Martin C. Winer

As I continue my studies of the Economy, I’m continually shocked and horrified to find more evidence of mass corruption.

http://www.gata.org/node/wallstreetjournal

The Gold Anti Trust Action Committee has taken out a full page ad in the Wall Street Journal asking, where is all our Gold?

For readers’ information… how did the gold get into Fort Knox in the first place? In 1933 Roosevelt passed a bill mandating that all citizens hand over their gold at base price. This gold was then melted down and stored in Fort Knox.

The last time a civilization was asked to hand over all its gold, they built a golden calf such that they could return to slavery. This time, there was no Moses to save us from our own stupidity. We don’t tromp in mud pits making bricks, but we do tromp to 9 to 5 jobs each day churning out contributions to our 401 K’s.

Fort Knox has never been officially audited. Moreover, strong rumours exist that the Federal Reserve has procured this gold as collateral against the US national debt. If there is no gold to be found in Fort Knox, perhaps with an open and honest audit, we may again find our liberty.

GATA has a video of a symposium they held. A summary can be found here:
http://www.gata.org/goldrush21

On this anniversary of Sept 11, I am privy to a pre-release of a recent report from the 9/11 committee.  The report details the wholesale destruction of the US economy by Al Qaeda operatives operating within the United States in a coordinated strategy to bring the US economy to its knees. 

Evidently the terrorist attacks on Sept 11, 2001 were really just a smokescreen for the more prolonged strategy to destroy our economy.  It started with Fedr Al Grin, a high ranking operative deeply embedded in the US banking system, decided to lower interest rates under the guise of stabilizing the economy. 

Below is a transcript of the interrogation of the recently captured Al Qaeda operative Hanny P’Alsin:

This [Fedr Al Grin's actions] led to freely available money which the “infidels gulped up like candy.”  Fedr Al Grin smiled happily watching the infidels load up on overpriced housing and cars they couldn’t afford until 2005 when he started to tighten the noose he had placed around the necks of the infidels.

In 2005 Fedr Al Grin started to raise the interest rates, again under the guise of protecting the economy, and the foolish infidels fell for it.  Suddenly they all began to realize that they were living beyond their means as the money supply evaporated.  Fedr Al Grin played the clarinet as the mortgage market burned.  The Department of Homeland defense became wise to Fedr Al Grin and had him removed from office.  Under water boarding at Abu Ghraib, Fedr Al Grin admitted to many of his sins and wrote an expose detailing the turbulent times he had overseen. 

However, while Fedr Al Grin was on one hand admitting to the evils of the system he had overseen, he had already placed a backup, his protoge Bin Bernik in place.  Bin Bernik watched as banks suffered and fell.  In their weakest moment, he offered help with a secret system to bail them out with infidel taxpayer dollars.  Bin Bernik was well trained by Fedr Al Grin to use a financial terrorist tactic to counterfeit US treasury notes.  By printing too many of them and using this counterfeit money to bail out and own financial institutions, Ben Bernik was and is covertly taxing the entire infidel population into bankruptcy.

One by one the mighty infidels fell.  Bear Sterns, survivor of the great depression sacrificed itself at the feet of Ben Bernik and his plan.  Freddie and Fannie, sacrificed themselves to Bin Bernik saddling the infidels of America with $5 trillion dollars in debt in a single weekend.  Even to this very day, the great intelligence of this plan is still giving fruit.  Lehman Brothers of New York is faltering, soon to fall. 

The US infidel automakers are also rallying to the cry of Bin Bernik.  They too want this free money which secretly bankrupts the US economy.  Airlines, insurance companies, all too big to fail, will sing the song of Bin Bernik to their destruction.  Bin Bernik will happily supply all these companies with counterfeit currency and thus dilute the savings of all the infidels until their lavish economy implodes.

On this anniversary of 9/11 we as Americans have come to realize that all our problems exist overseas.  Clearly this latest report serves only to amplify our need for our continued efforts in the Middle East occupying more sovereign nations to ensure our freedom.  I call on all Americans to pick one of the non-invaded ‘stans (Pakistan, Turkmenistan, Uzbekistan, Tajikistan) for immediate attack.  It doesn’t matter which one, clearly any country ending in ‘stan will harbor some sort of terrorist.  Only in so doing will we secure freedom for our children and security at home.

Randall Mills Holding A Hydrino Reactor

BlackLight’s physics-defying promise: Cheap power from water – Jul. 2, 2008.

“For when we cease to worship God, we do not worship nothing, we worship anything.”

  — G. K. Chesterton

It would seem that the same is true regarding our worship of fossil fuels.  As fuel prices skyrocket there has been a run on alternative energy ideas.  I’ve covered several on this blog. 

http://mwiner.wordpress.com/2008/04/09/over-unity-cavetation-water-heater/
http://mwiner.wordpress.com/2008/02/19/thane-heins-perpetual-motion-free-energy-or-simply-releasing-a-brake/
http://mwiner.wordpress.com/2008/02/08/perpetual-motion-claim-if-its-a-hoax-its-a-good-one/
http://mwiner.wordpress.com/2008/05/22/solution-to-the-energy-crisis-aluminum-hydrogen-cycle/

This one, like that of Thane Heins breaks some laws of physics.  In the case of Heins, it was the Law of Conservation of Energy.  Randall Mills has broken some laws of Quantum Mechanics in suggesting that there is a lower energy state below the currently known ground state of hydrogen.  Mills terms such hydrogen atoms in this new lower energy state: ‘hydrinos’.

Electrons orbit the nucleus at well defined distances.  These distances (states) are finite, discrete or quantized as it were.  If an electron is excited by an influx of energy, it jumps to a higher state.  Conversely when an electron jumps to a lower orbital state, it releases some energy (a quanta of energy).  There is a theoretical limit to how low an electron can go in this scheme.  It’s called the ground state and it’s analogous to the lowest floor an elevator can go.

Hydrogen is the simplest, and most studied atom in modern science.  It consists of a proton and an electron.  It’s no wonder then that when Mills claims to have discovered a new ‘basement’ state below the known ground state that many physicists dismiss him out of hand.  If Mills is correct however, then this new ‘basement’ state could be used to cause hydrogen to release much more energy than simply burning hydrogen.

The crown jewel of science is the scientific method.  It avoids any political and otherwise human failings.  In short, can Mills produce this effect reproducibly and reliably.  The answer so far appears to be yes.  Mills’ company Blacklight has released prototype commercialized applications of his technology which are slated to be installed in power stations in 2009. 

During the interim, there is soft evidence which is also compelling.  Mills doesn’t want your money.  He has plenty of it in the form of $60 million in investments.  Mills also doesn’t want your help.  He has plenty in the form of an all star board of directors featuring many energy magnates.  All Mills needs to do now is to demonstrate his technology working on industrial scales.  He promises to deliver energy at 2 cents per kilowatt hour, whereas the current national average is 8.9 cents. 

This blog will continue to track events on this front.

