DOWNTIME

Why We Fail to Recover from Rinse-and-Repeat Recession Cycles

David Haggith

Author and Publisher of The Great Recession Blog

Copyright © 2020 David Haggith

All rights reserved

No part of this book may be reproduced, or stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without express written permission of the publisher with the exception of "The Road-to-Real-Recovery Plan" near the end of the book.

Photo art created by Lucian Amarii and licensed under the following free-use agreement: CC BY-SA (https://creativecommons.org/licenses/by-sa/3.0)   The cigar was modified to be made from a rolled US$100 bill without the author's express permission. The author does not endorse anything written in this book by allowing free use of his art. The original work and other information can be found at:

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Contents

Title Page

Copyright

Introduction

How the Mad, Mad, Madoff World Fell for a Ponzi Scheme

Tsunami Warning: Housing, Banks, Factories and Stores Slide into the Sea

Collapse of the Colossus

Blunders of the Dunderheads

The Greatest Snow Job in History

Bailing Out the Biggest Bullies

Things to Do with a Failed Bank

Year of the Rat / Year of the Ox

How to Bring Economic Recovery out of Rubble

The False Prophet of False Profits

Banking on the Future

Talking Stock Versus Taking Stock

The Passing of Nations

It’s Up, It’s Down for the Count

Bailout Bonanza Gone Bananas

Virus Impacts an Economy Already in Decline before the Crisis

A Sustainable Solution to Endless Cycles of Economic Collapse

Speak up Now or Forever Hold Your Peace

About The Author

Introduction

This book is about cycles of recession we have been repeating for decades. Each recession becomes worse than the one we  thought we were trying to repair. Each cycle increases the gap between the rich and the rest and leaves a smaller, weaker middle class. We are now facing one of those recessions again, brought on this time by a virus but created out of all the detritus we kept pushing forward from each of the past recessions. Pushing but never solving.

This book will present those cycles in common language, not difficult economic jargon, and I'll try to lighten the journey by throwing in as much humor along the way as I can. If nothing else, I'll lampoon the people who keep bringing catastrophe our way. I hope many people will use the economic downtime we are entering now to reflect on how it is we keep getting back here and on what we need to do to stop the endless rinse and repeat of these economic cycles that have become increasingly devastating.

My interest in this started back in 2007 when I believed the US housing market was about to fail catastrophically, taking out major banks around the world and destroying the global economy. I became so convinced that I persuaded family members to sell a small estate they had been holding because property was appreciating in value so quickly that holding it had been better than money in the bank (and that was when money in the bank still got you something), but that would soon no longer be the situation.

They eventually decided to sell the home just three months before Bear-Stearns made it obvious to everyone some deep financial troubles were brewing. They beat the crash and sold the family home near the peak of the market. I realized then the value of urging people to take actions based on what I believed would happen.
Having written for Putnam and other major publishers in the past, I decided to apply my writing to warning others about the measures that were being taken to rescue the economy because I believed they were creating cycles that would bring greater destruction later. That began as a series of articles, called "Downtime" that I have collected in this book, which laid out how I believed the recovery efforts were setting up a cycle that would fail more catastrophically than the Great Recession. We are now at the point of that anticipated failure.

I noticed a pattern that existed, at least since the dot-com bust of the early 2000s, seeing the recovery efforts did nothing to remove the problems that caused the global collapse but did everything possible to avoid solving them because greedy people could make vast amounts of money by continuing their problem-causing behaviors and then get bailed out for it. How those recovery efforts would fail became as clear to me as the failure of the housing bubble had become. So, I began writing a website, called The Great Recession Blog.

On the website I predicted the Federal Reserve's attempt to withdraw the money it had added to the economy during its bailouts would cause the stock market to dive in January of 2018 when they doubled down on the rate at which they were withdrawing money and then would result in a significant stock market crash in the last three months of 2018.

That would start, I said, in October when the Fed's "Great Recovery Rewind," as I called it, was scheduled to get up to full-speed withdrawal of the money they had used to artificially lift the economy. It was common sense, which the Fed seemed to lack. You cannot pump up huge economic bubbles with free money and not deflate those same bubbles when you take the money back out. All of that happened with the exact timing I had laid out based on the Fed's schedule for "unwinding its balance sheet."

At the start of January, 2019, I said -- based on problems that had shown up at the end of 2018 in a barely-thought-of-area of interbank lending -- we could expect a huge blow-up in loans called "repurchase agreements" (repos) later in the year because the Federal Reserve was continuing to take its recovery money out of the economy. In September of 2019, the "Repo Crisis" blew up, and forced the Fed to start pumping massive amounts of new money back into the economy.

I said that would still not be enough and that the Fed would ultimately have to go back to full-on quantitative easing, as it had done to get us out of the Great Recession. The Repo Crisis continued to grow month after month, and then exploded out of control the second the coronacrisis hit the U.S. because the whole economy was riddled with fault lines that this book will lay out that were too week to handle recessionary strains.

Now, as we plunge into what I believe will be an even deeper recession, the Fed is repeating all the same flawed ideas at a faster rate and in far larger quantities and with less supervision in order to try desperately to keep us out of that recession. They are as much now as ever the wrong ideas. This cycle is certain to blow up even worse than the dot-com bust and the Great Recession unless we come to understand why we are endlessly rinsing and repeating the same cycles that create great recessions for a few but not for most people.

Each cycle requires more new money and creates more economic distortions than the last cycle. I would give this third cycle we are beginning now much less time before it brings greater devastation than the past ones if we don't break the cycle quickly. Breaking it will also cost dearly. It's too late to avoid that because of wrong approaches taken in the past, but breaking the cycle is the only way to stop from repeating it into unfathomable economic calamity. That calamity may already be upon us, but I hope we still have time to break the cycle.

I share the collection of articles I wrote ten years ago with some introductory commentary in each chapter and the occasional comment in brackets within the text of those articles because I know you will be able to see how precisely the pattern followed then is the same thing that is being done on steroids now. It's the same failed playbook.

I also know you will be able to see how accurately predictive those articles were, and I hope that will give you confidence to realize the same problems will emerge in greater ways if we repeat those mistakes now, and I hope the predictability shown will give you confidence to believe in the solutions presented later in the book and to push to make them happen.

How the Mad, Mad, Madoff World Fell for a Ponzi Scheme

(Chapter One)

This first chapter from my first article that described the days leading into the Great Recession over a decade ago portrays the economy of the time as a giant housing Ponzi scheme to which Bernie Madoff’s little scheme with the rich was but a play within a play, symbolic of all that was going on in the United States’ economy and that was readily allowed by everyone. Few in the housing market had the sense to see what was happening, but any who did didn’t care because they were making bank whether by selling real estate or flipping houses or making loans. Most people had no idea how hollow the scheme was or of what was about to befall the world … nor did they care.

In the case of Madoff’s Ponzi scheme, Madoff took “investments” from the rich and told them they were making extraordinary gains. When anyone wanted to realize their gains, he cashed them out with gains as large as he had been claiming their investments were making, using money from the next larger round of suckers to make the payoff because he wasn‘t really investing their money at all. He convinced most to keep their money in the pool so that it would keep making these great gains, but he celebrated the success stories of those who got great payoffs when they wanted to keep sucking new rounds of people in. This he calculated as his cost of advertising. Word of mouth about the huge payouts travelled among the wealthy, and the rich lined up to get fleeced. His success story and his bust became a parable of the times.

The words of central banksters and presidents in this article over a decade ago sound just like the confident words of their counterparts today, and that tells me we’re caught in endless rinse-and-repeat economic cycles. It was not as humorous as the articles that were to come but it fits our present crisis to a “T,” so hang in there.

How do thousands of the world’s supposedly most brilliant investors fall for a con like Bernard Madoff and lose their shirts and slacks? The puzzle is not to explain how one person can be such a great con. There was nothing genius about his plan. His form of pyramid scheme, known as a Ponzi scheme, is one of the most common financial fiascos in the world, known to all investors. The puzzle, then, is to figure out how so many experienced, highly credentialed and successful investors could become so utterly conned with such ease? Madoff is just a figurehead for what has happened to the entire planet during the same timeframe as we now sink into a period of recession. The greater puzzle, then, is to discover how a whole world could have become so confounded.

The Emperor’s New Clothes

The answer for Madoff and his investors lies in the fact that Madoff pulled off his pyramid investment scheme during a boom in which nearly all of the Wall Street insiders and political leaders were willing to believe that vast profits could go on forever by just making credit freer. It was a credit pyramid where eventually the ability to take on more debt had to run out. Making credit freer really translates into printing more cheap money. That’s what credit does in the Federal banking system. It’s the central bank’s way of injecting money into the monetary system through banking credit.

During normal economic times…. Right away I’m in trouble because most people think “normal economic times” are what we had through most of the last decade. But real normal times are when banks have regulations that require (here’s an old-fashion word) collateral, and… well, we won’t go there just yet. During normal times when banks actually weigh risks with formulas, rather than try to insure it away with odd insurance schemes no one understands … during times such as that … some investors would have been skeptical and wondered what Madoff’s trick was. They would have asked questions and probed. Someone would have seen what was happening and blown a whistle long before Madoff’s pyramid reached such Titanic scale. But, as we roared into the new millennium, Madoff didn’t need to explain to anyone how his investments worked. After all, no one understood how a lot of things worked in the financial markets anymore. It was enough that they were clearly working because people were making big profits off of them.

The Goliath gurus like Madoff and Federal Reserve Chair, Alan Greenspan, were trusted. No one questioned those who appeared to know how to help the hordes hoard vast and dizzying financial stockpiles. No one wanted to throw cold water all over the party guests. It was fun, the drinks were pouring, why ask tough questions? The world was in a feeding frenzy. Madoff didn’t get away with his scheme for so long because he was bright or because all investors were stupid. He got away with it because no one was paying attention to business. It turned out that the emperor wasn’t the only one with no clothes. All of his advisors were naked and didn’t know it as well. In fact, his whole kingdom was naked because nearly everyone participated by overextending their credit … living off of debt, instead of wealth … leveraging their daily lives.

The Core Meltdown

At the bottom of this worldwide meltdown is one simple word: denial. I like to refer to it as “economic denial.” The few voices that spoke about the dangers of economic growth fueled by endlessly cheaper and cheaper credit were not heard. Keeping this pyramid scheme climbing through ever-growing consumerism meant the nation had to keep consumers consuming beyond their cash means for consumption indefinitely. Anyone should have seen that was a pyramid that had to eventually reach its pinnacle. Once presidents had built bull markets by deregulated credit, the only way to keep consumers spending was to keep extending their leverage. If they ever stopped increasing their debt, the rate of growth that depended on that constant debt increase would have to stop, too. Denial didn’t want to think about that or even hear it. Denial doesn’t give a second thought to anything that doesn’t fit in its distorted view of reality.

The denial worked because nearly everyone in the world was willing to believe that housing prices would go up forever. If the U.S. government had listened to the what-ifs (what happens if housing prices actually go down for a little while?), then it would have known it had to keep in place the longtime standard regulations on home loans that were based on percentages of income compared to other household expenses, and reasonable down payments, and maybe even non-adjustable interest. All of those rules existed for the sake of avoiding surprises in loans down the road and providing a buffer in case housing values slid a little. Those regulations came into existence precisely to avert the enormous meltdown we are now experiencing.

Denial is what any of us engage in when we decide to have something we want without regard to excess or risk. It’s what we do when we say the extra desserts won’t hurt me, the extra drink won’t affect my driving, the extra-marital affair won’t have any repercussions in my marriage. Denial is what I kept hearing in the financial news months ago when I saw this economic collapse coming and heard others still speculating as to whether or not we were in a recession.

Of course we were in a recession! You could feel that in your bones. It’s just that the economic indicators — the gauges on the economy — had gotten a little sticky and were a little slow to respond. By the time the gauges began to move, the U.S. had entered its economic China Syndrome. Denial is what I heard when one of the Goliath gurus said, after the fall of Bear-Stearns and J.P. Morgan, “This is nothing. In 1987 we saw hundreds of financial institutions collapse. This is only two financial institutions.”

For a giant, you sure are dumb, I thought, In ’87 we saw hundreds of mom-and-pop savings and loans on the periphery of our economy go bankrupt. That’s like losing fingers. This time we’ve just seen two vertebrae in the center of our economic spine turn to dust.

Denial came in the form of a major presidential candidate telling the nation that its economy was fundamentally sound, when the fundamentals of the economy were the very thing that was least sound of all.

Denial Dies Hard

Now that the economic power plant has melted down, the denial is over, right? We’re all looking for straight answers to get us out of this mess, right?

Wrong.

People want the up times back, and there’s no stopping them. No one wants to bear the pain of the kind of correction that could set the world aright again. Therefore, all the governments in the world are looking at essentially fixing the problem by resurrecting it. The prevailing view is that the way to fix a situation that developed out of cheap and easy credit, which intoxicated consumers and investors to the point of delirium, is to get the cheap-and-easy credit lubricated and flowing like it used to so the good times can roar again. The solution put forward by all the economic giants of government, guided by all the same Wall Street Wonders who created the mess, is to do more of the same — to get consumers who are not spending enough to pump the economy up by buying cars and homes they clearly don’t need. To do that, they have to get people to consume on credit again. That’s Plan A. (And what could go wrong there?)

The other part of their solution offered by the government is to give consumers a little tax break — Plan B. Even when the government is looking at the most outrageous deficits the world has ever seen any nation take on, the Bush Administration wants consumers to take on more debt by decreasing its revenue so that consumers will have more money to rev the economy back up. The catch there is that the consumers are still buying everything on credit; it’s just that it’s the government’s credit, which consumers are still on the hook for as taxpayers down the road.

None of that’s going to work. That’s why the tax break earlier in 2008 didn’t save us, but we can’t seem to stop from turning to tax breaks and deeper government debt as the answer to problems created by too much debt. I said at the time, it was foolhardy and predicted it would scarcely create a bump in the recession, but no one listens to people who don’t say what they want to hear. (Of course, there was no reason they should listen to me because I’m not one of the Goliath gurus who get all the television time.) No one — least of all taxpayers — wanted to hear that the tax breaks wouldn’t work. Taxpayers like breaks like school kids like snow days. Government, on the other hand, had no creativity to offer anything that was not in its standard play book. Yet, old Band-aids aren’t going to work for major spinal injuries. [You could have marked my words that we’d be right back here someday.]

David Against The Goliaths

So, the international effort to prop the economy back up by getting credit flowing as easily as it was (which was the only reason houses were able to climb so far past people’s means in the first place) is just more denial. Denial is like that. It filters what we see so that we can believe the good times will keep rolling and so that we won’t have to deal with down emotions that we don’t want to face.

If the Goliath financial gurus that the world’s mightiest emperors keep listening to weren’t so nakedly wrong, we wouldn’t be in this mess. (Nothing like a world full of naked giants and, even at that size, no one notices they have no clothes.) So, with all of the financial wizards all over the world blatantly and grossly wrong, I decided that being a big name does not give one a clear view of the truth.

Since there is no possible way my observations could be further off than all of the financial behemoths in the world fused into one vast and writhing collective of twisted wisdom, I decided to start a column called “Downtime.” It’s time for this little David, an average guy with some common sense, to pick up a few common stones and start sinking them between the eyes of giants. “Downtime” is going to be a weekly combination of financial news and commentary that sees through the huge cloud of denial that is still swirling around the world.

That means it will be for a limited audience because it will be of interest only to those who are willing to see the present downward spiral for what it is and to drop all denial about what works and what doesn’t work for righting so many wrongs. So, if you don’t think an average Joe who is not a plumber could possibly be worth listening to when we clearly need the world’s mightiest minds to stop this juggernaut from eating the earth, go back to your 401K and continue listening to the great gurus that got it where it is today and who didn’t see any of this coming.

Tsunami Warning: Housing, Banks, Factories and Stores Slide into the Sea

(Chapter Two)

During the winter of our discontent, which was January and February of 2008, the Bush administration fiddled as the U.S. was falling. While the Gurus of Government played happy music on their violins, singing that the economy was “fundamentally sound,” I was telling friends that we had entered a recession that had all the makings of another depression, saying it would become big enough to wash over the entire world financially.

In the spring of 2008, while the Bush administration and congress were still arguing over whether or not we were about to enter a recession, I was stating that clearly we were already deep into a recession and that a depression was about to inundate us. Ben Bernanke, who was recently made Chair of the Federal, famously said that summer that he didn’t see a recession anywhere in sight. Months later, it would be officially declared that we had already been in a recession since the end of 2007.

During the late summer, fall and winter of 2019, I was, again, saying the same thing on my website The Great Recession Blog – that recession was already building and could be seen in almost all economic statistics, even though stocks were flying high. Corporate sales had been in decline since the spring of 2019. Revenue had been in decline. Profits were in decline but were camouflaged by being reported as “Earnings Per Share” where corporations were using up all their company cash and taking out piles of debt to buy back their shares so that corporate executives and board members could use company cash and credit to buy out their own shares as they saw bad times approaching. (Fewer shares in the denominator of earnings-per-share means much higher looking earnings.)

By summer, the US was in a manufacturing recession. By fall, the financial industry started showing serious signs of stress cracking the foundational loans banks make to each other. The Federal Reserve had to rush to the rescuer again and returned to the quantitative easing it used to pull us out of the Great Recession but kept saying it was not doing quantitative easing. I kept saying their interventions would keep rolling over until they became QE4ever by the start of 2020.

Later in the fall, the larger services sector of the economy started declining into recession. Recession was in the air everywhere, but no one was talking about it. It had become the talk of summer but had faded out as we moved into fall because the Federal Reserve’s new money creation was pumping stocks up again just as it pumped up housing prices in the period I described in the article that follows.

Who cannot see the parallels, again, to current times as history rhymes with the Retail Apocalypse, the closing or repurposing of major shopping malls, and now rapidly growing defaults in commercial real-estate loans as payments to already marginal real-estate companies fail during the Coronacrisis. The article below began with a recap of things I had been saying for some time and then continued with the situation then present in real estate, which we now are seeing repeat with its own rhythms:

The landslide of homes into the sea was already well under way. The question was what economic waves would this landslide create.

Tsunami One: Housing Slides into the Sea

Suddenly we knew: the first tsunami wave of our own landslide hit us, for our own shores were closest to the housing collapse. Bear Stearns crashed on our shore. The Wizards of Wall Street, proclaimed that the fall of Bear Stearns was nothing compared to the failure of savings and loans in 1987. We would weather it fine. The president, in his denial, indicated we had a minor economic jolt. I, on the other hand, began talking in terms of an economic tsunami right then and said that the collapse of Bear Stearns was just the first wave of much greater destruction to come.

Second Tsunami: Slide of Housing Wipes out Banks

The world learned by observation in December of 2004 that physical tsunamis come in multiple waves, not just one big splash. You would think people would realize that’s the way it is with fiscal tsunamis, too; yet friends argued back that the U.S. could not be entering a depression because many elements that had happened in the Great Depression did not happen with the fall of Bear Stearns. I pointed out that the Great Depression did not happen on Black Tuesday in 1929. What happened on Black Tuesday was the first wave of many failures that developed into the Great Depression over a period of many months, and I predicted that’s what we were about to see play out right in front of us. To clarify what I meant, I laid out what I now call my economic tsunami warning system.

The first wave that crashed in my economic tsunami warnings was Bear Stearns. Within the short time it took to wash over us, I predicted that it would push heavily on two or three other core financial institutions, which would also give way. This would cause the crushing of our economic central nervous system in the U.S. and would be the second wave of the Depression.

The second wave happened in far more spectacular fashion than I envisioned. Yes, two institutions went down almost immediately after Bear Stearns. Lehman Brothers and Merrill Lynch both toppled, just as I had predicted (not that I had predicted those specific institutions, but just that two or three of that kind would fall). That was unheard of until the truly unheard of actually happened: In rapid succession Fannie Mae and Freddie Mac also crashed upon the U.S. shore, and then J.P. Morgan and Goldman Sachs and AIG piled on top … and finally Washington Mutual, the behemoth of thrift banks, collapsed of its own Gigantism. The U.S. was awash in a sea of massive failures, and the water had turned to blood! So, the second wave was more spectacularly fierce than I had anticipated. I had anticipated more would fall after the second two or three, but not that they would all crash onto the shore at nearly the same time. It was a resounding and deafening roar.

Third Wave Goes Global

The third wave in my economic tsunami warnings was that the first and second waves that hit U.S. shores would do what tsunamis are well known for doing: they would bounce off and head over to European shores. The failure of U.S. financial institutions would certainly cause the failure of some European banks. Suddenly, even the most highly respected and conservative banks in the world, Swiss banks, took a pounding. One of the largest of all Swiss banks Credit Suisse staggered and almost fell. Several European banks would have fallen if not for massive European bailouts.

The Four Wave Takes out Manufacturing

The fourth wave in the economic tsunami that I wrote about would be the failure of major manufacturers in the U.S. as a result of credit challenges overseas and at home and their own loss of market. In late spring, I said that this wave would take a little longer in coming and would not arrive until fall of 2008, but I also said that, by the start of fall, we would be seeing bank presidents competing for jobs as hamburger flippers. In other words, we would see major increases in unemployment in the fall, starting in top management, as a result of the devastation from the waves before. This rising tide of unemployment would mean that major manufacturers would lose their markets. The manufacturing wave hit in fall, as predicted, when the big-three automakers announced simultaneously that they were on the verge of bankruptcy.

