Ironically, Trickle Down Economics Trickled Down America’s Future

America is a land of irony. We are filled with capitalists whose intent is to accumulate all the wealth the world has to offer, and at the same time, we also have an altruistic nature that tears at our capitalistic infrastructure. We defend our great society and fund outreach to other nations through our tax dollars. We support our dreams of a united earth through a funding of the United Nations and fund our version of world peace through 1,000 military bases dispersed throughout the world. To grow our middle class, for the past thirty years we have supplied enrichment to our upper class to have it trickle down.

Supply side economics is an irony of political invention as well. Its invention of thought intended to provide extra capital to America’s private sector, the sector that creates taxpaying, productive jobs that extends America’s know how, innovation, skills, and gross domestic product. In our world’s current economic system, when a venture is started, some seed capital that has been accumulated by the world’s elite is then combined with borrowed money created from thin air by banks through the venture’s promise to repay. This devised modern structure of government and banking thus provides the investment needed to fund the venture’s infrastructure and start up expenses, including the financial support for job creation.

The wealthier of our country are those that have traditionally been able to accumulate more money than they need to fund their daily expenses, and thus they have provided the seed capital for ventures through their investments. Instead of the entrepreneurs that risk all to build real wealth and create the jobs, Supply Side economics instead provides tax incentives to the wealthy, ironically giving credit to the capital providers for producing America’s jobs. However, capitalism knows no patriotic allegiance. Investment capital will flow to the highest risk adjusted returns regardless of national borders.

After America’s obsessive military buildup made international investments safer, international business became safer investments in the sixties. Opportunities grew wildly after China opened its borders to investment in 1978, creating a gold rush that attracted loose investment capital from the entire world, building tens of thousands of factories that enriched international investors dearly.

So when Reagan Supply Sider legislators passed tax breaks to the “rich”, their trickledown theory wasn’t wrong, it was just decades late in adjusting to the realities of risk adjusted investment opportunity. Ironically, instead of trickle down, America’s tax policy resulted in pouring out, not a trickle but a fire hose gushing toward foreign shores. Trillions of dollars, created by burdening our middle class with excessive debt, left our economy and were converted into factories and other infrastructure such as roadways, bridges, and cargo ships to enhance China’s economy and to increase their employment base.

It appeared at least temporarily that America profited from our supply side doctrine. An entire industry was born to find ways to collect the extra capital and distribute it to the East. America surely got interim jobs in the financial sector to support this fire hose of foreign directed money flow. Yet, decreasing taxes for the “rich” created much fewer permanent jobs in America than it could have, passing the greater load of jobs to the East. It provided America interim financial and deal flow processing while accomplishing the opposite effect than was hoped for to America’s real economic future.

Ironically, Trickle Down Economics Trickled Down America’s Future…page 2 of 2….Worse, when those permanent jobs left our shores, so did decades of investment in our schools and education that every American has paid for through our contract with America. Each of us has voted to contribute thousands of dollars to our school systems to educate our youth. We do not publicly fund our educational system out of altruism. Americans understand that in educating our youth, they will learn the lessons provided by educated Americans before them. They will carry forward the knowledge that grows in our businesses to learn new theories and methods and to discover new scientific breakthroughs that will extend American technical capabilities. We invest in our children to grow our country’s GDP and to support both those that have come before in their turn at retirement and those that will come after who will raise their families in freedom and who will extend our great country’s experiment in democracy.

Ironically, beyond those trade secrets and innovations that are deemed highly responsible for national security, America does not have a policy about those innovations created in America that have been funded by at least 12 years of public schooling if not more through Pell grants, student loans, state school subsidies and other methods. America has an equity stake in every innovation created by Americans and yet we let them go as freely as we let our commodities be dug up from our patch of earth and be sold out from under us through private, foreign country based businesses operating mines on our public lands today.

However, the greatest irony is yet to come. In letting our capital be funneled to China, in letting our jobs transfer to her, in freely handing over our trade secrets, our innovations, and our scientific breakthroughs, we have transferred decades of core skill and national wealth building capability that will now build in China and not in America. The tax base that would have supported our great society social needs will now support those of China. The extra funds that could have supported our government’s international outreach will now support hers. Our altruistic capability will diminish purely from our trickle down tax policies.

And the great investments that our capitalists hope will provide gold rush returns from the trillions of dollars of investment extracted from the debts of all Americans, turns out they may be the greatest Ponzi of the 20th century. Those trillions of dollars now rest on China’s soil as hard assets. They cannot be dug up from the earth and planted back in America. The financial returns that investors hope for count on China remaining strong to honor her commitments. If China defaults, no one will travel to China and take a piece of the infrastructure back home. There is no international bankruptcy court that can enforce repossessment or repayment.

China’s ability to produce repayments of direct foreign investments depends on America’s ability to stay solvent and to continue buying Chinese goods, yet our solvency rests close to the precipice. If our current economic crisis is thrust off the cliff by short sided, self seeking politicians, America’s default will lead to China’s default and all the profits that our investors dreamed of receiving will disappear in the crash. The underlying assets and intellectual capital that transferred to China in the 20th century gold rush will remain there for China’s eventual rapid recovery while the trickle down and fire hosed out financial capital that left America’s shores will have ironically vanished with our gold strike dreams.

Kyoto Protocols Would Have Accelerated China’s Plan to Reverse-Exploit EurAmerica

In 1978, the year China emerged onto the world stage with its four modernizations, China, a country with four times the population of the United States, had a paltry gross domestic product of $216 billion, less than eight percent of the United States. China exposed her strategy of four modernizations to the world as if to say,”Please invest in China and we will ensure that our workforce is educated, and that our business infrastructure is stable for your investment.” Yet, this openly expressed strategy, that may have seemed to the rest of the world as a difficult but noble goal for China to achieve, was only the tip of China’s Grand Plan, and only the part she wanted the world to see.

EurAmerica’s history with China was one of gunboat diplomacy, exploitation, and forced trading. When China opened her borders again in 1979, EurAmerica’s merchants were enthusiastic to exploit an opportunity once again. Yet, China had not forgotten EurAmerica’s role in the Opium War, the Sino-Japanese War, and the Boxer Rebellion. China would never open her border again to be exploited. When she finally opened her border in 1979, it was from a position of power, deep strategy, and long lived planning that suggested EurAmerica was finally ripe for reverse exploitation. China’s grand plan was to emerge as the 21st century world power.

What boldness of purpose China must have felt as she aligned her nation’s efforts to that decade’s long task. Looking back today on her impossible achievements, one must give pause to the monumental economic goal she set for herself in 1978, indeed greater than America’s technical goal of landing on the moon early in 1961. Yet, with such a miniscule $216 billion GDP and few material assets how could China possibly build her empire to surpass that of the United States?

Through a hybrid statist-capitalist political structure, China would create a conduit through which American businesses would willingly draw down the wealth of Europe and America and transfer it to China in order to share in the prosperity of that wealth transfer. Through the centralized imposition of forced savings on its people, China would provide low cost labor to sell goods at low enough prices to cause EurAmerica to look the other way as their neighbors’ jobs went to China. Through low interest loans, China would entice EurAmerican politicians to spend beyond their means to temporarily ease the pain of EurAmerica as China’s sucked away their life force. These were the basis of her strategy.

