Controlled-Burn Inflation

Suppose all the Good Guys (Joe Consumer and Homeowner) are loaded with debt, and suppose that this debt is payable to the Bad Guys (Rich People and Foreigners). What can you do about it? Oh, and also suppose that the debt is mostly in nominal terms. Answer: You inflate.



We cringe when inflation is mentioned. Maybe it is from the horror stories of hyperinflation; maybe it is from memories of the inflationary episode of the mid-1970s. (Remember Ford’s WIN buttons)? But I am not talking about hyperinflation, or even inflation in the double digits. Rather, a controlled burn inflation, something that is, say, in the six or seven percent range. Something that will drop the debt burden by twenty or thirty percent after a few years.

On the positive side, controlled-burn inflation will drop the real obligations we will “pass on to our children” – put that phrase into Google and see how many hits you get – for our $8 trillion of public debt. It will reduce the real effect of our nearly $1 trillion to China – China being recently highlighted by Paul Krugman as a Big Problem of 2010.


Not to mention the nearly equal amount we have with Japan, which Krugman does not see being as much of a problem. It will drop the real debt obligation for mortgage borrowers in terms of their principal, and, for those with fixed rate mortgages, drop the real cost of servicing their debt as well. Anyone with adjustable rate mortgages or short-term revolving debt will be running in place in terms of their debt servicing. But the real value of their principal obligation will drop for them as well.


The negative is the stickiness of wages versus prices. For those who remember the 1970’s, it seemed like wage levels were always one step behind in ratcheting up to meet the higher prices. And there were costs in making the price adjustment, both in terms of processing and informational lags. But we are in a different world today, and I wonder if the frictions of a “helicopter drop” would be anywhere near as significant.


In our electronic age, prices can be adjusted with far less cost, information on prices is quickly and cheaply accessible. And I believe wages can similarly be adjusted for less cost; there are fewer institutional and processing constraints to keep wages sticky – although this is a proposition that has not had to be broadly tested because inflation has been a non-issue for a generation.

To do inflation right, you have to be a little sneaky. Especially if you don’t want your creditors feeling totally screwed and have them walk away the next time you need to borrow. Don’t announce it as a policy. Have it just happen. In fact, have it happen in spite of all of your best efforts to reign it in. So you need a controlled burn that looks like it is spontaneous. Who knows, maybe this idea actually is making the rounds.

The Third Depression

 are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.



Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.


We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.


And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.


In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.


But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.


In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.


Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.


So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.


And who will pay the price for this triumph of orthodoxy?

The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

Risks to Canada's Financial Stability in an Uncertain World

The recent past has underscored the fact that, in finance and the economy, most things are interconnected on a global scale. Throughout its history, Canada has been powerfully affected by events elsewhere. Manitobans in particular are well aware of this reality. Waves of immigration, rapid changes in commodity prices, the Great Depression, two World Wars, and technological advances – all have had an enormous impact here. More recently, the global financial crisis has been a stark reminder that everyone – even citizens in countries with sound “fundamentals” – is affected by major shocks, regardless of where those shocks originate.


Global realities and their impact on the domestic financial system inform much of the Bank of Canada’s most recent issue of its Financial System Review (FSR), which was published yesterday. In the FSR, the Bank identifies and evaluates risks and vulnerabilities in the financial system. Our goal in doing this is to contribute to the long-term resiliency of the Canadian financial system by promoting informed discussion of various relevant issues and developments.


In my remarks today, I’d like to discuss two issues that are discussed in the FSR, which, directly or indirectly, pose risks to financial stability. These issues are sovereign debt and global macroeconomic imbalances. Both are “global” issues, but they will have to be managed at the national, as well as the international, level. As such, they are at the core of ongoing G–20 discussions, including those taking place this week in Toronto.


I’ll start by taking a very brief look at the Canadian economy – where we are now, and where we appear to be headed. Then, I’ll elaborate on the two issues I’ve identified. I’ll welcome comments and questions at the end.

The Canadian Economy

The global economic recovery is under way, but it is an uneven one. In the emerging-market economies, growth has been vigorous – indeed it has been stronger than we expected a few months ago. At the same time, in most advanced economies, the recovery has been subdued and heavily dependent on the exceptional stimulus provided by monetary and fiscal policies. In recent months, concerns over European sovereign debt have dampened prospects for the recovery in Europe. So far, these concerns have had limited effects on Canada – mainly, a modest fall in commodity prices and some tightening of financial conditions – but they are an important risk to the recovery.


In Canada, the economic recovery is proceeding somewhat more rapidly than expected. Growth has been very strong in the past two quarters, although we expect it to moderate, starting this quarter. Several factors have been supporting the recovery: fiscal and monetary stimulus, improved financial conditions, the rebound in global economic growth, more favourable terms of trade, and increased business and household confidence. At the same time, the persistent strength of the Canadian dollar, our poor relative productivity performance, and the low absolute level of demand in the United States are acting as a drag on the recovery. The Bank projects GDP growth of 3.7 per cent in 2010, with a gradual slowing to 3.1 per cent in 2011 and 1.9 per cent in 2012. Inflation is expected to remain close to our 2 percent target through this period.

In view of this outlook, the Bank of Canada indicated in late April that the need for extraordinary monetary policy stimulus – which we had been providing since the beginning of the financial crisis and through the recession – was passing. On 1 June, we increased our policy interest rate from ¼ of a per cent to ½ of a per cent. Of course, that still leaves interest rates at a very stimulative level. But because of the uncertainties – particularly those emanating from Europe – we’ve been careful to emphasize that the extent and timing of any additional withdrawal of monetary stimulus would depend on how the outlook for economic activity and inflation evolves. In making those decisions, we will always stay focused on achieving the 2 per cent inflation target.

In our monetary policy decisions, we are mindful of the risks to the economic outlook, both on the upside and the downside. In assessing financial stability, the downside risks are our main focus. So let me turn now to a discussion of two areas of risk that may bear on the health and stability of the financial system, both here and abroad. First, I’ll look at the issue of sovereign debt.

Sovereign Debt

Sovereign debt – and unsustainable fiscal deficits – have been front and centre in recent global economic events. Concerns about sovereign debt have flared up in recent months in a number of European countries. But in the coming years, many advanced countries will face major challenges in achieving and maintaining sustainable fiscal positions. In Canada, we are fortunate that this task will be more manageable than elsewhere, and continued resolve is required.

The current sovereign debt problems were exacerbated and brought to a head by the global financial crisis and recession. Of course, a number of countries entered the crisis with weak fiscal positions, but their situations have deteriorated substantially. In part, this reflects the direct support many governments provided to keep troubled financial institutions afloat. Although the final bill for this support is not yet known, it could be very large. Another important element is the massive fiscal stimulus that governments in all major countries delivered to mitigate the recession. And, of course, reduced tax revenues, associated with the recession, have added substantially to the problem.

Both financial system support and fiscal stimulus were necessary, since the alternative would have been much worse. When private sector spending was no longer sufficient to support growth, governments had to step in to fill the gap. But the result was a shifting of the debt build-up from the private sector to the public sector.

Growing sovereign debt is a source of risk for two main reasons. First, high levels of public debt tend to constrain economic growth.1 Second, when concerns about sovereign debt become acute – even if they are limited to a few countries – they can have pervasive effects on the financial system. These effects stem from the fundamental importance of government liabilities in the financial system. Government debt instruments are typically viewed as risk-free and highly liquid assets that are held by financial institutions and individual investors, and are used as a benchmark for pricing other financial assets. What happens, then, when these assets are perceived as risky – and when they become increasingly illiquid (as we saw in early May, when European sovereign debt markets seized up)?

First, consider the chain of exposures to the credit risk – from the holders of those government securities, to their creditors, and their creditors’ creditors, and so on. And since many of these exposures are uncharted, the uncertainty about where the exposures lie may cause a spike in perceived counterparty risk, and thereby affect short-term financing decisions. As a result, funding markets become increasingly illiquid, with widening spreads and diminishing access to financing.


Finally, there is a general retrenchment in risk-taking, which results in a decline in the prices of risky assets – including currencies and commodities. We saw all of these transmission channels in Europe in early May. If the situation had deteriorated further, the impact on Canada’s financial conditions, and on financial conditions more generally, could have been substantial.

