ENERGY RETURN ON ENERGY INVESTED (EROEI)

Yesterday the Chief Propagandist of the country, Barrack Hussein Obama, provided Americans with an example of his wisdom and long-term thinking. He declared that he would unleash his rabid dogs at the Department of Justice to root out the oil speculators responsible for the increase in gas prices. Funny how he hasn’t unleashed these rabid dogs on criminal Wall Street banks. His blustering and misinformation campaign will further destroy any chance of steering this ship away from the iceberg that is peak oil. He will convince the ignorant masses that the reason oil continues to rise in price is because of BIG OIL and the dreaded SPECULATORS. Maybe he should unleash his rabid dogs on the Federal Reserve Building. Ben Bernanke is responsible for $20 of the increase.

If you want a real discussion and analysis of why prices are rising and will continue to rise over the long term, you need to go to websites that actually use facts and where people think. There is no better site than  http://www.theoildrum.com/ for solid data and facts about peak oil.

Below is an article that addresses why we are in deep deep shit when it comes to oil. Once it requires you to expend more energy than you acquire from obtaining a new energy resource, the gig is up. To put it bluntly: when it takes 1.1 barrels of oil to obtain 1.0 barrels of oil, then we’re fucked. That is the dilemma of the developed world. As this article points out, it will be far worse for the U.S. than China or India because we have a vast infrastructure to maintain.

I find it fascinating that M. King Hubbert, who predicted peak oil, was actually very optimistic about the world shifting from oil to nuclear in time to keep the world growing. Sadly, he overestimated the intelligence of politicians and the American people. We haven’t built a nuclear power plant since the 1970s and now we are going to pay a high price. The recent disaster in Japan means that the American public will not support any major effort to replace oil with nuclear.

Obama and the fools in Congress can bluster and lie and hold hearings until they are blue in the face. It is just a show. The world supply of oil has peaked. We are now on the downward slope. Take a look at the consumption charts for China and India. Anyone who doesn’t think there will be a war for oil in the near future just isn’t thinking. 

Will the decline in world oil supply be fast or slow?

Posted by Gail the Actuary on April 18, 2011 – 11:15am
Topic: Demand/Consumption
Tags: hubbert’s curve, peak oil [list all tags] 

An Oil Drum reader wrote, asking the following question: 

Dear Oil Drum Editors, 

I have been reading quite a bit about peak oil recently. I get the impression (not based on data) that at some point there will be a quite steep decline in oil production/supply, and therefore we will see dramatic changes in how the world runs. However, when I look at oil depletion rates and oil production declines based on the Hubbert Curve, it seems to suggest a rather smooth decline. How is that some people expect a serious energy crunch in about two or three years, then? 

Many thanks! –Curious Reader 

Below the fold is my answer to him. 

Dear Curious, 

It seems to me that 

(1) A slow decline assumes that the only issue is geological decline in oil supply, and the economy and everything else can go on as usual. Technological advances and switches to alternatives might also be expected to help keep supply up. 

(2) A fast decline can be expected if one or more adverse factors make oil supply decline faster than geological factors would suggest. These might include: 

(a) Liebig’s Law of the Minimum – some necessary element for production, such as political stability, or adequate food for the population, or adequate financial stability, is missing or 

(b) Declining Energy Return on Energy Invested (EROEI) interferes with the functioning of society, so the society generates too little net energy, and economic problems ensue, or 

(c) Oil becomes so high priced that there is little demand for it. This would quite likely be related to declining EROEI. 

My view is that some version of the faster decline scenario is likely, because we will hit limits that interfere with oil production or oil demand. 

Let me explain my reasoning. 

Declining EROEI 

EROEI means Energy Returned on Energy Invested. It can be defined as the ratio of the amount of usable energy acquired from a particular energy resource to the amount of energy expended to obtain that energy resource. Wikipedia says,

When the EROEI of a resource is equal to or lower than 1, that energy source becomes an “energy sink”, and can no longer be used as a primary source of energy.

 

The situation is really worse than Wikipedia suggests. An economy needs a certain level of energy just to keep its infrastructure (roads, bridges, schools, medical system, etc.) repaired and working, and citizens educated. So energy resources, to really be useful, need an EROEI significantly higher than 1 to maintain the system at its current level of functioning. 

How much higher than 1.0 the EROEI needs to be on average will depend on the economy. An economy such as that of China, with relatively fewer paved roads and less expensive schools and healthcare system can probably get along with a much average lower EROEI (perhaps 4.0?) than an economy like the United States (perhaps 8.0), because of lesser infrastructure demands. 

If the average EROEI available to society is falling because oil is becoming more and more difficult to extract, an economy with a high standard of living such as the US would seem likely to be affected before an economy with a lower standard of living, such as China or India or Bangladesh, because of the higher EROEI needs of the more extensive infrastructure. Ultimately, though, the world is one economy, so problems in one country are likely to affect the economies of other countries as well. 

There a couple of issues related to declining EROEI: 

1. High cost to extract. Sources of oil or natural gas or coal that are difficult (high cost) to extract tend to be lower in EROEI than sources that are low cost to extract. So high cost of extraction tends to be a marker for low EROEI. We are increasingly running into this issue, for both oil and natural gas. 

2. Declining Net Energy. EROEI is closely related to “Net Energy,” which is the amount of usable energy that is left after deducting the energy that it takes to make energy. When net energy decreases, we have less energy to run society, making it difficult to do things like maintain bridges and roads, and fund schools. 

So high cost of oil extraction, low net energy, and low EROEI are all very closely related. 

What did M. King Hubbert Say? 

M. King Hubbert in various papers such as these (1956, 1962, 1976) talked about a world in which other fuels took over, long before fossil fuels encountered problems with short supply. 


Figure 1. Image from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels 

In such a world, there would be plenty of net energy from alternative fuels to run society. Because of this, even if fossil fuels ran low, it would be easy to maintain the economy’s infrastructure, without disruption. In Hubbert’s 1962 paper, Energy Resources – A Report to the Committee on Natural Resources, Hubbert writes about the possibility of having so much cheap energy that it would be possible to essentially reverse combustion–combine lots of energy, plus carbon dioxide and water, to produce new types of fuel plus water. If we could do this, we could solve many of the world’s problems–fix our high CO2 levels, produce lots of fuel for our current vehicles, and even desalinate water, without fossil fuels. 

He also showed this figure in his 1956 paper: 


Figure 2. Image from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels 

In this figure, most of the additional energy comes from nuclear energy, while a smaller amount comes from “solar” energy. By solar energy, Hubbert would seem to mean solar, wind, tidal, wood, biofuels, and other energy we get on a day-to-day basis, indirectly from the sun. His figure seems to suggest that solar energy would basically act as a fossil fuel extender, and would not last beyond the time fossil fuels last. The primary long-term source of energy would be nuclear. 


Figure 3. Hubbert’s application of his curve to world oil supply, from his 1956 paper. 

In such a world, applying Hubbert’s Curve to world oil supply would make perfect sense, because there would be plenty of other energy, to provide the energy needed to keep up the infrastructure needed to main extraction of oil, gas, and other fuels as long as they were available. Even liquid fuels and pollution wouldn’t be a problem, if they could be manufactured synthetically. The carrying capacity of the world for food would eventually be a factor, but in one scenario in his 1976 paper, he shows the possibility of world population eventually reaching 15 billion people, thanks to the availability of other fuels. 

Another Approach to Forecasting Future Oil Supply: Limits to Growth Type Modeling 

Another approach estimating the shape of the decline curve is by applying modeling techniques, such as used in the 1972 book Limits to Growth by Donella Meadows et al. The factors considered in this model were population, food per capita, industrial output, pollution, and resources. Resources were modeled in total, not oil separately from other types of resources. There were 24 scenarios run. The base scenario suggested that the world would start hitting resource limits about now (plus or minus 10 or 20 years). There have been several analyses regarding how this model is faring, and the conclusion seems to be that it is more or less on track. This is a link to such an analysis by Charles Hall and John Day. 

With this type of model, according to Limits to Growth (p. 142), “The basic mode of the world system is exponential growth of population and capital, followed by collapse.” This type of decline would seem to be substantially faster than the decline predicted by the Hubbert Curve. 

One thing I notice about the Limits to Growth model is that it leaves out our debt-based financial system. Since so much capital is borrowed in today’s world, it seems like including such a variable would tend to make the system even more “brittle”, and perhaps move up the date when collapse occurs. 

Also, the Limits to Growth model is for the world as a whole, rather than for different parts of the world. Different areas of the world can be expected to be affected differently, as oil gets in shorter supply. The effect of this would seem to be to push economies which have a higher need for oil (illustrated above with my estimate that the US requires a EROEI of 8.0 on energy resources) down toward economies that use smaller amounts of oil (illustrated by my rough guess that perhaps China could get by with an EROEI of 4.0), especially if they trade with each other. I explain how I see this happening in a later section of this post. 

Demand for Oil (or other Fossil Fuels) 

Even if there is plenty of high-priced oil extracted from the ground, if potential buyers cannot afford it, there can be a problem, leading to a decline in oil production. Demand can be thought of as the willingness and ability to purchase oil products. Many people would like to have gasoline for their cars, but if they are unemployed, or have a part-time minimum wage job, they are likely not to have enough money to buy very much. 

Over the long term, declining demand can be expected because of declining EROEI, as illustrated by Prof. Charles Hall’s “Cheese Slicer” model.

