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Fighting our Corporate Politicians and Media

Dec 15, 2007 This is a draft essay...

The rotten core of the American Economy: Our Corrupted Democracy

Where we are now

The recent foreclosure shock and resulting mortgage security crisis that surfaced in august are not just the products of a soft downturn in the increase of housing prices during the preceeding year. Our economic crisis is a product of political, not economic failure.

The ease with which this slight downturn in the rise of housing prices has triggered the mortgage crisis exposes more than just the fundamental financial imbalances at the heart of our economy. It also exposes what happens when a society allows wealth to corrupt politics and replace responsible policy and regulation, our democracy, with the power of greed and wealth.

This is what happens when the corporations, rather than our citizens, control our government's economic and growth policies. This crisis is revealing the terrible price our country will pay for giving up our political principals and political power to the pursuit of naked wealth and power.

As serious as our domestic mortgage and credit crisis is, it has only just begun to expose the global web of financial manipulations that finance the web of global dictators who feed our growth.

These are noy just the funding sources for american consumption, but also fund the engines of global poverty, providing the funding and arms required to support authoritarian governments around the world who feed us their resources we require to maintain our growth and consumption rates.

While our corporate government drains our land and people of their wealth, their global allies are doing the same around the world, enriching themselves, while providing our corporate masters with the lion's share of the power and profits they steal from their own people.

The failure of housing prices to continue to rise in the US has triggered a set of cascading failures that have the potential to expose the political and economic criminals who have taken control of our country's political and financial policies.

This whole scam has been based on an imbalanced pyrimyd scheme that has has reached the limit of its expansion. These imbalances are triggering a global financial crisis that is giving those who still believe in our democracy a shot at taking down the corporate fascists who have hijacked our government, and restoring our democratic form of government.

The financial response: The Fed

Although the fed's recent series of reductions in the Overnight and Discount Rates are large, rate reductions alone can not solve the underlying problems that underlay the housing, mortgate, and credit downturns. These rotten economic and social policies eminate from political corruption, and can only be solved by ending the political corrpution which has captured our government.

The Fed is trying to prop up the system by using rate reductions to restore sales and maintain prices in a doomed housing market. Rather than acknowledging the economy's inbalances, and our economic inability to continue the present irresponsible rate and means of growth, the Fed is persisting in dropping rates when the sinking domestic housing market is matched by a weak dollar and increasing inflation.

Although these reductions will do almost nothing to sort out the housing crisis, they are encouraging the spread of the mortgage crisis into global credit and currency markets, while fanning inflation by dropping the value of the dollar.

The rate reductions are no more than a big jucy political bone that the fed is throwing to the stock market, a sign of the market's political power to demand profits at any cost. In reality, the recent fed rate reductions have accelerated, not diminished the underlying international credit crisis.

When the going gets weird...

In normal times, these fed moves might work. Wall Street normally would not know what the mortgage securities are worth until the real estate market stabilizes, and that will not happen for at least 18 months. Sales in the real estate market depend on mortgage securities to fund their loans. The interest rates on real estate depend on the perceived risks and relative values of the mortgage securities, which is tied to the value of the dollar.

The fed reductions would normally reduce risk to all of the players in this domestic chain of housing market relationships, and stabilize, if not increase housing sales and prices. But times are not normal.

As corporate profits and housing prices have soared during the last few decades, america's massive increase in consumption has generated vast international and domestic debts, putting downward pressure on the dollar, and creating a general economic weakness, and dependence on foreign credit, while generating larger and larger corporate profits.

Rate reductions would be ok, if the US were alone in world and lived in a bubble. But at least 20% of American debt has foreign funding sources. China, England, and Saudi Arabia are holding trillions of dollars in their national reserves that are rapidly plunging in value.

The fed's rate reductions, while propping up domestic credit, have accelerated doubt in American securities, and American credit-worthiness across global markets. While making credit easier for banks in the US, the Fed reductions have created sufficient uncertaintly in the value of the dollar to have the overall effect of reducing global credit flows, rather than increasing them, as they intended.