The market turmoil in Europe was met by a forceful policy response. In the affected countries – as happens with most sovereign debt crises – there are two dimensions to the problem: the short-term challenge of rolling over debt, and the medium-term challenge of attaining a sustainable fiscal position. Of course, these two challenges are mutually reinforcing: the markets’ skepticism about the medium-term fiscal position makes it more difficult to roll over debt, while the higher debt-refinancing costs make it more difficult to balance the budget. Thus, both problems have to be addressed in a credible manner. The funding problem is currently being addressed with the massive financing packages being provided by the European governments and the International Monetary Fund. The medium-term fiscal challenge will require hard decisions, painful adjustment, and perseverance.


The fiscal austerity that is required in such a situation involves a painful dilemma. Such adjustment can impede the economic recovery. On the other hand, as I’ve stressed, in countries where sovereign debt concerns have become paramount, failing to adjust will have adverse financial effects – which will also harm the recovery. In theory, this dilemma could be sidestepped by committing to undertake serious adjustment only later, when the economy is stronger; but promises of future action are rarely enough to convince markets. The solution typically involves taking the bull by the horns: making a bold start with serious structural measures that will have a lasting effect on the fiscal position. The pension reforms that have been undertaken in some European countries are a good example.

But there is a problem here for the global economy. For the past several months, there has been concern about the risks associated with the “hand-off” from public demand to private demand. The concern is that if fiscal stimulus runs out before the private sector has gathered sufficient momentum, the global economic recovery could falter. This points to the need for the pace of fiscal austerity to be consistent with continued recovery.


So far, I have been focusing on two channels through which excessive sovereign debt at the global level can create risk for the financial system here in Canada – more difficult liquidity and funding conditions, and a weaker global economic outlook. These are two of the five areas of risk examined in the current FSR. I would now like to focus on a third, and related, area of risk: global macroeconomic imbalances.

Global Imbalances

An important backdrop to the global financial crisis and the ensuing recession was the configuration of large current account imbalances in major economies. These global imbalances were evident in the high levels of savings, and the persistent current account surpluses in China and many Asian countries, counterbalanced by the credit-fuelled spending by households and governments, and the large and persistent current account deficits in the United States and some other Western economies.

These imbalances were not the proximate cause of the crisis, but they contributed to its scope and intensity. In the years leading up to the crisis, high savings rates in surplus countries, together with inflexible exchange rates, helped to keep global interest rates low, encouraging consumers and governments in some advanced economies to take on more debt than was wise. The low interest rates also led to a “search for yield,” meaning that investors and financial institutions acquired riskier assets. At the same time, debt was being repackaged in various ways – sometimes into hard-to-understand, and often illiquid, products – and distributed throughout the financial system. Many of these products then unravelled – with devastating consequences – during the crisis. Global imbalances engendered financial fragility because there were also underlying weaknesses in the financial systems of many countries – including deficiencies in supervision and regulation and inadequate risk management within financial institutions. Addressing these underlying weaknesses is one of the principal objectives of the G–20 agenda.


Global imbalances have narrowed significantly during the past couple of years. However, this was largely the temporary effect of the recession and the policies adopted to counter it. In the United States in particular, savings rates have increased as households have been trying to recuperate from the loss of housing and equity wealth. In China, substantial stimulus measures have boosted domestic demand – including consumer spending and infrastructure. And the sizable drop in commodity prices from their 2008 peak contributed importantly to the narrowing of global imbalances.


What is worrying, however, is that global imbalances appear to be growing once again as the recovery advances, and their nature is changing. Whereas before the crisis, these imbalances primarily corresponded to unsustainable household spending in the United States, they now increasingly reflect unsustainable government deficits in a number of countries.


It is clear that what is needed is a “rotation of demand”: surplus countries need to increase their domestic spending, while deficit countries need to decrease theirs. Together with those adjustments in spending, exchange rates need to adjust – with a depreciation of the U.S. dollar against Asian currencies – to support the corresponding adjustment of external current accounts. In this regard, China’s recent decision to enhance the flexibility of its exchange rate is an important step forward; its full implementation will contribute to strong, sustainable, and balanced global economic growth.


In the absence of these necessary policy changes, there are three main risks to the global financial system and to the global economy. One is that the status quo becomes increasingly untenable. If the surplus countries do not increase their domestic demand, the United States and other deficit countries will have trouble weaning their economies off fiscal stimulus. The result could be a buildup of public debt relative to the size of these economies, which could not continue indefinitely. These higher debt levels would tend to drive up long-term interest rates, by both increasing demand for available funds and by feeding concerns about how the ever-increasing debt burden would be resolved. Recently, the Bank of Canada looked at the implications of this status quo scenario for global economic growth. Following a short-term boost, global economic growth would fall steadily from the 4 per cent average of 2002–07 to below 3 per cent by 2013. In addition, macroeconomic imbalances would continue to grow, possibly setting the stage for another crisis.

A second risk is that adjustment may be lopsided. Even if the surplus countries do not expand their demand, the deficit countries may be forced by markets to reduce their fiscal deficits. In that case, there would be a deficiency of demand worldwide. With monetary policy constrained by the zero lower bound, deflation could emerge. As a result, real interest rates would increase, fiscal consolidation would be more difficult, and growth would stall.


A third risk is that exchange rates may adjust, but in a disorderly way. If increasing concerns about the U.S. current account triggered a portfolio shift away from the U.S. dollar, the resulting exchange rate adjustment could overshoot the level required to bring current accounts to sustainable levels. If that occurred, it would likely send shock waves throughout the global financial system, adversely affecting the world economy. Such an adjustment did not happen during the recent financial crisis; on the contrary, the retrenchment of risk-taking that occurred led to a shift into U.S.-dollar-denominated assets, resulting in an appreciation of that currency. But disorderly exchange rate adjustment remains one of the important risks associated with global imbalances.

It is because of these risks that the G–20 is placing so much emphasis on policies to achieve strong, sustainable, and balanced growth, in tandem with measures to build a more robust global financial system. The rotation of demand required to achieve such balanced global growth will require policy changes in both deficit and surplus countries. It will also involve adopting greater flexibility in exchange rates, which would facilitate adjustment to both current imbalances and future economic shocks.


How can this adjustment come about? An important step is the G–20 Mutual Assessment Process, now under way, through which G–20 members strive to ensure that the “policies pursued by individual G–20 countries are collectively consistent with more sustainable and balanced trajectories for the global economy.”2 Each member country will submit its policies to the G–20 for assessment by other members, with a view to promoting coherence among macroeconomic policies. Details of this process are now being worked out, but the most important thing is that the required policy changes be implemented, and in a timely manner. Failing that, we leave ourselves on the same unsustainable, and risky, path.

Conclusion

The financial system makes a vital contribution to our welfare. A sound financial system, one that is stable, efficient, and resilient to shocks, is crucial to a well-functioning economy.


While the world’s financial system is stronger than it was during the crisis, risks and vulnerabilities remain. The G–20 agenda for financial and macroeconomic reform is sound and far-reaching. It provides a blueprint for building a sound foundation. But the time for action has arrived.

We cannot afford to be complacent. Although Canada fared relatively well in the crisis, we are not immune to risk. We must continue to make our own financial system more resilient. Together with its partners, the Bank of Canada works to do just that. The Bank will also continue its work in international forums to reduce systemic risk in the global financial system. The issues I discussed – sovereign debt and global imbalances – are important, and they must be resolved effectively, and in a timely fashion. Our future well-being is at stake.

Remarks by Tim Lane


Deputy Governor of the Bank of Canada

Following the Worst Crisis Since the Great Depression

There were three memorable currency crises in the 1990s, all of which included a fixed exchange rate system that was under attack.

But regardless of the type of currency policy (fixed or free-floating or a monetary union), a currency crisis is broadly defined as a loss of confidence in a country’s currency. Something we’ve seen very clearly in recent months with the euro.


For a reference point on how these trends unfold, there’s a good academic study from MIT on historical currency crises that lays their progression out like this …

Three Stages of a Currency Crisis

Stage #1: Loss of Confidence

The number one cause of a currency crisis is when investors flee a currency because they expect it to be devalued.

Here’s the current situation …

When the euro zone stepped in and threatened to cough up $1 trillion dollars in an attempt to save the euro monetary union, it was a conscious decision to devalue the euro.