Similarly to how a business cycle contains early adopters and late stage laggards, China planned a capital extraction cycle for EurAmerica, in which China would extract capital in multiple phases, each phase having an optimal extraction strategy. First extraction would be through the early adopter “gold rush” investors rushing into China to stake a claim. China would also plan for early majority, late majority and laggard’s capital extraction.

In 1978, China assessed America’s assets:
• America’s most valuable assets were intellectual capital that resulted from 200 years of publicly funded primary and publicly subsidized secondary education
• America’s physical assets included business assets, commercial, and residential real estate worth $7 trillion in addition to public assets of land, buildings, and infrastructure
• America produced 26% of the world’s GDP at $2.8 trillion and consumed a quarter of the world’s goods
• America’s debt was as low as it had been since WWII as a percentage of GDP and its 110 million workers were capable of doubling their loans to provide China more capital
• America’s Baby boomers were entering a peak spending phase followed by peak saving
• America’s constitutional republic allowed a relative few capitalists to control the direction of her economy

By 1978, multinational corporations had steadily grown in number and size for two decades. China’s success depended on corralling MNCs through direct foreign investment to create massive inflows of capital quickly monetized as hard assets and infrastructure.

China would entice merchants to invest by offering access to the future potential purchasing power of its people. However, given China’s low household incomes, market penetration would be low to start. Therefore, to entice the early adopters, China would create special economic zones that provided the perfect investment opportunity of cheap educated labor, loose regulation, low taxation, strengthened business law, and enhanced infrastructure and transportation, in which businesses could produce goods at very low arbitrage costs to sell back to their home countries for high margins.

With low cost of goods from special economic zones, early adopter businesses were highly profitable and banks poured investment into China as a result. But, China could not complete her Grand Plan to multiply her GDP 50 times by enticing early adopter investors alone. She had to implement a plan timed to extract maximum dollars from EurAmerica at each phase of her exponential growth.

During the next stage, the early majority stage, China manipulated baby boomers’ peak spending phase:
• China’s low prices secured America’s baby boomers as loyal customers
• Prior to America noticing a substantial loss of jobs, China secured free trade agreements, and mined American businesses for their intellectual capital.
• She reinvested profits back into America’s debt to keep America’s interest rates artificially low in order to spur on higher levels of consumer spending and government borrowing.
• China supported lobbying of America’s mass investment vehicles to fund MNCs. 401Ks and IRAs, created in ‘80and ’81, funneled money through the stock market into MNCs for investment into China.

Then, America was drawn into the late majority stage as America’s baby boomers entered their peak saving years. 401Ks and IRAs artificially fed the stock market frenzy. Baby boomers sensed they knew how to invest in a bubble market that kept rising. With access to low interest rate loans kept low by China’s reinvestment, speculators borrowed money to bet on the rising stock market. America ultimately increased its debt to pump up stock values to build more Chinese factories.

Inevitably, the stock market bubble burst, leaving America’s baby boomers with lower retirement savings. The stock market that seemed destined to go up forever finally reversed rapidly decreasing valuations. However, the debt that had funded its escalation remained.

During the late majority phase:
• More businesses began to invest in China just to remain competitive with businesses that had moved offshore earlier.
• Tens of thousands of businesses transferred factories to China to obtain low cost labor
• Millions of Americans lost jobs
• With a generation of education completed, China now was able to take more advanced jobs as well as factory jobs. America’s bastion of protected, more technically competent jobs was not a bastion after all.
• American retail outlets for Chinese goods grew exponentially
• China continued to loan its excess profits back to the American government to keep interest rates low.
After having lived through the weakness of the stock market, real estate appeared to be the baby boomers’ best retirement savings alternative. In the early stages of the Great Ponsi, housing prices went steadily up. With low interest rates, Americans could now borrow on the value of their homes to continue funding China’s growth. China’s final stages of extraction saw the housing bubble increase beyond what had ever been experienced before.

Even though American jobs were increasingly being driven offshore, the frenzy of increased housing prices allowed additional borrowing from Americans, feeding the China gold rush further. This behavior was not unexpected, following a pattern of historical boom-bust cycles and was part of China’s planning. As a result of the stock bubble and the housing bubble, America’s total debt had risen to over $55 trillion. With such exuberance in the housing market, secondary debt markets participated in credit default swaps to the tune of an additional $42 trillion. China now had extracted close to the maximum of America’s value, leaving America with the corresponding debt.

So China extracted maximum value, first in trade secrets and early adoptive money, then by IRAs and 401Ks, then by stock market and home equity loans, then by 2nd mortgages and housing speculation. China monetized the massive cash flows as quickly as possible, building infrastructure and excess manufacturing capacity, while leaving America holding debt in exchange.

Without any other rising asset values to borrow from, America has tapped out its debt. Having maxed its debt, America can only print money to finance its trade deficits. Without further real debt derived money extraction to give China for infrastructure investment and without a real ability to pay for low cost Chinese goods, America is fast losing her worth to China as an infrastructure vehicle. Recognizing that maximized extraction and rapid monetization of America’s wealth is nearing its end, China is now finalizing the implementation of her strategy, that of pulling out of American debt before other countries that maintain reserve currencies create a run on the dollar.

In thirty short years, China was able to accelerate her GDP from $216 billion to $11 trillion. She amassed reserve capital of $3 trillion. She reversed America’s fortunes from the greatest creditor nation to the greatest debtor nation. She gutted America’s factories while creating the world’s largest manufacturing base in her own country. A measure of output that highly correlates to GDP is energy consumption. In June of this year, 2011, China surpassed the United States as the largest consumer of energy on the planet. While the U.S consumes 19 percent of the world’s energy, China consumes 20.3 percent.

In 1992, the world came together to discuss the impact of climate change resulting from energy consumption. The talks resulted in Kyoto protocols being initially adopted in 1997 that attempted to create a framework for reducing greenhouse emissions. The protocols called for 33 industrialized nations to reduce their greenhouse gases to 1990 levels and then to maintain emissions at those levels. Although it called for emerging countries like China to voluntarily lower levels, it did not require them to be mandated.

Of course, all of the countries who had no requirements to reduce their emissions signed the agreement. The United States, under scrutiny from environmentalists and others did not sign. China did sign. This was an additional strategy perhaps not envisioned in 1978 that nonetheless would have assisted in accelerating America’s slide had we signed.

GDP highly correlates to energy usage. In 1990, America’s real GDP was about $8 trillion as compared to $14 trillion in 2011. Kyoto would have caused America to either:
• Invest billions in the attempt to lower our energy usage per dollar of GDP
• Pay billions to other countries to have them produce less so that we could grow our GDP from $8 to $14 trillion
• Or, maintain our GDP at 8 trillion

In the meantime, China’s GDP in 1990 was $1.3 trillion and has since grown to over $10 trillion. China’s energy use has correspondingly grown as well until the point that this month, she overtook America as the greatest polluter. Kyoto was a grand idea that was doomed from the start because of the flaw that allowed the now greatest polluter to play by different rules. It attempted to cap the economic growth of America while allowing other countries to grow unfettered.