Figure 4. Professor Charles Hall’s cheese slicer model of the economy, reflecting the energy needed to make energy, and other aspects of the economy at 1970 


Figure 5. Professor Charles Hall’s cheese slicer model of the economy, reflecting the energy needed to make energy, and other aspects of the economy at 2030 

Declining demand, and ultimately lack of sufficient demand to support supply, is related to the much larger size of the big black “energy needed to create energy” arrow as resources become more and more difficult to extract, and the much smaller size of the red discretionary spending arrows. When the discretionary spending arrows are small, people can’t afford the oil that is produced. 

Lack of Demand Can Be Expected to Affect the More-Developed World before the Less-Developed World 

Let me explain one way I see lack of demand for oil arising in the developed world today. This is related to the tendency of economies with high required EROEI to maintain infrastructure to be the first economies to be affected by declining EROEI, and by the tendency of free trade to lead to equalization among economies. 


Figure 6. US energy consumption, from Energy Export Data Browser 

US energy consumption in general, and oil consumption in particular, has been relatively flat in the 2000-2009 period, and declining at the end of that period, indicating low demand. Prior to this period, it was rising. 

More or less the reverse has happened in China and India. Growth in oil use and energy products in general was moderate prior to 2000, but increased rapidly after 2000. 


Figure 7. China’s energy consumption, from Energy Export Data Browser 


Figure 8. India’s energy consumption, from Energy Export Data Browser 

When we look at the percentage of the US population that is employed (Figure 9), it has been decreasing since 2000, so there are fewer people earning wages, and thus able to buy oil and other products. Prior to 2000, the percentage of the US population working was increasing. 


Figure 9. Percentage of US population with jobs has been falling since 2000, based on Bureau of Labor Statistics Data. 

In fact, over time, in the US, there is a high correlation between number of people employed and amount of oil consumed. 


Figure 10. Comparison of number of jobs (BLS) with oil product supplied (EIA) 

This high correlation is not surprising for two reasons: (1) jobs very often involve often use oil in producing or shipping goods, and because (2) people who are earning a salary can afford to buy goods and services that use oil. 

If we think about it, businesses employing people in China and India have three cost advantages over businesses employing people in the US: 

1. People in China and India earn less, in large part because their life styles use less oil. As the price of oil has rises, a person would expect this difference to become greater, if salaries of US earners are raised over time, to reflect the higher cost of oil, as it rises. If the living standards in China increase, the salary differential could decline, but still might be very high in dollar terms. 

2. The cost of electricity used in manufacturing in China and India is cheaper, because it is generally coal-based. The cost of electricity from coal is quite likely even cheaper than electricity from coal from the United States, because these countries are more likely to have poor pollution controls, and because the coal is extracted using cheap labor. The difference in the cost of electricity can be expected to become greater, to the extent the US imposes stricter pollution regulations, or switches to higher priced alternative power (say, offshore wind), or imposes a carbon tax. 

3. Taxes and employee benefits are likely to be lower (in absolute dollars, but perhaps as a percentage as well) in China or India, because infrastructure is less complex, and because there is less in the way benefits comparable to Social Security, Medicare, etc. (This is related to the lower EROEI required to maintain the infrastructure in these countries.) 

With these advantages, as trade restrictions are eased and more “free” trade of services is enabled through the Internet, I would expect an increasing number of jobs to move overseas, and more goods and services to be imported. Salaries will also tend to stay lower in the US, especially for jobs associated to goods and services that can be produced more cheaply in China or India. 

With these lower salaries in the US, demand for oil in the US will tend to be lower, because people who are paid less (or out of work) will not be able to afford high-priced oil for vacations and other optional purchases. As more US jobs move overseas, unemployment and recession can be expected to increasingly become problems. Furthermore, it will become difficult to collect enough taxes from the lower number of employed people to pay enough taxes to keep the system operating. I write about this in What’s Behind the US’ Budget Problems? 

One thing that happens, too, with this arrangement is that world’s coal use has risen. 


Figure 11. World energy consumption, from Energy Export Data Browser 

I wonder if all of the emphasis on CO2 reduction has not exacerbated the problem. Countries that reduce their own coal use and instead rely more on imports can feel virtuous, but they also set the stage for negative impacts. By using less coal, these countries leave more coal for lesser developed countries to import. These lesser developed countries probably burn it less safely (for example, with less mercury controls) and compete with them for jobs. The developed countries can be expected to have more and more budget problems, as their tax bases erode, and the number of unemployed rises. 

When new electricity generation is planned in the United States, the usual practice is to compare expected costs with other types of new electricity generation that might be possible in the United States. It seems to me that this practice does not show the full picture. Goods and services produced in the United States will have to compete with goods and services produced around the world. Some of the electricity used will be from nuclear plants that have long been paid off; some will be from coal production; and a little will be from high priced new types of electricity production. As long as there are no tariffs or other trade restrictions, higher-priced US electricity will tend to hinder exports and help imports. I would vote for trade restrictions. 

Conclusion 

The downslope of oil production can be expected to reflect a combination of different impacts. Unless technology improvements truly have a huge impact, it would seem to me that the overall direction of the downslope is likely to be faster than Hubbert’s Curve would predict. 

Thanks for writing! 

Best Regards, 

Gail Tverberg (also known as Gail the Actuary) 

2011 – THE YEAR OF CATCH-22

I wrote this on January 3. It was my outlook for 2011. Whenever I think I’m too pessimistic about the world, I go back and read old articles. This article is less than 4 months old and the situation has gotten much worse, much faster than I anticipated. The economy has slowed dramatically, even with the payroll tax cut and Ben’s QE2. I now think the 2nd half of 2011 will be outright recession. Again, my own words prove than I’m actually an optimist compared to what really happens. Think about that the next time you get depressed by one of my articles.

As I began to think about what might happen in 2011, the classic Joseph Heller novel Catch 22 kept entering my mind. Am I sane for thinking such a thing, or am I so insane that asking this question proves that I’m too rational to even think such a thing?  In the novel, the “Catch 22” is that “anyone who wants to get out of combat duty isn’t really crazy”. Hence, pilots who request a fitness evaluation are sane, and therefore must fly in combat. At the same time, if an evaluation is not requested by the pilot, he will never receive one (i.e. they can never be found “insane”), meaning he must also fly in combat. Therefore, Catch-22 ensures that no pilot can ever be grounded for being insane – even if he were. The absurdity is captured in this passage:

There was only one catch and that was Catch-22, which specified that a concern for one’s own safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane, he had to fly them. If he flew them, he was crazy and didn’t have to; but if he didn’t want to, he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle. “That’s some catch, that Catch-22,” he observed. “It’s the best there is,” Doc Daneeka agreed. – Catch 22 – Joseph Heller

The United States and its leaders are stuck in their own Catch 22. They need the economy to improve in order to generate jobs, but the economy can only improve if people have jobs. They need the economy to recover in order to improve our deficit situation, but if the economy really recovers long term interest rates will increase, further depressing the housing market and increasing the interest expense burden for the US, therefore increasing the deficit. A recovering economy would result in more production and consumption, which would result in more oil consumption driving the price above $100 per barrel, therefore depressing the economy. Americans must save for their retirements as 10,000 Baby Boomers turn 65 every day, but if the savings rate goes back to 10%, the economy will collapse due to lack of consumption. Consumer expenditures account for 71% of GDP and need to revert back to 65% for the US to have a balanced sustainable economy, but a reduction in consumer spending will push the US back into recession, reducing tax revenues and increasing deficits. You can see why Catch 22 is the theme for 2011.

It seems the consensus for 2011 is that the economy will grow 3% to 4%, two million new jobs will be created, corporate profits will rise, and the stock market will rise another 10% to 15%. Sounds pretty good. The problem with this storyline is that it is based on a 2010 that gave the appearance of recovery, but was a hoax propped up by trillions in borrowed funds. On January 1, 2010 the National Debt of the United States rested at $12.3 trillion. On December 31, 2010 the National Debt checked in at $13.9 trillion, an increase of $1.6 trillion.

The Federal Reserve Balance Sheet totaled $2.28 trillion on January 1, 2010. Today, it stands at $2.46 trillion, an increase of $180 billion.

 

Over this same time frame, the Real GDP of the U.S. has increased approximately $350 billion, and is still below the level reached in the 4th Quarter of 2007. U.S. politicians and Ben Bernanke spent almost $1.8 trillion, or 13% of GDP, in one year to create a miniscule 2.7% increase in GDP. This is reported as a recovery by the mainstream corporate media mouthpieces. On September 18, 2008 the American financial system came within hours of a total meltdown, caused by Wall Street mega-banks and their bought off political cronies in Washington DC. The National Debt on that day stood at $9.7 trillion. The US Government has borrowed $4.2 since that date, a 43% increase in the National Debt in 27 months. The Federal Reserve balance sheet totaled $963 billion in September 2008 and Bernanke has expanded it by $1.5 trillion, a 155% increase in 27 months. Most of the increase was due to the purchase of toxic mortgage backed securities from their Wall Street masters.

Real GDP in the 3rd quarter of 2008 was $13.2 trillion. Real GDP in the 3rd quarter of 2010 was $13.3 trillion.

Think about these facts for one minute. Your leaders have borrowed $5.7 trillion from future unborn generations and have increased GDP by $100 billion. The financial crisis, caused by excessive debt creation by Wall Street and ridiculously low interest rates set by the Federal Reserve, 30 years in the making, erupted in 2008. The response to a crisis caused by too much debt and interest rates manipulated too low was to create an immense amount of additional debt and reduce interest rates to zero. The patient has terminal cancer and the doctors have injected the patient with more cancer cells and a massive dose of morphine. The knowledge about how we achieved the 2010 “recovery” is essential to understanding what could happen in 2011.