Why did they do it?

They had no choice!

The euro zone has committed to do whatever it takes to keep its members afloat.

The European banking system was, and still is, too exposed to the sovereign debt of the euro zone’s weak spots. An imminent default of a euro member country would have meant a crushing blow to European banks and likely another wave of global financial crisis — this time worse.

Here’s why: Last year the European Central Bank was flooding the banking system with unlimited loans for a paltry 1 percent. What did the banks do with the money? They bought government debt — specifically, debt from the PIGS (Portugal, Ireland, Greece, Spain).

In all, European banks own $1.5 trillion worth of debt from the fiscally challenged countries of the euro zone. As a result, politicians in Europe felt they had their backs against the wall and their response was one of “all-in.”

All countries involved in the monetary union went headlong into the crisis because they had no choice. The strategy: Buy time and devalue the euro.

Stage #2: Herding

When it’s thought that investors are moving out of a currency, others follow. This is typical “herding” psychology.

Here’s the current situation …

Short positions in the euro hit an all-time high.

Every week the Commodity Futures Trading Commission releases its Commitments of Traders (COT) report, which tracks the positioning of market participants. While it’s just an indication of how the general market is positioned, it’s a great reference point.

The recent reports provide an excellent example of this herding mentality that tends to be associated with currency crises. I’m talking specifically about the euro.

In fact, the uncertain outlook has triggered a massive wave of short positions in the euro — the largest in the currency’s 11-year history.

When the market is heavily positioned one way — and the fundamentals support it and an intentional devaluation appears underway — big institutions have to react. Put simply, they have too much to lose by getting caught the wrong way.

Given the euro is the second most widely held currency in the world, there is a lot of unloading that could take place …

For example, Iran’s central bank has announced they will be diversifying euro exposure — trading into gold and U.S. dollars. And China and the UK have shown a significant increased interest in owning U.S. dollars as opposed to euros.

Stage #3: Contagion

The next step is contagion. And contagion is a phenomenon in which a currency crisis in one country triggers crisis in other countries with similar weaknesses.

Here’s the current situation …

The catalyst for sovereign debt crises: Bloated debt and deficits. And as I’ve said, sovereign debt crises tend to lead to currency crises.

Dubai’s debt problems were just the beginning of the global sovereign debt crisis.

You don’t have to look far to find countries that carry bloated debt loads and deficit burdens.Over 40 percent of the world’s GDP comes from countries running deficits in excess of 10 percent of GDP — a level proven to be dangerous territory.We’ve already seen the sovereign debt contagion.

A crisis that started in Dubai now confronts Greece, Spain, Portugal … and will likely spread to the UK, Japan and even the U.S.It’s clear there are a number of reasons why global investors could lose confidence in currencies in this global economic environment.

So a contagion of currency crisis is a reasonable expectation.The bottom line: The day-to-day ebb and flow of economic data and news can be distracting. That’s why it’s important, especially with all that is going on, to keep the big picture in perspective.

History shows us that a global recession when combined with a financial crisis tends to stifle economic activity longer than normal recessions. History also shows us that financial crises tend to lead to sovereign debt crises, which tend to lead to currency crises.

So with that in mind, it’s fair to say that a V-shaped economic recovery has always been very unlikely.

What’s more likely is that we’ll see more shocks to the global economy, more challenges and more investors fleeing risky investments in favor of safe havens.

U. S. Financial Reform

The More Things Change, The More They Stay The Same

The Senate finally pushes the financial reform bill through after battling it out with lawmakers, banks and lobbyists of all sorts.

The result: banks win and consumers lose. Surprise surprise.

SWAPS PUSH-OUT: Wall Street firms that dominate the $615-trillion over-the-counter derivatives market would have to spin off dealing operations in some swaps, but could keep many swaps in-house, including derivatives to hedge their own risk.

Much OTC derivatives trading would be redirected through more accountable channels such as exchanges and clearinghouses. Many OTC contracts end-users could carry on as before.

VOLCKER RULE: A new rule would bar proprietary trading by banks for their own accounts unrelated to customers; limit the growth of the biggest banks; and curb banks’ involvement in private equity and hedge funds, except for small investments allowed by a loophole added to the rule late in debate.

Some big banks’ profits would be pinched by both the Volcker rule and the Lincoln swaps plan, with a few Wall Street giants potentially facing structural changes.

WALL ST ‘DEATH PANEL’: Aiming to prevent massive bailouts like AIG’s and disastrous bankruptcies like Lehman Brothers’, the bill calls for a new government “orderly liquidation” process for financial firms on the verge of collapse.

Authorities could seize and liquidate them, with costs covered by sales of assets and fees on other firms if needed.


CONSUMER WATCHDOG: Protection of financial consumers would be enhanced by increased government regulation.

The bill would set up a new bureau in the Federal Reserve to regulate mortgages and credit cards. The watchdog has sharp teeth, but couldn’t bite car dealers, who won an exemption.

THE BIG PICTURE: A new council of federal regulators would try to monitor the entire financial forest, not just the trees. High-risk firms could be singled out for stricter policing.

BEHIND THE HEDGE: Private equity and hedge funds would have to register with regulators and open their books to scrutiny. Not so for venture capital funds, which would be exempt.



INSURANCE COPS: The first federal monitor for state-policed insurers would be formed. It’s not federal regulation — yet.



BANK CUSHIONS: Banks would have to set aside more capital to ride out tough times, but will get several years to comply.



FED SCRUTINY: The Fed’s emergency lending during the crisis would be reviewed, but not its decisions on interest rates.



DEBIT CARDS: Fees charged on debit card transactions would be reduced — a victory for retailers over the banks.

Below are some of the likely winners and losers under the regulation bill.

CREDIT RATING AGENCIES - WIN AND LOSE

* Credit rating agencies — such as Moody’s Corp, Standard & Poor’s and Fitch Ratings — will be subject to greater liability.



* Rating agencies could be sued if they “recklessly” failed to review key information in developing a rating.



* The Securities and Exchange Commission will be given two years to find a way to mitigate conflicts of interests at the biggest rating agencies, Moody’s, S&P and Fitch, which are paid by the issuers whose debt they rate. The two years give the agencies breathing space but if the SEC does not find a solution, the regulator is required to implement a proposal by Senator Al Franken and create a board to match rating agencies with debt issuers.



* Federal regulators will be required to remove references to credit rating in their rules in an effort to reduce reliance on the credit rating agencies.

LARGE FINANCIAL FIRMS - WIN AND LOSE

* Large financial firms such as Bank of America and Goldman Sachs will be prohibited from proprietary trading and only be allowed to make minimum investments in hedge funds and private equity funds.



* Large firms will also face tougher standards in what qualifies for capital they are required to set aside to ensure that they do not threaten the stability of the financial system.



* Banks such as Goldman and JPMorgan Chase will be forced to spin off some of their profitable derivatives business or risk losing access to the Federal Reserve’s emergency funds. But banks’ biggest volume instruments such as foreign exchange and interest rate swaps will still be allowed to be traded by banks.



* The firms’ financial products such as mortgages and credit cards will be subjected to new rules from a newly created bureau designed to protect customers from risky products.



* Most derivatives will be forced on to exchanges or through clearinghouses, in an attempt to limit the effect that large, risky trades can have on the economy, another factor that could curb bank profits. Non-financial players such as manufacturers, however, would be exempt.

SMALL BANKS - WIN

* The Federal Reserve will continue supervising small banks. Small banks wanted to maintain a supervisory structure they were familiar with.



* Banking regulators will be the primary regulator to enforce rules for small banks’ financial products. The new consumer financial regulator will provide backup enforcement.

U.S. FEDERAL RESERVE - WIN

* Gains powers to supervise systemically important financial firms.



* Retains authority to supervise banks of all sizes.



* Part of a “risk council” that will have authority to monitor risk in the financial system and decide whether a large complex company needs to divest assets.



* Becomes home for the new Consumer Financial Protection Bureau. Will have power along with other regulators to appeal consumer protection bureau’s rules if deemed to undermine stability of financial system or banks’ deposits.



* The Fed escaped congressional reviews of its monetary policy but will be subject to reviews of its emergency lending and open market activities.



