Cutting Discount Rate Just A band-aid

[Nbadan]

Aug. 17 (Bloomberg) -- The Federal Reserve unexpectedly cut its discount rate and said it's prepared to take further action to ``mitigate'' damage to the economy from the rout in global credit markets.

The central bank reduced the rate at which it makes direct loans to banks by 0.5 percentage point to 5.75 percent. Policy makers kept their benchmark federal funds rate target unchanged at 5.25 percent. It's the first reduction in borrowing costs between scheduled meetings of the Federal Open Market Committee since 2001 and Ben S. Bernanke's first as Fed chairman.

``Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward,'' the central bank's Federal Open Market Committee said in a statement released in Washington. ``The downside risks have increased appreciably.''

In the statement, the committee said it is ``prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.''

The cut reflects alarm at the central bank that more restrictive lending conditions and volatility in financial markets will deepen the housing recession, weaken employment and erode economic growth. As recently as its Aug. 7 meeting, the FOMC kept rates unchanged and said inflation is still the biggest danger to the economy.

Bloomberg (http://www.bloomberg.com/apps/news?pid=20601087&sid=aMr45.9VOKes&refer=home)

Slightly modified from another forum:

The real danger is it will have no effect and that will be perceived by the markets as Fed impotence during a crisis. This could cause banks to tighten lending restrictions even further--in a panic.

Lowering the discount rate really does nothing to encourage banks to lend more money. Do you think even a whole point reduction is going to cause banks to lend more money in the risky mortgage market? The problem started in the sub prime market where lenders are already making obscene percentages on their money. The problem is that the average household can't afford the giant house they bought with ARM's, balloon payments and interest only loans. 1/2% discount to the bank is not going to help. The foreclosure rates will continue to increase, demand for new and slightly used will fall, housing stock will increase, and prices will probably slide for YEARS.

The average family making $40-80K can't afford a $300,000 home using a traditional mortgage. This is a structural deficiency and the lenders have all finally clued in. An emperor has no clothes moment. You can't go back to pretending. Banks are the ones who make money not the Fed. You don't think so? When's the last time you ponied up $300,000 cash for a house. You don't. You go to the bank, it writes you a little piece of paper to give to another bank that says we'll give you $300,000 for the house and voila, the bank just pulled $300,000 out of NOTHING. No printing, no coin, no gold. Just paper. The only thing the Fed requires are sufficient RESERVES, i.e; a fraction, usually 5-10%, of cash on hand. So as long as its depositors have $30K in the bank, the bank gets to make $270,000 out of nothing to pump into the economy. Can you see how the economy is fucked yet? Banks don't want to lend money right now.

AN INTEREST RATE CHANGE WON'T FIX THIS. The lenders attitudes are fundamentally changed. Fear of losses. Inadequate regulation. Inflated prices and accelerating foreclosures will dry up the mortgage market. In fact, traditionally they will overact, because bankers are super cautious. Meaning people who should get credit won't get it. Credit tightening in the sub-prime market has a ripple effect as bankers start refusing to offer credit in the traditional markets. This is what happened during the Great Depression. Keynes defined it as a liquidity gap. Meaning no matter how low the interest rates go, lenders are afraid to lend money. This led to all of Roosevelt's public works projects to get people back to work, so they had money to spend, because lenders won't lend to people without jobs.

The Fed will have to do much more to restore confidence than drop rates or this will be a long, deep recession, exacerbated by the costs of the war, and out-right thieving of the Bush administration.

[xrayzebra]

Here you go dan.


http://i191.photobucket.com/albums/z273/xrayzebra/dannyboy.gif

[Bunz]

good job. a cartoon disproves everything

[Nbadan]

Part 2 of 3.....

The FEDS launch a futile attempt to bail-out the big boys, while everyone else eats cake....Ron Paul promises to make matters worse, and the U.S. dollar approaches the beginning of the end.....

Fed attempts to bail out bankrupt Wall Street speculators; Cheney demands staged terror attacks, war with Iran -- part 2 of a 3-part series
By Webster G. Tarpley
Online Journal Contributing Writer
Aug 16, 2007, 01:15


Systemic breakdown crisis


In Surviving the Cataclysm, my 1999 study of the world financial crisis, I developed the distinction between collapse and disintegration. A collapse can be very serious, like the Wall Street crash of 1929. Prices plummet, but the exchange still remains open for business. Disintegration is much more serious, like the British default of September 1931 that swept away the only monetary system the world had in those days, or the German hyperinflation of 1923, which wiped out the entire German middle class.

The US crash of 1987 was a classic collapse, and it was followed by a short recovery of sorts. What is happening today looks much more like disintegration, meaning that credit markets, including bond and junk bond markets, have partly ceased to function as far as non-government securities are concerned.

The discredited Bush administration has counted for very little in this crisis. Treasury Secretary Hank Paulson, a Goldman Sachs insider, said in the early phases of the panic that the subprime crisis was “contained.” At a later point Bush commented that he had been told that there was a “soft landing” ahead. The only thing that Bush was sure of was that there should be “no bailout” -- and this is now the Republican line, no matter how many ordinary families were thrown out on the streets. As for the financiers, they get their bailouts through the corrupt Federal Reserve.

Not just one bankrupt hedge fund, but two dozen -- for starters

Back in September 1998, at the time of the Russian state bankruptcy around bonds called GKOs, Long Term Capital Management (LTCM), a Connecticut hedge fund, went bankrupt, blowing a hole of several hundred billion dollars in the world banking system. LTCM used high leverage and the Black-Scholes model to place gigantic bets on currency movements. If Greenspan had not rushed in with billions of Fed money to carry out a backdoor crony bailout, the interbank clearing systems of the US, UK, and perhaps Japan -- known as CHIPS, CHAPS, and BoJ Net -- would have jammed up, and the hearts of the financier universe would have ceased to beat, leading swiftly to world economic chaos and depression.

