Follow the Money Trail: It’s the blueprint for your case

Posted on March 18, 2013 by Neil Garfield
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Editor’s Analysis and Comment: If you want to know where all the money went during the mortgage madness of the last decade and the probable duplication of that behavior with all forms of consumer debt, the first clues have been emerging. First and foremost I would suggest the so-called bull market reflecting an economic resurgence that appears to have no basis in reality. Putting hundred of billions of dollars into the stock market is an obvious place to store ill-gotten gains.
But there is also the question of liquidity which means the Wall Street bankers had to “park” their money somewhere into depository accounts. Some analysts have suggested that the bankers deposited money in places where the sheer volume of money deposited would give bankers strategic control over finance in those countries.
The consequences to American finance is fairly well known here. But most Americans have been somewhat aloof to the extreme problems suffered by Spain, Greece, Italy and Cyprus. Italy and Cyprus have turned to confiscating savings on a progressive basis.  This could be a “fee” imposed by those countries for giving aid and comfort to the pirates of Wall Street.
So far the only country to stick with the rule of law is Iceland where some of the worst problems emerged early — before bankers could solidify political support in that country, like they have done around the world. Iceland didn’t bailout bankers, they jailed them. Iceland didn’t adopt austerity to make the problems worse, it used all its resources to stimulate the economy.
And Iceland looked at the reality of a the need for a thriving middle class. So they reduced household debt and forced banks to take the hit — some 25% or more being sliced off of mortgages and other consumer debt. Iceland was not acting out of ideology, but rather practicality.
The result is that Iceland is the shining light on the hill that we thought was ours. Iceland has real growth in gross domestic product, decreasing unemployment to acceptable levels, and banks that despite the hit they took, are also prospering.
From my perspective, I look at the situation from the perspective of a former investment banker who was in on conversations decades ago where Wall Street titans played the idea of cornering the market on money. They succeeded. But Iceland has shown that the controls emanating from Wall Street in directing legislation, executive action and judicial decisions can be broken.
It is my opinion that part or all of trillions dollars in off balance sheet transactions that were allowed over the last 15 years represents money that was literally stolen from investors who bought what they thought were bonds issued by a legitimate entity that owned loans to consumers some of which secured in the form of residential mortgage loans.
Actual evidence from the ground shows that the money from investors was skimmed by Wall Street to the tune of around $2.6 trillion, which served as the baseline for a PONZI scheme in which Wall Street bankers claimed ownership of debt in which they were neither creditor nor lender in any sense of the word. While it is difficult to actually pin down the amount stolen from the fake securitization chain (in addition to the tier 2 yield spread premium) that brought down investors and borrowers alike, it is obvious that many of these banks also used invested money from managed funds as gambling money that paid off handsomely as they received 100 cents on the dollar on losses suffered by others.
The difference between the scheme used by Wall Street this time is that bankers not only used “other people’s money” —this time they had the hubris to steal or “borrow” the losses they caused — long enough to get the benefit of federal bailout, insurance and hedge products like credit default swaps. Only after the bankers received bailouts and insurance did they push the losses onto investors who were forced to accept non-performing loans long after the 90 day window allowed under the REMIC statutes.
And that is why attorneys defending Foreclosures and other claims for consumer debt, including student loan debt, must first focus on the actual footprints in the sand. The footprints are the actual monetary transactions where real money flowed from one party to another. Leading with the money trail in your allegations, discovery and proof keeps the focus on simple reality. By identifying the real transactions, parties, timing and subject moment lawyers can use the emerging story as the blueprint to measure against the fabricated origination and transfer documents that refer to non-existent transactions.
The problem I hear all too often from clients of practitioners is that the lawyer accepts the production of the note as absolute proof of the debt. Not so. (see below). If you will remember your first year in law school an enforceable contract must have offer, acceptance and consideration and it must not violate public policy. So a contract to kill someone is not enforceable.
Debt arises only if some transaction in which real money or value is exchanged. Without that, no amount of paperwork can make it real. The note is not the debt ( it is evidence of the debt which can be rebutted). The mortgage is not the note (it is a contract to enforce the note, if the note is valid). And the TILA disclosures required make sure that consumers know who they are dealing with. In fact TILA says that any pattern of conduct in which the real lender is hidden is “predatory per se”) and it has a name — table funded loan. This leads to treble damages, attorneys fees and costs recoverable by the borrower and counsel for the borrower.
And a contract to “repay” money is not enforceable if the money was never loaned. That is where “consideration” comes in. And a an alleged contract in the lender agreed to one set of terms (the mortgage bond) and the borrower agreed to another set of terms (the promissory note) is no contract at all because there was no offer an acceptance of the same terms.
And a contract or policy that is sure to fail and result in the borrower losing his life savings and all the money put in as payments, furniture is legally unconscionable and therefore against public policy. Thus most of the consumer debt over the last 20 years has fallen into these categories of unenforceable debt.
The problem has been the inability of consumers and their lawyers to present a clear picture of what happened. That picture starts with footprints in the sand — the actual events in which money actually exchanged hands, the answer to the identity of the parties to each of those transactions and the reason they did it, which would be the terms agreed on by both parties.
If you ask me for a $100 loan and I say sure just sign this note, what happens if I don’t give you the loan? And suppose you went somewhere else to get your loan since I reneged on the deal. Could I sue you on the note? Yes. Could I win the suit? Not if you denied you ever got the money from me. Can I use the real loan as evidence that you did get the money? Yes. Can I win the case relying on the loan from another party? No because the fact that you received a loan from someone else does not support the claim on the note, for which there was no consideration.
It is the latter point that the Courts are starting to grapple with. The assumption that the underlying transaction described in the note and mortgage was real, is rightfully coming under attack. The real transactions, unsupported by note or mortgage or disclosures required under the Truth in Lending Act, cannot be the square peg jammed into the round hole. The transaction described in the note, mortgage, transfers, and disclosures was never supported by any transaction in which money exchanged hands. And it was not properly disclosed or documented so that there could be a meeting of the minds for a binding contract.
KEEP THIS IN MIND: (DISCOVERY HINTS) The simple blueprint against which you cast your fact pattern, is that if the securitization scheme was real and not a PONZI scheme, the investors’ money would have gone into a trust account for the REMIC trust. The REMIC trust would have a record of the transaction wherein a deduction of money from that account funded your loan. And the payee on the note (and the secured party on the mortgage) would be the REMIC trust. There is no reason to have it any other way unless you are a thief trying to skim or steal money. If Wall Street had played it straight underwriting standards would have been maintained and when the day came that investors didn’t want to buy any more mortgage bonds, the financial world would not have been on the verge of extinction. Much of the losses to investors would have covered by the insurance and credit default swaps that the banks took even though they never had any loss or risk of loss. There never would have been any reason to use nominees like MERS or originators.
The entire scheme boils down to this: can you borrow the realities of a transaction in which you were not a party and treat it, legally in court, as your own? So far the courts have missed this question and the result has been an unequivocal and misguided “yes.” Relentless of pursuit of the truth and insistence on following the rule of law, will produce a very different result. And maybe America will use the shining example of Iceland as a model rather than letting bankers control our governmental processes.