Confidence Game

Ben Bernanke, Timothy Geithner, Barack Obama, the Wall Street banks, and the corporate mainstream media are playing a giant confidence game. It is a desperate gamble. The plan has been to convince the population of the US that the economy is in full recovery mode. By convincing the masses that things are recovering, they will begin to spend and buy stocks. If they spend, companies will gain confidence and start hiring workers. More jobs will create increasing confidence, reinforcing the recovery story, and leading to the stock market soaring to new heights. As the market rises, the average Joe will be drawn into the market and it will go higher. Tax revenues will rise as corporate profits, wages and capital gains increase. This will reduce the deficit. This is the plan and it appears to be working so far. But, Catch 22 will kick in during 2011.

Retail sales are up 6.5% over 2009 as consumers have been convinced to whip out one of their 15 credit cards and buy some more iPads, Flat screen TVs, Ugg boots and Tiffany diamond pendants. Consumer non-revolving debt for autos, student loans, boats and mobile homes is at an all-time high as the government run financing arms of GMAC and Sallie Mae have issued loans to anyone that can fog a mirror with their breath. Total consumer credit card debt has been flat for 2010 as banks have written it off as fast as consumers can charge it. The savings rate has begun to fall again as Americans are being convinced to live today and not worry about tomorrow. Of course, the current savings rate of 5.9% would be 2% if the government was not dishing out billions in transfer payments. Wages have declined by $127 billion from the 3rd Quarter of 2008, while government transfer payments for unemployment and other social programs have increased by $441 billion, all borrowed.

  Graph of Personal Saving Rate

Both the government and its citizens are living the old adage:

Everybody wants to get to heaven, but no one wants to practice what is required to get there.

The government politicians and bureaucrats promise to cut unsustainable spending as soon as the economy recovers. The economy has been recovering for the last 6 quarters, according to GDP figures, but there are absolutely no government efforts to cut spending. This is proof that politicians always lie. It will never be the right time to cut spending. Another faux crisis will be used as a reason to continue unfunded spending increases. Having consumer spending account for 70% of GDP is unbalanced and unsustainable. Everyone knows that consumer spending needs to revert back to 65% of GDP and the Savings Rate needs to rise to 8% or higher in order to ensure the long-term fiscal health of the country. Savings and investment are what sustain countries over time. Borrowing and spending is a recipe for failure and bankruptcy. The facts are that consumer expenditures as a percentage of GDP have actually risen since 2007 and Congress and Obama just cut payroll taxes in an effort to encourage Americans to spend even more borrowed money. Catch 22 is alive and well.

The first half of 2011 is guaranteed to give the appearance of recovery. The lame-duck Congress “compromise” will pump hundreds of billions of borrowed dollars into the economy. The continuation of unemployment benefits for 99 weeks (supposedly to help employment) and the 2% payroll tax cut will goose consumer spending. Ben Bernanke and his QE2 stimulus for poor Wall Street bankers is pumping $75 billion per month ($3 to $4 billion per day) directly into the stock market. Since Ben gave Wall Street the all clear signal in late August, the NASDAQ has soared 25%. Despite the fact that there are 362,000 less Americans employed than were employed in August 2010, the mainstream media will continue to tout the jobs recovery. The goal of all these efforts is to boost confidence and spending. Everything being done by those in power has the seeds of its own destruction built in. The Catch 22 will assert itself in the 2nd half of 2011.

Housing Catch 22

Ben Bernanke, an Ivy League PhD who should understand the concept of standard deviation, missed a 3 standard deviation bubble in housing as ironically pointed out by a recent Dallas Federal Reserve report.

Chart 1: U.S. Real Home Prices Returning to Long-Term Mean?

Home prices still need to fall 23%, just to revert to its long-term mean. That is a fact that even Bernanke should be able to grasp (maybe not). Anyone who argues that housing has bottomed and will resume growth either has an agenda (NAR) or is a clueless dope (Bernanke). A new perfect storm is brewing for housing in 2011 and will not subside until late 2012. You may have thought those bad mortgages had been all written off. You would be wrong. There will be in excess of $200 billion of adjustable rate mortgages that reset between 2011 and 2012, with in excess of $125 billion being the dreaded Alt-A mortgages. This is a recipe for millions of new foreclosures.

[SNLCreditSuisse.jpg]

According to the Dallas Fed, in addition to the 3.9 million homes on the market, there is a shadow inventory of 6 million homes that will be coming on the market due to foreclosure. About 3.6 million housing units, representing 2.7% of the total housing stock, are vacant and being held off the market. These are not occasional-use homes visited by people whose usual residence is elsewhere but units that are vacant year-round. Presumably, many are among the 6 million distressed properties that are listed as at least 60 days delinquent, in foreclosure or foreclosed in banks’ inventories.

The coup de grace for the housing market will be Ben Bernake’s ode to Catch 22. In his November 4 OP-ED piece he had this to say about his $600 billion QE2:

“Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance.” – Housing sage Ben Bernanke

On the day Bernanke wrote these immortal words 30 Year Mortgage rates were 4.2%. Today, two months later, they stand at 5.0%. This should be a real boon to refinancing and the avalanche of mortgage resets coming down the pike. It seems that money printing and a debt financed “recovery” leads to higher long-term interest rates. The more convincing the recovery, the higher interest rates will go. The higher interest rates go, the further the housing market will drop. The further housing prices drop, the number of underwater homeowners will grow to 30%. This will lead to more foreclosures. Approximately 50% of all the assets on banks books are backed by real estate. Billions in bank losses are in the pipeline. Do you see the Catch 22 in Bernanke’s master plan? The Dallas Fed sees it:

This unease highlights the housing market’s fragility and suggests there may be no pain-free path to the eventual righting of the market. No perfect solution to the housing crisis exists. The latest price declines will undoubtedly cause more economic dislocation. As the crisis enters its fifth year, uncertainty is as prevalent as ever and continues to hinder a more robust economic recovery. Given that time has not proven beneficial in rendering pricing clarity, allowing the market to clear may be the path of least distress. – Dallas Fed

Quantitative Easing Catch 22

Ben Bernanke’s quantitative easing (dropping dollars from helicopters) is riddled with Catch-22 implications. Bernanke revealed his plan in his 2002 speech about deflation:

“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.”

The expectations of most when reading Ben’s words were that his helicopters would drop the dollars across America. What he has done is load up his helicopters with trillions of dollars and circled above Wall Street for two years continuously dropping his load. Bernanke’s quantitative easing, which will triple the Fed’s balance sheet by June of 2011, began in earnest in early 2009. The price for a gallon on gasoline was $1.62. Today, it is $3.05, an 88% increase in two years. Gold was $814 an ounce. Today, it is $1,421 an ounce, a 61% increase in two years. In the last year, the prices for copper, silver, cotton, wheat, corn, coffee and other commodities have risen in price by 30% to 90%.  

2 year gold price per ounce

Quantitative easing has been sold to the public as a way to avoid the terrible ravages of deflation. The fact is there are less jobs, lower wages, lower home prices, zero returns on bank deposits, higher fuel costs, higher food costs, higher real estate taxes, higher medical insurance premiums and huge jaw dropping bonuses for the bankers on Wall Street. Somehow the government has spun this toxic mix into a CPI which has resulted in fixed income senior citizens getting no increases in their pitiful Social Security payments for two years. You can judge where Ben’s Helicopters have dropped the $2 trillion. Quantitative easing has benefited only Wall Street bankers and the 1% wealthiest Americans. The $1.4 trillion of toxic mortgage backed securities on The Fed’s balance sheet are worth less than $700 billion. How will they unload this toxic waste? The Treasuries they have bought drop in value as interest rates rise. Quantitative easing’s Catch 22 is that it can never be unwound without destroying the Fed and the US economy.

The USD dollar index was at 89 in early 2009. Today, it stands at 79, an 11% decline, which is phenomenal considering that Europe has imploded over this same time frame. Bernanke’s master plan is for the USD to fall and ease the burden of our $14 trillion in debt. He just wants it to fall slowly. Foreigners know what he is doing and are stealthily getting out of their USD positions. This explains much of the rise in gold, silver and commodities. The rise in oil to $91 a barrel will not be a top. The Catch-22 of a declining dollar is that prices of all imported goods go up. If the dollar falls another 10%, the price of oil will rise above $120 a barrel and push the economy back into recession. Then there is the little issue of at what level of printing and debasing the currency does the rest of the world lose its remaining confidence in Ben and the USD.

U.S $ INDEX (NYBOT:DX)

A few other “minor” issues for 2011 include:

  • The imminent collapse of the European Union as Greece, Ireland, Portugal and Spain are effectively bankrupt. Spain is the size of the other three countries combined and has a 20% unemployment rate. The Germans are losing patience with these spendthrift countries. Debt does matter.
  • State and local governments were able to put off hard choices for another year, as Washington DC handed out hundreds of billions in pork. California will have a $19 billion budget deficit; Illinois will have a $17 billion budget deficit; New Jersey will have a $10.5 billion budget deficit; New York will have a $9 billion budget deficit. A US Congress filled with Tea Party newcomers will refuse to bailout these spendthrift states. Substantial government employee layoffs are a lock.

  • There is a growing probability that China will experience a hard landing as their own quantitative easing has resulted in inflation surging to a 28 month high of 5.1%, with food inflation skyrocketing to 11.7%. Poor families spend up to half of their income on food. Rapidly rising prices severely burden poor people and can spark civil unrest if too many of them can’t afford food.
  • The Tea Party members of Congress are likely to cause as much trouble for Republicans as Democrats. If they decide to make a stand on raising the debt ceiling early in 2011, all hell could break loose in the debt and stock markets. 