The underlying problem

The real problem, below our domestic and foreign mortgage and credit crisis, is political. The forces of corporate wealth, corruption, has captured our government and made both our government and economy no more than tools of greed and power. This is why the fed is pouring gasoline, rather than water, on our credit crisis. The political bribery of wall street has made it impossible for our political policymakers to defy the street's demand for increasing profits, even if it wreaks our economy.

Today, being an upper-class american means having the "oppertunity" to exchange your loyalty to our democratic republic in exchange for a share of the power and profits of a global empire that rewards this vile trechery with wealth. American citizenship today is not a set of political rights and responsibilites, it is an accomodation with our global corporate empire.

Lower-class "citizenship" today is no more than a material reward for servile obedience to illigitimate political authority. The reward? The "right" to exchange obedience for gross consumption. No cultural, political, or social identity or values other than the universal denomonator of American diversity, Greed, is required. It goes without saying that the poor serve those who are more greedy and powerful, to earn their share of our empire's wealth.

This has created a savage engine of American profitability based on political policies that have become addicted to unsustainable rates of demographic and financial growth. And now these policies have hit the wall.

These unsustainable growth rates and the mal-distribution of assets they fuel, would have collasped years ago if our "leaders" had not been able to import massive numbers of low-wage foreign labor, while simultanously exporting quality jobs to low-wage foreign countries. Prices and wages have hit the bottom, and neither will support the other.

As our demands for profits has expanded poverty and eliminated our democratic rights, so too have our demands for domestic and international subservience to "our better way of life," grown louder and shriller.

These irresponsible profits were enhanced by throwing the domestic social costs of foreign cheap labor onto the public, starving out our middle-class by replacing them with cheap foreign cheap labor, while making the middle-class pay the social costs of subsidizing their own replacements.

Adding to this perfect storm of greed was the generation of massive liquidity in the markets using low-interest foreign loans combined with economic trickery and market manipulation of our retirement, medical, and educational savings.

Although our irresponsible growth has allowed our corporations to steal the wealth and political power of the american middle and lower classes, beyond the wildest dream of our corporate fascists, their means will be their end.

This irresponsible growth has become dependent on endless growth to generate ever-expanding future profits to pay past debt and present profits. The next level of expansion requires an amount of phyisical, financial, social, and ecological resources that exceeds our supply. We do not have the resources to maintain this ponzi scheme and continue building our economic and political tower of Babel, despite the desperate Fed rate reductions.

But there is hope. we are not just running out of the physical assets required to continue this corruption, but we have run out of credibiltiy with the world, and our government has lost credibility, if not legitimacy, in the eyes of an increasing number of our own citizens.

The greed of our citizens has played a vital part in betraying our democracy. The corporations did not do this alone. Many of us have assisted in the destruction of our country. Now the cost of our greed is coming due.

Our citizens have traded our democracy away, in exchange for wealth and consumption, starting a politica/economicl cycle cycle of doom that gives all political and economic power to the corporate parties in exchange for the promise of an endless shopping spree, the feeling of power, and the false prestiege that mindless consumption gave them.

Our citizens are ultimatly responsible for creating and maintaining corporate control of our country, which has empowered, armed, and enriched a web of dictators and authoritarian governments around the world.

This is the flawed engine of our false prosperity. This system is internally flawed, and the cascading failures of this system of greed around the world are now providing our citizens with bloody examples of why democracy is a superior political system than the rule by the wealthy and powerful that we, and the parts of the world under our control, suffer under.

But making others suffer has never really affected our people. This is currently changing. The legasy of the global reach of our corruption and greed has destabilized the global economy, and is now threatening a major blowback that will endanger our material luxury, and will offer americans who believe in democracy an unprecedented oppertunity to break the link between wealth and politics that has destroyed our constitutional republic.

It's time for our citizens to take our polity, and then our economy, back from the corporate parties and their corporate masters.

It seems our citizens are finally seeing our abusive pattern of growth for what it really is, and are rejecting the unlimited dumping of foreign labor into the US. It appears that our citizens are questioning the wisdom of moving industires vital to our national security to foreign shores. It appears that some of our citizens are beginning to reject the imposition of an american empire on the world, even when it is softened on the tongue as "globalism." It appears that some of our citizens have the audicity to question the wisdom of growing past our natural and social infrastructure's capacities to support.

