12thharmonic Blog

One of the News Ninjas at The H.O.R.N. sent me an article today. It’s Official: The Crash of the U.S. Economy has begun

About the author:

Richard C. Cook is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” A retired federal analyst, his career included work with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is now a Washington, D.C.-based writer and consultant. His book “We Hold These Truths: The Hope of Monetary Reform,” will be published later this year. His website is at www.richardccook.com

He mentions how China has become America’s Bank. Gail wrote about this last year. The bogus war on terror and the real reserve currency war. and China to drop U.S. dollar This situation is not good, and we’ve done it to ourselves.

Mr. Cook says:

Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the dot.com bubble of the 1990s and the housing bubble of 2001-2005.

This time around, Greenspan’s successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising “core inflation.” But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that’s no reason to allow the entire national economy to be submerged.

So what is really happening? Actually, it’s simple. The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.

Of course we got ourselves into this quandary by shipping our manufacturing to China and other cheap-labor markets over the last generation. “Dollar hegemony” is backfiring. In fact China is using its American dollars to replace the International Monetary Fund as a lender to developing nations in Africa and elsewhere. As an additional insult, China now may be dictating a new generation of economic decline for the American people who are forced to buy their products at Wal-Mart by maxing out what is left of our available credit card debt.

About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become “America’s bank” and commented approvingly that “it’s cheaper to print money than make cars anymore.” Ha ha.

The Ha Ha is on us.

After reading this article, I took a wander to www.richardccook.com I was curious to see what else he may have written on the subject. I found a wonderful article about the centralized private banks.

Monetary Reform and How a National Monetary System Should Work

Our Federal Reserve in the U.S. and (as far as I know) The Australian Federal Reserve are private banks. These are not government entities. Most politicians don’t get this. They work soley for the profit of the share holders. And they never loose! In fact the reality is, we take loans from these banks to run government. As with any form of credit, we pay the loan back with interest. In other words, we pay to use our own money. Getting sick to your stomach yet? In fact, every cent in federal income tax paid in U.S. history has gone to pay this interest. Not for services. (For more info on this. Search Google Video for “The Money Masters”)

Here’s the first episode of “The Money Masters” to start you off.

[flash http://video.google.com/googleplayer.swf?docId=-1583154561904832383&hl=en-AU]

In the article by Mr. Cook he explains where our money comes from. Thin air!

When setting out to study monetary principles, we must realize how little we know of the real facts of monetary history. Economics is an extremely limited discipline rife with untested assumptions and unchallengeable dogmas. Its most pernicious doctrine is the assertion that there is something called “the market,” where there is an “invisible hand” that makes everything work out the way it is supposed to.

Actually, an economy functions according to the principles according to which it is designed and regulated. If it is designed to funnel wealth into the hands of the monetary controllers, then that is what the “market” and the “invisible hand” will do. If it is designed to foster “the general welfare,” as it should according to the preamble to the U.S. Constitution, then the “market” and the “invisible hand” will tend in that direction.

Unfortunately, we march today to the tune of the monetary elite, so they are the ones who reap the profits and the benefits. They are the ones on whom the “invisible hand” lavishes the wealth of the world.

It is done through the process of bank-created credit. While during the nineteenth century other forms of money circulated, such as large quantities of coinage, silver certificates, and government-issued greenbacks, almost all the money that exists today originates through a loan by a financial institution to an individual or a business.

When a loan is made it is issued as a liability on the bank’s ledger. When it is repaid, the liability is canceled. With today’s computer systems, all transactions are digitized, of course. The bank keeps the interest on the loan as its combined administrative fee and profit. The money that is lent had no prior existence.

In other words, these private, for profit institutions are given a legal monopoly on printing our money. In fact in these modern times, it’s now truly virtual money. and I assure you. It does not work in the people’s favour.

Then there’s CREDIT. What is it really?