But this time it is not one LTCM, but two dozen highly-leveraged hedge funds which have blown up or are about to. Prominent among them are the so-called quant funds, which bet $10 billion and up on financial fluctuations using computerized predictive models. Prominent among these is Renaissance. The quants complain that their models, which are supposed to incorporate 45 years of market history and experience, are now failing to forecast what will happen next, and losses are mounting. The reason is that we have now encountered a cataclysmic singularity which has not been seen in more than half a century -- the beginning of the end of the US dollar. To find a financial earthquake comparable to the present one touching the leading currency of the world, we must in fact go back to the disintegration of the British pound in September 1931.

In recent days, reality has filtered through, even on CNBC. Commentators have warned of “systemic risk if a big bank blows,” “the end of the world,” “depression,” “Armageddon,” “panic,” “the Hindenburg” (the dirigible, not the signal), “a return to 1990” (when Citibank was bankrupt and secretly seized by the Controller of the Currency), the crash of 1987, the hedge fund crisis of 1998, and a “credit crunch.” “Bond traders are afraid.” “Wall Street is afraid.” Led by Jim Cramer with his celebrated on-air psychotic episode on the afternoon of Friday, August 3, Wall Street has been heaping insults on Helicopter Ben and demanding that he open the cash spigots, cut the fed funds and discount rates drastically and quickly, and reassure the stockjobbers that backdoor crony bailouts will be available for all, starting with the too big to fail, like JP Morgan Chase and Citibank.


What needs to be done first of all is the commitment that not one nickel of public funds should be spent on bailing out bankrupt and panic-stricken junk bonds and other paper. The US needs a uniform federal law stating quite simply that, unless and until the president can certify that the current world financial crisis has been overcome, any and all foreclosures on homes, farms, businesses, hospitals, and infrastructure are banned. This would be accompanied by a debt freeze or debt moratorium on payment of principal and interest, again for the entire duration of the crisis. Something similar was done in the New Deal. The interests of bankrupt banks and mortgage lenders must yield to the social imperative of not evicting 10 or 15 million people over the coming months. No bailout of the financiers. Just a law that stops foreclosures, and lets the financiers, not the people, fend for themselves.

A federal ban on foreclosures is obviously a measure in the New Deal tradition. A monetarist follower of Milton Friedman or von Hayek, by contrast, would say that the homeowners who default should be thrown into the street, so that the market can work. A Malthusian might care only about the carbon footprint of the homes involved. A Mexophobe would rant that illegal aliens might get some of the money. In this wasteland of ideas, the New Deal approach emerges as the only one consistent with human life and human civilization in such a crisis.

Republican Ron Paul, interviewed on August 10 after the close by the infamous Kudlow, blamed the credit market panic on interest rates which had been too low. Paul should recall that any interest rates above 5 percent, as charged on these mortgages, are historically very high. (During World War II, for example, successful New Deal policies allowed a typical 2 percent yield for a 10-year Treasury note, with other rates in line with that.) Paul was adamant that there be no bailout, but did not distinguish between help for ordinary people facing foreclosure and eviction on the one hand, and bailouts for predatory financier sharks on the other. His only advice was to “let the market liquidate bad debt and bad investment” -- which, under current conditions, will mean that more than 10 million people will be thrown out on the street during the next few months. One hears an echo of monetarist Andrew Mellon, Herbert Hoover’s Secretary of the Treasury, whose advice on how to deal with the Great Depression was “Liquidate labor, liquidate stocks, liquidate real estate. . . ." Those on the receiving end of such “creative destruction,” as Schumpeter called it, have generally lost their enthusiasm for monetarism.

Paul mocked warnings that “poor people are losing their homes” -- a sadly Dickensian moment, since that is just what is happening to 10 million Americans. When asked how much he would like to cut federal spending, Paul said that under his presidency it would come down by “50-60-70 percent” -- figures which seem to bode ill for the future of Social Security, Medicare, Medicaid, food stamps, unemployment insurance, WIC, Head Start, S-CHIP (medical care for poor children), TANF (what is left of welfare for mothers with dependent children), and other programs which keep many Americans alive. The Republican line from Giuliani to Paul is that these institutions are part of the hated “nanny state.” When asked for specifics about what he would cut, Paul mentioned the abolition of the Department of Education, a favorite target of Republicans. Does that include Pell grants and federal support for subsidized Stafford loans, which are the only way the ghetto poor and much of the middle class can hope to send their children to college? No help here for victims of the current economic breakdown crisis, but Kudlow said that this approach would be well received on Wall Street..

GOPer Ron Paul has said that he admires the late Ohio Senator Robert Taft, “Mr. Republican,” who was like many in his family a member of Skull and Bones. One wonders if this admiration includes Taft’s sponsorship of the infamous union-busting Taft-Hartley Act, which has allowed many southern states to effectively block union organizing with so-called “right to work” laws, thus greatly facilitating the demolition of the US labor movement over recent decades. Taft-Hartley has been the key to the race to the bottom in wages and working conditions in this country. It should be repealed and replaced with a modern version of the pro-labor Wagner Act, which made it easier for workers to organize, bargain collectively, and defend themselves. Repeal of Taft-Hartley would be a first step towards rolling back the low-wage Wal-Mart/McDonalds model for the US economy.

The uptick rule of 1934 abolished -- just in time for the panic

In an irony of history, traders in the Chicago futures pits have been complaining to CNBC about the abolition, only a few weeks ago, of the 1934 New Deal era rule which had required short sellers to wait for an uptick in the stock they were targeting before they could complete their trade. The rule change had produced disruptions and uncertainty, the trader complained on CNBC. The New Deal rule, one of the final vestiges of the regulations introduced after the Great Crash of 1929, was one of the last factors saving today’s finance oligarchs from themselves. Once the uptick rule was gone, the death agony of the current system entered a new phase.

