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.

The Rise of the Industrial State – The Fall of the Nation State

Up until modern times, individual greed suited the village, the city-state, the feudal system, the nation. Each nation provided for the betterment of its people, through internal and international trade, war, and mercantilism. The greatest of history’s ancient capitalists were the nation builders who attempted domination of their known worlds through conquest. All failed prior to the industrial age because the energy required to capitalize the value of their worldwide sphere of influence was greater than could be compiled by the organization of vast armies. Worldwide domination could not be accomplished by 1,000,000 or so manpower.

The captains of industry that emerged from the industrial era did what no other capitalist had done since the dawn of time. They controlled not only the energies of man, both bodily and intellectually, but enslaved energy from the bowels of the earth to multiply man’s productivity a thousand fold. Through industry, they could grow industrial empires to eventually harness not only the energies of their nations but of the entire world.

Early in the industrial revolution, this power was contained within the geographies of the nation states. Prior to WWI, colonization fed raw materials from other nations through machinery contained within industrialized nations. Wealth was dispersed to machinery workers and taxed for the benefit of the nations to support their under classes. While the enslaved hydrocarbonic energy of industry had the power to grow exponentially to dominate the world, its time had not yet come. First, hydrocarbons had to be tested by the unbridled desires for nation building that had dominated the centuries before.

Captains of statism still controlled the lives of mankind. These leaders of nations did not yet understand the ultimate power of industry. They thought it could be transformed to once and for all dominate the path to world economic power that had been unsuccessfully attempted by all the previous conquerors in history. This newfound harnessed energy that multiplied man’s output could perhaps be used to capitalize the world’s value through worldwide domination using energy to multiply the power of assembled armies to more than 1,000,000,000 or so hydrocarbon energy enhanced manpower of warfare. Theirs was the grotesque hydrocarbon experiment that had to be played out in the early 20th century.

Great energy driven wars were wrought to subdue the world’s geography. In the end of two great wars, 80 million people had been killed and twice as many maimed in the attempt to control the world’s economies through hydrocarbonized warfare. The captains of statism had assembled great armies accompanied by war machines that directed hydrocarbonic killing contraptions of historic proportions. Modern warfare had ironically made massive armies obsolete, and had castrated the world conquest dreams of most of the statist capitalists.

Yet one nation state above all others, the United States, capitalized energy driven warfare for the benefits of its citizens, dominating the transitional era from that of the nation state to that of the industrial state. Through its obsessive militarized harnessing of the power of hydrocarbonic war, America subdued all other nations within its desired sphere of influence. The demolishment of human capital by the end of WWII and America’s monopoly of the military complex gave way to the transition of the rise of industrial states.

The error of the America’s strategy was that industrial capitalism could not be bound by the geographies of state. Although isolated pockets of multinational corporatism had existed prior to WWII, especially in the oil industry, from the 1960s to the present, multinational corporations expanded exponentially. As they did, corporate taxes that nation states had previously counted on to sustain the needs of their under classes, could not be as easily derived as MNCs, these growing industrial states, expanded across geographic borders.

Commerce is driven by profit motive. Profits had served capitalistic nation states well for centuries because growing wealth of industry could be harnessed through taxation to serve the needs of a nation’s people. However, as industrial states began to cross geographical borders, the ability of nation states to feed off their profits was diminished. And as world-wide military subjugation of “rogue” nation states continued, and threats to world commerce was subdued, ironically industrial states began to value the protection of nation states less.

By the 1960s, all that was to be done to mop up the world’s major commercial threats was to subdue the soviets across the world chess board while isolating other non-capitalist nations from participation in growing capitalist trade. While this decade’s long tactic was completed, great expanses of geography were tamed for commerce. Trade grew exponentially between participating industrial nation states, supported by their satellite commodity colonies and post colonial commodity hegemonies.

The 1960s and’70s saw exponential growth of both the size and number of multinational corporations. The largest multinational corporation in 1970 was GM with revenues of 24 billion. Yet it was the opening of China in 1978 that provided the fuel for worldwide domination of the industrial states. By 1990, GM still dominated, now with revenues of 126 billion. By 2000, six of the top 10 world corporations were banks. By 2007, Wal-Mart was the world’s dominant leader with $348 billion in sales.

Certainly, even in 2011, with its ability to obtain through taxation $2.6 trillion dollars in revenue, the United States is still a much greater economic power in terms of consumption than Walmart is in terms of productive value. Yet with deficits over a trillion dollars compared to Walmart’s profits of $13 billion, America’s ability to sustain itself grows ever more fragile.

