Tag Archives: Debt

A Shaky Foundation

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By Michael Krieger

Source: Liberty Blitzkrieg

And so castles made of sand fall in the sea, eventually.
– Jimi Hendrix

There’s a widespread belief out there that the U.S. and the global economy in general is on much sounder footing ever since the financial crisis of a decade ago. Unfortunately, this false assumption has resulted in widespread complacency and elevated levels of systemic risk as we enter the early part of the 2020s.

All it takes is a cursory amount of research to discover nothing was “reset” or fixed by the government and central bank response to that crisis. Rather, the entire response was just a gigantic coverup of the crimes and irresponsible behavior that occurred, coupled with a bailout designed to enrich and empower those who needed and deserved it least.

Everything was papered over in order to resuscitate a failed paradigm without reforming anything. Since it was all about pretending nothing was structurally wrong with the system, the response was to build more castles of sand on top of old ones that had unceremoniously crumbled. The whole event was a huge warning sign and opportunity to change course, but it was completely ignored. Enter novel coronavirus.

I’ve been concerned about the coronavirus outbreak from the start, and have been tweeting about it consistently for well over a month.

This observation proved prescient within just a few weeks, as the U.S. Centers for Disease Control (CDC) screwed up its early response to the pandemic in the most sloppy and unimaginable way possible. For whatever reason, the CDC instituted ridiculously stringent guidelines for testing potential infections by limiting testing to only those who recently traveled from China or had contact with someone known to be infected. The CDC continued to stick to these insane guidelines as the disease began to spread rapidly all over the world, particularly in South Korea and Italy.

The event that finally prompted the CDC to change its guidelines was the emergence of the first confirmed incidence of community spread coronavirus in the U.S., which occurred in northern California. The health professionals caring for that patient had requested testing days earlier, but the CDC rejected the initial request, putting medical staff and others at risk for no good reason. On top of all that, the limited testing kits the CDC had sent out didn’t work properly. The level of incompetence and failure we’ve seen from the CDC is almost hard to fathom, but given how hollowed out and corrupt our society has become, shouldn’t be surprising.

At this point, nobody knows what the eventual impact of the coronavirus on the planet will be. Anyone who says they know for sure is lying, but I think we should be taking it very seriously given the potential tail risks. A global pandemic is an uncertain and dangerous thing in the most robust and healthy of systems, but the consequences within a fragile house of cards system such as ours can be devastating.

A month ago, stock market valuations were near the highest ever and interest rates were near the lowest they’ve been in recorded human history. A gigantic “everything bubble” of historic proportions had been blown and investors were flying too close to the sun. It was a balloon looking for a pin, and it found one in the coronavirus. Nobody knew what the pin would be, which is exactly why the stock market collapsed so rapidly the moment investors began to appreciate the gravity of the situation. The fragility of the financial markets should be taken as a warning sign with regard to the rest of the system.

Financial assets have been intentionally blown to nonsensical levels in order to coverup the massive rot underneath. They’ve been masking the fact that much of the underlying economy consists of little more than financial engineering scams and war-making enterprises. The imperial oligarchy we live under is an utterly rotten, corrupt, and fragile superstructure that’s been carefully hidden for ten years under a facade of euphoric markets and a mass of debt-based consumption slaves.

The coronavirus itself should be seen in this context. The global system as it exists is simply not prepared for anything like this, but the reality is things like this do occur from time to time. Maybe we’ll get lucky and avoid the worst case scenario with this virus, but that’s not the point. There will always be other pins, and when your entire superstructure is fundamentally fragile and led by mediocre, corrupt sociopaths, it doesn’t take much to bring it down faster than you can imagine.

We stand at a moment where the fragility of our Potemkin Village paradigm will increasingly confront the harsh realities of meatspace. Coronavirus is a warning. It’s exposing a lot already, and will likely expose far more as it continues to spread. It’s exposing our ridiculous financial bubbles, it’s exposing the fact the U.S. can’t even manufacture its own surgical masks or medicines, and it’s exposing the clownish ineptitude of our leaders and institutions.

It’s important we take this warning to heart and do something useful with it. It’s crucial we understand that the current paradigm is long past its useful life and likely won’t be hanging around much longer. Don’t cry or experience nostalgia for what was, rather, get your stuff together so you can help build and usher in the new world to come.

Those too attached to the way things have been will have a particularly hard time adjusting to the turbulent times ahead, so you want to do whatever you can in order to avoid being in that group. Change doesn’t have to be bad, but resistance to change can be deadly. Don’t allow yourself to be a casualty.

The Economic Cataclysm Ahead

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By Charles Hugh Smith

Source: Of Two Minds

The economic storm hasn’t passed; the false calm is only the eye of the financial hurricane.

To understand the economic cataclysm ahead, do the math. Those expecting the Covid-19 pandemic to leave the U.S. economy untouched are implicitly making these preposterously unlikely claims:

1. China will resume full pre-pandemic production and shipping within the next two weeks.

2. Chinese consumers will resume borrowing and spending at pre-pandemic rates in a few weeks.

3. Every factory and every worker in China will resume full pre-pandemic production without any permanent closures or disruptions.

4. Corporate America’s just-in-time inventories will magically expand to cover weeks or months of supply chain disruption.

5. Not a single one of the thousands of people who flew direct from Wuhan to the U.S. in January is an asymptomatic carrier of the coronavirus who escaped detection at the airport.

6. Not a single one of the thousands of people who flew from China to the U.S. in February is an asymptomatic carrier of the coronavirus.

7. Not a single one of the thousands of people who are in self-quarantine broke the quarantine to go to Safeway for milk and eggs.

8. Not a single person who came down with Covid-19 after arriving in the U.S. feared being deported so they did not go to a hospital and are therefore unknown to authorities.

9. Even though U.S. officials have only tested a relative handful of the thousands of people who came from Covid-19 hotspots in China, they caught every single asymptomatic carrier.

10. Not a single asymptomatic carrier caught a flight from China to Southeast Asia and then promptly boarded a flight for the U.S.

I could go on but you get the picture: an extremely contagious pathogen that is spread by carriers who don’t know they have the virus to people who then infect others in a rapidly expanding circle has been completely controlled by U.S. authorities who haven’t tested or even tracked tens of thousands of potential carriers in the U.S.

These same authorities are quick to claim the risk of Covid-19 spreading in the U.S. is low even as the 14 infected people they put on a plane ended up infecting 25 passengers on the flight. These same authorities tried to transfer quarantined people to a rundown facility in Costa Mesa CA that was not suitable for quarantine, forcing the city to file a lawsuit to stop the transfer.

Do these actions instill unwavering confidence in the official U.S. response? You must be joking.

Do the math, people. The coronavirus is already in the U.S. but authorities have no way to track it due to its spread by asymptomatic carriers. People who don’t even know they have the virus are flying to intermediate airports outside China and then catching flights to the U.S.