The government’s confidence game is destined to fail due to Catch-22. Will the consensus forecast of a growing economy, rising corporate profits, 10% to 15% stock market gains, 2 million new jobs, and a housing recovery come true in 2011? No it will not. By mid-year confidence in Ben’s master plan will wane. He is trapped in the paradox of Catch-22. When you start hearing about QE3 you’ll know that the gig is up. If Bernanke is foolish enough to propose QE3 you can expect gold, silver and oil to go parabolic. Enjoy 2011. I don’t think Ben Bernanke will.

“That’s some catch, that Catch-22.” -Yossarian

YEARS OF THE MODERN

Is humanity forming en-masse? for lo, tyrants tremble, crowns grow dim,
The earth, restive, confronts a new era, perhaps a general divine war,
No one knows what will happen next, such portents fill the days and
nights;

Years prophetical! the space ahead as I walk, as I vainly try to
pierce it, is full of phantoms,

Unborn deeds, things soon to be, project their shapes around me,
This incredible rush and heat, this strange ecstatic fever of dreams
O years! – Years of the Modern– Walt Whitman

The great American poet Walt Whitman wrote these words in 1859. Whitman was trying to peer into a future of uncertainty. He was sure the future would be bleak. He had visions of phantoms. Maybe he saw the 600,000 souls who would lose their lives in the next six years. Whitman had captured the mood of a country entering the Fourth Turning. He didn’t know what would happen, but he felt the beat of war drums in the distance. Whitman did not have the benefit of historical perspective that we have today.

There have been three Fourth Turnings in American History. The American Revolution Fourth Turning ended in 1794 with the Crisis mood easing with the presidency of George Washington. Whitman didn’t realize that, 64 years after the previous Fourth Turning, the mood of the country was ripe for revolution and the sweeping away of the old order. When the stock market crashed in 1929, 64 years after the exhausting conclusion to the Civil War Fourth Turning, Americans didn’t realize the generational constellation was propelling them toward a new social order and a horrific world war. It is now 66 years since the conclusion of the Depression/WWII Fourth Turning. All indications are that the current Fourth Turning began in the 2007 – 2009, with the collapse of the housing market and the ensuing financial system implosion.

I find myself vainly trying to pierce the veil of events yet to be. The future is filled with haunting phantoms of unborn deeds which could lead to renewed glory, untold death and destruction, or the possibly the end of the great American experiment. Walt Whitman captured the change of mood in the country with his poem. History books are filled with dates and descriptions of events, battles, speeches and assassinations. What most people don’t understand is Fourth Turnings aren’t about events, but about the citizens’ reaction to the events.

The Boston Massacre did not start the American Revolution Fourth Turning, but the Boston Tea Party did. John Brown’s attack on Harper’s Ferry did not start the Civil War Fourth Turning, but the election of Abraham Lincoln did. World War I did not start the Great Depression/World War II Fourth Turning, but the 1929 Stock Market Crash did. The 9/11 terrorist attack did not start latest Fourth Turning, but the Wall Street induced housing/financial system collapse did. In each instance, the generations were aligned in a manner that would lead to a sweeping away of the old civic order and a regeneracy with the institution of a new order.   Old Artists disappear, Prophets enter elder hood, Nomads enter midlife, Heroes enter young adulthood—and a new generation of child Artists is born.

 

One hundred and fifty years ago this week Fort Sumter was bombarded by upstart revolutionaries attempting to break away from an overbearing Federal government based in Washington D.C. Exactly four years later the butchery and death concluded dramatically with Robert E. Lee surrendering to Ulysses S. Grant at Appomattox and the assassination of Abraham Lincoln by John Wilkes Booth at Ford’s Theatre. For the next four years we will celebrate the 150th anniversary of various battles that marked the Civil War. What people will not consider are the similarities between that tumultuous period in our history and the period we are in today. Fourth Turnings are marked by different events but the same mood of upheaval, anger and fury.

As Strauss & Howe note in their book, the morphology of a Fourth Turning follows a predictable pattern:

  • A Crisis era begins with a catalyst – a starting event (or sequence of events) that produces a sudden shift in mood.
  • Once catalyzed, a society achieves a regeneracy – a new counter entropy that reunifies and reenergizes civic life.
  • The regenerated society propels toward a climax – a crucial moment that confirms the death of the old order and birth of the new.
  • The climax culminates in a resolution – a triumphant or tragic conclusion that separates the winners from losers, resolves the big public questions, and establishes the new order.

Strauss & Howe describe the normal sequence:

This Crisis morphology occurs over the span of one turning, which (except for the U.S. Civil War) means that around fifteen to twenty-five years elapse between the catalyst and the resolution. The regeneracy usually occurs one to five years after the era begins, the climax one to five years before it ends.

The catalysts are relatively easy to identify, but the point of regeneracy is more subtle and harder to grasp.

Fiery Moment of Death & Discontinuity

“Like nature, history is full of processes that cannot happen in reverse. Just as the laws of entropy do not allow a bird to fly backward, or droplets to regroup at the top of a waterfall, history has no rewind button. Like the seasons of nature, it moves only forward. Saecular entropy cannot be reversed. An Unraveling cannot lead back to an Awakening, or forward to a High, without a Crisis in between. The spirit of America comes once a saeculum, only through what the ancients called ekpyrosis, nature’s fiery moment of death and discontinuity. History’s periodic eras of Crisis combust the old social order and give birth to a new.” – Strauss & Howe – The Fourth Turning

 

 

The catalyst for the American Revolution was the Boston Tea Party. The catalyst for the Civil War was the election of Abraham Lincoln. The catalyst for the Great Depression was the 1929 Stock market crash. The catalyst for the current Crisis was the housing/financial system collapse. The catalyst is an event that terminates the brooding mood of the Unraveling and unleashes the fury of a Crisis. The three previous Crisis periods in American history were driven by different events, but similar generational dynamics. By closely examining the dynamics and threats that were facing the country during these previous Crisis periods, we may be able to peer into the murky fog of the future and make out the phantoms of events to come. What we know for sure is every previous Crisis had an economic and fairness dimension that provided the initial spark, triggering a series of events that eventually led to an all encompassing war for survival.

American Revolution – The economic dimension that led to the onset of the American Revolution can be summed up in the rallying cry of the colonists, “No Taxation, Without Representation.”  The British felt that the colonies were created to be used in the way that best suited the crown and parliament. The French & Indian War left the British Empire deeply in debt. They responded by demanding more revenue from the colonies. The British Parliament continued to pass taxation Acts which became increasingly onerous to the independent minded American colonists:

  • Sugar Act – 1764
  • Currency Act – 1765
  • Stamp Act – 1765
  • Townshend Acts – 1767
  • Tea Act – 1773

The increasing levels of taxation and control resulted in the formation of Committees of Correspondence and the Sons of Liberty. Samuel Adams, Thomas Paine and the other firebrands led the movement for independence. The colonists grew increasingly angry with the heavy handedness and harshness of the British Monarchy. These incidents and actions solidified the mood for independence:

  • Quartering Act – 1765
  • Boston Massacre – 1770
  • Intolerable Acts – 1774

As you can see there were years of economic and political turmoil before the Boston Tea Party catalyst event ignited the revolution. The mood of enough citizens had shifted as the generational alignment no longer allowed for compromise. In the end, the increase of economic restrictions and limiting of freedom led to the revolution. As a side note, a Fourth Turning does not need a majority to be initiated. Only one-third of the colonists actively supported the rebellion.

American Civil War – The economic dimension that drove the dynamics of the Civil War related to the Southern agrarian society based upon growing cotton and the rapidly industrializing North with its cities and manufacturing prowess. The invention of the cotton gin led to many more plantations in the South depending solely on cotton to support their way of life. Cotton farming required vast amounts of cheap human labor, and slaves fit the bill. Abolitionists in the North had the moral high ground as Southern plantation owners treated human beings as property. Attitudes became more intense after the publication of  Uncle Tom’s Cabin, the Dred Scott Decision, and the John Brown raid on Harper’s Ferry. The issue of slavery had been boiling beneath the surface since the adoption of the US Constitution. Various compromises had been struck over the years to keep the issue at bay:

  • Missouri Compromise
  • Compromise of 1850
  • Kansas – Nebraska Act

These economic and human rights issues became wrapped in the mantle of states’ rights and the struggle between the Federal government and State governments. The battle reached back to the earliest days of the Republic between Jefferson and Hamilton.  Many felt that the new constitution ignored the rights of states to continue to act independently. They felt the states should still have the right to decide if they were willing to accept certain federal acts. This resulted in the idea of nullification, whereby the states would have the right to rule federal acts unconstitutional. The federal government denied states this right. With the election of Abraham Lincoln, the Southern states saw a man who was against slavery, believed in a strong Federal government, and supporter of the industrial North. The years of compromise were over. The firebrand prophet generation took control in Washington DC and Richmond Virginia. A fight to the finish was unavoidable.

Great Depression/World War II – The economic dimension that drove the onset of this Crisis was the unbridled greed and speculation of Wall Street banks. The easy money policies of the Federal Reserve, formed in secret and voted into existence on Christmas Eve with many members of Congress not present created the Roaring 20’s. While farmers struggled to survive on the drought stricken plains and the average person lived a hard scrabble existence, the banking elite reaped obscene profits, with the top 1% sucking 23.9% of all the national income – the highest level in U.S. history.