The United States’ deficits are predicted to remain above a trillion dollars for the remainder of the century as multinational corporations grow in their ability to exploit the geographical limits of its taxing reach. The United States has exercised only limited power to corral any employment benefits from the expansive growth of multinational corporations, leaving its citizens enduring unemployment and underemployment approaching 20 percent. And the United States is not alone. With cross border monetary resources at their disposal, multinational corporations are able to thwart efforts to align their profit motives with taxation and employment motives of industrialized nations throughout the world.

The transition of power from nation states to industrial states is nearing a maturing phase in which the state authority will reach maximum impotence. America’s strategy of dominating hydrocarbonic warfare has already reached the peak of its impact and is waning. In this maturing environment, China may be the one country that has envisioned a strategy that can harness multinational corporate energy within its borders. As a result, it may ride the rising tide of multinational corporate waves to the domination of all other nation states. China’s power to sustain itself during the peak world domination phase of the multinational corporation, however, has yet to be tested.

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.

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…

QE2 Has Precipitated the End of Post-Bretton Woods Money

The worldwide economy runs on a Post-Bretton Woods concept of money. Central banks create enough new currency out of thin air to provide adequate money velocity. This new money is then inserted into the banking system that then lends it out according to the public’s credit potential to pay it back with interest. The public then multiplies money through purchases of goods and services that create economic output and that redistribute currency back into banks for relending to other members of the public who demonstrate a viable ability to repay.

When an economic shock stalls the money engine, it must be restarted while the economy is on a glide path prior to freefall. When money supply is temporarily pulled from the economy, loan creation that multiplies money is temporarily halted, shrinking the supply of money required to pay back existing loans. When this occurs, although the public still has the skills required to create value to pay back loans, it loses access to money to repay the loans.

If temporary money supply disruption is allowed to fester, enough unpaid debt cycles accumulate to create collapsing credit, toxic debt, shrinking money supply and deteriorating markets. When the economy stalls, one of two government interventions must occur to reverse the trend and right the world’s money growth. Either credit limits must be loosened to allow for borrowing to cover unpaid debt plus future growth, or demand must be increased to create enough credit under existing credit conditions to cover unpaid debt plus future growth. Which process is most viable depends on the extent to which the markets have been allowed to fester.

In the first days of the Great Recession, banks knee jerked in response to collapsing real estate and slammed the credit market shut. Worldwide central banks quickly responded by attempting the first of two interventionist tools. By infusing currency from thin air, they hoped to provide cover for free-falling real estate prices, and to re-establish credit into the market. Had banks re-established loose credit, businesses would have bet on an increasing economy and would have used the new credit to increase production, thereby maintaining employment and multiplying money. However, the toxic asset load from the housing Ponzi was of such historic proportions that central bank loans did not repair bank balance sheets enough to incentivize re-establishment of credit. Without forgiving insolvent bank debts that would have correspondingly collapsed the world’s money supply and depressed world markets, governments indefinitely stalled the traditional banking engine of money growth.

Each month that banks remained functionally insolvent, increased business risk. As money supply collapsed, demand decreased correspondingly decreasing the willingness of businesses to bet on producing supply before demand. When the risk chasm became too great, the economy stalled and then collapsed.

Government Keynesian central planners then attempted a correction through the second of their interventionist tools. However, the stimulus packages they devised to attempt to bridge the demand gap created artificial demand in too concentrated pockets of industry and created too small an artificial demand to restart an economic engine that requires the credit and faith of every able consumer, worker and business in the world pulling on the ropes of credit derived money multiplication.

Both traditional methods of reversing money collapse, central Keynesian planning and central bank capital infusion, proved ineffective. Without effective worldwide government and central banking tools, festering turned parts of the world’s economy gangrene. No single government had the ability to re-start the world’s engine, and no worldwide consensus of political will existed to simultaneously and aggressively create the size of artificial stimulus required.

In desperation, the United States Federal Reserve has embarked on an unrealistic attempt to float the entire world’s money collapse by inflating the world’s Post-Bretton Woods reserve currency through what it coined “Quantitative Easing”. However, any attempt by one country, even the United States, to singlehandedly recover the world’s economy, even with an untried policy as aggressive as quantitative easing, has fluidly dissipated to fill the world’s credit gap without the desired stimulus effect. The temporary momentum created through massive QE creation of dollars out of thin air allowed for a temporary, mild upward glide of the economy, but anticipating the June, 2011 end of QE2, the world adjusted its glide path and its real economy is beginning another freefall.

The Post-Bretton Woods system of worldwide money supply being introduced through fiat currency backed by the simultaneous introduction of credit enhanced value creation has, in effect, been severed. Now that the United States has raced ahead of the world’s traditional money supply, the Fed must either continue down the slippery slope of additional quantitative easing leading ultimately to the collapse of the dollar, or revert to an alternative, non-traditional, never before tried fiscal or monetary tool, to escape from its trap. Any alternative tool will invariably destroy the world’s faith in the dollar as the reserve currency, and will mark the end of the Post-Bretton Woods concept of money.