Here are the links for Ron Paul’s speech from his Rally for the Republic:
(1/3) http://www.youtube.com/watch?v=QGONDUxUxc4
(2/3) http://www.youtube.com/watch?v=MbzdOFhDydc
(3/3) http://www.youtube.com/watch?v=PPO9mPCqG70

I’m 100% behind his commitment to restore the power over issuing money back to the government.  His monetary policy is a breath of fresh air with promises to eliminate income tax and abolish the Federal Reserve.

As for his policy of non-interventionism, I’m not convinced that we live in a world where we can simply detach from the rest of it and hope for the best.  While I agree that the US is overburdened by its subsumed role of world police, I don’t think that turning a blind eye to the affairs of the world will result in a better tomorrow for America.  Of non-interventionism I will say this.  When the oxygen masks drop down in a plane as a result of depressurization they tell you to put on your mask first to make sure you’re getting enough oxygen to help others with their masks.  It makes sense to mend fences at home before mending fences elsewhere.  Just the same after we’re in better shape, we can’t simply ignore the rest of the masses and assume they’ll be happy for us as we live better lives than they do.

http://video.google.ca/videoplay?docid=-515319560256183936&q=the+money+masters&total=630&start=0&num=10&so=0&type=search&plindex=0

Normally any discussion of the economy or finance causes my eyes to glaze over. However, I chanced upon this documentary and started to watch it. Shortly thereafter, I was glued to it. I finally understand questions I’ve had for a long time.

1) How do they know how much money to print?

2) What causes recessions/depressions?

In addition I learned a lot more about the corruption inherent in our financial system. Well worth the 3.5 hours this documentary runs for. Just one question: what is with this guy and his pen?

In 1979 Jimmy Carter delivered a televised speech bemoaning the increasing US dependence on foreign oil.  In it he outlines his Energy Policy for the coming decades.

“[Foreign Oil is] a cause of the increased inflation and unemployment that we now face. This intolerable dependence on foreign oil threatens our economic independence and the very security of our nation. The energy crisis is real. It is worldwide. It is a clear and present danger to our nation.”

– Jimmy Carter  (http://www.pbs.org/wgbh/amex/carter/filmmore/ps_crisis.html)

Today the US relies on 60% foreign oil (http://www.fueleconomy.gov/FEG/oildep.shtml) in strong defiance of president Carter’s prescient warning.

As far as the US dependence on foreign oil, nothing has changed since the Carter’s clarion call aside from the problem getting far worse.  However, president Carter didn’t live in a world threatened by Global Warming (at least it wasn’t commonly known).   President Carter also didn’t live in a world with two superpopulations, India and China weighing in at a billion people each who are poised to ramp up their consumption.

Clearly oil will no longer do as a source of energy.  Luckily science has provided an alternative: The Hydrogen – Aluminum Cycle.  To be clear, I’m not speaking of hydrogen power alone.  Hydrogen power alone is a red herring of alternative energies.  The catch is that hydrogen is hugely expensive to make and today largely comes from the demethylization of hydrocarbons; ie oil.  No, the Hydrogen – Aluminum cycle is something different entirely.

When we think of hydrogen, some horrible images from the past might emerge.

Here we see the Hindenburg which was filled with hydrogen bursting into flames.  Many see the risks of hydrogen in cars and decry ‘oh the humanity!’.  Well there are no such worries with the hydrogen – aluminum power cycle because the hydrogen is produced in micro amounts and only as needed.  Hydrogen need not be stored in a cryogenic canister with motorists barrelling down the highways with a bomb on board.  This in situ or just in time production solves the danger of using hydrogen in a car.

Next, we must solve the problem of where to find our hydrogen.  Clearly deriving it from oil simply won’t do.  The other current method for obtaining hydrogen is through a process called hydrolysis which splits water into hydrogen and oxygen.  Regrettably, this process is too inefficient to be used on a wide scale.

Enter into the picture aluminum.  Aluminum has a high affinity for oxygen.  Whenever you hold a piece of aluminum it has a skin of oxidation.  This skin, once formed, prevents any further oxidation which is why you never have to worry about rust in components built of aluminum.  Aluminum likewise reacts with water;  A jealous lover of oxygen, it bonds strongly with it, ousting the hydrogen.  While a jealous lover aluminum may be, it is quickly satiated and forms a skin failing to react any further.

Jerry Woodall, a professor of Computer Science and Electrical Engineering at Purdue, discovered in the 60′s that when aluminum, gallium and water were mixed, the aluminum oxidized fully, liberating massive amounts of hydrogen.  It would seem that the gallium acts as a mediator in the reaction and prevents the formation of the oxidation skin on aluminum.  The end results of this reaction are hydrogen gas, aluminum oxide (aka alumina) and gallium.  The gallium is not consumed, and thus can be recycled.  The alumina can be electrically converted back into aluminum and thus recycled.  Burning hydrogen produces only water.

The idea of using hydrogen to power a vehicle is certainly not a new one.  While Woodall was experimenting with gallium in the 60′s, GM was trying to prototype a hydrogen fuel cell vehicle: The Electrovan.  It is recognized as the first hydrogen fuel cell prototype.  The prototype was scrapped due to the high cost of the rare (precious) metals used in its fuel cells and the complexity of storing hydrogen.

The aluminum-gallium-hydrogen cycle may allow us to succeed where the Electrovan failed.  So now, let’s put the pieces together: How does this get you to work in the morning?  Your new, non-polluting car has two fuel tanks, one containing water, the other containing aluminum and gallium flakes.  As hydrogen is needed the water and the flakes are mixed.  The hydrogen is harvested and runs the engine.  Also the heat produces by the chemical reaction may be harvested for energy by a Stirling Engine which is a type of engine which can run off of temperature differentials.

When it comes time to fuel your vehicle, the new filling station attaches three hoses to your car.  One removes the slurry of used alumina to be recycled.  The other two replenish your supply of water and aluminum-gallium flakes.  When it comes time to pay for your aluminum flakes, will it be competitive with gasoline?

“Since standard industrial technology could be used to recycle our nearly pure alumina back to aluminum at 20 cents per pound, this technology would be competitive with gasoline,” Woodall said. “Using aluminum, it would cost $70 at wholesale prices to take a 350-mile trip with a mid-size car equipped with a standard internal combustion engine. That compares with $66 for gasoline at $3.30 per gallon. If we used a 50 percent efficient fuel cell, taking the same trip using aluminum would cost $28.”

–  (http://www.purdue.edu/UNS/x/2007b/070827WoodallNanotech.html)

Next, some may wonder where the aluminum will come from.

Enough aluminum exists in the United States to produce 100 trillion kilowatt hours of energy. That’s enough energy to meet all the U.S. electric needs for 35 years.  If impure gallium can be made for less than $10 a pound and used in an onboard system, there are enough known gallium reserves to run 1 billion cars.”

–  (http://www.purdue.edu/UNS/x/2007b/070827WoodallNanotech.html)

Recall that alumina (aluminum oxide, the waste product) can be recycled electrically back into aluminum.  So it’s not like oil where, once burnt, we can’t reclaim it.  We can electrically reclaim the waste alumina back into aluminum.

Ecologically this is a dream come true.  When thinking ecologically it’s important to think in terms of cycles.  Everythings output must be something’s input cycling back to the original source.  Here we have aluminum going to aluminum oxide (alumina) going back to aluminum.  The alumina to aluminum step can be powered by non polluting nuclear or renewable sources such as solar or wind etc.  The water turns to hydrogen which combines back with oxygen to produce water.  Gallium is never consumed and is recycled continuously.