Our most daring citizens are questioning the right of the rich and powerful to control politics and impose these evil political and economic policies on the rest of us, and the world.

It appears that our foreign creditors are also concerned, and have begun a serious examanation of american assets and liabilities, and have decided that our situation requires they demand much higher rates of return, higher than we are willing to pay, for their credit. This is what has transformed our credit crisis into a currency crisis, and is morphing the currency crisis into what could become a global flight from dollar-denominated holdings.

The end of irresponsible growth

During the last 20 years housing prices have been rising rapidly on a spiraling updraft of massive demographic growth and cheap money. Adding to the powerful forces of demographic growth and cheap money, another key source of funds behind this economic updraft has been the massive amounts of liquidity injected into the equities market when Congress deferred taxes on stock investments made for retirement purposes. This made our retirement security dependent on the security of the stock market.

This alone pumped 40 billion a month into equities during the height of the dot-com boom. As the politicians have put our retirements into the market, the market has responded as expected, and has shorn these sheep of their wool.

For those of you invested in the stock market for retirement purposes, get ready to lose your retirement.

The massive market liquidity that has fueled our irresponsible growth has been provided by privitizing american's retirement, energy, communication, garbage, and virtually every economic activity vital for our basic welfare, and putting our assets into private hands on the market where they have been stripped of their value, looted. All of this has been made possible by the takeover of our democracy by the corporations.

Rising housing prices have been supported by this ever-expanding supply of market liquidity and credit to maintain upward pressure on prices. Between 1989 and now, this combination of economic tricks and demographic growth was sufficient to steadily push housing prices up. The 401k mutual fund money has also distorted the value of stocks, pushing equity prices higher than honest valuation merits, and contributing significantly to the dot-com bubble.

As prices continued to spiral upward, consumption multiplied at a rapid rate, fueled by equity loan devices and the massive growth in profits funded by social and political irresponsibility.

The monthly flow of tens of billions of 401k money into equities has contribuited significantly to the speculative character of today's market. Despite this massive liquidity, the upper limit of housing price growth has finally been reached.

At this point it appears that there is not enough liquidity nor credit in the US, nor enough credit or will in global markets, to make the investments in the US required to maintain the upward pressure on american growth and consumption, let alone support housing prices.

American markets, as demonstrated by the housing market, have reached the size where it would be impossible to provide enough buyers, nor generate enough credit, to continue further expansion in market size or value.

This rise in housing prices has been going on for decades, but was supercharged after the dot-com bust. It was after the bust that the housing bubble was transferred from the stock market to the housing market, to carry the economy across the down time of the dot-com bust.

Greenspan: bust to boom to bust

After starting the housing bubble by radically reducing rates, Greenspan had five years to bring rates up sufficiently to quash the radical speculation in housing, defend the international value of the dollar, and build a sufficient rate cushion to allow future rate cuts in case of a crisis like the one we are now facing. Greenspan failed to rise to the challenge. Instead, Greenspan served the political power and greed of the market by maintianing low rates which fueled massive irresponsible profits based on the speculative expansion in housing.

The reason we are in this crisis now is that Greenspan did not raise interest rates enough as the economy rose out of the dot-com bubble bust, on the wings of a housing bubble, but instead kept rates low, and ran the housing bubble through the roof.

The Greenspan rate reductions allowed speculation to seriously distort housing and housing securities markets while simultanously weakening the dollar. By not raising rates during the housing run-up, the fed now finds itself poised between a weak dollar and weak markets while maintaining historically low interest rates. This position neutralizes the ability of rate cuts to productively stimulate markets without seriously damaging the value of the dollar.

Raising the rate will crush domestic activity based on low rates, while shoring up the dollar would ease the global credit crunch, which would make more credit avaiable for american investment in the long run.

This means that housing prices for the last 20 years have had nothing to do with actual demand or value. Prices were established and driven upward by debt-based speculation based endlessly increasing debt, rather than responsible investment. The housing run-up, like our economic expansion of the last 30 years, is based on naked speculation fueled by cheap money.

This financial irresponsible growth in profits has been substantially funded by draining the american lower and middle classes of their share of political and economic wealth by making them pay for the social services of the illegals who drove their domestic wages down to 3rd world wage levels.