Banking Chief Calls For 15% Looting of Italians’ Savings
http://www.infowars.com/banking-chief-calls-for-15-looting-of-italians-savings/

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Mortgage Meltdown: Central Bankers Prepare for Collapse of Dollar

Posted on May 16, 2008 by Neil Garfield

That confidence in the U.S. dollar is at an all-time low is no surprise. But when countries start propping up currencies that are barely on the radar, you know that central bankers are thinking that the U.S. government is not doing enough to shore up the fundamentals of its economy. This translates to a lack of confidence that the dollar will recover. Like the price of oil headed inexorably toward $200 per barrel, the dollar is seen headed inexorably downward. This kind of thinking leads to self-fulfilling prophecy, so it needs to be taken seriously. 

The plain fact is that we have $500 trillion in derivative securities that are treated, for the most part, as cash equivalents. In the face of a half-gig behemoth of private sector money supply, central bankers understand that their impact on monetary policy, money supply, credit, and economic growth is virtually out of reach. Like it or not, economic policy is in the hands of the private sector now.

More pretense of regulation from a corrupt government will produce less rather than more instability in the financial sector. Government is providing cover for wrongdoers rather than relief for everyone. 

The dangers are obvious. The inevitable conclusion of this paradigm shift can already be seen: a massive shift in the distribution of wealth, with its attendant death grip on government policy and action.

The role of government — to be the referee in assuring a fair playing field — has been subverted beyond recognition.

The tangible results are that millions of homes are being foreclosed, tens of millions of people are being hit with economic losses, and despite even the calls of the conservative Economist magazine for a U.S. “Federal effort to streamline the states’ convoluted foreclosure laws” nothing has emerged thus far.

We are aware and I have assisted in the writing of emergency rules of civil procedure for foreclosures from initiation of proceedings through mediation and judgment. These rules have been submitted to Nevada, Florida and Arizona thus far. The Courts are warming to the idea, but it is likely that a uniform approach will not be adopted, leaving the country in a morass of hoops to jump through before borrowers and lenders and investors can be brought to the table to put a stop to the downward slide. 

Under normal conditions, we would be the first to scream for better regulation, more enforcement and criminal prosecution arising from the massive fraud that killed the residential housing market, and severely damaged the rest of the credit markets worldwide. But we are of the opinion that this is an emergency that transcends normal government response. It is akin to the emergency of war where we are fighting for our very survival. Amnesty for every participant on the investor-lender side and on the borrower loan origination side is essential even if it gives a break to “speculators” and criminal minds that irresponsibly launched this plan to nowhere.

Only then will we demonstrate to central bankers around the world that we are serious about this crisis. Only then will they lose momentum is distancing themselves from the dollar.

Overseas banks save a currency
Commentary: A useful game plan if the dollar really hits the skids
By MarketWatch
Last update: 10:08 a.m. EDT May 16, 2008
LONDON (MarketWatch) – It’s official — overseas central banks stepped in Friday to prop up a beleaguered currency that’s been weighed down by an out-of-control financial sector and an economy on the rocks.
Sounds like the U.S. dollar, but actually, it’s the Iceland krona. See related story.
The central banks of Norway, Sweden and Denmark will each provide up to 500 million euros that the Central Bank of Iceland can swap for krona.
Of course, any central bank intervention to prop up the dollar would have to be done on a far larger scale than chucking in a bit more than $2 billion.
So understandably, the Bank of Japan and the European Central Bank reportedly have kept their ammunition so far to words and arm twisting. See related story.
And U.S. interest rates are just a touch lower than what’s on offer in Iceland — 2.25% compared to 15.5%.
But it’s worth noting that the intervention has worked, on the day at least – the currency is up over 4% against the euro.
If nothing else, the move by the Scandinavian central banks is a game plan that can be dusted off if the dollar really goes into meltdown mode.
— Steve Goldstein End of Story

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Mortgage Meltdown and State Recessions

Posted on April 25, 2008 by Neil Garfield

Associated Press: Many states appear to be in recession as deficits grow.

  • In a nutshell, states are not merely facing declining revenues. 
  • They are facing increasing costs from inflation and devaluation, decreased purchasing power, decreased cash reserves when they find out that what they had  in “cash equivalents” were partially invested in collateralized mortgage obligations, decreased prospects for real revenue growth (as opposed to the magic produced by by inflation and devaluation), and no reasonable prospect of help from Washington until the full damage is done and long over. 
  • If there is going to be relief, it will come from the states themselves as they sludge through economic data and decide on economic policies at a level that they were not previously expected to master. 

As we projected, states are feeling the hurt from the dive in housing prices and housing activity which in turn has caused a massive holdback in consumer spending. Unfortunately, there is only a very small number of people who have sufficient knowledge to understand and analyze the economic impact. Most legislators are caught in this mess like a deer in headlamps on a mountain road.

This includes all three of the candidates for President (although I think we probably should be talking two candidates if we are addressing reality). None of them has issued a comprehensive statement about the mortgage meltdown, the credit crisis, the flood of money created by Wall Street, the declining ability of the Federal Reserve to achieve monetary control. They don’t appear to be able to describe it, much less suggest something palliative other than bullet sound clips. It seems that either their economic advisers are either asleep at the wheel or the candidates themselves are not taking the time needed to get acquainted with the real problems they will inherit on “Day 1.”

On the State level, legislators have never been particularly strong at macro-economic policy initiatives and frankly nobody ever expected them to have this ability. The STATE ECONOMY seems always to hold the back seat even though it has a front seat impact on real people when there is a crash.

About the only good thing you can say about the figures coming out of the state governments is that they are not nearly as mangled and manipulated as the federal figures. Thus we can start to assess the real damage and potentially come up with some answers.

In a nutshell, states are not merely facing declining revenues. They are facing increasing costs from inflation and devaluation, decreased purchasing power, decreased cash reserves when they find out that what they had  in cash equivalents” were partially invested in collateralized mortgage obligations, decreased prospects for real revenue growth (as opposed to the magic produced by by inflation and devaluation), and no reasonable prospect of help from Washington until the full damage is done and long over. If there is going to be relief, it will come from the states themselves as they sludge through economic data and decide on economic policies at a level that they were not previously expected to master. 