None of the known characteristics of the virus support the confidence being projected by authorities. The tests are not reliable, few are being tested, carriers can’t be detected because they don’t have any symptoms, the virus is highly contagious, thousands of potential carriers continue to arrive in the U.S., etc. etc. etc.

The network of global travel remains intact. Removing a few nodes (Wuhan, etc.) does not reduce the entire network’s connectedness that enables the rapid and invisible spread of the virus.

Second, what authorities call over-reaction is simply prudent risk management. As I noted yesterday in How Many Cases of Covid-19 Will It Take For You to Decide Not to Frequent Public Places?, when an abstract pandemic becomes real, shelves are emptied and streets are deserted.

It doesn’t take thousands of cases to trigger a dramatic reduction in the willingness to mix with crowds of strangers. A relative handful of cases is enough to be consequential.

Many of the new jobs created in the U.S. economy over the past decade are in the food and beverage services sector, the sector that is immediately impacted when people decide to lower their risk by staying home rather than going out to crowded restaurants, theaters, bars, etc.

Many of these establishments are hanging on by a thread due to soaring rents, taxes, fees, healthcare and wages. Many of the employees are also hanging on by a thread, only making rent if they collect big tips.

Central banks can borrow money into existence but they can’t replace lost income. A significant percentage of America’s food and beverage establishments are financially precarious, and their exhausted owners are burned out by the stresses of keeping their business afloat as costs continue rising. The initial financial hit as people reduce their public exposure will be more than enough to cause many to close their doors forever.

As small businesses fold, local tax revenues crater, triggering fiscal crises in local government budgets dependent on ever-higher tax and fee revenues.

A significant percentage of America’s borrowers are financially precarious, one paycheck or unexpected expense away from defaulting on student loans, subprime auto loans, credit card payments, etc.

A significant percentage of America’s corporations are financially precarious, dependent on expanding debt and rising cash flow to service their expanding debt load. Any hit to their revenues will trigger defaults that will then unleash second-order effects in the global financial system.

The global economy is so dependent on speculative euphoria, leverage and debt that any external shock will tip it over the cliff. The U.S. economy is far more precarious than advertised as well.

The economic storm hasn’t passed; the false calm is only the eye of the financial hurricane.

The Looming Financial Nightmare: So Much for Living the American Dream

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By John W. Whitehead

Source: The Rutherford Institute

“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.” ― Frédéric Bastiat, French economist

Let’s talk numbers, shall we?

The national debt (the amount the federal government has borrowed over the years and must pay back) is $23 trillion and growing.

The amount this country owes is now greater than its gross national product (all the products and services produced in one year by labor and property supplied by the citizens). We’re paying more than $270 billion just in interest on that public debt annually. And the top two foreign countries who “own” our debt are China and Japan.

The national deficit (the difference between what the government spends and the revenue it takes in) is projected to surpass $1 trillion every year for the next 10 years.

The United States spends more on foreign aid than any other nation ($50 billion in 2017 alone). More than 150 countries around the world receive U.S. taxpayer-funded assistance, with most of the funds going to the Middle East, Africa and Asia.

Meanwhile, almost 60% of Americans are so financially strapped that they don’t have even $500 in savings and nothing whatsoever put away for retirement, and yet they are being forced to pay for government programs that do little to enhance or advance their lives.

Folks, if you haven’t figured it out yet, we’re not living the American dream.

We’re living a financial nightmare.

The U.S. government—and that includes the current administration—is spending money it doesn’t have on programs it can’t afford, and “we the taxpayers” are the ones who will pay for it.

As financial analyst Kristin Tate explains, “When the government has its debt bill come due, all of us will be on the hook.” It’s happened before: during the European debt crisis, Cypress seized private funds from its citizens’ bank accounts to cover its debts, with those who had been careful to save their pennies forced to relinquish between 40% to 60% of their assets.

Could it happen here? Could the government actually seize private funds for its own gain?

Look around you. It’s already happening.

In the eyes of the government, “we the people, the voters, the consumers, and the taxpayers” are little more than pocketbooks waiting to be picked.

Consider: The government can seize your home and your car (which you’ve bought and paid for) over nonpayment of taxes. Government agents can freeze and seize your bank accounts and other valuables if they merely “suspect” wrongdoing. And the IRS insists on getting the first cut of your salary to pay for government programs over which you have no say.

We have no real say in how the government runs, or how our taxpayer funds are used, but we’re being forced to pay through the nose, anyhow.

We have no real say, but that doesn’t prevent the government from fleecing us at every turn and forcing us to pay for endless wars that do more to fund the military industrial complex than protect us, pork barrel projects that produce little to nothing, and a police state that serves only to imprison us within its walls.

If you have no choice, no voice, and no real options when it comes to the government’s claims on your property and your money, you’re not free.

It wasn’t always this way, of course.

Early Americans went to war over the inalienable rights described by philosopher John Locke as the natural rights of life, liberty and property.

It didn’t take long, however—a hundred years, in fact—before the American government was laying claim to the citizenry’s property by levying taxes to pay for the Civil War. As the New York Times reports, “Widespread resistance led to its repeal in 1872.”

Determined to claim some of the citizenry’s wealth for its own uses, the government reinstituted the income tax in 1894. Charles Pollock challenged the tax as unconstitutional, and the U.S. Supreme Court ruled in his favor. Pollock’s victory was relatively short-lived. Members of Congress—united in their determination to tax the American people’s income—worked together to adopt a constitutional amendment to overrule the Pollock decision.

On the eve of World War I, in 1913, Congress instituted a permanent income tax by way of the 16th Amendment to the Constitution and the Revenue Act of 1913. Under the Revenue Act, individuals with income exceeding $3,000 could be taxed starting at 1% up to 7% for incomes exceeding $500,000.

It’s all gone downhill from there.

Unsurprisingly, the government has used its tax powers to advance its own imperialistic agendas and the courts have repeatedly upheld the government’s power to penalize or jail those who refused to pay their taxes.

Irwin A. Schiff was one of the nation’s most vocal tax protesters. He spent a good portion of his life arguing that the income tax was unconstitutional, and he put his wallet where his conscience was: Schiff stopped paying federal taxes in 1974.

Schiff paid the price for his resistance, too: he served three separate prison terms (more than 10 years in all) over his refusal to pay taxes. He died at the age of 87 serving a 14-year prison term. As constitutional activist Robert L. Schulz noted in Schiff’s obituary, “In a society where there is so much fear of government, and in particular of the I.R.S., [Schiff] was probably the most influential educator regarding the illegal and unconstitutional operation and enforcement of the Internal Revenue Code. It’s very hard to speak to power, but he did, and he paid a very heavy price.”

It’s still hard to speak to power, and those who do are still paying a very heavy price.

All the while the government continues to do whatever it likes—levy taxes, rack up debt, spend outrageously and irresponsibly—with little thought for the plight of its citizens.

To top it all off, all of those wars the U.S. is so eager to fight abroad are being waged with borrowed funds. As The Atlantic reports, “For 15 years now, the United States has been putting these wars on a credit card… U.S. leaders are essentially bankrolling the wars with debt, in the form of purchases of U.S. Treasury bonds by U.S.-based entities like pension funds and state and local governments, and by countries like China and Japan.”