China had a Grand Plan that has been executed with the finesse expected of a centrally planned economy. Kyoto added nicely to that plan. America has been thwarted by China’s plan but now has the ability to reverse course. Given China’s size and growth rate, she will pass us soon if she has not already and her stride will be too great for us to catch her. However, by avoiding traps like Kyoto, and understanding that economic gamesmanship can accomplish a much greater destruction of a nation’s wealth than warfare ever could, perhaps America can once again right its course.

A Triumphant Cake for the Return of China’s Empire

When making a cake for a great celebration, the baker uses the same ingredients as when baking a small 10” diameter cake, he just uses a lot more. When the world first saw China stirring up batter, they thought somehow this poor country surely was beginning to make a little 10 “ diameter cake. Now that they see the size of China’s great celebratory cake, some view it as so great that it could feed all of their cake eaters back home five times over. Surely this cake must be too big and therefore China’s baker must be on the verge of closing shop for having so foolishly made such a big cake. For those that still think China’s cake is too big, they just haven’t yet grasped the size of her guest invitation list.

When China began implementing her modernization plans in 1978, she hadn’t planned a 10” diameter cake. She planned a cake for the size of China. And it wasn’t one of those cheap, store bought cakes that we would have expected her to bake given her finances in 1978. It was one fit for a triumphant party celebrating the Empire’s return. In fact, the cake would be so big and would use so many ingredients that parties back home would have to shrink their party plans. The world’s storehouse would not have enough ingredients to throw elaborate parties for both China’s guests and the world’s.

No matter, if there was one thing China learned over 5,000 years, it was how to plan a celebration. China planned her strategy to ensure that on the day of the big celebration, she would have enough ingredients. This certainly meant she would have to manage party conflicts with those back here at home at some point. However, if parties back home didn’t have cake factories to make their cakes, they wouldn’t be able to compete at the appointed hour of China’s celebration, and if they didn’t have cake factories they surely wouldn’t be competing for ingredients at the appointed hour. China would implement her plan to ensure her guests would have their cake. But, she needed to implement first things first.

Reviewing her strengths, China noted she had plenty of baker’s assistants. They simply needed to be trained. She would definitely need more factory space to make the cake and more roads to get the supplies to the factory. And because she didn’t have all needed ingredients in-house, she would have to make arrangements with cake ingredient suppliers to ensure that she would get the ingredients even if others competed for them. Critical to her success, China needed baker’s secrets to make such a great cake. Most importantly, because China had many more bakers than she needed but not enough money or know-how, she would need to trade her strengths for the others.

With strategies set, China set out to implement her plans. She first told all comers that they could build a cake factory in her special cake factory zones, and that they could bake cakes for all of China’s people. With the announcement of this cake bonanza, Bakers came from all over the world for the chance to make cake for China. When asked how big to make the factories, China said to make them ten times larger than they first imagined. The bakers would need access to money and lots of it.

Oddly, While China had such big plans for cake factories, no one in China could afford to buy such magnificent cakes, and no one in China knew how to make them. So if the baker wanted to make cakes in China, the baker would have to teach Chinese baker assistants the secrets to baking a cake. The baker would also have to go back home for bank funding and for free markets to sell the cakes made in China back at home.

Of course, when presented with such a sweet deal, the banker could not pass it up. Together, the baker and the banker convinced everyone back home of the sweet deal from China. China would sell the cake for half the price of home prices so that everyone would be happy. The baker could get a great factory, at least one in China, and had the hope of selling cake to the Chinese some day. The people back home could get a cake that tasted just as good because the baker used his secrets in China to make the cake. Of course the financier back home was happy. Increasingly, cake factories back home seemed to be having trouble selling cakes at twice the price of Chinese cakes, and with cheaper prices and free markets, China cake factories promised great banking returns. The only people that seemed upset were the baker’s old assistants back home who no longer were employed to bake cakes, but no matter, everyone else was happy.

China was happy that her plan was progressing. She would get a grand cake factory that could be used for the great celebration. China could also begin to build relationships with all the worldwide cake ingredient suppliers. She now needed to spread the icing for the next layer of the plan. The baker assistants back home were the ones buying the cakes made by the cake factories in China. If they didn’t have a way to pay for the cakes, all would be lost.

China knew, when planning for her modernization party, that in order to make a cake big enough for the triumphant celebration, she would need so many factories, roads, ingredients, and educated cake bakers that it would take all the expendable money in Europe and America combined to build them. In fact, it would take much of the world’s stock market value and even the equity in people’s homes if she were to be able to throw a truly triumphant party. She needed the baker assistants back home to borrow from their savings, their homes, and their future earnings if the plan was to succeed.

No worries, China had studied capitalist boom-bust cycles of the past. She knew it was very possible for bankers to create the boom once again, in the exact same manner as Europe and America had fallen prey to many times before, and that during the short boom, she could fund her party. Given the opportunity to fund all the cakes in China, bankers back home repeated their very sins of the past. Their patterns had remained predictable for centuries, reacting in a frenzy every time a cake bonanza presented itself. This time they dropped interest rates, made crazy loans, created IRAs and 401 Ks, and escalated not one but three bubbles to draw out as much money as they could to fund as many cake factories as they could in as short a time as they could.

The feeding frenzy occurs because there is only so much time the batter can rise before it falls. When the bubbles finally popped, China had her cake factories, all the baker assistants back home had borrowed more than they could ever pay back, and all the bankers back home had made enough money to live happily ever after.

Now came the appointed hour of the triumphant party for the return of the Empire. By this time, China had been building ingredient relationships unabated, because the bakers back here at home no longer bought baking ingredients. China had built the world’s fastest, largest most efficient ships to bring all the needed ingredients to her shore. She had built massive highways to transport the ingredients to her impressive, massive, modern cake factories. She had educated all her people to fill the ranks of cake bakers. She had saved historic amounts of money from the cheap baked goods she sold to the baking assistants back home and now could buy all the ingredients she needed.

But wait, what about the party back home? Now that it was time for her great celebration, China bought up all the ingredients that were supposed to be for the party back home. The baker’s assistants back home no longer had money to buy cakes, so the Chinese cake factories now could turn their focus inward on their country to bake for the celebration. But really, Chinese cake factories hadn’t any competition for ingredients. The baker’s assistants back home had long lost their knowledge of cake baking. The cake factories had long fallen into disrepair and could no longer be used to make cake. The roads back home were in disrepair. The cake baking schools back home had fallen behind without local businesses to spur them to excellence. The ingredient suppliers had long ago built relationships with China’s bakers and knew where their bread was buttered.

As the triumphant party was being held in China and the great cake was being presented to her party guests, back home all that anyone could do was watch from afar. The bakers had lost their market for cakes back home. Without demand, they could not make the payments on the bank loans and they defaulted. Without sufficient buyers, they turned over their factories to the Chinese. Without customers back home and without money or credit to pay for new cake factories back home, the bakers now became unemployed themselves. The bankers, now without payments on their loans, well they closed up shop as well.