So there you have it: president Carter’s dream some thirty years later, but not too late.  With the skyrocketing prices of oil the need for this change has never been more clear.  The only missing ingredient in this equation is the political motivation to fund and accelerate the conversion process.  This may prove to be the trickiest part of the equation to balance.

Further reading:

Please don’t take my word on this matter, feel free to do your own research:

http://www.google.ca/search?hl=en&sa=X&oi=spell&resnum=0&ct=result&cd=1&q=aluminum+gallium&spell=1

http://youtube.com/results?search_query=aluminum+gallium&search_type=

There is also a similar approach using boron

http://www.google.ca/search?hl=en&q=boron+hydrogen+car&meta=

http://www.cbc.ca/ideas/massey.html

The 2008 Massey Lecture – Payback by Margaret Atwood is available for listening via streaming.

Atwood deals with the moral and social aspects of debt and finance.  This timely lecture series is both thought provoking and insightful.

Interesting Quote:
(From Lecture 3)
“Put a miller, a weaver, and a tailor in a bag, and shake them, the first that comes out will be a thief.”  
                                              – Howell 1659
(meaning they are all thieves as they process things, but do not produce them)

There has been a spate of activity in the nanotech realm lately. Over the past few months I’ve tracked several new developments. Here they are in no particular order: spine, ram, solar cell, ca

1) Solar Power: The problem with solar technology is the high cost of the solar cells. The current level of technology in solar is in silicon wafer solar cells. They have low relative effeciency and a high relative cost. This makes them unfeasible as a replacement. Many companies, amont them Nanosolar of California, have developed a technology using nanoparticles which can absorb light more efficiently, but more importantly, more economically. Nanosolar is targetting a rate of $1/watt which would make solar power a viable alternative over nuclear or fossil fuels.

More amazing is the fact that the solar films can be mass produced and printed on to any building or surface. More details can be found here: http://www.economist.com/world/international/displaystory.cfm?story_id=10989479
http://www.nanosolar.com/

2) Cancer Treatments:This story warms my heart on so many levels. John Kanzius was himself diagnosed with Leukemia. He underwent several bouts of painful chemotherapy. Not a physician but instead a retired radio and television engineer, he had a brainwave one night while sleeping. He came up with the idea of using radio waves to selectively target cancer cells while leaving the remaining healthy cells unscathed. Chemotherapy is based on the differential survivability of cancerous cells versus healthy cells. That is to say the chemicals used are toxic to both healthy and cancer cells, and the hope is that the cancer cells die out faster than the healthy ones: not a promising prospect.

Kanzius’ idea is remarkably different. He plans to send nanoparticles of gold into the tumor. He plans to use a targeting molecule attached to the gold nanoparticle to saturate the tumor with particles. Then he directs a highly concentrated radio beam towards the tumor. The gold heats up under influence of this beam and essentially the tumor is cooked.

3) RAM-Memory: Hard discs have had a good run. They’ve given us a terabyte of storage at nominal cost and with reasonable access time. The technology of the future however will but much smaller, with no operating parts to wear out. The technology is called ‘Racetrack’ and is being developed in the Almaden Research Center in San Jose California. At the heart of the technology electron spin is used to code information. This information races along a nanowire at blazing speeds with very low power consumption. Future incarnations of this technology promise replace hard discs an allow for near instantaneous start up and uncompromising reliability.

4) Spinal Repair: We all recall fondly the heroic efforts of Christopher Reeve to bring about an awareness of spinal injury and the tragic effects it can have on the sufferers and their families. The problem with spinal injury, indeed most nerve injury, is that the injured site (referred to as a transection) forms a scar at either end of the cut bundle. Nerves do have the ability to regrow however, they lack the ability to bridge this scar. John Kessler, M.D., Davee Professor of Stem Cell Biology at Northwestern University’s Feinberg School of Medicine has come up with a gel of self assembling nanostructures which is injected at the injury site. Once inside, they go to work assembling a scaffolding which allows neural stem cells to bridge the gap. Mice with spinal injuries were injected with the compound and showed significant improvement including the ability to walk again.

Video of the Program: http://www.tvo.org/cfmx/tvoorg/tvoutils/globalfiles/VideoPop.cfm?spot_id=5566&sitefolder=theagenda

I watched a program on TVO last night about overpopulation. I usually steer clear of this issue because I find it depressing. Just the same, it’s always in the back of my mind. With last night’s program, I posted a comment on their blog which I’ve included here:

A great program on an issue few are willing to discuss. However, it touched on, but didn’t flesh out the issue of exponential (or compounding) growth which lies at the core of the issue. A common math problem given to students in this regard is called the Lily Pad Problem.

Suppose a pond has one lily pad. The lily pad doubles each day. That is 1 lily pad turns into 2 lily pads each day. Given that at the end of one month (30 days) the pond is covered in lily pads: When is the pond 1/2 covered? When is the pond 1/4 covered?

Human psychology is not geared towards thinking in exponential terms. When you push a certain amount on the gas pedal, the car goes a certain speed. When you push a bit more, the car goes a bit more faster. The gas pedal is a linear system and it’s how humans think.

So let’s answer the lily pad problem and comment on the ‘poor record’ of the ‘population alarmists’ in one felled swoop. Suppose someone on day 27 shouted: “my heavens, the pond is almost full!” Casual observers may be perplexed because the pond would be 7/8ths or 88% empty. On the next day, day 28, the pond would be 3/4rs or 75% empty. Even the next day, day 29, the pond would be 1/2 or 50% empty. The alarmist would likely be dismissed out of hand. However only one short day later, day 30, the pond would be completely covered and the naysayers would be proved wrong, only too late.

“Compound interest is the most powerful force in the universe” wrote Albert Einstein. Powerful yes, but counter intuitive for humans and the guests on last night’s program. They pointed to the advents in technology and agriculture which have staved off any population crisis. Going back to our lily pond: doubling the size of our pond gives us how many more days before the pond is covered again? One. Quadrupling the size of the pond gives us how many extra days? Two. Not to mention, that the agricultural revolution the guests mentioned was largely brought about by petroleum based fertilizers. Petroleum in turn is undergoing and exponential growth in consumption and in price.

As a parting parable about the power of compounding: Suppose your child asks you, in lieu of a raise in his/her allowance, to give them a penny a day, doubling it every day. Sounds like a good deal, but with our new found understanding of exponential growth, we need to be cautious. After two weeks, we’d owe our child some $163 which is a hefty allowance but no big disaster financially. However, two short weeks later (30 days from the start) we’d owe them nearly $11 million dollars. Clever kid. Can the human race be this clever? Can we afford not to be?

Further reading:
http://www.ciesd.org/influence/LilyPad.shtml http://mathforum.org/dr.math/faq/faq.doubling.pennies.html
http://youtube.com/watch?v=F-QA2rkpBSY

http://www.nytimes.com/imagepages/2005/08/21/business/21real.graphic.html

This is a graph of historical housing prices relative to inflation since 1890.  The graph is indexed to inflation so you are seeing the bubble in house prices above and beyond inflation. 

