Tag Archives: financial crisis

Where the $1.3 Trillion Per Year U.S. Military Budget Goes

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By Eric Zuesse

Source: The Duran

Nobody can give a precise dollar-number to U.S. ‘Defense’ spending because the U.S. ‘Defense’ Department has never been able to pass an audit, and is by far the most corrupt of all federal Departments (and is the ONLY Department that has never passed an audit), and also because much of America’s military spending is being paid out from other federal Departments in order to keep down the published annual U.S. Government ‘Defense’ expenditure numbers (which come from ONLY the “U.S. ‘Defense’ Department). Those are expenditures for America’s privatized and overwhelmingly profit-driven Military-Industrial Complex. (By contrast: Russia and China require, by law, that their armaments-firms be majority-owned by the Government itself.)

According to the best available estimates, the U.S. Government has been spending, in total, for over a decade now, around $1.3T to $1.5T annually on ‘defense’, and this is around half of all military spending worldwide by all 200-or-so nations, and is more than half (around 53%) of all of the U.S. federal Government’s ‘discretionary’ (or congressionally voted for) annual expenditures.

Unlike regular manufacturers, which sell entirely or mainly to consumers and to businesses, not to their Government, armament-firms need to control their Government in order to control their markets (which are their Government and its ‘allied’ Governments — including NATO), and so they (in purely capitalist countries such as the U.S.) do control their Government. This is why the armaments-business (except in countries whose armaments-sector is socialized) is infamously corrupt. In order to hide the extent of that corruption (and to promote ever-higher military spending), the ‘news’-media need — in those countries — to be likewise effectively controlled by the investors in those firms.

Consequently, America, which has no national-security threat from any country (so, these astronomical ‘defense’-expenditures are blatantly inappropriate), spends annually around half of all of the money that the entire world spends on the military. And most of that money gets paid to its armaments-firms. Or, as Stephen Semler, an expert on these matters, put it regarding last year’s numbers, “How much of the $858 billion authorized by the FY2023 NDAA will be transferred to military contractors? I estimate $452 billion.” That is 52% of the 53% of the federal Government’s discretionary spending that is being allocated to ‘Defense’. Thus, 26% of the money that Congress authorizes the U.S. federal Government to pay each year, goes to military contractors. Thus: if $452B is going to armaments-firms, and if $1.356T is going to ‘defense’ (both of which are reasonable estimates), then one-third of ‘defense’ spending goes to armaments-firms, and that is around 17% of the money that the U.S. Government pays each year for everything (including non-discretionary).

If this had not been happening each year after the end of the Soviet Union in 1991, then the current U.S. federal debt would be far less, if any at all — but, in any case, that expense (which went, and is going, to exceptionally rich individuals) will be paid by future generations of Americans, by means of both increased taxes and reduced services from the U.S. Government. What pays for bombs (and funds the purchase of yachts) today will be taken from everyone’s infants tomorrow. And it is taking millions of lives in the targeted lands, and has been doing so for decades now. A psychopathic U.S. Government is producing these results.

America’s ‘Defense’ Department is so corrupt that when I happened recently to be re-reading my 14 January 2020 article about its corruptness, “US Military Spending: TRILLIONS of Dollars Unaccounted For”, yet a new detail of this corruptness, which I had not previously noticed, struck me. It happened in this passage:

——

Mick West, who blogs as metabunk, is a propagandist for the “Establishment” or the billionaires’ preferences of what the public should believe; and, on 16 May 2018, he headlined “Debunked: Missing $21 Trillion / $6.5 Trillion / $2.3 Trillion – Journal Vouchers”.

He presented a representative of America’s Military-Industrial Complex (MIC) asserting, to US House members, that “this is not a new story, it dates back to 2001 and before,”.

And, West noted:

“All these things are accounting things that, as Norquist says ‘occur after the money is spent’. They are things that you want to get right in your accounting, but if you get the values wrong then it does not mean you’ve lost the money. It means you’ve got some estimate wrong, and you’ll put to little or to much [West meant “too much or too little”] in one fund or another.”

Referring, then, to the $21 trillion, he wrote:

“This is just more of the same though, still not missing money, still just unsupported accounting information transfers.”

However, only a sucker would take that casual attitude to the enormous amount of money in the ‘defense’ budget that is “unsupported” as to who received it, and whether or not those payments were in accord with what Congress had actually authorized.

Furthermore, such a casual attitude toward US ‘defense’-expenditures — the expenditures which constitute actually over half of the US federal Government’s discretionary expenditures, and even around half of the total world’s military expenditures — is an invitation to corruption in over half of this Government’s annually authorized spending; and any intelligent person would expect that such an invitation would be taken advantage of by insiders who are in a position to benefit from it.

West quotes from only one alleged authority, the “Defense Department Comptroller, David L. Norquist,” a person who is largely responsible for the problem, who said “it’s an accounting problem that does need to be solved because it can help hide other underlying issues,” but (at 1:43 in the accompanying video) “it’s not the same thing as not being able to account for money that Congress has given you to spend, but it’s still a problem that needs to be fixed.”

Mick West simply trusted this statement, by Norquist — though Norquist is one of the officials responsible for the problem — but Norquist failed to prove (and wasn’t even asked to prove) it, by the Representatives whom he was there addressing, who didn’t seem to be alarmed about where that $21T actually went) his key assertion, that “it’s not the same thing as not being able to account for money that Congress has given you to spend.”

Even if that assertion is true (which should not be assumed, and which even seems ludicrous on its very face), the problem is unquestionably an invitation to corruption in ‘defense’-expenditures, and those are precisely the type of federal expenditures that overwhelmingly dominate the income to the federal Government’s contractors, the corporations that make all or most of their profits from sales to the federal Government and to its allied governments (such as to the Saud family).

Therefore, casually allowing — and not even investigating as being possibly treasonous — these expenditures, is, itself, enormously scandalous, but the Representatives there were treating it so casually.

In fact, at the very opening of the hearing, which was held on 10 January 2018 (at 02:12 in the video of the 1:41:33-long hearing, above) the Chairman of the Committee emphasized the “We must spend more” on the military, even though we already spend around half of the entire world’s military expenditures. Manifestly, this hearing was a charade.

In the full video, the passage that Mick West quoted from is at 18:00-22:00, and the Representatives were clearly on the side of the charade, not on the side of the American people. Clearly, all members of that Committee, the House Armed Services Committee, behave as if they are in the pockets of firms such as Lockheed Martin.

On 15 November 2018, Reuters headlined “Pentagon fails its first-ever audit, official says”, and reported that: “‘We failed the audit, but we never expected to pass it,’ Deputy Secretary of Defense Patrick Shanahan told reporters.”

On 27 November 2018, The Nation headlined “Exclusive: The Pentagon’s Massive Accounting Fraud Exposed” and David Lindorff opened:

“On November 15, Ernst & Young and other private firms that were hired to audit the Pentagon announced that they could not complete the job. Congress had ordered an independent audit of the Department of Defense, the government’s largest discretionary cost center — the Pentagon receives 54 cents out of every dollar in federal appropriations — after the Pentagon failed for decades to audit itself. The firms concluded, however, that the DoD’s financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible.”

