 85 year old grandmothers invest in high yield bonds. He is systematically stealing from the poor to give to the rich.

 

 

Mandate #3 regarding maximum employment doesn't seem to be working out too well either. The government massaged numbers show unemployment at 8.5%, the highest rate since 1983. Unemployment will easily reach 10% during 2009 and may reach the highest levels since the Great Depression. It appears the Federal Reserve misunderstood their mandate and is working towards minimizing employment as less than 60% of working age population is employed today. By reducing interest rates to generational lows, the Federal Reserve created the boom that led to the bust. Their interest rate manipulations have led to 13 million Americans being unemployed today, an increase of 6 million in less than two years.

Mandate #4 of stable prices with prevention of inflation and deflation has been somewhat of a challenge for geniuses at the Federal Reserve. Using the non-manipulated consumer price index, inflation has consistently run above 8% since the 1980's, peaking above 12% in 2008. By falsifying the calculations, Ben Bernanke is able to leave interest rates at 0%. The government reported figures show no inflation. By manipulating the CPI, the government is able to pay senior citizens 1%, while their costs for food and energy and go up 6%. It is good to see the Federal Reserve is looking out for the most susceptible in society.

 

 

Lastly, the Federal Reserve was supposed maintain stability in the financial markets. The last 18 months have been the most instable period for financial markets in history. The Federal Reserve allowed at least a dozen financial institutions to become too big to fail. By coming to the rescue of the financial markets every time something bad happened starting with LTCM, the Federal Reserve encouraged excessive risk taking by financial firms. These institutions knew the Federal Reserve would clean up their messes. They were right.

With a perfect record in the mandates they were asked to fulfill, you can see why we would want to give the Federal Reserve more power and more mandates. Paul Volcker, the only decent Federal Reserve Chairman in history, thinks otherwise:

"The Federal Reserve is going beyond the traditional role of central banks here or abroad. At some point it's reasonable to ask should this particular institution, with its independence very well protected, be allocating so much of what is essentially government money. The inflation problem, which should be a real threat for the future, is not right on the doorstep. But two or three years from now that may be the critical problem, how that's handled. Because, given what the Federal Reserve has been doing, it's going to be harder to retrace their steps, so to speak, than it ordinarily would be."

 

Goofing on Elvis, Are We Losing Touch?

The stock market has been soaring as banks report fraudulent earnings. These banks are purposely underestimating future losses to make current earnings appear better than they really are. Hank Paulson and Ben Bernanke demanded that Ken Lewis commit fraud by not revealing material information to the public about Merrill Lynch. Why are they not being prosecuted? Bankers protect the members of their bankers club. Dr. John Hussman describes how it works in today's world:

"That's what these bureaucrats want during their stint in government service, that's how they advise our elected officials, and then their revolving door takes them right back to Wall Street. This thing is run by investment bankers and corporate bondholders for the benefit of investment bankers and corporate bondholders."

The government is desperately attempting to convince the world that the banking system is sound and recovery is under way. The actions they have taken have not and will not fix the system. The waves have washed away the foundations of sand propping up the U.S. financial system. Instead of learning from their mistakes, officials have decided to rebuild on a new foundation of sand. We are borrowing from foreigners to bailout bankers and handing the bill to future generations. With government dictating the future of our banking system we can count on massive fraud, waste and mismanagement. Dr. Hussman's frustration is well founded:

"It's frustrating, but we are wasting trillions of dollars that could bring enormous relief of suffering, knowledge, productivity, and innovation in order to defend bondholders of mismanaged financials, and nobody cares because hey, at least the stock market is rallying. If one thing is clear from the last decade, it is that investors have no concern about the ultimate cost of the wreckage as long as they can get a rally going over the short run."

This public relations effort will fail. There are hundreds of billions of losses left to be recorded by our big bad banks. If you believe this is almost over, you are not paying attention.

 

Categories: , Campaign For Liberty, Finance, Ethics, History, Revolution, Monetary Policy, Congress
Tags: Obama, Ron Paul, gold, Collapse, inflation, depression

Showing comments 1—1 of 1

Posted 05/03/09 Scott D Chicago, IL

Thanks for this post Jim. I learned a lot.

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Posted by jimquinn on 04/27/09

The American Republic is 226 years old. The Roman Empire lasted 13 centuries before collapsing. The Roman emperors attempted to stave off the collapse by providing bread and circuses to the masses. Feeding Christians to lions worked only for so long. I picture Caligula "Mad Money" Cramer exhorting the masses that the worst was over and not to worry about the Vandals and the Huns. Nero "Mustard Seed" Kudlow probably saw a recovery on the horizon as Barbarians were at the gates of the city. Cleopatra "Money Honey" Bartiromo was proclaiming that the stupid masses didn't know what was best for the system. Caesar "Glimmers of Hope" Obama was sure that if they just distributed more bread and added a few more circuses, things would improve by the Ides of March.

The false prosperity we have been experiencing for the last thirty years has come to an abrupt conclusion in the last 18 months. The amount of wealth destroyed is beyond comprehension. Household net worth has declined by $12 trillion in a matter of months. It will take years for average Americans to restore their wealth to 2007 levels. If your investment portfolio has declined by 50%, it will need to increase by 100% to break even.

According to the Wall Street shills on CNBC, it should take at least 3 months. An honest financial advisor would tell you 10 to 15 years. Americans have no choice but to substantially increase their rate of savings. Think back to yesteryear in 1981 when the savings rate was 12%.  Back then, Americans accept as a truth that hard work and a saving ethic led to long-term success. I can't look at this chart without questioning why this happened. It always brings me back to the dreaded Baby Boomers. Their delusional belief that somehow they could borrow and spend today with real estate wealth funding their retirement came crashing down around them in the last 18 months. The bailing out of these delusional boomers with tax dollars has generated incredible anger in the country. Those who followed the rules are being compelled by the authorities to pay for the sins of those who didn't follow the rules.

The stupendous fabric of the country is straining and in danger of yielding to the immense pressure building up in our society. I believe the actions taken by politicians and Washington bureaucrats in the last year have marked a point of no return. If we continue on the chosen path, time or accident will ultimately result in the demise of the Great American Experiment. I'm irate at the government for choosing to bailout excessive risk takers at my expense. There are millions of other Americans who feel the same way. This is why tea parties are taking place across the nation. I truly believe that every American has the right to make his or her own financial decisions. While I do not judge individuals on how they live their lives, I feel entitled to pass judgment on clusters of people whose individual decisions have negatively impacted my life. With the support of Congress, the Treasury and the Federal Reserve, these individuals are seizing my tax dollars as compensation for their idiotic behavior.

Don't Feel Like Satan

There's colors on the street
Red, white and blue
People shufflin' their feet
People sleepin' in their shoes
But there's a warnin' sign
on the road ahead
There's a lot of people sayin'
we'd be better off dead
Don't feel like Satan,
but I am to them
So I try to forget it,
any way I can.

Keep on rockin' in the free world,
Keep on rockin' in the free world
Keep on rockin' in the free world,
Keep on rockin' in the free world.

             &n
bsp;          Neil Young -Rockin in the Free World

Neil Young wrote the song Keep on Rockin in the Free World in 1989. It is an angry song and I believe its lyrics are more relevant today. Neil and a member of his band, Pancho Sampedro, were glancing at newspaper photographs of the funeral of Ayatollah Khomeini in Iran as the angry mob set American flags on fire and chanted death to America. These Iranians thought America was the great Satan. Sampedro commented, "Whatever we do, we shouldn't go near the Mideast. It's probably better we just keep on rockin' in the free world."  I wish we had made this guy our Secretary of State.

