The media narrative supports the notion that tax policy and entitlements caused the current debt and fiscal crisis. But like most media narratives, it’s a fraudulent story intended to deceive and divide citizens.
When George Bush took office in 2000, the national debt was 5.7 Trillion (treasurydirect.gov). By the end of his second term, the debt was 10.7 Trillion. Five years into Obama’s Presidency, the debt is approaching 17 Trillion. It took nearly 230 years to accrue a 5.7 Trillion debt and only twelve years to triple the debt. So what has caused the national debt to triple in 12 years? During that time, with the exception of Medicare part D, which was a Republican initiative, Medicare and Social Security were fully funded without adding to the Federal budget deficit and debt. It’s true that in the near future, entitlement programs will be major contributors to deficits and debt, but they did not cause the debt to triple during the last 12 years. So what did? Two wars off budget, trillions of dollars of trade deficits, and the 2008 financial crisis.
Rush Limbaugh says the subprime bubble was caused by the Community Reinvestment Act (CRU), which allegedly forced banks to make home loans to people who couldn’t repay them. But the CRU was enacted in 1977 and had little to do with the 2008 financial crisis. Most of the subprime loans were originated by lenders exempt from the CRU and regulated by the Federal Reserve. Fed Chair Alan Greenspan had virtually eliminated underwriting standards for mortgage brokers. As a result, when the bubble burst in 2008, nearly one in three mortgages was a liars loan that required no proof of job, income, or assets. This was Greenspan’s idea of a “free” market. And now, Dodd-Frank, Obama’s finance reform, gives the Fed authority over the new Consumer Financial Protection Bureau (CFPB). In other words, Obama’s idea of protecting consumers is letting the fox guard the hen house, just like Bush.
One of the most powerful positions in Congress is Chairman of the House Financial Services Committee. This position was held by Democrat Barney Frank until Republicans took the majority in 2010. Republican Jeb Hensarling has recently been appointed Chairman of Financial Services. In the first link below, he says the Federal deficit rose 800% and taxpayers are on the hook for 8 TRILLION as a result of the financial crisis. Unfortunately, Jeb and Barney engage in the childish finger pointing typical of bipartisan leaders, but it’s the underlying facts that are important. Just as important is the fact that childish finger pointing is a sophisticated bipartisan scheme to evade responsibility for failures and crimes.
The Federal Budget went over the fiscal cliff in 2008 because of the financial crisis and resulting “Great Recession”. That’s when the deficit rose 800% to 1.2 TRILLION. This was due to a massive drop in government revenue, bailouts, and stimulus programs to prop up the economy. Don’t take my word for it, listen to the following clips of Simon Johnson testifying before the Senate Budget Committee. Simon Johnson is a former chief economist for the International Monetary Fund. He’s currently an MIT professor and member of the CBO council of advisors. Using CBO numbers, he points out that budget deficits are primarily driven by a drop in gov’t revenue due to the recession. Johnson also said another financial crisis represents a short term budget liability equal to 40% of GDP (5.6 TRILLION), and CBO rules require this be scored in the budget. Ranking Republican Judd Gregg replied, “we don’t score a lot of things around here”, i.e., we’re cooking the books. It should be noted that neither Judd Gregg or Chairman Kent Conrad disagreed with Johnson’s analysis of the numbers, only his solutions.
Another example of gov’t cooking the books is Fannie & Freddie’s 6.3 TRILLION of toxic assets and liabilities, which are off budget. Fannie and Freddie were Government Sponsored Entities (GSE’s) until they collapsed in 2008 and were dumped on taxpayers. Dodd-Frank did not eliminate the budgetary threat posed by Too Big To Fail (TBTF) banks, so they’re effectively GSE’s backstopped by taxpayers. Moody’s rating of Bank of America debt demonstrates that TBTF banks are GSE’s. BoA’s debt is rated five notches above what it would be without gov’t support. In addition to the explicit taxpayer subsidies for TBTF, Treasury is using Fannie and Freddie as a backdoor bailout for Wall Street. Some politicians say banks and AIG paid back bailout money and taxpayers made a profit. But the CBO says it will cost taxpayers 8.6 TRILLION to prop up failing banks, and that doesn’t include the 5.6 TRILLION short term liability represented by another financial crisis.