Why Do Democrats and Republicans Play Childhood Games with America’s Future?

As young boys, growing up in Ohio, we spent many summer days playing “Smear the Queer”. We didn’t know the inappropriateness of the name of the game as young boys. We only knew it meant coming together in fields behind our suburban homes to blow off summer energy and to demonstrate each other’s bravado. The game consisted of one boy holding onto the football as long as possible by running to escape the others. Each boy would run with abandon in his chosen direction until the rest of the pack would catch up and dog pile him into the ground. Another kid would then capture the ball and run headlong in the opposite direction knowing that the crowd would soon pound him into the ground as well.

In this childhood game, there were no winners, no advancement of the ball to score for the team. There was only chest pounding, boyhood energy, and bull headed bravado. Because we were oblivious to the bigoted implication of the game’s name, we perhaps could have been forgiven in our 1960’s innocence of youth. However, America’s two political parties, claiming to be learned elite, continue this politically incorrect game with reckless abandon in the year 2011!

In the midst of an historic crisis that left 24% of our able workers sidelined from our economy, a crisis that may eliminate America as the leader of the free world and sentence us to a diminished future, our two parties have refused to be either a beacon of hope or a forum of reason. Instead, as each party has been given the opportunity to gain the support of all Americans, they have foolhardily run with abandon in the direction of self interest. Easily discerning their veiled motives that disregard most of America, our electorate has voted to quickly dogpile each party.

In 2008, after elections signaled America sought “change”, the country experienced a monetary crisis that impacted us all. Instead of rapidly revising agenda to lead us out of crisis, the Democrats lunged forward with wealth redistribution and universal healthcare, worthy goals for their party, but lacking acknowledgement of our country’s need to wage war.

Punishing blind loyalty to party, the Great Middle dogpiled the Democrats in 2010 and elected leaders who promised to get the country back on track. Instead, when the Republicans gained firm hold of the football, they giddily sprinted for the other side of the field toward their ideals of wealth protection, union destruction, defunding of Planned Parenthood and NPR, and cutting of entitlements.

The New York special election that gave a majority to Democrat Kathy Hochul in a Republican stronghold once again signaled the Great Middle piling on a party that irresponsibly misconstrued its mandate. Instead of advancing the Great Society in the absence of real economic growth, and instead reverting to trickle-down economics after having shipped 40,000 factories to China in the last decade, America wants critical leadership.

The Democrats are now beating their chest because they succeeded in mongering fear to protect Medicare from the likes of Paul Ryan. In the absence of leadership that calls for sacrifice from all Americans but that promises to not leave any of our brethren behind, this election signals that Democrats will likely get their turn to run like silly school children toward their camp in 2012.

But America cries out, “Where is our great leader?” Who will blaze a path forward that all can follow? Ask us to sacrifice for we must. Reduce our entitlements but put all able Americans back to work. Reduce government spending but divert it now into the private sector and transfer government jobs immediately into private domestic endeavors that can rebuild our future together. Call on multinational corporations to sacrifice for America’s future productivity. Divert dollars that continue to keep insolvent international investment banks afloat to keep America afloat. Put aside your silly boyhood games and lead.

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. ]

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.

Unemployed 99er Population Rises Dramatically in March

As reported in The “Real” Long-term Unemployment Report. from the blog http://www.layofflist.org

The March Employment Report was again pumped as another victory in the war against unemployment. But for millions of long-term unemployed, it’s still a brutal battle to find work. That’s why it’s unfortunate that most main stream media outlets and politicos seem incapable of understanding, or chose to ignore the “real” unemployment numbers.

The BLS reported that unemployment (U3) for March was 8.8%, which is a slight improvement from February’s 8.9%. 216,000 jobs were created, but that’s a relatively small monthly number of jobs for what is supposedly a strong economic recovery from the Great Recession. In comparison, during the 2004 economic recovery, 338,000 jobs were created in March.

The Obama administration and media mouthpieces seem preoccupied with the U3, 8.8% measure of unemployment, but you need to dig into the numbers to reveal the “real” state of unemployment.

A disconnected news media conveniently forgets to mention that the US needs to create about 125,000 jobs a month to simply keep up with new entrants to the workforce. If you subtract 125,000 from 216,000 jobs created in March, you end up with 91,000 “extra” jobs for 13.5 million unemployed.

Underemployment remained quite high at 15.7%, or 8.2 million workers who want full-time work, but are forced to work part-time jobs of 34 hours a week or less. Yes, full-time work is considered 35 hours or more per week, although many “real world” workers consider jobs of less than 40 hours a week as part-time.