* Democrats and Republicans originally wanted to strip the Fed of its powers to supervise banks and confine the central bank to setting monetary policy and acting as the lender of last resort.

CONSUMERS - WIN

* New rules to protect consumers from risky financial products could only be overturned by banking regulators if banking regulators believe the rules could threaten the financial system or banks’ deposits.



* The new consumer regulator will be housed in the Federal Reserve, which has been criticized for failing to rein in the risky lending that contributed to the financial crisis.



* The consumer regulator will get funding from the Fed and would get the authority to request more funds from Congress.



* The consumer regulator will be able to write its own rules for a slew of products such as mortgages and credit cards and enforce those rules.

INVESTORS/SHAREHOLDERS - WIN AND LOSE

* Broker-dealers who provide financial advice will not immediately be required to have fiduciary duties, which would require them to act in their clients best interests. The SEC must first study the issue for six months and then would have authority to impose those duties on brokers if the regulator determines they are necessary.



* Publicly-traded companies will be required to ask their shareholders whether they want a non binding vote on executive pay annually, once every two years or once every three years. Originally, Democrats wanted to give shareholders an annual say on executive pay.



* The SEC will have the authority to give shareholders and easier and cheaper way to nominate corporate board directors.



* The Municipal Securities Rulemaking Board will be required to impose fiduciary duties on municipal bond advisers.

AUTO DEALERS - WIN

Auto dealers that do financing will be exempt from oversight by the new consumer bureau, and stay within the jurisdiction of the Federal Trade Commission.

PRIVATE POOLS OF CAPITAL - WIN

* Advisers to hedge funds and private equity funds with more than $150 million in assets will be required to register with the SEC. Venture capital funds will be exempt.

CLEARINGHOUSES - WIN

* Derivatives clearinghouses will be able to borrow in emergencies from the Federal Reserve, as long as the systemic risk council, a majority of Fed governors and the Treasury Secretary decide it is necessary.

LAW FIRMS - WIN

* Regulators like the Commodity Futures Trading Commission and Securities and Exchange Commission will have scores of rules to write in coming months to implement the legislation, meaning lots of billable hours for law firms and consultants advising clients on how to respond to proposed rules.

CFTC/SEC - WIN

* The CFTC and SEC will gain new authority to regulate the $615 trillion over-the-counter derivatives market.



* The SEC will win power to oversee the hedge fund industry.

Twenty-Two Reasons Why American Working People Hate the State

Why does the rightwing attack on “Big Government” increasingly resonate with working people?

Liberals claim wage and salaried workers are acting against their “self-interest”, citing government welfare programs like social security and unemployment payments. Progressives argue that workers hostile to the state are ‘racists”, “fundamentalists” and/or irrational, blinded by misplaced fears of threats to individual freedoms.

I will argue there are many sound, rational, material reasons for working people to be in revolt against the state.


Twenty-Two Reasons Why Working People Hate the State


1.) Most wage and salaried workers pay disportionately higher taxes than the corporate rich and therefore, millions of Americans work in the “underground economy” to make ends meet; thus subjecting themselves to arrest, and prosecution by the state for trying to make a living by avoiding onerous taxes.


2.) The state provides generous multi-year tax exemptions for corporations thus raising the tax rate for wage and salaried workers or eliminating vital services. The state’s inequitable tax revenue policies provoke resentment,.

3.) High taxes combined with fewer and more expensive public services, include growing costs of public higher education and higher health charges, feed popular antagonism and frustration that they and their children are being denied opportunities to get ahead and stay healthy.


4.) Many working people resent the fact that their tax money is being spent by the state on endless distant wars and to finance bailouts of Wall Street instead of investing it in reindustrializing America to create well paying jobs or to aid unemployed or underemployed workers unable to meet mortgage payments and facing eviction or homelessness. Most workers reject the inequitable budget expenditures that privilege the rich and deny the working people.

5.) Working people are appalled by the states hypocrisy and double standards in prosecuting “welfare cheats” for taking hundreds but overlooking corporate and banking swindlers, and Pentagon military cost overruns of hundreds of billions. Few working people believe there is equality before the law, implicitly rejecting its claims of legitimacy.


6.) Many working class families resent the fact that the state recruits their sons and daughters for wars, leading to death and crippling injuries instead of public service jobs, while the children of the rich and affluent pursue civilian careers.


7.) The state subsidizes and upgrades public infrastructure – roads, parks and utilities in upper end neighborhoods while ignoring the demands for improvements of low income communities. Moreover the state locates contaminants – incinerators, high polluting industries etc. – in close proximity to workers housing and schools.


8.) The state holds the minimum wage below increases in the cost of living but encourages and promotes excess profits.


9.) Law enforcement is strict in high end neighborhoods and lax in low income communities resulting in higher rates of homicides and robberies.


10.) State imposes constraints on labor organizations struggling to secure wages and benefits and ignores corporate intimidation and arbitrary firings of workers. The state encourages corporate mergers and acquisitions leading to monopolies but discourages collective action from below.


11.) State economic institutions recruit policymakers from banks and financial houses who make decisions favoring their former employers, while wage and salaried workers are excluded and have no representation in economic policy positions.


12.) The state increasingly infringes on individual freedoms of social activists via the Patriot Act, arbitrary arrests, and grants impunity to police violence and punishes whistle blowers, rejecting citizen reviews with punitive powers.


13.) The state is highly responsive to and increases funding for the military-industrial complex, the relocation of MNC overseas and the high income Israel lobby while cutting funding for public investment in productive activity, applied technology and high tech job training for US workers and salaried employees and their children.


14.) State policies have increased inequalities between the top 10% and the bottom 50% for decades, turning the US into the industrial country with the greatest inequalities.


15.) State policies have led to declining living standards as wage and salary earners work longer hours with less job security,for a greater number of years before receiving pensions and social security and under greater environmental hazards.


16.) Elected state officials break most campaign promises to working people while fulfilling promises for the upper class/corporate banking elite.


17.) State officials pay greater attention and are more responsive to a few big financial contributors than to millions of voters.


18.) State officials are more responsive to payoffs from corporate lobbies protecting corporate profits than to the health, educational and income needs of the electorate.


19.) State-corporate links lead to deregulation, which results in contamination of the environment leading to the bankruptcy of small businesses and loss of many jobs, as well as the loss of recreational areas, spoiling rest and recreation for working people.

20.) The state increases the retirement age rather than increase the social security payments by the rich, with the result that workers in unhealthy work environments will enjoy fewer years of retirement in good health.


21.) The state judicial system is more likely to render favorable decisions to wealthy plaintiffs with high paid, politically connected lawyers against workers defended by inexperienced public defenders.


22.) State tax collectors are more likely to pursue wage and salary tax payers than upper class corporate executives employing accountants with expert knowledge in tax loopholes and tax free shelters.

Conclusion

The state in its multiple activities, whether in law enforcement, military recruitment, tax and expenditure polices, environmental, pension and retirement legislation and administration, systematically favors the upper class and corporate elite against wage, salaried and small business people.


The state is permissive with the rich and repressive of the working and salaried employees, defending the privileges of the corporations and the impunity of the police state while infringing on the individual freedoms of the working people.


State policies increasingly extract more from the workers in terms of tax revenues and provide less in social payments, while lessening tax payments from Wall Street and inflating state transfers.


Popular perceptions of a hostile and exploitative state correspond to their everyday practical experiences; their anti-state behavior is selective and rational; most wage and salaried workers support social security and unemployment benefits and oppose higher taxes because they know or intuit that they are unfair.


Liberal academics and experts who claim workers are “irrational” are themselves practioners of highly selective criticisms – pointing to (shrinking) state social benefits while ignoring the unjust, inequitable tax system and the biased behavior of the judicial, law enforcement, legislative and regulatory system.


State personnel, policy makers and enforcement officials are attentive to and responsive and deferential to the rich and hostile and indifferent or arrogant toward workers.


In summary the real issue is not that people are anti-state, but that the state is anti the majority of the people. In the face of the economic crises and prolonged imperial wars, the state becomes more brazenly aggressive in slashing living standards in order to channel record levels of public funds toward Wall Street speculators and the military industrial complex.