Worldwide asset bubble

Tiresome commentators have been prating on ad nauseam about the unprecedented worldwide boom. What we have in fact been witnessing since Bush’s attack on Iraq has been a world asset bubble, benefiting derivatives, hedge funds, stock and real estate speculation, junk bonds, and other paper instruments.

In the real world, 2 billion people, a third of the world, have to get by on less than $2 per day. Some 40,000 human beings per day do not make it, and succumb to starvation, malnutrition, or diseases like dysentery and diarrhea which can be cured for pennies. Under almost two decades of globalization, this situation has been getting worse, not better. That is the big picture from which all real analysis must start.

As for the United States, the living standard has fallen by about 65 percent since the beginning of the current reactionary political cycle with the coming of Nixon in 1968. The US is currently running a merchandise trade deficit of between $800 and $900 billion, heading for a trillion dollars per year soon. This means that the US has to borrow more than $2 billion per day just to keep sucking in food, consumer electronics, and services from the rest of the world. The foreign dollar overhang is enormous: about $1 trillion each in Japan, China, and Saudi Arabia, who now in effect hold a mortgage on the USA.

On top of all this, the US is already thoroughly deindustrialized. Steel, chemical, and auto are now a shadow of their former selves. Industrial employment has dropped to the lowest levels in well over a century. The US industrial economy ended when Volcker ran the Federal Reserve and instituted a 22 percent prime rate in 1978-1980. As the dollar falls, we will hear commentators assuring the public that a collapsed currency will mean that US exports are cheap. The problem is that there are almost no factories left to produce anything that might be exported, so these benefits cannot accrue.

The collapse of the auto industry at the root of today’s crisis

The big event, the great economic watershed of the last two years, has been the demolition of the auto industry, the heart of the US postwar economy. Not just the Big Three have been hit hard, but also suppliers like Delphi, Lear Corp., Tower, and Collins & Aikman have been gutted by predators like Cerberus and Wilbur Ross. During the Bush years, 300,000 industrial jobs have been lost in auto.

But the tragedy does not stop here. As the Minneapolis bridge collapse tragedy, the New York steam pipe explosion, and the Utah mine disaster remind us, this is an economy approaching the point of actual physical breakdown, that is to say of thermodynamic collapse. The interstate highway system with its bridges and tunnels is in ruins. Freight rail, passenger rail, and commuter rail are junk heaps. The electricity grid goes into brownouts and blackouts on hot summer days. Commercial aviation has passed beyond the breaking point. Water systems, from the Mississippi levees of Katrina to the cryptosporidium-laced water of Washington, DC, are appalling.

There is a deficit of about 1,000 modern hospitals in rural America and in the inner cities, but viable hospitals are being shut down all the time because of predatory financier incursions -- closing that need to be stopped in their tracks by that federal law forbidding foreclosures, however camouflaged.

This is an economy decades deep in post-industrial rot, running an infrastructure deficit of $10 trillion and probably much more. The private sector has already struck out, as in the case of the high-toll Dulles Greenway near Washington, DC, during the 1990s, and in the looting of the fixed capital of the freight rail system by predatory management.

What is to be done? Let the venture privateers build the Trans-Texas corridor? Call in the hedge fund vultures and privatize the Indiana turnpike, guaranteeing only that money will be siphoned off to the pay greedy venture capitalists located based abroad? Tell people they should walk or use bicycles? Or take the New Deal approach, which would rebuild infrastructure with 30-year 2 percent loans from a special window at the nationalized Fourth Bank of the United States, the former Federal Reserve. This would include giving every US city a comprehensive urban mass transit-interurban train system with the goal of saving the billions of man hours lost to traffic jams and road rage, while taking perhaps one-third of cars off the roads during rush hours by offering an attractive commuting alternative.

Breakdown stage of globalization

Under the globalization of the 1990s, the system lurched from one brush with systemic crisis to the next -- the Mexico and Orange County crisis of 1994 was a typical example. In 1998, when the globalized system threatened to implode because of the LTCM and Russian GKO crises, Greenspan began citing the danger, not of systemic breakdown, but rather of the Y2K computer glitch, which might cause viable banks and firms to appear bankrupt. Greenspan therefore cranked up the printing presses and flooded the gutters of Wall Street with sloshing liquidity. When Brazil was about to go bankrupt in 1999, Soros demanded a “wall of money,” and he got it. The result of all this was the dot com bubble of 1999-2000; the dot communists went belly up starting in the spring of 2000. The dot com-heavy NASDAQ lost 80 percent of its value.

Greenspan responded to this with a new bubble, this time in housing and real estate. As home prices went into the ionosphere and adjustable rate mortgages and interest-only mortgages were given to applicants of the most modest means, Greenspan celebrated the “wealth effect,” meaning that homeowners were now supposed to take out a second mortgage (or home equity loan) on the additional value of their property, and then spend that extra money in the stock market. The housing bubble got going in earnest with Bush’s attack on Iraq in March 2003, and expanded home ownership was a favorite Republican theme in the 2004 elections.

The Wall Street-London casino economy of hedge funds, derivatives, and pure speculation may sometimes seem to be a separate and self-contained universe, but it is not. It ultimately depends on income flows which have to be derived from the real productive and physical economy of the world -- that is to say, from manufacturing, farming, mining or other production somewhere. Finance oligarchs do not like to be reminded of this, but every few decades a depression or even a breakdown crisis comes calling to remind them of this basic fact. Contrary to what is said on CNBC, the US economy is not sound, and the debt-strapped US consumer has indeed reached the end of the line.

The four trillion dollar hedge fund buyout orgy of 2006

Under Bush, with figures like White and Paulson at the Treasury, Wall Street has forgotten what productive investment in new plant and equipment even looks like. Millions of jobs have been lost to the runaway shop under the auspices of free trade swindles NAFTA, CAFTA, GATT, and WTO.

