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May312009

ECONOMIC  SELF-DESTRUCTION

May 2009 (vol. 25, #4)

Russian owners of American companies should consider divesting while there is still value left, advises Stanislav Mishin (Pravda 4/20/09, http://english.pravda.ru).

       “Prime Minister Putin, less than two months ago, warned Obama and UK's Blair not to follow the path to Marxism; it only leads to disaster.” Yet now, in the land of “free markets,” the American president has the self-given power to fire CEOs.

       “Come hither, go [th]ither, the centurion commands his minions.” While Rep. Barney Frank says this only affects companies that take government money, it is retroactive, and taken to its logical extreme would include any company or industry that has ever received a tax break or incentive.

       “The final collapse has come with the election of Barack Obama,” writes Mishin. ”His spending and money printing has been record setting, not just in America's short history but in the world. If this keeps up...America will resemble at best the Weimar Republic and at worst Zimbabwe.”

       Mishin also thinks that the appointees in charge of the bail-outs make Russian oligarchs look like little worse than ordinary street thugs by comparison.

Fiat Money, and the Web of Debt

       Fiat money, based on nothing but trust, has played a critical and sometimes beneficial role in history.

       It financed, for example, the American War of Independence. According to a German article on American history, Michael Hillegas, the first Treasurer of the United States, was arguably as important as Washington and Jefferson for the birth of the U.S., though his name is seldom mentioned.

       Hillegas was responsible for paying for the war. Taxes and borrowing from citizens were impossible. The new nation did not yet have any precious metals. Credit from foreigners came late, and while important, paid no more than 20% of the costs. Hillegas resorted to printing Continentals, which were not convertible into gold or silver–usual now, but taboo at the time. He showed his confidence by putting his own money in.

       After the war, much of this currency was withdrawn from circulation when used to pay taxes.

       Though the British did not succeed in destroying the currency by counterfeiting, it ultimately became worth­less–  speculators were blamed (Ellen Hodgson Brown, Web of Debt).

       The classic example of hyperinflation in the Weimar Republic, writes Brown, was not caused by government alone. The currency was actually printed by the privately owned Reichsbank, and later other private banks, and loaned to the government at interest. Not until 44 years later did Reichsbank president Hjalmar Schacht reveal the role of private bankers and currency speculators in his book The Magic of Money (Barnes Review, Jul/Au­g 1999, www.win­tersonnenwend­e.com).

       Weimar hyperinflation was quelled by Schacht in 1923 by issuing Rentenmarks. The rescue of the prostrate German economy in the 1930s, while others were still mired in depression, was one reason for the immense popularity of Adolf Hitler. Based on a study of the American Greenback system, which Lincoln had used to finance the Civil War, Hitler “took over the...m­achi­nery of falsification and put it to work for the benefit of the state,” according to C.G. Rakovsky, a victim of Stalin's show trials (Brown, op. cit., p 232).

       That is, Hitler created his own fiat currency and used it to build public works, including the Autobahn.

       One of the Constitutional powers of the U.S. government is to coin money. This function was turned over to a private entity with the Federal Reserve Act, signed in 1913 by Woodrow Wilson, who later reportedly said “I have unwittingly ruined my country” (Brown, p 123). All U.S. paper currency is now a “Federal Reserve Note.”

       Banking–and control of the money–has been a content­ious issue since the founding of the American republic. Those who defied an international private banking cartel may have paid for it with their lives.

       Bismarck wrote that masters of European finance engineered the rupture between the North and the South, but when the U.S. escaped their grip, “the death of Lincoln was resolved upon” (Brown, p 91). Garfield was assassinated 4 months after releasing a strong statement against bankers. Kennedy was shot 5 months after issuing Executive Order 11110, giving the president the authority to issue currency; Johnson immediately rescinded the order.

       Note that Kennedy also believed America should maintain its independence through the development of cheap sources of energy–as well as civil defense.

       As the U.S. has become the world's biggest debtor, attention is being focused again on the Federal Reserve. Ron Paul's “Audit the Fed” bill has garnered some 179 cosponsors as of May 25. An interview of Federal Reserve Inspector General Elizabeth Coleman by Rep. Alan Grayson (D-FL) shows that the IG apparently has no idea what has become of nearly $1 trillion in “stimulus” money (www.youtube.com).

Uses of Money

       Hillegas, Lincoln, and Hitler used fiat money to build industry and infrastructure: real goods, useful services.

       The situation of the U.S. today resembles that of the early colonies. Having reached the limits of taxation and borrowing, the Fed is generating money through accounting entries. But what is being bought this time? Surveillance (such as electronic medical records). Enormously expensive and inefficient energy sources. Votes. Possibly indulgences (carbon credits). And debt.

       The government may be correct in asserting that some defaults must be prevented. This is because the “insurance” against default–credit default swaps–makes the liabilities orders of magnitude higher. If the gamblers have to cash in their bets, hundreds of trillions of dollars in derivatives dominoes will come crashing down. The bets that were supposed to be shock absorbers act as destabilizers if they're all in the same direction–assuming constantly rising prices.

       The U.S. taxpayer is slated to be bled–forever?–just to service debt to private bankers that can never be paid off. As John Adams said, “There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”

 

Thoughts to Remember

“I care not what puppet [sits on] the throne of England to rule the Empire on which the sun never sets. The man who controls Britain's money supply controls the British Empire, and I control the British money supply.”