So, that was the result of the latest version of this charade, which is virtual treason by the Federal Government.

In short: Congress is satisfied for this situation to continue, and the members of Congress evidently have no fear that the voters back home will vote against them if a challenger makes this issue a major issue in that Senator’s or Representative’s next Party primary.

The presumption is that the voters don’t care, and that the ‘news’-media won’t enlighten the voters about this matter, and about how it impacts, for example, which nations the US will categorize as being an “ally,” to sell weapons to, and which nations it will categorize as being an “enemy,” to target for conquest.

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So, what now struck me now was the name there, “David Norquist.” Maybe you remember the famous libertarian phrase about spending by the U.S. federal Government, that the libertarian goal is to “shrink it down to the size where we can drown it in the bathtub.” Here is one of the many articles that were published about that:

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https://www.ussc.edu.au/analysis/grover-norquists-no-tax-call-a-wedge-for-republicans

10 December 2012

GROVER NORQUIST’S NO-TAX CALL A WEDGE FOR REPUBLICANS


  • By     Dr Nicole Hemmer, Honorary Associate, United States Studies Centre

“Who the hell is Grover Norquist, anyway?”

The question came from former US president George HW Bush this northern summer, but in the past few weeks many Americans have been asking the same thing.

Norquist, an anti-tax activist, now dominates discussion of the fiscal cliff. His “no-new-taxes” pledge has been signed by nearly every Republican in congress. The problem? To avoid going off that fiscal cliff, congress must make a “grand bargain” by January 1. If it doesn’t include tax rate increases, President Barack Obama won’t sign it into law.

Republicans are in a bind. They could agree to tax-rate increases on Americans making more than $US250,000 a year in return for cuts to programs such as Medicare. That, however, would mean breaking Norquist’s pledge. And Norquist has made it clear that any Republican who does so will face a primary challenge in the next election.

So, to echo Bush: “Who the hell is Grover Norquist, anyway?”

Norquist runs Americans for Tax Reform, an anti-tax organisation he founded in 1986.

His opposition to taxation is an expression of his deep disdain for government. “I don’t want to abolish government,” he famously quipped. “I just want to shrink it down to the size where we can drown it in the bathtub.”

This “starve the beast” mentality has long been a conservative strategy for reducing the size of government. A strict diet of diminishing revenues, anti-tax advocates argue, will naturally lead to a smaller federal state.

——

As it turns out, David Norquist and Grover Norquist are brothers. So: while David Norquist makes money by fronting for the billionaires who control firms such as Lockheed Martin Corporation, Grover Norquist makes money by fronting for the billionaires who control firms such as Lockheed Martin Corporation. David does it by rationalizing away those peoples’ corruptness as being a concern for U.S. taxpayers; and Grover does it by leading the Republican argument against the Government’s non-‘defense’ spending. (While Republicans want to reduce non-‘defense’-spending, they want to increase ‘defense’-spending. Democrats want to increase all federal spending, but ESPECIALLY for ‘defense’.)

The standard libertarian claim that “shrinking the government” is at all an issue or what motivates their wealthiest donors whom they are actually fronting for, is a lie. The only real issue that is involved here is: Who is, and who isn’t, getting the Government’s money.

All of federal politicians’ talk about the need to eliminate “waste, fraud and abuse” is also lies, because they themselves — those federal office-holders — got there and stay there by participating in it. If they’re not corrupt, they’re not in office, because this system is built upon corruption.

Whereas Republican billionaires demand that all federal expenditures except for ‘defense’ get slashed, Democratic billionaires demand that all federal expenditures get slashed but that ‘defense’ spending must never be reduced. So: what’s the real difference (except for the hypocritical rhetoric on the Democratic or “liberal” side)? The billionaires who control those arms-contracting companies control also which contenders for federal offices will become elected.

And here is how one of the billionaires’ ‘news’-media (in this case, the “Fact Check” columnist at the New York Times), on 3 December 2018, cited uncritically David Norquist’s fraudulent argument that nothing more was involved here than an accounting-problem — as-if those congressional and ‘Defense’ Department officials were upholding their obligations to THEIR “stockholders,” who are all U.S. citizens — by continuing to tolerate unauditable financial books at the largest federal Department: “The Misleading Claim That $21 Trillion in Misspent Pentagon Funds Could Pay for ‘Medicare for All’: Representative-elect Alexandria Ocasio-Cortez, the rising liberal star, cited a figure that refers to nearly two decades of internal financial adjustments, not actual spending.” And even the grandstanding ‘progressives’ in Congress did not take to task that lying ‘news’-medium for attacking them on a mere sub-allegation to the real issue here, which was the enormous corruptness that inevitably stands behind all of this.

The only way for an authentic progressive political candidate to deal with this is to declare publicly (and to document it by means of linked-to-evidence news-reports online, like the present one) that ‘our’ Government and media are controlled by the organized mega-crooks, who are this nation’s wealthiest individuals — the only group of individuals who benefit from it — who are this nation’s actual enemies: its corrupters. But, of course, no billionaire will fund such a campaign, and any news-medium that reports on it (except by lying against it) will likewise get no investors.

That is how bad that the situation really is. People need to be discussing this, in public, here and elsewhere. Because that is the problem. It is the problem that needs to be fixed. But how can it be done? And THAT is the question.

PS: Preliminary reports suggest that on account of this Government’s dual World War III against both Russia and China, the ‘Defense’ budget for next year will probably soar perhaps more than by 10%. The Congress now is well over 95% neoconservatives, in both houses. They’ve virtually all been bought.

Here’s How We’ll Have Labor Shortages and High Unemployment at the Same Time

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By Charles Hugh Smith

Source: Of Two Minds

This is how we’ll end up with severe shortages of truly skilled labor and high unemployment of those who lack the necessary skills.

The labor force and the job market are referred to as if they were monolithic structures. But they’re not monolithic, they are complex aggregates of very different cohorts of age, skills, mobility, education, experience, opportunity, potential and motivation.

As a result, numbers such as the unemployment rate tell us very little about the labor force and the job market in terms of what matters going forward. So what does matter going forward?

1. Demographics–the aging and retirement of key sectors of the work force.

2. Skills and experience that will be increasingly scarce due to mismatched demand for skills that are diminishing as older workers retire.

3. What skills and experience will be demanded by re-industrialization, reshoring and expanding the electrification of the economy.

Consider these two charts of the US work force by age. (Courtesy of CH @econimica) In the first chart, Total US Employees, note that the prime working age work force (ages 25-54) has been flatlined for the past 20 years at 101-102 million. In contrast, the 55-and-older cohort of employees soared from 17 million to 37 million. This increase of 20 million accounts for virtually all growth in the employed work force.