The 1920’s were a time of cultural decay, decadence and disillusionment. This mood was reflected in F. Scott Fitzgerald’s The Great Gatsby. As we know too well, every boom eventually goes bust. The bust came in October 1929, with a stock market crash. Stockholders lost $40 billion. The market dropped 89% over a two year period. By 1933, 11,000 of the 25,000 banks in the US had failed. These were mostly small regional banks. The major NY banks such as JP Morgan and Mellon became more powerful. The artificial interference in the economy by the Federal government and Federal Reserve was a disaster prior to the Depression, and government efforts to prop up the economy after the crash of 1929 only made things worse. Passage of the Smoot-Hawley tariffs spread the depression around the world. The economic hardship in Germany led to the election of Adolf Hitler and set the stage for a future war that would kill 65 million people. FDR’s New Deal programs crowded out private industry and resulted in unemployment staying at levels exceeding 15% for an entire decade. Keynesian government spending prolonged the depression and put into place social programs that set in motion the debt bomb that threatens the country today.

Force Advancing with Irresistible Power

I see not America only, not only Liberty’s nation but other nations
preparing,

I see tremendous entrances and exits, new combinations, the solidarity
of races,

I see that force advancing with irresistible power on the world’s stage,
(Have the old forces, the old wars, played their parts? are the acts
suitable to them closed?)

I see Freedom, completely arm’d and victorious and very haughty,
with Law on one side and Peace on the other,

A stupendous trio all issuing forth against the idea of caste;
What historic denouements are these we so rapidly approach?
I see men marching and countermarching by swift millions,
I see the frontiers and boundaries of the old aristocracies broken,
I see the landmarks of European kings removed,
I see this day the People beginning their landmarks, (all others give
way;)

Never were such sharp questions ask’d as this day,
Never was average man, his soul, more energetic, more like a God,

Years of the Modern– Walt Whitman

 

 

Walt Whitman foresaw vast armies on the march and old orders being swept away by the historic denouements that were rapidly approaching. But even he couldn’t have foreseen the butchery and tragic deaths of over 600,000 men in the next four bloody years. The economic dimensions of the current Crisis were foreseeable at least a decade before the Crisis arrived. The Federal Reserve, under the “wise” supervision of former Ayn Rand disciple Alan Greenspan, progressively blew one bubble after another through its easy money policies. The Greenspan Put allowed the Wall Street vampire squids to suck the life out of the American economic system without fear of being harpooned for taking financial system endangering leveraged bets. The financial oligarchs used their influence, power and vast wealth to repeal Glass-Steagall, capture and buy off the rating agencies, neuter the SEC and other regulatory agencies and place their executives in high level government positions. The ruling wealthy elite again matched their peak take of the national income, just as they did in 1928.

The debt, fraud and lack of financial regulation that catalyzed the near collapse of the worldwide financial system in 2008, 63 years after the end of the last Fourth Turning, have not been purged from the system. In fact, those in power have decided more debt, accounting fraud and financial ignorance is the path to recovery for America. The issues which will be the driving forces during this Crisis are clear to anyone with their eyes open:

  • A National Debt the will approach $20 trillion by 2015 and has already surpassed 90% of GDP, the point of no return.
  • Annual deficits exceeding $1.5 trillion and equal to over 10% of GDP.
  • The unfunded promises made by slimy politicians over decades for Medicare, Medicaid and Social Security exceeds $100 trillion and can never be paid.
  • A military industrial complex that controls Congress, is fighting three wars, occupies hundreds of bases throughout the world and spends $1 trillion per year, seven times more than any other country in the world.
  • A financial industry debt peddling complex that has gained control over the government and media to such an extent they have been able to rape and pillage the American people for three decades, convincing regulatory agencies to allow them 40 to 1 leverage, crashing the financial system through a massive mortgage/derivatives fraudulent ponzi scheme, threatening the American people into giving them $4 trillion of taxpayer money, paying themselves hundreds of billions in bonuses for a job well done, and then insisting on lower taxes for their corporations and the rich oligarchs who inhabit these towers of evil in downtown Manhattan.
  • Wealthy elite who use their existing wealth to control Congress, the media and the financial debt peddling industry, abscond with 25% of the national income and control 42% of the financial wealth in the country. At the same time real wages of middle class Americans have been stagnant for 4 decades, real unemployment exceeds 20%, 45 million people need food stamps to make ends meet, and real inflation on the things middle class Americans need hovers around 10%. The gap between the Haves and Have Nots has never been greater.

   

  • The Federal Reserve has boxed itself into a corner and will be unable to extricate itself with its only weapon – the printing press. It has tripled the size of its balance sheet to $2.7 trillion, with at least half of the “assets” consisting of toxic worthless mortgages bought from their Wall Street masters. 0% interest rates for two and a half years, QE1 and QE2, and allowing banks to fraudulently report the value of their loans have failed to jumpstart the economy. Come June of 2011 they will be faced with a dilemma – PRINT or DIE. If they stop buying U.S. Treasury debt, interest rates will go up dramatically. If they keep printing to buy U.S. Treasury debt, the dollar will continue to fall and inflation will accelerate from its already high level.
  • The biggest wildcard among the Fourth Turning catalysts is Peak Oil. The modern industrial world is completely dependent upon cheap accessible oil. Globalization, consumerism, suburban sprawl, food production and distribution, and all means of transportation are dependent upon cheap abundant oil. Peak world oil production has occurred. Demand will outstrip supply going forward at an ever increasing rate. Various levels of chaos will ensue as the realization of this fact becomes evident to everyone.
  • The peak oil scenario will mix with the toxic brew of religion. The centuries old war between Christianity and Islam has been gaining strength over the last three decades. The revolutions spreading across the Middle East will not die down. They will intensify and create havoc for the existing despotic regimes. The new regimes will not be friendly towards the U.S. The combination of peak oil, with the fact that 56% of the world’s oil reserves are controlled by Muslim countries in the Middle East provides an unsettling backdrop for the U.S., which controls less than 2% of the world’s oil reserves.

 

  • The technological complexity and interconnectedness of people across the world is a danger and a possible boon to civilization. Our entire world is dependent upon computers and networks to run our infrastructure, defense, commerce, and everyday lives. Armies, naval ships, and massed confrontation will be made obsolete by cyber warfare. Computer hackers will be able to do more damage to a country in minutes than armies could do in years of traditional warfare. The trillions the US spends on aircraft carriers, fighter jets and tanks will be wasted. The positive side of technology has been realized in its ability to organize people to fight oppression and government propaganda. Likeminded people have been able to use technology to seek and reveal the truth.

The initial stage of this Fourth Turning has run its course. The catalyst was easy to recognize. The issues that confront the nation over the next twenty years are clear. What is completely unclear to me is how our fractured society achieves a regeneracy – a new counterentropy that reunifies and reenergizes civic life. The regeneracy usually occurs one to five years after the Crisis era begins. This means that the country would need to reunify and begin to confront our challenges by 2013. Regeneracy began with the Declaration of Independence during the American Revolution. Regeneracy began with Abraham Lincoln demanding the enlistment of 500,000 men after the Battle of Bull Run. Regeneracy began with FDR’s New Deal programs in 1933 during the Great Depression. What will begin the Regeneracy this time?

Something Wicked This Way Comes 

“Decisive events will occur – events so vast, powerful, and unique that they lie beyond today’s wildest hypothesis. These events will inspire great documents and speeches, visions of a new political order being framed. People will discover a hitherto unimagined capacity to fight and die, and to let their children fight and die, for a communal cause. The Spirit of America will return, because there will be no other choice. Thus will Americans reenact the great ancient myth of the ekpyrosis. Thus will we achieve our next rendezvous with destiny.” – Strauss & Howe – The Fourth Turning

 

The storyline promulgated by the mainstream linear thinking opinion leaders is the economy is recovering, the banking system is sound, the stock market is booming, buying a house is a great investment, inflation is below 2%,  jobs are being created, and consumers have regained their confidence and spending power. This message is hammered home on a daily basis by the corporate run mainstream media. It is patently false and the thinking members of the American public know it. The economic condition of the country is rapidly deteriorating. While politicians posture and lie to the citizens, the fissures in our financial system grow wider. As of today, regeneracy and unification behind one common national purpose seems light years away. Strauss & Howe speculated in 1997 about potential events that could spur events during the next Fourth Turning. One of their possible scenarios looms in the near future:

  • An impasse over the federal budget reaches a stalemate. The president and Congress both refuse to back down, triggering a near-total government shutdown. The president declares emergency powers. Congress rescinds his authority. Dollar and bond prices plummet. The president threatens to stop Social Security checks. Congress refuses to raise the debt ceiling. Default looms. Wall Street panics. 

The event necessary to cause a regeneracy in this country will need to be on an epic scale. Based upon a review of the foreseeable issues confronting our society it is clear to me that a worse financial implosion will strike before the 2012 presidential election. It may be triggered by a debt ceiling confrontation, the ending of QE2, a panic out of the USD, hyperinflation, a surge in oil prices, or some combination of these possibilities. The ensuing collapse of the stock and bond markets will remove the last vestiges of trust in the existing financial system and the government bureaucrats who have taken taxpayer dollars and funneled them to these Wall Street oligarchs.