While liberal-progressives’ remain embedded in ‘neo-keynsian’ statest ideology, outmoded in the face of a state thoroughly embedded in corporate networks, the New Right’s “anti-statest” rhetoric resonates with the feelings, experiences and reasoning of important sectors of wage and salaried workers and small businesspeople


The attempt by liberals and progressives to discredit this popular revolt against the state, by pointing to the corporate financing and rightwing manipulation behind the anti-statist movement is doomed to failure, because it fails to deal with the profound injustices experienced by working people today in their daily dealings with a state, largely administered by liberal corporate-militarists. The absence of an anti-statist left has opened the door for the rise of a mass based ‘New Right’.


A ‘new left’will emerge from civil society when it recognizes the pernicious exploitative role of the state, and is capable of dealing with the powerful ties between liberalism-militarism-corporate “welfarism”. The revival and expansion of the debilitated public welfare programs for working people can only take place by dismantling the current state apparatus, and that depends on a complete break with both corporate parties and an agenda that ‘revolutionizes’ the way in which politics works in America.

The Collapsing Western Way of Life

The greatest threat to the Western Way of Life is the Western Way of Life itself.

The Age of Enlightenment was born sometime around the beginning of the eighteenth century. A mere three-quarters of a century later, industrialization ushered in the Age of Endarkenment, and human life has grown more and more perilous ever since. The Golden Age of capitalism cannot be recreated merely by applying the right mixture of spending, subsidies, re-regulation, and international agreements. Because the economic advantages of industrialization rely on overproduction and profit, balanced trade is impossible if the advantage is to be preserved; it entails no economic profit. Industrialism is a Hegelian synthesis which embodies the forces for its own destruction. The greatest threat to the Western Way of Life is the Western Way of Life itself.

That human beings seem unable to solve their most pressing problems is too obvious and well known to deserve much mention; that most of the problems that human beings seem unable to solve are caused by human beings themselves deserves mention but rarely is.

Human beings act as though having to deal with problems whose causes are beyond human control is not enough. Cyclones, earthquakes, volcanic eruptions, droughts, floods are apparently not serious enough to command human attention. These problems, apparently, have to be supplemented by self-made catastrophes to keep our minds engaged. But most manmade problems could be avoided by careful and complete analysis of the ideas that, when implemented, have dire results.

Time-tested and effective ways of analyzing problems have been known for centuries. Rene Descartes published his Rules for the Direction of the Mind around 1627 and the Discourse on Method in 1637. John Stuart Mill published his Methods in his System of Logic in 1843. The mathematical method known as reductio ad absurdum has been employed throughout the history of mathematics and philosophy from classical antiquity onwards, as has the method known as counterexample. And root cause analysis is a highly developed method often used in information science and other places. Oddly enough, however, even most well educated Americans seem to be unaware of any of these analytical techniques, and when attempts are made to analyze ideas, these attempts are rarely carried out logically or all the way to their ultimate ends. Americans rarely "follow the argument wherever it leads;" even those good at analysis often stop when they come across something that looks appealing.

John B. Judis recently published a piece in the New Republic in which he summarized some claims made by Robert Brenner, a UCLA economic historian. Judis writes:

"Brenner’s analysis of the current downturn can be boiled down to a fairly simple point: that the underlying cause of the current downturn lies in the “real” economy of private goods and service production rather than in the financial sector, and that the current remedies—from government spending and tax cuts to financial regulation—will not lead to the kind of robust growth and employment that the United States enjoyed after World War II and fleetingly in the late 1990s. These remedies won’t succeed because they won’t get at what has caused the slowdown in the real economy: global overcapacity in tradeable (sic) goods production. Global overcapacity means that the world’s industries are capable of producing far more steel, shoes, cell phones, computer chips, and automobiles (among other things) than the world’s consumers are able and willing to consume."

Why this is worth mentioning is difficult to fathom. Overproduction has always been associated with economic busts, and such busts have happened with such regularity that economists have even incorporated them into theory by euphemistically calling booms and busts the "business cycle." The question that must be asked is, "What causes overproduction?" And the answer is industrialization.


The Industrial Revolution began in England around 1780. It transformed England from a manual labour and draft-animal economy into a machine-based one. But this change in the primary mode of economic activity was not merely economic; it changed the entire culture, not clearly for the better. Almost every aspect of life was changed in some way.


Many cite increased per capita GDP as evidence of the revolution's benefits, but GDP is a poor measure of benefits. It merely measures the sum total of economic transactions in terms of the culture's money, neglecting the effects of economic activity on the quality of human life.


The Industrial Revolution is largely responsible for the rise of modern cities, as large numbers of people migrated to them in search of jobs. These people were mainly housed in slums where diseases, especially cholera, typhoid, tuberculosis, and smallpox, were spread by contaminated water and other means. Respiratory diseases contracted by miners became common. Accidents in factories were regular. In 1788, two-thirds of the workers in cotton mills were children; they were also employed in coal mines. Henry Phelps Brown and Sheila V. Hopkins argue that the bulk of the population suffered severe reductions in their living standards. Although life in pre-industrial England was not easy, for many it was better than laboring in factories and coal mines.

Other consequences of the revolution are worse—craft workers lost their jobs. The Industrial Revolution concentrated labour into mills, factories, and mines, but industrial workers could never experience the sense of satisfaction and pride that craftsmen derived from their creations. Working a craft is a mentally stimulating and creative activity; operating a machine is not. The best craftsmen were renowned as artists. Some are still renowned today: Thomas Chippendale and George Hepplewhite, for example. The integral strength of Windsor chairs has never been duplicated in a factory. Handmade textiles, Persian rugs, even handcrafted toys are renowned for their artistry. Today that pride and satisfaction accrues only to hobbyists, such as quilters, but never to industrial workers. The Industrial Revolution degraded human life to the status of coal. People became fuel for machines. Bought cheap, people are used until unneeded and then discarded like slag. Individuality, talent, imagination, originality—the best attributes of human beings—are suppressed to the point of extinction. The Industrial Revolution sucked the humanity out of the human race; people became things.


But the revolution gave England a temporary economic advantage as that is measured by economists. Excess production, that is, production not consumed domestically, could be exported, and England's wealth could be increased by buying (importing) cheap and selling (exporting) dear. This worked—for a while, but never smoothly.

The Industrial Revolution quickly spread to Belgium, France, the United States, Japan, the Alpine countries, Italy, and other places. As it spread, the amount of excess products that needed to be exported grew and grew, and the number prospective foreign consumers shrank and shrank. Because there is little economic advantage (as economists measure it) in trading exports for imports of equal value, the international economy necessarily divides into net exporting nations who are enriched and net importing countries who are impoverished and less and less able to afford imports. The system has to be patched or the machines would grind to a halt. Most of the work of economists since the middle of the nineteenth century consists of developing patches for this collapsing system. Comparative advantage, creative destruction, free trade, Keynesian stimuli, and even social programs (which would be unnecessary if the economy provided for the needs of people) are merely attempts to patch the system, to keep the machines running.

Industrialists soon realized that if they reduced the quality of their products, their life cycles would be shortened which would require people to replace them more often thereby increasing consumption. Manufacturers have been steadily reducing the quality of products ever since. An essential part in a device is made of an inferior material so the device fails far before its time and becomes junk, batteries in devices are soldered to their circuit boards so that when the batteries die, the products becomes junk, one fewer olive in every jar means more jars are sold, and the jars become junk. Economists like to claim that the system produces the best products at the lowest cost, but in reality it produces the exact opposite. As more and more products must be discarded and replaced, the discarded junk is hauled to landfills or dumped in oceans. But as landfills grow larger and larger, another patch is required—recycling. But it too is ineffective. Batteries soldered to circuit boards cannot be recycled, every half-filled can of paint cannot be taken to a recycling center, separating useful elements from the useless ones is often a hazardous task. The system produces junk! Humans originated about 200,000 years ago. The Soviet Union launched the first Sputnik into space in 1957. In less than 60 years, less than a mere three tenths of one percent of the time people have inhabited the Earth, the industrial nations have put so much junk into near outer space that the junk now endangers the functionality of operational satellites. Abandoned industrial sites are often highly toxic which often require cleanup—another patch. Often complete cleanup is impossible. Toxic residues are a species of junk. Keeping the machines running necessitates the production of it.