Really, anyone should have seen the fall of the Big-Three coming long ago. I had predicted the demise of that particular group back in 2005. Why? Remember the loans they were making then in order to offload product? They were “selling” their cars at zero down-payment, zero interest, and zero payments for a year, and that was when times were rosy for most in the U.S. “Heck,” I said, “That’s like a free auto lease for one year. What’s their game plan at the end of that? There’s nowhere to go. Everyone who is going to consider buying a new car for the next two or three years is going to jump on this program now, and then there will be no car sales down the road. You can’t keep giving them away forever just to keep that game up.”

Meanwhile, automakers did just give away their cars that year because many of those people would default on those loans when it came time to pay. I said, “Heck, they’ll just consider the car a free loaner, and they won’t care that they default on their loan because they have zero money into the car. They’ll just say, ‘Thanks for the loaner, go ahead and wipe out my credit rating; it’s looking like it’s shot anyway, and come and pick the car up at your own expense.'” It was all done to pump up sales volume and look good for the short term to investors without any regard to an end plan. The profits of 2005 were false profits.

I anticipated that GMAC, General Motors’ finance division, would be in foaming waters when it came time for people to start paying on those loans. Is it any wonder that GMAC is now the whirlpool at the center of General Motors, sucking it under? So, the fourth wave of the economic tsunami hit almost as spectacularly as the second wave had, and it happened with the manufacturers that I was certain must be sitting in a precarious position.

With Jobs out and Credit Destroyed, Retail Slides into the Sea

What was the fifth wave of the depression that would be sweeping over us? A shocked and reeling public, fearing unemployment, would fail to buy at Christmas time, causing major retail failures. Some will say, “Aha! You were wrong. Sales were not that bad during the holidays.” Ah, but they are wrong. I explained this in December to my friends. “The black lining on this silver cloud,” I said, “is that there are no profits in any of those sales. Just as the Big Three Automakers did a few years ago, all the major retailers pumped out their entire inventory at a break-even level just to clear it out and cut their losses.” You see, sales volume can be tabulated right away, so that is the first news we hear; but it takes a month to calculate the profit of the month before after all returns are in. So, the sales volume figures did not look too bad.

Mark my word, though, we are in for some black news when the books are finally closed on December. Actually, it will be more like red news. Before the end of January, you will see major retailers beginning to report that they had no profits at Christmas time or even minor losses. This is major bad news because major retailers make well over sixty percent of their profits for the entire year at Christmas time. You will see Target, Sam’s Club, Walmart and other giants of the retail industry start to announce layoffs before January closes and throughout February.

Already the smaller retailers have begun to go out of business entirely. News came in at the beginning of January that mall vacancies are at a ten-year high. It’s not the big stores that have closed their doors yet, but the smaller retail businesses that have less staying power. Some major malls in retail Meccas, such as Honolulu, are already facing bankruptcy. While 700,000 jobs were lost in the U.S. economy in December alone, this fourth wave is still passing over us, so the bodies cannot yet be counted in its wake. Unemployment hit 7% in December. As the retail body count stacks up over the next couple of months, I predict we will finally enter double-digit unemployment, which we haven’t seen in a quarter of a century.

Sixth Wave: Receding Retail Takes Real-Estate Crisis Commercial

This adds up to the sixth wave of our plunge into a depression, which is the failure and foreclosure of commercial real estate. The landslide that triggered this whole tsunami, remember, was the failure of residential real estate. As commercial real estate slides away, the sixth wave is a repeat of everything that happened with the first real-estate failure, possibly on a smaller scale, but still badly damaging.

Office vacancies in the U.S. have already hit 14%, and rents have fallen in 65 of the 79 major U.S. markets. Already 1.5 square miles of office floor space were vacated in 2008. Once you start adding the vacating of retail floor space and more vacating of office floor space, you can see that commercial real estate is already beginning its long slide into the sea.

Biblical-scale plagues come in sevens, don’t they? So, what will be the seventh wave of this depression? The seventh wave may be a ways off with small reflections of waves 1-6 in the meantime as more foreclosures lead to more unemployment and a few more bank failures. These are the tsunami waves bouncing off foreign shores for the third and fourth times before they finally settle down to where we can start to pull ourselves out. Part of this bouncing will be seeing all the same things happen in countries all over the world, thanks to the U.S. debt addiction.

Seventh Tsunami: The Pile-up of Financial Flotsam and Debt Debris for Years to Come

The seventh wave is the wave of ultimate destruction, and it’s building out at sea right now. It’s a rogue wave, which scientists say forms when large waves pile on top of each other. This rogue is the inability of the U.S. government to finance its debt. Many of us have seen this coming for a long time, but the present scenario makes it almost inevitable that the time is soon upon us, especially with the bailouts. Countries have been talking for the past year or more about moving away from investing in U.S. dollars (i.e., U.S. Treasury notes) because they do not see the U.S. as a secure investment any more. The U.S. has probably permanently lost its financial reputation.

[And there I was wrong in this article only because the Federal Reserve did something never seen before and started buying up trillions of dollars of US debt as quickly as it was issued in order to keep the cycle going for another round.]

Right now, the U.S. is facing the prospect of trillion-dollar deficits for the next few years, which could double the total U.S. debt in one presidential term. These enormous deficits make it look all the less secure. Right now, the U.S. is selling bonds to finance that debt at about 1-2% interest, the lowest interest it has had to pay ever (because no one wants to buy stocks, so money is pouring into bonds).

What happens when the U.S. has to raise those interest rates that it pays out to their norm of 4-5% in order to attract the investment of foreign governments into financing its economy? What happens if that foreign money starts to run away, and the U.S. has to pay 7-8% to attract it to stay? The interest on the national debt alone is about $450 billion a year now. That’s half of the entire proposed bail out, just being paid in interest. Double the interest, and we’re talking adding a whole bailout to the U.S. budget every single year in interest alone.

That’s when total collapse comes, and the “fundamentally sound” little island sinks into the sea, and a whole new world has to begin. And there is already serious planning for that brave new world to form via unified global economic policies and structures. More on that at another time.

Collapse of the Colossus

(Chapter Three)

Who cannot hear echoes of our own time in 2020 in that last article as the government, again, turns to massively expanding the rate at which it piles up debt in order to get out of a recession that is already looking like it could become as great or greater than the Great Recession? Some financial maestros are already saying it will be a “depression.”

This time the Federal Reserve has instantly jumped to bailouts and financing the US debt at the start of 2020 by soaking up trillions of dollars in bonds. In just half a year since trouble started breaking out in interbank finance (repo loans), the Federal Reserve has added a trillion dollars of bad debts that were clogging the system and government bonds that were necessary to fund the repeated tax cuts that never paid for themselves back onto its balance sheet at a rate faster than what it did in the Great Recession.

Already, the government has leaped in with bailout legislation twice as large as the mind-boggling bailouts it created in the early days of the Great Recession, which means our rate of debt expansion has just jumped from a trillion dollars a year to trillions of dollars a year. So, what did we solve in the last cycle that we are not, again, repeating on a larger scale because we blew up bigger balloons?

The return to the old plans of bailing out corporations happened almost overnight, so the public could not even respond. Who can believe the same bailouts of major financial institutions will not also happen again in order to “keep them from falling on us?” But why did we leave these institutions big enough to squish us when we tried to solve the problem last time to where we now face the same problem again? Why didn’t we break them up, if we were going to save them from themselves? Why didn’t we save ourselves from them in the future as a condition for their salvation by dividing them into smaller healthier, independent companies as we did with Ma Bell?

I pointed out back then that we WOULD see the same problems come back to haunt us whenever recession returned because we were refusing to deal with them. We saved them the way their CEOs wanted to be saved, so we just pushed the problem ahead, kicking the can down the road. Are we going to solve them without solving them again by just bailing companies out in order to attempt to repeat an even larger exploding cycle?

If we do, I don’t think the next cycle will get bigger before exploding. I don’t think it will even get as large as it just did before exploding.

“It’s too big to fail, it’s too big to fail,” has been the mantra of the U.S. government bailout program. If crises occur because these organizations are such behemoths that a single institution falling can cripple the economy under it, why have the top gurus in the Bush administration insisted upon making each institution far bigger still in order to save it?

The U.S. Addiction to Size Matters

While people focus on the folly of subprime lending and deregulated banking, there is a bigger picture here, against which all of this is strong testimony — GIGANTISM. America is suffering from its addiction to size in everything. Many love power, and size is power. So, Americans conglomerate to where things become so large that, if they do fall, they create a catastrophic tsunami. We are, after all, a conglomeration of semi-sovereign states in the first place. America carries this love of size to extremes in everything.

So, whenever one of our economic titans teetered on the edge of bankruptcy this past year, the peril from its collapse to everything in its shadow pressured the executive branch to create a deal over the weekend before the market opened again on Monday. The masterminds of mayhem rushed in to pump some “good” news into Wall Street ahead of the market opening to avert disaster.

At every turn, the government’s answer to the risk of corporate obesity was to take two weak and wobbly mammoths and cobble them together into some bigger and more ungainly creature. Each resulting conglomeration came out looking like Frankenstein’s monster with all its seams showing. Thus, many of the following solutions were amalgamated during midnight hours in the board room laboratories of the Washington Wunderkind:

The Feeding Frenzy

Standalone investment banks, facing a rapid die-off of their kind, ceased to stand alone. Cash-starved institutions sought to feed themselves by eating each other, giving us a new meaning for the term “consumer bank.”

J.P. Morgan Chase and Company, a name that was already a mouthful of earlier conglomerations, gulped down a belly full of Bear. I guess that would make them the J.P. Morgan, Chase, Bear, Stearns, and Company company. The Federal Reserve helped prepare the Bear to make it more palatable for Morgan to eat. Apparently that role is the meaning behind their nickname “Fed.” Somehow the Fed thought a dying beast fed on Bear would be an improvement on the “too big to fail” scale.

Fat on Bear, you’d think the beast would have been satisfied for a little while, but within a month it felt the need to digest the largest bank failure in world history — Washington Mutual. Again, the Fed. cooked the meal. I won’t even try to squeeze that addition into J.P.’s burgeoning name, except to say that the feeding frenzy was mutual. And with that, J.P. and Companies acquired a bank that was even a different breed from itself. An investment bank consumed a consumer bank!

Others jumped in. Barclays, the British bank with an appetite the size of an empire, digested parts of the Lehman Brothers, pulling off an arm and a leg, according to taste. Bank of America, already a Leviathan, swallowed Merrill Lynch whole and became even bigger and sweatier. It also took the leisure to snack on Countrywide Financial Corp. for dessert.

In order to save themselves from extinction, as the rest of their species died off, the only two remaining major investment banks in the U.S., Goldman Sachs and Morgan Stanley, evolved into the most elephantine “bank holding companies” the world has known. That meant they evolved into another species that already existed. That was something new in the cosmos. They became what regulation did not allow — investment banks that can contain entire other banks inside of themselves.

Meanwhile, Well’s Fargo, in a fairly strong position, swallowed the wavering Wachovia. Citigroup, once the largest known corporation in the galaxy by market value, buckled under the strains of the current economic load, and also began looking for meat in order to save its fat and floppy body. Citigroup and Morgan Stanley have been seen eying each other recently as if they want to marry their large mouths by mutually consuming each other — an obese way of saying merger… because they feel they’re just not big enough to survive apart. They were already the biggest artificial creatures in our little neck of the cosmos. For now, they’re just sucking on each other’s thumbs, but each hoping to bite a thumb off in the short term, while still eying each other adoringly for mutual total consumption.

Most of these companies above didn’t make their acquisitions because they were strong companies, seeking to devour weak prey. Their taste for evolving into other species by eating them is something they’ve acquired while drowning in a sea of bad debt or in a sinking stock market. All of these new and bigger beasts have their parts held together by baked clay, and the government and Federal Reserve are the bakers … and the clay.

The Right Recipe for Recovery?

If these immense institutions were “too big to fail” before — such that tax payers have to pony up for their salvation just to keep their dead weight from crushing us — what are these monstrosities now? It’s not easy for one beast to swallow another whole; so, to make this possible the government had to remove more regulations from a situation where the removal of regulations played a central role in creating the problem. So, likewise, I ask, if deregulation was a big part of the problem, why is final deregulation of the most foundational barriers the ultimate solution?

What we are witnessing in these twilight days is the end of the United States as the money market of the world. It is a colony of gluttonous creatures dying of their own gigantism, who only know how to save themselves by eating more… of their dying colleagues. The mergers we have witnessed in the past few months are different than all others. Because the banking industry has become too big and heavy to lift its own arms in order to save itself, it has begged for the help of government to bring in the food, trim out the spoiled meat, remove the toxins by giving the toxic stuff to the taxpayer to eat, so that these institutions can finally safely swallow each other. Eating has become a medical procedure that needs a third party to remove the risks and carry the load.

Is This A Solution For Economic Collapse Or Solution To Create The Next One?

If these institutions are “too big to fail,” then failing is exactly what they needed to do. A new economy of the slim and trim needed to be created to remove the risk of “too big to fail.” Any bonehead could figure that out. In other words, the way to end that risk was to break the fallen giants up and restructure them. We have a word for that process — “Chapter 11 Bankruptcy.” It’s an organized way of parting out what is salvageable while preserving creditors and employees. In many instances, the company continues to operate under trustees while shareholders pay all the losses by turning their shares over to creditors and/or employees. In the end, the company still survives, but is debt free or debt reduced, leaner and meaner. The CEOs and board members who weakened their companies to feed themselves get the boot.

There seemed to be essentially two choices the government could have made last year. Let the dying dinosaurs break apart and become the food of smaller mammals, or save each pair of ailing beasts by surgically sewing them into a bigger beast made of sick parts. The government has pretty consistently chosen the latter. Why? Because all the gurus are from the same school of mergers. It’s what they know. It’s what happens when you put the people who presided over the creation of this mess, in charge of fixing it.

Blunders of the Dunderheads

(Chapter Four)

It is mind boggling to review the lack of actively twitching brain cells our best and brightest exhibited during the last economic crisis and to see how those who were using them operated them by using fear of the crisis to gain unrestricted power for themselves over the greatest sums of money congress had ever authorized. It is mind boggling … until you realize how small those bailout packages – larger than the whole government deficit at the time -- seem compared to today’s.

Another interesting parallel to today is how readily the entire population of a nation acquiesced to changing the entire country in response to people who had never proven they knew anything and had already proven wrong at everything they said. In 2008, it was a change to socializing the losses of the biggest capitalists. In 2020 … it’s the same darn thing all over again. Amerika’s capitalists are capitalists with their profits, but instant begging socialists with their losses.

In June of 2008, U.S. President George Bush taught us that “one of the things important about history is to remember the true history.” With that as our guide, and this being the final days of a truly historic presidency, I’d like to reflect on the wisdom of the previous year that got us where we are now.

Presidential Prognostications

Early in 2008, George Bush calmly proclaimed, “I don’t think we’re headed to a recession.” Later in the year, he clarified his position on the economy when speaking of the frozen credit market: “This thaw — took a while to thaw, it’s going to take a while to unthaw.” When it became clear that we needed the thaw to unthaw, one of Bush’s appointees, our head treasurer, Henry Paulson, assured us that he had scrutinized the world of finance and had not “seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars.” He capped that assurance by stating that the subprime mortgage debacle was “largely contained.” Then The Wall Street Journal wrote, “Paulson, a former chief executive of Goldman Sachs Group, repeated his view that the U.S. economy is fundamentally on sound footing and would dodge a recession.”

Quick to recognize a trustworthy source, Republican presidential candidate, John McCain, made Paulson’s assurance that the economy was fundamentally his campaign slogan. That chant along with… “I’m always for less regulation… I am fundamentally a deregulator” didn’t bear a lot of mileage as slogans. Both statements seemed, however, like a good answer to public concern in March when we were all “whining” about the economy. McCain let us know that he had a good grip on these things because he was “chairman of the Commerce Committee that oversights every part of our economy.” Maybe he meant overlooks, as in “fails to take note of.”

The federal government would later (too much later) discover what I was already saying against these springtime voices: the economy had already been in a recession for a few months. It’s always comforting to know that the president of the most powerful nation on earth along with the leader in charge of that nation’s treasure along with the man who was in charge of overseeing commerce all had no clue whatsoever where the economy actually was. They all predicted it was not going into recession, while it had already been in one for three months! You can’t always blame people for not seeing something coming, but you can certainly blame them for saying it isn’t coming when it already did.

Frank and the Bank Propheteers

All of that was prelude to the day when Alan Schwartz, the CEO of Bear Sterns, boldly told the world that his company had no liquidity crisis. In fact, he claimed they were sitting on a fat cash cushion. That was easy for him to say because he personally was sitting on a fat cash cushion of a $16 Million bonus from 2007. That was on top of his $35 Million salary.

Unfortunately, the corporation’s cushion turned out to be a whoopee cushion and Schwartz full of gas because Bear Sterns was sold five days later in a fire sale for about a penny on the dollar of its former worth. Schwartz is being very quiet about his cash cushions these days. Nice to know that the overpaid leaders of great companies haven’t got a clue that their companies are already as good as bankrupt or that they walk away from such lies filthy rich. Denial, whether intentional or just idiotic, reigned supreme in 2008, and everyone got away with it!

In July, Chairman Bernanke (I like to call him that, now that he runs one of the organizations in charge of socializing the American economy) told America that Fannie Mae and Freddie Mac were “in no danger of failing.” Two months after his assessment, this same man nationalized Fannie and Freddie because, apparently, conservative Republican administrations know one thing well: the best-run economies are centrally controlled by government.

Liberals, on the other hand, had nothing to do with this because they didn’t even know it was happening. So, they had to be innocent. You see, as Congressman Barney Frank said in September, “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems… the less we will see in terms of affordable housing.” Again, it is reassuring to know that a man with keen intuition like Barney was in charge of the House Financial Services Committee!

Getting a true sense of the visual acuity of those in charge of the greenest money on God’s green earth helps us understand why the United States may be facing a failure bigger than the one that hit the Soviet Union in the 80’s.

Treasury’s Fortuneteller

When September came, however, Secretary Paulson (I like to call him that since he’s in charge of the other organization in charge of socializing America) had a miraculous vision recovery and rang all alarm bells, loudly proclaiming that he had now seen that it was urgent that Congress, without thinking or debating, immediately kick in $700 Billion to bail out the economy that was fundamentally strong.

He did this with a straight face, as if his penetrating shortsightedness in former months proved he was a man who could simply be trusted on such propositions. The worst part was that congress with an equally straight face actually gave the money to the man who thought we would dodge a recession … three months after we were already in one. Who better to be trusted with an urgent, worldwide recovery operation than the man who never saw the problem coming? Paulson not only kept his job, he became Economy Czar overnight of the new U.S. Socialist Republic!

You thought I was only calling him “Czar” in humor, right? “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion and may not be reviewed by any court of law or any administrative agency.” (The Treasury Department’s proposed Emergency Economic Stabilization Act, September 2008) Wow! I guess Paulson thought he was going to EESA thata one righta through congress under the cover of crisis. Fortunately, they revised that part … but only a little.

And why particularly $700 Billion? Well, according to one Treasury Department spokesperson: “We just wanted to choose a really large number.” OoooKaaay. Why do I feel like I’m watching a bunch of inebriated clowns playing in a sandbox? I guess if you’re going to have absolute power, though, it’s nice to have it over an absolutely large amount of money. While this was the single largest bill ever to be considered by congress, the Bush finance team said it was essential that congress not think about it. Ben Bernanke told congress, “If we don’t do this [as in now], we may not have an economy by Monday.” I think any reasonable person can see that a weekend of deliberation should be sufficient for deciding whether to overturn the entire U.S. economy and pass the largest spending bill in history because the man who never saw the crisis coming wanted “a really large number” to throw around at his own personal discretion.

By November, Secretary Paulson comforted us all again by telling us, “Our major institutions have been stabilized. I believe that very strongly.” Apparently, the program was a success because, immediately, the largest bank in America and some of America’s biggest blue-chip manufacturers went bankrupt. Again, I was reassured in knowing that the Economic Czar still had no idea what was happening in the economy and that he felt very strongly about that.

Of course, Paulson was another man making whoopie on a cushion. He had made as much as $50 Million in a bonus one year. That does take the bottom out of a recession. (The reassurance I keep feeling, by the way, is not that the country is strong, but that my own thinking is still clear because I keep watching those I disagree with skid on their faces in spectacular style. The odd thing is how they keep doing it! I would have thought they would have lost face a long time ago.)

Wandering into Wonderland

As I write this article, I can hardly believe I’m quoting the real world. Yet, just when I thought these dim bulbs would surely brighten up, came a statement that would put a golden smile on the face of the reddest Russian. As we closed out the year, the president of the United States proclaimed that he had to “abandon free market principles to save the free market system.”