When Iraq invaded Kuwait in 1991, President George Bush decided it was America's responsibility to protect Saudi Arabia's oil fields and liberate Kuwait from the clutches of the dictator we had previously supported. The American military crushed Sadaam Hussein's Republican Guard and liberated Kuwait. After the Gulf War, the U.S. left 4,000 American troops in Saudi Arabia, eventually growing to 7,000 troops. These troops became a rallying point for Muslim fundamentalists, who charged the U.S. was trying to increase its influence over the Saudi royal family and the nation's oil reserves. "The presence of the U.S. forces gave a lot of fuel to the virulent, anti-American Islamic forces that certainly commanded an audience in Saudi, and in the broader Arab world," said Jamil Khoury, an Arab specialist and business consultant who teaches at the University of Chicago.

The U.S. has spent $7 trillion on Defense since 1991. Most of these funds were used to develop offensive weapons, not defensive weapons. The Heritage Foundation will argue that military spending as a percentage of GDP was only 4% in 2007, well below the 45 year average of 5.5%. This period includes the Cold War, Korean War, and Vietnam War. The 2010 budget spending will increase it to at least 5.6% of GDP.

The real question isn't what percentage of GDP is proper it is whether $7 trillion could have been spent more intelligently. Would $4 trillion have been sufficient to defend the country? The military launched approximately 1,000 cruise missiles during the Iraq War at a cost of $1 million per missile. This was a choice to spend $1 billion blowing up bridges, water plants, and electrical facilities in Iraq rather than spending it repairing our 156,000 structurally deficient bridges, replacing our decaying water pipes, and upgrading our electrical grid. Would the $7 trillion have been better spent by private individuals? Could it have been better spent jump starting efforts to wean ourselves off Middle East oil? I don't know the answer. But, I do know that the vast majority of the $7 trillion was borrowed from China, Japan and my grandchildren.

Kinder, Gentler, Machine Gun Hand

We got a thousand points of light
For the homeless man
We got a kinder, gentler,
Machine gun hand
We got department stores
and toilet paper
Got styrofoam boxes
for the ozone layer
Got a man of the people,
says keep hope alive
Got fuel to burn,
got roads to drive.

Keep on rockin' in the free world,
Keep on rockin' in the free world
Keep on rockin' in the free world,
Keep on rockin' in the free world.

             &n
bsp;          Neil Young -Rockin in the Free World

Neil Young's cynical view of our President, national priorities, and future was well founded. He saw the social fabric of the country ripping apart in 1989. I believe everyone has a right to live their lives as they see fit. This is America, land of the free, home of the brave. When powerful government bureaucrats choose to subsidize the conscious blunders of others through the utilization of my tax dollars, I've got a big problem. There are approximately 308 million people living in the United States. 75 million of these people are under 18 years old and 40 million are over 65 years old. They are generally off the hook regarding the current financial crisis. That leaves 195 million people. The 80 million Baby Boomers (the pig in the python) are at the root of most problems in our society today. As I walked from the parking garage to my office the other day I noticed a license plate on a parked BMW 335i. It read 335-4-NOW. This boomers goal in life was to move up from a $40,000 automobile to a $60,000 automobile. Very noble goal, but it reflects that the priorities for many in this country have become warped.

Approximately 12% of the U.S population (36 million people) is considered poor and are totally dependent upon the State to keep from starving. The working class makes up 40% of the population, the middle class 45%, and the ruling elite class 3%. All of these classes made dreadful mistakes in the last decade. The poor pretended to be middle class. They were able to buy $200,000 houses, lease $30,000 cars, own cell phones, get monthly cable, and eat out three times per week. Their friendly neighborhood banker loaned them the money to live this fantasy life. The working and middle class were able to buy $700,000 McMansions, go on trips to Europe, lease $50,000 cars and generally live the life of the rich and famous. A different banker in a nicer neighborhood also loaned them the money to live like rock stars. A portion of all these classes were the extremists that led us down the erroneous path to destruction..

Extreme behavior by individuals throughout our society, encouraged by banks, the government, Federal Reserve, and the mainstream media have pushed our country to the brink of disaster. Half of the households in America make less than $46,000 per year. I can guarantee you that the household incomes in the neighborhoods of West Philadelphia that I drive through to work every day are much lower than $46,000. Half the houses are boarded up, and rats are the predominant tenants. When I see a middle aged lower income woman driving an $87,000 Mercedes SUV or a young punk driving an $85,000 BMW, I know something has gone seriously off course. The auto financing companies were willing to make 7 year 0% interest loans or $400 a month leases available to these people. They did it because they were able to parcel these awful loans into a package, get it rated AAA by Moody's and sell the toxic stench bomb to pension funds and life insurance companies. Meanwhile the deadbeats cruising around in the luxury wheels got to live the Fake American Dream for awhile.

Extremism was not relegated to only the poor. The lifestyles of the rich and famous are nauseating and revolting to the average middle class American. Watch one episode of Housewives of Orange County or New York to understand the shallowness and pretentiousness of the privileged rich. Across America there are millions of people whose sense of worth is tied to the McMansion they live in, the brand of car they drive, the school they send their kids to, and the number of electronic gadgets they can accumulate. The majority of these people can be found on the East Coast and West Coast. Wall Street and Hollywood are the Mecca for these arrogant, vain, self centered snobs. The powerful few in our society took extreme risks in the casinos of Wall Street. AIG, Goldman Sachs, Lehman Brothers, Bear Stearns, among others were inhabited by multi-millionaire gamblers. They had already socked away millions in bonuses and stock options, but their arrogance and pride led them to take even more extreme risks. They ultimately destroyed the financial system. Now they want you and I to come to their rescue, for the good of the country.

Let's See How Far We've Come

Said where you going man you know the world is headed for hell
Say your goodbyes if you've got someone you can say goodbye to

I believe the world is burning to the ground
Oh well I guess we're gonna find out
Let's see how far we've come
Let's see how far we've come

             &n
bsp;            &nbs
p;             
        How Far We've Come - Matchbox 20

I believe the world is burning to the ground. The United States is spending trillions per year propping up social safety nets and waging foreign wars while borrowing the funds to do so. The currency is being debased day by day and will eventually be worthless. Our current path will lead us to hell. I think I can address the anger and disillusionment of the vast majority of hard working Americans:

• The materialism and wastefulness of our society is reflected in how our minimum living standards have changed since 1970. The average household size has declined from 3.1 to 2.5, a 20% reduction. Our average home size has increased from 1,400 sq ft to 2,600 sq ft, an 86% increase. The average number of vehicles per household has increased from 1.1 to 2.3, a 109% increase. Bigger is better has been the American mantra for decades. These figures are skewed, as many people live in 6,000 sq ft McMansions and drive 4 or more cars. It is clear that millions cannot distinguish between a need and a want.