Global industrial capitalism will continue on the gradual downward descent to collapse. The Golden Age of industrial capitalism that lasted from 1945 to 1970 cannot be recreated merely by applying the right mixture of spending, subsidies, re-regulation, and international agreements. Because the economic advantages of industrialization rely on the two ingredients mentioned above, overproduction and profit, balanced trade is impossible if the advantage is to be preserved; it entails no economic profit. Ultimately too many nations will be too poor to be importers, and the machines in the exporting countries will cease to function. Industrialism is a Hegelian synthesis which embodies the forces for its own destruction. The greatest threat to the Western Way of Life is the Western Way of Life itself. Patches may prolong it, but they cannot remove its contradictions.

Chandran Nair writes,

The 20th century’s triumph of consumption-based capitalism has created the crisis of the 21st century: looming catastrophic climate change, massive environmental damage and significant depletion of natural resources. . . . The western economic model, which defines success as consumption-driven growth, must be challenged. . . . Advocates of the western model tend to play down its dramatic effects on natural resources and the environment. They refuse to acknowledge that their advice runs counter to scientific consensus about limits and the need for stringent rules on resource management. Instead, they argue that human ingenuity aided by innovations in the markets will find solutions. This is rooted in an irrational belief that we can have everything: ever-growing material wealth and a healthy natural environment. The stark evidence . . . should be proof enough that this is not possible.

No, it's not possible, but the impossibility lies in the system's logic, not in its effects. To use the preferred diction of economists, the system is unsustainable. Since the collapse of the industrial system is inevitable, a fundamental rethinking of the way the economy works is the only alternative. It has always been the only alternative. But even that leaves humanity soaking in the pickle. When the economic advantages of industrialization have dissipated, humanity will still be stuck in a world filled with bioundegradable junk, hazardous sites, raped environments, the unending consequences of the often accidental importation of alien species, polluted air and water, and numerous other consequences, the costs of which economists have never taken into consideration. And the progeny of both the rich and the poor alike will have to live with them. The pockets full of money that the rich have won't prevent their children and grandchildren from breathing bad air or drinking bad water or dealing with environmental degradation. These children and grandchildren may someday curse the days their fathers and grandfathers were born. Capitalism, as we know it, is reaching its endgame. The meek who inherit the earth will find it to be worthless.

The human brain has enabled mankind to discover and create wondrous things; it has also been used to inflict horrendous suffering and destruction. In fact, it would be difficult to design an economic system more destructive, wasteful, and dehumanizing than the industrial, and much of the destruction it has wrought may be irreparable. Industrialization does not efficiently allocate resources; it squanders them.


So, is mankind smart? Of course, but that is not the question. The ultimate question is, Is mankind smart enough to keep from outsmarting itself? The answer appears to be no!


The Age of Enlightenment was born sometime around the beginning of the eighteenth century. A mere three-quarters of a century later, industrialization ushered in the Age of Endarkenment, and human life has grown more and more perilous ever since. Natural disasters can be catastrophic, but their destructiveness is usually limited, and the really horrendous ones are rare. Manmade disasters are ubiquitous, very extensive, and difficult, perhaps impossible, to repair. Had mankind been wise rather than merely smart, most manmade calamities could have been avoided. Que Sera Sera! Whatever will be will be will be. The future is plain to see, and it's not pretty.

Some Big Lies of Science

“The majority of politicians, on the evidence available to us, are interested not in truth but in power and in the maintenance of that power. To maintain that power it is essential that people remain in ignorance, that they live in ignorance of the truth, even the truth of their own lives. What surrounds us therefore is a vast tapestry of lies, upon which we feed.”– Harold Pinter, Nobel Lecture. 2005

The maintenance of the hierarchical structures that control our lives depends on Pinter’s “vast tapestry of lies upon which we feed.” Therefore, the main institutions that embed us into the hierarchy, such as schools, universities, and mass media and entertainment corporations, have a primary function to create and maintain this tapestry. This includes establishment scientists and all service intellectuals in charge of “interpreting” reality.

In fact, the scientists and “experts” define reality in order to bring it into conformity with the always-adapting dominant mental tapestry of the moment. They also invent and build new branches of the tapestry that serve specific power groups by providing new avenues of exploitation. These high priests are rewarded with high class status.

The Money Lie

The economists are a most significant example. It is probably not an accident that in the United States at the end of the nineteenth century the economists were the first professional analysts to be “broken in,” in a battle that defined the limits of academic freedom in universities. The academic system would from that point on impose a strict operational separation between inquiry and theorizing as acceptable and social reform as unacceptable [1].


Any academic wishing to preserve her position understood what this meant. As a side product, academics became virtuosos at nurturing a self-image of importance despite this fatal limitation on their societal relevance, with verbiage such as: The truth is our most powerful weapon, the pen is mightier than the sword, a good idea can change the world, reason will take us out of darkness, etc.

So the enterprise of economics became devoted to masking the lie about money. Bad lending practice, price fixing and monopolistic controls were the main threats to the natural justice of a free market, and occurred only as errors in a mostly self-regulating system that could be moderated via adjustments of interest rates and other “safeguards.”


Meanwhile no mainstream economic theory makes any mention of the fact that money itself is created wholesale in a fractional reserve banking system owned by secret private interests given a licence to fabricate and deliver debt that must be paid back (with interest) from the real economy, thereby continuously concentrating ownership and power over all local and regional economies.


The rest of us have to earn money rather than simply fabricate it and we never own more when we die. The middle class either pays rent or a mortgage. Wage slavery is perpetuated and degraded in stable areas and installed in its most vicious varieties in all newly conquered territories.


It is quite remarkable that the largest exploitation scam (private money creation as debt) ever enacted and applied to the entire planet does not figure in economic theories.


Economists are so busy modeling the ups and downs of profits, returns, employment figures, stock values, and the benefits of mergers for mid-level exploiters that they don’t notice their avoidance of the foundational elements. They model the construction schedule while refusing to acknowledge that the terrain is an earthquake zone with vultures circling overhead.


Meanwhile the financiers write and re-write the rules themselves and again this process does not figure in macroeconomic theories. The only human element that economists consider in their “predictive” mathematical models is low-level consumer behaviour, not high-level system manipulation. Corruption is the norm yet it does not figure. The economies, cultures and infrastructures of nations are wilfully destroyed in order to enslave via new and larger national debts for generations into the future while economists forecast alleged catastrophic consequences of defaulting on these debts…

Management tools for the bosses and smoke and mirrors for the rest of us – thank you expert economists.

The Medicine is Health Lie

We’ve all heard some MD (medical doctor) interviewed on the radio gratuitously make the bold proposal that life expectancy has increased thanks to modern medicine. Nothing could be further from the truth.


Life expectancy has increased in First World countries thanks to a historical absence of civil and territorial wars, better and more accessible food, less work and non-work accidents, and better overall living and working conditions. The single strongest indicator of personal health within and between countries is economy status, irrespective of access to medical technology and pharmaceuticals.


It’s worse than that because medicine actually has a negative impact on health. Medical errors (not counting misattributed deaths from correctly administered “treatments”) are the third leading cause of death in the US, after heart disease and cancer, and there is a large gap between this conservative underestimate in the number of medical error deaths and the fourth leading cause of death [2]. Since medicine can do little for heart disease and cancer and since medicine has only a small statistical positive impact in the area of trauma interventions, we conclude that public health would increase if all MDs simply disappeared. And think of all the time loss and stress that sick people would save…

One of the most dangerous places in society is the hospital. Medical errors include misdiagnoses, bad prescriptions, prescriptions of medications that should not be combined, unnecessary surgery, unnecessary or badly administered treatments including chemotherapy, radiation treatment, and corrective surgeries.


The lie extends to the myth that MDs anywhere near understand the human body. And this well guarded lie encourages us to put our faith in doctors, thereby opening the door to a well orchestrated profit bonanza for big pharma.


The first thing that Doctors Without Borders (MSF) volunteers need to do in order to contribute significantly in disaster zones is to “forget their medical training” and get to work on the priority tasks at hand: water, food, shelter, and disease propagation prevention; not vaccinating, or operating, or prescribing medication… Public health comes from safety, stability, social justice, and economic buying power, not MRI (magnetic resonance imaging) units and prescription drugs.