Surely, I just slid down Alice’s rabbit hole into Blunderland where everything is backwards, right? Did you ever think the United States could become an entirely different country as fast as the U.S.S.R. did in the 1980’s, only going the other direction? Well, you might have thought that; but did you ever think that the whole populace would accept it with hardly a blink?

Must we call ourselves the U.S.S.S.R. just to keep from becoming confused with the other United Soviet Socialist Republic? Ah, but the U.S. is different because that other mob kept a strong military grip on its populace in order to maintain central economic control; whereas, our populace goes along willingly. If you think so, note this: the Phoenix Business Journal recently quoted the U.S. Army War College as stating it is testing the “use of American troops to quell civil unrest brought about by a worsening economic crisis.” On the bright side, this means that part of the government has finally ended its denial and is recognizing that the end of the economic collapse is not in sight: “Economic collapse, terrorism and loss of legal order are among the possible domestic shocks that might require military action with the U.S.” [That, at least, was a concern at the time the losses of capitalists were being socialized and some companies temporarily nationalized.]

That bit of news from Phoenix leads me to wonder if Senator McCain is reading the same local papers the rest of his State of Arizona reads. In the end, it turns out Sarah Palin was not only the smartest candidate of the two; she was downright visionary. She was the first to say she could see Russia from her house. Many people laughed. Now all of us who live in these United States understand that we can look out our windows and say the same thing … from any part of the country.

As George Bush said earlier this year, “I’ll be long gone before some smart person ever figures out what happened inside this Oval Office.” Now, ain’t that the truth about history? I think it was George’s way of telling us what wasn’t on his mind. And, thanks to the dunderheads of economics throughout government, the rest of our heads will be reeling for a long, long time. You see, before we can remember the true history, someone’s gonna have to figure out what actually happened.

The Greatest Snow Job in History

(Chapter Five)

As forewarned in these articles ten years ago, the mountains of debt the government was creating to bail the US out of the Great Recession would become a pile that we would push forward without ever paying it down until we could push it no more. We never paid down anything when the supposedly “strong economy” emerged, and the proper use of debt is to borrow to get through bad times but to pay back during good times in order to create a smoother road with shallower dips and lower peaks.

Now, as we repeat the cycle, government is piling on new trillions much faster for new bailouts in the new crisis. The day when we can push the debt pile forward no more may not be far off as additional trillions financed by the Federal Reserve -- on top of the $1.2 trillion deficit that had become the nation’s norm by 2020 -- may bring credit rating downgrades like the one the US got in the last cycle for the first time in its history. Last time, the US was spared any financial impact from the downgrade because other credit rating agencies did not join Standard and Poor’s and because the US remained the best horse in the glue factory.

Just as back then, once again we face something we are told may be “greater than the Great Depression” because we just pushed all our underlying troubles forward. A decade ago we set out on\ a “recovery” program that would lumber along with mediocre gross domestic product growth for years to come as we buried ourselves in debt, instead of letting bad debt clear off the books and risky capitalists burn away, as true capitalism says should happen. We enslaved ourselves to our past debts like indentured servants so that we now enter the next crisis weaker than ever.

The following sounds like it is being written for today, but it was written for the last crisis a decade ago, and we are just now, once again, re-entering the same cycle and repeating it all over again.

The Congressional Budget Office recently announced that the United States will be running its first trillion-dollar deficit this year — $1.2 Trillion if we count the pocket change. That’s about three times more than it’s been in any other year. Most Americans seem ready to agree with congress that this is necessary in order to save the economy from becoming totally frozen. After all, George Bush recently explained that he had to give up on free-market principles in order to save the free market because he had been warned by his experts (who never saw any of this coming) that we were facing an economic peril “greater than the Great Depression.”

Everyone Wanted Good Times, No One Wanted to Pay

America has enjoyed a long ride on the bull with few interruptions since the Reagan days. But those glory days of high living were mostly because we didn’t pay for most of it as we went. The government learned it was unnecessary to pay for economic expansion with real money if you endlessly strip those burdensome regulations off of the credit market and free it up to create money out of nothing as you need it. But magic, it turns out, always has a dark side.

The reason Reaganomics, once called voodoo economics by a wiser Bush, worked like a rocket is quite simple: it’s easy to make the good times fly when no one is paying for them! The federal government rolled back taxes and started pushing mountains of debt forward. There is no question that you can put an economy on high throttle by buying much of what you want on credit. Just as households can live high and mighty for awhile that way, so can governments. You can, however, only clear the road ahead so long by pushing a snow drift straight forward before it becomes too high and too packed to push, and then you’ve really blocked the road worse than ever. That’s what we did.

The government piled up record drifts of national debt in order to enjoy a time of prosperity at the expense of future generations, while individual households did the same thing. Nearly everyone accepted the mass delusion that housing could go up steeply in price every year forever. Thus, no matter how much debt one took out, one could always sell his home for more than he bought it for and cash out in a personal crisis.

The government fostered this denial of economic reality by constantly cutting back more of the restraints on the credit market so people could keep piling the drift of debt ahead of their own little plows. Eventually, there was no additional unrestraining that could be done. The little plows all reached their limit, and there was no way to lighten the load, so the prices of homes could not go up any further.

Because people will mortgage their lives to buy a home, the prices of houses rose as fast as the government and the banks found ways to raise individual debt ceilings by stripping away the regulations that imposed ceilings. It was a national pyramid scheme where everyone had to know there would be a limit to how much debt each individual could manage when incomes were not growing under trickle-down economics as had been promised and, therefore, how high the price of a house could go. In 2008 we learned where that limit was for individuals. We pushed our little plows ahead until they could push the drift no more. Now we’re in for a loooong, cold winter.

That’s when George Bush made his penetrating observation that “the thaw needed unthawing.” As the credit markets froze up, he did the only thing his gurus knew to do and urged congress to pass the biggest snow-job ever brought upon a nation. The snow job was this: we needed to “unthaw” the frozen credit markets so that people could get even more debt by Christmas time in order to keep pushing the snowdrift a little further forward.

There’s still a load of denial in there that wants to believe the snowdrift can keep moving forward. People were automatically doing the thing they naturally do when they hit their debt ceiling: they stopped buying and started to hunker down by saving. That’s what they should have done to regather their strength, but George Bush wanted to make sure they kept buying so the delusional economy could continue.

The British government came up with its own solution. Since people who were saving were clearly no longer participating in the bubble economy, the government proposed a tax on savings “to force people to spend or invest, rather than just sit on their money.” God forbid that people should stop buying things they really don’t need and often don’t even enjoy all that much.

It also turned out that none of the possessions people had amassed, such as granite countertops, represented an accumulation of wealth because they were all matched by an equal or greater accumulation of debt. Now, if the problem was created by loose credit, how is loosening up credit going to solve the problem? Most of the populace, apparently already in winter hibernation, did not even ask that question.

To unthaw the frozen credit markets in the U.S., the Bush Administration got out the big government … plows so we could start really moving some debt. He decided to push all the bad debt of businesses and bankrupt individuals out of the way by nationalizing it. But where does all that debt drift to when you just push it ahead? Obviously, it becomes a greater burden piled into the future. While individuals have found the top of the drift (which you can also translate “bubble” or “pyramid”), government believes that it has not. It maintains the delusion that the laws of economics that the masses have already run up against do not apply to governments.

How long can the government drift?

As if it were an omen, the National Debt Clock in Times Square reached its numeric limit in September of 2008. In order to make room for more debt, the keepers of the clock did what government is doing with the debt. They removed the dollar sign in order to clear room to add another digit to the capacity of the debt clock. When the National Debt Clock was conceived twenty years ago, it was unimaginable that we’d ever get buried this deep in debt. By October the national debt (the amount of money the government owes from all of its combined years of deficit spending) reached $10.2 Trillion. This year’s projected deficit will add another 10% to that. The mountain is piling faster all the time.

Let’s put those numbers in perspective. The interest in the national debt right now is about $412 Billion a year. That’s more than the first phase of the recent bailout program every year being spent just on interest. We have reached the avalanche point where we must borrow the full amount of the interest every year to keep rolling the debt along.

There is a heavy cornice of snow right over us, however, that is ready to crash on us: Thanks to the failure of the stock market, U.S. bonds are selling cheaper right now than they ever have — at yields of 1-2% interest. People are practically giving their money to the federal government as a place to park it outside of the stock market. If the stock market recovers, however, those rates will have to double or triple to get back to the price the U.S. historically has had to pay to get private investors, corporations and nations to finance the annual overspending. As soon as the interest the government pays returns to its normal levels, the interest on the debt alone will be $1 Trillion a year.

Yet, the situation is even more grim than that. Right now we’re financing a deficit of $438 billion a year. As we look at tripling that this year, we know we will have to pay higher interest just to sell a much larger supply of bonds. You cannot increase the sales of bonds without creating a matching increase in demand. At the same time, major bond buyers, like China, are talking about running away from U.S. bonds because the U.S. looks like a stinking bad credit risk.

Snowed Under?

We’re now in a catch-22 situation: if the stock market recovers, the nation will be unable to even finance the interest on its debt. [That part didn’t turn out to be immediately true because the Federal Reserve bought up the entire increase in government bond issuance. However, as soon as it tried in 2018 to unwind from that, the stock market and economy began to badly fail.] Recovering stocks typically result in having to pay higher interest on bonds in order to compete for investors. If the stock market doesn’t recover, we’re snowed in there, too. We’re no longer plowing against a snowdrift; we’re plowing against an avalanche in motion. That is why Bush has said he had to give up free market principles because the nation was facing an unprecedented economic disaster. Unfortunately, you cannot solve a debt crisis by adding more debt.

And talk of tax cuts to stimulate the economy? I’m afraid you cannot help the morbidly obese by throwing them candy. Tax cuts, in this case, would just accumulate on the mountain of debt that has to be paid off in the future because they’re not going to stimulate the economy and produce more revenue. The last tax cuts barely even nudged the economy because it has become too fat to roll over.

The time to pay the piper on debt spending has arrived. Most of the government’s efforts are an attempt to correct the problem by postponing the correction. Some of us have been predicting this day since Reaganomics first came into play … should the game of buying on loose credit continue. It was from that time forward that the national debt began to grow out of control.

Did Reaganomics create a huge boom? Of course. It is amazing what roaring times a nation can enjoy when not a soul is paying for them. But eventually the play day in the snow is over, and someone’s got to start lifting a shovel and taking down that mountain one shovel at a time so that we can all get back home. The prices on houses need to fall significantly to where people can afford them without taking on enslaving debt loads. Consumer spending needs to slow down to where it is not happening all on stacked-up credit cards. All the things government is trying so hard right now to avoid.

Bailing Out the Biggest Bullies

(Chapter Six)

During the coronacrisis of 2020, the first people to shove their snouts into the government trough for bailouts were the capitalist pigs who had spent all of their domestic corporate profits and years of repatriated foreign profits on buying back company stocks in order to drive their own share value up and on dividends paid to themselves. That was not enough gain to satisfy their greed, so they piled up a lot of corporate debt to buy back even more shares and fund even higher dividends.

Now, by this, I do not mean that all capitalists are pigs. I merely mean that those who are pigs were the first to elbow the average person out of the way to secure first position at the trough because they had already consumed all their corporate reserves and now saw huge opportunity in the multi-trillion-dollar bailouts to fatten themselves up even more.

So greedy were some of these that one banker even argued the government should not give any bailout checks directly to the average person but should give all the money the government was about to earmark for individuals to banks, instead. That way, he argued, the banks could administer the money quickly to individuals to save the government this trouble and could make sure the money only went out to people that employers kept on payroll during the economic shutdown. Ostensibly, that was so employers would not use the money just to pay their employees while they were laid off, but the money would go to the employee on top of that pay … as if the government couldn’t lay on that requirement without the help of banks!

Of course, the real reason was so the banks could capture the float from tens of billions of dollars. There is no way the money would get to taxpayers going through all of that via banks more quickly than via checks directly back to taxpayers from the treasury based on taxpayer information. Moreover, why should the money go out only to those the employers kept on payroll?

Banksters operate under a belief that nothing should go to the little guy without first fattening a bank somewhere along the way. All salvation should be administered by saving the banks first. From there, the money can trickle down to the common person.

While it is the right of investors to profit from the corporations they own, if they milk every cent out of their corporations, those companies will clearly not have the robust reserves they need to make it through leaner times. These corporate hogs didn’t care because they had learned from experience back in 2008 that the government would come through with a rescue, and they’d be the first ones the government rescued. Again, this article in 2008 reads as something where all you have to do is change the names to fit the article to 2020:

When the present economic downfall was really getting under way last fall, Ken Lewis, the CEO of Bank of America, was lauded around the world for scooping up Merrill Lynch in a fire sale. What a brilliant man, the world thought, for picking up a Rolls Royce like Merrill Lynch for pennies on the dollar. Later, Lewis scooped up another bargain known as Countrywide, turning Bank of America into the largest Thrift Bank in the U.S.A. And he could well afford to do it, Lewis indicated, because BofA was sitting on a fat cash cushion. The CEO’s stunning brilliance was seen in how he was able to assess a multi-BILLION-dollar purchase over a weekend and snarf it up.

A Belly Full o’ B-of-A Bacon

But, suddenly, Bank of America started feeling ill and looking a little peckish. Soon Lewis was seen out in the street, holding out his cash-starved hands for $25 Billion from the public trough. And he got it. After all, how could he have been expected to know that Merrill Lynch would have over $15 billion in write-offs during the final quarter of 2008? Do we expect these CEO’s to have crystal balls in order to know what is coming?

You’d think the fact that Merrill Lynch was being sold in a fire sale might be a pretty good clue that it could have some unknown health issues beyond its stock issues that might not reveal themselves in a weekend of analysis. Today, we learn that Bank of America held its hand out for a second scoop of public charity, and the federal government scooped out another cool $20 billion. But the cherry on top was bigger than the scoop: the federal government also promised a safety net of yet another $98 billion for future bad debts, should they happen. (Should they happen? Of course, they will. This is Murphy’s Bailout Bonanza. If bad things can go wrong, they’ll go wrong bigger.)

What I want to know is why do I, the little guy, have to pay higher taxes for the rest of my life to bail out one of the biggest bullies on my own block? This is the bank that beat me centsless. In 2004 Bank of America got the greedy idea of setting their minimum payments on credit cards just low enough that I would pay the minimum payment and find the next month that their next finance charge put my credit card over limit — all by itself — and I was charged an over-limit fee of $39.

Each month, I paid the “minimum payment due” on time like a good citizen. Though I made no purchases, the next month, BofA’s finance charge put my card over its limit again, and the bank charged another over-limit fee. Caching! Caching! said BofA’s cash register every month, as the bank burped and smiled. I didn’t see it happening until it happened three times because I was not making any purchases to check off. So, I just looked at the “minimum payment due” and sent the money in the mail.

When the account went over limit three times, however, that enabled Bank of America to raise my interest from its 3% introductory rate to its penalty interest rate of 30% on the full balance. That’s when the bank really smiled. At that point, they also scarred my credit rating. That’s when I remembered (the hard way) that all the family’s credit cards had clauses that said they could automatically raise their interest to the penalty rate, too, if my credit rating ever changed. Like vultures, all of our family’s credit cards ascended to the maximum penalty interest rate overnight, and we were eaten alive by interest.

That same year, Bank of America found itself on the losing end of a class-action law suit for this unscrupulous practice of setting misleading minimum payments. Their multi-million-dollar loss didn’t change the fact that all my other creditors had gone over on me like dominoes and that all of them had begun demanding full payment of our full balance and that no credit companies were sending me those nice introductory rates any more. That left no opportunity to roll over the BofA card to a different company. BofA eventually did refund over $600 they had taken from me in fees, penalty interest and compound interest on the fees and penalty interest; but they didn’t restore my credit rating, and it was too late for me, even if they would have.

More recently, BofA adopted the practice of posting their customer’s debits and checks each day in the order of the largest debit first and the smallest debits last, even when the largest debit was the last purchase made. That way the bank can collect $39 overdraft charges on each of the smaller checks or debits that clear that day that wouldn’t have gone over the limit if they had been posted in the order in which they were made, instead of only on the big one that actually put the account over limit at the end of the day. Caching! Caching! Caching!

Spreading Toxins Down the Financial Food Chain

I want to know what on earth BofA was doing buying Merrill Lynch and Countrywide in the first place if they can’t absorb the risk? Was it so important to become the colossus that they had to make the choice to make an overnight purchase of institutions riddled with bad debt? What kind of maniacal greed drives one to make purchases that are massive even in banking terms over a weekend? What possible good did it do the U.S. to orchestrate the sale of Merrill Lynch to BofA so that we don’t have to bail out Merrill Lynch only to have to bail out Bank of America for having taken over Merrill?

“They were probably the best bank out there, balance-sheet-wise, until they did the Merrill deal,” said the Chief Investment Officer of Bell Rock Capital in Pennsylvania.

Why take a company like Merrill Lynch that is dying of toxic debt and have a massively strong (albeit naughty) bank like BofA absorb it, only to wind up with two financial disasters? That’s our bailout program in action. This was BofA’s first quarterly red blood loss in seventeen years. One ameba eats poison and is about to die, so a bigger ameba eats the ameba that ate the poison, and now it’s got such a stomach ache that it will die without repeat infusions of government fortune.

What happens down the road after the federal government eats enough toxified amoebas that ate the amoebas that ate the poison? Wouldn’t it have been better to let Merrill Lynch die on its own through bankruptcy proceedings, and leave BofA a healthy bank still? How far down the financial food chain do we want to send the toxic debt? Wouldn’t quarantine be the better policy?

Speaking of amoebas, Citigroup, which was recently eyeing Morgan Stanley for mutual absorption, now wants to split in two to save itself. It hopes to leave one half with all the toxins to dry up in the sun — or live if its lucky — in order to save its healthier half. As a former champion of super-conglomeration, is Citi the sign that conglomeration is finally dying of its own obesity as it now parts itself off? Citigroup has already received two bailout infusions of $20 Billion. Seems they’re busting at the seams anyway. Citi has already cut over 50,000 jobs and expects to keep cutting all the way through 2010. BofA reported similar expectations.

Bank of America is Eating America

Apparently, Congress believes the bailout program is a smashing success (the operative word being “smashing”) because they’ve already released the second half of the money — $350 Billion. And it all went to the treasury with no new requirements of oversight. Barney Frank, head of the Senate Finance Committee, sponsored a bill to add some new rules, but the money was already being spent by Hank Paulson, our Bailout Czar, before the new rules were in place.

Similar bailout programs around the world have been so successful that the Managing Director of the International Monetary Fund warned this week that the global financial meltdown will be worse than formerly anticipated. This is the second time in two months that the IMF has lowered its expectations for recovery.

The banks that have gotten the biggest by the most predatory practices are now the ones receiving help from the hundreds of millions of little tax payers whose blood they sucked in usurious fees for so many years. Many times class-action law suits have ruled those fees illegal or unethical. Now the same bullies are going to suck all your future blood in higher taxes for the remainder of your life because the bailout isn’t free. You’re the one who is going to pay for it — you and your children for the rest of your lives. Somehow, it’s hard for me to want to feed the company that fed off of me, especially when I am feeding it my own future blood supply.

Things to Do with a Failed Bank

(Chapter Seven)

The least I can do to help the greedy is to ridicule them. They will never have remorse or shame, but maybe the ridicule will raise the hackles of others who are tired of being told, “They’re too big to fall on us” and rile them to demand that the corporate giants who fall remain capitalists all the way to ground. Only if we refuse to let those who are certainly capitalists to the core with their profits socialize their losses or even just the risk from their losses on the rest of us will we ever curb the greedy behavior that flourishes when everyone is afraid to let the bullies fall.

Will there be pain for everyone if we let them fall? Absolutely. That’s why we fear it and let the bullies go. There will, however, also be healing as we cleanse the land of reckless greed and moral hazard because corporate bosses will finally begin to fear what their own failures can do to them. We need to start with stripping away the protections under corporate law that shield the personal wealth of top executives and board members and put all of their wealth on the line for corporate bail-ins if the company becomes imperiled due to their own negligent management or illegal activities.

Look at what we did last time and how the problem is just as widespread and ugly today because we cowered from doing what needed to be done to rebuild our economic fundamentals and, instead, rewarded the greedy with bailouts … and this is where it really gets fun:

I was still feeling kind of swishy in my belly this week as I read about various CEOs who brought down fat bonuses by bringing down their banks. And I was thinking, what is it that a top-of-the-line CEO does to bring down one of the world’s largest banks that makes him or her worth a seven-quadrillion-dollar bonus? I mean what particular niche of genius makes these barely-street-legal CEOs better at bringing down their banks than those stock CEOs who only get profit-sharing plans because their little institutions keep humming right along in perfect health?

Naturally, I wondered why the woman who runs a mom-and-pop hardware company for thirty years and stays in business against the likes of Home Depot and Lowe’s is worth less than a man in Giorgio Armani who can crush a colossus bank is six months. That question set in motion certain sparks along my darker synaptic pathways that yielded a bright realization. The real question churning in my belly, as it turned out, needed to be reworded: “What is it that makes a failed bank so valuable that it’s worth paying someone a hefty bonus to get it there?”