• I bought my home in 1995. The minor upgrades (finished basement, hardwoods) we've made over fourteen years were paid for in cash. The other major expenditures were to replace appliances that broke. When the value of the house miraculously doubled between 2000 and 2005, I opened a home equity line of credit with my Credit Union as an emergency fund. It has not been used to take vacations, buy a new car, or install a $25,000 kitchen. The extreme risk takers bought houses with 105% leverage, lied on their mortgage applications, attempted to flip multiple condos, used the appreciation in their home value to live the lifestyle of Madonna and vacationed on the French Riviera. Now the politicians running our government are using my tax dollars to insure that these extreme risk takers stay in their homes. Rewarding reckless behavior leads to more reckless behavior.

• I drive a paid for 7 year old CRV with 120,000 miles. My wife drives a paid for 9 year old Minivan with 95,000 miles. I have never been a car person. My Dad always bought used cars. I don't see the point in spending money on a depreciating asset. My self esteem is not tied to the car I drive. I've owned 2 new cars in the 30 years I've been driving. I've financed my cars over four years. Every month that I don't have to make a car payment allows me to put that money towards my kid's college fund or my retirement account. GMAC, Chrysler Financial, and Ford Credit have been the credit drug pushers that have permitted luxury addicts all over the country to tool around in a Mercedes, BMW, or Porsche of their choice. Shockingly, lending money to subprime borrowers led to billions in losses. GMAC rationally decided in October 2008 to limit loans to people with credit scores above 700. In December the government delivered $5 billion of taxpayer TARP funds to GMAC, who then decided to again lend money to subprime borrowers with 620 credit scores. Their plan is to lose money on these loans, but make it up on volume. When you see an 18 year old punk driving a BMW, you are probably making his car payment.

• We use a credit card to pay for virtually all of our monthly expenses. 1% of the charges go into my son's 529 college account. I have not paid an interest charge since 1990. I'm a credit card company's worst customer. No interest income, no late charges and I've received maximum rewards. I'm not the average American. The average American owes $9,000 on their credit cards. In a fair world, when these people couldn't repay their debts the bank would take a major loss and the consumer face bankruptcy with the inability to borrow for years. The top credit card issuers JP Morgan, Bank of America, Citicorp, and Capital One issued credit cards to anyone with a pulse because they just sold the package of bad debt to widows and the Chinese. Then they drank their own poisoned kool-aide. Now our clueless Treasury Secretaries (Mr. Paulson & Mr. Geithner) have shoveled $78 billion of your tax dollars to these banks so they can continue to send out 5 billion credit card solicitations per year to more deadbeats. Loaning money to people incapable of repaying you is generally not a good business practice, except in the America of today.

• Every individual in the United States has right to live any way they choose. Many have chosen to borrow and live the good life today and not worry about tomorrow. They will vote for the politician that promises them bread and circuses without requiring them to sacrifice, save for a rainy day, take responsibility for their future or exercise any self control. This is where reality and fantasy meet. People can only borrow and spend if the Federal Reserve and bankers provide the funds to do so. By creating money out of thin air and handing it out to people with no legitimate means of repaying, the bankers who run this country have put this country on the road to ruin. The government solution is to confiscate your tax dollars, give it out to bankers, who will lend it to new subprime borrowers, who will not repay these debts. They are doing this in a last ditch attempt to retain power and control.  

The people of our great country must heed the words of David Walker, unless we want it to collapse into a heap of smoldering ashes.

"The US government is on a 'burning platform' of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon. There are striking similarities between America's current situation and the factors that brought down Rome, including declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government."

Let's see how far we've come. I guess we're going to find out.

Posted 04/27/09 justinb Oklahoma City, OK

Nice article, I especially liked the musical references throughout.

Posted by jimquinn on 04/07/09

Rohm Emanuel's famous quote regarding the current financial crisis, "Never let a serious crisis go to waste...it's an opportunity to do things you couldn't do before." was ignored last summer when oil prices reached $147 a barrel. The Obama administration has taken advantage of the financial crisis to ram through their socialist agenda which will add trillions to the National Debt. It will stimulate unions, bureaucrats, government employees, and defense contractors. It will do nothing to address the looming energy crisis which will sweep over the country shortly. Again, politicians and pundits will be shocked and astonished when oil soars. They will vilify oil companies, OPEC, and the dreaded speculators. They ignore the old fashioned supply and demand equation that even a dimwitted Congressman should be able to comprehend.

Instead of addressing the crucial issues that have led to the U.S. being dependent on foreign oil to the tune of $500 billion per year, Congress decided to spend your tax dollars on the following vital items (compliments of Casey Research):

• $200,000 for tattoo removal for gang members in California.
• $98 million for a Coast Guard ice breaker closing an ice-breaking gap. (what about global warming)
• $950,000 for a bikeway in Kentucky.
• $2 million for astronomy awareness in Hawaii.
• $190,000 for a Buffalo Bill Historical Center.
• $650 million for the digital to analog converter box program.
• $1.8 million to study the effect of swine odor on the environment. (rumor has it the study will be conducted in the halls of Congress)

When oil prices collapsed from $147 a barrel in the summer of 2008 to $35 a barrel in January, American drivers, Congress, government bureaucrats, and the mainstream media refocused on other more pressing issues like executive bonuses, Michele Obama's wardrobe, and the tax law knowledge of Obama's cabinet. The attention span of the average American is shorter than a gnat's. As they text and twitter through life, the energy infrastructure continues to rust away, decades old wells are closer to depletion, and alternative energy projects have been scrapped by the thousands. Peak oil likely occurred between 2005 and 2009. The production of oil will now embark on a long slow decline. The world is not prepared.

The history of energy in the United States is really only 160 years old, with coal being utilized starting in 1850 and oil only becoming a viable fuel beginning in 1900. Essentially, the world has found lakes of oil under the crust of the earth. If you pump 82 million barrels of oil from a lake per day, the lake will eventually go empty. New lakes are found every year, but the easy to get to lakes have all been found. The new lakes are deep under the sea or in tar sands and shale deposits. These sources take as long as a decade to reach and billions of infrastructure investment. With petroleum in permanent decline, the U.S. needed to have a plan 20 years ago.

Source: Department of Energy

Matt Simmons, the brilliant energy analyst and author of Twilight in the Desert, recently told Reuters, "We are three, six, maybe nine months away from a price shock. We are not talking about three to five years away -- it will be much sooner. These prices now are dangerously low. The lower prices fall, the less oil will be produced and the greater the chance of an oil spike."

In this scenario, low oil prices will continue to take oil fields out of production and reduce exploration. Once prices recover, companies will have trouble gearing back up due to the credit crunch, resulting in production increase delays.
Simmons describes what will happen. "Unless oil demand falls by 10 or 15 percent per annum, which it is not going to do, then we don't need to wait for oil demand to come back before we have a supply crunch." This is on no one's radar.

Peak Oil

When pundits on CNBC speak authoritatively about peak oil being a fallacy, their misleading blather is believed by supposedly intelligent people. They expound that we are not running out of oil. There are billions of barrels left inside the earth. Peak oil does not mean that we are in imminent danger of running out of oil. Peak oil is the point in time when the maximum rate of global petroleum extraction was reached, after which the rate of production enters terminal decline. The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines-sometimes rapidly-until the field is depleted. This concept is derived from the Hubbert curve, and has been shown to be applicable to the sum of a nation's domestic production rate, and is similarly applied to the global rate of petroleum production. M. King Hubbert created and first used the models behind peak oil in 1956 to accurately predict that United States oil production would peak between 1965 and 1970.