  1. Our suggestion is that the only way the States are going to lead the nation into a recovery with a solid foundation (in lieu of the house of cards of booms and busts) is by forming alliances between states and forming relationships with foreign countries in the European Union and elsewhere. 
  2. The National Conference of State Legislatures is potentially a good place to start. 
  3. And Bruton’s appearance in front of the NCSL tomorrow, representing the European Union, could be the immediate kickoff for exploring economic options and getting help on policy from people whose only act to grind is to see the dollar and the U.S. Economy recover. 
  4. It is possible that European central bankers could come to the aid of anxious American states faster than they can deal with the highly politicized Federal agencies of Treasury, Federal Reserve and Bureau of Engraving and Printing. At least the States are trying to publish true figures instead of hiding the truth behind lies (justified by not creating a panic).
  5. It is possible that the Euro could provide safe haven for states and their residents while Washington continues its ideological gridlock.
MSN Tracking Image
  MSNBC.com

Many states appear to be in recession as deficits grow

By ANDREW WELSH-HUGGINS
Associated Press Writer
The Associated Press
updated 5:17 a.m. MT, Fri., April. 25, 2008

The finances of many states have deteriorated so badly that they appear to be in a recession, regardless of whether that’s true for the nation as a whole, a survey of all 50 state fiscal directors concludes.

The situation looks even worse for the fiscal year that begins July 1 in most states.

“Whether or not the national economy is in recession _ a subject of ongoing debate _ is almost beside the point for some states,” said the report to be released Friday by the National Conference of State Legislatures.

The weakening economy is hitting tax revenue in a number of ways: People’s discretionary income is being gobbled up by higher food and fuel costs, while the tanking housing market means people are spending less on furniture and appliances associated with buying a house.

The situation is grim in Delaware, with a $69 million gap this year, and bleak in California, with a projected $16 billion budget shortfall over the next two years, the report said. Florida does not expect a rapid turnaround in revenue because of the prolonged real estate slump there.

By mid-April, 16 states and Puerto Rico were reporting shortfalls in their current budgets as the revenue those budgets were built on _ typically, taxes _ fell short of estimates. That’s double the number of states reporting a deficit six months ago.

The NCSL said the news is even worse for the upcoming fiscal year, with 23 states and Puerto Rico already reporting budget shortfalls totaling $26 billion. More than two-thirds of states said they are concerned about next year’s budgets.

The results are consistent with a drumbeat of bad economic news for states that several budget groups have produced in the past few months.

Last week, the Washington-based Center on Budget and Policy Priorities said 27 states are reporting projected budget shortfalls next year totaling at least $39 billion.

President Bush said Tuesday that the economy was not in a recession but a period of slower growth. However, some economists have pointed to the string of declines in manufacturing orders to argue that the economy has fallen into a recession.

Bolstering their position, the Commerce Department reported Thursday that sales of new homes plunged in March to the lowest level in 16 1/2 years. The government also reported that orders to factories for big-ticket goods fell for a third straight month in March, the longest string of declines since the 2001 recession.

Some states “have declined so much that they appear to be in a recession,” the NCSL report said.

It also noted the silver lining for states where the economy is based on energy, such as North Dakota and Wyoming. Alaska is making so much money from oil that it announced an estimated surplus next year of $8 billion, almost twice the state’s annual budget.

In North Dakota, revenue is above legislative predictions by 13 percent, and in Louisiana, the oil and gas sector is robust.

“For energy-producing states, the fiscal situation is strong and the outlook is good,” the report said.

Among other findings:

_More than half the 16 states reporting deficits this year have cut spending, including $1 billion by Florida lawmakers last year and across-the-board cuts in Nevada. At least eight states are debating raising taxes or fees, including a proposed $1-per-pack cigarette tax increase in Massachusetts to raise $175 million.

_Twelve states, including Georgia, Idaho and Illinois, reported that personal income tax collections were failing to meet estimates, and in eight of these, collections were even below a reduced forecast.

_Many states, including Alabama, Arizona, Massachusetts, Minnesota, Nevada and Wisconsin, plan to tap their rainy day funds, which contain money set aside for fiscal emergencies. Nevada may use its entire rainy day balance.

___

On the Net:

NCSL: http://www.ncsl.org

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

URL: http://www.msnbc.msn.com/id/24303867/

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Mortgage Meltdown + Inflation + Dollar Devaluation

Posted on April 8, 2008 by Neil Garfield

Trouble for American Consumer is building and the perfect storm threatens our tenuous economy. 

DEEP RECESSION LOOMS WITHOUT FUNDAMENTAL CHANGE IN OUR POLITICS AND ECONOMIC POLICIES

 

The inevitable outcome was always the same: eventually we would hit the the top, like in any Ponzi scheme. 

Consumers, who maxed out their credit cards, and maxed out their borrowing on their homes, and maxed out on their purchasing power which has declined significantly over the same 25 year period, and who are vastly unemployed or underemployed (further decreasing their wages and purchasing power), and maxed out their borrowing from consumer finance, and even maxed out their short-term borrowing through pay day lending and overdraft privileges and eliminated their savings plans, have reached the point where (1) they can’t buy anymore “stuff” and (2) they don’t want to. 

 

The end result is that we have spent ourselves and our country into a hole, diminished our standing in the world, and we continue to insult the world by asserting a dominance that was once real, but isn’t anymore. And the world is telling us as politely as possible to shove it. 

The strength of the Euro, the movement amongst the oil producing countries to create a unitary currency for the Gulf countries and other trends around the globe all spell the same thing: everyone is looking for an alternative to the U.S. dollar and an alternative to the U.S. altogether. We have brought ourselves and the world to neither peace nor prosperity, and neither security nor safety. 

 

Asian inflation which is gearing up to be as bad as we have seen in any emerging economy is starting to hit wholesale prices. Rising costs due to rampant and growing inflation in countries that had before been “cheap” producers is hitting hard on products purchased here in the U.S. 

 

Add to that the more or less daily devaluation of the dollar and the effect is multiplied. Add to that mixture the further devaluation of the dollar caused by the mortgage meltdown where central bankers are converting their dollar reserves to Euros and the effect is further increased.

 

The headlines in most papers is the end of the free ride we had for a long time where the dollar was king and we could purchase imports more cheaply because dollars were in great demand. 

Our headline here is that we are headed for the deepest recession since the greatest depression. 

 

The reasons are many but all fairly simple. The United States converted from being a nation of production to a nation of consumption. The final nail in the coffin of this unfortunate conversion was the advent of credit cards — not at their inception — and the high interest rates that were institutionalized during the double digit prime rate days 25 years ago. The theory was that the credit card companies were under hardship because it cost them more to get capital to lend than they could get under usury laws, once you factored in defaults and the extremely high interest rates that the issuers had to pay. But when rates went back down to modest figures of around 7% prime rate from highs of 22% credit card companies were allowed to keep their rates at 21-22% and eventually raised those rates to as high as 35%. Adding insult, the issuers now have fee schedules that add to the absurd payments. 