Our retirement, energy, communication, and virtually every economic activity vital for our basic welfare has been privitized, put on the market, and then looted by our corporate government and their corporate sponsors.

Just wait. That bag of future dreams you are holding is empty.

We are experiencing an rather rapid reversion of prices in the housing market from speculation back to prices based on the level of sales that can be supported by the actual wealth of average individuals in society, and what they can responsibly purchase.

Unfortunately for our housing market, the middle and lower classes have been stripped of their share of the national wealth during the last 30 years, and are incapable of restarting the housing market based on their share of the national wealth, let alone maintaining consumer consumption on their diminished share of the nation's wealth, without a fat line of cheap credit.

The reversion of prices to normal market conditions has not only exposed millions of homeowners to foreclosure and made the value of all mortgage based securities uncertain, but it has triggered a global "moment," a global realization that the American markets and financial system are not properly valuing assets, or responsibly structuring credit and growth.

The Global repercussions

This has made it vitally important to every player in the global economy, including nations, global investors, and global business interests, to immediately ascertain the actual value of all American assets, especially the dollar. This realization has exposed all american assets, especially the dollar, to a radical reevaluation across global markets.

Although the Fed's recent rate reductions have marginally shored up domestic credit markets, they have destabilized the international institutions holding mortgage securities by significantly undermining the value of all their dollar holdings. This has damaged global confidence in the dollar, and has intensified the necessity for international financial institutions to reassess not just the value of the dollar, but the centrality of its role in international investments and transactions.

Although these rate reductions do give domestic financial institutions a "breather," these reductions put international holders of dollar-denominated securities in a position of getting screwed by either outcome: If the securities fail, they are screwed, and if the securities are preserved by devaluing the dollar, they are also screwed.

This makes it an especially good time to have your wealth in euros.

The fed's rate reductions were the final trigger that caused global markets to finally, seriously, reassess the value of the dollar, after over a decade of unaddressed weakness. This reevaluation has in turn exposed the fact that the massive US corporate profits taken during the last 10 years have been made in an economy that is drowning itself in debt. Although the corporations have been making more and more dollars in profits, their method of generating profit has severely damaged the american economy and recipricolly devalued the dollar.

The recent massive downturn in the dollar signals the world has had a change in their perception of not just the dollar, but of the American economy itself. This has caused such a precipitous drop in the dollar that major global players can no longer just reevaluate the dollar, but are now being forced to reacess the dollar's central position in global markets and trade.

Why we are here

The American expansion during the last 30 years can be characterized as a frenzy of illegal immigration fueling consumer consumption married to a frenzy of corporate profits, based on stealing the wages, health, social, natural and political assets of the average american citizen, and moving this wealth to the top levels of american society. What a party of greed and consumption it has been. Now the party's over, and it's time to pay all of the bills.

The trigger, and main fuel, for this feeding frenzy of irresponsible growth is immigration, which generated the concentration of wealth and power necessary to fund the final takeover of our political parties and govenment by the corporate interests.

The consumer, immigrant, and corporate participants in this ever-expanding feeding frenzy are each connected at the hip, both in economic, as well as psychological terms. Each side requires the greed, ignorance, and justifications offered by the other sides for each to maintain its own lies, its position, and its profits.

Our irresponsible demographic growth, the growth of consumption and the growth of profits are, in fact, different manifestations of the same selfish irresponsibility. The consumer mentality expresses lower class selfishness by revealing that "our" working class have accepted our corporation's definition of endless debt shopping and "consumption," as sufficient compensation for the loss of their democracy. Simultaneously, our elite and business classes have revealed that their view of the nature and the goal of life is the pursuit of unbridled growth, profit, and political power.

When growth and profits decline, and hard times begin, our shared assumption of mutual greed will not be sufficient to get us through hard times.

Neither our lower nor upper classes have demonstrated the character necessary to preserve our democracy and rights during "good times." Now bad times are coming. We have a chance to profit from this crisis if we can use this impending crisis to restore our democracy and our rights.