Nathan Rothschild, headed Bank of England c. 1820

 

“You do not have too many workers, you have too little money in circulation, and that which circulates all bears the endless burden of unrepayble debt and usury.”

Benjamin Franklin to Parliament, 1764

 

“We say in our platform that we believe the right to coin money and issue money is a function of government.... Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson...and tell them...that the issue of money is a function of government and that the banks should go out of the governing business.”

William Jennings Bryan, Democratic Convention, 1896

 

Quoted in The Web of Deceit by Ellen Hodgson Brown, 2008.

 

Who's in Charge?

          The N.Y. Fed “has given–with virtually no strings attached–practically the entire contents of the Treasury to the very banks whose inability to manage risk has brought our economy to its knees.” From 2003 until becoming Secretary of the Treasury, Timothy Geithner was chairman of the N.Y. Fed, notes former Gov. Eliot Spitzer (Slate 5/6/09).

 

­Obama's Red Sea

          By March 31, the Federal Reserve, Treasury, Federal Deposit Insurance Corporation (FDIC), and the Dept. of Housing and Urban Development (HUD) had saddled U.S. taxpayers with $12.8 trillion in debt–90% of 2008 GDP (Deroy Murdock, Times-Herald 4/5/09). This is more accrued debt than 43 previous administrations, Paul Driessen notes. It does not include the cost of debt service–nor the $140-billion U.S. share of the $1.1-trillion global stimulus devised by the Group of 20, “to be administered by the professional spenders at the Inter-national Monetary Fund” (Intellectual Conservative 4/15/09).

         The energy “cap and tax” bite is estimated to take between $1.3 and $3 trillion. Obama wants energy prices to “skyrocket,” to force Americans to cut CO2 emissions to levels last seen in 1905–without expanding nuclear power.  Meanwhile, oil and gas resources that could generate trillions in revenues and royalties are being locked up.

 

Seigniorage in U.S., UK Nearing Weimar Levels

          Between 1919 and 1923, the Weimar government ran enormous budget deficits, funding 50% of government spending through seigniorage (printing money). With foreigners already owning 50% of U.S. public debt, the U.S. is resorting to this method, now called by the euphemism “quantitative easing”:  The Fed is buying $600 billion in U.S. Treasury bonds per year, or 15% of the budget. The UK has already overtaken Weimar, with the Bank of England funding 65% of the budget (Martin Hutchinson, Money Morning 4/9/09).

 

The Cost of Carbon Capture and Burial (CCB)

         It is possible to extract CO2 from the exhaust gases from burning coal, compress it, pump it hundreds of kilometers, and bury it in carbon cemeteries. This would require about 30% of the electricity generated by the plant, so that 1.5 Mt of coal must be burned to produce the same usable power that 1.0 Mt produces now. The capital costs of the plant would increase by 30% to 100%. The effect on the climate: undetectable. For every tonne of carbon lost to the biosphere, 2.7 tonnes of oxygen is also lost. This accelerates the ongoing process of removal of carbon from the biosphere: the oceans are removing it naturally and burying it in limestone, dolomite, and coral reefs. Instead of prolonging the era of luxuriant life on earth by recycling carbon long buried in coal, CCB would hasten the day when earth becomes a dead planet for lack of a vital atmosphere (Viv Forbes, chairman, Carbon Sense Coalition).

         The April 30 issue of Nature features a picture of huge “farms” with towering air-scrubbing devices, dwarfing a herd of animals in the foreground that have apparently found some blades of grass to graze on in the barren landscape. To scrub some 9 Gt of CO2 from the atmosphere each year, the amount needed to return the concentration to 380 p.p.m. by 2100, would take some 35,000 facilities, at a cost of one $660-billion U.S. “stimulus” package every year for a century. To power a mere 1,000 of these facilities would require 900,000 gigawatt-hours of energy per year, more than the total output of the 104 nuclear generating stations in the U.S.

         It's a “good thing” that this is the most expensive climate-mitigation technology. We should instead be trying to “break our energy addiction.” Researching “a ‘get out of jail free' card for climate change would provide an excuse to continue unabated emissions” (Nature 2009;458:1094-1097).

         Prophet James Hansen declares that “we” had better keep the concentration below 350 p.p.m. or risk losing Antarctic ice. It would take at least a millennium for the CO2 level to drop naturally, even if we “went cold turkey and cut off all emissions.” Climate scientists have “begun to feel like a bunch of Noahs” (Nature 2009;458:1091-1094).

         There is no evidence that they have stopped using energy.

 

“Clean Energy” Radioactive

          As reported in the May issue of The Atlantic, there is likely  to be a bottleneck in the production of hybrid cars and windmills. The permanent magnet in their generators requires neodymium, from rare earth ores that generally contain thorium. The main pit in the U.S., in Mountain Pass, Calif., has been closed because of the release of thousands of gallons of radioactive waste (Fred Hanson, Adam Smith Institute).

 

Yucca Mountain De-funded

          Among the Lilliputian budget cuts offered by the Administration is $90 million from the Yucca Mountain nuclear waste repository, on which $9 billion has already been expended. Another site will be sought–perhaps on the dark side of the moon? Meanwhile, this “dangerous byproduct” is a great renewable resource, as it still contains 90% of the original energy. The LaHague facility in France has safely reprocessed 23,000 tons, including old Soviet nuclear weapons, and exports nuclear fuel to the U.S. About 1 in 10 American light bulbs is lit by a reprocessed Soviet bomb, writes William Tucker (Investor's Business Daily 5/12/09).

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