American Predator and Prey Must Rise together Against The Cattlemen

June is the month when the plains of the Serengeti face drought and massive herds of wildebeest begin their migration to sustaining grazing areas. 1.5 million strong, their great migration is followed by predators that feed off the weak, young, and elderly of the herd. Yet the wildebeests produce a swarm intelligence, defending the herd as one against the onslaught of those that would attempt to separate the weak from the rest. This herd instinct protected the wildebeest through thousands of years of predatory balance with lions, hyenas, cheetahs, leopards and crocodiles, yet the wildebeests were not prepared for man and his fences. Between 1950 and 1984, the species lost 94 % of its numbers in South Africa, when fences blocked its migratory paths.

We continue to hear about the dwindling American middle class, our great herd migrating through the political seasons. The Great Middle of America continues to be the food stock of political predators, yet it faces a much greater danger of shrinking from foreign fencing placed by international banking and multinational corporations. If our Great American Middle is to survive, we must now use our swarm intelligence not only to protect from our common political predators, but to rise above the fate of the wildebeest and overcome the greater threat to our ecosystem.

Just as lions run through a herd of wildebeest to separate out the weakest prey, our political extremists seek to divide the herd through stereotypical “Willie Horton” attacks and to prey on the weakest of us. It is the nature of the American two-party political wilderness. For any extremist to succeed, they must find the balance within the Great Middle and tip it through distortions and spin through herd mentality to their view if they ever expect to feast on wildebeest.

Charging headlong into the herd, they slander race and religion to divide and conquer. Education, color of collar, age, sexual orientation, status, income, even patriotism has come under verbal attack to effectively divide. These are the ideological tactics to scatter the herd of Great Middle to the edges so that predators of extreme ideology may tear apart the flesh of the weakest for sustenance. As the Great Middle scatters, it diminishes.

Stampeding wildebeest confuse their predators by their sheer numbers. As we migrate through the political seasons, the Great Middle’s swarm intelligence must overcome political extremists’ use of herd mentality to separate. Stampede the herd! Test extremists as to their proximity to the constitution, and the furtherance of our country, by their neglect of our downtrodden and of the voiceless in America, and by their common defense against fencing.

The great migration of wildebeest and predators is an ecosystem threatened by fences built to deny its very existence. Cattlemen wanting to protect graze lands for financially motivated cattle herds foreign to the Great Plains, erected fencing for their narrow self interests. As the health of the wildebeest herd diminishes, so too does the health of predators. Lions are endangered with numbers dwindling below thirty thousand.

The American ecosystem, with its Great Middle and extremists must now also be protected. We sense endangerment, yet distracted from the predation of extremists, we do not yet have the tools to protect America from foreign fencing put up to disrupt our political migration. With international banking and MNCs redirecting markets, production, financing and wealth away from America, both extremists and middle America must rise above instinctual predator and prey responses to defend our country against foreign invasion and financial treason or our Great Middle migration will end and the American ecosystem will fail.

Will EurAmerica Enter a Cold Financial Winter? (Revised)

When China announced to the world that it would open its doors to foreign investment, multinational corporations from both Europe and America rushed to stake a claim to a unique gold rush opportunity of historic proportions. China offered EurAmerican MNCs that agreed to share trade secrets and intellectual capital, that had capital to expand China’s manufacturing infrastructure, and that could open their own countries to China’s goods, the opportunity to participate in China’s newly opened special economic zones, with the hope of marketing to their 1.3 billion people.

Requiring massive investment to capitalize on the opportunity, MNCs sought the support of international investment banks and lobbied home governments to provide looser, deregulated capital markets as well as to submit to opening home markets to “free trade”. MNCs then began a three decade long extraction of wealth, factories, and jobs from EurAmerica to build China’s manufacturing infrastructure and GDP.

At the beginning of China’s historic rise, American politicians freed capital for China investment by reducing taxes of the investment class of Americans; through a reduction of the top tax income rate from 70% to 50%, through reduction of capital gains tax from 28% to 20 %, and through tripling of estate tax exemptions. As more and more capital was needed, America’s baby boomer retirement investments were developed for ease of use in China. In America, 401Ks, started in 1980, and IRAs, made available to all citizens in 1981, siloed middle class investments into the stock market that directed a majority of retirement funds toward China.

Later in China’s growth cycle, EurAmerican banks devised ways to extract even more capital through debt instruments from their citizens. EurAmerican interest rates were set low, creating the credit to extract maximum capital to fund the growth of China’s manufacturing infrastructure through home equity and business development loans. Yet, to meet China’s capital needs in the exponentially growing latter stages of growth, extreme capital extraction through maximum borrowing of a majority of private citizens and public entities was required.

Investment banks created a method of extracting maximum capital from EurAmericans’ main investments, their homes. To accomplish this, Investment banks restructured the banking industry. They first created methods of incentivizing consumers to take as many and as large of loans as possible through risky, low interest, no income verification loans and other, more predatory loans. They also rid commercial banks of their traditional, credit restricting roles by incentivizing them to make as many loans as possible, with minimal risk because they could simply resell the mortgages to the investment banks for a profit. Finally, they developed complex, (and unfortunately faulty) derivatives to buy mortgages from commercial banks and repackage them for profits.

In the process, a majority of consumers that could afford it were lured through ease of access and Ponzified greed into their debt web. Greed played its part with commercial banks as well, as most became willing accomplices of the role that investment banks created in transforming them into maximum credit authorizing, debt creating factories to feed the raw commodities of capital that China needed for her later growth stages. As beneficiary of EurAmerica’s capital, China became a strategic partner to the process by supporting low EurAmerican inflation and interest rates through:

• Accepting free flow of manufacturing infrastructure into her economic development zones
• Funding infrastructure debt payments through sales of low costs goods back to EurAmerica
• Mitigating international demands to revalue the Yuan higher by maintaining historic trade imbalances with EurAmerica and reinvesting Yuan back into EurAmerica
• Keeping internal inflation low through internally enforced savings of wage controls and removing excess Yuan from circulation through funding trading countries deficits
• Managing external commodity inflation through aggressive development of international Greenfield commodity projects to supplement absorption of long term international commodity contracts and relationships that were left unattended by EurAmerica.
• Reinvesting surplus capital into EurAmerica, keeping world interest rates low to extract last vestiges of EurAmerican capital through historic levels of corporate and private debt

When this historic, debt driven, extraction of two great empires’ wealth reached its zenith, like all financial bubbles finally do, public, private and corporate debt had stretched beyond its ability to pay, exceeding $50 trillion dollars in America alone. The financial herd had stretched so thin that it simply required a few debt ridden gazelle to nervously default to start the whole herd stampeding frenzily toward the bank runs that inevitably follow peak excess. This time in history, it was the unraveling of the predatory American home loans that toppled EurAmerica’s financial house of cards. Nonetheless, if not for this gazelle, another would have jumped to take its place, for no exuberant and irrational credit binge ever stands in the longer term.