With the right question crystalized in front of me, I realized that I was onto something really BIG. It occurred to me that there are some hidden things you can do with a failed major bank that you cannot do with anything else (except maybe a failing major brokerage firm), which make it particularly desirable for a board of directors to hire a CEO with enough heft to capsize his or her bank quickly. The core value is this: You can use a failed bank to apply for a $20,000,000,000 interest-free government loan. If you don’t have a failed major bank, you’re not even qualified to be an applicant to this kind of government program. Thus, the faster you can roll your bank over, the faster you can scoop twenty-billion off the government pavement.

That, right there, is an eye-opener that would tell any board of directors, We need to put this institution on the rocks and get it there NOW before these government loans run out because they’re going fast. (A trillion-dollar fund doesn’t last long these days.) I mean, where else can a bank get twenty-billion dollars on a weekend without even filling out a formal application? To pull off a maneuver of that size that quickly requires a CEO who can boldly turn an ocean liner on a dime (or a cork or whatever it is that an ocean liner turns on) and steer it straight into the cliffs of disaster before anyone sees what’s happening!

Twisted Turn-arounds

As mentioned last time, Bank of America scooped up Merrill Lynch at a fire sale with the government’s help one day to become the largest thrift bank in the world. Only weeks later, Bank of America, itself, qualified for a twenty-BILLION-dollar free government loan, which it, then, topped with twenty-some-odd billion shortly thereafter in more free money.

Likewise, Wells Fargo nearly choked to death when it tried to swallow Wachovia with the bones still in it, so it received 25,000,000,000 U.S. government dollars — meaning yours and mine. Oh, they may have to pay this back, but the risk from their greed has been entirely shifted to the tax payer, and the interest the corporations are paying may be less than the interest tax payers wind up paying by adding it to the national debt. Moreover, it will remain on the national debt forever, so we get to pay interest on it forever!

Do you see the pattern here? I sure do: If you are one of the unlucky few major bankers who is not failing, you can use all your available cash to buy other another failed major bank at great discounts with the government’s help. Then, after you absorb all their losses, you, too, will become a failing bank so you can qualify almost overnight to scoop up yet another ten or twenty billion extra bucks, maybe more if you’re failing big enough. So, the genius behind a CEO whose major bank is not failing is to find the biggest failure possible and buy it! Buy it blind if possible, then you can be forgiven for not doing your due diligence because the government needed you to act quickly. The more hidden problems that you did not know about, the better your position to argue for free government money! You don’t need to worry about evaluating the risk, except to hope it is as big as possible.

You say, “Why do you have to have be or buy a failed bank to do that?” Well, I told you this was hidden knowledge, but it’s not hard to sift out -- just read between the lines of the record:

Morgan Stanley just paid Citigroup $2.7 billion to buy its brokerage firm, Smith Barney. “We need a merger partner, or we’re not going to make it,” said John Mack, as he stood at the helm of Stanley and swung his ship for the rocks. On the face of it, you would say that Stanley (and Mack) clearly ate some bad sushi, or they wouldn’t be yelling like Scotty that “she’s not gonna make it.”

You might even conclude Mack talked plenty o’ smack, but wasn’t too smart. But that is where you’re not looking to the hidden benefits of eating bad fish: It was only a year ago that these guys received five-billion U.S. dollars in cash from the Chinese government. Of course, the Chinese government had a lot of extra U.S. dollars to get rid of, since everything bought in America is made in China. Where better to burn through that kind of paper than in failing American institutions? Then Mack picked up another $10 Billion from the U.S.

So, how did he swallow up $15,000,000,000 of U.S. and Chinese government money and still wind up in such bad shape that he needed a merger, or he wouldn’t make it? Sheer genius. Last time I asked the Chinese government for money, they wouldn’t even respond to my email. So, clearly one has to be a major failing financial/investment institution to catch the Chinese eye — the kind that even after an influx of $15,000,000,000 can proclaim its foundering and everyone will believe it.

I wouldn’t have cost the Chinese a fraction of what they were willing to give to Mr. BIG Mack. So, they weren’t interested. Herein lies the genius: to get the attention of the Chinese, you have to yell things like “we’re not going to make it!” Nobody expects that from a CEO, so it’s a bold move that grabs attention. And attention — on the order of the Titanic hitting an iceberg — gets governments to rush to indecision. The more they rush, the stupider they act; so, make ’em rush hard and fast.

Morgan Stanley’s magnitude of failure was so attention-grabbing that the government of Singapore clamored for the opportunity to give it billions, too. They had to settle for giving their money ($7.5 Billion) to Citigroup.

Biggest Money Goes to Biggest Losers

All of that thrill from the Mack smackdown was chump change, compared to what the CEO of Citigroup was capable of. Citi’s CEO, Vikram Pandit, made Big Mack’s attack look like fast food. Citigroup, in just one quarter, managed to milk the U.S. government for $45 billion. That is some serious banking-failure leverage. How did Pandit land it? Here’s a hint: people are speculating that, within a year, Citigroup will no longer exist! You see, it is only if you have a major bank that is least likely to exist within a year that you can attract $45 billion of free taxpayer finance.

I mean, who wants to invest that kind of taxpayer’s wealth into a bank that shows every sign of staying alive? Why make healthy banks healthier when you can sink forty-five billion into something and literally sink it altogether? I say the man who can accomplish all of that in one quarter and stay alive is deserving of any bonus he gets. But it gets even better: all Citigroup had to shell out for this return was $1.77 million in lobbying fees last quarter all directed at the government’s bailout program. Where else can you find that kind of return on investment if you don’t have a major failed bank and the kind of blustery CEO who knows how to wield such power?

So, now, you can see why it’s worth paying those big bonuses to get a CEO who can turn an institution the size of an ocean liner around from a course of success to an uncharted path of failure in less time than it takes to appoint a senator in the State of Illinois. The buy-word in banking today is that you have to, first, be too big to fail, and then you have to do what you’re too big to do … spectacularly. Failure is its own reward. Any CEO with a notch like that on his belt will find he’s qualified … well, to become Treasurer of the entire United States of America!

Are you seeing how this works? Neither am I, really, but it sure looks like fun!

Year of the Rat / Year of the Ox

(Chapter Eight)

2020 is the Year of the Rat according to the Chinese zodiak, and, given the introduction of the coronavirus in the Chinese populace at a rat-and-bat-infested market and from there to the rest of the world, it’s probably well named. Ironically, 2008, from which the present cycle now repeats, was the Year of the Rat, as I observed from the Chinese New Year right after 2008 had gone by. Somewhat ironically as well, our present crisis began during the Chinese New Year, the same time when I was writing about Year of the Rat during the last economic crisis.

Because it was the start of a year, I set my cold realism aside for the next article. I tried to write more positively with optimism about what we might be able to do that was different than 2008 if we put aside party difference and pulled together on the basic needs for change in how our economy operated and whom it served, but it was not to happen as I note now afterward in brackets within the text of the article below:

Today begins the Chinese Year of the Ox. I wasn’t sure how much stock to put in the Chinese Year of the ___ stuff. (Right now I’m not buying stock in anything.) Then I had a brainstorm. I can easily see if there is anything to this Chinese New Year stuff by looking back at what 2008 was the year of.

Hahahahah. The Year of the Rats. Well, 2008 was certainly that with many of them jumping ship with golden parachutes on. (Unfortunately for the rats, golden parachutes are not the best life preservers when jumping a sinking ship because they tend to sink faster and entangle more. It would have been a good time for lightweight float. The golden parachutes will entangle some of these guys in 2009. That’s one of my predictions for ’09 (die-hard optimist that I am.) There was never a year of more rats than last year. On the other hand …

The Chinese Obviously Do Not Know Their Rats

According to Chinese mythology, a rat year (like 2008) is a time of hard work, activity and renewal … a time to begin a new job, launch a product or make a fresh start. Hmm. Not exactly a good description of 2008, which was a year of no work for many, and poor work for everyone in the banking industry and anything but renewal. Certainly not a good year to begin a new job. It was a year of destruction.

So it seems on the face of things; but, like so many things, it depends on how you look at it: 2008 was certainly a year in which you should have begun a new job if you were ever going to — the first one that came across your path if you were out of work — because there certainly aren’t going to be many jobs in 2009. (This is the year when bankers start flipping burgers.) And, while 2008 was not a good year to make a fresh start, it certainly forced a lot of fresh starts.

Overall, though, I think the Chinese need to rethink their rats in light of Western experience with the little plaguers. Rather than industrious hard-working creatures that bring renewal, we in the West know that rats lounge at the top of the world banking structure. They tend to eat paper (like money) and build nests for themselves out of it (like golden parachutes). They tend to shred paper (like documents they’d rather not let people see) and build more nests for their families out of it. They tend to leave droppings in their nest for others to have to clean up. And they just don’t smell good.

Year of the Rats

In the Chinese mythological view the rat is shrewd, inventive, charming and ambitious. That does seem to describe Ben Bernanke and Hank Paulson. Rats are also clever and sociable and readily adapt to changing circumstances to save themselves. Well, they did re-adapt the entire U.S. economy toward socialism in less than half a year because of changing circumstances, and they did it less by the strength of their ideas than by charming Congress into swallowing anything they said (though not exactly with relish anymore). And that is somewhat clever, though one doesn’t have to be particularly clever to outwit Congress these days.

As for ambitious? What could me more ambitious than the man who goes to Congress and says, “Write me a check for $750,000,000,000. And says it with a straight face. And gets it! “Trust me!” What can be more ambitious than a man who helps break the bank at Goldman Sachs and then becomes head of the entire U.S. Treasury? So, that was 2008, the Year of the Rat.

Thus, the more accurate image of the rat comes when you combine the negative Western stigma of the rat with the positive Chinese evaluation of the rats capabilities. That’s when you wind up with a perfect description of the people who transformed the U.S. economy into something that we have not yet even invented a precise word for, except that it seems quite a bit like the economics of the NAZI party. (Maybe not the morals, but certainly the economics.) A year of corrupt genius.

The Neo-Socialist Conservatives, like George “I-had-to-give-up-my-free-market-principles-to save-the-free-market” Bush, have transformed the world in less than a year. Shoot, they did most of it in one quarter! So, make 2008 the year of the ship-jumping, paper-shredding, shrewd little social creatures that build their nests out of other people’s money, add a pointy nose, and 2008 was definitely the year of the rats.

What in Store for 2009, “The Year Of The Ox?”

The ox is persevering, stable, finds prosperity through fortitude and hard work, and has strong character. Hey, this sounds like my kind of year, though it certainly doesn’t describe anyone in the upper echelon of banking these days. The ox definitely has the kind of characteristic it will behoove (sorry) all of us to have if we’re going to pull through and get out of this mud hole. Oxen are also noted by the Chinese to be loyal and to be organizers. (Maybe economic reorganizers?)

Oxen are renowned for their patience, but when it reaches its limits, they’re renowned for their temper. Oxen tend to have strong work ethics. Ancient Chinese beliefs aside, this is the kind of year where, among the little people, only those of such description are likely to make it through in good shape. We will need a good dose of oxen temper right now, too, to make sure the guys with parachute lines tangled around their legs go straight to the brig … in the sinking ship … at the bottom of the sea … where all low-life should settle in a nest made of whale dung. And the more of us who take on those oxen qualities, the better we will do as families and friends when pulling through tough times. The times will most certainly get tougher; but those who get tougher right along with them will persevere. So, this really is a year for the ox. [Unfortunately, we lacked the ire that year to force the billionaire bullies to bail themselves out, and so they kept playing the same high-risk games with the economy during all the years that followed.]

I see that Barack Obama is an ox by birth. What could be better than a natural-born ox in a year dedicated to the ox? He will have to persist diligently in order to stabilize things, and that is the ox’s best strength. The Chinese say the ox’s home is his castle, and Obama’s home literally is the U.S. castle, which he acquired in the month the year of Obama began. (I mean “year of the ox.”) Without a doubt, the vast majority of the world is looking upon Obama as the man to pull the world through these deeply mired times. [Unfortunately, Obama lacked that oxlike temperament to force the bankster bullies to shoulder their own failures, too.]

Don’t underestimate the man. While he’s an extreme liberal in his voting policies when representing a liberal state, he’s also smart enough to know that you have to steer the country toward the center if you want to succeed in U.S. leadership. He’s already shown he’s a man willing to try to listen to both sides and find consensus if it can be found. There’s enough of the practical, shrewd rat in him to know what he needs to do and probably to resist some of his more liberal tendencies in order to stay with the practical and the achievable and not to create more divides at a time when the country is already being torn to shreds. He doesn’t want to end up like Bush, who left the White House with “Good Riddance” written on his helicopter (in the minds of the vast majority of Americans and others). [And, while we did get slow economic recovery, none of the wrongs at the foundation of our capitalist economy were corrected.]

Oxen Need to Pull as a Team

Perhaps our nation should pray for a new year and a new administration that will deal with the corruption and that will force some moral rigor into our economic practices, instead of forming partisan divides and political labels. Hope and pray for the best. Care not whether Left, Right, Democrat or Republican succeeds. Care that good succeeds. Division does not serve well in times of duress. Oxen work as a team and only work well when they pull evenly together. We cannot help the fact that Democrats and Republicans share the yoke. That isn’t going to change.

[Putting party over country didn’t happen either. John Boehner even went so far as to tell freshman members of congress on the Republican side of the aisle that -- even if they liked the plans Obama put forward and would normally vote for such ideas – not to vote in favor of any idea Obama put forward, lest he get the credit and get re-elected in four years. Thus, began four years of obstructionist government by the Republicans while neither Democrats (including Obama) nor Republicans did anything practical to put the people who had destroyed the entire global economy behind bars, in spite of the misery they inflicted on the entire world. Nor did the people of the world push for it.]

Hence, I start this first article of the Chinese New Year on a supportive note, even though the purpose of Downtime is to lampoon the ridiculous who parade as self-important and wise in order to strip away the veils of denial that enabled this economic collapse in the first place. Downtime is about getting real. And deeper understanding is not found in labels. Nor is teamwork found in a divided house. This is a time when teamwork is essential for survival — at home, in the neighborhood, and in the Capital.

[Alas, such idealism was never to become realized.]

How to Bring Economic Recovery out of Rubble

(Chapter Nine)

And then I laid out the kind of recovery program we should have spent money on, instead of bailing out banksters and other corporate CEOs, IF we were going to take on lots of debt to save our economy. It’s a path that would not have just pushed the cost forward without paying for itself – the kind that takes hard work and doesn’t try to save anyone who shouldn’t be saved but saves the people at the bottom who are the true foundation of the economy.

The word “depression,” which I was using a year ago, is the only thing about the economy that is gaining currency. This dismal word has now flopped off the lips of General Electric’s CEO and Great Britain’s Prime Minister like a dead fish. Another D-word, “denial,” still holds the teeth clenched when it comes to speaking the word “depression.” We only speak of that word, looking backward because no one likes to admit they’re currently depressed … or in denial. It’s fine to talk about later when the wine is pouring.

Our great error right now is to think we are witnessing the burst of a real-estate bubble. We are not. We are witnessing the failure of an entire economic model that dominated for a quarter of a century. The real-estate collapse was just the first thing to go. And that’s why this is a depression. Recessions correct market bubbles. Depressions correct failed economies.

We Need to Recover from Our Recovery

When the expansion of debt ends, the economic expansion built on debt ends. You cannot expand the capacity of individuals to increase debt forever just by loosening the terms and freeing up credit. Debt was not just a tool in the last twenty-five years. It was our economic foundation, and it has failed. We were fundamentally unsound.

The sooner we recognize that we were chasing a phantom, the sooner we will move toward solid reality, building wealth on wealth, instead of trying to build it over a cavern of debt we are carving out to create or pretense of wealth. Unfortunately, the new U.S. government talks of change, but it clearly doesn’t know how to change. Most of its recovery plan is aimed at bailing out the old economy to get it to float again. But you cannot bail out a ship that is already sunk. We need to build a new economy that is a more durable model and let the old ship rest in the sand bars of history.

Instead, the government’s program aims at stimulating debt-based consumption all over again, which merely denies the reality that the economy was leveraged like a pyramid standing on its point. The upside-down pyramid has toppled. Everyone wants to run around and prop it up again, but you cannot solve a fundamental problem of excess debt, by re-expanding credit. That’s so obvious, it shouldn’t need to be said; but many don’t want the mirage of wealth that is really only debt to end.

The biggest interest cuts people have ever seen plus hundreds of billions spent on bank bailouts have accomplished nothing. That additional debt is passed to the next generation, but it gives that generation nothing in return for the bill. What does the next generation even care if Citigroup still exists? If not Citi, some other bank will ooze into the gaps. The next generation will still have banks if we don’t save these failed colossi.

We are the only ones hurt by the banking collapse, yet we want others to carry the pain. What does the future care if we suffered the pain of our own collapse? Pushing our mountain of bad debt into the future may come to be seen as the most selfish act any one generation has foisted upon another, as we try to make the next generation pay the price of our failure so that we don’t have to. To feel good about doing that, we need a lot of denial.

What Actually Can Create Economic Recovery?

Let’s hope that “the government of change” did not mean putting a little change in people’s pockets with more tax breaks that are just one more bill to hand to the future so that we can avoid suffering our own failure. With jobless claims now at a twenty-six-year high, the government’s stimulus plan should focus entirely on job creation as the path to avoid suffering.

“We’re talking years, not months, before we see a decent recovery in the jobs market,” said Sung Won Sohn, an economist at California State University. In a true-wealth economy, wealth is created by good-paying, sustainable jobs that give rise to the ownership of durable goods. Assets are accumulated that can be passed to the next generation, not debt. That’s actual wealth.

Only one kind of enormous deficit spending will not cripple the future — spending money now to build and repair things that the next generation will have to build and repair anyway (the creation of very durable goods). By that path, we hand the next generation the trillion-dollar bill, but we also hand them more than a trillion dollars in value-added assets — new rail systems, repaired highways, new schools, etc. The debt handed to the future is offset by the cost savings that generation will experience in not having to build those things. That is the only stimulus that is fair to future generations who get to pay for it.

Both of my parents grew up through the Great Depression. My father to this day raves at how the CCC (Civilian Conservation Corps — one of the WPA-type projects created by Roosevelt) kept him alive with hard work in the only sustainable employment he could find. As the next generation, I benefited directly when I attended a high school built under the Works Progress Administration. I traveled over bridges built by my grandfather. I benefited by hiking on trails that were created by my father. The WPA produced over half a billion miles in roads, 125,000 public buildings, 75,000 bridges, 8,000 parks and 800 airports. Most of those things were so well-built they are still in use today. My alma mater was recently renovated into the most modern school I’ve seen because its essential structures were still rock-solid. And, so, it has become an asset handed to yet another generation.

Putting Jobs over Junk

Many economists are predicting February will lose another half a million jobs as January did. I am confident February will be worse as retail and the manufacturing it supports fall apart. At the beginning of January, I predicted that those long lines at Walmart over the Christmas season meant nothing. While sales volume appeared O.K., it was only because goods were being sold at no profit to minimize losses. As soon as those cheap goods were cleared, nothing sold. Data released at the end of January confirmed that the final quarter of 2008 saw a drop in consumption of American goods and services that can only be matched by one other quarter since records began at the end of World War II.

Yet, the “government of change” is putting more of the same old pork fat in its stimulus bill when we need all muscle. Here are some examples: $335 million for sex education. (I don’t think the stimulation here is economic, unless it’s to create jobs in the world’s oldest and most stimulating occupation.) Over half a billion dollars to help people switch to digital T.V. (I suppose with so many people out of work, the government gurus figure there will be a lot of couch potatoes that need public assistance. I’m sure the future will be thrilled to know they bought T.V sets for us.) $70 million to help people quit smoking. (At a time like this, the government should realize that money will need to be spent on drinking problems.)

While some of these may be worthy ideas in good times, they are frivolous additions to a critical bill that should be nothing but lean meat in jobs that produce very durable assets. Their inclusion demonstrates that the reality about depression and survival has not sunk into congress at all, nor has the reality about the debt we are handing to the future. Some of those future people may wish a few of us had died of smoking.

The False Prophet of False Profits

(Chapter Ten)

And to think the guy I knocked out as being the biggest lunatic and lure of false hopes in the country when I wrote the article below eventually rose to become the man President Trump put in charge of our economic recovery! The assessment of this man back then stands out as plainly true now because a decade of history proved every word of criticism in this next article to be spot on as time revealed how inaccurate the TV’s talking head of the times was in what he claimed he saw coming!

What was really happening in the bright optimism the fake Great Guru spewed was an effort to claim the economic master plans he had helped develop under the Bush administration were now bearing fruit because he believed they were going to and wanted to pre-empt Obama in claiming the credit. However, history after he spoke proved a far different reality as a retail apocalypse darkened the world during the early Obama years – something a true guru would have seen as readily as my articles laid it out. It was not hard to see coming if you weren’t delusional and dealt in facts over fantasies.

Sometimes you have to take off the gloves in order to knock the empty air out of someone. In his February 6th column, National Review Online’s Economics Editor, Larry Kudlow, pointed out that stocks were trading high that Friday, in spite of a massive plunge in jobs.