Under the reign of these financial parasites, we have witnessed an unprecedented boom in leveraged buyout deals, where one group of corsairs used junk bonds to take over an existing company, often firing many of the employees, cutting the wages and increasing the hours of those who remain, introducing speedup, busting unions, terminating health care, selling off parts of the business, and leaving what is left groaning under the burden of crushing debt which has not added anything to technology or other capabilities, but has lined the pockets of Wall Street lawyers and investment bankers. These deals are a microcosm of what is wrong with US vulture capitalism today: paper wealth for a few gluttons of privilege is maximized, while jobs, wages, working conditions, and productive output in the real economy are mercilessly driven down. Leveraged buyouts and junk bonds need to be outlawed as a public menace. When Wall Street begs for aid in the coming months, don’t forget that they were the ones who for years applauded every time American workers were fired by a leveraged buyout (LBO) pirate.

Since paper profits are no longer invested in anything productive, they flow into these leveraged buyout deals, often called private capital transactions. The peak of this activity came in 2006, when there were $4 trillion in mergers and acquisitions, with $1 trillion of straight leveraged buyout deals. About $500 billion of this frenzy came in December 2006, setting the stage for 2007 to become the crisis year it has now become.

Every LBO or private equity or private capital deal means fewer jobs, lower wages, less buying power, and thus, most to the point, less ability to keep up with mortgage payments. This problem was escalated by the takeover of many of the subcontractors and parts suppliers of the auto industry by predator hedge funds during 2005-2006. It got even worse when battered Chrysler was sold by Daimler Benz to the Cerberus Fund, aptly named after the hound of hell. As the collapse and looting of auto rippled through the economy, the income flows on which the sustenance of the mortgage bubble depended were severely constricted, leading to the current panic.

Online Journal (http://onlinejournal.com/artman/publish/article_2310.shtml)

[Nbadan]

Part 3 or 3:

The point of economic contraction has been reached, next stage - complete collapse. Hard choices will have to be made, but if people continue to let thier government run amoke with apathy, it will be the Americans who pay in billions in lost homes, lost savings, lost earnings, lost benefits, and eventually war with Iran.....

Fed attempts to bail out bankrupt Wall Street speculators; Cheney demands staged terror attacks, war with Iran -- part 3 of a 3-part series
By Webster G. Tarpley
Online Journal Contributing Writer
Aug 17, 2007, 01:51


Thirty-six years ago this week, on August 15, 1971, President Nixon ended gold settlement among nations and fixed currency parities, and thus pulled the plug on the Bretton Woods world monetary system, the most successful world currency arrangement that the world has ever known.

Nixon was responding to British demands for gold payment. Among many crimes, this was Nixon’s greatest. Since then, world economic growth has gone negative, into reverse, with net world deindustrialization in the US, the former USSR, eastern Europe, the UK, the EU, and elsewhere. (Only China, partially outside the system, represents a consistent exception.)

During all these years, the London-New York financiers have been concerned to keep political power in their own hands by engineering a gradual decline or “soft landing,” treating the US population like the frog in the pot of water which is slowly brought to a boil. The key to this has been the looting of underdeveloped countries to keep the homeland stupefied and inert. In all these years, the big question has been about The Contraction -- that is to say, about the moment when events like the 1987 stock market and dollar crash, the 1990 banking crisis, or the 1998 hedge fund debacle would begin to translate into mass layoffs, business shutdowns, economic disruptions, Hoovervilles, and bread lines inside the US itself. This is what happened over 1930, as the US descended into the Great Depression. It appears to be happening right now.

Harbingers: Freight car loadings down 4.2 percent; truckload volume down 5 percent

It would appear that the point of Contraction has been reached in the first months of 2007, and that the real or physically productive economy has been in marked decline for some time. This is also the opinion of Richard C. Cook. It is hopeless to rely on the cooked figures of the Bush administration, the most notorious liars of the age. Private associations may well be more accurate.

One obvious data series for measuring real economic activity is freight car loadings and trucking ton-miles, which few hedge fund operators have ever heard of. But these real-world physical units are a useful way of estimating overall levels of real economic activity, as distinct from total derivatives held by banks and other measures based on toxic paper.

According to the American Trucking Associations, “the truckload industry started 2007 poorly as seasonally adjusted (SA) volumes plummeted 5.0 percent from December. This was the largest monthly decrease since a 6.5 percent drop in February 2000. . . . Compared to January 2006, the total SA loads index was off 2.3 percent, which was the first year over year contraction since July 2006.” (American Trucking Associations, Trucking Activity Report, 15:3 (March 2007). The same tendency was confirmed several months later by the Association of American Railroads, which announced that for the week ending April 28, weekly rail car loadings were down 1.7 percent and intermodal units were down 5.6 percent, both compared to the same week a year before. For the first 17 weeks of 2007, rail car loadings were down a cumulative 4.2 percent, while intermodal trailers were down 11.5 percent (Dow Jones, May 3, 2007) These are only fragmentary snapshots, but they do provide more than a strong hint that the Contraction is indeed upon us. Are there any economists left who still look at the real, physical economy?

The great question posed by any depression is, who should pay for it? Should working people, the victims, pay by having their wages, working conditions and standard of living driven down even lower than the current minus 65 percent? Or should it be those responsible -- the economic royalists and financial parasites, the jackals, lampreys, and hyenas of Wall Street -- who are made to disgorge? For any person of good will, the answer is clear. The full program for doing this is discussed in my book Surviving the Cataclysm: Your Guide Through the Worst Financial Crisis in Human History (1999). One more example will suffice.