When this Rube-Goldberg loan scheme supporting the massive capital transfer from EurAmerica to China finally collapsed, investment banks were pushed to the precipice of default. Acting independently of government mandated goals, central banks, with the Federal Reserve out front, stepped in to protect the banking industry by providing liquidity to those investment banks most at risk. They did so claiming that not providing liquidity would have caused domestic businesses and private citizens to default through massive foreclosures, bankruptcies, layoffs, financial and operational restructuring.

Unlike previous historical investment bubbles, in which many investment banks failed, EurAmerican central banks temporarily saved the vast majority of investment banks through simultaneous, massive expansion of the money supply, staving off a rapid disintegration of public, private and corporate debt, recorded as assets on their balance sheets. Recognizing further monetary support was required, the Federal Reserve attempted to mount another widespread EurAmerican expansion of money supply but Europe, intent on preserving its courtship of unification and now dealing with the crisis of PIIGS deficits, did not concur. Without palatable alternatives, the Fed embarked on a Romanesque fait accompli of reserve currency monetary expansion, attempting to reverse the entire world’s contraction of money supply through what they termed Quantitative Easing.

It appears that temporarily at least the Fed’s Quantitative Easing policy have strengthened EurAmerican banks’ balance sheets, transferring some toxic assets to sovereignties, and have girded them to endure the coming double dip recession. However, it failed to accomplish their stated long term debt stabilizing goals. Unemployment is once again increasing, housing prices have reversed and are falling, and while some European countries have begun to institute austerity programs, America is projecting trillion dollar deficits for the remainder of the decade.

Unfortunately, the Fed does not have the magic bullet to repair the only ways to truly provide long term stabilization of massive EurAmerican debt supporting their balance sheets. To do that, EurAmerica must stabilize the underlying ability and desire of their debt holders to make debt payments. This can only be accomplished by:
• Maintaining and growing EurAmerican economies
• Reducing real EurAmerican unemployment
• Increasing the nominal values of EurAmerican Housing or restructuring housing debt
• Eliminating public deficits
• Reducing non-value generating debt
• Maintaining minimum interest on existing debt while incentivizing its reduction and saving

Without immediate and urgent prescriptive measures to meet the above objectives and to mitigate the impact of EurAmerica’s retreat from previous financial investment and consumption patterns, a cold, worldwide economic winter most likely ensue. American direct foreign investment has already begun its inevitable descent. Europe’s protectionism has kept available resources flowing to China but EU will soon follow with fewer investments in China as well. China will react with less support for EurAmerican deficits, severely restricting EurAmerica’s monetary managment options.

If we do not act soon, our political systems will be forced into severe austerity measures. The world will enter a deep and disruptive recessionary cycle from which countries and entire regions will eventually emerge in an entirely new trading pattern; one that is China centric, developed around its newfound industries that were funded by EurAmerica at the turn of the 21st century. China will emerge first, building on its excess modern manufacturing capacity and hegemonic commodities relationships. When at last EurAmerica exits from the long winter of debt riddled recession, it will follow the path to the Asian economies.

Prescriptions to follow…

Is the China Gold Rush Ending?

In 1849, a rancher named John Sutter sent men to the American River to build a saw mill. Instead, they found gold, starting a rush that brought over 300,000 ‘49ers from across the world to eventually prospect another $12 billion in gold from surrounding hills. The discovery created an enormous expansion in America’s money supply, some by the very gold found in nearby streams. However, much more money was created by debt instruments that funded the Gold Rush. Banks funded the passage of thousands prospectors to buy passage to California, to purchase goods to pan for gold, and later to fund companies that organized for that purpose. By 1850, banks from St. Louis, Boston, New York, London and Paris spurred the growth that created the State of California.

The growth of population in California and Oregon fueled railroad expansion to the West. The completion of the Transpacific Railroad in 1869 started a great railroad speculation, funded both by American banks and European investors. In four short years, investment of track doubled to 35,000 miles. America’s investment in rail and encouragement of immigration spurred a revolution of competitive wheat production and American export of low priced wheat to Europe. Europe now found that the capital it had supplied to build America’s railroads, gathered from its previous decade of speculative housing construction, was the very capital that fueled its demise into a depression which lasted from 1871 through 1893.

With the shortfall of hoped for European funding, American banks became overextended as speculation continued unabated. Jay Cooke and Company, the Goldman Sachs of the time that had funded the North during the Civil War and that had funded the successful Transpacific Railroad, tried and failed to corner the gold market to fund its investment in the Northern Pacific Railroad. Instead, it was forced to file bankruptcy in 1873, triggering America’s Long Depression, collapsing major banks, bankrupting 89 of 364 railroad companies, and an additional 18,000 businesses. The extreme speculation and overbuilding in the one industry of railroads triggered a great depression. This massive over speculation was not seen again until the even greater housing industry speculation in America that ended in 2008.

Similar to California, China has become the land of gold rush for EurAmericans. In 1978, China embraced its four modernizations and opened its doors to the West, creating a gold field of capitalist opportunity. Gradually at first and then in a frenzy, tens of thousands of businesses rushed into China, over ten thousand U.S. businesses in the last decade alone. Similarly to America’s gold rush, U.S. and international banking interests made a fortune supplying MNCs with the capital required for their prospecting.

To feed this frenzied opportunity, American banking interests tapped into the immense financial wherewithal of the American people. Through a Great Ponzi Trifecta, banks accumulated debt derived capital from the Savings and Loan Ponzi, the Dot.Com Ponzi, and finally the greatest Ponzi ever known, the EurAmerican housing bubble. Hordes of EurAmericans were convinced to leverage their future earning ability to create debt that could be flipped through derivatives to fund China’s gold rush.

A dollar multiplicative frenzy sped much of America’s future wealth creating potential into China prior to the Ponzi’s ultimate collapse. As housing prices, and subsequently commercial real estate prices, soared beyond the ability of the American economy to cover the underlying debt, the purveyors of this debt mountain continued to assure investors that a new economy had emerged that supported such imbalances. Yet American wages did not keep up with the rise in housing and counterbalancing forces such as a lost industrial base and historic government deficits finally stripped the Ponzi of its legs, and America’s Great Middle Class funding of China’s gold rush subsided.

Just as Europe lost its wherewithal to fund America’s railroads after America undercut European commodity prices in the 1860’s, America lost its ability to fund China’s growth as MNCs gave China the ability to undercut American industry. However, unlike 1873, America’s Federal Reserve softened the impact of international banking excesses, mitigating the collapse of Bear Stearns, protecting the securitization of AIG, and supporting world banks through massive expansion of its money supply. However, the implosion of the securitization market left China with a weakened EurAmerican engine of direct foreign investment.

June, 2011, marks the supposed end of debt driven EurAmerican speculation helping to fuel China’s growth with the pre-announced ending of Quantitative Easing. If Bernanke follows through on his promise, America’s money supply will begin to contract similarly to America’s contractionary policy following the Civil War leading up to our Long Depression of 1873. Our Congress is also debating contracting governmental spending simultaneous to the Feds potential contraction of money.