Let Lunatic Larry Explain

As one of the gurus of the old economy, Larry explained this disconnect: “The stock market is telling us the economy’s future is a lot brighter than its past. The stock market looks ahead; the employment report looks behind.”

Whatever hallucinogen Larry’s taking must be only available to those who bathe in Perrier because I’ve never found any drug that can make me as delirious as Larry is over the predictive wisdom of the stock market. National economies all over the world just reported their worst contraction in decades, but Larry thinks the second-coming of the economy is here because the stock market went up on Friday.

This is what happens when false prophets run up against the reality that the religion they preached has failed. The false prophets of religion look for different scriptures to adjust their dates. The false prophets of false profit look toward any indicator that provides the news they want to hear.

The Pork Belly Prophet

Some people read chicken entrails; others read pork bellies. Larry is the latter kind.

The rising stock market’s incongruity with the falling job market is best explained, according to Lunatic Larry, as follows: Mustard seeds planted awhile back are now pointing toward recovery. The huge energy tax cut is one such mustard seed. The related inflation collapse is another…. With zero inflation, that’s a real increase in worker purchasing power.”

You might as well state, Larry, that the thing that profits geese is that elephants don’t eat them. Of course, they don’t. It’s not their nature. Neither is it the nature of inflation to rise when unemployment is rising. Nor do job losses lead a recession; they follow one. While Larry trips into euphoria over the silver that still lines a darkening purse because inflation is down, he should perhaps preach his dogma to employees at Woolworths in the U.K. Woolworths just locked the doors on the last of its 807 brick-and-mortar stores, ending a hundred-year retail history.

The weak go first, so the loss of those jobs and similar jobs among so many other retailers around the world is a shudder the economy hasn’t even felt yet. Tell those newly unemployed that the good news is their purchasing power has increased due to lack of inflation. I’m sure they’ll run right out and buy a drink with the power of their zero paycheck. I don’t think they’ll be raising cheers to the stock market’s wisdom, however; but expect inflation on the price of Guinness in the U.K. as consumption grows faster than yeast. I’d say, go long on beer stock.

Obviously, denial reigns supreme. Who cares that the stock market is in the same drug-induced euphoria as Larry? Since when has it been the oracle of wisdom? If it had been, it would have bet against this economy before the housing collapse. After all, it looks ahead — remember, Larry? In its superior wisdom, the stock market has done nothing but lurch downhill after the banks like Jill after Jack. Nevertheless, Wall Street is a religion for some, and people like Krazy Kudlow are still believers in its divine wisdom.

Larry was also thrilled because “the Federal Reserve has been pumping in money to offset credit and asset deflation.” Credit and asset deflation is exactly the thing that needs to happen, Larry, to a false economy built on nothing but skyward debt! He’s right, of course, that the Fed has been creating lots of money — it’s self-administered narcotic of choice. In just the last few months, the Fed has mainlined $300 billion into the U.S. money supply, meaning it has injected $300,000,000,000 (it helps to see the zeros) more into banks than it has received from the Treasury in revenue.

Right now, the Fed is just manufacturing money out of thin air. It’s doing this because it wants to create inflationary forces to prevent further deflation of prices in the housing market. It’s doing that to save its member banks from having to write down the values of all that collateral. Yet, if prices do not deflate on homes, the only way people can buy them will be to continue to take out far more credit than they can afford, meaning credit must stay deregulated so that it can remain ridiculously perilous.

Laughable Larry, however, is excited that we’ve had no inflation because the Fed is doing all it can to create new money to avoid deflation; but, if printing money could save a failing economy, Zimbabwe would be a superpower. Currency in Zimbabwe reached such disastrous overprinting last month that one church received a check for 6,000,000,000,000 Zimbabwe dollars and did not even bother to cash it.

Larry points out that there is generally a lag between the increase in money supply and the actual loaning out of that money — a float of six to twelve months. “Through January,” he states, “we’ve had five months of money stimulus [creating money out of thin air]. So, stocks may now be telling us that the gloom and doom crowd [like David Haggith] — and its pessimistic economic prognostications that cover all of 2009 and in some cases 2010 — is about to be proven wrong.” [Sorry to disappoint, Larry. We weren’t.]

Larry, Larry, Larry. The market does not tell us anything. The market IS us, all of us who invest acting in our own various crazy ways, including the doom-and-gloomers like myself. Oh, how the false prophets like to tickle our ears with good news. Larry believes that when banks start giving out loans on freer terms, people will start putting that money into circulation, but he misses the obvious: this same lag he speaks of is exactly why we have not yet seen inflation due to all the new money. It’s still choked at the top. So, if the money does go into general circulation quickly, inflation will come quickly.

There’s another possibility, though, which I think more likely: banks may start offering loans now that they’re floating on air, but few may be interested in buying. How many jobless consumers want to take on more debt? As for retail picking up so those jobs come back, it’s a long time till Christmas, Larry. Loans will mostly be limited to refinancing, not building new homes; so, they won’t have much stimulus effect. [And, so it proved, as it took a few more years for housing sales and prices to slowly climb the ladder the Fed was trying to rebuild.]

If I were investing in manufacturing right now, it would be in the manufacturing of printing presses — the kind used by the U.S. mint — because those presses have a lot of catching up to do once that money enters circulation. That, or buy yeast because the unemployed may soon be buying a lot of beer at $300 a pint. Money supply right now is growing at about the same rate as yeast anyway, so yeast growth is probably a better indicator of where the present economy is going than Larry’s mustard seeds. [Of course, we know now that the money never did enter general circulation. Instead, it continued to circulate in endless cyclers in financial assets, pushing up bond prices and stocks for years and making the rich richer.]

The Hallelujah Chorus from the Prophets of Ill-Gotten Gain

In his prophetic ecstasy, this false prophet of the old economy backs himself up with one of the now-renowned Wizards of Wall Street: “Meanwhile, Bank of America CEO Ken Lewis told CNBC on Friday that he can get out from under TARP in three years. There will be no nationalization!”

I had to put the exclamation point on there for you, Larry. I can just hear you saying, “Whoopeee!” Is this the same Ken Lewis who a very short time ago bought Merrill Lynch for lunch and then said he never saw the financial problems Merrill really had? Is this the same beggar who ran to the government with his hand out for another $20,000,000,000 to buy himself a pair of glasses? Is it the same Ken Lewis whose share prices fell over 80% from the time he first announced the acquisition or Merrill Lynch?

I guess it is the same guy because Larry adds, “Lewis also said his firm’s acquisition of Merrill Lynch will be successfully executed over time.” Well, hallelujah, Larry! I thought that was what Lewis said the first time. I suppose, with yet another ten to twenty billion in free government money printed from air, it might someday become true. You know the pundits of profits are hurting when they call in the rodeo clowns to prove their point.

“It’s no surprise,” Larry opines, “that bank stocks were the leaders in Friday’s huge rally.” At last we agree, Larry. With the government printing so much free money to stuff in the bank coffers, it’s no surprise some people want to invest in the racket. But it won’t save the economy.

Larry believes the growth in money supply will be the dark horse that comes through and saves the economy within the next few months. I think Larry must have received his economic education from the University of Zimbabwe. It may well be that money growth will produce the biggest economic surprise of the year, as Larry says, but it won’t be the surprise Larry is hoping for. So, get out your stein.

At last, in true form, Larry believes the real stimulus will come from the lack of tax increases, as the stimulus package maintains previous tax decreases. Larry, if those tax decreases could save the economy, they would have done so last year when they came into being. They made no difference at all because they do not change the fact that the economy built on endless debt has failed. Keep dreaming, Larry. I think you’ve fallen asleep, counting golden parachutes.

Likewise, today, the corporate tax cuts and estate tax cuts that Larry created again under Trump did nothing to stimulate the economy and all over again failed to pay for themselves. Likewise, with those foreign profits that were allowed to be repatriated at an especially low corporate tax rate. Instead of rising, as Larry promised again the economy would do, the economy sank lower to 2.1% GDP growth. Quarter after quarter -- even before the coronacrisis – GDP did not do a bit better than during the Obama years! The economy stagnated at that mediocre level through almost two years of those tax cuts. How many times do we need to repeat this cycle before we all realize that it doesn’t work? When is the world going to stop listening to this economic creator of calamity?

Corporate tax revenues to the government plunged so the corporate tax cuts did not pay for themselves, as Larry promised they would. Those tax revenues have only been made up by the increase in tariffs paid for mostly by Americans.

So, here we are repeating the same cycle of trickle-down tax cuts all over again, and all we ever saw for it was rising stock prices, rising bond prices and rising housing prices, which, again, made it harder for the average person to buy a home. It’s the same illusion we’ve fallen for twice before.

What do we have to show for it but stock values that have crashed all over again because they were not built over solid economic foundations. They were floated on the hot-air money the Federal Reserve created from nothing, which was pumped into assets by the Fed’s member banks, as well as from the corporate tax savings, which did not boost wages but which corporate CEOs and boards also pumped back into stock buybacks that pushed up stock prices and into dividends that got reinvested into stocks. And that is why we have greatly widened the gap between the rich and the rest. Only the rich have spare money to play in that money cycle.

What do we have left to show for all of that now that the cycle is over and ready to be repeated? In just one month, the entire Trump rally collapsed back to the day he became president BECAUSE the stock rally was not built on solid economic reality. The world’s greatest rally turned into the fastest, deepest crash in stock-market history because it was built over nothing. Stocks fell into a bear market faster than they did in 1929!

The bull market in stocks was not built from increased sales fueled by a richer middle class with more money to spend. It was not built from higher corporate revenues due to the tax savings and free Fed funds being reinvested in new product creation or new market development or saved by investments in capital improvements in production or created by new factories built in America. It was not built from the creation of anything useful or of durable value.

The tax savings were almost entirely spent on stock buybacks, as I said would be the case on The Great Recession Blog before it all began. They pushed up vain stock prices to make the rich richer, which collapsed back into the thin air they were built from, erasing with that fall all of the money that had been created. Now, the Fed is pumping up the money supply again as quickly as it possibly can – more quickly than it did in the pit of the Great Recession -- and the corporate executives who, originally spent all of that money on themselves, instantly pushed to the front of the line to the trough to make sure they get as much of the new money as they can.

And, once again, the US populace, trying to figure out what is happening on the fly and not knowing what should be done, is letting it happen to start another cycle just so the big bullies don’t fall on them. Rinse and repeat!

Banking on the Future

(Chapter Eleven)

Ultimately, the “bad bank” everyone was talking about at the time the following article was written evolved to be the Federal Reserve, which sucked up everyone’s bad, unsellable, bank-breakable debt to wind up holding it forever in its big, giant tub as the ultimate money-laundering machine. It laundered those dirty debts as it poured out pristine new money into banks in replacement of those bad debts.

We’ve all heard the plan for saving the nation. Create a “Bad Bank.” Deposit all the bad loans in the nation into the bad bank and flush them away. The bad bank will buy these loans with money that is minty fresh This magic money will come from the next generation. Our legacy to them will be the world’s worst bank. The beauty of it is, they feel our pain, and we don’t. Their pain, our gain.

What Happened to the Lynch Mob?

The government solution to our over-credited economy is to correct the problem by preventing the correction. Roll it all up for the future to pay for by financing it with US bonds that will ultimately be absorbed by the Federal Reserve Bank but paid for forever by US taxpayers.

Then the recently failed banks will go back to doing what they were doing — letting out an easy flow of credit from their arteries. After all the billions pumped into them from the government’s chief financier, the Federal Reserve, U.S. banks still remain effectively insolvent. The federal government could have accomplished more by building 45,000 million-dollar yachts and giving them away as bonuses to all the nation’s bankers. That would, at least, have put a lot of boat builders to work.

In December, Merrill Lynch dispensed $4 Billion in bonuses to its top execs … after receiving bailout money. Bank of America, which acquired Lynch, then became aware that Lynch’s loss of blood was equal to a head injury from falling off its corporate tower. So, it asked the federal government for another twenty-billion-dollar transfusion. If the bonuses had not happened, BofA could have asked for a quarter less (or about $16 billion) to save it from its problems.

While BofA claimed they had no idea that Lynch would have twenty billion in fourth-quarter losses, they certainly knew about the four billion of it that their own people got at the last minute on the way to their Christmas parties. Yet, the government didn’t even blink and handed over the full twenty-billion request. This is the revised theory of trickle-down economics in action. Bail out millionaires, and they will spend their new mint-green money on cars that will put middle-class automakers to work. Or yachts.

So far, the government has transfused its liquid gold into the banks’ main arteries with not much more than a wish and a prayer for recovery of the money. So much money flowing so freely is a situation ripe for abuse. In fact, obtaining interest-free billions in these financially pinched times (if you’re a millionaire) has been easier than getting a small-business loan from the government in plush times.

In essence, Bank of America bought Merrill Lynch on loan, and then the government paid off the guaranteed loan with taxpayer funding. The bank was supposed to take $45 billion and use it to make more loans to stimulate the economy. It did not do that at all. Instead, it bought Merrill Lynch. Future taxpayers got nothing for the money we borrowed from them.

Instead of saving BofA with that $45 billion over the last few months, the government could have just bought 45 million thousand-dollar mattresses for us all to hide our money under. We’d, at least, sleep better.

An Indecent Proposal

With all the money poured into existing bad banks, the banks still have ice in their veins. The almost free money did not “unthaw the thaw,” as George Bush wanted. Since the old bailout plan accomplished nothing, except easing the landing for millionaires, the new federal government is creating a new monster to solve our problems. It will establish a new bad bank owned by taxpayers to pay real money.

It hopes to pump the monster to life with all the bad loans that emerge. Just keep buying them into this gaping black hole, which is a wormhole that comes out somewhere in the future. It’s like putting our diseased loans into a cryogenic tank for the future to figure out how to cure them. Maybe some miracle will be developed by then. If not, that’s the future’s problem. I’m sure they will thank us for this cryogenic pot of festering sores.

The plan, however, has this much going for it: if there is anything the government is likely to do well, it’s to create a really, really BAD bank. They’ve got all the right people in place to badly manage it. So, I have no doubt that it will succeed in being.

The rationalization for the Bad Bank is that, by handing all the bad debts to the future in a single pot of toxic waste, we will resurrect a debt-based economy that is so strong that the next generation will have no problem paying off the debt we hand to them. I think that’s a plot drafted in hell that’s going to exact more than a pound of flesh from each person in the next generation.

In fact, I don’t think it will take even a generation before the bad bank becomes the black hole that eats any recovery it temporarily created. [And here we are, a decade after the Federal Reserve Bank actually soaked up many of those bad assets. It still holds many of them and is back to soaking up the same kind of failed mortgage-backed-securities and bad commercial loans all over again via its own bailouts that will costs trillions of dollars to replace the bad assets with new money to save the financial institutions that did it all over again.]

A Decent Proposal

Instead of creating one monstrosity of a bad bank, create many little bad banks. Get away from the old theory that gigantism is the ultimate goal in everything. Instead, take all the existing bad banks, and separate out their best and worst parts, splitting those corporations into the part that may survive and everything that is sure to die. Then transplant all the current CEOs who got the big bonuses in charge into the little leper corporations so the diseased corporations that hold all the bad debt get all the diseased minds that created it. Flush the bad CEOs out along with their bad debts into their own little personal hell holes, and let the little corporations wander off to die.

In other words, save what’s worth saving of the mega corporations by downsizing. Sell off stocks as necessary to pay off creditors, and let the shareholders have new shares in the bad banks that are left to die on their own. Let the market correct itself, but minimize the harm by bundling the best parts of each corporation into smaller entities that can survive on their own without any government help and with their debs paid off by those former shareholders. Break down the too-big-to-fails.

We have a phrase for this procedure — “structured bankruptcy” or “reorganization.” Stop concocting twilight plans for banking monstrosities deep in the laboratories of the U.S. Treasury.

So far, the government’s inept stumbling around for any plan but the obvious truly capitalist plan of creative destruction has only created confusion, which has caused investors to pummel companies at the first sign of distress because no one knows what the government will do next as it invents unheard-of pain killers, instead of amputates gangrene.

Why all this madness? No one wants to admit the problem is not lack of credit; it’s abundance of debt from too much credit, too easily had.

Talking Stock Versus Taking Stock

(Chapter Twelve)

Just as I wrote ten years ago, when we were at a perfect juncture for taking stock of what we had done and how it had failed, we are now back to that point again. As I am compiling this book, the whole world is living in a forced downtime. This time we have been sequestered in our homes to avoid a virus, but it hit us during a period when we were already in economic decline. We will probably remember this time the rest of our lives. I hope we use the space in time between periods of work to think and gain some wisdom.

By the time many read this book, comprising mostly these past articles about our last downtime, I presume (and certainly hope) we will have emerged from our cocoons of viral isolation. We will enter a time of rebuilding. I hope we enter it with a little more wisdom than we showed when the article in this chapter was written.

Unfortunately, the repetition of the same old cycle of bailouts and saving rich corporate executives and banks has already begun. It came about so quickly and on an even grander scale that I cannot write quickly enough on The Great Recession Blog to keep up with all that is happening. We need to rapidly take stock of what failed and why just as I unsuccessfully urged the nation to do a decade ago in the article below. I didn’t have enough of a voice to be heard then, and I don’t have enough of a voice now, even though I have more readers than I did then. It will take the full village crying out to be heard.

Now, as I cry out one more time to take stock of our endlessly failing cycles, step outside of your party loyalties, and raise your individual voice to make sure we do not repeat this futile cycle again with its seemingly inescapable and hellish repetition. It can be escaped if the multitudes get angry enough at the endless bailouts of the rich and fading of the rest. Open the window and yell, “I’m mad as hell, and I won’t take it anymore!”

Note how the requests for bailouts just kept coming a decade ago when I wrote the following article and kept getting worse. They will in present times, too. I guarantee it upon the accuracy that I said it would ten years ago. The cyclone of bailouts will widen in spite of congress having already approved a $2-trillion economic recovery package just as congress, then, had approved the largest economic recovery package in history. Each rinse-and-repeat cycle takes more money to get smaller results because economics follows the Law of Diminishing Returns – a basic economic truth our central planners at the central bank are not willing to recognize. But it won’t be ignored.

Note, also, how very wrong Larry Kudlow quickly proved to have been when he said stocks were rising and would keep rising because the Bush Tax Cuts were finally kicking in with their long-promised prosperity for all – the tax cuts Larry helped craft then just as he did now. Note how the market’s rise that Larry boasted about proved just to be an illusory last hurrah of investors’ long-standing denial about the true state of the economy. Finally, note how the words people used to define the severity of collapse into what became known as The Great Recession sound like the same words you hear today.

And then try to tell me the cycle is not repeating all over again because we never deal with the cancer deep inside.

Some people keep talking stock, whether they’re right or wrong, and stay within their Pollyanna beliefs. [These are the ones who keep saying, “Buy the dip” or “Buy and hold.”] Others take stock of their own predictions, ignore what they want to believe, and look reality square in the face. We’re now at a perfect time for taking stock of some recent predictions.

Talking Stock

Two weeks ago, I wrote that National Review’s economics editor, Larry Kudlow, must have been on some powerful hallucinogens when he predicted, “The stock market is telling us the economy’s future is a lot brighter than its past.” He based his euphoria on the phantom hope that “the stock market looks ahead,” and the stock market had just turned upward upon hearing a very bad jobs report the same day. Thus, by Larry’s thinking, it must have sensed something the rest of us didn’t know. Larry looked for the silver lining that would explain the sage wisdom of the market going up when it should have gone down.

If Larry was right that the upturn of the market following a dismal jobs report meant the market knew good times were on the horizon, in spite of the bad news, what does it mean now that the market made a major downturn right after Larry spoke, especially falling after what should have been positive news — that history’s greatest stimulus bill was signed into law?

True oracles are not fickle. Clearly the stock market is more reactive than predictive and no wiser than the common masses that create it. If the stock market were our canary in the coal mine, we’d all be dead ahead of the canary.

No sooner had Larry finished his caviar after that last prediction, than GM and Chrysler headed back to the government for another thirty billion because things were far more grim than the dire needs they had first laid out. Then, barely two weeks past Larry’s forecast of silver linings, Leah Shnurr of Reuters reported, “Stocks slid within striking distance of the November bear-market low on Tuesday, as grim manufacturing data signaled the recession is worsening and warnings on risks facing European banks underscored the continuing toll of the financial crisis.” From the day Larry cooed over the warming of the stock market, stocks have done nothing but taken the polar-bear plunge to new lows.

Even U.S. bank stocks slid much further over the last two weeks, in spite of monumental efforts to shore them up with a 700-billion-dollar bailout that has failed to hold. So, in the last two weeks, the stock market has skidded all over the place, and the credit market remained on ice, in spite of the largest stimulus package ever known to mankind. What does that tell you about the kind of speedy recovery Laughable Larry crooned about? All the little uptick showed us was that the market was still deep in denial.

The sliding was, in part, due to how faulty the stimulus bill looks and equally due to some major bad manufacturing news that started rolling in (the kind you see in advance if you’re not blinded by denial). Meanwhile, the SEC reported more massive fraud — this time in Texas at Houston-based Stanford Financial Group. As I have been saying, we are certainly going to continue to find more major fraud. Madoff was the beginning, not the end.