Slap a securities transfer tax on Wall Street

With the New York Stock Exchange churning over 2.5 billion shares per day, and with the VIX volatility index at an all-time high, how might markets be cooled down? One socially useful way to do this would be the Securities Transfer Tax or Tobin tax, a levy of about 1 percent on the total turnover of securities markets -- stocks, bonds, futures, options, derivatives, Treasuries, foreign exchange, and other paper property titles -- paid by the seller on each transaction. It is named after Professor James Tobin of Yale University, who originated this idea as a way to discourage rampant speculation in currency markets. It would be eminently fair.

Right now the financiers who send trillions of dollars rushing through the markets every day all get an absolutely free ride. By contrast, working people who need to buy clothing, shoes, and school supplies in many states have to pay the odious and regressive sales tax, second only to the ultra-regressive poll tax as the worst tax ever devised. In Maryland the sales tax is 5 percent, but groceries are exempt. In Virginia, there is a 7 percent sales tax, and supermarket checkouts are included. In California the sales tax is often 7.75 percent. If working people have to pay these taxes, why cannot finance oligarchs pay a mere 1 percent on their speculative activity? The results could be liberating: right now US banks probably hold derivatives, including structured notes, to the tune of some $400 to $500 trillion of notional value. A 1 percent Securities Transfer Tax would thus produce some $4 to $5 trillion of new revenue -- enough to guarantee Social Security into the 22nd century, replenish Medicare and Medicaid, fully fund Head Start and WIC, and begin rebuilding vast sectors of infrastructure to give the US a modern economy, not a post-industrial rubble field. All that is needed is political will.

Credit for jobs and production, not financial bailouts

The Fed’s $38 billion at 4 percent, if committed for a decade or two, would have been enough to reconvert and retool the dying Detroit automobile industry to produce modern urban mass transit and long-range maglev trains. (Consider that Chrysler was sold to Cerberus recently for a paltry $5 billion.) A hundred thousand industrial jobs could have been secured, and much more. Or, $38 billion would finance a permanent human colony on the moon, with incalculable benefits in the form of technological spin-offs, and honoring Stephen Hawking’s prophetic observation that humanity has no future if we do not go into space. The $325 billion wasted worldwide would have been enough to give all of Africa clean water, electricity, and transportation. Instead, that third of a trillion was shoveled into the furnace of the panic to keep the hyenas above water for one more day. The Fed has never lifted a finger to prevent millions of Americans from being thrown out of their homes, but when the malefactors of great wealth, the Wall Street bankers, were threatened, the Fed sprang into action.

Needed: Cheap federal credit for real production

At the end of the day, the secret of economic recovery is that the Federal Reserve System is illegal, unconstitutional and a failure. It thus needs to be nationalized at once, and incorporated into the federal government as a bureau of the US Treasury. This means that decisions about interest rates, money supply, relative priorities of full employment or reducing inflation, bailouts or non-bailouts, would have to be made by public laws, debated in election campaigns, passed by the Congress, and signed by the president -- not decided in secret by unelected and unaccountable cliques of finance oligarchs.

The resulting national bank or Fourth Bank of the United States should issue tranches of $1 trillion long-term, low-interest credit from time to time for production for business activity in industry (meaning manufacturing), farming, mining, infrastructure, home building, public construction at Davis-Bacon rates, new productive plant and equipment, new productive jobs with union pay scales, infrastructure of all types, and other areas of tangible, physical production. New schools, hospitals, libraries, and other socially necessary projects should also be funded.

But those who want money for any kind of financial speculation, flipping condos, gambling, prostitution, organized crime, narcotics, drug money laundering, pornography, and other sociopathic activities will be cordially invited to take their chances in the free credit market they admire so much.

As long as the credit goes only to well-managed productive projects, the loans will be repaid, and revolving credit arrangements will allow these payments to be recycled into a series of additional projects. With these methods, it should be possible to create 4 to 5 million new, productive, jobs per year at union wages, putting an end to decades of monetarist unemployment, underemployment, and despair. Full employment, something most living Americans have never experienced, would be attained within four to five years, and the country returned to the status of a high-wage economy, not a low-wage service economy. As Richard C. Cook says, the essence of New Deal economics is to see credit as a public utility. It is too important to be left to greedy banksters.

The nationalization of the Fed is more feasible now than it was a few months ago. Wall Street is boiling with resentment against Helicopter Ben Bernake, partly for his failure to bail out the Bear Stearns hedge funds and other entities silently, through the back door. A cartoon lampooning Helicopter Ben’s ineptitude and incompetence has even appeared in the Washington Post, which since the mid-1930s has been the house organ of the Federal Reserve System. (August 11, 2007) In the current crisis, Helicopter Ben may well assume the role of the infamous Brownie of Hurricane Katrina, and this is in fact the theme of the cartoon just mentioned. Helicopter Ben may actually believe some of the monetarist garbage that he has been spouting before his students for so many years. If he does, the damage will be incalculable. The Fed may soon become so hated by wide sectors of the US population, providing the first chance we have had for a serious attack on this illegal institution since the late 1930s.

Cheney’s thermonuclear bailout

The disintegration of the dollar system is ultimately one of the strongest factors impelling Cheney’s controllers -- meaning the George Shultz-Rupert Murdoch faction of the US-UK ruling elite. From Cheney’s point of view, an economic depression requires drastic austerity measures to drive the standard of living down even further below its present reduced level, with the proceeds going to the finance oligarchs. Can these cuts in the standard of living be accomplished under the present system? If not, what kind of dictatorship can be used to impose them? This is, after all, the reason the German financiers like Schacht turned to Hitler.

The Cheney doctrine calls for a staged terror attack in the US using WMD, followed by an attack on Iran and the declaration of martial law under Bush’s many executive orders. As I pointed out on July 21 in my “Cheney Determined to Strike in US with WMD this Summer,” there are many signs that the neocon group is driving hard to implement the Cheney doctrine this summer.