The take home message to this graph is the following.  Take a look at the average home value over the past 100 odd years.  It seems to average somewhere around $112,000.  Now look at the peak which is somewhere around $180,000.  Dividing through we get a ‘bubble-factor’ = 180/112 = 1.6 .  What that means to you is that if you own a house currently valued at $500,000, if the bubble corrects you’ll actually own a $312,500 house (500/1.6 = 312.5).

Will the bubble correct?  Historically bubbles do one of two things:  1) they correct or 2) they flatten and wait for inflation to catch up with them.  What will this bubble do?  I can’t tell you and neither can any of the supposed experts. 

What caused this bubble?  The Federal Reserve lowered interest rates to as low as 1%.  This flooded the market with money which people invested in housing, since the internet bubble had burst. 

Who benefits from this bubble?  This bubble benefits 3 groups of people, bankers, the recently dead, and people with in laws.  Bankers make huge profits on the the inflated mortgages people must now take out to put a roof over their head.  Those who have recently died (since we’re at the peak of the bubble) benefit as their estate sells their property at the inflated price with record profit.  Hopefully they have children to benefit from the heavily taxed inheritance.  Regrettably, if they don’t have children to pass the benefit on to, then it’ll be hard to enjoy their windfall, being dead and all. 

If you’re alive you never benefit from this type of bubble.  People typically want to move up, that is move to a better home.  Thus you have to sell your current home and move to a better home.  Thus, you make a profit on the sale, but take a hit on the inflated purchase.  Basically it’s like borrowing from Peter to pay Paul, and it all ends up even in the wash. 

If you have in laws and can sell at the inflated price and move in with your in laws (avoiding having to buy an inflated property) you may benefit from the bubble by waiting for it to bottom out, if indeed it does.  Living with your in laws may allow you to sell high and buy low, but that assumes the bubble corrects and moreover, living with your parents you may wish you were recently dead.

Who suffers from this bubble?  The most notable group of people to suffer are the first time home buyers.  Entering the market at the peak you’ll be paying 1.6 times what you should hadn’t the bubble occured.  Ultimately all property owners suffer because the bubble leads them to think that they have more money than they actually do.

Glenn Beck has a video railing against printing of money by the US in epidemic proportions.  Beck shows a graph of total money in the system, but should also be showing a graph of CPI, or inflation as in this post:

http://mwiner.wordpress.com/2008/08/19/whats-wrong-with-the-economy/

This graph shows that the problem started back in 1913, not in 1971 as Beck describes.  Beck is however correct in asserting that it is a problem with the US withdrawing from the Gold Standard.  The US withdrew from the Gold Standard in 1933 domestically, and 1971 internationally.

Even before that, the Federal Reserve was able to manipulate (inflate) the currency to a limited degree from its inception in 1913.  It is the Fed which has and always will be the problem.  The Fed has never and will never be able to offer a solution.

For more information, please see:

http://mwiner.wordpress.com/2009/01/15/the-ancient-roots-of-injustice/

The media coverage of the AIG crisis is completely off the mark.  The Fed DID NOT bail out AIG.  It did something better and worse.  The fed had two choices, 1) bail out AIG or 2) let it go bankrupt.  The Fed made both choices.  It bailed them out per se with an $85 billion dollar loan, taking 80% of the company in the process.  However, the loan came with an 11% interest rate.  This effectively prevents AIG from ever getting back on its feet.  Instead the company has been given time to arrange for the orderly sale of its assets to repay the loan, but AIG will not survive the process.    So the correct coverage of this story would  be to say that AIG has gone bankrupt and the Fed has stepped in to allow for a slow controlled sale of its assets.

For years now, I’ve tried to understand how the Federal Reserve (the Fed) lowers interest rates and how it affects inflation. I mistakenly thought that the Federal Reserve was a wholesaler of money. I thought that it was a Federal institution which under the direction of the government could make money available to banks at a certain lending rate. Thus when the Fed lowered rates to say 3%, the banks could get money at that rate and pass the savings along to their customers by lending money at say 3.5%. I was partially mistaken in my interpretation as to how that affected interest rates. I thought that as a result of people being able to get money at a lower rate, people would spend more, and the more they spent, the more the market could tolerate higher prices for common goods. This is true, but isn’t the full story. So let’s get the full picture.

My first mistake occurred when I assumed the Federal Reserve was a federal institution of any sort. This is not at all true. It is a private bank enacted by an act of congress in 1913 to oversee the US monetary policy. I offer the following interesting nugget of information for those who are interested: It was passed on Dec 23 1913 when most of congress was on vacation, in absence of a proper quorum. If that tidbit piqued your interest, please see this post: http://mwiner.wordpress.com/2008/01/25/terrific-documentary-explaining-the-economy/

So how then does the Fed manage to control interest rates? First off, when you hear of the Fed lowering or raising the interest rate, it isn’t directly lowering or raising the interest rates, it is changing the target interest rate. At a high level, the Fed accomplishes this by controlling the supply of money. Money, just like any other commodity can respond to supply and demand. If there is a lot of money in the economy, interest rates will drop because banks will have an easier time of procuring money to loan. However, having more money in the economy encourages inflation because the value of the currency is lowered by increased supply.

If you want to understand how the Fed manages to expand or contract the supply of money, we need to first understand a few key concepts. The first is partial reserve banking. It was long ago that banks discovered that not every person needed their cash at any given time. It was thus that banks could loan money that technically they didn’t have on reserve. In the US, banks are required to maintain a 10% reserve which means they can loan out 10 times the amount they have on reserve. (This is often referred to as ‘banker’s reach’.)

Next you need to understand what a treasury bill is. A treasury bill is a promise issued to the buyer by the federal government to give you the maturation price of the bill on the maturation date. The bill is always sold at a discount rate, that is a rate, less than the maturation date. For example, a treasury bill may be sold at a discount rate of $950, a maturity rate of $1000 and a maturity date which is a year from now. This means you can buy the bill at $950 and make $50 dollars profit when it matures in a year.

So we now have enough knowledge to work a simple example of how the system works. Suppose that the interest rate is currently 8%. Suppose too that there are 100 people who have $10 each. These 100 people each put $2 in the bank. The bank thus has $200 in reserves and due to partial reserve banking, they can make ten times that amount, some $2,000 in loans. This means they can make a loan of $20 per person.

People typically want to buy things that are 4 times the amount they have on hand. In housing the standard financing model is you must have 1/4 the purchase price in capital. So people with $10 typically want to make a major life purchase which would be $40, but as we see, the bank can easily lend everyone $20, but $40 would be hard to come by at a reasonable interest rate. Thus, people stop purchasing, the economy stalls and the Fed decides to step in.

The Fed does some research and discovers that if the lending rate reduces to 5%, then most people will be able to make the payments and will take out loans and start spending again. So the Fed set the TARGET rate to 5%. To reach this level, the Fed offers to buy a treasury bill the bank has on hand with a maturity value of $500. The bank accepts and now the bank has $700 in reserves. Recall that the bank is allowed to loan out 10 times the amount it has on reserve. So the bank can make $7000 dollars in loans or $70 dollars per person. Since the amount to loan out is plentiful the bank lowers its lending rate to 5% to entice people to take out loans.