If Americans managed their personal finances the way the government mismanages the nation’s finances, we’d all be in debtors’ prison by now.

Still, the government remains unrepentant, unfazed and undeterred in its money grabs.

While we’re struggling to get by, and making tough decisions about how to spend what little money actually makes it into our pockets after the federal, state and local governments take their share (this doesn’t include the stealth taxes imposed through tolls, fines and other fiscal penalties), the police state is spending our hard-earned tax dollars to further entrench its powers and entrap its citizens.

For instance, American taxpayers have been forced to shell out more than $5.6 trillion since 9/11 for the military industrial complex’s costly, endless so-called “war on terrorism.”

That translates to roughly $23,000 per taxpayer to wage wars abroad, occupy foreign countries, provide financial aid to foreign allies, and fill the pockets of defense contractors and grease the hands of corrupt foreign dignitaries.

Mind you, that staggering $6 trillion is only a portion of what the Pentagon spends on America’s military empire.

That price tag keeps growing, too.

In this way, the military industrial complex will get even richer, and the American taxpayer will be forced to shell out even more funds for programs that do little to enhance our lives, ensure our happiness and well-being, or secure our freedoms.

As Dwight D. Eisenhower warned in a 1953 speech:

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. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is, I repeat, the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron. […] Is there no other way the world may live?

This is still no way of life.

Yet it’s not just the government’s endless wars that are bleeding us dry.

We’re also being forced to shell out money for surveillance systems to track our movements, money to further militarize our already militarized police, money to allow the government to raid our homes and bank accounts, money to fund schools where our kids learn nothing about freedom and everything about how to comply, and on and on.

Are you getting the picture yet?

The government isn’t taking our money to make our lives better. Just take a look at the nation’s failing infrastructure, and you’ll see how little is being spent on programs that advance the common good.

We’re being robbed blind so the governmental elite can get richer.

This is nothing less than financial tyranny.

“We the people” have become the new, permanent underclass in America.

It’s tempting to say that there’s little we can do about it, except that’s not quite accurate.

There are a few things we can do (demand transparency, reject cronyism and graft, insist on fair pricing and honest accounting methods, call a halt to incentive-driven government programs that prioritize profits over people), but it will require that “we the people” stop playing politics and stand united against the politicians and corporate interests who have turned our government and economy into a pay-to-play exercise in fascism.

We’ve become so invested in identity politics that label us based on our political leanings that we’ve lost sight of the one label that unites us: we’re all Americans.

The powers-that-be want to pit us against one another. They want us to adopt an “us versus them” mindset that keeps us powerless and divided.

Trust me, the only “us versus them” that matters anymore is “we the people” against the police state.

We’re all in the same boat, folks, and there’s only one real life preserver: that’s the Constitution and the Bill of Rights.

The Constitution starts with those three powerful words: “We the people.”

The message is this: there is power in our numbers.

That remains our greatest strength in the face of a governmental elite that continues to ride roughshod over the populace. It remains our greatest defense against a government that has claimed for itself unlimited power over the purse (taxpayer funds) and the sword (military might).

This holds true whether you’re talking about health care, war spending, or the American police state.

While we’re on the subject, do me a favor and don’t let yourself be fooled into believing that the next crop of political saviors will be any different from their predecessors. They all talk big when they’re running for office, and when they get elected, they spend big at our expense.

As I make clear in my book Battlefield America: The War on the American People, this is how the middle classes, who fuel the nation’s economy and fund the government’s programs, get screwed repeatedly.

George Harrison, who would have been 77 this year, summed up this outrageous state of affairs in his song Taxman:

If you drive a car, I’ll tax the street,

If you try to sit, I’ll tax your seat.

If you get too cold I’ll tax the heat,

If you take a walk, I’ll tax your feet.

Don’t ask me what I want it for

If you don’t want to pay some more

‘Cause I’m the taxman, yeah, I’m the taxman.

Now my advice for those who die

Declare the pennies on your eyes

‘Cause I’m the taxman, yeah, I’m the taxman

And you’re working for no one but me.

Omens, Portents, Karma and the Mandate of Heaven

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By Charles Hugh Smith

Source: Of Two Minds

The question of legitimacy isn’t limited to China.

what makes humans unique among social mammals? Some say humor, I would nominate superstition: regardless of how hard we promote our rationality and logic, humanity continues to sense portents and omens in events and feel the intangible tug of karma: the consequences of past actions that we arrogantly thought we’d escaped forever.

Michael Snyder recently compiled a list of peculiarities that are raising eyebrows around the globe: One, sure, two, not that unusual, three, well things happen in threes, but ten disturbances and we’re only six weeks into 2020? 10 ‘Plagues’ That Are Hitting Our Planet Simultaneously (Zero Hedge)

As the saying has it, Nature Bats Last, and maybe arrogant, destructive humanity’s war on Nature is about to get its comeuppance. Maybe overdosing hundreds of millions of chickens and pigs to knock down bacteria in overcrowded conditions has finally generated a karmic blowback via bird and swine viruses.

As for karma in human society: maybe the disruption of the supply chain in China is a karmic response to offshoring production to fatten Corporate America’s profits at the expense of all else in America’s society and economy.

Then there’s the celestial right to rule, a.k.a. The Mandate of Heaven, the concept rooted in Chinese culture that political leadership which fails the people invites divine retribution in the form of withdrawing the support of Heaven. This withdrawal of support manifests in the tangible world as natural disasters: earthquakes, floods, droughts, plagues, etc.

Though it’s not politically correct to discuss The Mandate of Heaven in any serious way, the reading of omens goes back in Chinese history to oracle bones, the process of heating bones until they crack and then interpreting the patterns as portents to the future.

With human and domestic animal epidemics devastating China in a novel cluster of natural disasters, The Mandate of Heaven is in play even if no one dares speak of it openly. The regime is well aware that these parallel plagues are understood as manifestations that question the legitimacy of the current regime.

The question of legitimacy isn’t limited to China. Soaring wealth inequality, the dependence on debt to fund “growth” and the political disenfranchisement of the masses are global manifestations of political-financial systems that invite divine retribution for their excesses of corruption, self-aggrandizement, and exploitation of the planet and its human workforce.

Financial Feudalism

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By Michael Krieger

Source: Liberty Blitzkrieg

“Happy 18th Birthday! Meet your new Daddy,” read one website advertisement. “Do you have strong oral skills? We’ve got a job for you!” cooed another.

A message on another billboard directed at the “daddies” was more blunt: “The alternative to escorts. Desperate women will do anything”…

SeekingArrangement was founded by Las Vegas tech tycoon Brandon Wade. Wade is apparently worth somewhere in the neighborhood of $40 million. His motto is, “Love is a concept invented by poor people”…

SA also markets itself as an antidote to student debt. In the U.S. and elsewhere, college students are enduring financial instability and hardship. Because of rising college fees and rent, and the lack of time available for work during studies, many women are extremely vulnerable to exploitation. “SeekingArrangement.com has helped facilitate hundreds of thousands, if not millions, of arrangements that have helped students graduate debt-free,” Wade boasts on the website. Promotional videos show young, beautiful women enrolled in “Sugar Baby University” — in classrooms, holding wads of cash, driving luxury cars, and discussing the pleasure and ease of being a sugar baby.