A funny thing happens as workers get old; they retire and leave the work force. Their skills and experience are no longer available to employers or the nation’s economy. The second chart shows the aging of the American populace, as the 55+ cohort increased from 57 million to 99 million since 2000, as the number of older employees skyrocketed from 17 million to 37 million.

While the total US population increased by 18% from 281 million in 2000 to 331 million today, the 55+ cohort increased 74% (from 57 million to 99 million).

The key takeaway here is the number of experienced workers who will retire in the next decade will track the explosive growth in the 55+ cohort. The general consensus is this will not be a problem because there are plenty of younger workers available to fill the vacated slots.

But this overlooks the qualitative and quantitative differences in the millions leaving the work force and those joining the work force. This is especially consequential in real-world jobs, i.e. all those jobs that require engaging real-world materials rather than staring at screens.

Though few analysts and commentators will admit to it, the implicit assumption is that the jobs that matter all involve staring at screens–processing data, finance, entertainment and shaping narrative make the world go round. All the real-world stuff (boring!) will magically get done by tax donkeys who are out of sight, out of mind.

This mindset has it backwards: it’s the real-world work of changing the industrial / energy / energy distribution foundation of the economy that matters going forward, not the staring-at-screens jobs.

What few seem to realize is the work force that’s aging and retiring is the cohort with the real-world skills. It’s a nice idea to remake the entire electrical grid of the nation to transport much larger quantities of electrical power, but who’s going to do all that work? Young people whose career goals are becoming YouTube influencers or day-traders? No. All the ChatAI bots in the world aren’t going to get the real work done, either.

In other words, there is a massive mismatch between the skills available to hire in the young-worker cohort and the skills and experience needed to rebuild the material, real-world foundations of the US economy. It’s well-known but apparently not worth worrying about that the average age of the US farmer is pushing 60 years of age. Nobody left to grow all our food? Hey, isn’t there a ChatAI bot to do all that for us? It can all be automated, right? No? Well, why not? Somebody out there, get it done! Food in super-abundance should be delivered to everyone staring at screens 24/7, it’s our birthright.

The average age of skilled tradespeople is also skewed to the aging work force. There is no easy way to quantify real-world skills gained by on-the-job experience. I suspect it follows a power-law distribution: the newly minted worker just out of school / apprenticeship can handle basic functions, but when tough problems arise, the number of workers with the requisite experience to diagnose and fix the problem diminishes rapidly.

This distribution presents an enormous problem for the economy and employers. Once the super-experienced workers who can solve any problem leave, they cannot be replaced by inexperienced workers. So when the really big problems arise, the systems will break down because those who knew how to deal with the problems are no longer available.

This is how you can have 10 million unemployed workers and 1 million unfilled positions that can’t be filled because few are truly qualified. You want to erect new electrical transmission lines? Nice, but you’re not going to get the job done with green workers accustomed to staring at screens. It takes years of hard labor to acquire even a bare minimum of the skills required. These are not assembly-line jobs that can be filled by unskilled labor, these are jobs in the messy real world, not a distribution center.

As I note in my book on Self-Reliance, individuals with a full spectrum of real-world skills are now extremely rare. Skills that were once common are now performed by specialists. We seem to have all the time in the world to stare at hundreds of cooking programs on TV but how many people actually prepare three meals a day, week in, week out, month in, month out, year in, year out? How many people know how to repair anything, build anything, or maintain a machine?

My direct experience is that many young people don’t know how to put air in the tires of the vehicle Mom and Dad gave them. Young people with graduate-level diplomas don’t know what a green bean plant looks like. (Eeew, gross, it grows in dirt?) The cultural value system that only values wealth, regardless of its source, and minting money from staring at screens has generated a fundamental mismatch between the skills that will be needed going forward and the skills being presented as oh-so-valuable.

Yes, there are many young workers with sharp real-world skills. The question is, are there enough?

This is how we’ll end up with severe shortages of truly skilled labor and high unemployment in the cohort of workers with few real-world skills and a surplus of skills for which there is limited demand. As a real-world experiment, go find a tough old rancher and ask them a series of questions about livestock, machinery, fencing, generators, etc., and then ask the average newly minted college graduate that followed the warped values embedded in our economy the same questions.

Of course the young worker can’t match the experience of the old worker, but do they have any experience at all of a spectrum of essential real-world skills? If not, do they have the requisite physical endurance and commitment needed to acquire real-world skills?

Who’s going to do all the real-world work going forward? A few people talk about it as an abstraction, but it’s not an issue to everyone focused on Federal Reserve policy or GDP. But eventually, the real world will matter more than staring at screens and day-trading, because when the systems break down due to lack of truly qualified employees, we’ll all wake up. But by then it will be too late. We’ll be staring at dead screens begging for somebody somewhere to restore power so we can continue playing with ChatAI to trade zero-day options.

Fiscal Insanity: The Government Borrows $6 Billion a Day, and We’re Stuck with the Bill

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By John & Nisha Whitehead

Source: The Rutherford Institute

We’re not living the American dream.

We’re living a financial nightmare.

The U.S. government is funding its existence with a credit card.

The 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 being forced to foot the bill for the government’s fiscal insanity.

According to the number crunchers with the Committee for a Responsible Federal Budget, the government is borrowing roughly $6 billion a day.

As the Editorial Board for the Washington Post warns:

“The nation has reached a hazardous moment where what it owes, as a percentage of the total size of the economy, is the highest since World War II. If nothing changes, the United States will soon be in an uncharted scenario that weakens its national security, imperils its ability to invest in the future, unfairly burdens generations to come, and will require cuts to critical programs such as Social Security and Medicare. It is not a future anyone wants.”

Let’s talk numbers, shall we?

The national debt (the amount the federal government has borrowed over the years and must pay back) is $31 trillion and will grow another $19 trillion by 2033. That translates to roughly $246,000 per taxpayer or $94,000 for every single person in the country.

The bulk of that debt has been amassed over the past two decades, thanks in large part to the fiscal shenanigans of four presidents, 10 sessions of Congress and two wars.

It’s estimated that the amount this country owes is now 130% greater than its gross domestic product (all the products and services produced in one year by labor and property supplied by the citizens).

In other words, the government is spending more than it brings in.

The U.S. ranks as the 12th most indebted nation in the world, with much of that debt owed to the Federal Reserve, large investment funds and foreign governments, namely, Japan and China.

Interest payments on the national debt are estimated to top $395 billion this year, which is significantly more than the government spends on veterans’ benefits and services, and according to Pew Research Center, more than it will spend on elementary and secondary education, disaster relief, agriculture, science and space programs, foreign aid, and natural resources and environmental protection combined.

According to the Committee for a Reasonable Federal Budget, the interest we’ve paid on this borrowed money is “nearly twice what the federal government will spend on transportation infrastructure, over four times as much as it will spend on K-12 education, almost four times what it will spend on housing, and over eight times what it will spend on science, space, and technology.”

In ten years, those interest payments will exceed our entire military budget.

This is financial tyranny.