 

This “free money” craze coupled with stupendous profits earned by credit card issuers caused a huge but temporary surge in consumer sending encouraged by government, business and lenders. Everyone liked it because for consumers they were getting more “stuff”, for government they could claim better economic performance, and for credit card companies, they had a stranglehold on an economy that was now addicted to credit card and home equity loan consumer spending. As with the mortgage meltdown, nobody thought it through. 

 

Our economy became addicted to, dependent on and under the control of consumer spending, which up till now has accounted for around 70% of our entire economy.

 

The inevitable outcome was always the same: eventually we would hit the the top, like in any Ponzi scheme. Consumers, who maxed out their credit cards, and maxed out their borrowing on their homes, and maxed out on their purchasing power which has declined significantly over the same 25 year period, and who are vastly unemployed or underemployed further decreasing their wages and purchasing power, and maxed out their borrowing from consumer finance, and even maxed out their short-term borrowing through pay day lending and overdraft privileges and eliminated their savings plans, have reached the point where (1) they can’t buy anymore “stuff” and (2) they don’t want to.

 

Alan Greenspan is now defending his record of relying on the marketplace to work things out. Free market ideologies, like the one Greenspan relied on, are like all other theories in economics. They seem to work for a while and then they don’t. Ideology does not govern how people act. People act as they choose to and the way they choose is based upon mostly subjective factors at the time of their decision. That is a lot messier than the neat and clean theories and policies, indexes and measurements that have been used in determining economic policy, foreign policy, and domestic agendas for decades. 

The underlying flaw in all currently used economic theory is that people are not theoretical. They are real and they are complex. 

This is not a new observation. Plenty of brilliant analysts and thinkers have known this for thousands of years. Just look at some of the most recent contributions from Rothbard and von Mises and you’ll see that the idea that human motivation and human thought process as the real issue has been around for a very long time, well understood, and pointing toward policy mechanisms that were based in reality rather than the mythical world where everyone behaves according to the “plan.” 

 

The problem is that economics and politics are inseparable — like time and space. You cannot define one without reference to the other. And in politics, the goal is to get elected and stay in power. You are playing to an audience with precious little time to get the finer points of economics, personal finance and monetary policy. 

 

People are too busy trying to make ends meet, getting the kids off to school and after-school activities, and working a two-income family schedule with increasingly longer working hours. Up until now, buying “stuff” has been a recreational outlet and they had the “free money” to do it. Now they can’t even pay the “minimum payment” without borrowing more and they can’t borrow more.

 

You don’t get elected giving people bad news — especially the news that things will get worse before they get better. So politicians create agencies to give them reports, indexes, median incomes, and unemployment data that provides them a reference point from which to pontificate about things these “leaders” actually know nothing about. They create slogans and “programs” that will never happen to give the potential voter a reason for putting them or keeping them in office. 

 

The end result is that we have spent ourselves and our country into a hole, diminished our standing in the world, and we continue to insult the world by asserting a dominance that was once real, but isn’t anymore. And the world is telling us as politely as possible to shove it. The strength of the Euro, the movement amongst the oil producing countries to create a unitary currency for the Gulf countries and other trends around the globe all spell the same thing: everyone is looking for an alternative to the U.S. dollar and an alternative to the U.S. altogether. We have brought ourselves and the world to neither peace nor prosperity, and neither security nor safety. 

WHAT DO WE DO? BITE THE BULLET, GIVE UP IDEOLOGY AND GET REAL

If you want to stop the mortgage and credit crisis, go with Barney Frank’s plan which takes blame out of the equation and simply stops the worst from happening. It gives everyone an opportunity to recover and it is the only way to do it — taking everyone’s interest into account rather than one group over another. 

 

If you want to stop foreclosures and evictions, change the rules of civil procedure in each state and in federal bankruptcy court that enables cram-down procedures and mediated results that allow for the same outcome as Barney Frank’s plan. Home values were inflated far beyond fair market value. Everyone should share in the loss and everyone should share in the potential recovery. 

 

If you want to stop the health care crisis and the economic nightmare created for our citizens, take insurance out of the equation, wind down the current system and move relentlessly toward a single payer system that pays medical service providers well, does not subject them to liability for bad results, and gives them incentives to get their patients healthier. That is what other countries do and what we should do here. 

 

Eliminate the restrictions on so-called “alternative care.” Those protocols have been around a lot longer than allopathic medicine. End the hegemony of allopathic medicine, provide incentives for preventative lifestyles and care, and the costs of health care will drop like a stone while the prospects for a longer, productive, happier life will rise. Reinstate the basic pledge “First do no harm.”

 

If you want to create a country with solid economic foundation, we need savings. To create savings, people must have the financial resources to cover their expenses and set aside money for the future. Take credit card debt and other forms of predatory lending off the table. Change the “no end in sight” vision to a light at the end of the tunnel. Stop telling people to spend money when you know they don’t have it. All you are doing is making things worse when you could be leading them out of the darkness.

 

If you want an economy that has solid prospects and good earnings potential for its citizens and the country as a whole, change the direction of innovation from getting our own people to part with their money to buy “Stuff” and make innovation work to produce things the rest of the world values. In other words shift back from the consumer driven economy to production. The products might be the same, similar or entirely different as before. 

 

BRING BACK UNIONS: Stop trying to minimize costs and start working to maximize revenues. Anyone can eliminate their costs by simply going out of business. A business is worthless without growth and strength in the marketplace. By eliminating our production capacity, we have effectively relinquished our sovereignty. Have government intervene wherever necessary to prevent dominance that results in imbalance — encourage the start-up of new small businesses and create a level playing field for them to compete. 

 

If you want to reassert America’s place in the world give the world a reason to respect and honor us besides our military power. Raw power is a transient commodity. Eventually it ends. If you want to retain sovereignty over our economic affairs and avoid becoming a satellite of China or a junior member of the European Union then demonstrate the power of the American worker and the attractiveness of living and working here. 

 

If you want communities to prosper allow community banks and credit unions the same access to providing financial services as the megabanks, where centralization has shifted local deposits into faraway investments of dubious value to anyone. State and Federal programs should be deposited into local banks rather than national or international combines. The infrastructure already exists without any changes required to enable this to happen. What is necessary is for State regulatory authority to become more active and more focussed on their own State’s economy.

 

As the song goes, these are a few of my favorite things. What are yours?