This irresponsible expansion has created a vast American private debt that exceeds our ability to repay, either today, or out of our projected future profits. The bursting of the housing bubble has made this very clear to all disinterested observers.

Our era of profits based on speculative growth in the value of the housing and equities markets, not by actual economic growth and expansion of the wealth of our citizens, is over.

Our expansion and the profits it has generated for the corporations during the last 20 years are based on failing to pay the social, medical, educational, prison, and retirement costs that the importation of millions of illegal foreigners into the US has generated.

The costs of corporate profits has not only been our democracy, and our rights, but they have drained our country of its character as country of free people. Today, citizenship is the reward for a criminal who breaks our laws to serve those who replaced our constitutional republic with a corporate state.

Although our population growth is very real, the real growth in the overall wealth of our country has been a mirage fueled by sub-prime loans, cheap money, "cheap" labor, and massive corporate profits.

The mirage of our greed is disintegrating, leaving us the task of confronting the ugly facts of what we are and how we got to this dishonorable point, before we will be able to chart a rational path out of this mess.

Now it's time to pay the bills.

The result

The last 30 years of massive demographic and economic growth has been used as cover by our corporate aristocracy to put aside our democratic practices, loot our economy, drain our infrastructure, and move the bulk of the wealth of our country from the bottom and middle to the top. That is the real root of our housing, credit, and currency crisis.

We have devolved into little more than a scam wrapped in patriotic propaganda, with little true spirt of freedom below our faded image of freedom.  

Our country has plunged itself into an unsustainable downward spiral of massive debt to fuel this 30 year upward spiral of profit and physical expansion that pushed corporate profits and consumer consumption to historical levels. Now the world is going to balance the books, because we have refused to.

The result is that the housing bubble is triggering a cascading collapse that is traveling through our set of nested economic imbalances. The bursting of the housing bubble has sparked a mortgage crisis which has initiated a credit crisis which is triggering a reevaluation of all dollar-denominated assets in the world.

At the end of this cycle, we are going to find that our inability to face our housing, mortgage, credit and currency bubbles has significantly diminished the willingness of foreigners to finance American consumer credit. It started in housing, moved into credit, and is now collapsing the value of the dollar.

This in turn has exposed the world to the sad fact that American corporate profits are being sucked out of an economy that is, and has been, losing money.

So, independent of the vastly expanding profits of the corporations, the ultimate basis of American profit has been exposed as a pyramid scheme based on the availability of ever-expanding debt, ever-expanding pool of cheap labor, and ever-expanding pool of consumers. Having hit the end of our endless expansion, we are no longer capable of paying back our previous debts, and the value of all dollar-based assets are, or will shortly be, collasping.

This is now common knowledge among global investors, and it's scaring the hell out of everybody that is aware of our precarious situation. The inevitable result, which we are now experiencing, is that the value of the dollar is shrinking faster than corporations can increase their profits to offset the actual loss of value. Be prepared for a dramatic drop in corporate profits.

The Fed's infusions of cash and lowering of the discount rate will do nothing to re-inflate the speculative bubble in housing, nor will it give the market clarity as to the actual value of the mortgage securities. But it will accelerate the dollar's loss of value, which will have the overall effect of tightening, rather than loosening, credit.

The only thing that will save millions of families from foreclosure and mortgage securities from collapsing, is for housing prices to continue rising in value. There's no way in hell that is going to happen.

The real estate market can no longer depend on the middle-class to pull up the nation by its own bootstraps, as the middle-class has been robbed of their share of the national wealth, and now they will have no credit to continue their shopping spree.

Credit for the real estate market is no longer based on national or local conditions. American credit is now subject to, and dependent upon, the changing global estimation of the value of the dollar, and the risks associated with dealing in dollars, to obtain the credit necessar to maintain housing and consumer consumption.

The world is not only demanding America pay more for the credit necessary to maintain our consumer spending, and they are making much less credit available to fund American debt and consumption.

These dollars, which would normally loaned back to the US by our dependent trading partners, are now being invested in better, more secure opportunities.

It appears that the big holders of dollars are dumping them on the market, not by selling dollars, but by buying huge amounts of global commodities with their excess dollars. I believe that the recent large price movements in global commodities indicate that the big global players are offloading massive amounts of dollars into commodities such as oil, copper, wheat, gold, and a range of other commodities.