It’s important to keep track of the total amount of money in the economy while all this occurs. We started with 100 people having $10 each. Thus there was $1000 in the economy. When the Fed purchased the treasury bill, it printed money to do so. So now there is another $500 dollars in the economy for a total of $1500. You may be scratching your head over the previous sentence, but this is the second part of the misnomer “Federal Reserve”. The Federal reserve is not federal and it doesn’t have any reserves. It prints money to make purchases. I don’t want this post to become a rant against the Fed so I’ll cut it short here and explain the other side of the coin: how the Fed contracts the supply of money.

So now in our moot world, everyone can take out a $30 loan to get the $40 item they’ve been dreaming of. However, one of the principles of a free market is that prices will rise to the maximum that the market will bear. As a result, since most people can afford the $40 item, the market starts charging $42 or $44. Slowly the price creeps up because the value of money has been decreased by an increased supply. In short we are experiencing inflation.

So the Fed sees this situation and decides to curb inflation by raising the target interest rate. By raising the target interest rate, the Fed makes money harder to get, more scarce and thus the market can’t bear higher prices, slowing spending and curbing inflation. To accomplish this, the Fed sells treasury bills. By selling treasury bills, banks that purchase them are forced to spend their reserves to make the purchase, thus pulling cash out of the economy. Recall that banks can loan 10 times the amount they have on reserve. By lowering the amount of cash banks have on reserve, the Fed restricts the bank’s ability to make loans. Since the bank has less money to loan, it must charge more interest to compensate, and the interest rates rise. The key point here is that the difference between the discount rate and the maturity rate must be paid for at some future rate. When the bank comes to collect on this treasury bill, the Fed must pay the bank the promised maturity price. If you have an eye for catching trends then you may have already guessed that the money to pay the difference comes from, yup, you guessed it, printed money.

In conclusion, the Fed controls the supply of money. It accomplishes this by buying and selling treasury bills on the common market. It’s important to remember that when the Fed buys treasury bills it does so with printed money. Also when the Fed issues treasury notes and those notes are redeemed, the difference owed to the purchaser is paid with printed money. This is called a fiat currency, or a currency based on credit — in this case the credit of the United States. It doesn’t take a Harvard ecomonist to realize that every time the Fed runs through one of these cycles of inflation and contraction, that the amount of money in the economy is increased. It is only a question of time before the Fed destroys the currency it relies upon by making it too common. This process is called devaluation. If you want to see devaluation in action, see this graph of the US dollar vs. the Euro over the past 5 years:

http://finance.yahoo.com/currency/convert?from=USD&to=EUR&amt=1&t=5y

In the past few months we’ve witnessed remarkeable events in the market. First we have the Fed bail out of Bear Stearns. What wasn’t widely covered or discussed was that this was effectively a result of a run on a bank.

Modern banking practices partial reserve banking. That is to say that the bank relies on the fact that not every customer requires their funds in cash at any one time. As a result the bank invests your funds during the intervals where you don’t need the cash in your hands. Banks in the US are required to maintain only 10% reserves. A banker can then invest 90% of the banks funds to turn a profit. This is called banker’s reach.

A run on the bank occurs when customers or investors lose confidence in your banking facility and demand their cash back. If enough customers demand their cash, the bank exhausts its reserve and enters a liquidity crisis. This is exactly the fate that befell Bear Stearns. It is interesting to note that Bear Stearns was a financial institution which survived the Great Depression of the 30′s. Had the Fed not acted as it did to bail out Bear Stearns, we may well have been in a greater depression at this very moment.

Please don’t infer from the previous sentence that I agree with the Fed. I think they served to cure the disease by killing the patient. They’ve borrowed excessively from the taxpayers and the US currency to temporarily asuage the bleeding, but haven’t sutured the severed arteries. The Fed’s own actions of forever creating bubbles and taking hindsight corrective half-measures is the very cause of our current problems, not in any way a solution.

There is no doubt that we live in ‘interesting times’ intended in the confucian sense. Just this week we’ve witnessed a second run on the bank in as many months.  This time we’re witnessing a run on the food bank.  Reports are coming in of rationing at Costco stores of rice, flour and cooking oil.  We’re not talking about Costco stores in third world countries.  We’re talking about the continental United States.

What has happened is that large commercial bakeries and other such chains have panicked at the rapidly increasing price of these staples and snapped up local supply.  Yes, eventually this will all work itself out, but the question is, why is this happening in the first place.  There are a few answers:

• The price of oil.  The price of oil affects the food supply in two ways. First it increases the shipping costs which are passed on to the consumer.  Next, it creates a surplus of money in the Middle East which then funnels its way back into the US economy as speculation.  Hedge funds use this money to invest in grain futures which artificially drives up their price.
• Biofuels.  Biofuels are a useless ‘environmentally friendly’ measure which were put in place by politicians to placate the populace.  Corn and other staples are diverted to be converted into biofuels taking food out of the food supply and putting it into our gas tanks.  There has been worldwide rioting especially in regions where food constitutes a large percentage of the general publics’ expenditure.
• Loss of farmland.  Farmland is being lost to urban sprawl and to environmental measures whereby farmers are being subsidized not to plant crops.  Sure environmentalism is great, but it turns out that humans are animals too, and our suffering should figure into environmental equations.
• Malthus.  Malthus famously argued that populations grow geometrically (2,4,8,16, …) while the food supply grows arithmetically (1,2,3,4,5,..) .  We live in a world of approximately 6 billion which is expected to rise to 9 billion by 2050.  Further the billions of China and India are no longer content to eat simple rice and vegetables but also want cars, beef and the more excessive lifestyle of their North American Counterparts.  As a result, we can expect more shortages of gas and food until we learn to live within our means.

The State of The Union – As Seen on TV
Martin C. Winer

But first a word about how this article was written:  This article was the result of a ‘cluster’ or a free-word association.  This is an exercise which is meant to use the ‘right brain’ to spur creativity and generate writing topics.  You can create your own clusters or bubbles here: http://www.bubbl.us/ but it’s best to do them with pen and paper since one tends to self edit when typing.  Each word you see italicized below is from the cluster.  Usually, the idea is to take one theme from the cluster and write about it.  I thought it would be a challenge to include ALL the words and still have the article tell a cohesive story.   Read the article, taking note of the italicized words.  Then see the cluster below.

I have been worried about the state of the world as of late.  Being recently unemployed with no meaningful job on the horizon, I was wondering when I’d be returning to the 9-5 lifestyle.  It’s not that I ravish 9-5, as Dolly Parton’s famous song correctly puts it, 9-5 is all “takin and no giving” but it beats aimlessly strolling on sidewalks waiting for a direction to unfold.  Up until recently I was a member of the over 30 and unmarried class.  Fortune changes quickly and I now find myself suddenly being married with children.  The responsibilities are understandably far different.  Curious as to what direction my life would take over the next months and years, I turned on the familiar glowing oracle fitted in every living room, the television.