When signing up for an account, potential sugar babies are told, “Tip: Using a .edu email address earns you a free upgrade!”

– TruthDig: Sugar-Coated Pimping

When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.

– Frédéric Bastiat

Watching politics unfold in the post-financial crisis era has been extraordinarily frustrating. While it’s been refreshing to observe the emergence of grassroots populism over the last few years, there’s a problematic lack of depth and clarity embedded in these burgeoning mass movements. Tens if not hundreds of millions of Americans now acknowledge that something’s deeply broken within the current paradigm, but we remain focused on identifying symptoms as opposed to understanding and rectifying the systemic nature of the problem.

Of course, there are numerous complexities when it comes to the administration of an imperial oligarchy, and our system didn’t emerge overnight. Perhaps the most fundamental mutation of the post WW2 era came in 1971 when the international convertibility of U.S. dollars into gold was severed. This is when the country began its long transformation from a largely industrial empire to a financial one. I’ve often highlighted how the purely fiat USD reserve currency is the most powerful weapon ever invented, and how the U.S. control of the global financial system is the true backbone of empire, but it’s equally important to understand how the predatory financial system is also used to subjugate Americans in their own country.

In order to understand how this works we need to dig into the most fundamentally important four letter word in any modern economy: Debt.

When most people consider the debilitating societal effects of excessive debt they tend to see it from one basic level. How the bottom half of the population essentially has no choice but to borrow in order to participate in the economy as constructed. This is because the cost of so many things has been inflated way beyond the capacity of most people to purchase them outright. Specifically, wage growth has failed to keep up with the soaring costs of fundamental things such as shelter, healthcare and higher education.

For instance, home prices have been rising faster than wages in 80% of U.S. markets, which means the higher cost tends to offset historically low mortgage rates. Low interest rates don’t really help such people, it just lets them maybe, barely purchase an intentionally inflated asset to live in by taking on a huge chunk of debt. An asset that could quickly become completely unaffordable should the economy turn down as it did a decade ago.

As such, you have multitudes taking on debt defensively just to keep going and avoid falling further down the socioeconomic scale. Debt doesn’t empower such people, rather, it turns them into modern day indentured servants endlessly stuck on a hamster wheel with little to no hope of getting off. This is not an accident, it’s a tried and tested tool which, when combined with incessant mass media propaganda, is an effective way of creating a submissive, confused and desperate underclass.

Many people understand this by now, but what’s far less understood, yet potentially more significant, is how the wealthy use debt.

When you own your primary home outright and you’ve got enough savings that healthcare premiums and paying for your kids college in cash doesn’t make a dent, debt becomes something else entirely. Debt’s no longer an albatross around your neck, instead it becomes a tool to increase wealth. Debt becomes leverage.

Much of the explosion in wealth inequality over the past several decades can be traced back to this systemic interclass weaponization of debt. If you’re very wealthy and connected, access to extremely cheap debt is virtually unlimited, and this access is used to make leveraged bets on all sorts of stuff, but primarily real estate and financial assets such as stocks and bonds. Hasn’t this always been the case you ask? Aren’t those with capital always extremely advantaged over those without it? Isn’t that the history of capitalism and America since the beginning? My answer would be yes and no.

The main difference between prior periods of history and, let’s say the 21st century, has been the vast increase in power of the financial services sector thanks to the Federal Reserve’s willingness to encourage and enable the insatiable reckless behavior of the speculator class. It’s no secret the Fed has been intentionally boosting assets across the FIRE sector such as real estate, stocks and bonds since the crisis. Those with the capital to ride the coattails of this irresponsible and undemocratic central planning rushed out to take on debt to buy these assets, thus multiplying the return on investment.

While the white-collar cubicle worker with enough extra income to diligently add to their retirement account over the past decade has done fine, bankers or hedge fund managers who took on massive leverage to amplify such bets made generational fortunes while creating nothing of value. It’s the way debt works for the financial services sector versus how it works for the average person in a world dominated by big finance and the central bankers who provide them unlimited welfare.

The same thing occurs within the corporate suite, as executives across industries have used access to extremely cheap debt to buyback stock and reward themselves handsomely despite creating nothing of societal value while doing so. It’s pure financial engineering. Nobody should become generationally wealthy this way, but it’s exactly what’s been happening. So you see, debt’s not just a means to subjugate a desperate bottom half of the population, it’s concurrently an effective tool to expand wealth and power at the top. 

Then there’s this.

When was the last time the bond market paid you to make an acquisition? As Max Keiser so eloquently puts it, this is interest rate apartheid.

But it’s even more pernicious than that. It’s still possible for regular wealthy people to take on too much leverage, make a mistake, and lose their fortunes — unless of course you’re an executive at major financial services firm. In that case you simply can’t lose, which was the primary lesson learned from the response to the financial crisis.

Not only were the titans of this industry not jailed, they walked away with their fortunes intact. The Federal Reserve and the U.S. government made this happen. It wasn’t an accident and it wasn’t to “save the economy;” that’s just nonsense talk for the confused masses. The entire point was to consolidate and further entrench the unaccountable power of those at the very top of the finance feudalism paradigm and signal they’ll also be bailed out for any future catastrophe they create.

Significantly, financial feudalism isn’t just interclass, it’s also intergenerational. The stock market and real estate crash of a decade ago was the market’s attempt to reset those assets more in line with median incomes, but central banks would have none of that. They determined asset prices needed to be re-inflated as much as possible as fast as possible, and these unelected banker stooges went about implementing this major policy decision of central economic planning with zero public debate. Young people entering the workforce had no savings and poor wage growth, so a generation was quickly priced out of homeownership while simultaneously stuck with an enormous pile of student debt. The results of all this are unsurprising.

The crisis facing this country is simmering and metastasizing under the surface of misleading aggregate economic data and record stock markets. While it’s tempting to focus on the symptoms, we’ll never confront and tackle any of this properly unless we understand the structure and how the game is really played. The system you’re living in isn’t capitalism or socialism, it’s financial feudalism. 

The Corporate Debt Bubble Is A Train Wreck In Slow Motion

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By Brandon Smith

Source: Alt-Market.com

There are two subjects that the mainstream media seems specifically determined to avoid discussing these days when it comes to the economy – the first is the problem of falling global demand for goods and services; they absolutely refuse to acknowledge the fact that demand is going stagnant and will conjure all kinds of rationalizations to distract from the issue. The other subject is the debt bubble, the corporate debt bubble in particular.

These two factors alone guarantee a massive shock to the global economy and the US economy are built into the system, but I believe corporate debt is the key pillar of the false economy.  It has been utilized time and time again to keep the Everything Bubble from completely deflating, however, the fundamentals are starting to catch up to the fantasy.