Fraud is rot, and it tends to give out under a heavy economic burden. You often don’t see it until it has to bear a load. Only the most obvious fraud shows up at first. Likewise, only the weakest institutions fail at first. So, there will be more fraud to be found and more institutions that were not quite as weak as the first to fold.

One day after Shnurr’s article, Pedro Nicolaci da Costa (also of Reuters) reported that, “U.S. unemployment will top 9 percent before the recession is over, according to a Reuters poll of economists that points to a significantly bleaker economic outlook than just one month ago.”

I say Reuters’ selected economists are still too optimistic. We will easily hit double-digit unemployment before the present depression is over. Why? Because our present economic gurus are still basing their figures on what is before them on the immediate horizon, which anyone can see; but they are not factoring in how one domino falls against another. They are looking at only what has fallen and what is clearly likely to fall but not looking at what is going to be hit next by what is clearly likely to fall. Take off the blinders, and you can see what lies in the path of the next thing to fall. [And we did hit double-digit unemployment.]

There are, at last, a few voices familiar with the market that have stepped out of denial. Last week Reuters also reported, “Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis. Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union. He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system…. There’s no sign that we are anywhere near a bottom.”

That’s what I said the day Lehman Brothers fell, not just because it was Lehman Brothers, but because of the realities underlying its fall; so now let’s take stock of the things that I’ve predicted. They’ve been in writing in this column. So, they’re not hard to follow. Go back, and you’ll see I leave nothing out in taking stock of my own words.

Taking Stock

People need to start listening to different voices than the old gurus. While few if any voices were talking economic depression seriously when I was a year ago, even the White House said unequivocally this week that there is no longer any doubt that this will be, in the very least, the longest economic downturn since the Great Depression. Not all depressions are equally great. That’s why we only call one of them “The Great Depression.” You don’t have to equal The Great Depression to be in a depression. On the other hand, remember, there was a time when we only called one war “The Great War.” Eventually, we had to number them.

Last month, I wrote that sales reports from major retailers would show abysmal drops by the end of January and the first part of February as fourth-quarter results came in. I said that would happen in spite of long lines in stores at Christmas. I said that sales volume was there, but that profits would be seriously lacking. It was the end-of-the-economy’s close-out sale. Not much materialized in January, but the data is now coming in at mid February:

Associated Press’s Stephen Bernard wrote last week, “Disappointing fourth-quarter earnings reports from Lowe’s and J.C. Penney provided new evidence that the recession is taking a heavy toll on U.S. businesses…. Lowe’s said its fourth-quarter profit dropped 60 percent after customers cut back on spending. Lowe’s also provided a 2009 earnings forecast that was short of analysts’ expectations. Department store chain J.C. Penney said its fourth-quarter profit tumbled 51 percent.”

I also predicted last year that the next wave of this economic tsunami that would hit us would be a manufacturing collapse as a result of the retail failure that would roar by in December. Right on schedule this week, due to all the bad news on the manufacturing end, the Dow Jones Industrial stocks broke the bottom of the last bear market and look like they don’t know when they’re going to stop.

NewsMax reported, “The move below [the 2002 bear market] dashed hopes that the doldrums of November would mark the ending point of a long slump in the market, which is now nearly halfway below the peak levels reached in October 2007. The market’s inability to rally signals that investors see no immediate end for the recession, which is already 14 months old and one of the most severe in decades.”

So much for the predictive wisdom of that little blip Larry got excited about. The present scene is less like experiencing the reassuring warmth of a thaw and more like the ice is cracking under our feet… but maybe not because it’s thawing; maybe it’s just moving. Other signs of the downturn in manufacturing: freighters that are now running half-empty are offering to haul cargo for just the cost of their fuel and handling so shipping companies can fill up the remainder of the ship, in essence running with half a payload and then offering sales on the rest of their space at bare cost just to help cover their fuel and get the ship out on time. Half of China’s 9,000 toy exporters have gone bust, mostly since Christmas, as predicted.

The Economist reported this week, “The destructive global power of the financial crisis became clear last year. The immensity of the manufacturing crisis is still sinking in…. In fact, manufacturing is also caught up in a global whirlwind…. Industrial production is volatile, but the world has not seen a contraction like this since the first oil shock in the 1970s — and even that was not so widespread. Industry is collapsing in eastern Europe, as it is in Brazil, Malaysia and Turkey. Thousands of factories in southern China are now abandoned. Their workers went home to the countryside for the new year in January. Millions never came back.”

CNN reported last week that 70,000 factories have closed in China and 20-million workers have lost jobs. Some analysts are now suggesting that a rural revolution is imminent because the 20-million workers had migrated into cities from rural areas to get these jobs. This is not just a manufacturing decline. This is a MASSIVE manufacturing collapse.

Paul Volker, renowned for careful, non-alarmist, measured statements, even said with regard to manufacturing last week, “I don’t remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world.”

If you’ve been following my column, you’ll remember the order I predicted for the waves of the economic tsunami triggered by the housing collapse (triggered by it, but caused by too much debt everywhere): First, a financial market collapse worse than all but the oldest of us have seen; then a few manufacturing failures due to the credit crunch from the financial collapse (which happened with the big-three in the fall); then major retail failure over the holidays due to loss in housing values, the shrinking of credit, and the loss of jobs in banking and at a few major manufacturing closures; then a worldwide manufacturing collapse after Christmas, followed shortly or maybe simultaneously by a commercial real estate collapse (not yet seen but early signs are showing); and then a collapse of commercial banks that are less affected by housing than by commercial real estate, and then minor reverberations from all of that piling up.

Those are the dominoes that take each other out -- or the waves of the tsunami -- before this is all over. Four out of the six that I laid out have happened in exact order and on schedule like a train … wreck. Amidst all of that you have the less predictable effects of waves hitting one shore then bouncing off to another that I also spoke of. Thus, we are now seeing Europe crumble to its knees due to the U.S. collapse and not knowing how many ways that will feedback to the U.S. with protectionism, etc.

All of that is why there is still a lot more downtime to come. Stop listening to Lightheaded Larry, and listen to Knave Dave.

The Passing of Nations

(Chapter Thirteen)

Some of my predictions in this article, written in 2009, were a little over the top, but not much. The hyperinflation I warned about never happened but only because money never moved outside of circulating in financial circles. It stayed trapped by the centripetal grasp of the rich tighter than I ever thought possible, even though I was the one saying all the new money was not creating inflation because it remained in financial circles that are only played in by the top 10%, maybe even just the top 1%.

Once I realized that money was never going to stray outside those eddies of the rich in this cycle, I wrote on The Great Recession Blog that we wouldn’t see hyperinflation in this cycle. In fact, I don’t think we will see it unless the government or the Federal Reserve starts dropping money from helicopters to feed the hoi polloi, as the world is trapped in a deflationary decline because the middle class is weaker and has less to spend. There are not enough of the rich to create inflation.

Revolts that I predicted in this article happened because of the economy and particularly because of economic injustice. The article noted France and Greece in particular. Economic rebellion in those nations did grow violent in the years that followed because of economic disparity. This was seen in the Yellow Vest movement in France where cars were burned in the streets and police used tear gas and rubber bullets.

Revolts in the US that came after the warnings of this article were a little more civilly restrained than in France and Greece. These included Occupy Wall Street and the numerous other Occupy movements around the nation that didn’t go much beyond civil disobedience, but we also saw the rise of the more militant Antifa, anarchist in its persuasion.

These revolts may become more violent in the cycle now beginning. Times worse than those seen in the decade past will quickly come if economic disparity is not resolved quickly. People cooped up in their homes to contain a viral threat may be more agitated when finally let back on the streets. I certainly hope it doesn’t come to that because violent protest will be destructive to everyone. Things fall apart when economic disparity grows so far-flung that the center no longer holds.

If people don’t rise politically and peacefully (but loudly) to end the economic disparity perpetuated by the endless bailouts of banks and rich CEOs and board members, then revolts will certainly start to look like what I described in the article below. It will have its day of coming true yet. I hope it doesn’t come to that.

On January 30th, Germany’s news publication Spiegel reported, “The bailout packages aimed at shoring up financial markets in Europe are getting increasingly expensive. A creeping depreciation of currency is inevitable and state bankruptcies can no longer be ruled out.” Chancellor Angela Merkel stated, “There is a rumor going around that nations cannot go bankrupt. This rumor is not true.”

Can Nations Go Bust?

Nations go bankrupt when they can no longer service the interest payments on their debt, and the United States is passing perilously close to that possibility. Right now the U.S. debt looks like Dumbo the elephant swallowed a hydrogen tank that’s about to explode inside of him. Abnormally low interest on U.S. bonds is the anti-gas pill that has made it possible to swallow ballooning deficits. The government is inhaling banks that put the meaning in the word “bankruptcy” as if there is no end to the stretch of the government gullet, but there is.

Is it inconceivable that nations like the U.S. could go belly up? Less than a year ago, it was inconceivable to most of the world that Wall Street’s oldest and most respected financial institutions could all go bust. Yet, a year later, their parts are strewn all over the landscape. Since the hydrogen tank blew up inside of Humpty Dumpty, who was sitting on Wall Street, all the king’s men haven’t been able to put Humpty together again. Dumbo may fair no better if he keeps taking on gas. A year ago it was inconceivable that the U.S. would start nationalizing its banks. A year later, it is almost inconceivable if it does not; and, so, a Republican president declared that he had to give up his free market principles. Another inconceivable. The inconceivable is now happening every month.

In less than half a year, the total value of all companies worldwide has dropped by one third. In the U.S. that sifts out as plummeting corporate tax revenue, and lost jobs mean plummeting personal income tax revenue, all while the U.S. government has taken on $10 trillion dollars in bailout liabilities with still no evidence of a bottom being near. (That’s enough to send a check of about $1,500 to every man, woman and child alive on the planet.) Moreover, no one in government seems to know exactly where the money has gone. If all the king’s men couldn’t fix Humpty when Wall Street fell, who’s going to fix the gas-inflated elephant?

What Happens When a Nation Goes Bankrupt?

Government workers go unpaid. Government programs get slashed or simply fail to deliver anything. Government becomes economically powerless and perhaps has to resort to military force to retain control … so long as it can keep paying its military. Because the government cannot finance its debt, it prints money that is not even offset by I.O.U.’s. The U.S. started doing that earlier this year. World history tells us that nations that rapidly expand their currency supply find their currency becomes valueless. Deflation in the value of money equals inflation in the price of goods. That threat is currently being called “stagflation” because the government loses its ability to maneuver and do anything about the economy. The elephant becomes so inflated, his feet don’t touch the ground.

Inflation from growth in the United States’ ballooning money supply isn’t happening right now because the banks are, as you’ve heard, hoarding it all. In other words, none of that new money has, yet, entered circulation. Therefore, it cannot cause inflation… yet. When the credit ice dam breaks and the money starts to flow, however, is when Dumbo’s gas tank explodes into hyper-inflation.

Unfortunately, the more the banks hoard the money, the more of it the government creates out of hot air to pump into the system — only pumping up the pressure for future inflation when the hoarding finally does give way. The king’s men think it is safe to keep pumping their gas-money into Dumbo because the elephant is not showing any signs of inflation. What the gurus of government gas have neglected to realize is that all their pumping hoses go directly into that gas tank inside the elephant. The elephant looks fine, inflation-wise, until the tank explodes.

When governments at the top of the world go bankrupt, their movement is something like plate tectonics on the earth’s crust. The Soviet Union collapsed and was subsumed by the small satellite nations that rose up around it. The collapse of Germany into hyperinflation brought Hitler into power and made the whole earth quake with geographic changes. In short, as economies collapse, revolution rises … and so do the efforts to put revolutions down. Nations rise against nations, as Germany did against the world. The map shows upheaval everywhere when catastrophic forces of that size collide.

Spiegel reported on February 9th that tempers around the world are getting shorter, that the French organized general strikes and sang their favorite revolution songs in the streets of Paris, that Russia was sending troops into the streets, and that Beijing was sitting on what could become a rural revolution. So far, these are just burps, but the pressure keeps building

How Much Gas Can an Elephant Eat?

If you really want to get pumped up, forget Al Gore’s fascinating CO2 chart, and look at the Fed’s money supply chart. The amount of money pumped into the economy by the Fed in the past year has skyrocketed far beyond anything seen in U.S. history.

This is a hydrogen time bomb in that we have inflationary pressures building that are not releasing because all the new money is bottled up in bank tanks; i.e., locked in funds that are not even included in the Fed’s money count. Since there is no inflation, the Fed continues to pressurize the money supply in order to try to break through the ice in the credit system. Since the ice is not just easing out of the way, it could be catastrophic when it finally does break loose.

Look at Zimbabwe, for example, where they have mastered this funny money game. In Zimbabwe a trillion notes now buys you a bottle of water… but only if you can find someone who has a bottle of water. The U.S. has long told other nations they need to bite the bullet and not print their way out of financial disaster, but it turns out we have no taste for bullets when it is our turn to bite.

The Bite is On

As more and more governments around the world increase their deficit spending to bail out their banking systems, the supply of bonds mushrooms. That will inevitably mean those governments have to offer much more interest on those bonds. So long as U.S. bonds look more secure than those of other countries, it will continue to be able to finance its debt at low interest; but, if it begins to lose its credit rating, the elephant is in huge trouble.

The likelihood of world investors, especially sovereign wealth funds, moving away from treasury bonds increases daily. China has been talking for some time about pulling away from U.S. treasury bonds. Now, with a lot less American trade, it has far less American money to store; so, it has far less incentive to buy U.S. treasury bonds. With 70,000 factories closed in the last year, how long will China be able to buy anyone’s bonds when it has no money to invest?

If these two problems (the need to pay high interest to roll over U.S. debt and bottled-up inflationary pressures) give way at the same time, it’s going to be the perfect fart. I think the only thing keeping China from pulling out of U.S. bonds at the moment is fear that the U.S. will pass such gas, which is sure to blow everyone around us away as much as it does us. There won’t be anyone wanting to be in the room with that elephant. But you can’t eat gas-based money forever. Sooner or later, you’ve gotta blow.

It’s Up, It’s Down for the Count

(Chapter Fourteen)

In spite of all the bailouts and talks of a bottom in stocks, the economy kept sinking throughout 2009. I made some predictions in this article about China, and I was wrong … at least for that cycle … as China eventually turned itself around and actually helped lead the world up out of the belly of the Great Recession. You can’t be right all the time.

However, the cycle has returned, and China is further down now than ever. Whether the crush written about in this article happens now in our rinse-and-repeat recession cycle remains to be seen, but China has been hit harder than last time and was already in a steep year-long economic decline before the coronacrisis began.

Last time around, China rose to help pull the world out of crisis because of the demand created by a swelling new Chinese middle class. It is doubtful it can do that again under the crush of continued trade wars that were already pressing it down. I’m not pleading for leniency for China on trade, but we need to recognize that a world that cannot pull together this time as it did last time around, is a world in greater trouble than before.

The fickleness of the stock market as a predictor of the economy versus just a responder to the economy played out clearly in the past week. On March 5th, CNN reported that the market had broken a five-day losing streak, bouncing off of twelve-year lows. “The markets opened higher and never looked back, following reports that China’s economy may be improving.” Umm. Well, they looked back the very next day and the day after that and the day after that. The price of tea in China was a silly reason for the market to rise in the first place, but we must remember it is overseen by a combination of villains and village idiots who look for any excuse they can to bid the market up.

The China Syndrome

When the U.S. stock market leaped like a fish out of water because Beijing promised a $585-billion stimulus plan, I had to wonder that none of the gurus of the market were smart enough to figure out that this plan will not help the U.S. In fact, it is far more likely to hurt the U.S. First, the plan will almost certainly focus on hiring millions of unemployed Chinese workers from the 70,000 factories that have closed in this present depression to fix Chinese infrastructure using Chinese natural resources in order to employ as many Chinese people throughout the Chinese economy as possible. That may help sustain some sort of market for American products, but most of what they buy will likely be cheaper Chinese products in order to put still more Chinese people to work. The government has a rural revolution to prevent, and it controls the economy directly.

Second, and more important, 70,000 Chinese factory closures should make it obvious to anyone that China is no longer running a surplus economy, so where is it going to get the $585 billion? The obvious answer is that the obvious source would be cashing in (not rolling over) the hundreds of billions it holds in U.S. Treasury bonds, which it has been tempted to cash out anyway. With little present demand for Chinese products in America, it is certain that China will not be accumulating huge quantities of U.S. dollars that it has to figure out where to park. So, it has no reason to buy treasury bonds. More importantly, it now has no means of buying treasury bonds because it certainly will not have any surplus to invest when it is pouring an extra $585 billion into its own economy.

If China stops buying U.S. bonds, the U.S. bond rate will have to go up to attract other major buyers, and that makes the long-term unsustainable cost of the United State’s own bailout and stimulus plans all the higher. But the market meisters clearly don’t think that many steps ahead. They say, “Oh, China’s going to give birth to a new boom! Have a cigar … made in China!”

China also stated that its manufacturing has gone up for the third straight month. That news does not add up with the 70,000 factory closures. Either the news coming to Americans is vastly out of whack, or the Chinese government is lying about manufacturing going up. We, of course, know that communist countries never lie in order to avoid mass revolts.

The fact is that China’s manufacturing cannot go up because no one is buying. So, unless they are manufacturing just to manufacture, they are lying. Common sense also tells you that, if manufacturing had been on the upswing for three months, China would not be announcing a $585 billion stimulus program to put people back to work. The reason no one on Wall Street can see these facts can be summed up in one word: “denial.” The good ol’ boys are so thirsty for the good ol’ days, they’re seeing mirages in their desert.

Jobs on the Run

On the job front, the news last week was equally conflicting. First, word hit the press that the number of newly unemployed was expected to decrease from 650,000 to 630,000. The next day the Labor Department said that jobs actually fell off by 638,000. So, the market heated up. A day later, the news was that the numbers did just the opposite; they broke old records. One source said the economy had shed almost 700,000 jobs in one month! (The government revised its claims to 651,000, a slight bump up from 650; so, who you going to trust? For December, the government had said 580,000, which they just revised up to 680,000. That’s a clue.) Then the news became even worse. One day unemployment was expected overall to rise to 7.9%, but the next day it actually rose to 8.1%. So, the market finally plummeted.

Such rapidly rising unemployment raises the question, with the U.S. being China’s largest trading partner, who is it that China is manufacturing for such that it can claim manufacturing is on its third straight month of increase? That the market went up in response to the false claims of Chinese growth and the false claims of diminishing job losses shows that investors are selectively hearing what they want to hear. In a word: “denial.”

The End is Everywhere

Elsewhere in the news, big-time bailout beneficiary AIG announced its largest quarterly losses in history, meaning a push to the trough for more government bailout money to follow the previous bad money. Then Fed Chairman Ben BurnTheBanky announced that banks will be needing a lot more bailout money. News also came out that U.S. manufacturing plummeted almost 9% in the fourth quarter to a low it hasn’t seen in over a quarter of a century (and that’s the decline that happened BEFORE a dismal Christmas sales season.

One-in-eight houses were now behind on their mortgages or in foreclosure. The almighty Citibank became a penny stock (less than a buck a share), bringing to question the bank’s ability to breath even with the government ventilator that was stuffed down its throat. GM’s auditor produced a life-support report that reiterated GM may cease to be “a going concern.” Ford’s credit rating plunged as it announced it would have to dilute its common stocks by selling new shares to raise money. All bank stocks went down like dead and smelly fish over a waterfall. (And Fed and government talked about becoming stakeholders to bail these corporations out.)

By the end of the week, the market went from what was a completely ludicrous rise in the first place to a new tanking low. Someone even rendered a photo of the Merril Lynch bronze bull, long the icon of Wall Street, slumped dead on the sidewalk. Seems there is a lot of bull lying in more ways than one on the sidewalks of Wall Street lately.

Speaking of stock losses, Nestle’s has taken the beef out of its stock while putting the bull back in bouillon, betting that it’s cheap beef bouillon will carry it through the depression when that is all people can afford. While banking stocks are falling off the shelf, food banks are on the rise. Nationwide demand at food banks has increased 30%. If you’re going to buy stock, stock the shelves of food banks. At least, you’ll be helping someone.

The silver lining came in the form of news that there is room for a whole new nouveau riche at the Half-price Hamptons where mansions are now renting for fifty cents on the dollar against previous years. And the surest sign of the times was that Starbucks came out last week with instant coffee, putting itself on the same shelf as Sanka.

Overall, the U.S. rate of fall accelerated greatly. Said one U.S. economist, “So much for the surprising strength in U.S. productivity late last year.” He must have been living in an alternate reality because anyone who believed there was surprising strength in U.S. productivity last year is in the same camp as those who readily believe Chinese productivity has risen for the last three months, even though 70,000 factories have closed. Wait until they see what is happening to U.S. productivity as the post-Christmas blues settle in during the first quarter of this year! We won’t even know those numbers until April.

Where’s the Bailout Bottom?

So long as the rate of fall is accelerating, we’re nowhere near the bottom. A bottom is when the economy starts showing a net increase in jobs, instead of a net loss. We’re still expanding the rate at which we lose them, and, so long as we are seeing a net loss at all, we’ll still be falling. Anyone thinking we’re anywhere near the bottom is a blind fool with his eyes closed under sunglasses in a darkened, sound-proof room.