But what was most striking about the March jobs report was the continuing increase in the number of long-term unemployed. According to the BLS, March showed 1,899,000 workers who have been out of work for 99 weeks or more, an increase of 127,000 from February. The real 99er population is growing quickly and shows no signs of abating.

NELP estimates (PDF) that “throughout 2010, 3.9 million unemployed workers exhausted all of their unemployment benefits without finding new work.” Exhausting unemployment benefits also includes those unemployed that exhausted benefits after 60, 73, 79, or 93 weeks, so NELP’s estimate is larger than the BLS estimate for those out of work 99 weeks or more.

Not only are more unemployed out of work 99 weeks or longer, but those out of work 52 and 27 weeks or more are increasing as well. Those out of work 27 weeks or more now accounts for a record 45.5% (6.14 million) of all unemployed, while for those out of work 52 weeks or more the rate is 31.5% (4.25 million) of all unemployed; again a record high.

The participation rate is another employment issue rarely discussed on the national media stage. According to the BLS, “the participation rate is the share of the population 16 years and older working or seeking work.”

The labor force participation rate was unchanged, 64.2%, the same as the previous two months. This is the lowest labor participation rate since March 1984.

The March Employment Report showed some job gains, but not nearly enough jobs were created to put a dent in the long-term unemployment problem. Media talking heads and politicians looking for 2012 votes touted the March jobs report as a winner, but it was a loser for millions of increasingly desperate long-term unemployed who are struggling without jobs or unemployment benefits. Let’s not hang those “Mission Accomplished” banners just yet…

Will Someone Tell America’s Emperors of Finance They Have No Clothes?

There are those that tout Keynesian and Chicago theories as our protection in this dire economic situation America finds herself. They claim these theories were successfully tested in the Depression, but we know that many experts equally believe that stimulus and money printing was not successful then nor will it be now. Friedman himself said that excessive money printing, like drug addiction, has to keep accelerating until ultimately failing in hyperinflation to sustain short term positive effects. No, evidence strongly leans toward the theory that what drew us out of the double dip depression of the thirties was that bombs destroyed worldwide industrial output creating demand for U.S. manufacturing, not the eerie monetary and fiscal voodoo policies we are chanting around the fire today. Prominent economists now say we are headed imminently toward our second dip.

I am warning my friends of dire inflation, but predicting inflation, after global merchants like the CEO of Wal-Mart disclose they cannot hold inflation back any longer isn’t fear mongering. I am simply a master of the obvious taking no credit for my discernment. However, to claim that all is well as the Emperor rides naked through the streets is simply blind loyalty to failed policies. I like the little boy who pointed out the Emperor flaunting of body parts that should never be displayed in a processional, am simply calling the tailor a fraud.

I hope that my fears are allayed but it seems there will more than likely be no return from the abyss. No government in history has been able to turn back once this extreme an acceleration of money supply has occurred. This drug crazed college experiment must unfortunately continue on for our economy will implode otherwise. We have no choice but to continue printing. However, let’s not rewrite history. If the real purpose of Henry Paulson’s “shock and awe” monetary policy was not to protect the wealth of his cohorts but to save the world’s financial system and to avoid the catastrophe of burning down of America’s house, then adding an unprecedented amount of dollar flow to an already bloated supply to eradicate the residue of his quick fix was the equivalent of burning down the entire city of Rome to drown out the awful fiddling of Nero.

Certainly, this disastrous repair of our economy would not have even occurred if it were not for repeated administrations allowing the deregulation and consolidation of the financial industry. I could never defend their malfeasance. Each time, the financial industry coalesced and bubbled into an interweaving quagmire of evasive tactical and strategic conglomeration, I scratched my head at the seemingly complicit nature of our regulators. Gone was the protection envisioned at the height of dismantling that occurred with the Depression. The multinational gold rush fueled the revolving doors between Wall Street and Capitol Street, creating a frenzy of Ponzi fever gambling America’s future for a few gold nuggets.

And if I will not defend almost criminal policies of creating businesses too big to fail, I certainly would not defend spending billions if not trillions to keep them in place. The banks that created the morass should have been allowed to fail along with the humanoids that crept within their demonic walls. Those bankers and banks that had enough souls to live through the implosion could have been propped up to continue on, sorely but not worse for the wear than today.

Ask the 8 million 99ers, that forgotten group that has a higher suicide rate than any other, if these policies were the right ones. Or perhaps we could get a positive response from the millions who have lost or will lose their homes through foreclosures even as scores of millions lose their life’s savings holding onto the obsolete dwelling boxes we used to proudly call our prime investments. Perhaps the elderly gents who used to own their own businesses who will now be bagging groceries for a living until they can no longer lift the cans of food, inflated by our QE2, off the checkout line into upper class grocery bags will proudly support our future path. Like Japan, we will drift into our forgotten decades and wonder if there was a better way out of the collapse of 2008.