Source: Department of Energy

The depletion of existing sources is more rapid than any new sources that can be brought online.  Production in the United States is in relentless decline. The view of Alaskan oil production from 1975 until today clearly shows how rapidly oil fields can decline. What has happened in the United States is now happening on a worldwide basis. The U.S. Department of Energy published a report from some of the top energy minds in the world in 2005. The lead author Robert Hirsch produced a comprehensive report on the peak oil issue called, Peaking of World Oil Production: Impacts, Mitigation, and Risk Management. The conclusions were frightening. What has the U.S, government done in response? NOTHING

The overwhelming majority of industry petroleum geologists, scientists, and economists who worked on the report projected global peak production being reached between 2005 and 2010. The report's disturbing conclusions are as follows:

• World oil peaking is going to happen, and will likely be abrupt.
• Oil peaking will adversely affect global economies, particularly those most dependent on oil.
• Oil peaking presents a unique challenge ("it will be abrupt and revolutionary").
• The problem is liquid fuels (growth in demand mainly from transportation sector).
• Mitigation efforts will require substantial time.

-          20 years is required to transition without substantial impacts

-          A 10 year rush transition with moderate impacts is possible with extraordinary efforts from governments, industry, and consumers

-          Late initiation of mitigation may result in severe consequences.

• Both supply and demand will require attention.
• It is a matter of risk management (mitigating action must come before the peak).
• Government intervention will be required.
• Economic upheaval is not inevitable ("given enough lead-time, the problems are soluble with existing technologies.")

Source: Hirsch Report

Considering that global oil production peaked or is peaking between 2005 and 2010, we are destined for the 3rd scenario of severe consequences. Economic upheaval is now inevitable. It is the American way to not do anything until it is too late. The Hirsch Report urges a crash program of new technologies and changes in manners and attitudes in the US and as well implying more research and development. The urging has gone unheeded. The worldwide global recession is the only reason you are not paying $5.00 a gallon for gasoline today. Supply did not increase, demand leveled off.

World demand "plummeted" from 87 million barrels per in early 2008 to 84 million barrels per day in early 2009, a full 3.5% decline. If the world economy levels off and resumes growth, demand will immediately surpass previous levels. The problem is that production has peaked and will likely drop below 80 million barrels in 2010. When demand is rising and supply is declining, only one thing can happen - higher prices.

The peaking of hydrocarbon supply is vital not just to our country's future, it is enormously critical to our global economic conduct. Optimists argue that oil has not peaked, and will not peak for decades. They base this on widely held beliefs, including the extent of the world's energy resource endowment, the ability of technology to recover larger amounts of oil once left behind, the lag time between high oil prices and the ramped-up drilling they kindle, the remarkable amount of unconventional oil that has become commercially feasible because of high prices, and undetermined technology advancements. Those who ridicule peak oil, think the term means "running out of oil" instead of the true definition: "oil production can no longer grow."

The optimists dismissed the fact that oil prices reaching $147 a barrel had anything to do with constricting market fundamentals. Instead, they argued that lofty crude prices were merely a by-product of a weak dollar, hedge fund speculation, geopolitical trepidation, downstream log jams, the Iraq war, Nigerian political turmoil and the craving for high prices within OPEC, which kept enormous spare capacity shut in. When prices skyrocket again, these optimists will produce new excuses. Facts are facts. Easily found cheap sources of energy are in terminal decline.

Matt Simmons explains the long and winding road to our current predicament:

• Between 1970 and 1979, world oil demand grew from 47 million barrels per day to 65 million barrels per day, a jump in 10 years of an astonishing 18 million barrels per day. This is how we ate up the world's spare capacity and at the same time caused U.S. supply to peak. Thus, the price of oil skyrocketed.
• From 1979 through 1983, demand fell four straight years, retreating back to 59 million barrels per day. Most of this change came as oil ended its role as a prime feedstock for power generation. This probably would have happened even if oil prices had not gone so high, as the world was finally rolling out nuclear fuel.
• Once demand hit bottom in 1983, it quietly began to grow again, though the growth was masked by the beginning of a prolonged collapse of oil use throughout the USSR. Nevertheless, total world demand grew from the 59 million base in 1983 to 69 million in 1994, an increase of 10 million barrels per day. This increase, interestingly, came at a time when most of the oil pundits were wringing their hands, declaring that oil demand was so stagnant that low oil prices were the new world order.
• In 1995, global oil demand finally edged over 70 million barrels per day for the first time in history. Between 1994 (the last time it was under 70 million barrels per day) and the end of 2008, demand grew to 86 million barrels per day - a jump of 16 million barrels per day in 13 years. This explains why we used up every last pocket of spare productive capacity and ran out of drilling rigs.

 
Saudi Arabia is Lying

 Saudi Arabia has been claiming that they are capable of ramping up oil production from its many oil fields. The chart below tells a different story. The largest Saudi fields have entered permanent decline. The largest field in the world, Ghawar, was discovered in 1948 and peaked at 5.6 million barrels per day in 1980. It now produces 5.0 million barrels per day. The 3rd largest field in the world, Safaniyah, was discovered in 1951 and peaked at 2.1 million barrels in 1998. It now produces 1.3 million barrels per day. One third of global oil supply comes from 20 large fields discovered prior to 1970. They have all peaked. 94% of global supply comes from 1,500 wells. If Saudi Arabia had the ability to ramp up production, they most certainly would have in 2008 when prices rose over $100 a barrel. They did not, because they could not.

Source: Oil Drum

"World reserves are confused and in fact inflated. Many of the so-called reserves are in fact resources. They're not delineated, they're not accessible, and they're not available for production."

             &n
bsp;          Sadad I. Al Husseini, former VP of Aramco, October 2007.

Worldwide reserves peaked in 1980, when production first surpassed new discoveries. Total worldwide reserves are reported to be 1,200 billion barrels. Much of the increases in reserves since 1980 are lies. Al Husseini argues that 25% of the proven reserves in the world are speculative and not accessible. The following chart tells a fascinating story. Amazingly, each of these OPEC countries had dramatic leaps in their proven reserves, with Saudi Arabia having a 50% increase in one year with no major new discoveries. These self reported figures are not audited or verified in any way. Since production quotas are based on total reserves, the higher your reserves, the bigger your piece of the pie. Since 1988, Saudi Arabia has pumped at least 44 billion barrels of oil, but still has proven reserves of 264 billion with no major new discoveries. If you believe that, I have a package of 1,000 subprime mortgages that is rated AAA I'd like to sell you.

Dr. Ali Samsam Bakhtiari a former senior expert of the National Iranian oil Company, has estimated that Iran, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates have overstated reserves by a combined 320-390 billion  barrels, and "As for Iran, the usually accepted official 132 billion barrels is almost one hundred billion over any realistic estimate". Petroleum Intelligence Weekly reported that official confidential Kuwaiti documents estimate reserves of Kuwait were only 48 billion barrels, half as much as their reported 101 billion barrels. Essentially, the amount of oil reserves in the world is much lower than people think. The good news is that OPEC may have less clout in the future than they have had for the last 40 years.

 Mexican Hat Dance

 I'm sure that not many people in the U.S. realize that we get more oil from Mexico than Saudi Arabia. We are dependent on Mexico to supply us with 600 million barrels of oil per year. Without this supply, there would be shortages and much higher prices. Tijuana, we have a problem. Within five years, we will be getting ZERO barrels of oil per day from our neighbor to the south. Mexico has the distinguished honor of having a government more inept and short-sighted than our own. Hard to do.