Recent reports may have quietly forebode America’s double dip recession with the downward reversal of home prices and downward reversal of job creation. Has China enough momentum to continue its meteoric expansion without historical capital infusion from the West and with a contracting EurAmerican market for its goods? Or, will China face the disruptive consequences of the world’s most recent speculative bubble?

A Politician, a Banker, and a Multinational Corporate CEO Walk into a Bar

We have a weird set of bedfellows running America. Without contemplating each other’s impact, our politicians, bankers, and multinational corporations (MNCs) nonetheless combine their efforts to make a mess of our country.

[ A politician, a banker, and a multinational corporate CEO walk into a bar. The politician closes down the bar for regulation violations and sends the crowd packing. On their way out the door, the patrons hand their wallets to the politician who gives them to the banker who lends them to the CEO who uses them to buy the bar and send it over to China. ]

Our politicians attempt to make our world brighter by passing regulations that add social costs of production to the cost of our local businesses’ products. Yet, they turn a blind eye to other nations’ lack of regulation that similarly pollutes the world while providing their industries a regulatory subsidy against American competition. MNCs then arbitrage lower foreign regulatory and labor costs to bring lower priced finished goods back to America for sale.

Rather than construct level playing fields, our politicians pander their votes to bankers and MNCs, providing one sided regulations and free trade legislation that subsequently reduces demand for American workers. Not deterred by America’s rising level of structural unemployment, they then pass extended unemployment benefits to pacify the electorate, refuse to raise taxes to cover the consequential damages, and instead ask the Fed to print money.

Our Federal Reserve has dutifully printed money for our politicians for decades knowing that one day it might have to print money for itself. That day came and the Fed helped itself to a whopping 2 trillion dollars of self help money creation. The Fed now stodgily claims that two trillion in quantitative easing will not affect the value of the dollar. Armed with economists to defend its actions, the Fed claims that the economy will grow as the result of QE 1 and 2, requiring more money for more transactions, that the Fed has means to reduce the growth in spending and tools to offset an expansionary increase if necessary, that because of heightened instability in the world market, QE 1 and 2 are being held abroad as reserve assets and thus will not impact price levels, and that it can easily remove any excess supply of money if its QE efforts have overshot.

[ In that same bar sat an Indian, a Chinese National and a West African sipping economic Coca Colas, as was their usual custom. To keep their economy colas cooled from unexpectedly overheating every time the Fed ran into the bar with a teapot of steaming hot water and forced them to take a shot of inflationary devaluation, they kept a few ice cubes of reserve currency on hand. This day, however, was different.

The Fed drove up to the bar in a dump truck filled with steaming hot quantitative easing, forced the three countrymen to place their colas at the rear of the truck, quickly lifted its bed with its sloshing steamy payload directly above the little glasses, opened up the back gate and drowned the colas with a two trillion ton tsunami of worldwide, commodity buying, inflationary steamy hot dollars. The Fed’s two remaining economists who, up to now, were willing to sit publicly in the bar looked sheepishly at each other before quietly removing themselves out the back exit.

An American businessman sat in the bar cheering on the Fed’s hubbub as he chatted with a local barber and a Tunisian barber. He shouted to the two barbers, “Now America will bring back our factories and compete with the world.” He hoped the Fed’s action would devalue the dollar enough that America’s businesses could afford to add value through American labor to globally priced commodities and resell the finished products competitively on the world market.

The Tunisian barber leaned over and quipped to the American barber, “Yes, now you too can come home from cutting hair all day, tend to your chickens and till your garden into the night to feed your family.” Overhearing the Tunisian’s comment, the American businessman wondered if the dollar value actually decreased enough to make American factories competitive, that it perhaps might not be such a good thing for American barber he had just befriended.

The American barber smiled to the businessman and the Tunisian, got up and left the bar in his automobile filled with metals, plastics, rare earth, and oil derivatives, drove to his home beaming with wood, copper, metal appliances, and internet streamed CRTs, cooled by combusted hydrocarbons, reached into his refrigerator and pulled out a relative feast of supermarket distributed, oil grown food commodities for his snack. All the while he was unaware of the coming “QE 1,2,3..n” commodities inflation that would level his playing field down to that of his Tunisian bar buddy. ]

God Save Us from the Fish Mongers – An Allegory

A small, tropical isle fishing village sits across an inlet from a much larger fishing village to the east. Both villages want for little, spending their days either fishing or taking leisure. The western villagers choose to fish in deep-water, prime fishing grounds where catches are ample and large. They have much leisure, for long ago a western family learned to use the woodlands of their island to produce boats. The eastern villagers, lacking boat building skills, are forced however to cast long hours along their shores for smaller inlet fish. The boat building family enjoys even more leisure than most because their skills provide access to the deep waters so their villagers give them a bit of fish from every catch.

Desiring vessels for their people, eastern village elders approach the boat builders with head gear in hand, explaining that they will provide twice the fish of the western villagers if the boat builders will also supply them with boats. With such an agreeable offer, the boat building family begins to supply boats to the eastern village, and soon eastern villagers can be seen venturing out into the deep for fish.

Flush with fish from the easterners, the boat builders craft an idea. They will trade their excess to westerners in exchange for a return of fish later. To entice their villagers, they will agree to give more fish today than will have to be returned later. Westerners find the offer irresistible because they can enjoy leisure now knowing that some day when they must repay the debt, they will work fewer hours than the hours of leisure they gain today.

Having an abundance of both leisure and fish but now lusting for more, the boat builders unwittingly cast aside their future and that of their island as they craft another idea. They will teach eastern islanders the secrets their forefathers gave them about boat building in exchange for a bit of fish from every catch of the boats the easterners build. Yearning to harvest more of the deep waters, easterners agree to the terms. As the ambitious easterners flood the fishing fields with boats, the western boat building family’s fortunes become titanic.

Mongers now flood the shores with fish from the east, eventually causing a fourth of the western villagers to sit idly by, borrowing from the boat builder’s excesses. Without a need to fish, they slowly lose their knowledge of the seas, and without a need to venture into the deep their boats fall into disrepair. The western village elders, who had survived by taking a bit of fish from every villager as payment for administering the village, now find that with many of their villagers idly living on the fish of the easterners, that they cannot skim enough catch from their villagers to live.

They approach the uberwealthy boat building family for solutions. Lobbying that loans of fish to the idle westerners is good for the westerners because they are receiving more fish today than they will have to repay, the family also quietly agrees to supply ample fish to the elders in exchange for support of continuing eastern trades. Having provided the elders fish that can no longer be obtained from the villagers, the family feels justified in crafting yet another idea. They will give fish to eastern villagers so that they can stop fishing and build even more boats in the east that will return a bit of fish from every catch.

The eastern villagers now control the deep fishing fields and begin to weary of trading fish to the westerners, who must rely on eastern fish, as their boats are no longer sailable. With even more villagers sitting out the long hot days in their huts, western elders grow ever hungrier, so with head gear in hand they travel in weather worn boats to the eastern shore and meet with the eastern village elders by the campfire. Emboldened by their newfound wealth, the eastern elders chide the western elders for their lack of foresight but agree to provide fish in exchange for the promise that the western elders will demand a skim of their villagers’ fish to repay the easterners.