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From Ashes to Angels: Economics of Morality

Posted on March 22, 2008 by Neil Garfield

There was an interesting study published in the Economist (March 15, 2008 pp 83-85), a conservative news magazine read around the world, that disclosed an incredibly close correlation between the “rule of law” and the health of the economy. It turns out that laws, rules and enforcement create a culture of integrity, civility and good faith. The epiphany is that those societies that follow morality, as we commonly know it around the world, have the strongest economies and greatest purchasing power. 

It’s true. Go read it yourself and research it all you want. Von Mises and Rothbard,  largely ignored but highly respected economists, came up with the same conclusion decades ago from a slightly different approach. (They are ignored because they sought truth rather than power. They believe the premise of modern economists is essentially skewed. History, particularly economic history proceeds from the motivation of people in public office or personal lives to change their current situation to something better. Reporting history relies on people who seek to be seen in the best light and thus their reports, whether of facts or indexes like the GDP, CPI etc., are skewed to mislead the reader. The theories used to explain economic history are therefore always based upon measurements of inaccurate reports. The policies based on those theories work only by happenstance — i.e., if consensus or conventional wisdom is created around the theory and policy, not the other way around).

The corollary is more disturbing and quite obvious in the context of today’s news stories of a collapsing economy.  Stray from morality as a matter of policy and practice and you undermine your economy, your society, your ability to achieve, and you gut the basis of your own happiness and contentment, as well as the prospects of future generations. 

All politics and all economics is about income distribution in some way or another. When we are out of touch with our own Godliness, we become out of balance in our society and our economy. By having no rule of law, secular or otherwise, govern the actions of those with power to do what they wanted, we have undermined our foundation, cut our societal fabric and diminished our moral high ground at the same time as losing our purchasing power in world commerce.

While Americans have pursued the dollar with religious zeal, other countries have been pursuing happiness, morality, civility, and integrity – albeit with the usual human imperfections.  The resulting changes in the purchasing power of the U.S. dollar and the relative strength of the U.S. in the marketplace of ideas and commerce can thus be explained. 

The fundamentalist in any major religion has a point: that societies, especially U.S. dominated societies, have lost their way. There is a growing sense of senselessness and lack of meaning in such societies. 

American men are dropping out of the work force and discarding goals and plans for their future, American children are not being educated nor are they taught to think critically, make moral judgments, build character, know their personal and world history and geography, please themselves and the world with their talent in the arts, or acknowledge the obligation and rewards of doing good deeds. 

Of course fundamentalists of all sects violate their own standards when they create inequality between women and men, when they impose a rule of a leader in lieu of a rule of laws, and so forth. But even from the most obvious perversity of fact and good sense, we can gleam some truth about ourselves, our society and where we are heading.

Today’s Torah reading talks about removing the ashes from the alter, an almost janitorial task. Yet the ancient Rabbi’s rushed to perform this task, competing for who would be first. Yes for fun but also to Honor the higher sense, the higher power we have the capacity to follow, if we are willing. My lesson in this world has been worship the riches and become poor regardless of how much money you have. Worship goodness and you become rich regardless of how much money you have.

Competition is fine if we follow our best instincts, our higher calling which all of us know we have inside. When we step onto the track and enter the secular race, make your goal the altar of your own Godliness. 

“There is much in life that people value, yet is utterly meaningless. There is equally much in life that people do not value – that is very meaningful and good. Do not judge by wealth. Do not judge by what others think. Judge by what you honestly believe to be good. And do it, no matter how belittling and ‘dishonorable’ it might seem to others. In the end, that’s what is truly worthy of praise.”

Whether we look to leadership to inspire us, or we simply change our minds and take the high road in our lives regardless of what others do, we rebuild our American experiment, we strengthen our society and reassert ourselves in the marketplace of ideas, morality and commerce. 

If we want to finish the American experiment, rejoin England and the European Union and give up our role as leaders, we are certainly on the right track. 

It won’t be long before the currency of choice becomes the Euro, a currency of consensus from countries actively seeking to do good things for their citizens. 

The U.S. dollar, including those bills in your pocket and those numbers in your bank and securities accounts, are being undermined by you and what you allow in your little corner of the marketplace. 

Only you (all of us in our own worlds) can turn it around. But it takes real faith rather than faking it or just giving lip service to it.

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Investment Advice

Posted on March 16, 2008 by Neil Garfield
  • Several people have emailed me regarding what to do with their investments. I am not Warren Buffett and I don’t have a crystal ball so what I say here should be checked against other knowledgeable analyses. Keep in mind that most people are full of s–t. Everyone thinks they are a genius in an up market. In a down market, everyone still thinks they are a genius, like gamblers because they count their successes and don’t count their losses. Most economists, securities analysts (I used to be one), institutional traders (I used to be one), fund managers (I used to be one) etc are ill-trained, poorly educated, not well-rounded, and basically go with the herd. They sound good but they don’t know a thing about real economic behavior. Account representatives are even worse. Their job is to get you to do something without concern to wether you make or lose money (if you find one that doesn’t fit the mold, hold onto him or her for dear life).
  • First any investment in money market, CD, US Treasury, or other strictly dollar denominated assets including actual cash or deposits on hand should be converted to non-cash assets or non-dollar denominated assets. There are several internet banks and other companies that will allow you to keep accounts in dual currencies or more. My assumption is that the dollar is in for a crash. My theory is that if I am right, then you will make a lot of money. If I am wrong, there is little to suppose that the Euro or Canadian dollar or the Yen or Yuan will do badly. Either way you are probably pretty well protected.
  • Precious metals are always an inflation hedge but you are depending, again, on perception of value as opposed to real value. It is not likely that Gold ever again be “money.” hence it will always be a commodity and thus subject to the rules and trends of the commodity trading marketplace. The same holds true for corn, oil, and other commodities. yes they are likely to increase in value (and they present an inflation hedge as well) but you probably should not venture into commodities now unless you are already a successful commodity trader. Pick an ETF or other fund and let someone else make the trading decisions.
  • Stocks are not necessarily bad particularly if the company does not depend upon US consumer spending, and if the company does not hold or depend upon receiving US dollars. If it is getting Euros in payment for goods and services or other currencies around the world that are not pegged (i.e. a currency whose value is derived from whatever the value of the U.S. dollar is — BE CAREFUL),  then if it is a good company it will do well in the intermediate term even if it gets hit with the usual over-selling that occurs when an economy fails. 
  • Don’t stop looking at fundamentals just because it is in another currency. It is true that you “make money” if the dollar dives and the foreign stock dives less, but that is not a very safe strategy. Find even financial institutions that are oversold because of the general fear of bank failures. Avoid Citi, BOA, Lehman, and all of the other major national banking groups. They are all at risk. Think about the firms that figured out the crash months or years ago, like Goldman Sachs and see how they are doing now. 
  • Bonds are not necessarily bad either for the same reason, and the same with CD equivalents etc. As long as principal interest, dividends etc are paid in Euros or some other currency not tied to the dollar, you should do OK, if you pick right on the company or mutual fund.
  • Keep in mind that most people are unwilling to accept the coming crash and that they may be right and that I may be wrong.
  • Why Euros? Because it is the ONLY currency of consensus. 2 dozen countries are involved in the Euro, thus giving you immediate diversification of risk. 
  • Real estate: Avoid bargain locations — they might never come back, avoid locations that might be affected by flooding from rising sea levels, use leverage if you can afford the staying power, and stay in for the long haul (3-5 years minimum). This is a non-cash asset whose value will rise proportionately to the decline in the value of the dollar. If the dollar does not decline, and you have avoided problematic locations, you will still be OK. 
  • Jewelry: For short term trading and turnovers in the marketplace there are probably some profits to be made. I don’t recommend it. There are a lot of people who know more at a glance than you would with an electron microscope and a handbook.
  • Lending Money: Tie the interest payments and the principal to the real rate of inflation and use an index like oil rather than the CPI which at this point has been rearranged so many times the tires are worn out. 
  • Borrowing Money: Avoid borrowing at ridiculously high rates (in case I am wrong) and avoid if possible, the imposition of indexing on inflation. If indexing is going to occur, argue for the CPI, which the government will keep at the lowest possible levels in order to keep social security and other payment increases to a minimum. A reasonable loan will put you in the position of tremendous leverage and profit if I am right and still give you ordinary returns on investment if I am wrong.