Source: Perotcharts.com

Virtually all of the oil supplied from Mexico comes from the 2nd largest oil field in the world, Cantarell. It was discovered in the shallow waters of the Gulf of Mexico in 1977. It is run by the state owned oil company, Pemex. It held 17 billion barrels of oil. The Mexican government took the oil revenues and funded their wish list of programs in the country. Pemex has provided 40% of all revenues for the state. The state became so dependent they had Pemex build a nitrogen injection project on top of the well to push the oil out faster. It worked. In 2004, the well was providing 2.5 million barrels per day. It is now in irreversible decline at a rate of 15% per year. By 2012, it will only be producing 500,000 barrels per day.

Mexico has ridden this pony hard. They have not done any serious exploration in the Gulf of Mexico in 30 years. A newly discovered deep water well takes 10 years and billions of investment to bring on line. There is no doubt that Mexico's oil output will collapse in the next five years. They will not be capable of exporting any oil to the U.S. With the rest of the world having no spare capacity and demand higher than 2008, prices for gasoline in the U.S. will soar. In the meantime, we will ponder higher gas mileage requirements, not allow offshore drilling, and make no effort to convert our transportation fleet to natural gas. Congressmen will be outraged and indignant at the oil companies, when the writing was on the wall for a decade.

Crisis Part II

The flowchart below gives an extremely clear picture of what happened in the last year and what will happen in the next few years. The financial crisis and the energy crisis were intertwined and will continue to feed upon each other. Worldwide oil production peaked between 2005 and 2009. This, along with refinery shutdowns, hurricane related issues, and hedge fund speculation led to oil reaching $147 a barrel. This was the straw that broke the camels back and helped accelerate a downward spiral for consumers. The combination of plunging home values, retirement savings being cut in half and gas prices doubling led to the worst recession since the 1930's. The dramatic worldwide slowing caused by American consumers not going to Malls reduced demand enough to make the speculators go running for the hills. Oil prices plummeted 76% in a couple months to $35 a barrel. Now we are about to enter phase two of this comedy of errors. Again, the clueless leaders of our country will be taken by surprise. They've learned nothing.

It may sound like sacrilege, but prices below $50 a barrel are dangerously low. The crash in gasoline prices to below $2.00 a gallon has led to demand in the U.S. rising 6% above the demand in September 2008. Our American twitter society has already forgotten the $4.00 a gallon prices. Hybrids are rotting on car dealership lots. Everything that has happened since the price collapse will contribute to Crisis Part 2:

• OPEC cut supply by 4.2 million barrels per day from levels in September
• Projects that were viable at $80 a barrel have been scrapped. Ethanol and Tar Sands are only profitable above this level. Natural gas wells are being capped as prices plunged from $13 to $4.
• Worldwide rig counts have plunged from 3,500 to 2,700 in a matter of months.

• Existing wells throughout the world continue to decline at ever increasing rates.
• The Obama administration will restrict the expansion of coal powered plants, construction of new refineries and new drilling in the U.S.
• The enormous stimulus being rolled out throughout the world will generate increased energy demand as supply remains restricted.
• The banking crisis has resulted in no financing for energy projects that could relieve the long-term supply issues.
• Energy companies have been laying off skilled workers as their business has plummeted. When demand resumes, these workers won't be there.

Most people do not understand that all prices are set at the margin. There are 75 million houses in America. Only 4 to 5 million homes are sold per year. Therefore, 5% to 6% of the homes in the U.S. set the price for the other 70 million homes. This same concept applies to the last barrel of oil. When worldwide demand exceeded worldwide supply in late 2007 and early 2008, those last barrels of oil set the price. This explains why those last barrels of oil set the price above $100 a barrel. It wasn't greedy speculators and evil oil companies.

Source: International Energy Agency

It is clear that supply has stayed in the range of 86 million barrels per day while demand has dropped to the range of 84 to 85 million barrels per day. If oil demand rises by 3%, demand will outstrip supply again.

Source: International Energy Agency

$200 Oil Will Arrive

When I was ten years old my parents told me to never touch our stainless steel sink and the electric light switch above the sink at the same time. I couldn't resist. I tried it and got knocked on my ass. I never did it again. Americans are a different lot. Last year we got knocked on our ass by $4.00 gasoline. Instead of learning, we have sauntered back to the kitchen sink and we're reaching up for the electric light switch. I wonder what is going to happen this time.

Americans are used to making tough choices. They have made choices between the Hummer H3 (13 mpg) and the Hummer H2 (8 mpg). They've made choices between a BMW 650i (16 mpg) and a Mercedes S600 (13 mpg). The coming energy crisis will lead to choices between food or fuel for many people. The coming crisis is as clear as the housing bubble. Anyone with half a brain could see that home prices would need to fall 30% to 50% to get back to equilibrium. Therefore, no one in Congress, Wall Street, or CNBC saw it coming. Total world oil supply is in a permanent decline. Oil demand will continue to rise. Only a half wit would argue that prices will not rise dramatically in the coming years. Turn on CNBC to get the half wit view of oil prices.

Now the bad news for Americans; we make up 4.3% of the world's population and consume 26% of the world's oil. Europe makes up 6.8% of the world's population and consumes 11% of the world's oil. After the oil shock of the 1970's Europe decided to dramatically increase taxes on gasoline. The high cost of gasoline forced people to buy smaller fuel efficient cars. Today in Germany, their cars average 44 mpg, while in the U.S. our cars average 22 mpg. Whether Europe spent the taxes wisely is another question, but they did change behavior. No crude oil refineries have been built in the United States since 1976. During that time, hundreds of ethanol refineries have been built. It requires more energy to produce ethanol than ethanol produces. The United States has between 250 and 300 years of a coal supply. That is more than the amount of recoverable oil contained in the entire world. We will not utilize this resource because environmentalists say it is bad. Congressman Gary Miller describes the U.S. response to the 1970's oil shock.

In 1973, America imported 30 percent of its crude oil needs. Today, that number has doubled to more than 70 percent. Gas prices are as high as they are now in part because we've had no comprehensive national energy policy for the past few decades.

The peak oil shock that is coming will affect the United States more dramatically than any other country. Are you prepared for $5.00 a gallon gasoline? We are 20 years too late to stop this from happening. The American way of kicking all tough issues down the road is about to kick us in the ass, and no one is preparing Americans for the result. Happy talk and confidence building exercises will not solve the problem. We are not in control of our destiny. Our supply is drying up. More drilling will not work. Higher fuel efficiency standards will not work. Congressmen and TV pundits will posture, expound, skewer oil executives on TV, and get red in the face, but they have failed the American public again. The social upheaval that could occur from fuel shortages and outrageous prices will be ugly. Most Americans live in suburbs far from work. Our food supply requires trucks to deliver to our stores. The U.S. military consumes 400,000 barrels of oil per day and spends $13 billion of your tax dollars per year to keep their machines functioning. War for oil becomes more likely in that environment. Is that a farfetched scenario?

The population of the world will continue to rise. The United States has no control over that fact. Developing countries will grow more prosperous. People utilize more fossil fuels as they become more prosperous. $2,500 cars are now becoming available in China and India and the rest of Asia. In a Chinese car ownership survey, 96% of respondents said they paid cash for their cars. How un-American like. Imagine if GMAC could gain a foothold in China. More than 20,000 new cars per day are being sold to Chinese citizens who have never owned an automobile before. This is massive new demand being created for gasoline. China now has a middle class estimated at nearly 300 million people. 37% of people driving in China today did not know how to drive 3 years ago.