We’ve been sold a bill of goods by politicians promising to pay down the national debt, jumpstart the economy, rebuild our infrastructure, secure our borders, ensure our security, and make us all healthy, wealthy and happy.

None of that has come to pass, and yet we’re still being loaded down with debt not of our own making while the government remains unrepentant, unfazed and undeterred in its wanton spending.

Indeed, the national deficit (the difference between what the government spends and the revenue it takes in) remains at more than $1.5 trillion.

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

Despite the government propaganda being peddled by the politicians and news media, however, the government isn’t spending our tax dollars to make our lives better.

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

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.

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

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.

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 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, “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.”

Of course, we’re the ones who have to repay that borrowed debt.

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’s only a portion of what the Pentagon spends on America’s military empire.

The United States also spends more on foreign aid than any other nation, with nearly $300 billion disbursed over a five-year period. 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. That price tag keeps growing, too.

As Forbes reports, “U.S. foreign aid dwarfs the federal funds spent by 48 out of 50 state governments annually. Only the state governments of California and New York spent more federal funds than what the U.S. sent abroad each year to foreign countries.”

Most recently, the U.S. has allocated nearly $115 billion in emergency military and humanitarian aid for Ukraine since the start of the Russia invasion.

As Dwight D. Eisenhower warned in a 1953 speech, this is how the military industrial complex continues to get richer, while the American taxpayer is forced to pay for programs that do little to enhance our lives, ensure our happiness and well-being, or secure our freedoms.

This is 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.

There was a time in our history when our forebears said “enough is enough” and stopped paying their taxes to what they considered an illegitimate government. They stood their ground and refused to support a system that was slowly choking out any attempts at self-governance, and which refused to be held accountable for its crimes against the people. Their resistance sowed the seeds for the revolution that would follow.

Unfortunately, in the 200-plus years since we established our own government, we’ve let bankers, turncoats and number-crunching bureaucrats muddy the waters and pilfer the accounts to such an extent that we’re back where we started.

Once again, we’ve got a despotic regime with an imperial ruler doing as they please.

Once again, we’ve got a judicial system insisting we have no rights under a government which demands that the people march in lockstep with its dictates.

And once again, we’ve got to decide whether we’ll keep marching or break stride and make a turn toward freedom.

But what if we didn’t just pull out our pocketbooks and pony up to the federal government’s outrageous demands for more money?

What if we didn’t just dutifully line up to drop our hard-earned dollars into the collection bucket, no questions asked about how it will be spent?

What if, instead of quietly sending in our tax checks, hoping vainly for some meager return, we did a little calculating of our own and started deducting from our taxes those programs that we refuse to support?

As I make clear in my book Battlefield America: The War on the American People and in its fictional counterpart The Erik Blair Diaries, if we don’t have the right to decide what happens to our hard-earned cash, then we don’t have any rights at all.

Bull or Bear? The Ultimate Source of Market Instability

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By Charles Hugh Smith

Source: Of Two Minds

Market commentators tend to focus on Bulls and Bears and Federal Reserve policies as drivers of stock market gyrations, but there’s a far more profound dynamic working beneath these veneers: the forces of adaptation and evolution transforming the economy and society as conditions change.

While the general expectation is that the post-Covid economy “should” revert to the stability of 2019, this ignores what was already unraveling in 2019. The global economy experienced fundamental shifts in technology, production, energy, capital flows, labor, currencies and geopolitics in the past 25 years, and all these forces are not just in motion but accelerating in ways that are destabilizing the status quo.

The necessity of adaptation and evolution can be summed up very simply: adapt or die. This is the natural state not just of Nature and species but of systems such as societies and economies. Those which cling on to failing models stagnate and decay, while those which embrace dissent, transparency and a constant churn of experimentation and trial-and-error will adapt and evolve and emerge stronger and more adaptable.

The US economy went through a comparable period of instability and forced adaptation in the 1970s, a dynamic I explored in The Forgotten History of the 1970s (January 13, 2023). Everyone benefiting from the status quo arrangements fought the much-needed changes tooth and nail, and so progress was uneven. Transitioning to a more efficient and responsive industrial base required tremendous capital investments and scaling up new technologies.

The transition is more costly and takes more time than we would like; the 1970s transition took about a decade. We can anticipate a similar scale of capital investment and time will be needed for this structural adaptation.

As the chart below illustrates, the 1970s was characterized by high inflation and big swings up and down in the stock market. Successful adaptations generated hope for quick recovery, while lagging adaptations tempered the hope with painful realities.

Again, it is likely that the decade ahead will track this same general dynamic of big swings generated by hope that the worst is over and the realities that progress is only partial and instability still reigns.

Everyone wants a trend they can trade for effortless gains. That may no longer be realistic.

The GATHERING Storm in Ukraine Spells Doom for the West

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Photo by by Adam Brummett

By Col. Douglas MacGregor

Source: Information Clearing House

The crisis of American national power has begun. America’s economy is tipping over, and Western financial markets are quietly panicking. Imperiled by rising interest rates, mortgage-backed securities and U.S. Treasuries are losing their value. The market’s proverbial “vibes”—feelings, emotions, beliefs, and psychological penchants—suggest a dark turn is underway inside the American economy.

American national power is measured as much by American military capability as by economic potential and performance. The growing realization that American and European military-industrial capacity cannot keep up with Ukrainian demands for ammunition and equipment is an ominous signal to send during a proxy war that Washington insists its Ukrainian surrogate is winning.

Russian economy-of-force operations in southern Ukraine appear to have successfully ground down attacking Ukrainian forces with the minimal expenditure of Russian lives and resources. While Russia’s implementation of attrition warfare worked brilliantly, Russia mobilized its reserves of men and equipment to field a force that is several magnitudes larger and significantly more lethal than it was a year ago.

Russia’s massive arsenal of artillery systems including rockets, missiles, and drones linked to overhead surveillance platforms converted Ukrainian soldiers fighting to retain the northern edge of the Donbas into pop-up targets. How many Ukrainian soldiers have died is unknown, but one recent estimate wagers between 150,000-200,000 Ukrainians have been killed in action since the war began, while another estimates about 250,000.

Given the glaring weakness of NATO members’ ground, air, and air defense forces, an unwanted war with Russia could easily bring hundreds of thousands of Russian Troops to the Polish border, NATO’s Eastern Frontier. This is not an outcome Washington promised its European allies, but it’s now a real possibility.

In contrast to the Soviet Union’s hamfisted and ideologically driven foreign policymaking and execution, contemporary Russia has skillfully cultivated support for its cause in Latin America, Africa, the Middle East, and South Asia. The fact that the West’s economic sanctions damaged the U.S. and European economies while turning the Russian ruble into one of the international system’s strongest currencies has hardly enhanced Washington’s global standing.

Biden’s policy of forcibly pushing NATO to Russia’s borders forged a strong commonality of security and trade interests between Moscow and Beijing that is attracting strategic partners in South Asia like India, and partners like Brazil in Latin America. The global economic implications for the emerging Russo-Chinese axis and their planned industrial revolution for some 3.9 billion people in the Shanghai Cooperation Organization (SCO) are profound.