For awhile, this uneasy arrangement continues between the western villagers, their elders, the eastern villagers and the family of boat builders until the eastern village bulges with boats. No longer needing the skills of the boat builders, the eastern village does not desire to give another fish to the westerners but instead demands the western village return the fish they borrowed.

Without the skills or boats to repay their debt, the western villagers look aghast as their elders call them to the camp fire. They no longer can sit by the shore gorging on borrowed fish, nor can they linger leisurely. They must now work long hours catching inlet fish to repay the eastern village. Their previous agreement to pay for earlier leisure with less work hours today was unfortunately sold off by the boat builders. For now, the westerners have no boats to venture into the deep and their labor will be spent casting from the shores. This tranquil village in paradise has unwittingly indentured its future to the easterners.

The family of boat builders, attempting to revive its lost fortunes, now sheepheadishly offers to build boats for the western villagers, but their offer is rebuffed. The easterners are now the preeminent boat builders and one by one, the villagers must meekly travel to the east with head gear in hand, hoping to acquire boats today in exchange for a bit of fish from every catch.

So….Why were the villagers allowed to borrow fish that they could never pay back? Why were the boat builders allowed to give the secrets of the island to the easterners, not only giving away their claims to the island’s boats of survival but the rights to the deep fishing fields that were not theirs to give? Why were elders allowed to borrow from the easterners while so many villagers sat idly? Why did the villagers not see that their elders would yield to the boat builders as a means of their own survival? Why didn’t the western village foresee that letting their skills and boats diminish was unsustainable for their island’s survival? Why didn’t they understand that by borrowing leisure, they would end up fishing for scrub fish along the inlet shore? Why?

Is America Prepared for Kamikaze Finance?

Brett Arends, in his April 25th Marketwatch article entitled “IMF Bombshell: Age of America Nears End”  reports that the IMF has predicted 2016 as the year when China’s economy overtakes that of the United States.

http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25

Perhaps the word bombshell is the right allusion.  What comes to mind is America’s shock and disbelief in 1941 that the Japanese could fly formations of attack aircraft for so long under the radar right above sea level to destroy Pearl Harbor.  Just as Americans were unprepared to foresee the stealth attack of Japan even after years of her militaristic advances, Americans have stood helplessly by as the armaments of American financial defense sit helplessly in Congressional harbors of polarized politics.

Two concepts of financial attack seem reasonable afterthoughts.  First is that exponential financial expansion is hidden from radar until the last few years of growth.  American appeasers failed to recognize that as China expanded it’s economy 10 percent per year for 30 years, the law of exponential growth meant China’s economy would grow 800 percent in thirty years, but that the  greatest 400% would occur in the last seven years.  

The second even more ingenious stealth move unforeseen by America but creating an even more shocking surprise attack is that by holding the exchange rate low for so many years, the Chinese were able to fly even lower to the ocean swells and build a purchase power parity empire undetected by conventional financial defenses.

In preparation for this two pronged financial assault,  China has been building the hegemonic relationships that thwarted Japan’s  military attempt to over take the United States just 6 decades ago.   China also was successful in its hegemonic strategy to preemptively gut American factories through the “treasonous”  collaboration of multinational corporations and international banks residing  in financial cells right here in America.  

Our American factories, that were so successful in mounting a war of attrition against the Japanese in WWII, now lay dormant in the rust belt as 24 percent of our capable American workers line the “soup kitchens” of the American social welfare system and charitable organization’s generosity.  This time around, without the physical and financial capabilities to defend ourselves from within, it may be Americans who are forced to display patriotism through financial kamikaze during the end stages of the American empire.

How Could America Have Squandered the Gold of Ancient Egypt and the Incas?

Gold has been the store of human endeavor since ancient times. While each ounce of gold can hold only a finite amount of labor, perhaps 1,000 hours in non-industrialized nations, some of the gold locked in Fort Knox has touched millions of hours of labor from civilizations untold. For gold’s greatest benefit, as with all money, is not its storage of value but its lasting ability to temporarily hold value in the exchange of non-coincidental barters.

For millenniums, money was the interchange commodity for simple trades as between farmers and herders. The farmer gave the herder a coin in winter for meat, and the herder returned the coin at harvest time for a bushel of vegetables. Farmers and herders relied on the value of gold because precious metals took effort to mine and purify, were tested for weight and purity, and could be stamped, coined and carried. With such a universal appeal, precious metals became synonymous with storage of value and dominated the world’s choice for money.

At one point, America held within its coffers 70% of all the gold that has ever been purified from ancient Egypt and the Incas through modern times. But it was our misjudgment as to the true value of gold that robbed our forts of ingots and brought America to the precipice of ruin. As history’s greatest superpower, why did America not learn from ancient empires that tumbled down the path to insignificance, and why did we allow our government to amass more debt than has ever been owed by every other soul that has ever lived?

1964 marked an accelerating turning point in America’s misfortunes. In 1964, President Johnson was elected to enact Great Society reforms just as America was increasing her involvement in Viet Nam. Baby boomers were entering the work force just as multinational corporations were beginning an upsurge of direct foreign investment and the transfer of jobs to overseas markets. America’s use of oil was peaking just as political undercurrents were coalescing around oil as a geopolitical force.

Six simultaneous assaults on the American dollar joined to fuel the American financial malaise; a lack of fiscal adherence to a gold standard, military excursions in support of American interests, funding of the great society, a lack of will to respond to oil cartels, multinational corporate indifference to the plight of the American worker, and a financial industry gone wild.

America did not Steward Its Gold

Even though, for 600 decades of recorded history, gold was the stable base of transactions, the world has temporarily abandoned this gold standard for the last 5 decades. Our abandonment was not because of the world’s enlightenment that gold is an unnecessary physical impediment to the electronic age of finance. It is because, with no viable alternative, the world has clung to the hollowed out American dollar that inflated beyond the discipline of the gold standard.

In the 20th century, industrialized nations twice attempted to redistribute wealth through great wars that left all of Europe bankrupt. Afterward, America held 70 percent of the world’s processed gold, and became through Bretton Woods the gold-backed, paper money guarantor of the free world. During the next 15 years, America squandered her gold to cover currency imbalances, until by 1960 the dollar lost its legitimacy. Interestingly, it took Spain over a hundred years to squander its 20,000 tons of Inca gold.

From 1971 until now, America and the rest of the world have had little choice but to allow our currencies to float, giving up the imperfect discipline imposed by a gold standard. As a result of America’s freewheeling monetary policies, it is now encumbered by a spend drunk Congress and an obliging central bank that have conspired to reduce the value of America’s 1971 fiat dollar to a mere 17 cents today.

Scholars suggest that the reason for the dollar’s fall was the inevitable Triffin dilemma which requires America to carry a current account deficit to provide the world with reserve currency. Yet debt financed trade imbalances are not required to provide reserves. Reserves could just as well have been sold to other countries as given to them through trade shortfalls. No, America’s post war monetary policies quickly gambled away the historical hegemony that was bestowed on us at the end of two world wars.