While I waited for my big screen TV, a vestige of my former employed self, to come to life, I recalled that a comic had mentioned that Dolly Parton had insured her breasts.  I wondered if the comic was putting us on, as he was apt to do.  Would an insurance company take premiums for such a ridiculous item?  What was the counterparty risk?  Were her breasts in good hands with Allstate (TM)?  The TV came to life with the evening news reporting of another hemorrhage on Wall Street of 213 ethereal points, with AIG requesting more bailout money.  Evidently, indeed, insurance companies would take premiums on just about anything and the only boobs in the interaction were the policy holders who actually thought the policy was worth something.  Bored with the evening news I changed the channel.

Dick Cheney was on “State of the Union” with John King on CNN.  Cheney, a bastion of the old guard was set to be ‘grilled’ by King as to the sins of his administration.  I flipped right past the interview because I knew it could not yield the satisfaction I was seeking.  Waterboarding and assassination squads would be second nature to a man like Cheney who shot his hunting partner in the face.  Waterboarding I imagined was just his technique for cleaning his felled game, human or otherwise.  I wasn’t interested in the past, I was curious to know what my future held.

There was an infomercial on with 90 year old Jack Lalanne sporting his leisure suit and his juicer.  I am a late night TV watcher and infomercials plague the airwaves from dusk ‘til dawn.  Jack Lalanne was born in 1914 and looked to be in better health than myself all thanks to his 1/2 horsepower juicer.  In went an orange, apple, and every other healthy fruit your mother tried to get you to eat as a child.  Out poured a fountain of youth which had purportedly kept Lalanne in such great shape over these many years, yet somehow, it hadn’t managed to save his fashion sense.  The leisure suit was last popular when the juice on everyone’s lips was Juice Newton, “Grease” was the new movie and disco was still in style.  I was intrigued with the notion of extended life and wondered if indeed Lalanne’s juicer could provide it.  Even if it could, what would my life be like, aged 90+ years drinking fruit and vegetables all day?  Would my life be fulfilling?  I changed the channel seeking an answer from the glowing oracle of TV.

The next infomercial was for Extenz tablets; an all natural ‘Male Enhancement’.  Well this held some promise now didn’t it?  At least my latter years could be herbally augmented with extra length and girth.  But just what were these pills I thought to myself?  “An all natural male enhancement?” I wondered to myself.  Didn’t we already have such a thing in Dolly Parton?  What were these herbs and how were they discovered?  Did someone eat a salad with wild herbs one night with shocking results in the bedroom?  How did they then suspect the salad and not anything else?  My mind was awash with questions and I wasn’t much in the thinking mood.  I wanted answers, not questions.  Come on oracle of television, what would my life be like?  The only effort I was willing to exert was in flipping channels.

Yet as I flipped there were a plethora of Viagra and its new copy Cialis ads.  Was the television intimating that my future would need these?  A Viagra ad promised that at age 50 I could trade in my sedan for a Harley Davidson and with one pill have the vigor of a 20 year old.  A Cialis ad promised 36 hour or daily dosing options to make sure I would be able to respond when the mood was right.  If I was as old as Jack Lalanne, would my wife still be ready for me?  I’d be worried about breaking bones at that age.  Another flip would quell that fear.

Once a month Boniva would rebuild my wife’s bones without the need to remember a weekly pill.  There would be no need to take those chalky calcium pills once a day.  Of course memory at that age will be compromised so the once a month dosing is ideal.  Side effects could include liver and kidney disease but at least you would only have to endure them once a month.  God bless Big Pharma.  I could have a once a day boner and my wife could have healthy bones all month.  I was comforted that the future would be bright.  My comfort was not long lasting, at least not as long lasting as 36 hour Cialis promised to be, when it occurred to me that Big Pharma was suffering from a horrible case of misplaced priorities.  With all of their attention focused on bones and boners, they had dropped the two big balls of cancer and heart disease.  I curiously imagined a big Pharma strategizing kick off meeting with people brainstorming on new drug targets and somehow bones and boners getting to the top of the list over cancer and heart disease.  I only hoped that Jack Lalanne’s fountain of youth Juice could get my wife and I past those two roadblocks.

I calmed myself thinking that my 90th year was well off, I being only 35 now.  Big Pharma had time to readjust their priorities.  I continued my flipping to discover yet another Big Pharma commercial for Requip, a medication for Restless Leg Syndrome (RLS).  My legs were perfectly atrophied into their TV watching position.  I didn’t believe that such a condition could occur.  “My doctor said ‘Requip’” said the announcer as a television doctor mouthed “Requip”.  I imagined that the doctor mouthed “bullsh*t” in response to the patients complaint.  [0u92R90U R ‘ jixz-]0039;ffaS980059-09ATRE MT3.  Oops, I’m ever so sorry about that previous mess, you see my arms tend to spontaneously move uncontrollably every so often…  Oh my, could it be I have Restless Arms Syndrome (RAS)?  Well at least I know that Big Pharma is on the case.  Perhaps if I ingest Requip while standing on my head, the medication will settle in the appropriate appendages?  Parenthetically I wonder if all Requip contains is a bottle of gel caps filled with Brandy?  All it seemed Big Pharma could do for me in my latter years was give calm legs and arms and a rock hard erection.  The Viagra commercial warned that any erection lasting over 4 hours constituted a medical risk and thus I knew my fulfillment from Big Pharma would leave me with 20 remaining hours in the day to fill with what?  What would I do?  I looked to the financial stations to see if I had any prospect of finding a job.

CNBC was heralding the success of the latest Apple Computer quarterly results.  The IPhone and the IPod were unrelenting successes.  The host discussed the failing health of Steve Jobs as a concern for the future of the company and since we now know all that Big Pharma is good for, the concern is justified.  I myself am not a gadget freak.  I often mockingly eye people walking down the street sweaty palmed typing at lunatic speeds on their Palm, Blackberry or blueberry or whatever the latest berry is.  I have no need to be so totally connected, but evidently there is a huge market for these devices.  Just the same I was delighted to see the success of Apple whose Macintosh computer was, in my mind, the superior computer in 1985.  Bill Gates was the smarter CEO, not the better innovator.  Steve Jobs didn’t allow clones of Macintosh’s while Gates allowed clones of the PC.  As a result Apple’s market share fell like Newton’s apple under newly discovered gravity.  With all the discussion of executive compensation these days, I think Steve Jobs deserves the lion’s share of the reward when it comes to innovation.  The IPod is simple to use media device which takes advantage of the recent wave of music piracy and MP3’s that puts the tale of the Maersk Alabama to shame.  Now don’t get me wrong, copyright infringement was not created by Jobs, he only capitalized on it.  The IPhone is the next logical extension of a handheld computing device incorporating maps, navigation and a whole host of other useful features we come to expect from Apple.  The Macintosh, the IMac as it’s now called, is gaining market share in leaps and bounds.  I guessed that I had attained some inspiration from the glowing oracle;  perseverance, like that of Steve Jobs in the face of constant opposition and I too could one day go on to innovate a pile of handheld devices – or something like that.  Of course this special was being aired on CNBC the so called financial news network that managed to complete miss any predictions of the financial collapse which had claimed my job.  I wasn’t about to take any advice from them.  No, the Corruption National Broadcasting System as I had renamed them would have to find another mark. I dismissed them with a flip of the channel.