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Mortgage Meltdown: You Must Act to Protect Yourself from the Coming HYPER-INFLATION

Posted on March 15, 2008 by Neil Garfield

Fall of the Dollar + HYPER Inflation

The fix is out. The Fed’s last ditch effort using depression era authority to hold off Bear Stearns failure is all we need to know. Officials at the Fed admit publicly that what they are doing is not fixing anything. Economists have taken off their rose colored glasses and see a bleak landscape. The disaster is coming and there are things that can be done to soften or hedge the blows that are coming down the pike. 

Whatever part of society you are in, whatever your job or occupation or status, it is wise to study up on this, but even wiser to act now. The dollar is in free fall, “bank failures” are not being used except in code, but will soon become unencrypted. Inflation is about to take a toll unlike anything in our personal memory. Society is about to change. It’s not happening for the next generation either. It is here and now, a clear and present danger.  The risk we are talking about is a likelihood that inflation will rise to not less than 2-3% per month, most likely peak at 15%-25% per month and could spin out of control  equalling historic highs of 2500% per month or more. 

This is information for individuals, banks, non-institutional lenders, electronic fund transfer networks, gateways, intercept processors, card issuers, lenders, private companies and investors can either adapt or “die.” The concept of immediate settlement, electronic payments (and ATM) settlement overnight (or even within hours), check payments and cash payments must be re-examined from the perspective of hyper inflation — where the value of the U.S. dollar changes (downward, for the most part) by the hour. 

CHANGES IN BANKING: Only Point of Banking ATM (and to a much lesser degree) Point of Sale (POS) terminals that allow the merchant to issue currency from the merchant cash drawer can possibly adapt quickly to this very likely development. These terminals are very inexpensive, easy and inexpensive to operate and maintain, and perform all the same functions as their larger version bank ATMs. 

It might be possible that different currencies might be preferred in different parts of the country. On the East Coast it might be the Euro, on the West Coast it might be the Yen or Yuan, in the Southeast United States it might be the Brazilian Real or even the Mexican Peso, and in middle America it could be the Canadian dollar. These terminals exist in relatively small numbers throughout the United States, and are expanding rapidly in emerging nations all over the world for precisely this reason. The same patterns could emerge in other parts of the world. The existing electronic funds infrastructure is ill-suited to timely adapt to current developments.

As an example, take the worst hyper inflation in recent history where the German currency in the 1930’s was inflating at the rate of 2500% per month. It is possible the fall of the dollar could be worse because the inherent weakness of the dollar combined with the inherent absence of productive assets, combined with outright anger and resentment against the U.S. could and probably will be worsened by the usual “overselling” panic that always attends a crashing marketplace. This is not a prediction of 3000% per month or any other percentage. It could be as low as 1-2% per month. 

For educational and analytical purposes, let’s look at a hyper inflation rate of 3,000% per month. What does this mean? Basically 10% per day. If you buy a newspaper for $1 today, the merchant is losing value at the rate of 1/24th of 10% per hour, assuming straight line depreciation of the dollar. The merchant must pay for something or convert the currency immediately. If he makes 5 cents on the newspaper, and he waits one day before he spends the dollar or converts it to another currency, he makes no revenue. 

In fact, the value of the dollar you gave him has declined by 10% and is now worth only $0.90. If he promised to pay the newspaper publisher $0.95, the $0.05 he thought he was making is gone and now he has a $0.05 in negative revenue, let alone profit. If he is on a 35% profit margin, he makes no profit. His opportunity to make any money at all passed him by a few hours after he sold the newspaper to you. 

This requires fast action on his part. Even if he is successful at getting rid of the dollar you gave him within 24 hours, he is losing substantial money selling newspapers. So he raises his price each day by $0.10 per day, and the newspaper is similarly raising prices, by the end of the month he is charging $30 for that newspaper and praying for $1.50 revenue. Since all prices are going up, the increase to $1.50 represents not an increase in the value of his revenues or profits but only break-even, along with the insecurity of not knowing if he is raising prices enough to overcome the effects of inflation.

In the banking world this is called a credit component. It is one which the current players ignore because it doesn’t produce any real effect in an environment where inflation is not a significant factor in commerce, loans, or payments. But in a hyper-inflation environment, the merchant is not actually doing a cash transaction with you; in fact, he is giving you credit for the the value of the cash you give him and delivering merchandise or services based upon that credit. 

That is what is meant in public trust or faith in currency, something which is rapidly disappearing from the current landscape as it pertains to the U.S. dollar. If he is unable to to achieve full value for the cash you give him, then he will charge you to compensate him for the known prospective loss, plus an amount to compensate him for the risk that the mutual projectors (buyers and sellers) might be wrong.

The meaning for every individual is that every effort should be made to move toward a job or negotiation in your current job in which your compensation is tied to inflation. If you make $3,000 per month and your rent is $1,000, that is fine. But if the rent is tied to inflation, which it will be, and you get only $3,000 because your income is not tied to inflation, then in our model above, your rent could have increased to $30,000. Sounds ridiculous! But it has happened many times in history and several times in American history. 