The economic chaos will likely lead to a Republican landslide in the 2012 election. A Boomer Prophet with a reputation for fixing financial disasters (aka Mitt Romney) would be given a mandate to fix the economic system. All generations will realize that generational promises made cannot be fulfilled. People of a libertarian mindset, like me, will not be happy with the turn of events. In a chaotic scenario, the Federal government is likely to assume even more power than they have today. The American people will be fearful and angry. If the financial criminals on Wall Street are brought to justice, the chances of a unified populace will increase. A drop in everyone’s standard of living would be acceptable, as long as the rich shared equally in the burden. If the super wealthy oligarchs retain their power, a fracturing along class lines would become a distinct possibility. Social unrest, riots, and violent protests along the lines of the current situation in the Middle East could develop. Then a question of military use against the civilian population becomes paramount to what would happen next.

Amidst the financial chaos will be the ever present peak oil issue. The increasingly high prices and imminent shortages of supply will exacerbate the pain for the American people. The current War on Terror is really a cover for keeping American troops in the Middle East as a forward vanguard to keep the oil flowing. The U.S. consumes 7 billion barrels of oil per year and will use all means necessary to keep it flowing. With a Boomer Prophet leader invoking American manifest destiny, it is likely we will intervene to protect Saudi Arabia, Iraq, and Kuwait in the name of democracy. A terrorist incident in the U.S. would provide convenient cover for further intervention in the Middle East. As with most wars the unintended consequences will overwhelm the best laid plans of politicians and generals. Further U.S. intervention into an already exploding Middle East will likely spur a larger conflict between Islam and Christianity. Ground zero could shift to Europe as millions of Muslims have settled there and will not react positively to western powers siphoning oil from Islamic countries in the name of Christianity. History has taught us that Fourth Turnings end in all out war. The outcome of wars is always in doubt. 

“History offers more sobering warnings: Armed confrontation usually occurs around the climax of Crisis. If there is confrontation, it is likely to lead to war. This could be any kind of war – class war, sectional war, war against global anarchists or terrorists, or superpower war. If there is war, it is likely to culminate in total war, fought until the losing side has been rendered nil – its will broken, territory taken, and leaders captured. And if there is total war, it is likely that the most destructive weapons available will be deployed.” – Strauss & Howe – The Fourth Turning

“Each of the last three American Crises produced moments of extreme danger: In the Revolution, the very birth of the republic hung by a thread in more than one battle. In the Civil War, the union barely survived a four-year slaughter that in its own time was reagrded as the most lethal war in history. In World War II, the nation destroyed an enemy of democracy that for a time was winning; had the enemy won, America might have itself been destroyed. In all likelihood, the next Crisis will present the nation with a threat and a consequence on a similar scale.” – Strauss and Howe – The Fourth Turning

It may be 150 years since Walt Whitman foresaw the imminent march of armies, visions of unborn deeds, and a sweeping away of the old order, but history has brought us right back to where we started. Immense challenges and threats await our nation. Will we face them with the courage and fortitude of our forefathers? Or will we shrink from our responsibility to future unborn generations? The drumbeat of history grows louder. Our rendezvous with destiny beckons.

 

RENDEVOUS WITH DESTINY

Franklin Delano Roosevelt’s speech at the Democratic National Convention in Philadelphia on June 27, 1936. This was seven years into the last Fourth Turning. We are now three or four years into the latest Fourth Turning. We are headed towards our own rendevous with destiny.

“Senator Robinson, Members of the Democratic Convention, My Friends: Here, and in every community throughout the land, we are met at a time of great moment to the future of the nation. It is an occasion to be dedicated to the simple and sincere expression of an attitude toward problems, the determination of which will profoundly affect America.

I come not only as a leader of a party, not only as a candidate for high office, but as one upon whom many critical hours have imposed and still impose a grave responsibility.

For the sympathy, help and confidence with which Americans have sustained me in my task I am grateful. For their loyalty I salute the members of our great party, in and out of political life in every part of the Union. I salute those of other parties, especially those in the Congress of the United States who on so many occasions have put partisanship aside. I thank the governors of the several states, their legislatures, their state and local officials who participated unselfishly and regardless of party in our efforts to achieve recovery and destroy abuses. Above all I thank the millions of Americans who have borne disaster bravely and have dared to smile through the storm.

America will not forget these recent years, will not forget that the rescue was not a mere party task. It was the concern of all of us. In our strength we rose together, rallied our energies together, applied the old rules of common sense, and together survived.

In those days we feared fear. That was why we fought fear. And today, my friends, we have won against the most dangerous of our foes. We have conquered fear.

But I cannot, with candor, tell you that all is well with the world. Clouds of suspicion, tides of ill-will and intolerance gather darkly in many places. In our own land we enjoy indeed a fullness of life greater than that of most nations. But the rush of modern civilization itself has raised for us new difficulties, new problems which must be solved if we are to preserve to the United States the political and economic freedom for which Washington and Jefferson planned and fought.

Philadelphia is a good city in which to write American history. This is fitting ground on which to reaffirm the faith of our fathers; to pledge ourselves to restore to the people a wider freedom; to give to 1936 as the founders gave to 1776 – an American way of life.

That very word freedom, in itself and of necessity, suggests freedom from some restraining power. In 1776 we sought freedom from the tyranny of a political autocracy – from the eighteenth-century royalists who held special privileges from the crown. It was to perpetuate their privilege that they governed without the consent of the governed; that they denied the right of free assembly and free speech; that they restricted the worship of God; that they put the average man’s property and the average man’s life in pawn to the mercenaries of dynastic power; that they regimented the people.

And so it was to win freedom from the tyranny of political autocracy that the American Revolution was fought. That victory gave the business of governing into the hands of the average man, who won the right with his neighbors to make and order his own destiny through his own government. Political tyranny was wiped out at Philadelphia on July 4, 1776.

Since that struggle, however, man’s inventive genius released new forces in our land which reordered the lives of our people. The age of machinery, of railroads; of steam and electricity; the telegraph and the radio; mass production, mass distribution – all of these combined to bring forward a new civilization and with it a new problem for those who sought to remain free.

For out of this modern civilization economic royalists carved new dynasties. New kingdoms were built upon concentration of control over material things. Through new uses of corporations, banks and securities, new machinery of industry and agriculture, of labor and capital – all undreamed of by the Fathers – the whole structure of modern life was impressed into this royal service.

There was no place among this royalty for our many thousands of small-businessmen and merchants who sought to make a worthy use of the American system of initiative and profit. They were no more free than the worker or the farmer. Even honest and progressive-minded men of wealth, aware of their obligation to their generation, could never know just where they fitted into this dynastic scheme of things.

It was natural and perhaps human that the privileged princes of these new economic dynasties, thirsting for power, reached out for control over government itself. They created a new despotism and wrapped it in the robes of legal sanction. In its service new mercenaries sought to regiment the people, their labor, and their property. And as a result the average man once more confronts the problem that faced the Minute Man.

The hours men and women worked, the wages they received, the conditions of their labor – these had passed beyond the control of the people, and were imposed by this new industrial dictatorship. The savings of the average family, the capital of the small-businessmen, the investments set aside for old age – other people’s money – these were tools which the new economic royalty used to dig itself in.

Those who tilled the soil no longer reaped the rewards which were their right. The small measure of their gains was decreed by men in distant cities.

Throughout the nation, opportunity was limited by monopoly. Individual initiative was crushed in the cogs of a great machine. The field open for free business was more and more restricted. Private enterprise, indeed, became too private. It became privileged enterprise, not free enterprise.

An old English judge once said: “Necessitous men are not free men.” Liberty requires opportunity to make a living – a living decent according to the standard of the time, a living which gives man not only enough to live by, but something to live for.

For too many of us the political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people’s property, other people’s money, other people’s labor – other people’s lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness.

Against economic tyranny such as this, the American citizen could appeal only to the organized power of government. The collapse of 1929 showed up the despotism for what it was. The election of 1932 was the people’s mandate to end it. Under that mandate it is being ended.

The royalists of the economic order have conceded that political freedom was the business of the government, but they have maintained that economic slavery was nobody’s business. They granted that the government could protect the citizen in his right to vote, but they denied that the government could do anything to protect the citizen in his right to work and his right to live.

Today we stand committed to the proposition that freedom is no half-and-half affair. If the average citizen is guaranteed equal opportunity in the polling place, he must have equal opportunity in the market place.

These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the flag and the Constitution. In their blindness they forget what the flag and the Constitution stand for. Now, as always, they stand for democracy, not tyranny; for freedom, not subjection; and against a dictatorship by mob rule and the over-privileged alike.

The brave and clear platform adopted by this convention, to which I heartily subscribe, sets forth that government in a modern civilization has certain inescapable obligations to its citizens, among which are protection of the family and the home, the establishment of a democracy of opportunity, and aid to those overtaken by disaster.

But the resolute enemy within our gates is ever ready to beat down our words unless in greater courage we will fight for them.

For more than three years we have fought for them. This convention, in every word and deed, has pledged that the fight will go on.

The defeats and victories of these years have given to us as a people a new understanding of our government and of ourselves. Never since the early days of the New England town meeting have the affairs of government been so widely discussed and so clearly appreciated. It has been brought home to us that the only effective guide for the safety of this most worldly of worlds, the greatest guide of all, is moral principle.

We do not see faith, hope, and charity as unattainable ideals, but we use them as stout supports of a nation fighting the fight for freedom in a modern civilization.

Faith – in the soundness of democracy in the midst of dictatorships.

Hope – renewed because we know so well the progress we have made.

Charity – in the true spirit of that grand old word. For charity literally translated from the original means love, the love that understands, that does not merely share the wealth of the giver, but in true sympathy and wisdom helps men to help themselves.

We seek not merely to make government a mechanical implement, but to give it the vibrant personal character that is the very embodiment of human charity.