For example, in terms of stock markets, which are now meaningless as an indicator of the health of the real economy, corporate stock buybacks have been the single most vital mechanism for inflation. Corporations buy their own stocks, often using cash borrowed from each other and from the Federal Reserve, in order to reduce the number of shares on the market and artificially boost the value of the remaining shares. This process is essentially legal manipulation of equities, and to be sure, it has been effective so far at keeping markets elevated.

The problem is that these same corporations are taking on more and more debt through interest payments in order to maintain the facade. Over the period of a decade, corporate debt has skyrocketed back to levels not seen since 2007, just before the credit crisis. The official corporate debt load now stands at over $10 trillion, and that’s not even counting derivatives exposure.  According to the Bank for International Settlements, the amount of derivatives still held by corporations stands at around $544 trillion in notional value (theoretical value), while the current market value is only around $10 trillion.  This is a massive discrepancy that can only lead to disaster.

In terms of debt-to-GDP, the credit cycle peak has spiked beyond any other peak in the past 40 years. This amount of borrowing always has consequences. Even if central banks were to intervene on a level similar to TARP, which saturated markets with $16 trillion in liquidity, the amount of cash needed is so immense and the economic returns so muted that such measures are ultimately a waste of time. The Federal Reserve fueled this bubble, and now there is no stopping it’s demise. Though, they’re behavior and minimal response to the problem suggests that they have no intention of stopping it anyway.

Currently, stock buybacks are set to decline this year, and I don’t think this is because corporations have decided they want to quit the tactic. They have to quit, because the amount of debt they are accumulating is is now outpacing their falling profits. Corporate profits peaked in the 3rd Quarter of 2018 and have been in decline ever since.  The Price-to-Earnings ratio as well as the Price-to-Sales ratio are now well above their historic peak during the dot-com bubble, meaning, stocks have never been more overvalued compared to the profits that corporations are actually bringing in.

As I warned back in 2018, Trump’s tax cuts were a gift to corporations, not average people, and that gift was designed to be squandered as there was no doubt that companies would pour all extra cash into stock buybacks instead of innovation and new jobs. This is exactly what happened.

While corporations, the Fed and Trump have been putting some effort into keeping stock markets from imploding, the real economy has been evaporating. Global import/exports are crashing, US manufacturing is in recession territory, US GDP is in decline (even according to rigged official numbers), US retail outlets are closing by the thousands, the poverty rate jumped in 30% of US counties in the past year, and high paying jobs are disappearing and being replaced with minimum wage service sector jobs.

To be sure, this process did not start under Trump, it’s been a slow motion train wreck for over a decade. But, it’s important to point out that Trump has done nothing to mitigate the crash and his obsession with the fraudulent stock market shows that he has no plans to try. The amount of time the tax cuts and debt increase bought was a couple of years. That’s it. With buybacks in decline, the question is what will keep the bubble afloat now? The Fed? That’s doubtful…

Global corporations with the most VISIBLE debt include:

AT&T with $180 billion

SoftBank with $154 billion

Apple with $136 billion

Verizon with $114 billion

Comcast with $112 billion

AbInbev with $110 billion

General Electric with $115 billion

Shell with $77 billion

Microsoft with $67 billion

Some companies, like Apple and Warren Buffet’s Berkshire Hathaway are holding extensive cash reserves, but most do not. Also, the level of cash reserves held by certain top corporations suggests they know something is on the horizon. Why hold piles of cash when the stock market is a “sure thing”? Unless, the debt bubble is about to collapse and cash will be needed to absorb the damage?

Stock buybacks, I believe, are the litmus test for how long the corporate world can hold out against the weight of the debt bubble. 2020 appears to be the year in which buybacks are set to crumble. Corporate profits degraded over 2019 and the slide is set to continue this year. This means profits are not going to come to the rescue and stave off the explosion of the debt structure (once again, the problems of demand and debt intertwine). All that is left is the Fed, as the “buyer of last resort” becomes the buyer of only import.

The list above, of course, does not include financial companies like JP Morgan and other banks that are suspected of harboring an extensive debt load and borrowing cash frantically through the Fed’s overnight repo markets.

These loans are now coming due, and the Fed has indicated it plans to tighten liquidity once again next month while returning to balance sheet cuts. Interest rates remain well above zero, which means the more companies borrow through repo markets, the more interest they will accrue. The Fed will have to institute a full QE program on the level of the TARP bailouts and cut interest rates to zero in order to end the constant repo liquidity threat and kick the can for a couple more years, and they’ve given no indication that they plan to do this in time to stop the current crash.

For now, Fed repo intervention has achieved little except keeping stocks at all-time highs. The rest of the economy is in disarray.

The real economy will start to drag down the establishment’s favorite distraction – The Dow, as this process continues. The big question is always one of timing. How long can the delusional euphoria keep the system levitated?

The situation is one of complacency and condition. If people are suddenly confronted with an enormous forest fire surrounding their city, they will ask “What can we do to save ourselves?” But what if people are surrounded by a forest fire for ten years and it hasn’t quite reached them yet? You warn them that the winds have finally changed and it is about to expand and take their homes and they will say “What forest fire?”

It’s hard to imagine a scenario in which there are no major shocks to the financial structure for the rest of the year. With the corporate system tapped out and no longer able to act as a support for the bubble, the fundamentals will start to take over again. Geopolitical events will also have a more visible effect. A whole year without escalation with Iran?  Without escalation with North Korea? Without a pandemic threat like the coronavirus going global? Without threats of a liquidity crisis as banks starve for more and more repo loans? I think not…

It’s important not to let complacency interfere with vigilance.  A slow motion train wreck is still ultimately a train wreck.  The damage can only be mitigated by removing one’s self from the train, and preparing for the fallout.  Do not think that simply because the system has been able to drag its nearly lifeless body along for ten years that this means all is well.  All bubbles collapse, and corporate debt has already sealed the fate of the Everything Bubble.

The Final Act

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By Dmitry Orlov

Source: Club Orlov

In processing the flow of information about the goings on in the US, it is impossible to get rid of a most unsettling sense of unreality—of a population trapped in a dark cave filled with little glowing screens, all displaying different images yet all broadcasting essentially the same message. That message is that everything is fine, same as ever, and can go on and on. But whatever it is that’s going on can’t go on forever, and therefore it won’t. More specifically, a certain coal mine canary has recently died, and I want to tell you about it.

It’s easy to see why that particular message is stuck on replay even as the situation changes irrevocably. As of 2019, 90% of the media in the United States is controlled by four media conglomerates: Comcast (via NBCUniversal), Disney, ViacomCBS (controlled by National Amusements), and AT&T (via WarnerMedia). Together they have formed a corporate media monoculture designed to most effectively maximize shareholder value.