The word “credit” is one of the most widely-used and important in the English language. Dictionary.com lists twenty-one definitions. All these definitions have some connotation of the concept of “value” and the exchange of that value across the dimensions of time and space between one person and another. Obviously, the ideas of “credit” and “money” are closely related.

The idea of credit when viewed from a macroeconomic perspective refers to the ability of an economy to produce goods and services of value to the members of that community. It refers to the potential value of that economy to support life. What it does not and cannot refer to is money in and of itself, because money, as we have seen, has no intrinsic value. Without the credit-potential of a producing economy, money has no meaning.

On the other hand, money can be a convenient yardstick to measure credit, as when we state that the 2006 GDP of the United States was $12.98 trillion. But actually, the “real” credit of the U.S. economy was much higher, because our economy is not running at anywhere near its full capacity. The automobile industry, for instance, is running at about fifty percent of its physical potential. So the real credit of the U.S. is actually higher than the GDP.

“Credit” in an economic sense confers a legal right to draw on the goods and services that make up the potential GDP of the nation. It is the way the society agrees to hand out the monetary tickets by which the GDP may be acquired.

Obviously, the issuance of either too many or too few tickets will cause problems. The issuance of too few tickets will result in underproduction, poverty, even death. The issuance of too many tickets will result in inflation. When the Federal Reserve creates, then deflates, asset bubbles, like the currently collapsing housing bubble, these effects alternate, resulting in the kind of ongoing economic chaos we have seen for decades.

And the Prescription for this incredibly unfair system? President Lincoln understood this. He printed actual U.S.A. greenbacks. Printed and backed by the U.S. Government. Not a private monopoly. Some believe this is why he was killed. The bankers hated him. He believed the people’s money should work for the people not against it.

Cook and Abe would have got on very well.

As with anyone facing bankruptcy, it is time for those who wish to understand the current U.S. economic crisis to take a deep breath, step back, and gather themselves in order to correctly assess the situation.

Obviously the solution is not to risk blowing up the world by continuing to resolve our domestic economic problems through overseas conquests. This is what the Western nations have been trying to do for centuries, and it appears that the rest of the world may finally have had enough. This is especially the case today when the main factor that is floating the U.S. economy is the huge U.S. trade imbalance where foreign nations must use the dollars they take in to their ultimate disadvantage by financing a federal budget deficit that is measured in dollars whose value is dropping.

Nor does the solution lie on the production side of the equation. The U.S. and other developed economies are capable of producing everything their populations need, even accompanied by a reasonable amount of foreign trade, especially if we can return our industry to the level of productivity we enjoyed prior to the Federal Reserve-induced recession of 1979-83 which gave us today’s anemic “service economy.”

Rather the solution lies with the federal government taking back its constitutionally-authorized control of the credit of the nation from the financiers and managing it as previously stated-as a public utility. There is no need to eliminate capitalism, change the basis of property ownership, abolish corporations, etc., because the organization and administration of the production process is essentially irrelevant to the real problem.

Once again, the producing economy is not the problem. It has performed with tremendous effectiveness in creating the goods and services people need and want. It would be the basis for real economic democracy if its bounty could be made available and distributed in accordance with democratic principles.

It is essential to realize that the central government of a sovereign nation has the right, the ability, and the responsibility to introduce ALL new credit into existence. This is totally different from having the central bank “print money” by relaxing lending policies, resulting in an infusion of cheap loans which must still be repaid.

Amen brother!

Going back to the first article. When the crash comes. There are a number of ways things can go

What is likely to happen? I’d suggest four possible scenarios:

1. Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your 40s instead of your 30s. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai. Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.
2. Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes?
3. Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway. Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.
4. Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

The latter is the only sensible solution. There are monetary reformers who know how to do it if anyone gave them half a chance.

I personaly have been calling for the abolition of the Federal Reserve ever since someone told me to take a closer look. I think you should to. So far Kucinich and Paul are the only two U.S. candidates who get this at all. Interesting how they are portrayed as the outsiders.

Food for Thought!