In sum, Washington’s military strategy to weaken, isolate, or even destroy Russia is a colossal failure and the failure puts Washington’s proxy war with Russia on a truly dangerous path. To press on, undeterred in the face of Ukraine’s descent into oblivion, ignores three metastasizing threats: 1. Persistently high inflation and rising interest rates that signal economic weakness. (The first American bank failure since 2020 is a reminder of U.S. financial fragility.) 2. The threat to stability and prosperity inside European societies already reeling from several waves of unwanted refugees/migrants. 3. The threat of a wider European war.

Inside presidential administrations, there are always competing factions urging the president to adopt a particular course of action. Observers on the outside seldom know with certainty which faction exerts the most influence, but there are figures in the Biden administration seeking an off-ramp from involvement in Ukraine. Even Secretary of State Antony Blinken, a rabid supporter of the proxy war with Moscow, recognizes that Ukrainian President Volodymyr Zelensky’s demand that the West help him recapture Crimea is a red line for Putin that might lead to a dramatic escalation from Moscow.

Backing down from the Biden administration’s malignant and asinine demands for a humiliating Russian withdrawal from eastern Ukraine before peace talks can convene is a step Washington refuses to take. Yet it must be taken. The higher interest rates rise, and the more Washington spends at home and abroad to prosecute the war in Ukraine, the closer American society moves toward internal political and social turmoil. These are dangerous conditions for any republic.

From all the wreckage and confusion of the last two years, there emerges one undeniable truth. Most Americans are right to be distrustful of and dissatisfied with their government. President Biden comes across as a cardboard cut-out, a stand-in for ideological fanatics in his administration, people that see executive power as the means to silence political opposition and retain permanent control of the federal government.

Americans are not fools. They know that members of Congress flagrantly trade stocks based on inside information, creating conflicts of interest that would land most citizens in jail. They also know that since 1965 Washington led them into a series of failed military interventions that severely weakened American political, economic, and military power.

Far too many Americans believe they have had no real national leadership since January 21, 2021. It is high time the Biden administration found an off-ramp designed to extricate Washington, D.C., from its proxy Ukrainian war against Russia. It will not be easy. Liberal internationalism or, in its modern guise, “moralizing globalism,” makes prudent diplomacy arduous, but now is the time. In Eastern Europe, the spring rains present both Russian and Ukrainian ground forces with a sea of mud that severely impedes movement. But the Russian High Command is preparing to ensure that when the ground dries and Russian ground forces attack, the operations will achieve an unambiguous decision, making it clear that Washington and its supporters have no chance to rescue the dying regime in Kiev. From then on, negotiations will be extremely difficult, if not impossible.

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Send in the Clowns

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Yellen and Garland perform back-to-back surprise visits to Ukraine

By Philip Giraldi

Source: The Unz Review

Sometimes I think that the script being used by the Biden Administration to manage its foreign and national security policies has been written by George Orwell, though I am not sure if it based on 1984 or Animal Farm. Maybe it is a combination of the two. Either way, it would help explain why there is something seriously wrong here. For example, at the end of February Congress, confronted by a debt ceiling, began discussing cutting Medicare and Social Security while more recently a banking sector crisis seems to be developing so Treasury Secretary Janet Yellen decided to go off doing photo-ops in Kiev embracing Ukraine’s President Volodymyr Zelensky shortly after handing him the keys to the US economy. She explained to Zelensky how the White House had approved an additional $12 billion in aid to Ukraine during the previous week, including $2 billion for the military and $10 billion to support Zelensky’s government and other infrastructure needs. The US Treasury is now de facto the source of the Ukraine government’s entire annual budget. In addition, Yellen described glowingly how the Treasury and State Departments will implement a new round of sanctions against more than 200 entities and individuals with ties to Russia’s military, high-technology industries, and its metals and mining sectors. The US Department of Commerce is also enforcing export restrictions on materials and technology, including semiconductors, sold by American companies to customers in Russia and China.

In defense of her grand mission, Yellen penned an op-ed for the always compliant New York Times explaining the importance of Ukraine to the United States. She wrote how in Ukraine “…Russia’s barbaric attacks continue — but Kyiv stands strong and free. Ukraine’s heroic resistance is the direct product of the courage and resilience of Ukraine’s military, leadership and people. But President Volodymyr Zelensky and the Ukrainians would be the first to admit that they can’t do this alone — and that international support is crucial to sustaining their resistance. I’m in Kyiv to reaffirm our unwavering support of the Ukrainian people. Mr. Putin is counting on our global coalition’s resolve to wane, which he thinks will give him the upper hand in the war. But he is wrong. As President Biden said here last week, America will stand with Ukraine for as long as it takes… Ukrainians are fighting for their lives on the front lines of the free world. Today, and every day, they deserve America’s unyielding support.”

The Yellen op-ed drones on with a lie so large that it is astonishing that the New York Times would even print it: “When confronted with scenes of brutality and oppression, Americans have always been quick to stand up and do the right thing. Our strength as a nation comes from our commitment to our ideals — and our capacity to see in others the same desires that animated our own struggles for freedom and justice.” But then she tops that with assurances from “President Zelensky, [who] has pledged to use these funds in the ‘most responsible way.’ We welcome this commitment, as well as his longstanding agenda to strengthen good governance in Ukraine.” Huh?

And here is Yellen’s version of “Why We Fight!”: “Our support is motivated, first and foremost, by a moral duty to come to the aid of a people under attack. We also know that, as President Zelensky has said, our assistance is not charity. It’s an investment in ‘global security and democracy.’ Let’s look at the strategic impact of our support for Ukraine so far. Mr. Putin’s war poses a direct threat to European security, as well as to the laws and values that underpin the rules-based international system.”

So, Americans have a “moral duty” apparently up to and including sending their sons and daughters to die supporting Ukraine. And ah yes, it’s all about the “free” world, democracy and the notorious rules based international system! Has anyone yet cited Hegel’s observation that the President Joe Biden Administration’s foreign policy has already “repeated itself, first as a tragedy in Afghanistan, second as a farce”? Meanwhile one suspects Zelensky was laughing all the way to the bank as Yellen disappeared over the horizon to come up with the cash, as that old expression goes, and he probably already has one of his buddies shopping for a new villa on the French Riviera to supplement his other real estate! But wait! The story became even more exciting the following week, involving another visit to Mr. Z by America’s nearly invisible Attorney General Merrick Garland, a man who can literally look Z in the eye as they are both very short. Garland is generally engaged in chasing white supremacists and requiring all new FBI hires to learn all about how to identify and pursue antisemites, but he has made two trips to Kiev to meet mano-a-mano with the brave olive drab t-shirt clad warrior who is already being beatified as the twenty-first century’s Winston Churchill.