As I wrote in Reinventing Collapse in 2008, “…In a consumer society, anything that puts people off their shopping is dangerously disruptive, and all consumers sense this. Any expression of the truth about our lack of prospects for continued existence as a highly developed, prosperous industrial society is disruptive to the consumerist collective unconscious. There is a herd instinct to reject it, and therefore it fails, not through any overt action, but by failing to turn a profit because it is unpopular.”

Two years earlier, in a slideshow optimistically titled “Closing the Collapse Gap” (between the USSR and the USA), I wrote: “…It seems that there is a fair chance that the US economy will collapse sometime within the foreseeable future. It also would seem that we won’t be particularly well-prepared for it. As things stand, the US economy is poised to perform something like a disappearing act.” And now, 12 years later, I believe I am finally watching what amounts to preparations for that act’s final rehearsal; the ballet troupe is doing stretching exercises and the fat lady is singing arpeggios to warm up…

Clearly, this final act is yet to be performed. The media replay loop continues to play, keeping the populace convinced that the future will resemble the past (except, perhaps, it will have more wind generators, solar panels and electric cars). The populace continues to be persuaded to go out and shop for (or, more frequently now, order online) things it doesn’t need, to be paid for by money it doesn’t have.

Of course, there have been changes. The populace in the US has been doing progressively worse. Drug addiction and suicide rates have skyrocketed while rates of childbirth have plummeted. The purchase of a home is now out of reach for the vast majority of young couples. Artificially rosy unemployment statistics hide the 100 million or so people who are considered “not in labor force” (because they lost their jobs some time ago and haven’t been able to find another one). Uniquely among developed nations, life expectancy among white males—historically the most economically active and prosperous part of the population—has been dropping. These are all negatives, but neither any one of them nor any combination of them adds up to anything that could cause the US economy to undergo a spontaneous existence failure.

Nevertheless, it is possible to build a convincing case that Rome is, to put it figuratively, burning. To continue with the metaphor, evidence that there is some fiddling going on is particularly compelling. Overall, there is a steady backing away from addressing the substance of any problem and a concerted effort to maintain appearances at all cost.

Take the trade war with China, which has been going on since early 2018. Trump has recently declared a major victory in it, but upon examination signs of victory are impossible to discern. In 2017 the US ran a $750 billion trade deficit with China on $3.3 trillion of trade (22.7%). In 2018 it has jumped to $930 billion on $3.8 trillion of trade (24.4%). China has found ways to parry each of Trump’s thrusts by imposing countertariffs. After two years of this sort of World War I-style trench warfare, in which the US has been slowly losing ground, it became clear that the US doesn’t have any means to put pressure on China.

And so Trump suddenly declares victory; not a full victory (that will have to wait until after Trump is reelected for his second term) but a victory nonetheless, because the Chinese have supposedly agreed to buy an extra $200 billion worth of US exports, $50 billion of them of agricultural exports from states that voted for Trump in 2016. But Trump is lying to his supporters. Over the past two years the Chinese have imported roughly $24 billion of agricultural commodities from the US, and sources close to the trade talks have said that the Chinese have agreed to increase these imports by just $16 billion, putting the total $10 billion short of the $50 billion mark. Even then, the US agricultural sector would have to rapidly scale up production by a factor of 1.6—and this is not at all likely.

The farmers will discover this only after they vote to reelect Trump, but that’s not Trump’s problem. Nor was it Trump’s problem when in 2017 the Chinese promised to buy $120 billion of US liquefied natural gas exports and then the US wasn’t able to provide anywhere near that volume. And now that Russia’s Power of Siberia pipeline is operational and ramping up volumes, while US fracking companies are going bankrupt left and right, the question has become largely moot. The AG promise is just a replay of the LNG promise at a smaller scale. Appearances are all that matter, and appearances are what Trump delivers every time. And if his voters want to believe—who’s to stop them? Even though it is clearly heading toward a defeat for the US as a whole, the trade war with China is definitely a huge positive for Trump: all he has to do to win personally is periodically deliver promises that others won’t keep—but that’s not his problem.

Another net benefit for Trump is the never-ending impeachment saga. It has kept him in the media limelight and has allowed him to pretend that he is prevailing heroically against great odds while making his opposition look ridiculous in the eyes of his supporters. After the “Russian meddling” fable unraveled, an even more preposterous rationale for impeachment has taken its place. An attempt to impeach Trump for refusing to cooperate with a congressional investigation is in the process of failing, since anyone with more intelligence than a bucket of California penis fish should know that it is up to the courts, not up to the legislature, to resolve disputes between the legislature and the executive. All that remains now is an alleged abuse of power by Trump. Apparently, it is a no-no for a US president to ask a foreign leader to investigate a US presidential candidate for a variety of crimes such as corruption, bribery and money-laundering. This may all seem quite ridiculous, but it serves a purpose: it allows Trump to clean up on free publicity and to continue fiddling (tweeting, in his case) as Rome burns.

But what has set fire under Rome is not the decrepitating state of US society, or the permanent and permanently worsening trade imbalance with China, or the never-ending impeachment farce. It is the incipient failure of the US dollar. For those who have been paying careful attention, the surreal nature of the proceedings, and the fact that results no longer matter—only appearances do—have become perfectly obvious, but they are a tiny minority. What has allowed the politicians and the media to exploit the general public’s innate normalcy bias and to keep the media replay loop going without too many people catching on to what’s really happening was (note the past tense!) the ability of the US government (with the assistance of the Federal Reserve, which is a government-linked but essentially private entity) to paper over the gaping chasm in the nation’s finances by issuing debt, in the form of US Treasury paper.

The US Treasury has been able to exploit its “exorbitant privilege” to issue internationally recognized and traded debt instruments denominated in its own currency—the US dollar—which has been the world’s main reserve currency for many decades. The reserve currency status has conveyed a certain aura of security and reliability (paper money is, after all, pretty much just a confidence game) and has supported the world’s largest and most liquid financial market. Anybody anywhere could put up US Treasury paper as collateral for a loan and get a low interest rate because that paper was considered as good as “real money” (whatever that means). And then that scheme suddenly broke.

It is difficult to say what caused the confidence game to fail. It could be just the inexorable and ever-accelerating increase in US government debt. It could be the blatant decoupling between the growth rate of the US economy and the rate of increase of its indebtedness. It could also be the fact that much of the world is making a concerted effort to walk away from the US dollar as a reserve currency and as a means of exchange in international trade (Russia has sold off almost all of its US debt; China’s hoard is much larger but it is also gradually selling it off). It is unclear what was the ultimate cause, but what is clear is that in August of 2019 something finally snapped, and USTs went from “good as real money” to “stuff nobody wants to hold.”

I first wrote about this in September when it became clear that real trouble was brewing in the market for US debt. Now, three months later, the situation has gone from bad to worse, and it would appear that the market for USTs definitively broke. I will try to sketch out what that means for the US economy and society later on (spoiler alert: nothing good) but for now I just want to lay out some of what has happened. In the meantime please take your normalcy bias and put it some place safe (in case you need it later, although I have no idea what for).