Finally, this weekend the national debt was set to clear $11 trillion. Ahh, it seems like only yesterday that it cleared $10 trillion. The national debt appears to be climbing faster than the economy is falling. The extra money must be going into bonus checks to reward the architects of our demise. Meanwhile, another $580 billion bailout is already in the works in Congress. This time to be borrowed against the future as money for the FDIC to rescue the customers of failed banks or, more likely, just printed out of thin air. I thought we bailed out the banks to avoid that possibility. No wonder the national debt is climbing at the rate of a trillion dollars a quarter.

Bailout Bonanza Gone Bananas

(Chapter Fifteen)

Every time bailout packages were approved and people thought the worst would start to move behind them, more and bigger bailouts were required. That’s how it went as we sank further and further into the Great Recession.

We will see the same thing this time. Really, we already have. At first the Federal Reserve was just bailing out a “repo crisis” in September, an arcane problem at the core of interbank financing. Then it went back to doing QE to suck up bonds banks didn’t want to keep holding and turn them into cash in November like it had done in the past supposedly to recover from the Great Recession. Only it claimed this was “not QE” this time on the basis that it only involved short-term treasuries and, so, was a short-term measure because it didn’t want anyone to think we were repeating the whole QE cycle again!

Then it added more to its repo bailouts. Then it extended the range of bond maturities that its QE operations would cover to long-term bonds. Then it went to full-on QE to the tune of half-a-trillion dollars! Finally, it had to say dismissively, “We don’t care what you call it.” (Even though endlessly buying up US debt and never selling it back off is called “monetizing the debt” and is illegal under the Fed’s charter. No one in congress has questioned that because they want all the help they can get from the Fed.

Then the Fed resurrected its old TARP (Troubled Asset Relief Program) from the Great Recession cycle – the one that sucks up toxic assets like mortgage-backed securities. It did this in order to suck up all over again those same kinds of “derivatives” that blew up last time because we never stopped allowing these derivatives. We repeated the problem cycle because greedy investors can make a lot of risky money off those troubling assets and then, if it all goes bad, turn to the Federal Reserve to suck them up like a bad bank.

Then the Fed created new programs to vacuum up other kinds of toxic financial assets and invented a few new acronyms to add to the list of its recovery “tools.”

Then the Federal government jumped in with a minor bailout program. Then it created a $2-trillion bailout program.

That’s where the all the bailouts were at the time when I was finishing compiling this book for the Great Recession 2.0, or maybe we’ll wind up calling it the “Second Great Recession” or “Second Great Depression,” like the Second World War. Any bailouts beyond the list above are part of the widening of the cycle’s hurricane-like vortex … just as happened last time in the cycle described below.

American International Group (AIG) has received to date $170,000,000,000 of U.S. tax-payer’s money! The zeroes start swimming in my vision with numbers like that, as my eyes cannot focus on numbers so wide.

First, The Bananas

Maybe it’s because of news this week that AIG is using 165,000,000 of that bailout to pay additional executive bonuses, and the US government is allowing that. Showing unprecedented restraint, the chairman of the board has agreed to try to trim these bonuses down a little … next time. Now that just puts my head in a whirling dervish like a washing machine on a spin cycle, for this very same month AIG reported that those superlative (or is that expletive?) executives created the largest quarterly corporate financial loss in world history — $61,700,000,000 down in one quarter. I’m not sure what the opposite of cross-eyed is, but my eyes are splitting like a chameleon’s just to read that wide number.

Next my head launches from its spin cycle into orbit upon news that the U.S. government is accepting this with a mild request that AIG try to notch it down. Notch it down? AIG says, they cannot because it is a pre-existing contractual obligation. First, how many alligator-brained corporations do we have that are writing contracts that guarantee bonuses if you obliterate your company? Second, the government has every legal right to stipulate that no bailout money will go to corporations whose executives are receiving any bonuses at all. That would put the onus on the executives to sign consent to their loss of bonuses or lose their jobs because their business fails entirely. Then they would lose their bonuses anyway due to corporate bankruptcy.

Don’t our leaders have any ability to negotiate? This is a slam-dunk: “Everyone sign a new agreement to lose your bonuses, or we don’t bail you out.” There are ways to terminate the bonuses. Instead, American people are losing their homes while these gluttons are being given money from said foreclosed individuals on a scale that will allow them to buy those same foreclosed homes with cash!

Monkey Business

The real problem here is lack of governmental spine. So long as the government is afraid to require severe disciplinary action before using everyone else’s money to bail out corporate giants from their own greed and folly, why should the giants short themselves? Of course, the Treasury Secretary would hardly want to start slugging people with whom he drinks martinis after a good day’s hard work.

If the government mandated that every executive involved in AIG’s failure be fired before AIG ever received a cent, is it conceivable that AIG’s Board of Directors would choose to let the company die, rather than do the severe pruning necessary to get the government aid? Since when can contracts with employees not be broken when their ineptitude is so high as to create the largest financial losses in world history, even to the point of bringing a nation to its knees? Is it even remotely possible that AIG could perform worse than it already has if it were run by chimpanzees with bonnets on their heads?

My mistake. It is run by chimpanzees with bonnets on their heads.

The chairman of AIG’s board, Edward Liddy, stated from under his bonnet to U.S. Treasury Secretary Timothy Geithner, “We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.” (Always the same excuse.)

Retain the best and the brightest? Does he mean the chimpanzees that are smart enough to wear their bonnets right-side-up? Is he referring to the ones who know how to eat with a fork? Or just to the ones who don’t defecate in their own hands?

I say, let the corporation die, or fire everyone responsible and replace them with apes from the wild, which may be smarter than those raised in cubicles. Every time the new chimps accidentally do something that causes the company to make a dollar, give them a banana. In no time, they’ll be outperforming the current menagerie ten to one.

The China Syndrome

Stephen Schwarzman, chairman of the corporate buyout firm Blackstone Group, said that “There will be a [government] program set up soon to buy troubled assets from the banks. The private sector will wind up making some good money.” [Blackstone is now administering some of the Fed’s bailout programs again in this cycle, too. These guys are always ready to make handsome fees off the next round of bailout programs.]

Of course, there will be program for buying up trouble assets. All the rotten meat will be carved out and handed to U.S. taxpayers [or the Fed to digests], and the little bit of choice meat will be sold at a bargain to wealthy private individuals and groups. It’ll be more of the largest movement of money from the poor and middle class to the few remaining rich ever seen. It’s not the people caught in housing foreclosures who will be in any position to buy these newly scrubbed-up troubled assets. They just get the effluent.

Last week I wrote that the U.S. is going to start feeling the squeeze as China would soon be seriously questioning the wisdom of financing the United States’ mushrooming debt. Sooner than I thought (as in Friday of the same week), China’s premier went public with statements about his concern over China’s massive holdings in U.S. Treasury bonds. “To be honest, I’m a little bit worried,” he said. When the premier of a nation the size of China says “he’s a little bit worried” publicly, he’s a lot more than a little bit worried. Of course, he may just be trying to talk up the interest the U.S. has to pay, but that was my point.

J.P. Morgan economist Frank Gong, summed up, “Inside China there has been a lot of debate about whether they should continue to buy Treasuries.” If they stop, the government will not be able to finance its debt, as its interest alone will become unpayable and unfinanceable in the present economy.

I also said last week that China’s production claims don’t add up. It reported that factory productivity was up through the last three months when it has closed 70,000 factories. This week’s news says that China’s February exports were down 25%. If production is up in China, one has to wonder for whom are they producing? Maybe it is a communist supply-side philosophy: “If you build it, the orders will come.” The current generation of Chinese dictators are new at free markets, so I suppose they have not figured out yet that you have to have someone who wants and is able to buy your product before you raise production. They may just be making things to keep the peasants employed.

Of the making of bailouts, it seems there is no end.

Virus Impacts an Economy Already in Decline before the Crisis

(Chapter 16)

Such were the articles I wrote a decade ago about where we were headed based on everything we were doing in response to the Housing Crisis in order to get out of the Great Recession that the crisis plunged us into. Now we are back to a time that looks eerily familiar, the time when our avoidance of true corrections comes back to haunt us just as plague struck the earth. We are already starting to repeat the great recession cycle with a blitzkrieg of ruinous bailouts and a lot more of them because we are desperate to avoid what looks like an equally bad recession, maybe even worse – maybe a great depression.

Consider that, throughout all the years after I wrote these articles, I wrote on the The Great Recession Blog that our next recession would be a return right back into the belly of the Great Recession … only to find it deeper now because we never resolved any of its faults, which continued to gnaw away under us. That’s why I gave my website that name; I knew we were never going to escape the Great Recession’s gravity because you are destined to come back and remove the cancer you refused to deal with when you “kicked the can down the road,” something that became the refrain of politicians throughout the Great Recovery, from which we now have to recover. We merely propped ourselves up through the belly of a great recession with all kinds of hot-air money to avoid feeling the pain of correction.

Bailout plans anesthetized everyone to assure no one learned from their failures while trillions of hot-air dollars created by the Fed provided the artificial life support that kept us alive in spite of our underlying sickness. We lived in a coma under artificial life support of FedMed throughout the Fed’s Great Recovery period, but that “recovery” was nothing but the delirium of a fevered mind – an illusion inflated with hot air.

Then, in 2018, the foolhardy Fed believed its recovery was a success. It believed its own illusion, so it started removing the life support, releasing some of its hot-air money that had inflated the Everything Balloon. It didn’t get far before stocks crashed in the fall of 2018, just as the Fed’s quantitative tightening got up to full speed. That happened on exactly the schedule I had predicted for the market’s crash on my blog because my schedule was based on the Fed’s stated schedule for tightening and on the common-sense notion that you cannot suck the hot air out of the balloon you inflated without deflating the balloon – something that should have been self-evident to the great minds of the Fed, but was not. Then the Repo Crisis began in September of 2019, as I also wrote in January of 2019 would likely happen later that year. Again, that effect was due to the Fed’s quantitative tightening, which had been scheduled to continue through the summer of 2019.

Those plans of unwinding the Fed’s balance sheet to reduce money supply all predictably failed because our healers left all the cancer inside our body. These same people who pretended to heal us last time now want to blame the economic crisis on the present virus as an exogenous attack that no one could see coming. The virus manifested just in time to become their scapegoat for their failed recovery. The falling apart was already I play, and the Fed was struggling to pull it back together as the Repo Crisis continued to grow like a widening vortex.

I had said for years when the recovery would fail and why. (Not what year, but what set of events the Fed would do and how that would cause the failure. Once the Fed scheduled those events, however, and told everyone, then the timing of the end could be readily predicted.) I had already said in the articles now compiled into this book why those recovery efforts were flawed.

So, yes you could see the failure coming. You just couldn’t see what was going to trigger it; but you could easily see that our decayed economic structures would fall like a house of cards at the first flap of a black swan’s wing. Think about where our economy was already going before the virus, beneath the ebullient stock market that was rising in irrational exuberance just like the market had before the last two massive crashes.

Here is where our economy stood just before the virus struck the world as I recently described on my blog (moving now beyond the articles of ten years ago to current writings):

The toilet-paper lines hadn’t formed yet. Jobs had not even noticeably started to dry up, but they weren’t as easy to find anymore. You had to be angry at your employer to quit without having a better job firmly in hand. Recently gone was the luxury of quitting with the knowledge that something b better would be easy to find. Stocks were climbing furiously above an economy that had been slowly ebbing away since summer. Sales were down for months, so revenues were down for months, and profits were down, too. Manufacturing entered a recession in the summer of 2019. Funding in the world’s easiest credit market — interbank repos — seized up — so tightly the Fed had to come to the rescue every single day for months on end, and the problem was only getting worse.

Such were the times before COVID-19 struck the world in 2020 like an asteroid from some far reach of the solar system, crumbling structures that were built on cracked foundations, burying in ash a partying world that hadn’t yet figured out it was already slowly dying from its own internal decay.

Archeologic Evidence of a Society Already in Decline

Now we are left to dig up a modern Pompei and piece together what life was like before the explosion of the viral impact event. What follows are the last statistics to come in from the days just before the earth-shattering crisis hit. These are the final US economic numbers that foreshadowed a nation’s steep decline.

The leading economic index rose a slight 0.1% in February. That is so close to zero, it is almost recessionary; but that was before the coronavirus brought U.S. growth to a standstill…. “It doesn’t reflect the impact of the COVID-19 pandemic which began to hit the U.S. economy in full by early March,” said Ataman Ozyildirim, director of business cycles research…. “As a result, the economy may already be entering into a period of contraction.” (MarketWatch, March 19, 2020)

There lies in the ash an encapsulated tale I’ve been writing about for a year of an economy that was already receding before the crisis hit. A rise so small implied a drop in GDP growth of almost 50% in the present quarter, which would have taken GDP growth down in the present quarter from its nearly yearlong stagnation at 2.1% to about 1% without the virus’s impact.

The Fed’s fix was in, but it didn’t fix anything. The tax cuts didn’t fix anything. In spite of it all, the economy was sluggish and slowly sinking:

Service businesses had joined manufacturing in the decline since mid-summer but didn’t plunge below the recession mark (50) until the end of the year. Consumers were also already pulling back and tightening their belts to live within their means as early as January of 2020 when no thought in the US was being given to the coronavirus:

“Revolving credit, namely credit cards, declined at a 3.3% annual rate in January. That’s the second decline in the past three months…. Consumer spending has fueled the economy in recent quarters as business investment has retreated,” said another article in MarketWatch (March 6, 2020). In fact, it was the only thing that had powered the economy through the swamp of 2018, and it was dying just before the virus hit.

With consumers backing off, and consumers being the only thing that had been keeping the economy barely above a recession at water level, the economy’s submersion was nearly certain without the tsunami from the viral impact event that rapidly finished the job.

In Memory of the World as it was Before the Virus Struck

These are the last vestiges of indicators that came in before the crisis hit. They tell of twilight times slowly settling over a world soon to be struck by an event no one saw coming.

The US and global economies were declining due to insidious problems that existed deep below their surface — problems like vaults full of collateral that didn’t actually exist because the same collateral had been used several times for concurrent loans; corporate accounting that had crept for years away from the high standard of days gone by called GAAP; a cavern of cheap debt carved out beneath corporate earnings that were jacked up by use of that debt to buy back stocks in order to make “earnings per share” higher simply by reducing the per-share denominator when overall earnings were actually down; a mountain of leveraged loans and bonds that were teetering already on being downgraded to junk; cesspools of corruption that never ended in imprisonment after the last crisis; major global banks like Deutsche Bank and Wells Fargo that had been sinking into their own corruption for years; the largest gulf between the rich and the rest the nation had even known; quarter after quarter of stagnating economic growth, funding a national deficit that was already ballooning at a rate of a trillion dollars every year for as far as the eye could see. If measured as a pile of tightly compressed dollar bills, each year’s US deficit would reach a quarter of the way to the moon! And few cared.

It was into that decaying, sloppy, insensible world that the virus crashed with the impact of a large meteor. The cracked foundations of civilization’s structures immediately crumbled, and its high towers of commerce toppled faster than its citizens ever thought possible! Crowded highways became nearly vacant. Those who had been coming and going about their business as if nothing could hurt them, ended their business activities overnight, and citizens isolated themselves by sheltering in their homes. Most of society waited on hold as numerous states and nations entered official lockdowns — waiting to see how great the destruction from COVID-19 would be.

A Sustainable Solution to Endless Cycles of Economic Collapse

(Chapter Seventeen)

It’s not hard to figure out how to end the rinse-and-repeat cycles of financial destruction that I described in 2008 and 2009 in the articles compiled in this little book. It’s just very hard to do it.

The people who are getting bailed out run the system. Trump’s White House is full of them in all the top financial positions. Obama’s was, too, so I’m, not singling out any one party or president. Each president fills his White House with former executives of Goldman Sachs and other major banks who have profited greatly, both directly and indirectly, from the bailouts to inform each president on how to run all financial aspects of the economy. Always for the benefit of the banksters.

And then there’s Larry Kudlow, the Great Guru of Faulty Finance and Preposterous Predicitions, who has three times inflicted us with trickle-down nonsense that never once trickled.

Congress is owned by thew Wall Street ballyhoos, too. It doesn’t matter what political party you’re talking about. Many in both parties are the pocket politicians of bankers and brokers. Many of them cannot see outside of their religiously held ideologies, just as many voters don’t, preferring to blame the opposite party, rather than do the hard work of actually solving the problems, and there are many problems, but they are solvable if you’re willing to bear the pain of fixing them and put party loyalty aside for loyalty to country and your fellow human beings.

The systemic corporate and financial reforms we need have to start with holding your own politician — the one you voted for — to the task of reform, not someone else’s. Hold the one that is accountable to you to make the changes. If we don’t make these changes, capitalism is doomed to be replaced by some socialist monetary dream like Modern Monetary Theory. We have seen socialism replace capitalism many times in history because those who are oppressed when capitalism is not policed and regulated with reasonable laws as all human endeavors need to be turn to something more promising. That something, however, will fall just as heavily upon them if not policed, too.

The answer does not lie in a new economic system but in policing the one we have and re-reforming it, as has to happen from time to time to take back out the reformations and deformations and deregulations that were worked in by the rich in self-service that pretended to be for the nation’s good. They use their money to buy power and then use their power to gain more money; and when that cycle blows apart, they use their influence to bail themselves out and let everyone else take the damage. Then they rinse and repeat the whole thing.

That restart of the cycle is where we stand now. The bailouts are already happening so quickly all over again that it will be hard to stop them quickly enough to matter. If we don’t try, however, we get to take another long recovery path right back to our starting point, only to find again that we start the next cycle with an even greater mountain debt, pushed along and heaped up on top of us. The bailouts are already happening on a scale greater than in any part of the Great Recovery (that never actually recovered). They are happening so quickly because the Federal Reserve and the US government already have old plans that were approved during the bottom of the Great Recession that they have dusted off for instant implementation.

If we don’t want to repeat the Great Recession and its recovery program all over again, only to find the rich are richer again and you are as left out as ever, we need to take serious action now.

Here’s the Road-to-Real-Recovery Plan.

Now that we know from repetition what doesn’t work, it should be easy to why it has failed and to take care of what wasn’t taken care of in plans gone by. The following plan is easy to understand, and it will fulfill your basic human need for justice. It’s commons sense for common people in that it will also narrow the divide between the rich and the rest that the rinse-and-repeat “recovery” plans turned into a chasm as wide as the Great Recession, itself. It puts the burden of recovery on those who benefited most from the greed of the old rinse-and-repeat plan where it belongs as their plan perpetuated everyone else’s misery while they saved themselves and lived high on the false promise that they would save you, too.

Here’s the true road to real recovery that is equitable and solid, that stays within the capitalist system (which we have not done), and that puts the cost of failure on those who most deserve it because their irrational greed inflated enormous asset balloons that benefited only them but imperiled everyone:

1) The bottom line is that the only salvation that should be allowed for corporations is restructuring through bankruptcy. That saves the company for the good of the employees and good of the nation by putting failing companies under trustee control, firing all executives in the process and completely flushing out the existing board shareholders. Pay off all corporate debts that were used for buybacks out of the current stockholders’ remaining value by selling their shares or by turning them over at current value to creditors. It’s only fair that owners pay before anyone and that captains of industry go down with their ships.

Prohibit all top-tier shareholders from buying new shares that are issued or traded. Sell of shares from the top down, depleting the shares of executives and board members to the extent of their entire holdings and then working down through the classifications of stock a particular company has issued based on tiers with the highest voting rights being sold off in their entirety before going down to the next tier. Do this so that those who had the most control over the company’s buybacks and mismanagement pay before those who had less control. That’s only fair.

If you bought into a company that was buying back stocks to give you great gains, too bad. You participated in the greed, maybe even approved the board that was doing it, and you lost. No one owes you redemption or should even try to save you from the loss your own risk brought to you! Not bailing people out is how people learn what risk in investment really means and how they start to finally smarten up to risk and then demand more responsible management.

No bailouts; just good old-fashioned Chapter 11 bankruptcy. When we start actually doing that again every time a company is deeply enough in trouble to need a bailout, then CEOs and other upper tier management and board members will start being a lot more prudent and will stop treating their companies like casinos. So will shareholders who vote those board members into place who vote the CEOs into place.

If big boys and girls at the top don’t like the bankruptcy solution, then let them struggle on without any help. Who cares?

2) Assure the same employees keep working under trustee management throughout bankruptcy proceedings (except for top-tier management) because the employees certainly didn’t create this corporate mess. They are victims of it. Keep the company running if its viable outside of its credit troubles – if it is able to serve the American economy in order to help save the American economy. We must try to keep people employed productively, so we don’t widen the cycle of decline by creating an economy with a disabled consumer base. Save the company, not the crooks.

Only after you’ve exhausted all value out of the shareholders to pay employees first with enough reserve to keep them employed and debtors second, then bring in what government bailouts remain necessary for the good of the nation with the government as a creditor first in line, not as a stockholder. We don’t need nationalized companies, but make sure we have laws that allow forcibly turning them to receivership before they become too damaged to save. Keep the economy running as a capitalist economy, rather than socializing the losses of the rich as we’ve done in past cycles.