Another meaning for individuals who own homes is that they are sitting on a veritable gold mine, particularly if they have a mortgage. First, even if your income does not go up with inflation, you will still be able to pay your mortgage payment. Here the bank takes the full loss from inflation, getting pennies in value on the dollar they bargained for when they set the terms of your mortgage. So stay in that house if you possibly can. 

Second, the value in dollars of the house is going to go up even if there is a decline in demand. So if the demand goes down 20% and inflation is up by 3000% (in our exaggerated —we hope — example), then your $400,000 house is now priced at $12,000,000 less 20%. Real estate brokers who receive their compensation as a percentage of sales price will see the dollars go up but they too will be stuck in the same cycle of the newspaper seller — what to do with the money when they get it and how fast can they do it? And by the way, if you sell that house, you are also in that same position as the newspaper seller and if you want some place to live you will be paying the same inflated prices. 

The message here for banks who give loans, issue credit cards, or even prepaid debit cards is clear. They must develop a mechanism acceptable to consumers that will protect the issuer of credit from losing money and in fact going out of business by lending $1.00 and getting back $0.03 WITHOUT A DEFAULT. It therefore behooves all issuers of credits to re-negotiate their loans with incentives to borrowers to accept an index to inflation, which we have been proposing for months. 

By reducing the principal that is amortized on the loan and cutting the payments so that it is irresistible for the borrower to stay in the house, the bank’s loan can be saved, the capital reserves can be preserved, and the financial markets stabilized. It is even possible that the dollar will stabilize or find some equilibrium. Most likely though, the Euro will become the dominant currency. This is a message for investors. Get out of U.S. dollar denominated “safe’ investments and convert to equivalent Euro and Asian investments whose currencies are NOT tied or pegged tot he dollar.

For the companies that process or handle payments, ATM transactions and credit transactions, they too must adapt to the new environment and possibly hedge with Euro or other currency accounts. Ironically payday loan companies might be the least susceptible to losses and might be the beneficiaries of outside investments since their loan cycles are so short. Hence their risk of loss is minimized by time and their ability to change loan terms to index on inflation is much easier. 

For the rest of the electronic data processors and networks, the problem is severe. Nearly all transactions are primarily based upon upon fixed charges (with some exceptions in credit and foreign exchange fees) per transactions rather than a percentage figure. Hyperinflation will put these companies out of business as their cost of business goes up with inflation and their revenues remain flat. Further, the settlement lag, while shorter than any other time in history could still negatively impact several of the players. 

A $100 purchase might be credited to a merchant within a few days. By then the value of the credit to his account is less than the value of the transaction performed. Unless intercept processors, gateway processors, networks (VISA, MasterCard, STAR, NYCE, COOP, CU24, Pulse etc) can provide some protection to themselves, their settlement banks, their sponsor banks, the merchant or ATM operator for inflation, we might travel backwards from an electronic payment society to a cash society. This will increase the demand for printed currency which the Bureau of Engraving and Printing is ill suited to satisfy. Increased demand for scarce dollars that are barely worth anything to begin with might ameliorate or aggravate inflation depending upon how it actually plays out. 

Most likely, as in New York, the Euro or some other currencies will be the currencies of choice which will pull down the value of the dollar further. ATM’s will have to issue Euro and/or other currencies. 

Only Point of Banking ATM (and to a much lesser degree) Point of Sale (POS) terminals that allow the merchant to issue currency from the merchant cash drawer can possibly adapt quickly to this very likely development. It might be possible that different currencies might be preferred in different parts of the countries. On the East Coast it might be the Euro, on the West Coast it might be the Yen or Yuan, in the Southeast United States it might be the Brazilian Real or even the Mexican Peso, and in middle America it could be the Canadian dollar. These terminals exist in relatively small numbers throughout the United States, and are expanding rapidly in emerging nations all over the world for precisely this reason. 

Dollar denominated accounts are going to be hit with Foreign exchange (Forex) fees while double denominated accounts (two or more currencies) will avoid the problem. A proliferation of a basket of currencies supporting a single depository or investment account is likely to occur to assist people in coping with the changed landscape of American society and economics. 

Government money managers, notoriously risk averse, as they should be, a slow to react, are like to get hit hard. If they do not hedge their agency or government or pension funds, the losses to fixed income individuals, the loss of services in local, state and federal government circles will be staggering and life-altering.

Whatever part of society you are in, whatever your job or occupation or status, it is wise to study up on this, but even wiser to act now. The dollar is in free fall, “bank failures” are not being used except in code, but will soon become unencrypted. Inflation is about to take a toll unlike anything in our personal memory. Society is about to change. It’s not happening for the next generation either. It is here and now, a clear and present danger.  The risk we are talking about is a likelihood that inflation will rise to not less than 2-3% per month, most likely peak at 15%-25% per month and could spin out of control  equalling historic highs of 2500% per month or more. 

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Euro Dominance And American Policy

Posted on March 14, 2008 by Neil Garfield

Get with the Program: Challenge for the Obama Presidency. Fundamentals vs. Brute Force

American policy should be changed to reflect the paradigm shift — to determine ways in which we would be an acceptable member of the European Union and gradually shift to the Euro as the currency of choice. In order to accomplish this, U.S. leaders must guide the country back on track toward production, rather than perceived “productivity” and purchasing power rather than perceived “corporate earnings.” Rather than the old methods of brute force, Obama’s message of consensus will do more to stabilize our economy and foreign affairs than any of the proposals of his opponents or prospective opponents. Far from being in the clouds, Barack Obama, reflecting his experience at ground level on the streets of Chicago, understands the true dynamics of achievement, especially when it comes to peace and prosperity.

The European Union and the creation and adoption of the Euro as a competitive currency to the U.S. dollar was an inevitable bi-product of the Bretton Woods agreement and an American policy that pursued brute force and meddling in the affairs of other nations rather than the rather simple logic employed by such countries as Ireland, Brazil and Venezuela who have all achieved status by investing in their greatest resource — their own people. As nations join the European Union and the Euro gains increasing market share, the perceived safety of the judgment of a council of nations rather than dominance of a single nation is becoming apparent.

Things change. While the definition of “money” has not generically changed, the character of money has fundamentally shifted in every conceivable way. Agreement, acceptance and faith are elements of human interaction and society. They are also the cornerstone of “money,” by which we measure the value of things, store value and exchange goods. 

It is common theme that the perceived dominant world player has had its currency adopted by most of the commercial world and the governments of other sovereign nations. 

Prior to the dollar, it was the pound sterling. Over centuries the main currency of world commerce has shifted from the fiat money of one country to another depending upon world perception of the strength of their economy and their political and military strength to maintain their position. 

Everyone has their “fifteen minutes” and then it is up — but nobody gives up their position without a fight. Sometimes the fight is world war, extended regional wars or other military confrontations. Other times it is a diplomatic and commercial battle in the marketplace of ideas and the relative strength and weakness of competing treasuries. 