The Cheney Interview was over on CNN and now Anderson Cooper on A.C. 360 was sporting a pie chart showing the distributions of the American reinvestment Plan.  There were huge allotments for infrastructure building projects.  A clip revealed workers building bridges all over the country.  Wasn’t it another Democratic president who wanted to build a bridge to the 21st century?  Now are we building bridges out of Chapter 11?  There was discussion of incentives to homeowners to renovate and rejuvenate their properties.  I thought of stopping in at Home Depot but immediately balked because the 27 minute hand waving discussion with 17 year old ‘Skippy’ who works there never seems to get me the results I want.  For all the talk of hope and economic plans CNN was pushing out, I knew that the recession was receding faster than Dick Cheney’s hairline.

Rembrant - Raising of Lazarus

Then they aired a clip of the master of hope: President Obama.  “America has been great and shall rise to be great again” he prophesized.  I thought this had a familiar tone.  I quickly switched to the Catholic Television Service and the pastor proudly boomed “and the phoenix shall rise out of the ashes just as Jesus raised Lazarus from the dead.”  The pastor went on to solicit donations for a new building project.  This also had familiar overtones and I flipped back quickly to CNN.  “It will take considerable investment from us all but we shall rebuild and come back stronger” proudly acclaimed Obama.  It then occurred to me that Obama was more than just a President, he was our primary minister.  He then intimated at his plan to remove toxic assets from the books of the banks without providing the necessary details I was looking for; undoubtedly he would turn water into wine.  The rhetoric of hope was overflowing my ears and I needed a counter position to ground myself again.  Luckily there was the FOX network who was lambasting Obama as the bane of humanity whose short stint in office had already thrown the economy into apocalypse from which only a miracle could now save us.

Putin and other former Soviet interviewees were quoted as saying that the end of capitalism has finally come.  A commentator remarked: “the American dream of picket fences has been replaced by picket lines” as the video showed protesting auto workers.  Am auto worker protested: “The companies are trying to divide and conquer us, taking advantage of this downturn to cut our benefits and pay.  I say enough taxing the middle class!”  Cheers and hurrahs followed.  My brain was like a pair of Levi’s jeans iconically being pulled by these two polarized stations in opposite directions, at the risk of ripping.  There had to be some truth on the glowing oracle of television.  PBS I thought to myself quickly.  That will save me.

Jim Lehrer

(Ed. Note: Actually it’s IOWA that is ok with Gay Rights, not Oklahoma.  In my cluster, I confused the two, but I went with it because the challenge was to write an article using all the clustered words.  I was only off by a 10 hour drive anyways.    )

Public Broadcasting, publicly funded and publicly ignored in favour of watching MTV to hear if Britney Spears of Lindsay Lohan were wearing underwear today.  Today Jim Lehrer was discussing the state of Gay Rights.  Evidently in Ahnold’s (sic) California the rights of gays have been ‘terminated’.   Ironically, Oklahoma seems “Ok” with gay marriage.  Is that what the song “Oklahoma, OK” is about from the musical Oklahoma?  The world seemed upside down.  Had I inverted myself such that Requip went to my arms and forgot about it?  Oklahoma was a place where I expected politicians to spout the bible about ‘being Fruitful and multiplying’ and how homosexuality was unnatural.  In liberal California, I expect them to say anything goes, from Gay Rights to cloning dolly the sheep.  After all doesn’t Hotel California by the Eagles promise “Plenty of room at the Hotel California / Any time of year, you can find it here”?  I couldn’t make sense of my world.  I was about as comfortable as a man swimming in itchy wool trunks.  I needed to flip the channel quickly.

Kim Kardashian

Chicks Who Love Guns

Up next was a documentary “American Justice” revisiting the O.J. Simpson trial.  It brought back names like Mezza Luna, Nicole Brown, Robert Kardashian, Kim Kardashian… whoops my mind wandered.  Robert Kardashian had helped set a murderer free but brought us Kim Kardashian.  Now they say justice should be blind, but have you seen Kim Kardashian?  He was off the hook in my books but the rest of the characters who let O.J. go were open to attack in my imagination.  I recast the events of that fateful night as a Quentin Tarantino movie.  I’d have my justice, if only in my imagination.  Nicole Brown would now be Jackie Brown.  She would seductively seduce O.J. by dancing for him like Salma Hayek in Tarantino’s “From Dusk ‘Til Dawn”.  She’d then immediately turn into a vampire and eat him alive.  Next, Travolta and Samuel Jackson from Pulp Fiction would show up and after quoting Ezekiel 25:17 would lace into the O.J. lawyers.  Finally the women from “Chicks who love Guns” as seen in Jackie Brown, armed with the AK-47 and they would deal with every “mother [t]ucker” in the jury room.  Returning from my daydream I realized that 10 years had passed and there was no justice to be spoken of.  The only thing I had learned from the episode was that justice is a function of wealth and that O.J. stood for Orenthall James, not Orange Juice.  I’m not admitting I was that stupid however, I’m about to write another article: “If I was that stupid, here’s how I’d admit it.”

I knew how the O.J. saga ended so I flipped again to see what else was on the glowing oracle.  John Sebastian crooned “Welcome Back, to the same old place where you started from…”  It was a rerun of Welcome Back Kotter.  Truly, I was basically back where I had started from, only an hour of flipping elapsed.  I knew nothing more of the future than when I started.  Sure I knew that my bones and boners would be safe, boobs could be insured, and that if I worked very hard, I might find a job.  But I was looking for important answers to important questions like, what would justice be like in the future?  What would the economy be like?  I was sure that Kotter’s Vinni Barbarino wasn’t going to be able to answer my questions.  With that, I turned off the glowing oracle for the night.

‘Apple’ cluster which generated the article.

This is the free word association (or cluster, or bubble) which generated the article.  Again, each italicized above came from the cluster below.

Corruption and collusion are what is wrong with the economy.  The Federal Reserve (Central Banking) is a criminal organization which uses inflation to manufacture debt.  The tax you pay in income tax or retail tax is simply collateral for the vast sums of inflated money that is printed on behalf of the federal government, a willing accomplice in this scheme. 

A picture is worth a thousand words:

(click to see larger version)

What you’re looking at is a chart of inflation from 1800 on.  Notice the blips that correspond to the war of 1812 and the Civil War of 1863.  Note that aside from these blips, inflation was relatively flat for around 113 years.  Then in 1913 the Federal Reserve was created.  In 1933 FDR confiscated all public monetary gold and removed the gold standard.  In 1971 Nixon removed the last vestiges of the gold standard (the foreign currency gold standard) and the results of this are clear.

What does this mean to you?  It means that any money you save becomes devalued.  Money in the bank is no longer a sure thing.  Inflation makes the funds you hold an investment in the currency.  The Federal Reserve was invented to prevent self-financing and financial independence.  As you can see from the graph above it has been quite successful. 

Who let’s the Federal Reserve continue to operate?  You do.  Apathy and lack of education the keys to the success of the Federal Reserve.  They throw bits of cheese at you in the form of 401K’s and fancy beach houses and watch you scurry after them laughing all the while as they devalue the dollars you earn. 