In response to exploding Federal deficits and debt, the Simpson Bowles Commission and Super Committee were formed to address the fiscal crisis. They both failed so the Budget Control Act was adopted which allows Bush tax cuts to expire and implements deep spending cuts (sequestration) on January 1, 2013. But the media narrative never frames the fiscal cliff in a factual context, i.e., exploding deficits and debt are primarily due to the financial crisis and resulting Great Recession, not entitlements and tax policy. Taxes will increase dramatically and entitlements will be slashed in order to deal with the after effects of the Wall Street meltdown.
Speaking of the “Great Recession”, it’s important to remember what the financial crisis did to the U.S. economy. Phil Angelides was Chairman of the Financial Crisis Inquiry Commission (FCIC). Listen to seven minutes of his comments starting at 7min/55sec: “Nearly 26 million Americans are out of work, cannot find full time work, or have quit looking for work. Eleven TRILLION dollars of household wealth and retirement savings has been wiped away, vanished like some day trade gone bad…The public stewards of our financial system failed us, the CEO’s of financial institutions drove their companies over the cliff and our economy with it…”.
It’s also important to remember that nobody forced Wall Street to BUY worthless subprime loans, securitize them, leverage them 50 to 1, put fraudulent triple A ratings on them, and sell them around the world. In fact, the FBI testified before Congress in 2004 and warned that mortgage fraud would cause a financial crisis. In 2006, mortgage industry experts warned all major lenders that “liars loans” had a “90% incidence of fraud”. What did the mortgage industry do? They massively increased the number of liars loans to the point that 1 in 3 loans was a liars loan when the bubble burst. That’s why Neil Barofsky, Inspector General for TARP, said fraud by the nine largest banks caused the need for the TARP bailout. William Black was Deputy Director of the Savings and Loan Insurance Corporation during the 1980′s S&L meltdown. He helped obtain 1000 criminal convictions of “elite” bankers. In this interview, Mr. Black starts with the 2004 FBI warning and lays out compelling evidence of Wall Street fraud, which has not been prosecuted by Obama’s Department of Injustice.
Bottom line, Wall Street fraud and irresponsible risk taking, all condoned by criminal co-conspirators in Congress, drove the economy and budget over the cliff. There’s no economic growth on the horizon that will make up for the huge drop in revenue due to the financial crisis and Great Recession, and we cannot tax our way out of TRILLION dollar deficits to infinity. In order to cover TRILLION dollar deficits to infinity, Obama’s Treasury Secretary wants executive branch authority to raise the debt ceiling to infinity. This will compromise representation for taxation because the Constitution requires all appropriations originate in the House of Representatives. The founders wanted taxes appropriated by the legislative body most accountable to the people, i.e., members of the House stand for election every two years. But Democrat Brad Sherman said the executive branch (Obama) wants authority to spend TRILLIONS on future Wall Street bailouts, without approval from Congress. This will be accomplished via Dodd-Frank’s Resolution Authority, the part of the bill that institutionalizes TARP and gives Wall Street a blank check.
Dodd-Frank disproves the notion that only Republicans cater to Wall Street’s lawless ideology. More evidence of Democrats catering to Wall Street can be found in the PBS documentary The Warning. It’s about former Commodity Futures Trading Commission (CFTC) director Brooksley Born. The CFTC had authority to regulate derivatives and she tried to convince the Clinton administration to reign in Wall Street. But Fed Chairman Alan Greenspan and Clinton’s economic advisors “shut her down and shut her up”. Ms. Born predicted the derivatives market would blow up the economy, hence the documentary’s name “The Warning”. Instead of heeding Born’s warning, the Clinton administration dismantled financial regulations that had kept Wall Street speculation in check since the Great Depression. Clinton’s deregulation of financial markets laid the groundwork for the subprime bubble and President Bush gladly let Wall Street run wild. The documentary exposes bipartisan leaders who are ideologically opposed to regulating Wall Street financial fraud. I highly recommend watching The Warning.