Thom Hartmann has reported on Air America that lawmakers with whom he has spoken report that the US intelligence community continues to issue warnings to the Congress that a new terrorist attack is coming. According to one unconfirmed report, a US senator is reported to have told an impeachment activist that the Democrats could not impeach Bush-Cheney, because the senators were being threatened with “them blowing up seven US cities” -- a possible reference to statements by Juval Aviv, a veteran Israeli intelligence fixture. Aviv warned on August 2 that there would be a new terrorist attack on the US within no more than 90 days, with multiple targets: “What they're going to do is hit six, seven or eight cities simultaneously to show sophistication and really hit the public. This time, which is the message of the day, it will not only be big cities. They're going to try to hit rural America.”

The McClatchy newspaper chain is reporting that Cheney is continuing to push behind the scenes for an attack on Iran: “Behind the scenes, however, the president's top aides have been engaged in an intensive internal debate over how to respond to Iran's support for Shiite Muslim groups in Iraq and its nuclear program. Vice President Dick Cheney several weeks ago proposed launching air strikes at suspected training camps in Iraq run by the Quds force, a special unit of the Iranian Revolutionary Guard Corps, according to two U.S. officials who are involved in Iran policy.”(Warren P. Strobel, John Walcott and Nancy A. Youssef, “Cheney urging strikes on Iran,” McClatchy Newspapers, August 10, 2007)

A mirror for Cheney: The Führerkonferenz of August 22, 1939

What do Cheney’s closed-door arguments to Bush sound like? We cannot know for sure right now, but we can use historical precedent to get an idea of what the old reprobate is saying. To cite the obvious parallel at the beginning of the last world war, let us recall Hitler’s arguments in favor of the Nazi attack on Poland at the Führerkonferenz of Nazi bigwigs, government ministers, and top generals on August 22, 1939 -- almost 68 years ago this month. The reader will note from these excerpts how Hitler emphasized the prospect of economic breakdown as a key reason impelling him towards war:

“I have called you together to give you a picture of the political situation in order that you may have some insight into the individual factors on which I have based my irrevocable decision to act and in order to strengthen your confidence. . . . For us, it is easy to make the decision. We have nothing to lose; we can only gain. Our economic situation is such that we cannot hold out more than a few years. Goering can confirm this. We have no other choice, we must act. . . . The political situation is favorable to us. . . . All these fortunate circumstances will not prevail in two or three years. No one knows how long I shall live. Therefore a showdown, which it would not be safe to put off for four or five years, had better take place now. . . . I shall give a propagandist reason for starting the war -- never mind whether it is plausible or not. The victor will not be asked afterward whether he told the truth or not. In starting and waging a war it is not right that matters, but victory. Close your hearts to pity! Act brutally! Eighty million people must obtain what is their right . . . The stronger man is right! Be harsh and remorseless! Be steeled against all signs of compassion! Whoever has pondered over this world order knows that its meaning lies in the success of the best by the means of force. . . ." (Shirer, Rise and Fall of the Third Reich, pp. 529-532)

Acting out a Nietzschean creed, which he shared with today’s neocons, Hitler within a few days manufactured the Gleiwitz radio station incident. This operation was carried out by SS General Heydrich on the evening of August 31, and provided Hitler with the immediate trigger for war. SS provocateurs staged a raid on a German radio station near the Polish border and read an anti-German tirade on the air. Some drugged German concentration camp death row inmates were then delivered to the scene under Operation Canned Goods. These bodies, dressed in Polish uniforms, were riddled with bullets and left around the station to give the impression of the aftermath of a firefight. Goebbels, and the controlled media of the day, screamed unprovoked Polish aggression against Germany. This is the incident which Hitler then cited as the immediate pretext for war.

Neocon spokesmen are coming forward to glorify the coming slaughter. Among them is Stu Bykofsky of the Philadelphia Daily News: “One month before The Anniversary, I'm thinking another 9/11 would help America. Remember the community of outrage and national resolve? America had not been so united since the first Day of Infamy - 12/7/41. We knew who the enemy was then. America's fabric is pulling apart like a cheap sweater. What would sew us back together? Another 9/11 attack. It will take another attack on the homeland to quell the chattering of chipmunks and to restore America's righteous rage and singular purpose to prevail."

In the last week of July, congressional scoundrel Tom Tancredo announced that a new terror attack was imminent, and demanded that the US issue an ultimatum that such an attack would be answered by the destruction of the Islamic holy places in Mecca and Medina. The State Department invited Tancredo to shut up, which may actually signal some resistance there against the wider war.

On Friday, August 10, after the carnage of the day on Wall Street, CNN reported that there were unsubstantiated Internet threats of a radiological dirty bomb in truck bomb format which might be delivered in New York City, Los Angeles, or Miami. In New York, the attack was supposed to come on 34th street, where Macy’s department store and the Empire State Building are located. It then transpired that the only source for this absurd rumor was Debka File, a notoriously unreliable speaking tube for certain fringe elements in the Israeli intelligence community. Debka File claimed to have gotten this intelligence from intercepted al Qaeda communications, but the guess here is that it was simply made up out of thin air.

These incidents were part of a broader pattern: on the afternoon of August 8, one of the hottest days of the year, a mysterious package, probably somebody’s lunch, was found in the DuPont Circle metro stop on the red line. Three stations were ordered closed by the Homeland Security Department, and the entire rush hour was held up for three hours, causing an upheaval in the lives of tens of thousands of commuters. The mysterious package was then exploded, and found to be wholly innocuous. Chertoff would like to be the P.T. Barnum of terror stunts, but he seems to be falling short.

The urgent need was for a politician to stand up on national television and warn that any new terrorist WMD attack would come directly from Cheney’s office, and that the Cheney faction should be held criminally responsible, including under the Nuremberg Code.