Garland was in town to do the other thing the engages his sense of law and order, which is to set up a tribunal to arrest, prosecute and punish Russian war criminals after Ukraine emerges triumphant from its conflict with the unimaginably evil President Vladimir Putin. It would be modeled on the Nuremberg Tribunals that tried leading Nazis after the Second World War, and Garland has cited his family’s escape from the so-called holocaust to explain why he is intent on personally being involved in delivering what he describes as “justice.” A Justice Department spokeswoman described Garland’s mission as being in Kiev to personally “reaffirm America’s commitment to help hold Russia responsible for war crimes committed in its unjust and unprovoked invasion against its sovereign neighbor.”

Garland had several meetings with President Volodymyr Zelensky and foreign law enforcement officials including Ukrainian Prosecutor General Andriy Kostin while attending what was billed as the “United for Justice Conference.” Zelensky elaborated that the purpose of the conference was to hold Russia’s leadership accountable for the alleged atrocities carried out by its army. “The main issue of all these meetings is accountability,” he said. The US Justice Department is reportedly actively engaged in the gathering of evidence to indict the Russians. During Garland’s first visit to Ukraine in June 2022 he announced the appointment of Eli Rosenbaum, an Office of Special Investigations prosecutor best known for going after former Nazis, to direct American efforts to identify and track Russian war criminals.

Garland laid it on thick, as was expected from someone responsible for prosecuting the rest of the world when it steps out of line. He told his hosts that “Just over twelve months ago, invading Russian forces began committing atrocities at the largest scale in any armed conflict since the Second World War. We are here today in Ukraine to speak clearly, and with one voice: the perpetrators of those crimes will not get away with them. In addition to our work in partnership with Ukraine and the international community, the United States has also opened criminal investigations into war crimes in Ukraine that may violate US law.” He concluded by throwing out the complete bullshit party line much beloved by Joe Biden and Tony Blinken, that “The United States recognizes that what happens here in Ukraine will have a direct impact on the strength of our own democracy.”

Of course, there is more than a little bit of irony in all this, not to mention top level hypocrisy, as the United States has killed more people directly or indirectly while committing more crimes against humanity dished out in various ways over the past twenty years than any other country, except, predictably, Israel, which currently is committing crimes against humanity on a nearly daily basis. Curiously, however, the normally tone-deaf White House and Pentagon seem to understand, on a certain level, that opening up Pandora’s box might not be a good idea when it comes to war crimes. Last week Secretary of Defense Lloyd Austin refused to share US information on alleged Russian crimes with the International Criminal Court (ICC) in the Hague. The Pentagon is blocking the Biden administration from sharing evidence with the ICC collected by American intelligence agencies regarding Russian activities in Ukraine because helping the court investigate Russians might set a precedent that could help pave the way for it to prosecute Americans. Washington does not recognize the ICC, fearing that it might well seek to examine the sorry record of US military crimes in Asia and Africa. Israel similarly does to recognize the court for roughly the same reason.

So here we are, two top level officials from the Biden regime sneak into Kiev to give an arch crook money and unlimited moral support, together with a pledge that more cash is on the way as are arms and war crimes tribunals await those nasty Russians. And guess what? It is all packaged as being good for America! This sounds like a song that was sung previously in places like Vietnam, Iraq and Afghanistan and it was a tissue of lies then just as it is now. Yellen ought to have stayed home to tend to the banking system and should be giving the billions of dollars earmarked for Zelensky back to the American people. If Garland wants to investigate anyone it should be the Pentagon, the intelligence agencies, and Congress. And yes, his own FBI! And don’t forget how the Bidens and Clintons became multi-millionaires! And then there is the destruction of Nord Stream. Funny how every time one turns over a rock in and around the US government something really smelly surfaces.

How Covid lockdowns primed the current financial crisis

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By Christian Parenti

Source: The Grayzone

The lockdowns and the stimulus required to keep the economy alive helped drive inflation. Then the Fed jacked up interest rates. And all hell broke loose.

On Friday March 10th, 2023, Silicon Valley Bank (SVB) died of Covid. Alright, it’s a little more complicated than that, but Covid lockdowns followed by massive government stimulus were a critical – and massively under-acknowledged – factor in propelling the bank’s demise.

At the heart of the crisis is the gigantic pile of low-interest debt that was issued during the height of the pandemic. While private-sector pandemic-era debt like corporate bonds also soared, US government debt like Treasury bonds piled up.

In a nutshell, during the pandemic the government issued enormous amounts of extremely low interest government debt — about $4.2 trillion of it. But now interest rates, including on government debt, are higher than they have been in 15 years and investors are dumping their old low-interest debt. As they dump, the resale price of the old debt goes down. The more it declines, the more investors want to dump. And thus, a panic is born. 

To understand the problem fully, the question of US government debt has to be put into its larger context, which is: the pandemic response as a whole.

When news of the Covid virus first broke in December 2019, the 2 Year Treasury bond was being offered at 1.64% interest; the 10 year was at about 1.80%, and the resale value of such bonds on secondary markets was strong. Then, in March 2020, as Covid cases and deaths spiked, the US began to shutter its economy with panicked lockdowns that were supposed to “flatten the curve” or slow the spread of the virus and thus protect the hospitals. But Covid was politicized and the lockdowns were extended.  

As the lockdowns dragged on, the US economy began to collapse, shrinking at a record-shattering annualized rate of 31.4% during the second quarter of fiscal year 2020.

To avoid total economic devastation, the federal government began massive debt-financed spending. In March 2020, Trump signed into law the $2.2 trillion economic stimulus bill the CARES Act, or Coronavirus Aid, Relief, and Economic Security. Then, in March 2021, Biden signed the American Rescue Plan Act which contained $1.9 trillion more in Covid relief. Finally, in April 2021, another trillion or so of Covid relief arrived in the Consolidated Appropriations Act. 

Thanks to these laws, every industry and most people received public money. There was increased and extended unemployment payments, as well as the so-called “stimmy checks” or stimulus payments to everyone earning under $75,000 a year (about half the population). The Paycheck Protection Program spent almost a trillion dollars. The Provider Relief Fund doled out $178 billion to the healthcare system. 

All this debt spending kept millions of people in their homes, and helped feed, employ, and care for millions more. The measures allowed hundreds of thousands of businesses to stay afloat even as many thousands of others went under. The impact of the spending on Americans’ well-being was generally positive. For a moment, the US child poverty rate was cut in half, falling to 5.2%. 

But the economically destructive lockdowns were not necessary and did not work. Covid fanatics maintain that the lockdowns were unavoidable because the virus is so deadly. That, however, is uninformed. Last year I explained in detail how the Lockdown Left got the Covid crisis wrong. Not a single critic has challenged any of the facts I presented so there is little point in rehashing them all here. 

Those who advocated an alternative to ham-fisted lockdowns, like the authors of the Great Barrington Declaration, which called for “focused protection” of vulnerable groups like the elderly, were viciously targeted in a reputation destruction campaign covertly orchestrated by former NIH director Francis Collins and de facto Covid czar Anthony Fauci. Never mind that the document’s authors were three eminently qualified scientists: Sunetra Gupta, professor of Theoretical Epidemiology at Oxford University; Jay Bhattacharya, professor of medicine at Stanford; and Martin Kulldorff, formerly a professor of medicine and biostatistics at Harvard. They were portrayed as far-right cranks who were almost eager to see millions die. But now, they have been vindicated.