Simon Johnson wrote a book titled “13 Bankers, The Wall Street Takeover and the Next Financial Crisis”. During a Book TV presentation, Mr. Johnson said the six largest banks have “captured the State” and have power to “extort” money from taxpayers. Edward Kane is a senior research fellow at the F.D.I.C., he also says the financial crisis and Dodd-Frank are examples of regulatory capture. What does regulatory capture mean? It means multinational corporations, which by definition are loyal to no country, have subverted representative gov’t. They have resources to hire the best accountants, lawyers and lobbyists money can buy and use them to take over the lawmaking process in Congress. That’s why Obama’s Department of Injustice does not prosecute Wall Street CEO’s and their bipartisan partners in crime, let alone implement regulations that represent the interests of American citizens.
The Dodd-Frank Finance Reform Act is supposed to “protect” consumers by implementing new banking regulations via the Consumer Financial Protection Bureau (CFPB). But the CFPB is just another example of regulatory capture by Wall Street. During a Congressional hearing on the CFPB, Rep. Sean Duffy said the original name of Dodd-Frank was the Wall Street Reform Act but it should be called the “Main Street Reform Act”. Why? He said the CFPB is putting costly regulations on community banks that didn’t cause the financial crisis while doing little to reform Wall Street. Representatives Mike Grimm and Don Manzullo made similar comments in the following links. Link1, Link2 Having achieved regulatory capture, Wall Street banks use regulation to extract wealth from taxpayers and eliminate competition. J.P. Morgan is building new branch offices while community banks struggle with the compliance costs of new CFPB regulations.
Another example of regulatory capture is Obamacare, a.k.a., The Affordable Care Act. The “private” healthcare industry gets over half its revenues from State and Federal government. And since Obamacare was passed and upheld as a Constitutional tax by the Supreme Court, healthcare stocks and profits have soared. Wall Street CEO Jim Chanos says the healthcare industry generates profits double that of the S&P 500 (a stock index of America’s top 500 companies), and this is what’s driving out of control healthcare costs. In other words, the healthcare industry makes profits double that which the market can bear because Obamacare is a huge government subsidy for the industry. Even former Democrat National Committee Chairman Howard Dean said the Obamacare bill should’ve been “killed”. He made this statement in December 2009 before Obamacare passed the Senate and justified it saying the bill was written by Democrat staffers on behalf of insurance companies. So who does Obama really care about? For links to this information check out the post titled “Obamacare, The Big Lie.”
The Fed’s loose monetary policy, i.e., toxic asset purchases and 0% money for bailed out institutions, is another hit to the U.S. economy as it drives up commodity prices and incentivizes irresponsible risk taking. Kansas City Fed President Tom Hoenig posed the following question: What resource has ever been efficiently allocated when the price is zero? He was referring to the Fed’s 0% rate on capital. LIke Simon Johnson, Mr. Hoenig also recognizes the budgetary threat posed by Too Big To Fail banks. He points out that Dodd-Frank has widened the Federal safety net to include high risk gambling activities of large banks. Hoenig proposes reinstating the Glass Steagall Act, which was enacted in 1933 as a response to the 1929 market crash. Glass Steagall removed high risk investment bank activities from the Federal safety net (F.D.I.C.), but Wall Street lobbyists successfully repealed it in 1999. It took only 8 years to repeat the crash of 1929 and Great Recession. Click here and listen to Mr. Hoenigs comments on TBTF banks. If fiscal and monetary policy had been focused on limiting home foreclosures and stimulating Main Street, rather than financing Wall Street crime, the increased demand and economic growth would be reducing the deficit.
In order to cover up the cost of toxic assets dumped on taxpayers and trillions still held by banks, Congress pressured the Financial Accounting Standards Board (FASB) to relax mark to market rules. These rules were put in place after Enron’s collapse and require large companies to mark balance sheet assets to current market value. But now, the relaxed rules allow gov’t and banks to falsify the value of toxic assets on their balance sheet. Systemic fraud is the new accounting standard for government and Wall Street. Business and political leaders say spending cuts are a priority for restoring fiscal soundness. But if my accountant is cooking the books and embezzling from my business, I can cut spending to zero and still go bankrupt. So the first priority is to hold Wall Street and their bipartisan partners in crime accountable, then cut spending.