Oil will continue to be discovered, just not enough to keep up with demand. The pie chart below paints a disturbing picture. Only 30% of total oil reserves are light sweet crude. The other 70% is difficult and costly to bring to market. Few U.S. refineries can convert heavy crude into gasoline. Oil sands require massive amounts of water and natural gas to convert it into usable oil. The oil remaining to be discovered will be in deepwater wells. It takes at least 10 years to bring a deepwater well online. We are losing the race with time.

Source: Wikipedia

The only two people sounding the alarm have been Matt Simmons and T. Boone Pickens. Mr. Simmons warns that the best energy geologists and engineers are now retiring, with no one to take their place. The global oil and gas system infrastructure is rusting away and falling apart. The cost to rebuild our global energy infrastructure would be close to $100 trillion and would require 10 to 20 million workers. This would not be wasted money. Mr. Pickens argues that by investing $1 trillion to build wind facilities in the corridor from Texas to North Dakota we could produce 20% of the nation's electricity by 2020. This would free up our vast natural gas resources to be used as fuel for truck fleets and ultimately automobiles. The ideas of both men would create jobs in America and make us less dependent on Middle East oil.

None of these ideas will avert $5 gasoline in our near future. They may avert $10 gasoline and potentially a resource instigated World War 3. The choice is ours.

Posted 04/07/09 MichaelBarry Sebring, FL

In the near term, the collapsing world economy is going to have a moderating effect on the price of petroleum. Declining use in the US is going to be quite dramatic. The average American drives 50 miles per day commuting to work. With 15 million unemployed this consumption largely goes away. Unemployment will continue to rise for the next several months at 600,000 to 900,000 per month. However, the printing of virtually unlimited quantities of currency will have an opposite effect of driving the price of petroleum up. At the same time some of these charts which show declining reserves are really reflecting increasingly punitive and restrictive policies relative to production. If the government makes it illegal to produce oil anywhere that it can be found, then none will be found. The only long term solution to this energy dilemma is to proceed aggressively with nuclear development. But the government of the United States has a vested interest in the reduction of the standard of living of every American and to accomplish this end they must make nuclear development as close to impossible as they can. The huge quantities of energy demanded by the world going forward are not going to be met with wind or solar. Natural gas has great promise for the United States, but the most likely treatment of this by the government will be the same as meted out to petroleum. It is time to face the facts that the policy of the United States is to not solve the energy problem. The problem must remain so that politicians have a justification for ever greater regulation, taxes, and punishments for the common man.

Posted by jimquinn on 03/31/09

 Generals gathered in their masses
Just like witches at black masses
Evil minds that plot destruction
Sorcerers of deaths construction
In the fields the bodies burning
As the war machine keeps turning
Death and hatred to mankind
Poisoning their brainwashed minds, oh lord yeah!

            &nb
sp;             
;         

Black Sabbath - War Pigs

You know civilization is in danger when I find more wisdom in the words of Ozzy Osbourne than in the words of any elected U.S. official. The U.S. war machine keeps turning. As we enforce our will on foreign countries, we produce more people who hate us. Just when you think the U.S. government is beginning to make sense by withdrawing troops from Iraq, they make the terrible decision to shuttle 21,000 more troops into the Afghan calamity. At a cost of $3.2 billion per month, we will throw another $38 billion down a rat hole in a country that has no vital strategic importance to the United States. Barack Obama is doing this to prove that he is a true statesman. The Soviet Union killed over 1 million Afghans, while driving another 5 million out of the country and left bankrupted and defeated after ten years. Young Americans will continue to die for who? for what? Our foreign policy during the last eight years can be summed up in one military term, SNAFU - Situation Normal All Fouled Up. These foreign interventions are a smoke screen for what is really going on in this country. When a government has unsolvable domestic problems, they try to distract the public by creating foreign conflicts. General Douglas MacArthur understood the danger.

 "I am concerned for the security of our great Nation; not so much because of any threat from without, but because of the insidious forces working from within."

 Economic Opportunity Cost

"You can't say civilization don't advance... in every war they kill you in a new way."

             &n
bsp;            &nbs
p;             
             &n
bsp;            &nbs
p;             
             &n
bsp;              Will Rogers

 Any doubt that the Military Industrial Complex is as strong as ever should be removed after examining Obama's 2010 budget just put forth. It calls for 26% more in spending on Defense than President Bush spent in 2006. The Soviet Union collapsed in 1989, leaving the United States as the only remaining superpower on earth. Since 1990, the United States has depleted the U.S. Treasury of $7 trillion for spending on Defense. With no military on earth capable of challenging us why would there be a need to spend this much on the military? Over this same time frame the U.S. spent $360 billion on science, space & technology and $52 billion on energy, a mere 6% of the spending on killing machines. Military expenditures benefit humanity in no way.  If these trillions had been invested by the private sector or devoted to energy and scientific research, our economy might not be a hollowed out shell dependent on China and oil exporting countries. Nationalists argue that the Defense industry employs millions and benefits the country. These companies employ brilliant engineers and scientists who spend their days developing things that kill people more efficiently. If they had been employed developing electric cars, solar power, wind power, nuclear power, an efficient electric grid, infrastructure upgrades, or finding a cure for Alzheimer's, would the United States be better off today?

The National Debt in 1990 was $3.2 trillion. Today, it is $11 trillion.  This is a 343% increase in nineteen years. What benefit has $7 trillion of spending on Defense produced for the United States or the world? In 2001, spending on Defense was 17% of total governmental spending. In 2008, Defense, Homeland Security, and war spending accounted for 26% of government spending. In the meantime, major cities have had blackouts due to an overloaded electrical grid, our 156,000 structurally deficient bridges crumble, one hundred year old water pipes burst under our streets every day, and we send $500 billion per year to foreign countries for oil. The 19 terrorist hijackers who implanted their plan with knives spent less than $500,000 to pull off their 9/11 acts of terror. The United States has spent over $1 trillion in response, without capturing the mastermind of the attacks.

You would think we must be trying to keep up with our enemies by spending $765 billion per year on the Military. But one look at the following chart reveals that the United States is spending as much as the rest of the world combined. The two countries considered potential rivals, Russia and China, spent $192 billion combined in 2008. This is 27% of U.S. spending. From a foreign perspective, one must wonder why the U.S. is spending such vast quantities on our military. They can only conclude that it is for offensive intentions rather than defensive. The United States soil has not been attacked by a foreign power since December 7, 1941. Prior to that surprise attack, a foreign power hadn't attacked the U.S. since the War of 1812. With this level of spending, our leaders feel compelled to interfere in the business of sovereign nations.    

Other countries, such as China and Russia, feel they have no choice but to increase their expenditures on the military. On a percentage basis, they have more than doubled their expenditures in the last ten years, and still are a drop in the ocean compared to the American Empire spending. The fact is that the U.S., China and Russia all have enough nuclear weapons to obliterate the world - mutually assured destruction. The United States could realistically protect itself with the 18 ballistic missile nuclear submarines that we have in commission.