Is a strike wave coming in the US?

Forty years of passivity, demoralization, apathy and defeat weigh heavy on the US population. But the mass strike may not be as far away as is generally supposed. A veteran organizer for the United Auto Workers observed in the 1980s that Americans were never going to rise up in mass action, because they were too concerned that one missed paycheck would result in eviction from their homes. Suddenly, 10 million or more have nothing left to lose, and they may soon be joined by many more. A mass strike cannot be decreed by bureaucrats, nor is it totally spontaneous. It requires thorough preparation, but it is likely to be detonated by an outside event, often of the most unpredictable type. The only thing to do is to keep up a campaign of mass political education about the vast possibilities of a general strike, especially in response to an illegal war and/or an unconstitutional dictatorship, of the type which Cheney’s controllers so ardently desire.

Online Journal (http://onlinejournal.com/artman/publish/article_2316.shtml)

[Aggie Hoopsfan]

Fed attempts to bail out bankrupt Wall Street speculators; Cheney demands staged terror attacks, war with Iran

:lmao

http://www.b00mb0x.org/wordpress/wp-content/uploads/2006/04/dj_herr_doktor_goatstones_-_black_helicopters_front.JPG

[Nbadan]

Blood in the streets in Cleveland's real estate market..


The US dream of home ownership is going up in smoke in Cleveland, now littered with broken promises and lost hopes as it tops the nation's tragic roll call of foreclosures

In the first seven months of this year, there were 13,600 foreclosures in Cleveland and Cuyahoga County alone, compared to just 7,000 for the whole of 2006, and 3,400 in 1995, said county treasurer Jim Rokakis.

To date, at least 30 percent of the subprime mortgages in Cleveland have gone bad, Rokakis said, while nationally, some estimates place the current foreclosure rate at one out of every 130 homes.

-snip-

Congressman Dennis Kucinich, the fiery populist representing Greater Cleveland's West Side, has made the crisis an issue as well as he revs up another run for the Democratic presidential nomination.

"We've been complaining about this stuff in Cleveland since 2001," Rokakis said, noting that no one paid attention until it started to suck down major financial institutions.

"When there's blood on the streets of Cleveland, nobody gave a shit," Rokakis said. "But when there's blood on Wall Street, everybody cares."

Yahooooooo (http://news.yahoo.com/s/afp/20070819/ts_alt_afp/stocksfinanceproperty_070819190715)

[Nbadan]

How Far Will the Crash Go and What Do we Do Now?
The “Crash of 2007-8” is underway
by Richard C. Cook
Global Research, August 18, 2007


The immediate triggers are being described quite well: the collapse of the U.S. subprime mortgage market; the vulnerability of the rest of the economy to the subprime undertow, due to the “efficiency” of the markets in spreading risk; the worldwide overextension of cheap credit; the failure of large institutional investors and Wall Street brokerages to behave responsibly; and the long-term effects of the U.S. trade and fiscal deficits which are now coming home to roost.

Amazingly, some commentators have been asking “if the monetary crisis will affect the producing economy,” and whether a recession lies ahead. In reality, the U.S. producing economy has been in a recession for the last year. This is shown most clearly by the decline in M1, the portion of the money supply immediately available to people for making purchases.

The causes of the M1 decline are two-fold. One is the weak purchasing power of American consumers, at least half of whose decently-paying manufacturing jobs have been eliminated by the outsourcing, mergers, and productivity improvements during the past two decades. The other is that while many of the U.S. corporations not connected to housing have been doing all right, their success has been tied to overseas investments and sales, such as GE and GM who are heavily invested in China.

This type of business activity props up the stock prices of these global corporations but does little for the working American. The presumption that overflow earnings from stockholders will benefit the rest of our domestic economy is the essence of “trickle-down,” supply-side economics and is part of the justification for the system that makes the rich richer and the poor poorer.

But as Barron’s reported earlier this year, much of the profits from the global corporations are being held as retained earnings for future growth, rather than being passed on to stockholders as dividends. Because of the heavy debt load corporations carry today, they are all in a grow-or-die mode. Again, the result is deficient purchasing power which works to negate the already dubious trickle-down effect.

The recession has been masked by four factors: 1) the government’s phony GDP numbers, where the “churning” of financial transactions masquerade as production; 2) the froth on the stock market that took the Dow Jones Average (DJA) from a little over 11,000 to a record-breaking 14,000 during a one-year period that ended with the decline that began in mid-July; 2) the propensity of the American consumer, which is now ending, to continue to buy goods and services on credit, including necessities of life like health care; and 3) modest growth in low-paying service economy jobs, which also may be coming to an end.

These lesser bubbles have mirrored the big ones that are bursting as lenders lose confidence in the ability of borrowers to repay. These are the housing bubble, affecting consumers; the acquisition bubble, affecting equity funds; and the speculation bubble, affecting hedge funds.

As the house of cards comes tumbling down, the leading question on financial websites and blogs is how deep will the decline go. Will it stop at the level of the recessions of previous decades, including 2000-2002, with a decline that is reflected in the DJA of somewhere around thirty-five percent from its peak? Or will it be the “Armageddon” scenario which would take us to depression-level conditions? Of course there are multiple possibilities based on a decline somewhere between a recession and a depression that would share some of the characteristics of each.

Muddying the waters is the fact that the DJA is much less reliable as a measure of economic health today than in the past. This is because today the vast majority of financial transactions now take place within the furtive secrecy of the equity, hedge, and derivative markets. No one really knows what is going on, except that on any given day an announcement is made that another fund or company has been wiped out.

Neither the Federal Reserve nor the U.S. government believes they have an obligation to gather or publish data that will help the public gauge the effects of these crises on their homes or jobs. Some might call this negligence a crime against democracy. In fact the Federal Reserve made tracking even more difficult by ceasing to report the M3 macro-currency numbers, but researchers have shown that growth in M3 is soaring while M1 goes down.