Previously, when it was clear that an overburden of bad debt could trigger financial collapse at any moment, the Federal Reserve (which is in charge of printing money) engaged in something it euphemistically called “quantitative easing” (“QE”). It printed lots of US dollars in exchange for various bits of USTs, along with other financial garbage, with the goal of later selling the USTs while hiding the garbage, thereby preserving the appearance that USTs are sovereign debt supported by the full faith and credit of the US government rather than just some waste paper clogging up its vaults. But when it declared “quantitative easing” to be over and tried selling the USTs, all hell immediately broke loose and it was forced to go right back to buying them up, in a scheme that has been sarcastically referred to as “not QE.” Euphemisms aside, what is happening is properly called “debt monetization”: it’s when a government “borrows” money not by selling its debt in exchange for money that already exists but simply printing the money using paper and ink, or magic digits inside a very secure computer.

Let’s go over some of the relevant details. “Not QE” actually started well before it was announced and proceeded in stealth mode. Over six weeks starting in September 2019, the Fed monetized an average of $20.5 billion per week. This rate is compatible with the extent of its previous efforts at “quantitative easing” at their height. It was forced to do so because the REPO rate on USTs spiked to 10 times the rate set by the Fed. (REPO stands for “repurchase agreement”; it is where one party borrows short-term from another party, using USTs (and other supposedly very safe debt instruments) as collateral, much as a pawn shop will give you money for a watch and then allow you to buy it back.) The huge spike in interest rates signaled that USTs were no longer seen as particularly safe collateral and the Fed had to step in and start throwing freshly minted dollars at the problem. And it never stopped. In fact, the problem grew larger; so large, that now, at the year’s end, the Fed has committed $500 billion of printing press output to making sure that nobody runs out of cash.

It is commonly thought that the Fed’s action has to do with short-term debt, and is therefore a short-term problem, but that’s simply not the case. Since early August (the start of stealth-mode “not QE”) the Fed has vacuumed up $179 billion with of USTs, of which USTs with terms longer than a year made up $108 billion, or 60%. Compare these numbers to the total borrowing by the US government over the same period, which amounted to $659 billion, of which $368 billion was short-term debt and $291 billion long-term. Thus, over this period the Fed has monetized 29.4% of new long-term debt and 24.4% of short-term debt. This should help put your mind at ease if you suspected that this isn’t a short-term problem but weren’t sure. It’s a long-term, structural problem.

Next, let’s consider whether the problem is being solved or is getting worse. Rest assured, it is getting worse. Looking at the numbers for October and November, the Fed monetized over half (50.7%) of new US government debt. A straight-line projection is that if it took the Fed to go from 0% to 50% in four months, then it will go from 50% to 100% in another four—by April Fool’s 2020. But who’s to say that the increase will be linear rather than exponential? Whichever it is, the trend is unmistakable: the market in US government debt—once the deepest and most liquid market in the world—is dead. The only thing propping up the value of USTs is the Fed’s printing press. And the only thing propping up the value of the output of the Fed’s printing press is… what is it, exactly? Exactly!

Let’s add one more salient detail. Over the course of 2020, $4.665 trillion of USTs will mature and will need to be rolled over into new USTs. This is an all-time record, and this is on top of new debt that will have to be issued in order for the US government to be able to stay open. Over the past year the US budget deficit has amounted to $1.022 trillion, which is a 15.8% increase over the previous year. If this trend continues, the new deficit will be around $1.183 trillion. In order to keep the wheels of finance from grinding to a halt, over 2020 the Fed will have to monetize, or print, close to $6 trillion.

It appears likely that at some point over the coming months Fed chairman Jerome Powell will have to announce “not not QE,” and then “not not not QE,” and then “Milk-milk-lemonade, ’round the corner fudge is made!” and run for the unigender restroom sobbing inconsolably. And then Donald Trump will be forced to channel Boris Yeltsin, who, on August 14, 1998, summoned all the presidential gravitas he could muster and spoke the following sage words:

«Девальвации рубля не будет. Это твердо и четко. Мое утверждение — не просто моя фантазия, и не потому, что я не хотел бы девальвации. Мое утверждение базируется на том, что все просчитано. Работа по отслеживанию положения проводится каждые сутки. Положение полностью контролируется».

“There will be no ruble devaluation. This is my firm and clear position. My assertion is not just a product of my fantasy, and not because I don’t want devaluation to happen. My assertion is based on the fact that everything is taken into account. The work on reassessing the situation is being conducted daily. The situation is entirely under control.” (My translation.)

And then three days later the Russian government declared sovereign default. The ruble dropped by 2/3 against the US dollar and the Russian economy, which was at that time extremely import-dependent, crashed hard. In a similar scenario, the US economy will crash much harder. Like Russia in 1998, the US is extremely import-dependent. But here the US government is not the only large borrower: most of US corporations are zombified corpses bloated with debt. For many years they have been borrowing at artificially low interest rates in order to buy up their own shares and prop up their value in a ridiculous effort to maximize shareholder value in the face of stalling economic growth. If they become unable to roll over their debt at artificially low interest rates (which will go away once the Fed definitively loses control of the situation) then they will automatically be forced to declare bankruptcy and liquidate.

If you want to maintain an optimistic outlook in spite of all of this, here is a book you might want to read.

Neoliberal Economics Destroyed the Economy and the Middle Class

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By Paul Craig Roberts

Source: PaulCraigRoberts.com

According to official US government economic data, the US economy has been growing for 10.5 years since June of 2009. The reason that the US government can produce this false conclusion is that costs that are subtrahends from GDP are not included in the measure. Instead, many costs are counted not as subtractions from growth but as additions to growth. For example, the penalty interest on a person’s credit card balance that results when a person falls behind his payments is counted as an increase in “financial services” and as an increase in Gross Domestic Product. The economic world is stood on its head.

It is aggregate demand that drives the economy. Payments made on a rise in interest rates on credit card balances from 19% to a 29% penalty rate reduce consumers’ ability to contribute to aggregate demand by purchasing goods and the services of doctors, lawyers, plumbers, electricians, and carpenters. Contrary to logic, the fee is magically counted in the “financial services” category as a contributor to GDP growth. The extortion of a fee that reduces aggregate demand lowers GDP, but builds paper wealth in the financial services sector.

GDP growth is also artificially inflated by counting as GDP abstract concepts that do not produce income streams. For example, for homeowners the US Department of Commerce estimates the rental values of owner-occupied housing, that is, the amount owners would be paying if they rented instead of owned their homes, and counts this imputed rent as GDP.

These and other absurdities have caused economist Michael Hudson to conclude correctly that the “financial reality of how the U.S. economy works is no longer captured in GDP statistics.”
https://michael-hudson.com/2019/10/asset-price-inflation-and-rent-seeking/

Today we have two economies. One is the real economy of production and consumption. The other is the financialized economy of paper wealth. The former is doing poorly, and the latter is doing well. The financialized economy is growing much faster than the real economy. Indeed, the real economy might not be growing at all.