We cannot save capitalism by giving up on our capitalist principles, as George Bush II did. The only way to save it is by forcing justice upon those who abused it. Bankruptcy is the safety mechanism for dealing in an ordered way with failed capitalists. It’s how capitalism works when greed or ineptitude have to be corrected. We did it with major airlines in the past, and they went on to perform better than ever because they no longer had that rubbish management inside their heads or a heavy burden of debt.

Don’t bail it out! Clear it out! Let the coronavirus bring creative destruction so we can burn out the rotten wood and get back to real rebuilding. DEMAND that from our politicians and government attorneys and judges. Scream for it! Rattle the cages and fill the halls! Or we won’t get it.

3) Rewrite corporate laws and bankruptcy laws as needed to make sure the above is universally the way bankruptcy and bailouts are carried out. Slaughter the hogs who fattened themselves and no one else. It’s the moral way to proceed. Rewrite corporate law to make it clear that the entire personal wealth of all upper management and board members can be confiscated to “bail in” their corporations before lower tiers of shareholders are taken out.

Discontinue the corporate protections that enable those who are in charge to be less accountable. If they can’t stand the heat of having all their personal belongings at risk if their company goes down, then they cannot do business in the United States of America. What do we care if they don’t want to become shareholders because it puts their vast fortunes at risk? Then others with less fortune to risk will step up to those roles. Lower level shareholders should have that protection, but not board members and executives who are making the big decisions. Not, at least, if their businesses fail because of negligent risk or illegal activities or poor ethics. Real risk creates responsibility and accountability at the top. Eliminate the over-protection that enables excessive risk taking.

You want a place at the board-room table where the big decisions get to be made? Then shoulder the responsibility. To keep corporate cowards from moving their money and business outside of the country just to insulate their own fortunes, make it illegal for US citizens to hold principle/controlling positions in companies headquartered outside of the US. We have plenty to take care of here. Make it illegal at the same time for citizens and companies outside the nation to hold controlling interest in US companies.

And let's make sure we put some people in prison this time under the present laws while we're at it.

4) Make stock buybacks illegal again! Investors who have turned the stock market into a casino will scream out against this because they want to keep their golden nuggets clinking down through the elaborate market machinery into their hands at the cost of having real markets. Stock buybacks, however, were illegal from the end of the Great Depression until the 1980s, precisely to prevent people from manipulating their stock prices with corporate cash as they’ve done since opening buybacks up. The elimination of buybacks kept everyone in the nation from experiencing these enormous bubble crashes that began after buybacks began. Force companies, instead, to drive up share value by actually building business, not by using business shares as casino chips!

5) Reinstate Glass-Steagall, which prevented most banks from buying stocks. The Federal Reserve has inflated bubbles into hot-air balloons by creating money in the reserve accounts of its member banks so they could buy stocks and inflate stock prices. Don’t let banks buy stocks or exchange-traded funds. Banks must be removed as traders on the stock market because the Fed has unlimited capacity to create money and can, thereby, completely rig the stock market. Turn the stock market back into an actual marketplace that exists for the simple basic purpose of being able to buy ownership in a company you think will perform well and that you want to be a part of.

6) Demand politicians limit other Wall Street practices that primarily turn stocks into commodities and exchanges into casinos. Do the same thing in the commodities market. Turn them into places focused on real business not geared for speculators.

7) End the special capital-gains tax rate. Put a knife to the very idea of trickle-down economics in your own heart if you ever had a fondness for that thrice-failed scheme. It’s one of the dodo-bird eggs hatched by Lunatic Larry. Money has never trickled down and never will. The rich are not paying a higher percentage in taxes than the rest. The rich use the fact that the top 10% pay 70% of the taxes as a trick to make you think they are already paying more than their fair share. The trick works because the real truth is too obscene to occur to anyone: The top 10% pay 70% of the taxes only because they hold 80% of the wealth. That means just paying an equal share of the tax burden would require they start paying 80% of all the taxes collected. (More on this in the second section below, since this idea has plagued us now for decades.)

8) Bring in the light of a new day! Reform the Fed or end the Fed! If we keep the Federal Reserve in charge of the nation’s money, you need to understand, if you don’t already, that the Fed is not government. The Fed is owned by the nation’s banks that are part of the Federal Reserve System. These banks own stock in the Federal Reserve Bank of their region. Those reserve banks, rotate their presidents, elected by the shareholder banks, onto the Federal Reserve’s committee that regulates all money supply in the US (and dollar-based world). This committee (the Federal Open Market Committee or FOMC) has unrestricted authority to create money in the member bank’s reserve accounts at will, limited only by inflation.

How to Reform the Fed

Obviously, a system owned by bankers is going to run foremost for the benefit of bankers. That’s why all Fed recovery efforts have inured to banks before anyone else. The fact that the Federal Reserve is overseen by a board of government appointees is not sufficient protection for the public because those same banks have undue influence in whom the government appoints because 1) the government desperately needs their trillion-dollar-plus-per-year financing, and 2) they buy influence with politicians to make certain their own cherry-picked candidates get appointed to the Board of Governors.

In the very least, the activities of the Fed need to opened wide to annual audits of every detail of all their operations. Of course, banks love to operate without anyone knowing which one is about to fail and which one got bailed out. The Fed argues this is essential to prevent runs on banks. That needs to end in order to put accountability in the system. It may be fine to keep that information from being public for a year to avoid creating immediate panics and runs on banks, but then what took place needs to move fully in the daylight a year down the road!

That is because everyone who takes part in any Fed bailouts needs to know they will be known by name and will be fully held legally accountable for how they managed the problem. No more clandestine banking bailouts or any kinds of banking operations that remain shrouded forever in secret. 100% full disclosure. Period. If that creates a run on a bank a year down the road because the bank’s problems were not fully resolved within the year allowed, there should be a run on the bank! That bank should go out of business. If the Fed, in its regulatory oversight, allowed a bank to get in such desperate shape, it should never have been bailed out in the first place; and the Fed is to blame for lack of oversight. And those banks won’t be bailed out if the reforms above have been implemented because all of those reforms should apply to banks as much as any other corporation.

Finally, revert the Fed's dual mandate back to the single mandate it once had. The Fed operates under two mandates as competing prime directives. One, which had existed since its beginning, was to "maintain stable prices, and moderate long term interest rates." That was how the Fed was to maintain a stable money supply, sized properly for the scale of the economy, which is determined by keeping inflation in check.

The second directive, which congress added in 1977, was to "maximize employment." That should never have been a responsibility of the Fed because it gives the Fed way too much power. It has become their excuse for trying to manage the economy and save businesses, etc. Put the Fed back down to one objective, which is managing the monetary system to keep enough money in the system to keep inflation neutral.

Trickle-down Never Trickles Down Because All Money Bubbles Up!

Trickle-down economics has for decades given the wealthy a huge tax break in the one area where they make most of their income. The 90%, on the other hand, don’t get much value out of it. You see, the rich do not make their money off of wages. They make their money off of capital gains. So, their higher income-tax bracket has always been nothing but a smoke screen. The lower capital-gains tax gives them a lower tax bracket than much of the middle class in the arena where the wealthy make the lion’s share of their money.

The capital-gains tax break is the primary reason the gap between the rich and the rest has widened to such an extreme since it was instituted. It’s not creating a healthy civilization. The other big reason for the gap, which former Fed Chair Janet Yellen publicly worried about, is the Fed, itself. The Fed has always given all of its bailout money to the richest of the rich – the bankers who own the Federal Reserve System as shareholders in their regional reserve banks. So, of course, its programs improved things most for the richest of the rich – the nation’s bankers. Most remedies do work best where applied most directly.

And none of that trickled down.

Now, think about why trickle-down economics is automatically self-defeating, starting with the proof. American wages, adjusted for inflation, remain completely flat with where they were in the 1970s, but the income of the top 10% of America has risen dramatically since then. The tax savings from a lower capital-gains tax has not in any year resulted in wage gains due to more US factories being built as Ronald Reagan promised would happen (and I voted for him because I believed the promise could work, so I understand the dream). It didn’t work. We all know that, from that time forward, companies fled the United States and built elsewhere. And that’s not just because of Bush the First’s NAFTA agreement, signed into law by Clinton.

What we got, instead of wealth trickling down from the so-called job creators to everyone else, was the greatest chasm between the rich and the rest the nation has ever known. That creates civil unrest, like the kind I said would come in my articles ten years ago, now recorded here. This tax diminishes the economic strength of America.

Think about that. The great strength of America’s economy never lay in the top 10%. Everyone knows it was built on having a robust middle class – a huge number of consumers who could afford to buy the products made at the factories owned by the 1% -- because they had good wages, solid benefits and solid retirement plans. The more employees have been chiseled out of benefits and have seen wages stagnate and retirement plans wiped out, the more the rich have undercut themselves by wiping out the class that used to buy their products.

Their greed has decimated their own market! So, they focus on developing new markets like China and India and buy a period of salvation for themselves that comes at the weakening of their own nation. And that is where greed leads and why it is eventually self-correcting if we don’t regulate it away to avoid the painful corrections it will bring if we don’t. We can await the correction that impacts all, or avoid the behavior that leads us to the inevitable horizon of that path.

The other solution developed by our central planners to overcome the problem of weakening pay and increasingly part-time work without benefits was cheap credit and convincing everyone to buy on credit, since they had no cash, to keep the consumer economy running.

If you think it through, you can easily see why trickle-down economics is self-defeating in its original promise that capital-gains tax breaks will result in new factories being built. It will do the opposite because it entices shareholders and managers to make all their money by pumping up stock prices. After all, why would you use your tax savings (as trickle-down promises you will) to buy land to build a factory, go through the massive legal expenses and political headaches to get permission to build the factory on the land, actually build and tool the factory, take on all the liabilities and legal problems that come with hiring hundreds or thousands of people, create a market for the product you intend to manufacture, develop all the supply chains you need to make your product, and pour millions into getting the product manufactured by paying all those employees and buying all the supplies, then spend more millions on advertising and market development and a sales force, and then more on shipping … all in the hope that several years from now all of that might pay off … when you could, instead, just take your savings from the special capital-gains tax rate and reinvest it in stocks and see immediate profits AND be able to take those profits at a lower tax rate than what you will have to pay on profits made the old-fashion way described above!

You would never do that! No one would. You would have to be insane when you’re given lower taxes just to take the path of least resistance. Why would you take all that on for a much riskier profit opportunity just to pay higher taxes down the road on that profit IF profit even happens? Thus, a lower capital-gain tax rate guarantees money will keep flowing in circles within asset markets because that is far easier, and that’s where it will get taxed less! So, the lower capital-gains tax rate is a big reason we keep repeating these huge boom-and-bust asset-based recession cycles.

If you want money to go into real business, of the type I discussed above, don’t give people a break for just making easy gains on stocks. If anything, capital gains should have the highest tax rate in order to press people toward making money the old-fashioned, hard way – by dreaming up, building, and effectively managing an actual profitable business that serves the needs of other people!

Tax breaks, of course, do stimulate the economy, as was always promised … no matter what part of the economy they are given to. They do not, however, stimulate the economy enough to pay for themselves. The most recent corporate tax breaks were balanced within the revenue side of the US budget by the addition of trade tariffs for everyone; but the increase in government spending put us deeper in debt and did not stimulate the economy enough to pay for the increased spending either.

Neither do tax breaks on the supply side stimulate the economy as much as the same-sized breaks on the demand side. That’s just a self-serving rich man’s argument. By giving tax breaks to the supply side (the side of the “suppliers” who own the factories that supply our physical needs and wants), you stimulate the stock market and bond market and the prices paid for ball teams and for art work – assets that all benefit from a capital-gains tax break. You hope all that trickles down to create a wealth effect that drives the general economy. But it doesn’t. If you really want to stimulate the general economy (and if the Fed genuinely wanted to create inflation), you do so by creating demand, and you do that by enabling demand with a greater share of the wealth. So, you give the tax breaks on the demand side (the consumers of all that is supplied).

What happens when you give tax breaks to the consumer What does the consumer do? By definition, he or she consumes … or pays down debt or saves -- both good for consumer economic health during hard economic times like these we have just re-entered. If consumers had larger cushions saved up and lower debts to feed because of better habits, they wouldn’t need government bailouts. That’s another cost of pushing debt for decades as a way of building our economy.

Mostly, consumers do a lot of consuming, going out to stores and buying the things made at the factories and businesses owned by the 1% at the top. That causes new factories to open or old factories to expand to fill the growing demand, and that creates jobs. The wealthy will always chase the almighty dollar; but you have to make them chase it, not give it to them. If you don’t, they’ll take the path of least resistance like any of us. If you give tax breaks to the consumer, the only way the rich can get their hands on that liberated money is by providing goods or services the consumer wants to consume. You can’t sell to people who have no money.

Money doesn’t trickle down for the simple reason that there are far too many filters to make sure very little of it gets through to the common person; but it always bubbles up! So, make the rich build factories to work for it. They will find ways to profit off you and get their hands on it. Trust them on that. They are gifted that way. But make them work for it. Lay the money deep, and let it grow up out of the soil for harvest. The rich will still get theirs. Even consumer savings go into banks and still help banksters -- not as much perhaps as your credit card helps them when you buy everything with high-interest debt … but enough!

Speak up Now or Forever Hold Your Peace

(Chapter Eighteen)

These are the lessons we’ve learned or should have learned by now from our repeated colossal failures.

It’s time to clean house. That won’t happen without intense pressure, and everyone who benefits from the rinse-and-repeat recession cycles will tell you what utter nonsense the basic plan in the last chapter is because they make a lot of easy money by not having this plan in place.

President Trump has no will to do any of this. He lives and breathes and dines in the echelon of people who profit from this racket. Neither do Republican or Democrat politicians who also live and dine among those who have long profited from the old cycle. You’ll have to push them to it, or it will never happen. “We the people” have the power vested constitutionally in us, and by the ordinance of God, according to the Declaration of Independence and the Constitution, to beat our politicians back sides until they do what they don’t want to do; but that means we have to overcome our own inertia.

We remain the only hope of change, and it can be done if we work together. The establishment seems to have a plan to make sure we don’t – to keep us divided so they can conquer. But it can be done. I hope it will be done. The solutions are not hard to figure out, but getting up the political will to make it happen is extremely difficult. It will never happen without that will. “We the people” have the power to easily overthrow politicians that won’t do this, but can we find the cohesion and will to make it happen?

When your leaders try to tell you it is illegal or unethical to claw back money, remember that we are talking about ill-gotten gain in the first place. The gains being clawed back in the last chapter’s plan were made from long-tendered false promises that tax savings would trickle down if you gave certain people at the top tax breaks. But that could never have been true. Remember, also, that corporations are not people. They have no natural existence. They only exist because people created the possibility for them to exist as constructs under corporate law. They are a human ideological construct, and we have every right to shape them to work for the greater good of humanity.

Those laws can be revised! And they should be revised immediately to start making, first CEO’s, then board members, then major shareholders and finally the rest of shareholders directly responsible for bail-ins of the corporations they own. Then they’ll be a lot more cautious about how they oversee their companies’ finances.

The last recession was a great recession for some; and, if you don’t fight with tooth and claw now, it looks like the present one will be a great recession for a few, too! Use the present downtime and the period when we are struggling to emerge from it to turn things around. Demand they turn!

You Are Entitled!

Don’t let anyone take the power you are entitled to by the constitution away from you by persuading you not to use it. You are entitled to determine how the laws of your country allow corporations to operate.

If our leaders ever try to dredge money out of social security and then try to tell you that you should feel ashamed for feeling entitled to that money, then remind them that it was your money in the first place. You are entitled to it because it was already yours. It was taken from you in trust that it would all be held for you when you became disabled or were ready to retire. That, at least, was the promise. You may have rightly not believed it, but don’t let them off on that basis. Your leaders took the money from you and promised it would be there for you; so, force a solution on them they may not like – a solution that makes sure they honor the promise. Don’t let them adjust your retirement age to save the fund, and don’t let them skinny down inflation provisions. There is an easy solution to saving Social Security, too.

If Social Security needs saving because it is underfunded, remember that it wound up underfunded because money was stripped from it for years to help offset the damage done by capital-gains tax cuts that never paid for themselves. Politicians used the years of surplus Social Security taxes collected to help diminish the national deficit by purchasing treasuries with Social Security money to fund projects with deficit spending.

So, save Social Security by lifting the lid that protects the 10% at the top of society from having to pay taxes on any portion of their income above the Social Security tax cap. Unless you are one of the 10%, you are not making enough money to have any portion of your income protected by this cap. Why should the 10% have a portion of theirs protected?

I think a lot of people like to dream they will someday be one of the rich, and so they vote to protect the upper reaches of income from taxes just in case they ever make it there. Forget that. Protect yourself now, for the rest may be nothing but a pipe dream anyway. It’s not likely you’ll make it up there if you are not already in the protected class that grows richer faster than the rest because they have these corporate and personal protections that accelerate their growth paths. Get equitable treatment now, and that will improve your chances to make the climb. You pay Social Security tax (FICA) on 100% of your income. Make sure they do, too, including on their capital gains income!

Claw that money back out of them to save Social Security. They were wrongly protected in the first place and amassed great fortunes based on false promises. Remember who you are, and demand what is rightfully yours, which was already taken from you. If you don’t demand your share, or you certainly won’t get it.

Your Only Power is in Numbers, So Spread the Word

The common people have the numbers and the political power to do all of this without riots, and we will most certainly have lots of riots if we don’t do it. The power in any democracy is vested in leaders only by the common people!

If you care about all of this, then share the plan in the last chapter and maybe this whole little treatise with everyone you can however you can because the bailouts are already happening faster than they ever have. None of this reform will happen if it doesn’t become a shared vision right away. Use your downtime, if you have some time due to the viral shutdown, to give this plan a viral launch because, now that the start of the new cycle has begun, it will likely be too late to do anything about it if you don’t act quickly to shut it down.

If it does prove too late, we still need to work out the above reforms to, at least, make sure it doesn’t happen the next time we crash. (It probably won’t be able to happen next time anyway because there won’t be enough left to save if we don’t break the cycle now.)

I don’t have a voice big enough to be heard or a budget big enough to promote this little book. If the ideas make sense to you, the book needs word of mouth (or even just the plan) to stir up viral sales quickly. I don’t care if you copy the plan out of the back, and distribute it for free, but without the whole book people may not see the need to break through cycles that are flaws built into the fabric of our economy or see the credibility of what is written here.

You can also follow along at my website: https://thegreatrecession.info (The Great Recession Blog) and share ideas for how to press for these changes there.

Most of all, don’t get lost in party politics. Don’t put party over country. If we spend this election fighting over which party gets in, we’ll stay right where we are. The establishment would like nothing better than to divide and conquer by keeping the people of this great nation thinking it’s all the fault of the other party so that the solution is making sure our party is in power.

Both parties fully serve the establishment known as the 1%, maybe the top 10%. Both parties have had decades in power during which the flaws in our economic design were created. My point is vote for whichever party you’re going to vote for, but use this election cycle to make sure your outrage is heard by your own favorite politician, regardless of party, or it will be too late. Make both Democrats and Republicans work on this plan. It already is almost too late!

Get the country back on a solid economic footing that serves all the common people first, Trump talks about serving America first. If you are a Trump supporter, take that one step further, and make sure America serves the common person in America first, not last. Regardless of who you support, we can fight about all the other stuff later. Otherwise, there might not be much later to fight over. People fought and died for this country. It’s time to fight to take it back by demanding politicians on both sides of the aisle reform something that clearly is not working for the great middle class.

Give up badly failed doctrines, and make reform happen while it can still be done by relatively peaceable means because the world will not remain peaceful if the gap between the rich and the rest becomes an even wider chasm than it already is. Peaceful opportunity will soon be lost if we don’t make reform happen now. Capitalism, itself, will be sacrificed if just reforms are not rapidly made. There won’t likely be another cycle where capitalism has a chance. Any system will fail due to human greed and corruption if not governed and policed justly. So, reform the economy now, or forever hold your peace ass everything fails in the last, wildest, and probably shortest cycle of all.

Let justice roll down like a river!

Who else is going to make it happen?

About The Author

David Haggith

My path to writing on economics began in 2007 when I managed resort properties. I became certain from my own observations that the U.S. housing market was on the verge of catastrophic collapse. Real-estate agents I talked to thought I was nuts until Bear-Stearns failed, taking the U.S. housing market down for the tumble.

When I watched with dismay as the Federal Reserve and government bailed out the very bankers who brought calamity upon the entire world, I started a series titled “Downtime," which lampooned the U.S. government, Wall Street and the Fed for their cronyism and ignorance. I syndicated those articles to The Hudson Valley Business Journal, The Valley City Times-Record (North Dakota), The Daily Herald (Tennessee) and news websites in Israel and Australia.

Since then, I have minced no words with respect to showing my disrespect to the bankers, economists, financial gurus and politicians in writing The Great Recession Blog to continue to chronicle their ineptitude and greed in articles also published on numerous other popular websites.