We are poor indeed if this nation cannot afford to lift from every recess of American life the dread fear of the unemployed that they are not needed in the world. We cannot afford to accumulate a deficit in the books of human fortitude.

In the place of the palace of privilege we seek to build a temple out of faith and hope and charity.

It is a sobering thing, my friends, to be a servant of this great cause. We try in our daily work to remember that the cause belongs not to us, but to the people. The standard is not in the hands of you and me alone. It is carried by America. We seek daily to profit from experience, to learn to do better as our task proceeds.

Governments can err, presidents do make mistakes, but the immortal Dante tells us that Divine justice weighs the sins of the cold-blooded and the sins of the warm-hearted on different scales.

Better the occasional faults of a government that lives in a spirit of charity than the consistent omissions of a government frozen in the ice of its own indifference.

There is a mysterious cycle in human events. To some generations much is given. Of other generations much is expected. This generation of Americans has a rendezvous with destiny.

In this world of our in other lands, there are some people, who, in times past, have lived and fought for freedom, and seem to have grown too weary to carry on the fight. They have sold their heritage of freedom for the illusion of a living. They have yielded their democracy.

I believe in my heart that only our success can stir their ancient hope. They begin to know that here in America we are waging a great and successful war. It is not alone a war against want and destitution and economic demoralization. It is more than that; it is a war for the survival of democracy. We are fighting to save a great and precious form of government for ourselves and for the world.

I accept the commission you have tendered me. I join with you. I am enlisted for the duration of the war.”

MY DUMBASS CAT STRIKES AGAIN

The picture above looks like my cat Cookie, also known as the cat with the string hanging out of her ass, saved by the murdering veterinarian. As a side note, the District Attorney is going to seek the death penalty against the veterinarian. I like to think of it as putting him to sleep.

But, back to my dumbass cat. Is Cookie stupid enough to eat a cactus? Maybe.

Is Cookie dumb enough to get trapped in a bird cage by a parakeet? Probably.

But I know she is dumb enough to get trapped inside a wall. I came home from work last night to an empty house. Everyone was off doing something. My one cat – Smokey – was in the kitchen looking for dinner. I opened a can of cat food and put it on a paper plate. Smokey went to town, but Cookie was nowhere to be found. I thought it was odd but figured she was sleeping under a bed.

Avalon arrived home after dropping Mikey off at Boy Scouts. I said that Cookie didn’t come down to eat. She said Ut Oh. It seems Avalon can’t handle the cats. Every time she walks into the storage area in the basement she allows Smokey to dash into this off limits area. Smokey then proceeds to make his way up into the drop ceiling, making Avalon’s life a living hell. Her solution this time was to leave the door open, hoping Smokey would eventually exit on his own. He eventually did. Great plan Avalon!!!

One small problem. My dumbass cat – Cookie- who is so dumb she eats fishing line, must have ventured into the storage area. What happened next is anyone’s guess. All I know is that while we were looking for Cookie, we heard a faint meow coming from somewhere. Avalon was pushing back ceiling tiles, but no cat. We heard the meow again. Avalon said she thinks it was from inside the wall. I said WTF!!! and few more choice adjectives. As I unleashed a torrent of expletives we came to the conclusion that the dumbass was trapped behind the drywall with no chance of escape. It was like an Edgar Allan Poe short story. At least I didn’t have to call the fire department.

I continued to curse my ass off as I went to get my dry wall knife so I could cut a hole into the drywall I just paid thousands of dollars to have repaired from our flood. I cut a small square and after calling the dumbass for 10 minutes she eventually arrived at the hole and sauntered out.

I put the piece of drywall back into place, but I won’t be sealing it up. I pushed a filing cabinet in front of the spot. I just have a feeling I will need to access that hole again someday.

ADMINISTRATOR ENLISTS IN THE FREE SH*T ARMY

I finally finished my tax return today. I’ve done my own taxes for 25 years. I’ve used Turbo Tax for 20 years. I’m able to upload all of my Quicken data directly into Turbo Tax. And still I felt like this guy this morning as I worked on my complicated return.

We have W-2 income, I sold a bunch of stocks and mutual funds, dividends, capital gains, option losses, K-1 for my money losing Wildwood condo, and a Schedule C for this huge money making machine of a website. There are so many pieces of paper to labor through. Turbo Tax asks you questions about passive income, alternative minimum tax, deductions, and credits. I can understand why most people pay someone else to do their taxes.

When it was all said and done, we are getting a refund. My effective tax rate for 2010 was 7%. I have Obama and the Congressional redistributors of wealth to thank for my relatively low tax burden. As I noted back in the Fall, my house is 16 years old and the builder put cheap windows in the house. The seals were breaking on multiple windows allowing moisture in, with some cracking when the temperature would change. I needed to replace my windows. It just so happened that Obama was implementing another useless economic stimulation tax credit with your money in 2010. Anyone who did a home improvement that saved energy could get a $1,500 tax credit. I took advantage of Obama’s generosity with your money today. I got a $1,500 tax credit for my window purchase. I’m now a corporal in the Free Shit Army.

The government already rewards me for having three kids, with exemptions and tax credits. It rewards me for owning a house with deductions for mortgage interest and property taxes. These facts prove how worthless our tax code has become.

I would have bought windows this year whether there was a credit or not. I bought a house in 1995 because I wanted a place to live. The mortgage interest and property tax deductions had no impact on my buying decision. I didn;t decide to have kids because I would get a credit. My marginal rate of 7% on a fairly high level of income seems low. It is low unless you compare me to General Electric.

General Electric made $14.2 billion in 2010. Their effective tax rate was -22.5%. They not only paid no taxes, but received a $3.2 billion tax refund. When middle class working Americans pay more in taxes than one of the biggest corporations in the world, then the system is broken and corrupt. GE spent $200 million in the last decade on lobbying. It looks like they got a nice return on their bribes (investment).

The corporate share of the nation’s tax receipts went from 30% in the 1950s to 6.6% in 2009. Crony capitalism is alive and well. This needs to change before it is too late.

If the politicians in this country could ever do the right thing and put the country ahead of their own interests, we could fix the revenue side of the budget. I would gladly give up my mortgage deduction, property tax deduction and credits for having kids if I knew that the wealthy and corporations were also paying their fair share. Eliminate all deductions, all loopholes, and all credits, for everyone. I’m not tied to a flat tax or fair tax or a particular rate.

As a country we need to decide what we really want. How big of a military are we willing to fund? If we want Medicare, Medicaid, Social Security, SNAP, Unemployment Compensation, Welfare, and an oil based society, then we have to pay for it. The borrowing has to end. If we want something, we have to pay for it. If we want all of the social programs that exist today, then taxes will have to go up dramatically. If we don’t want taxes to go up dramatically, then we need to cut spending across the board.

The fools in Washington DC think they can borrow and spend to infinity. Sadly, they are wrong. I see no chance that the corrupt politicians will change our path. The Free Shit Army (we are all members) will keep marching until it meets its Waterloo.

ADMINISTRATOR OBLITERATES THE COMPETITION

Not only do I work a full time job, run a blog, write an article per week, do my own taxes with Turbo Tax, and spend 12 hours per week in traffic, but I’ve also proven to be a sports expert. In one of the most lopsided victories in the history of NCAA tournament pools, I obliterated my so called competion. My nearest opponent finished 440 points behind. I believe I told you guys at the beginning of this “competition” – THE ADMINISTRATOR ALWAYS WINS!!!

My only regret is that Smokey is not here to read this. His selections in this pool proved to be the most pathetic in history. A monkey throwing shit at the bracket to select their teams could have scored higher than 330 points. Smokey – if you happen to be reading this – you eat shit.

Group Results
RNK ENTRY, OWNER R64 R32 S16 E8 FF NCG CHAMPION PPR TOTAL PCT
1 JimQ203 1, J. Quinn 200 180 120 80 160 320 UConn 0 1060 97.6
2 jbenham99313 1, J. Benham 220 200 120 80 0 0 Kansas 0 620 83.8
3 dbacktim4 , t. priester 230 180 120 80 0 0 Ohio St 0 610 82.2
3 dannl221 1, D. white 250 200 160 0 0 0 Duke 0 610 82.2
5 Sonic, J. Crawford 230 180 160 0 0 0 Florida 0 570 72.6
5 BocaBehemoths 1, A. Petrone 250 200 120 0 0 0 Ohio St 0 570 72.6
7 Stuck-In-NJ 1, n. koch 260 140 80 80 0 0 Kansas 0 560 68.1
7 ssgconway 1, L. Conway 240 200 40 80 0 0 Ohio St 0 560 68.1
9 Plato_Pussius 1, j. parrott 250 160 120 0 0 0 Texas 0 530 56.3
10 Irrationalizer 1, L. Primrose 260 140 120 0 0 0 Notre Dame 0 520 51.9
10 LLPOHTBP 1, J. Ross 240 160 120 0 0 0 Texas 0 520 51.9
12 kevqui 1, K. Quinn 240 180 80 0 0 0 Duke 0 500 42.8
13 howard in nyc 1, w. stecke 220 140 120 0 0 0 UNC 0 480 33.6
13 TBPIowan 1, D. Latta 260 180 40 0 0 0 Kansas 0 480 33.6
15 MikeinAZ, M. Gular 210 200 40 0 0 0 Ohio St 0 450 21.3
15 Dirty Billy Boy’s Picks, D. Billy 230 180 40 0 0 0 Pittsburgh 0 450 21.3
17 Petey1187 1, A. Petersohn 250 140 40 0 0 0 Ohio St 0 430 14.6
18 BuchJoe 1, J. Buch 240 140 0 0 0 0 Notre Dame 0 380 5.0
19 proximo6060 1, d. morehouse 210 80 40 0 0 0 Kansas 0 330 1

TAKE THIS JOB AND SHOVE IT

Barack Obama and his minions were out in force on Friday declaring that the 216,000 jobs added in February are proof of a recovering economy. The unemployment rate fell to 8.8%, down from 9.8% in April 2010. All it took was 2.8 million Americans to leave the labor force to achieve this fabulous reduction in the unemployment rate. The percentage of Americans in the labor force of 64.2% is the lowest since 1983. The employment to population ratio of 58.5% is also the lowest since 1983. These atrocious figures are after a supposed economic recovery that has been underway for the last 18 months.