These bone heads routinely apply unproven “recommended treatments” and prescribe dangerous drugs for everything from high blood pressure from a sedentary lifestyle and bad nutrition, to apathy at school, to anxiety in public places, to post-adolescence erectile function, to non-conventional sleep patterns, and to all the side effects from the latter drugs.

In professional yet nonetheless remarkable reversals of logic, doctors prescribe drugs to remove symptoms that are risk indicators rather than address the causes of the risks, thereby only adding to the assault on the body.

It’s unbelievable the number that medicine has done on us: Just one more way to keep us stupid (ignorant about our own bodies) and artificially dependent on the control hierarchy. Economically disadvantaged people don’t die from not having access to medical “care” – They die from the life constraints and liabilities directly resulting from poverty. How many MDs have stated this obvious truth on the radio?

Environmental Science Lies

Exploitation via resource extraction, land use expropriation, and wage slavery creation and maintenance are devastating to indigenous populations and to the environment on continental scales. It is therefore vital to cover up the crimes under a veil of expert analysis and policy development diversion. A valued class of service intellectuals here is composed of the environmental scientists and consultants.

Environmental scientists naively and knowingly work hand in hand with finance-corporate shysters, mainstream media, politicians, and state and international bureaucrats to mask real problems and to create profit opportunities for select power elites. Here are notable examples of specific cases.

Freon and Ozone

Do you know of anyone who has been killed by the ozone hole?

The 1987 Montreal Protocol banning chlorofluorocarbons (CFCs) is considered a textbook case where science and responsible governance lead to a landmark treaty for the benefit of the Earth and all its inhabitants. How often does that happen?


At about the time that the DuPont patent on Freon(TM), the most widely used CFC refrigerant in the world, was expiring the mainstream media picked up on otherwise arcane scientific observations and hypotheses about ozone concentration in the upper atmosphere near the poles.

There resulted an international mobilization to criminalize CFCs and DuPont developed and patented a replacement refrigerant that was promptly certified for use.

A Nobel Prize in chemistry was awarded in 1995 for a laboratory demonstration that CFCs could deplete ozone in simulated atmospheric conditions. In 2007 it was shown that the latter work may have been seriously flawed by overestimating the depletion rate by an order of magnitude, thereby invalidating the proposed mechanism for CFC-driven ozone depletion [3]. Not to mention that any laboratory experiment is somewhat different from the actual upper atmosphere... Is the Nobel tainted by media and special interest lobbying?

It gets better. It turns out that the Dupont replacement refrigerant is, not surprisingly, not as inert as was Freon. As a result it corrodes refrigerator cycle components at a much faster rate. Where home refrigerators and freezers lasted forever, they now burn out in eight years or so. This has caused catastrophic increases in major appliance contributions to land fill sites across North America; spurred on by the green propaganda for obscenely efficient electrical consumptions of the new appliances under closed door (zero use) conditions.

In addition, we have been frenzied into avoiding the sun, the UV index keeps our fear of cancer and our dependence on the medical establishment alive, and a new sun block industry a la vampire protection league has been spawned. And of course star university chemists are looking for that perfect sun block molecule that can be patented by big pharma. And as soon as it is, I predict a surge in media interviews with skin cancer experts…

Acid Rain on the Boreal Forest

In the seventies it was acid rain. Thousands of scientists from around the world (Northern Hemisphere) studied this “most pressing environmental problem on the planet.” The boreal forest is the largest ecosystem on Earth and its millions of lakes were reportedly being killed by acid from the sky.


Coal burning plants spewed out sulphides into the atmosphere causing the rain to be acidic. The acid rain was postulated to acidify the soils and lakes in the boreal forest but the acidification was virtually impossible to detect. Pristine lakes in the hearts of national parks had to be studied for decades in attempts to detect a statistically significant acidification.


Meanwhile the lakes and their watersheds were being destroyed by the cottage industry, agriculture, forestry, mining, over fishing and tourism. None of the local and regional destruction was studied or exposed. Instead, scientists turned their gaze to distant coal burning plants, atmospheric distribution, and postulated chemical reactions occurring in rain droplets. One study found that the spawning in aquarium of one fish species was extremely sensitive to acidity (pH). Long treatises about cation charge balance and transport were written and attention was diverted away from the destruction on the ground towards a sanitized problem of atmospheric chemistry that was the result of industrialization and progress rather than being caused by identifiable exploiters.

As a physicist and Earth scientist turned environmental scientist, I personally read virtually every single scientific paper written about acid rain and could not find an example of a demonstrated negative impact on lakes or forests from acid rain. In my opinion, contrary to the repeated claims of the scientist authors, the research on acid rain demonstrates that acid rain could not possibly have been the problem.


This model of elite-forces-coordinated exploiter whitewashing was to play itself out on an even grander scale only decades later with global warming.

Global Warming as a Threat to Humankind

In 2005 and 2006, several years before the November 2009 Climategate scandal burst the media bubble that buoyed public opinion towards acceptance of carbon credits, cap and trade, and the associated trillion dollar finance bonanza that may still come to pass, I exposed the global warming cooptation scam in an essay that Alexander Cockburn writing in The Nation called "one of the best essays on greenhouse myth-making from a left perspective" [4][5][6].
My essay prompted David F. Noble to research the question and write The Corporate Climate Coup to expose how the media embrace followed the finance sector’s realization of the unprecedented potential for revenues that going green could represent [7].


Introductory paragraphs from Global Warming: Truth or Dare? are as follows [4]:


“I also advance that there are strong societal, institutional, and psychological motivations for having constructed and for continuing to maintain the myth of a global warming dominant threat (global warming myth, for short). I describe these motivations in terms of the workings of the scientific profession and of the global corporate and finance network and its government shadows.

“I argue that by far the most destructive force on the planet is power-driven financiers and profit-driven corporations and their cartels backed by military might; and that the global warming myth is a red herring that contributes to hiding this truth. In my opinion, activists who, using any justification, feed the global warming myth have effectively been co-opted, or at best neutralized.”


Other passages read this way [4]:

“Environmental scientists and government agencies get funding to study and monitor problems that do not threaten corporate and financial interests. It is therefore no surprise that they would attack continental-scale devastation from resource extraction via the CO2 back door. The main drawback with this strategy is that you cannot control a hungry monster by asking it not to shit as much.”


“Global warming is strictly an imaginary problem of the First World middleclass. Nobody else cares about global warming. Exploited factory workers in the Third World don’t care about global warming. Depleted uranium genetically mutilated children in Iraq don’t care about global warming. Devastated aboriginal populations the world over also can’t relate to global warming, except maybe as representing the only solidarity that we might volunteer.”


“It’s not about limited resources. [“The amount of money spent on pet food in the US and Europe each year equals the additional amount needed to provide basic food and health care for all the people in poor countries, with a sizeable amount left over.” (UN Human Development Report, 1999)] It’s about exploitation, oppression, racism, power, and greed. Economic, human, and animal justice brings economic sustainability which in turn is always based on renewable practices. Recognizing the basic rights of native people automatically moderates resource extraction and preserves natural habitats. Not permitting imperialist wars and interventions automatically quenches nation-scale exploitation. True democratic control over monetary policy goes a long way in removing debt-based extortion. Etc.”







And there is a thorough critique of the science as band wagon trumpeting and interested self-deception [4]. Climategate only confirms what should be obvious to any practicing scientist: That science is a mafia when it’s not simply a sleeping pill.

Conclusion
It just goes on and on. What is not a lie?

Look at the recent H1N1 scam – another textbook example. It’s farcical how far these circuses go: Antiseptic gels in every doorway at the blink of an eye; high school students getting high from drinking the alcohol in the gels; out datedness of the viral strain before the pre-paid vaccine can be mass produced; unproven effectiveness; no requirement to prove effectiveness; government guarantees to corporate manufacturers against client lawsuits; university safety officers teaching students how to cough; etc.


Pure madness. Has something triggered our genetically ingrained First World stupidity reflex? Is this part of our march towards fascism [8]?


Here is another one. Educators promote the lie that we learn because we are taught. This lie of education is squarely denounced by radical educators [9][10].
University professors design curricula as though the students actually learn every element that is delivered whereas the truth is that students don’t learn the delivered material and everyone only learns what they learn. One could dramatically change the order in which courses are delivered and it would make no measurable difference in how much students learn. Students deliver nonsense and professors don’t care. Obedience and indoctrination are all that matter so the only required skill is bluffing. Students know this and those that don’t don’t know what they know, don’t know themselves [8][9][10].