Ultimately, the federal government spent $4.2 trillion propping up the economy that it was simultaneously choking to death with lockdowns. These two contradictory pressures laid the groundwork for the recent bank failures. Government mandated lockdowns hit the economy like a body blow. Factories closed, small businesses went under, ports and logistic hubs reduced operations, and about 2 million mostly older workers simply resigned. But at the same time, the federal government injected vast amounts of purchasing power into the economy, thus boosting consumption.

These two, contradictory government moves imposed almost unbearable pressure on supply chains. As shortages mounted, prices began to surge. Put simply: lockdowns plus stimulus equaled inflation.

Consider just one of the most important bottlenecks in the whole economy. During lockdown, many commercial driving license schools were closed. This helped create a shortage of about 80,000 truckers. If trucks do not roll supplies run low and prices go up.

At first, the official line on inflation – parroted by the Lockdown Left – maintained that inflation was “transitory.” But it was not. Inflation peaked at 9.1% in June 2022 while wage growth lagged at about 5%. In April 2020 during the worst of the lockdown, the Federal Reserve’s Federal Funds Rate sank to 0.5%. By February 2022, it had only risen to 0.8%.  

Meanwhile, inflation was surging. By February 2022, inflation had reached 7.9%. Only then did the Fed, in an effort to tamp down prices, begin raising interest rates at the fastest pace rate in its history. The federal Funds rate was around 4.57% when SVB went under. Perhaps a massive wave of taxation could have soaked up enough liquidity to have helped cool prices, but that was a political impossibility. The more politically palatable response in Washington was for the Federal Reserve to raise interest rates. 

Herein lies the problem. During the height of the lockdowns, banks bought up enormous amounts of government debt. As the Wall Street Journal put it: “U.S. banks are suffering the aftereffects of a Covid-era deposit boom that left them awash in cash that they needed to put to work. Domestic deposits at federally insured banks rose 38% from the end of 2019 to the end of 2021, FDIC data show. Over the same period, total loans rose 7%, leaving many institutions with large amounts of cash to deploy in securities as interest rates were near record lows.” Awash in deposits with not enough demand for loans, the banks bought US government securities. Their purchases surged 53% between 2019 and the end of 2021, to a total of $4.58 trillion, according to Fed data reported by the Wall Street Journal.

Because so much debt was being issued, it carried super-low interest rates. For example, on July 27, 2020, the 10 Year Treasury was offered at an annual interest rate of only 0.55%. This is fine if you are the borrower of money, but if you are the lender (that is to say, a bank giving the federal government money in exchange for a Treasury bond), it means your income stream will be reduced to a mere trickle. If inflation rises, it essentially disappears. 

As the yield on new government debt reached toward 5% and inflation hung stubbornly at around 6.4%, all of that old, low-interest, pandemic-era debt started to look like garbage and banks began unloading it. The more that banks dumped old debt, the less value that debt had on resale markets. The lower its resale value, the more the banks wanted to dump it. SVB lost almost $2 billion selling off Government securities. And when they announced the loss, their stock price plunged by 60%. 

At the same time, many of SVB’s clients were withdrawing money. This was in part because rising interest rates made borrowing new money more expensive and thus incentivized the use of savings in day-to-day business operations. Also, higher inflation and higher interest rates made low-earning bank deposits less attractive and compelled depositors to redeploy their surplus capital towards higher-earning investments. So, just as SVB needed cash, deposits were evaporating.

By the end of the week of March 10, the four biggest banks in the United States had lost $51 billion because of their panicked dumping of pandemic-era debt. Right after SVB was taken under government control, state regulators closed the New York-based Signature Bank. Before the weekend was over the Federal Reserve announced the creation of a new lending facility that would ensure that “banks have the ability to meet the needs of all their depositors.” Furthermore, the Fed said it was “prepared to address any liquidity pressures that may arise.”

It would seem that the federal government is ready to execute another de facto partial nationalization of US banking, just as they did in 2008 via emergency “cash injections” and then the Troubled Assets Relief Program (TARP). In this current crisis, banks can avoid losses on their low-interest debt if they do not sell it before its maturity. For that to happen, the banks need money. The Fed has said it will pour enormous amounts of money into the banks while all of the relevant officials have proclaimed that the banking system will somehow pay for this. All of this will almost certainly mean even more government debt will be issued. 

Already, interest payments on the federal debt are one of the largest single items in the US budget – set to reach $400 billion this year. That is almost half as much as the grotesquely overdeveloped military budget. By comparison, federal spending on housing is only $78 billion.

Shoring up the banking system is necessary because if it collapses, the whole economy goes with it. At least in the short term, Americans are hostages of the US financial system. But government intervention without any new regulations and taxes upon the financial sector will likely mean more inflation and a bigger financial bubble. By refusing to properly tax the top 1%, the federal government also commits itself to more austerity for the many and more welfare for the rich, because rising government debt means a rising portion of our taxes must go toward interest payments. 

This system of crisis-prone, hyper-financialized capitalism seems ever more like a junkie. If it doesn’t get its regular fix of public sector help, it will simply collapse and die. 

Even if the federal government can stanch the current crisis, the pandemic debt story is global and very likely to cause trouble for some time to come. As a 2021 report by the World Bank put it: “The debt buildup during the pandemic-induced global recession of 2020 was the largest in several decades. This was true for all types of debt—total, government, and private debt; and advanced-economy and EMDE [emerging market and developing economy] debt; external and domestic debt. In 2020, total global debt reached 263 percent of GDP and global government debt 99 percent of GDP, their highest levels in half a century.” 

The US intelligentsia and its media elites are finally beginning to reckon with the impact of misguided and authoritarian lockdowns on student learning and the psychological and physical health of millions. But in all the discussion of the current bank runs, the pivotal role of lockdowns in priming the crisis remains overlooked.

Silicon Valley Bank Crisis: The Liquidity Crunch We Predicted Has Now Begun

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A worker, middle, tells customers that the Silicon Valley Bank headquarters is closed on Friday, March 10, 2023, in Santa Clara, California. Silicon Valley Bank was shut down on Friday morning by California regulators and was put in control of the U.S. Federal Deposit Insurance Corporation. (Justin Sullivan/Getty Images/TNS)

By Brandon Smith

Source: Alt-Market.us

There has been an avalanche of information and numerous theories circulating the past few days about the fate of a bank in California know as SVB (Silicon Valley Bank). SVB was the 16th largest bank in the US until it abruptly failed and went into insolvency on March 10th. The impetus for the collapse of the bank is tied to a $2 billion liquidity loss on bond sales which caused the institution’s stock value to plummet over 60%, triggering a bank run by customers fearful of losing some or most of their deposits.