It looks to me like the Brits, Arabs, and Chinese are selling dollars without going through the foreign exchange markets by buying commodities that they will later sell for anything but dollars. In effect, the big players are selling dollars without selling dollars in foreign exchange markets, which would collaspe the value of the dollar. Once again, the small investors, such as holders of 401k programs, are going to be left holding the bag when the markets finally recognize that the big players have moved away from the dollar.

These radical increases in all global commodities prices are working through the markets as I write, and are a direct indication in the global loss of confidence in the dollar.

Long before housing could stabilize, in a couple of years from now, the shocks from the housing and credit markets on the global economy pose a significant likelihood that the value of the dollar will drop sufficiently to not just crush the american housing market, but restrict global credit sufficiently to end credit-based consumption in the US.

This means that we will be forced to pay for our previous debt without being offered continuing credit, putting significant downward pressure on our economy for years to come.

Call it an involentary "austerity" program.

We are entering a very dangerous situation where it is highly possible that the world will retract a significant amount of our credit until our economy, rather than our corporations, actually becomes profitable.

The net result of all this will be a significant decline in American economic activity accompanied by a significant upturn in inflation and prices. This portends a long downturn, not just for the American housing market, but in all sectors of American consumption itself.

It appears to me that we are heading into a significant downturn that will be followed by an extended period of stagflation.

Back to the Fed...

The fed's hands are effectively tied. If the fed raises rates, the dollar will proportionally stabilize, but the housing and equities speculators will scream in pain. And those are the people who bought our government. If the fed drops rates, the dollar will plunge, and our domestic party will continue for a bit longer, as the world burns dollars around us.

The fed is damned if they do, and damned if they don't, raise rates.

At this time two things are clear: Housing will continue to fall for 18 months to 2 years, and the credit crisis will deepen in response to the fall in value of both housing and the dollar. Credit tightening will continue, continuing significant downward pressure on consumption.

At this point no amount of Fed intervention will prevent the various markets from falling precipitously. The failures of the housing, auto, credit markets and the collaspe of the dollar will eventually pull the dow down to between 6800 and 7200. I see this as the market level that our actual economic activity will support. I see us hitting this low by June of 2008.

American economic weakness also presents a significant risk of bringing down unstable foreign economies, such as China. Likewise, economic disruptions in China could cause even greater disruptions in our housing, credit, and currency markets that would make our present imbalances seem insignificant.

Our indebtedness and economic trickery is exposing the whole world to a significant risk of a sustained global downturn in economic activity, if not an outright global depression.

But nobody really knows just how these massive American debt imbalances will work out. The disturbing fact is that the US is not doing a damn thing to address or change the fundamental causes of our dangerous position: Irresponsible growth based on speculation with cheap money.

That's where we are right now, between a rock and a hard place. Uncertainty, instability and radical movements in price will characterize the markets until the US stops irresponsible expansion based on credit, and moves the basis of consumption off debt onto responsible economic growth that pays all the social costs of profit, and does not exceed our natural or social infrastructures.

We're a couple of major disasters from reaching this obvious conclusion: Be good, do good, and get good results.

This is why the Fed's pumping the financial markets with cash, and dropping the interest rates are so disturbing. Rather than paying the bills, and only growing responsibly from now on, the fed is trying to grow our way out of this jam with cheap money and irresponsible growth, when it was our irresponsible growth based on cheap money that brought us to this crisis.

Unfortunately for our corporate devils and their consumer minions, we have run out of the money, energy and water with which to grow out of the hole our previous growth has put us in. We are tapped out, and this era of irresponsible speculative growth is officially over.

It's time to pay the bills

The Fed cannot stop the global markets from reevaluating American housing, American credit-worthiness, the dollar, and ultimately the global role of the dollar. Consequently, the value of all assets based on the dollar are now uncertain.

This reevaluation is now reverberating around the all of world's interdependent markets. It will only slowdown and stabilize when the repayment rate on our debt exceeds the rate at which we are borrowing.

And by all indications, that's not going to happen voluntarily.

Hang on tight, this is going to be a crazy ride.