What appears to be happening right now is that the Federal Reserve, which oversees the U.S. economy on behalf of the financial, corporate, and government elites, is deliberately trying to squeeze as much debt out of the economy as it can. It is doing this with interest rates that are high relative to actual conditions, while trying to avoid the Armageddon scenario.

The Fed is carrying out its “soft-landing” policy by holding credit tight while introducing “liquidity” into the markets on a day-by-day basis through use of overnight “repos” and by cutting the discount rate for bank borrowing. Conservative columnists like George Will and Bob Novak watch and shake their pom-poms from the sidelines.

But “liquidity” is just a fancy name for more loans. The one thing we can be certain of is that every loan bears interest charges which someday, somehow, will have to be paid by a person who works for a living.

And if you wondered where the Fed got the $34 billion in liquidity it pumped into the markets on Friday, August 10, you weren’t the only one. The answer is that the Fed has a secret room upstairs where it keeps a large “printing press.” It’s legalized counterfeiting, but as with any counterfeit money, if people accept it in trade it acts just like the real stuff—for a while.

The danger, which many commentators are pointing to, is that the Fed will ignite a hyperinflation, which may be what is happening and may actually be intentional because it devalues debt. It’s what happens when debt is used to pay off debt and is in fact an invisible tax. Such inflation is difficult to discern, again because of the government’s rigged statistics. The most important indicator to watch is the price of oil, which doesn’t show up in “core inflation.”

But there are signs that the “soft landing” is working, such as a modest increase in U.S. exports. Reflecting the weak dollar, China is now charging more for its own exports, which will stimulate our industry here at home. And the Fed’s discount rate cut last Friday sparked a modest stock market rally.

Meanwhile, there is a debate over whether quasi-public agencies like Fannie Mae and Freddie Mac should be used to spread the housing market losses across the entire taxpaying population. While society as a whole is made poorer, many individuals who might have lost their homes or jobs are spared some pain. So it’s hard to argue against it. But this type of bail-out would benefit individual homeowners more than the big banks, so the conservative politicians and commentators oppose it.

But there’s a bigger picture. The strategy of the Fed is likely to allow the recession to proceed but it does want to get the economy moving again before the downturn goes too far. In fact they probably plan to do it in time for the 2008 presidential election.

The Fed wants to see a recovery in place by then so the American public will go back to sleep and elect another politician who will steadfastly protect the privileges and powers of the magnates who, through the Fed, rule the world. Even if a new president has some progressive ideas, he or she won’t be able to alter much if a recovery has started.

The “soft landing” is a political power play.

It’s what they did in 1984, when Ronald Reagan was reelected on a campaign theme of “It’s morning in America,” after the Fed let up following the twenty percent-plus rates it used to trash the producing economy from 1979-83. The Fed did the same with the housing bubble to get George W. Bush reelected in 2004.

The financiers’ worst fear is that if things get too bad the American people might elect a reformer in 2008. So far the corporate press has kept two such reformers—Ron Paul and Dennis Kucinich—in the shadows. Now that Hillary Clinton is starting to sound more progressive, they’ll attack her overtly since she is too big a player to be ignored. The Washington Post has already begun.

So we’ll see if the Fed’s plan succeeds as well over the next couple of years as it has in the past. In the meantime, what remains firmly in place is the monetarist regime through which the financiers and the Fed have ruled America for the past thirty-six years, since President Richard Nixon closed the gold window for international exchange in 1971.

During this period, we have seen several interlocking phenomena:

1) interest rates that on the whole have been much higher than the previous period of the New Deal and its aftermath, lasting into the 1960s;

2) inflation that has eroded eighty percent of the value of the dollar;

3) replacement of our producing industrial economy with a service economy dominated by high finance;

4) almost continuous warfare with a clear objective of world domination whose purpose is to shore up the dollar as the world’s reserve currency;

5) ever-deepening public, private, and household debt;

6) the ever-widening gap between rich and poor, with increasing numbers of the poor, homeless, and hungry who are left out of the nation’s economic life;

7) a crisis in the nation’s crumbling infrastructure; and

8) the constant whipsawing of over 200 million ordinary people.

It’s our citizens who are batted around like ping pong balls between alternating conditions of boom and bust as every few years many of them watch the overnight disappearance of their homes, pensions, savings, health insurance, and jobs. Added to this is the stress that has eroded the health and even life expectancy of the U.S. population.

It’s a horrible picture created by a filthy system. It’s why religious leaders for thousands of years have characterized usury, and a culture ruled by usury, as a crime against God and humanity. The monetarist rule of the Federal Reserve is legal, institutionalized usury. Over the years they have mastered all the tools of the trade, the objective of which is to continually allow the financial superstructure to skim the cream off the producing economy. Come to think of it, isn’t that how the Mafia used to work with its protection and loan-sharking rackets?

And can anything be done about it? Of course.

In previous articles on the Global Research website and elsewhere, this writer has offered a list of reforms—mostly monetary—that can and should be made. They all involve the recognition of credit as a public utility, part of the societal commons, not the private playground of the financiers, with the Fed as their facilitator.

Low-cost credit overseen by the federal government was the basic building block of the New Deal. It was done by strong people with an ideal of public service, though in many respects they didn’t go far enough and relied too much on World War II and armaments to attain a full-employment economy. We now need a New Deal for the 21st century that would correct the flaws of the last one, resolve the present crisis, and carry us into a future that will benefit everyone, not just the privileged few.



Richard C. Cook is a retired federal analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. His articles on monetary reform, economics, and space policy have appeared on Global Research, Economy in Crisis, Dissident Voice, Atlantic Free Press, and elsewhere. He is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” His website is at www.richardccook.com .

© Copyright Richard C. Cook, Global Research, 2007