The fiscal-debt negotiations between Republicans and Obama are a distraction designed to cover up the crimes of political and business leaders. Even Grover Norquist said “corporations don’t pay taxes, they collect them from you and me…”. Grover says corporations pass tax liabilities onto consumers by raising the price of their products. But he doesn’t mention that small businesses, which may be corporations, bear the full cost of regulation and taxation because they have limited ability to shift costs to consumers. This highlights the fiscal problem, i.e., large multinationals receive huge gov’t subsidies while evading tax and regulatory costs. And yet, bipartisan leaders are going to lower the tax rate for multinationals while raising taxes on small businesses and upper middle class individuals. No politicians have done more to enrich Wall Street criminals and rob the middle class than Presidents Bush and Obama. The stock market has doubled under Obama while U.S. economic growth is stagnant. Why? Obama has given Wall Street everything they want, including immunity from criminal prosecution for their crimes.
The fraud that led to the subprime bubble and Great Recession is only half the story behind the fiscal cliff. Leaders of both political parties said free trade would transition the U.S. to a “low wage service economy”, a.k.a., de-industrialization. Since the beginning of the Industrial Revolution, industrialized nations have dominated the global economy because manufacturing is the engine of growth. Case in point, after WWII the German economy was literally a pile of rubble. But seventy years later, in spite of high labor costs, Germany has the strongest economy in the West. Why? They PROTECT their manufacturing base. Don’t buy the lie that America cannot do the same because transitioning from the world’s largest manufacturer and exporter to a low wage service economy is by definition, a severe economic contraction.
Pat Mulloy is a member of the U.S./China Economic and Security Review Commission. He said trade deficits with China will change America from a “shareholder economy to a sharecropper economy”, where China owns large chunks of our economy and we work for them. Rep. Brad Sherman said the “cancerous” trade relationship with China is driven by enormous corporate power. This cancerous relationship with Communist China didn’t just “happen”. Wall Street and US multi-nationals prefer China’s authoritarian economic model. They have structured the global economy (globalization) in a way that subsidizes China with U.S. capital and technology. In a Wall Street Journal article, former SEIU President Andy Stern and Intel CEO Andy Grove agree on “China’s Superior Economic Model”. Which of course means they endorse China’s use of virtual slave labor and imprisonment of those who dare speak about forming a union. And yet, Obama tells students and union members they’re competing with China. How can students and unions “compete” with slavery without first becoming a slave? While U.S. workers and SME’s compete with China, US multinationals have formed partnerships with Chinese State Owned Enterprises. Hmmm? Partners do NOT compete, they work together to achieve common goals. Their common goal is a command/control, low wage service economy in America, and global dominance for China’s totalitarian regime.
Some say the electronic trinkets produced in China would be too expensive if manufactured in America. But virtual slave labor has always existed in foreign countries, and before free trade, America’s economy thrived without exploiting cheap labor abroad. Many leaders say gov’t should be run more like a business. Well, multinationals implement policies that PROTECT their market share and global competitiveness. Businesses don’t engage in anything remotely resembling free trade because providing the competition with capital and technology would guarantee failure. And shareholders would probably demand criminal prosecution of the board of directors and top officers, which is what should be done to politicians who’ve knowingly traded away America’s economic future. Manufacturing is the engine of economic growth, so outsourcing manufacturing in exchange for cheap trinkets is like the Native Americans selling their sovereignty for beads and blankets, literally.
American history teaches the concept of manifest destiny. But how many fur traders, homesteaders and gold miners were thinking about manifest destiny when they moved West? Few if any, they didn’t even know what the phrase meant. Manifest destiny is the language of ruling class elites, i.e. merchant bankers and industrialists. They moved common folk across the American West like pawns on a chess board. Ruling class elites wanted conflict with the Indians so they could call in the cavalry and manifest their destiny. The new frontiers for today’s ruling class are Communist China and emerging markets. Free trade is preparing the way for the global cavalry and final phase of manifest destiny. For all intents and purposes, US financial elites and industrialists have seceded from the Union. They’ve allied themselves with China’s totalitarian regime and are engaged in economic terrorism against the United States as a means to crush representative government. Corporate media supports this treasonous alliance and exploit class and race divisions as part of a divide and conquer agenda. They want factious Americans to blame each other and fight over the economic crumbs left behind by free trade and the financial crisis. We’re all indians now.