Pick any expert opinion or dominant paradigm: It’s part of a racket.

We can’t know the truth because the truth is brutal.

Denis G. Rancourt was a tenured and full professor at the University of Ottawa in Canada. He was trained as a physicist and practiced physics, Earth sciences, and environmental science, areas in which he was funded by a national agency and ran an internationally recognized laboratory. He published over 100 articles in leading scientific journals. He developed popular activism courses and was an outspoken critic of the university administration and a defender of Palestinian rights. He was fired for his dissidence in 2009. [See www.academicfreedom.ca]



Notes



[1] “No Ivory Tower – book” by Ellen W. Schrecker.

[2] Radio interview with Dr. Barbara Starfield: CHUO 89.1 FM, Ottawa; January 21, 2010.

[3] Nature 449, 382-383 (2007).

[4] “Global Warming: Truth or Dare? – essay” by Denis G. Rancourt.

[5] “Questioning Climate Politics - Denis Rancourt says the ‘global warming myth’ is part of the problem”; April 11, 2007, interview in The Dominion.

[6] Climate Guy blog.

[7] “The Corporate Climate Coup – essay” by David F. Noble.

[8] “Canadian Education as an Impetus towards Fascism – essay” by Denis G. Rancourt.

[9] “Pedagogy of the Oppressed – book” by Paulo Freire.

[10] “The Ignorant Schoolmaster – book” by Jacques Rancière.

The Psychopathic Criminal Enterprise Called America

Most Americans know that politicians make promises they never fulfill; few know that politicians make promises they lack the means to fulfill, as President Obama's political posturing on the Deepwater Horizon disaster in the Gulf of Mexico makes perfectly clear.


Obama has made the following statements:

He told his "independent commission" investigating the Gulf oil spill to "thoroughly examine the disaster and its causes to ensure that the nation never faces such a catastrophe again."

Aside from the fact that presidential commissions have a history of providing dubious reports and ineffective recommendations, does anyone really believe that a way can be found to prevent industrial accidents from happening ever again?

Even if the commissions findings and recommendations succeed in reducing the likelihood of such accidents, doesn't this disaster prove that it only takes one? And unlikely events happen every day.

The president has said, "if laws are insufficient, they'll be changed." But no president has this ability, only Congress has, and the president must surely know how difficult getting the Congress to effectively change anything is.

He also said that "if government oversight wasn't tough enough, that will change, too." Will it? Even if he replaces every person in an oversight position, he can't guarantee it. The people who receive regulatory positions always have ties to the industries they oversee and can look forward to lucrative jobs in those industries when they leave governmental service.

As long as corporate money is allowed to influence governmental action, neither the Congress nor regulators can be expected to change the laws or regulatory practices in ways that make them effective, and there is nothing any president can do about it. Even the Congress' attempt to raise the corporate liability limit for oil spills from $75 million to $10 billion has already hit a snag.

The President has said that "if laws were broken, those responsible will be brought to justice" and that BP would be held accountable for the "horrific disaster."

He said BP will be paying the bill, and BP has said it takes responsibility for the clean-up and will pay compensation for "legitimate and objectively verifiable" claims for property damage, personal injury, and commercial losses.

But "justice" is rendered in American courts, not by the executive branch. Any attempts to hold BP responsible will be adjudicated in the courts at the same snail's pace that the responsibility for the Exxon-Mobile Alaska oil spill was adjudicated and likely will have the same results.

The Exxon Valdez oil spill occurred in Prince William Sound on March 24, 1989. In Baker v. Exxon, an Anchorage jury awarded $287 million for actual damages and $5 billion for punitive damages, but after nineteen years of appellate jurisprudence, the Supreme Court on June 25, 2008 issued a ruling reducing the punitive damages to $507.5 million, roughly a tenth of the original jury's award.

Furthermore, even that amount was reduced further by nineteen years of inflation. By that time, many of the people who would have been compensated by these funds had died.

The establishment calls this justice. Do you? Do those of you who reside in the coastal states that will ultimately be affected by the Deepwater Horizon disaster really believe that the President can make good on this promise of holding BP responsible?

By the time all the lawsuits filed in response to this disaster wend their ways through the legal system, Mr. Obama will be grayed, wizened, and ensconced in a plush chair in an Obama Presidential Library, completely out of the picture and devoid of all responsibility.

Politicians who engage in this duplicitous posturing know that they can't fulfill their promises. They know they are lying; yet they do it pathologically. Aesop writes, "A liar will not be believed, even when he speaks the truth."

Perhaps that's why politicians never do.

Government in America consists of law. Legislators write it, executives apply it, and courts adjudicate it. But the law is a lie. We are told to respect the law and that it protects us.

But it doesn't. Think about it people! The law and law enforcement only come into play secundum vitium (after the crime). The police don't show up before you're assaulted, robbed, or murdered; they come after.

So how does that protect you? Yes, if a relationship of trust is violated, you can sue if you can afford it, and even that's not a sure thing. (Remember the victims of the Exxon-Valdez disaster!)

Even if the person who violated the relationship gets sanctioned, will you be "made whole"? Most likely not! Relying on the law is a fool's errand.

It's enacted, enforced, and adjudicated by liars.

The law is a great crime, far greater than the activities it outlaws, and there's no way you can protect yourself from it. The establishment protects itself. The law does not protect people. It is merely an instrument of retribution.

It can only be used, often ineffectively, to get back at the malefactor. It never un-dos the crime. Executing the murderer doesn't bring back the dead. Putting Ponzi schemers in jail doesn't get your money back.

And holding BP responsible won't restore the Louisiana marshes, won't bring back the dead marine and other wildlife, and won't compensate the victims for their losses.

Carefully watch what happens over the next twenty years as the government uses the law to shield BP, Transocean, and Halliburton while the claims of those affected by the spill disappear into the quicksand of the American legal system.

Jim Kouri, citing FBI studies, writes that "some of the character traits exhibited by serial killers or criminals may be observed in many within the political arena.;" they share the traits of psychopaths who are not sensitive to altruistic appeals, such as sympathy for their victims or remorse or guilt over their crimes. They possess the personality traits of lying, narcissism, selfishness, and vanity. These are the people to whom we have entrusted our fate.

Is it any wonder that America is failing at home and world-wide?

Some may say that this is an extreme, audacious claim. I, too, was surprised when I read Kouri's piece. But anecdotal evidence to support it is easily cited. John McCain said "bomb, bomb, bomb" during the last presidential campaign in response to a question about Iran.

No one in government has expressed the slightest qualms about the killing of tens of thousands of people in both Iraq and Afghanistan who had absolutely nothing to do with what happened on nine/eleven or the deliberate targeting of women and children by unmanned drones in Pakistan. What if anything distinguishes serial killers from these governmental officials? Only that they don't do the killing themselves but have others do it for them.

But that's exactly what most of the godfathers of the cosa nostra did.

So, there are questions that need to be posed: Has the government of the United States of America become a criminal enterprise? Is the nation ruled by psychopaths? Well, how can the impoverishment of the people, the promotion of the military-industrial complex and endless wars and their genocidal killing, the degradation of the environment, the neglect of the collapsing infrastructure, and the support of corrupt and authoritarian governments (often called democracies) abroad be explained?

Worse, why are corporations allowed to profiteer during wars while the people are called upon to sacrifice? Why hasn't the government ever tried to prohibit such profiteering? It's not that it can't be done.

In the vernacular, harming people is considered a crime. It is just as much a crime when done by governments, legal systems, or corporations. The government uses the law to harm people or shield the establishment from the consequences of harming people all the time.

Watch as no one from the Massey Energy Co. is ever prosecuted for the disaster at the Upper Big Branch coal mine. When corporations are accused of wrongdoing, they often reply that what they did was legal, but legal is not a synonym for right. When criminals gain control, they legalize criminality.

Unless the government of the United States changes its behavior, this nation is doomed.

No one in government seems to realize that dissimulation breeds distrust, distrust breeds suspicion, and suspicion eventually arouses censure.

Isn't that failure of recognition by the establishment a sign of criminal psychopathology?