Michael Hudson describes the difference. The stock market is at all time highs that have created massive wealth in financial assets for stock and bond owners. In the real economy the situation is totally different: “The Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2018 reports that 39% of Americans do not have $400 cash available for a medical or other emergency, and that a quarter of adults skipped medical care in 2018 because they could not afford it ( https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf ). The latest estimates by the U.S. Government Accountability Office (GAO) report that nearly half (48 percent) of households headed by someone 55 and older lack any retirement savings or pension benefits ( https://www.aarp.org/retirement/retirement-savings/info-2019/no-retirement-money-saved.html ). Even in what the press calls an economic boom, most Americans feel stressed and many are chronically angry and worried. According to a 2015 survey by the American Psychological Association, financial worry is the “number one cause of stress in America today” ( https://www.apa.org/news/press/releases/2015/02/money-stress ).

The data is completely clear. The rich are becoming much richer, and the rest are becoming poorer. Michael Hudson explains:

“The creation and trading of property and financial assets at rising prices has been fueled by rising debt levels owed to the financial sector. This sector’s returns therefore are best seen not as real wealth on the asset side of the balance sheet, but as overhead on the liabilities side. And the process is multi-layered: income accruing to the financial wealth owned by the top 10 Percent is paid mainly by the bottom 90 percent in the form of rising debt service and other returns to financial and other property.

“In the textbook models of industrial capitalism’s mass production and consumption, an asset’s price is determined by its cost of production. If the price rises above this level, competitors will offer it cheaper. But in the financialized economy an asset’s price is determined by how much credit buyers can borrow to buy it, not by its cost of production. A home is worth as much as a bank will lend to a bidder.

“The engine of industrial capitalism and its consumer society is a positive feedback loop in which widely shared income growth, expanding consumption and markets generated yet more investment and growth. By contrast, the feedback loop of financial capitalism is an exponential growth of credit-driven debt, driving up asset prices and hence requiring yet more borrowing to buy homes, retirement income and other assets. Corporate management and investment today is mainly about obtaining capital gains for real estate, stocks and bonds than about earning income.

“We illustrate this by charting the flow of income and capital gains in the real estate sector to show the dominance of asset-price gains over net rental income – and how rental income is used up paying interest in our financialized economy. Likewise, corporate income is spent (and new debt taken on) largely for stock buybacks to raise share prices. The resulting dynamic is exponential and destabilizing.”

This dynamic is destabilizing, because as more of consumers’ discretionary income is drawn off to service mortgage, credit card, automobile and student debt and for compulsory health insurance, less is left to purchase the goods and services in the real economy. Consequently, credit-driven debt grows faster than the income that services it, and this impoverishes the 90%. However, for the 10%, money creation by the Federal Reserve in order to protect the balance sheets of the “banks too big to fail or jail” drives up the values of financial assets. As a result the distribution of income and wealth becomes hightly polarized.

Think about the many Americans who meet their living expenses by making only the minimum payment on their credit card balance. At 19% interest their debt grows monthly. Eventually they hit a credit card debt cap and can no longer use the card to cover their living expenses. But they have the burden of a large debt balance to service without an income stream capable of servicing it.

Think about the corporation that decapitalizes itself in order to produce short to intermediate term capital gains for shareholders and executives by indebting the firm in order to buy back the firm’s shares. The end result is that all income goes for debt service.

In a financialized economy, the only possible outcomes are debt forgiveness or collapse.

As Michael Hudson makes clear, the combination of nonsensical categories in the National Income and Product Accounts and a financialized economy means we have no accurate picture of the economy’s condition. Michael Hudson has a proposal for correcting these problems and making GDP accounting more accurate, but as ecological economists such as Herman Daly have made clear, GDP measurement also omits the external costs of production. This means that we do not know whether GDP is growing or declining. It is entirely possible that the ecological and social costs of an increase in GDP (as currently measured) are greater than the value of the increased output. (See Paul Craig Roberts, The Failure of Laissez-Faire Capitalism, https://www.amazon.com/Failure-Laissez-Faire-Capitalism/dp/0986036250/ref=sr_1_2?crid=16NHZEQ9G3JRW&keywords=paul+craig+roberts+books&qid=1576440032&s=books&sprefix=Paul+Craig%2Caps%2C173&sr=1-2 )

Perhaps the major way in which GDP is overstated is the exclusion of external or social costs. External or social costs are costs of producing a product that the producer does not incur but imposes on third parties or on the environment. For example, untreated sewage dumped into a stream imposes costs on people downstream. Runoff of chemical fertilizers from commercial farming produces dead zones in the Gulf of Mexico and toxic algal blooms such as Red Tide that result in massive fish kills, make seafood unsafe, cause human ailments and adversely impact the tourist trade of beach areas. The result is lost incomes, ruined vacations, health expenses, and none of these costs are born by the commercial farmers.

Real estate development produces massive external costs. Scenic views from existing properties are blocked, thus reducing their values. Construction noise and congestion impose costs on existing residents and reduces the quality of their lives. Water runoff problems are often created. Infrastructure has to be provided, such as larger highways to provide evacuation from hurricane-impacted areas, usually financed by taxpayers. If the global warming case is correct, the external cost of human economic activity can be the life of the planet.

Lakshmi Sarah in the May/June, 2019, issue of the Sierra Club magazine provides an excellent detailed account of the external costs of coal-fired power plants being built in India by the Indian conglomerate Tata with a loan from the International Finance Corporation, a branch of the World Bank. The ground water in the area has been ruined and is no longer drinkable. Farmers are no longer able to grow crops on half of the area farmland. Heated wastewater that is dumped into the Gulf of Kutch is destroying fishing. The ecology and the livelihoods of the population are essentially destroyed. None of these costs are born by the private power companies.

Tired of being doormats for capitalists and the World Bank, the residents of the affected provinces rebelled. They have succeeded in getting their case before the US Supreme Court. It seems that the International Finance Corporation is so accustomed to financing projects that produce large external costs that it overlooked its obligation to examine the environmental impact of the projects it finances. This oversight resulted in Indian farmers and fishermen getting their case before the US Supreme Court. The International Finance Corporation’s lawyers argued that the World Bank lending agency had “absolute immunity.” The Supreme Court said no and remanded the case to the circuit court to rule on the damages.

Perhaps the most surprising thing about this apparent victory for ordinary faraway little people in an American court against the World Bank, a principle instrument of American imperialism, is that the Trump administration appeared in court as a friend of the Indian farmers and fishermen. The US Solicitor General, represented by Jonathan Ellis, rejected the notion that international orgnizations have absolute immunity. The Establishment exists on its immunity. Here we see the ultimate reason that the ruling Establishment wants rid of Trump.

Already the senior staff of the International Finance Corporation have come to the realization that they have other responsibilities than just to shuffle money out the lending shute. If the Indian farmers and fishermen succeed in protecting themselves from ruination by external costs, perhaps Americans who suffer external costs will follow their lead.

Perhaps economists will also come to the realization that they owe us accurate GDP accounting and not fanciful accounts that serve elite wealth in the financialized economy.