The U.S. has borrowed $609 billion from China, Japan and oil exporting countries to wage a war in Iraq that was based on false pretenses. None of the terrorist hijackers on 9/11 were Iraqis, they had no links to Al Qaeda, and they had no weapons of mass destruction. Historian Barbara Tuchman described "war as the unfolding of miscalculations." In 2002, Secretary of Defense Rumsfeld estimated the costs of the war in the range of $50 to $60 billion, a portion of which he believed would be financed by other countries. The United States invaded Iraq to secure the 115 billion barrels of oil reserves, pure and simple. We've traded the blood of young Americans for oil because we chose to not develop a cohesive logical energy policy in the last 30 years.  Americans, not in the military, have sacrificed nothing in the last 7 years of war. We bought SUVs, McMansions, flat screen HDTVs, Blackberrys, iPods, and Rolexes while Americans died and the cost is passed to future generations.

"Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed."

             &n
bsp;            &nbs
p;             
             &n
bsp;      Dwight D. Eisenhower

 As we spend $765 billion per year on weapons, 37 million Americans live in poverty, with 46 million uninsured. There are 3 to 4 million people homeless in any given year. Military Veterans, who make up 13% of the population, account for 23% of the homeless. This is another example of government using Americans and then tossing them away like a piece of garbage. Now, with the recession deepening, tent cities of homeless are popping up across the nation. We pour billions into killing technology while American families are forced to live on the streets.

As the world spends $1.5 trillion per year on new methods of killing, millions die the old fashioned way.

• 13 million people per year die from starvation in the world. 
• The FAO says that 854 million people worldwide are undernourished.
• The World Bank has estimated that there were an estimated 982 million poor people in developing countries who live on $1 a day or less.
• For the price of one missile, a school full of hungry children could eat lunch every day for 5 years.
• Poor nutrition plays a role in at least half of the 10.9 million child deaths each year--six million deaths.
• 1 child dies every 5 seconds as a result of hunger - 700 every hour - 16 000 each day - 6 million each year - 60% of all child deaths (2002-2008 estimates)

What kind of a civilized society allocates 44% of the taxes taken from its people to war? Only 2.5% of your taxes go to science, energy, and environment. Only 2.2% of your taxes go to education and jobs. With a population of 304 million, the U.S. spends $59 billion ($194 per person) annually on education. Saudi Arabia, with a population of 28 million, spends $33 billion ($1,179 per person) on education. You produce the results that you would expect from your investments. A full 15% of our population doesn't have a high school diploma (20% of African Americans & 43% of Latinos) and only 27% have a college degree. How do we expect to lead the world in technology and research with these figures?

Human Cost

Politicians hide themselves away
They only started the war
Why should they go out to fight?
They leave that role to the poor

Time will tell on their power minds
Making war just for fun
Treating people just like pawns in chess
Wait till their judgment day comes, yeah!

             &n
bsp;            &nbs
p;         Black Sabbath - War Pigs

George Bush, Dick Cheney, and Donald Rumsfeld were politicians who never had the "pleasure" of coming under fire in battle. The brilliant anti-war novel Catch-22 describes these men perfectly.

"Some men are born mediocre, some men achieve mediocrity, and some men have mediocrity thrust upon them. With Major Major it had been all three."

The world was a huge game of Risk for these men, with young Americans as the game pieces. Instead of conquering Kamchatka in a board game, these three non-veterans sent 4,261 Americans to their deaths in Iraq for a false cause. Their neo-con ideology convinced them they could change the world.

"In modern war... you will die like a dog for no good reason."

             &n
bsp;            &nbs
p;             
             &n
bsp;            &nbs
p;     Ernest Hemingway

Another 45,583 Americans have been badly wounded in Iraq. We've lost 673 more Americans in Afghanistan without coming close to finding Osama bin Laden. These three disgraced politicians will now write their memoirs, raking in millions for telling lies and half truths. The 4,934 dead Americans won't have a chance to write their memoirs. These three men will receive their reward on their judgment day.

As National Guard troops are deployed over and over again to Iraq, they must realize that Catch-22 is alive and well in today's military.

"There was only one catch and that was Catch-22, which specified that a concern for one's own safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn't, but if he was sane he had to fly them. If he flew them he was crazy and didn't have to; but if he didn't want to he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle."
"That's some catch, that catch-22," he observed.
"It's the best there is," Doc Daneeka agreed

American soldiers who have completed their duty to country have been lied to and had the rules of the game changed during the game. Their politician leaders have reneged on their promises by sending men and women back to the war zone or not letting them come home on the timeline that was agreed to. Meanwhile, their families are going bankrupt, losing their houses, and seeing their marriages dissolve. Politicians started this war and are too cowardly to declare failure.

 "The military don't start wars. Politicians start wars."

             &n
bsp;            &nbs
p;             
             &n
bsp;            &nbs
p;      William Westmoreland

Many more will die needlessly now that Barack Obama has chosen to double down in Afghanistan. Another man who has never been under fire is going to prove his manliness to other world leaders. He should study the words of former Presidents who have been under fire.

"I hate war as only a soldier who has lived it can, only as one who has seen its brutality, its futility, its stupidity."

             &n
bsp;            &nbs
p;             
             &n
bsp;            &nbs
p;     Dwight D. Eisenhower

 "My first wish is to see this plague of mankind, war, banished from the earth."

George Washington

President Obama follows the standard Presidential game plan and dutifully gives patriotic speeches at a military base proclaiming the bravery and sacrifice of our troops. These are the words of politicians. The brutal reality for troops is much different. Representative Ron Paul in November 2003 described the early mistreatment of our soldiers.

• Fort Stewart, Georgia, housed hundreds of injured reserve and National Guard soldiers in deplorable conditions who were forced to wait months just to see a doctor. These soldiers made huge sacrifices, leaving their families and jobs to fight in Iraq. They found themselves living in hot, crowded, unsanitary barracks and waiting far too long to see overworked doctors. This was hardly the heroes' welcome they might have expected. Only an exposé in a major newspaper brought attention to their plight, prompting an embarrassed Defense department to rush additional doctors to the base.
• Some wounded soldiers convalescing at Walter Reed hospital in Washington were forced to pay for hospital meals from their own pockets. Other soldiers returning stateside for a two-week liberty had to buy their own airfare home from the east coast. Still others paid for desert boots, night vision goggles, and other military necessities with personal funds.
• Existing federal rules forced disabled veterans to give up their military retirement pay in order to receive VA disability benefits. This meant that every VA disability dollar paid to a veteran was deducted from his retirement pay, effectively creating a "disabled veterans tax." No other group of federal employees is subject to this unfair standard; in every other case disability pay is viewed as distinct from standard retirement pay.

The Humvees that soldiers were forced to drive did not have enough protective armor. In December 2004, Secretary of Defense Rumsfeld was giving one of his usual inspirational speeches when Army Spc. Thomas Wilson of the 278th Regimental Combat Team, a unit that consisted mainly of reservists from the Tennessee Army National Guard asked him a question:

"Why do we soldiers have to dig through local landfills for pieces of scrap metal and compromised ballistic glass to up-armor our vehicles?" Wilson asked, setting off what the AP described as "a big cheer" from his comrades in arms. Rumsfeld paused, asked Wilson to repeat the question, then finally replied, "You go to war with the army you have." Besides, he added, "You can have all the armor in the world on a tank and it can be blown up." I'm glad Donald Rumsfeld has a clear conscience. History will not be kind to this man.