There are many fine articles out there covering the details of the SVB situation, but what I want to talk about more is the root of it all. The bank’s shortfalls are not really the cause of the crisis, they are a symptom of a wider liquidity drought that I predicted here at Alt-Market months ago, including the timing of the event.

First, though, let’s discuss the core issue, which is fiscal tightening and the Federal Reserve. In my article ‘The Fed’s Catch-22 Taper Is A Weapon, Not A Policy Error’, published in December of 2021, I noted that the Fed was on a clear path towards tightening into economic weakness, very similar to what they did in the early 1980s during the stagflation era and also somewhat similar to what they did at the onset of the Great Depression. Former Fed Chairman Ben Bernanke even openly admitted that the Fed caused the depression to spiral out of control due to their tightening policies.

In that same article I discussed the “yield curve” being a red flag for an incoming crisis:

“…The central bank is the largest investor in US bonds. If the Fed raises interest rates into weakness and tapers asset purchases, then we may see a repeat of 2018 when the yield curve started to flatten. This means that short term treasury bonds will end up with the same yield as long term bonds and investment in long term bonds will fall.”

As of this past week the yield curve has been inverted, signaling a potential liquidity crunch. Both Jerome Powell (Fed Charman) and Janet Yellen (Treasury Secretary) have indicated that tightening policies will continue and that reducing inflation to 2% is the goal. Given the many trillions of dollars the Fed has pumped into the financial system in the past decade as well as the overall weakness of general economy, it would not take much QT to crush credit markets and by extension stock markets.

As I also noted in 2021:

“We are now at that stage again where price inflation tied to money printing is clashing with the stock market’s complete reliance on stimulus to stay afloat. There are some that continue to claim the Fed will never sacrifice the markets by tapering. I say the Fed does not actually care, it is only waiting for the right time to pull the plug on the US economy.”

But is that time now?  I expanded on this analysis in my article ‘Major Economic Contraction Coming In 2023 – Followed By Even More Inflation’, published in December of 2022. I noted that:

“This is the situation we are currently in today as 2022 comes to a close. The Fed is in the midst of a rather aggressive rate hike program in a “fight” against the stagflationary crisis that they created through years of fiat stimulus measures. The problem is that the higher interest rates are not bringing prices down, nor are they really slowing stock market speculation. Easy money has been too entrenched for far too long, which means a hard landing is the most likely scenario.”

I continued:

“In the early 2000s the Fed had been engaged in artificially low interest rates which inflated the housing and derivatives bubble. In 2004, they shifted into a tightening process. Rates in 2004 were at 1% and by 2006 they rose to over 5%. This is when cracks began to appear in the credit structure, with 4.5% – 5.5% being the magic cutoff point before debt became too expensive for the system to continue the charade. By 2007/2008 the nation witnessed an exponential implosion of credit…”

Finally, I made my prediction for March/April of 2023:

“Since nothing was actually fixed by the Fed back then, I will continue to use the 5% funds rate as a marker for when we will see another major contraction…The 1% excise tax added on top of a 5% Fed funds rate creates a 6% millstone on any money borrowed to finance future buybacks. This cost is going to be far too high and buybacks will falter. Meaning, stock markets will also stop, and drop. It will likely take two or three months before the tax and the rate hikes create a visible effect on markets. This would put our time frame for contraction around March or April of 2023.”

We are now in the middle of March and it appears that the first signs of liquidity crisis are bubbling to the surface with the insolvency of SVB and the shuttering of another institution in New York called Signature Bank.

Everything is tied back to liquidity. With higher rates, banks are hard-pressed to borrow from the Fed and companies are hard-pressed to borrow from banks. This means companies that were hiding financial weakness and exposure to bad investments using easy credit no longer have that option. They won’t be able to artificially support operations that are not profitable, they will have to abandon stock buybacks that make their shares appear valuable and they will have to initiate mass layoffs in order to protect their bottom line.

SVB is not quite Bear Stearns, but it is likely a canary in the coal mine, telling us what is about to happen on a wider scale. Many of their depositors were founded in venture capital fueled by easy credit, not to mention all the ESG related companies dependent on woke loans. That money is gone – It’s dead. Those businesses are quietly but quickly crumbling which also conjured a black hole for deposits within SVB. It’s a terribly destructive cycle. Surely, there are numerous other banks in the US in the same exact position.

I believe this is just the beginning of a liquidity and credit crisis that will combine with overt inflation to produce perhaps the biggest economic crash America has ever seen. SVB’s failure may not be THE initiator, only one among many. I suspect that in this scenario larger US banks may avoid the kind of credit crash that we saw with Bear Stearns and Lehman Brothers in 2008. But, contagion could still strike multiple mid-sized banks and the effects could be similar in a short period of time.

With all the news flooding the wire on SVB it’s easy to forget that all of this boils down to a single vital issue: The Fed’s stimulus measures created an economy utterly addicted to easy and cheap liquidity. Now, they have taken that easy money away. In light of the SVB crash, will the central bank reverse course on tightening, or will they continue forward and risk contagion?

For now, Janet Yellen and the Fed have implemented a limited backstop and a guarantee on deposits at SVB and Signature. This will theoretically prevent a “haircut” on depositor accounts and lure retail investors with dreams of endless stimulus.  It is a half-measure, though – Central bankers have to at least look like they are trying. 

SVB’s assets sit at around $200 billion and Signature’s assets are around $100 billion, but what about interbank exposure and what about the wider implications?  How many banks are barely scraping by to meet their liquidity obligations, and how many companies have evaporating deposits?  The backstop will do nothing to prevent a major contagion.

There are many financial tricks that might slow the pace of a credit crash, but not by much.  And, here’s the kicker – Unlike in 2008, the Fed has created a situation in which there is no escape. If they do pivot and return to systemic bailouts, stagflation will skyrocket even more. If they don’t use QE, then banks crash, companies crash and even bonds become untenable, which puts the world reserve status of the Dollar under threat. What does that lead to? More stagflation. In either case, rapidly rising prices on most necessities will be the consequence.

How long will this process take? It all depends on how the Fed responds. They might be able to drag the crash out for a few months with various stop-gaps. If they go back to stimulus then the banks will be saved along with equities (for a while) but rising inflation will suffocate consumers in the span of a year and companies will still falter. My gut tells me that they will rely on contained interventions but will not reverse rate hikes as many analysts seem to expect.

The Fed will goose markets up at times using jawboning and false hopes of a return to aggressive QE or near-zero rates, but ultimately the trend of credit markets and stocks will be steady and downward.  Like a brush fire in a wind storm, once the flames are sparked there is no way to put things back the way they were.  If their goal was in fact a liquidity crunch, well, mission accomplished.  They have created that exact scenario.  Read my articles linked above to understand why they might do this deliberately.

In the meantime, it appears that my predictions on timing are correct so far. We will have to wait and see what happens in the coming weeks. I will keep readers apprised of events as new details unfold.  The situation is rapidly evolving.