Inflation is nothing other than a tax.  The ‘tax’ you think of as tax is only collateral on the huge reams of printed money that the Federal Reserve pumps out at the behest of Congress’ bloated budgets.  It siphons value out of all your assets and ensures you remain in debt for as long as possible.

Don’t believe me.  Good, you need to be skeptical to survive in this world.  Here are some starting points for more information:

http://video.google.com/videoplay?docid=-515319560256183936
http://video.google.com/videoplay?docid=-8484911570371055528
http://video.google.com/videoplay?docid=-594683847743189197

a fun calculator:
http://www.minneapolisfed.org/Research/data/us/calc/

Growing up I often heard people remark that the “poor get poorer as the rich get richer.”  I was led to believe that this was an unfortunate side effect of a free market economy.  This flaw aside, the free market economy was said to be a much better approach than anything else that had come along.  I spent my time focused on ways of making laissez faire capitalism more compassionate.  We exist in a welfare state and I, living in Canada, live in a society which offers socialized medicine.  Both of these measures are great first steps in assuring the compassion of capitalism however, I was always frustrated knowing that the only true compassion of capitalism would come in allowing everyone to earn wealth.

As I continued to study the problem, imagine my shock and dismay when I learned that we do not live in a free market system.  We live in a central bank monetary system (ie, the Federal Reserve) which has an invisible, moreover, malevolent hand in conducting the nation’s monetary policy.  This may sound like a conspiracy theory however if it was, it’s an awfully dull one given that the chairman of the Federal Reserve openly admits this.

http://www.youtube.com/watch?v=x56MpWZh88s
http://broadband.thecomedynetwork.ca/comedy/?vid=19058

Through the Federal Reserve’s mucking with the money supply and the resulting inflation, those with savings saw their savings erode silently falling into the hands of the nations richest few.  In order to escape inflation, you must own debt free assets which index to inflation.  Only the richest few of us can accomplish this and thus evade the silent erosion of our savings into the hands of bankers and the financial elite.  Here are a few graphs showing the effects:

source : http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

source : http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

Central banking (The Fed) is an age old scheme of mob rule over the money supply. 

“Give me control of a nation’s money and I care not who makes the laws.”
– Mayer Amschel Rothschild

It has origins dating back to the temple days when Jesus drove out the money changers.  (The word ‘bank’ comes from the Latin ‘bench’ from which the temple money changers made their predatory exchanges.)  The only way to restore justice and equity is to restore the issuing power over money back to the people.  For more info, please see:

http://inflationtax.blogspot.com/

Being foreclosed on?  No worries if you follow the example of Jerome Daly, a lawyer and political activist of sorts, who successfully had his mortgage declared null and void. 

In order for a mortgage agreement to be legal, the bank must put up legal ‘consideration’.  That’s a fancy lawyer word for ‘money’ or some such other tangible asset.  The Federal Reserve System creates money for lending as bookkeeping entries and as such, the bank fails to provide any real consideration in the contract.  As a result, the whole thing is null and void and you can’t be foreclosed upon. 

Don’t believe me?  Read it for yourself here:

http://www.lawlibrary.state.mn.us/CreditRiver/1968-12-09judgmentanddecree.pdf

This decision has never been overturned and Daly was able to keep his house.

In 2001 Alan Greenspan at the Fed (Federal Reserve) lowered the interest rate to try to rejuvenate the economy after the fallout of the .com bubble burst. History will record that Greenspan went from the sublime to the ridiculous when he cut the interest rate to 1%. This set off a spate of irresponsible borrowing and lending the effects of which are still being dealt with today.The banks took advantage of this by starting to offer mortgages to subprime borrowers. Subprime borrowers are borrowers with a poor credit rating (specifically a FICO (credit) score of < 620). Typically these are individuals who habitually are unable to make credit card payments, or those who have suffered a foreclosure or bankruptcy. In the past they wouldn’t be able to get a loan, but thanks to the low interest rate, some could now afford the payments. With great fanfare out went the ads: “Send us your poor, your homeless, your great creditless masses!” Lured by the prospect of home ownership and lulled by the chimera of ‘buy now, pay later’, loans were issued as fast as the printers could print them.

Banks noticed that the default rates were lower than they expected. This led them to think that there was an untapped market in subprime lending. They developed many products, of which 3 were common 1) Variable rate mortgage with a higher rate due to the risk, 2) An interest only loan where they would start paying off the capital after an initial period and 3) low fixed rate initially, resetting to market rate after a few years.

The people who took these loans did so for two principal reasons 1) they hoped their income/credit would improve during the initial period of the loans and 2) the housing market was so hot, they hoped to use the newly gained equity in their homes to refinance the loans with more agreeable terms. Regrettably, Alan Greenspan, noting the now uncontrolled inflation, agressively started to increase the interest rates in 2004 right back up to around 5% and beyond.

For people with loans of type 1) and 3) above, the loans were typically huge so these interest rate increases made the payments impossible to cover, leading to defaulting. Those with loans of type 2) were pushed over the edge when the capital component of their loan kicked in.

Now, were it not for the avarice of the bankers, this crisis would have ended there; that is, a large number of repossessions but no further economic upheavel. However, bankers are weasels and behind the scenes they were pulling more ridiculous stunts.

Behind the scenes, bankers were looking to mitigate the risk of this subprime debt and also to make more profit on profit by creating and selling subprime mortgage bonds. To accomplish this they pooled together all subprime debt. Next they broke the subprime debt into levels. Suppose there were 3 banks involved in a given mortgage. The banks that would get hit by a default first were put into the lower levels and the banks that would be hit last were put into higher levels. By doing so, each level bore a reduced amount of the total risk. Now, many financial institutions that cannot purchase subprime debt were able to get around this limitation by purchasing bonds in the higher levels (less risk) of these mortgage bonds. Now, subprime debt was distributed all around the world to various institutions in this masked mortgage debt trading instrument.

So when the debt hit the fan, the big institutions which normally make loans to one another on a regular basis to keep the economy rolling, suddenly mistrusted one another. No one knew who held what amount of subprime debt. As a result the overnight lending rate went sky high and the Fed had to step in to push cash into the economy to help stave off a liquidity crisis — a crisis where cash flow starts to freeze.

At the time of this writing (Dec 2007) we are beginning to see the end result of this crisis. The large financial houses are beginning to crumble under the weight of their own stupidity. Just yesterday financial giant Morgan Stanley reported its first quarter loss in its 73 year history. Even more alarming, in seeking to assuage their woes, not only are they turning to the US government for help, but have successfully enlisted the help of the Chinese Government.

What may not be obvious, but should have the reader seeing red is that as the result of the irresponsibility of US financial institutions, we’re witnessing a wide scale buy out of US assets and institutions. What’s more, who speaks for the countless duped masses who have lost homes, equity and security as the result of this mass irresponsibility? There can be only a partial answer in paraphrasing Herbert Hoover who said: “Older men declare war. But it is the youth that must fight and die.” In this situation it is the financiers who tinker with the economy. But it is the working class that must work and suffer.