Pat Mulloy said the U.S. has run 3 TRILLION in trade deficits with China since they were given Most Favored Nation (MFN) status, and it’s “interesting” that China has 3 TRILLION in foreign currency reserves. He’s clearly suggesting that U.S. trade deficits are responsible for China’s strong cash position. Conversely, trade deficits increase U.S. debt and make America dependent on China for financing the debt. The decline in growth resulting from de-industrialization was masked by the subprime bubble. In my opinion, the subprime bubble was intentionally created to cover up the economic contraction caused by free trade and outsourcing. When the bubble burst, average citizens were blamed for living beyond their means and the structural decline resulting from free trade wasn’t even mentioned.
The origins of treasonous free trade policies can be traced back to Wall Street. John O’Neill, Chairman of Goldman Sachs asset management, takes credit for creating the emerging markets, a.k.a. BRIC (Brazil, Russia, India, China). Click here and listen to Jim O’Neill’s interview with Charlie Rose. During the interview O’Neill said, “I’d like to hear Obama say, how do we adjust before he says how do we compete” and referred to Obama’s former economic advisor Larry Summers saying, “he understands [China's] relative advantage in international trade.” The idea that America is competing with China is ludicrous. It’s like saying an NFL team exempt from all the rules is competing with the rest of the league. Outsourcing and “free” trade in the NFL would be comparable to trading a team’s franchise player for the competition’s waterboy. Free trade is designed to pick winners and losers in the global economy and Goldman Sachs, a.k.a. Government Sachs, has picked America to lose.
The Federal Reserve has pumped TRILLIONS of 0% money into the global economy, and yet, U.S. economic growth is stagnant. Why? During an appearance on CNBC, George Soros cites data from the Bank of International Settlements (BIS), which says US and EU banks are the largest supplier of credit to emerging markets. So bailed out banks are financing China’s growth while U.S. growth is stagnant. This sentence from an Investors Business Daily article tells half the story “…despite the commitment of nearly 20 TRILLION in taxpayer funds to prevent another crisis, lending has stalled or shrunk.” The other half of the story is lending has stalled or shrunk in the U.S. while lending in emerging markets has grown.
CNBC reported that Chinese State owned companies are currently mining a trillion dollars of mineral reserves in Afghanistan. So U.S. blood and treasure are subsidizing Communist China’s totalitarian regime. The guest said Afghanistan is the “Saudi Arabia of lithium”. Lithium is used in batteries for electric cars and battery storage for wind and solar farms. So Afghanistan is the first war for “clean, green” energy. Green energy is a subsidy for China because the majority of lithium batteries and solar panels are produced by Chinese manufacturers. Anyone who believes China is not a threat to American liberties should check out the post titled Communist China Tortures Religious and Free Speech Advocates. Free trade is an intentional, treasonous attack on the U.S. economy, Constitution, Bill of Rights and sovereignty. Click here and listen to George Soros explain the decline of the U.S. dollar and rise of China. The objective is neo-feudalistic totalitarian world where China is the new home of the Global Military Industrial Complex (GMIC).
The US/China partnership allows the respective governments to play both sides of global conflicts, thereby providing guaranteed profits for the GMIC. Iran, North Korea and Syria are prime examples. The US gov’t classifies North Korea and Iran as state sponsors of terrorism. But the CSPAN clips below demonstrate that China supplies Iran with chemical, ballistic and nuclear weapons. China also allows the transhipment of weapons from N. Korea to Iran, which in turn supplies Syria, Hezbollah and Hamas. US leaders condemn the actions of Iran, Syria and N. Korea, all client states of China, while turning a blind eye to the fact that they could not be a threat to the West without Chinese support. The US/China partnership is a blueprint for the global divide and conquer strategy of the GMIC. Link1, Link2, Link3, LInk4, Link5
Real solutions for the fiscal cliff begin with enforcing the rule of law as described in William Black’s radio interview. Then, follow Tom Hoenig’s advice and reinstate Glass Steagall, thus removing Wall Street’s high risk gambling losses from the Federal safety net. Next, begin dismantling free trade agreements and replacing them with protectionist policies that have a two hundred year track record of successfully growing the U.S. economy. For more detail, check out my pdf ”Knowledge is Power” and the sections on financial markets and solutions.