Rumsfeld also sent Americans into battle without protective body armor. Only after bad publicity did the proper protection reach the troops. The blood of many dead soldiers is on Rumsfeld's hands. While President Bush sacrificed by not golfing, terribly wounded soldiers were sent to Walter Reed Hospital to recover. Instead they entered hell on earth. Outpatient mistreatment was reported in 2004, but nothing was done. In 2004 and 2005, articles appeared in the Washington Post and in Salon interviewing First Lt. Julian Goodrum about his court martial for seeking medical care elsewhere due to poor conditions at WRAMC. A Washington Post expose in 2007 finally revealed the horrible mistreatment of our brave wounded soldiers. These reporters uncovered the following conditions:

• WRAMC's Building 18 is described in the article as rat- and cockroach-infested, with stained carpets, cheap mattresses, and black mold, with no heat and water reported by some soldiers at the facility. The unmonitored entrance created security problems, including reports of drug dealers in front of the facility. Injured soldiers stated they are forced to "pull guard duty" to obtain a level of security.
• The typical soldier was required to file 22 documents with eight different commands - most of them off-post - to enter and exit the medical processing world, according to government investigators. Sixteen different information systems were used to process the forms, but few of them could communicate with one another. This complicated system has required some soldiers to prove they were in the Iraq War or the War in Afghanistan in order to obtain medical treatment and benefits because Walter Reed employees were unable to locate their records.

Salon recently reported about the tremendous surge in suicides by soldiers who have been pushed beyond their limits:

• Last year the Army had its highest suicide rate on record -- 140 soldiers. But new data from the Army on Wednesday showed the number jumping even higher. Forty-eight soldiers have already killed themselves so far this year. If that rate keeps up, nearly 225 Army soldiers will be dead by their own hand by the end of 2009.
• Soldiers returning from long tours in Iraq or Afghanistan suffering from combat stress were sometimes met with scorn from their superiors and something bordering on neglect from some medical officials. As their largely untreated problems deteriorated, their marriages unraveled under the strain. They turned to alcohol and drugs and in some cases saw no other way out than suicide.
• Healthcare officials at various installations who are struggling to help say they're overwhelmed by huge numbers of troops returning from two, three or even four deployments with acute mental problems from combat.

Nearly 20 percent of military service members who have returned from Iraq and Afghanistan - 300,000 in all - report symptoms of post traumatic stress disorder or major depression, yet only slightly more than half have sought treatment, according to a new RAND Corporation report. Many service members said they do not seek treatment for psychological illnesses because they fear it will harm their careers. But even among those who do seek help for PTSD or major depression, only about half receive treatment that researchers consider "minimally adequate" for their illnesses.

For all the glory and accolades of dying for Dick Cheney, enlisted soldiers make between $15,000 and $30,000 per year. The military evidently does not prepare them well for the outside world as their unemployment rate is 11.2% versus the national rate of 8.1%. A country can be measured by how well it treats its veterans. Our leaders talk a good game, but their actions prove they don't care about the human costs of war. They are busy planning their next move in their game of Risk.

Moral Cost

Now in darkness, world stops turning
As the war machine keeps burning
No more war pigs of the power
Hand of God has struck the hour
Day of Judgment, God is calling
On their knees, the war pigs crawling
Begging mercy for their sins
Satan, laughing, spreads his wings
All right now!

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p;         Black Sabbath - War Pigs

Omar Bradley, the last five star General in the U.S. military, was known as the "soldier's general" during World War II. He was portrayed by Karl Malden in the movie Patton as a thoughtful man who cared about his troops. He was one of the key architects of the Normandy invasion and led the 12th Army Group consisting of 900,000 men until the end of the war. After the war, Bradley headed the Veterans Administration for two years. He is credited with doing much to improve its health care system and with helping veterans receive their educational benefits under the G.I. Bill of Rights. He ultimately rose to Chairman of the Joint Chiefs. Contrast the words of the fictional Colonel Kilgore from the movie Apocalypse Now, with the words of General Bradley.

Kilgore: I love the smell of napalm in the morning. You know, one time we had a hill bombed, for 12 hours. When it was all over, I walked up. We didn't find one of 'em, not one stinkin' dink body. The smell, you know that gasoline smell, the whole hill. Smelled like
[sniffing, pondering]
victory. Someday this war's gonna end...
[suddenly walks off]

"The world has achieved brilliance without wisdom, power without conscience. Ours is a world of nuclear giants and ethical infants. We know more about war than we know about peace, more about killing than we know about living."

Omar Bradley

We need men like Omar Bradley and Dwight D. Eisenhower in control of our country today. These men knew the horrors of war and didn't act like it was a game of chess. There are brilliant men in power today. There are no wise men with a conscience in power today. Only those without a conscience are able to gain power in today's world. General Bradley understood that morality was ultimately more important than power and strength in the progress of a country. His words are those of someone who knew we had failed in our moral duty:

"We have grasped the mystery of the atom and rejected the Sermon on the Mount."

• Blessed are the poor in spirit: for theirs is the kingdom of heaven.
• Blessed are the meek: for they shall possess the land. 
• Blessed are they who mourn: for they shall be comforted.
• Blessed are they that hunger and thirst after justice: for they shall have their fill.
• Blessed are the merciful: for they shall obtain mercy. 
• Blessed are the clean of heart: for they shall see God.
• Blessed are the peacemakers: for they shall be called the children of God.
• Blessed are they that suffer persecution for justice sake, for theirs is the kingdom of heaven.

Peacemakers are ridiculed and shunned in today's world. Old men who care more about their own power than the human race are willing to sacrifice the blood of young people for oil, phony nationalism, strategic interests or philosophical agendas. The world is a game for these old men. They care about legacy and ideology. War and militarism are a failure of passion over reason. Albert Einstein, whose discovery brought about the age of potential world destruction, had no love for blind warriors.

"He who joyfully marches to music in rank and file has already earned my contempt. He has been given a large brain by mistake, since for him the spinal cord would suffice."

The overwhelming cost of maintaining a global empire eventually bankrupted Rome and Great Britain. Treasures were wasted, young men were needlessly sacrificed in the name of the flag, and the morality of leaders sank to unprecedented levels. The U.S. has advanced financially and technologically, but continues to decline morally. How far will we decline before the American people revolt?

I'm reminded of the movie Planet of the Apes. The apes are divided into a strict class system: the gorillas as police, military, and hunters; the orangutans as administrators, politicians and lawyers; and the chimpanzees as intellectuals and scientists. Humans, who cannot talk, are considered feral vermin and are hunted and used for scientific experimentation. The United States is now in the control of gorillas and orangutans. If we continue down the current path of financial and moral decay, allowing the Military Industrial Complex and corrupt leaders to push us into further world conflicts we will experience the shock and horror that George Taylor, played by Charlton Heston, displayed in the final scene of Planet of the Apes.  

George Taylor: Oh my God. I'm back. I'm home. All the time, it was... We finally really did it.
[screaming]
You Maniacs! You blew it up! Ah, damn you! God damn you all to hell!

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bsp;            &nbs
p;    

If you are seeking the truth, join me at www.TheBurningPlatform.com.

Posted 03/31/09 NancyK Austin, TX

Interesting, but your website links to Pete Peterson's site as a "like-minded" site. He is a globalist of the worst kind. These links should get one started, who wants to investigate Peterson further. http://tinyurl.com/cfcdjn http://www.iie.com/institute/board.cfm