In the end, for better or worse, a new consensus arises and the currency of the dominant country shifts along with the enormous economic, political and social power and influence that commercial dominance endows the creator of the most favored currency.

In 1944, world leaders, prompted by “economists” and pure commercial interests came up with the forerunner of the new world order emerging today. It was the Bretton Woods conference. It was a formal meeting of sovereign nations and a negotiated agreement as opposed to “market forces” or competing unilateral sovereign agendas coming into balance. It was consensus of the kind that Barack Obama proposes and which even our enemies embraced as they have ever since scurried to enhance their holdings of U.S. dollars.

This event marked the beginning of a process that would pacify the U.S. and its ever-expanding ambitions, but ultimately end up with a shared unity that was NOT tied to whims of a single government. It was a relinquishment of sovereignty that could not and would not become undone. It would grow and evolve causing pervasive changes in business, banking and relations between countries.

The Bretton Woods Agreement did two things — set a gold standard, which was a temporary measure that only the the most forward thinkers understood, and set the currency for international (world) commerce as the U.S. dollar which was tied to Gold at $35.00 per ounce. 

Using gold is a standard that was hardly new. Yet the process of formal agreement was new and that process would emerge as the only lasting impact impact of the conference. 

Gold was valued because of its scarcity, its beauty and mythic reverence that was in the minds of believers from the dawn of commerce. It worked because of two factors — on the one hand a subjective set of factors including agreement, acceptance and faith and on the other, a scarcity that was somewhat controllable by additional mining. Periodically, gold strikes wreaked havoc with the price of gold but on the average it has been a relatively stable influence on commerce. 

The weakness of Gold was in its relative scarcity to population growth and related growth of commercial activity on the one hand and in the meteoric changes in the nature of money which has become increasingly symbolic tot he point where now most of it merely exists in electronic data files that nobody can touch, feel or roll around in their hand. There is no slight of hand coin trick to display for amusement because there is no coin.

Putting these factors together brings us to the inescapable conclusion that the supply of gold could not possibly keep up with the growth of human society. Indeed that was the precisely the issue when Nixon and Volcker, in 1971 decided to withdraw from the Bretton Woods agreement, and NOT promise to back every dollar with gold valued at $35 per ounce. 

While viewers of the popular show Bonanza were doubly disturbed that their favorite program was interrupted by the President on a lazy Sunday evening and that their currency was suddenly in free fall, the Nixon-Volcker decision was merely a statement of the obvious — the U.S. already was out of balance three to one (gold on hand versus dollars issued) and the situation was clearly permanent and getting worse. We had in fact passed the point of no return very soon after the Bretton Woods agreement was signed.

This decision eventually brought the U.S. back to dominance of the the perceived leader on world affairs. But lurking underneath was the positive knowledge of other world leaders and people who would become world leaders that an agreement was not only possible but inevitable. As long as the dollar was useful it would remain the currency of choice. Now the dollar’s usefulness is in doubt — the result of “creative schemes” from wall Street, overspending, failures to invest in itself and the inevitable downfall of the two engines of any economy — production of goods and services that people want, and the ability of people to pay for them. 

The European Union and the creation and adoption of the Euro as a competitive currency to the U.S. dollar was an inevitable bi-product of the Bretton Woods agreement and an American policy that pursued brute force and meddling in the affairs of other nations rather than the rather simple logic employed by such countries as Ireland, Brazil and Venezuela who have all achieved status by investing in their greatest resource — their own people. As nations join the European Union and the Euro gains increasing market share, the perceived safety of the judgment of a council of nations rather than dominance of a single nation is becoming apparent. It is proof positive that Obama’s perception of the world is right and that the other candidates are clueless as to the realities.

This represents a fundamental but entirely logical shift. It is a change from the acceptance of brute strength to consensus — a somewhat democratic consensus that captures the spirit of the American experiment if not its announced policies and secret agendas. 

It logically follows that the tide is changing with such force that it is unlikely that any one nation, no matter how strong, will gain world acceptance of its currency as the currency of choice for world commerce regardless of its military or political power. In the end it is people who determine agreement, acceptance and faith in the marketplace.  

When people start making distinctions of their own as to which “band” of dollar has greater value (recently issued or older) and discounting the dollar based upon their own individual perceptions the currency is in trouble. There are places where the signature of one U.S. Treasury secretary over another results in a discount of 10% or more. 

Thus it is the either the Euro that will eventually overtake the dollar or some other emerging union that will find acceptance. The dollar is in free fall and no amount of bailouts, regulation or creative solutions will suffice. The goal post has been moved. 

American policy should be changed to reflect the paradigm shift — to determine ways in which we would be an acceptable member of the European Union and gradually shift to the Euro has the currency of choice. In order to accomplish this, U.S. leaders must guide the country back on track toward production, rather than perceived “productivity” and purchasing power rather than perceived “corporate earnings.” There are plenty of examples around the world as to how to do this — they all amount to the same thing — education of every man, woman and child, in skills, culture, knowledge and analytical ability. The words are very simple and have already been written: “The pursuit of happiness.”


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Stupinomics

Posted on October 10, 2007 by Neil Garfield

So here is the issue. The Dollar has lost 30% against the Euro. So Europe is grumbling that US Exports are getting too cheap and hurting their producers. Good for US producers and bad for Euro producers. The free trade people point to this to show how trade is to the comparative advantage of the US and the value of the dollar must find its own level. That is true . But what is also true is that the displacement of both capital and labor is now entering a domino phase across the world. We still have the problem that the European community is starting to feel — because of China, but we will never have the same advantage as China unless we are willing to drop all restriction and regulation on the quality of goods sold. So if we are prepared to export e-coli or lead, we’ll do just fine. In a theoretical sense free trade is unquestionably the best road, except for emerging industries that need help getting started. But free trade is neither right all the time nor is it the whole story. We always seek the simple answers. The whole story includes the fact that while the long-term view favors free trade, we might never get to the long-term goals without paying attention to short-term effects — like massive unemployment and underemployment, massive inequalities of wealth and income, and disproportionate burden of taxes of all types. The third leg of this stool is that free trade is not free if the government steps in and favors the companies that have a death grip on the throat of the politicians who make and enforce the laws. That is how we end up in a tacit tyrrany (see Benjamin Rush, circa 1845) in the medical-industrial-insurance complex with ever-increasing costs and fees while keeping the dirty little secrets away from the busy consumer who foots the bill but he is not quite sure how. It is also how the predatory credit industries with credit cards, payday loans and other devices have institutionalized enslavement of the middle class — by diverting purchasing power from goods and services into wealth accumulation for the few — using interest rates that were always known and generally accepted as being beyond reason.

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