This five decade hiatus from a gold standard will prove only temporary. Gold’s appeal as the engine of financial growth has not been lost on China. At the end of World War II, U.S. gold reserve was over 18,000 tons but has since reduced to 8,000 tons. China is executing a strategy of purchasing approximately 250 tons per year and, as the world’s largest producer of gold, producing 320 tons per year, and now has surpassed all but the U.S. as the second largest holder of gold with 2,000 tons.

Military Excursions Drained America’s Coffers

Without the ability to borrow vast moneys, earlier civilizations relied on warring, exploration and conquest to quickly expand their stores of gold. This strategy was not without consequences. To fund war, Rome engaged in coin clipping and smelting with lesser metals to reduce size and value of denarius in attempts to pay soldiers with coins of veiled value. After 200 years, the Roman denarius reduced from 100 percent silver to only 5 percent just prior its army leaving Rome unprotected from invasions and fall. Interestingly, it has taken less than 100 years for America’s dollar value to plunge that amount.

As all empires have before, America found that its wars must be financed with inflation. The Fed supported an excessive expansion of the money supply (dollar clipping), creating debt to fund each of America’s wars. The Civil War added 2.8 billion. WWI added another 21 billion. WWII created another $216 billion. The Korean War was financed with taxes. Viet Nam increased the debt $146 billion. Cold war expenditures cost 1.6 trillion. The first Gulf War cost a mere $7 billion. In contrast, Iraq cost $786 billion and Afghanistan cost $397 billion. Not including the 700 foreign soil U.S. military bases that contribute greatly to America’s balance of payments deficit, her major wars added a total of $3.4 trillion dollars of carried debt.

The Great Society Became the Broke Society

President Johnson outlined The Great Society in his State of the Union Speech on January 4, 1965, saying “The great society asks not how much, but how good; not only how to create wealth but how to use it.” Notwithstanding the good that was done by these programs, they drained America’s future potential GDP growth and the money that would fuel her economic engine.

46 years later, Great Society initiatives touched education, health, urban renewal, transportation, arts and culture, Medicare and Medicaid, the Food Stamp program, Project Head Start, The National Endowment for the Arts, The Corporation for Public Broadcasting and federal aid to public education for a total expenditure of $9.5 trillion dollars.

America’s Addiction to Oil Made Us Slaves to the Oil Cartel

Oil enabled powerful nations to create a world order that flowed money from agrarian nations to those that controlled hydrocarbon powered machines. Oil was the catalyst that propelled the 20th century’s world leaders into fortune and thrust the world into war. Oil is a finite fuel, controlled by a few nations that are barely separated geopolitically and have common ancient civilizations and modern goals.

Already struggling from Viet Nam and Great Society debts, America found herself the object of a politically motivated oil embargo in 1973. Fuel prices soared and supplies tightened to cause the 70’s stagflation in America. From then until now, America has not found the political will through fluctuating fuel prices to organize an intervention away from oil dependence.

Since the embargo, America has consumed 250 billion barrels of oil at a total cost of $11 trillion dollars. This debit line in our national budget has only one trade, oil for dollars. Had America given our energy war a smidgeon of the effort of placing a man on the moon, we could have easily reduced energy consumption by 20 percent for the same productive output, transportation, and environmental comfort, and saved 2.2 trillion dollars. Surely, the costs to achieve such a modest conservation would have to be netted from the gross, but those costs could have been internally generated and added to America’s GDP.

America’s Multinational Corporations (MNC) were Indifferent Citizens

While America fought the war on poverty, her political leaders surrendered to the war on American jobs. Certainly, with the relative world peace supported by America’s military, globalization was bound to occur. With the risk of direct foreign investments reduced, the last five decades have unleashed an acceleration of money flow and intellectual capital from America to other countries.

While over 4 trillion dollars have been invested overseas by American uberwealthy, America has also been a receiver of investment, so that the net outflow has only been 0.7 trillion. However, the loss of America’s wealth and jobs has been much greater, contributing to a stagnant workforce where one in four able Americans has been idled. MNC direct foreign investment has indirectly added $4 trillion dollars to America’s debt.

The Fed Financed MNCs and Saved Banks but Failed to Keep America Employed

During most of the 17th century, Europe embroiled itself in wars that killed 30% of its population. Some of the world’s largest banking houses failed as royal debtors defaulted, including England in1672. Finally, in 1694, the king agreed to give the Bank of England authority to print all of England’s bank notes in exchange for bank loans to support his war with France. The newly created Central bank, having transferred its risk of loss to British subjects, profited simply by printing money for the monarchy. However, this excess printing did not stop the emptying of England’s coffers.

After America revolted to escape the monetary control of the Bank of England, Hamilton, the United States’ Secretary of the treasury, proposed a charter to a create a similar central bank for America. Against Thomas Jefferson’s insistence, the First Bank of the United States became the precursor to America’s Federal Reserve. Some say major banks manufactured a bank run in 1907 to destabilize the Treasury and instigate support for the Federal Reserve Act of 1913 establishing the Fed, a quasi-agency, private enterprise with a quasi-public board.

From the establishment of the Fed until today, many have argued that major Fed decisions have enriched banks at the expense of the American People. An example is the erroneous decision the Fed made to keep interest rates high for an extensive period of time as America and the World clearly were entering the Great Depression. Also of heated debate was the decision to bail out the banking industry at the start of the Great Recession.

Nonetheless, Fed decisions combined with lobbied efforts to reduce financial regulations, allowed Wall Street to orchestrate multiple financial bubbles that consecutively destroyed value in American portfolios. It cost taxpayers $88 billion to bail out the S&L crisis. The boiling and bursting of the dot.com bubble evaporated $5 trillion dollars. Notwithstanding that the credit default bubble lost the world $30 trillion in value, it has thus far cost America $51 billion in bank bailouts, $787 billion in stimulus, $1.5 trillion in quantitative easing, $5 trillion in lost property values, and with over 5 million bankruptcies and 5 million foreclosures, ruined trillions of dollars worth of wealth generating credit.

In Conclusion

Adding up the numbers versus our $15 trillion dollar debt, it is amazing that the resiliency of the American economy is thus far holding ground:

10,000 tons of gold: $0.5 trillion
Wars: $3.4 trillion
Great Society: $9.5 trillion
Lack of Energy Policy $2.2 trillion
MNC DFI: $4.0 trillion
Banking Debacles: $12.4 trillion +
Total $32.0 trillion

The idea of currencies unsupported by gold reserves is not in itself troublesome. Whether Crowley shells, tally sticks, or paper money, if the market has trust in its role as a place holder for non-incidental barter, any money will do. However without the external discipline imposed by a gold standard, America must instead substitute gold’s imposition for a President strong enough to stand for American sovereignty, a Fed subjugated to defend a stable currency, a Congress selfless enough to impose its own financial discipline, and a willingness of American businesses to defend American jobs. Otherwise, America’s five decade reign over this short lived worldwide fiat money dollar system will come to an end.