There are now 1.8 million more people employed than at the depths of this Greater Depression. The working age population has grown by 3.2 million people since 2009. Inexplicably, the civilian workforce has actually declined by 736,000 over this same time frame. The government drones at the BLS want us to believe these people voluntarily left the workforce. Obama apologists declare this is because Baby Boomers are leaving the workforce as they retire into the sunset. That is laughable, as all studies show Boomers have not saved enough to retire and will be forced to work into their 70’s.

The manipulation of data in order to spin the economic situation in this country in the best light possible has become so blatant that only the most ignorant could possibly believe it. The corporate mainstream media dutifully reports the propaganda, without ever critically assessing what is being distributed by the government. The percentage of the American working population in the workforce consistently ranged between 66% and 67% from 1998 through 2008. Then, suddenly in 2008, after the economy went in the tank, a couple million Americans found better things to do with their spare time and left the workforce. Anyone with an ounce of brains knows these people gave up and are really unemployed. The percentage of people in the labor force should be 66.5%. Using this 20 year average would add 5.5 million people to the civilian labor force and the unemployment rolls. This exercise in reality gives a real unemployment rate of 12%.

It is interesting that Obama and his top economic propagandist Austin Goolsbee were out in full force on Friday, taking credit for the “tremendous” job gains, but had nothing to say earlier in the week with a much more revealing government report. There is now an all-time high of 44.2 million Americans and 20.7 million households in the food stamp program. This is 14.3% of the American population and 18% of all the households.

I’d like to hear the Administration spin for the SNAP program. Since the supposed end of this economic recession in late 2009, the number of people added to the food stamp rolls has increased by 8 million. The annual cost for this program will reach $70 billion this year, up from $33 billion in 2007. If the economy is recovering and people are voluntarily leaving the workforce, why have the number of people on food stamps increased by 22% since the official start of the recovery? Why does the number of people going on food stamps go up every month? The answer is that there has been no economic recovery for the average American. Wall Street bankers and the ultra-wealthy elite are the only people who have experienced a recovery.

SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM
( Data as of March 31, 2011)
Fiscal PARTICIPATION BENEFIT AVERAGE MONTHLY BENEFIT
Year Persons Households COSTS Per Person Per Household
FY 2011 43,766,713 20,501,213 23,348,337,586 133.37 284.73
FY 2010 40,301,666 18,618,363 64,704,748,421 133.79 289.61
FY 2009 33,489,975 15,232,115 50,359,917,015 125.31 275.51

The true picture of the American economy is that in 2007 there were 146 million Americans employed, or 63% of the working age population. Today, there are 139.9 million Americans employed, or 58.5% of the working age population. Over this time frame, an additional 7.1 million Americans entered the working age population. In 2007 there were 26.3 million Americans on food stamps, or 8.6% of the US population. Today there are 44.2 million Americans on food stamps, or 14.3% of the US population. To call the current economic disaster a recovery is to practice the art of the Big Lie.

Real Median Household Income, which is calculated using the dodgy government CPI, has not grown in 14 years. Using a true, non-manipulated inflation figure and real median household income is no higher than it was in 1987. The mainstream media reports the headline figures like the good lapdogs they are. The BLS Establishment data going back to 1965 is a treasure trove of interesting data. The average hourly wages have declined for the last three months and are essentially flat in the last year.

real median household income

Decades of Decay

The current state of disarray in the job market did not occur overnight. It took decades of bad choices, willful ignorance and delusion. By charting BLS data over the last five decades, a picture of an empire in decay appears before your very eyes. We aren’t the first empire to experience this decay and won’t be the last. It is only in retrospect that it becomes clear that all empires gravitate from producing and creating to finance, debt and lending. The hubris of great empires leads them to believe they have been chosen by God as a special nation destined for eternal wealth and success. The seventeenth century Spanish empire thought so. The Dutch and their glorious maritime empire thought so. The all-powerful British Empire thought so. Do you hear much about these empires anymore? They all sacrificed productive activities and embraced the glories of a debt based society. Kevin Phillips details these declines in his brilliant book American Theocracy :

“Understandable as this cockiness might be, history teaches a crucial distinction: nations could marshal the necessary debt-defying high wire walks and comebacks during their youth and early middle age, when their industries, exports, capitalizations, and animal spirits were vital and expansive, but they became less resilient in later years. During these periods, as their societies polarized and their arteries clogged with rentier and debt buildups, wars and financial crises stopped being manageable. Of course, clarity about this develops only in retrospect. However, even though war related debt seems to have been part of each fatal endgame, the past leading world economic powers seem to have made another error en route. They did not pay enough attention to establishing or maintaining a vital manufacturing sector, thereby keeping a better international balance and a broader internal income distribution than financialization allowed.”

The chart below paints a clear picture of decay, debt and delusion. In 1961 the population of the United States was 184 million. There were 54 million employed Americans, with 15 million of them manufacturing goods for America and the rest of the world. Today the population of the United States is 310 million. There are 11.7 million people manufacturing goods, mostly weapons for export to our favorite despots. The population has grown by 68%, while manufacturing jobs have declined by 22%. Consumer spending accounted for 62.8% of GDP in 1961. Investments totaled 14.3% of GDP and we ran a trade surplus of $4.9 billion. Today, consumer spending accounts for 71.1% of GDP. Investments total 12.5% of GDP and we are running a $500 billion trade deficit. Over the course of 50 years, we’ve devolved from a production and exporting society into a consuming and borrowing society.

 

1961 1970 1980 1990 2000 2007 2010 Mar-11
Total Employment 54,106 71,005 90,530 109,487 131,786 137,599 129,819 130,738
Mining 728 677 1,077 765 599 724 705 758
Construction 2,908 3,654 4,454 5,263 6,787 7,630 5,526 5,514
Manufacturing 15,011 17,848 18,733 17,695 17,263 13,879 11,524 11,667
 Total Goods Producing 18,647 22,179 24,264 23,723 24,649 22,233 17,755 17,939
Trade, Transport, Utilities 11,040 14,144 18,413 22,666 26,225 26,630 24,605 24,797
Information 1,693 2,041 2,361 2,688 3,630 3,032 2,711 2,681
Finance 2,590 3,532 5,025 6,614 7,687 8,301 7,630 7,610
Professional & Business Services 3,744 5,267 7,544 10,848 16,666 17,942 16,688 17,075
Education & Health Serv. 3,030 4,577 7,072 10,984 15,109 18,322 19,564 19,875
Leisure & Hospitality 3,468 4,789 6,721 9,288 11,862 13,427 13,020 13,156
Other Services 1,188 1,789 2,755 4,261 5,168 5,494 5,364 5,439
Government 8,706 12,687 16,375 18,415 20,790 22,218 22,482 22,166
   Total Service Producing 35,459 48,826 66,266 85,764 107,137 115,366 112,064 112,799

A perusal of the chart shows the dramatic downturn has really occurred since 1980. Goods producing jobs have declined by 6.3 million in the last 30 years, while service jobs have grown by 46.5 million. Who would want to get their hands dirty on an assembly line when they could shuffle papers, invent CDOs, MBOs, and CDSs, create financial models to destroy the world, bribe rating agencies, file frivolous lawsuits, teach Keynesianism, or use the 60,000 page IRS code to help GE pay no taxes on their $14 billion of income. Alan Greenspan and many other “thought leaders” declared that America could succeed through its ingenuity and creative thought process. The rest of the world could handle the messy business of building things. So goes the hubris of an empire that has peaked. To get a clearer view of the conversion from a productive society to a consumption society, converting the above chart to a percentage basis is useful.

1961 1970 1980 1990 2000 2007 2010 Mar-11
Total Employment 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Mining 1.3% 1.0% 1.2% 0.7% 0.5% 0.5% 0.5% 0.6%
Construction 5.4% 5.1% 4.9% 4.8% 5.2% 5.5% 4.3% 4.2%
Manufacturing 27.7% 25.1% 20.7% 16.2% 13.1% 10.1% 8.9% 8.9%
   Total Goods Producing 34.5% 31.2% 26.8% 21.7% 18.7% 16.2% 13.7% 13.7%
Trade, Transport, Utilities 20.4% 19.9% 20.3% 20.7% 19.9% 19.4% 19.0% 19.0%
Information 3.1% 2.9% 2.6% 2.5% 2.8% 2.2% 2.1% 2.1%
Finance 4.8% 5.0% 5.6% 6.0% 5.8% 6.0% 5.9% 5.8%
Professional & Business Services 6.9% 7.4% 8.3% 9.9% 12.6% 13.0% 12.9% 13.1%
Education & Health Serv. 5.6% 6.4% 7.8% 10.0% 11.5% 13.3% 15.1% 15.2%
Leisure & Hospitality 6.4% 6.7% 7.4% 8.5% 9.0% 9.8% 10.0% 10.1%
Other Services 2.2% 2.5% 3.0% 3.9% 3.9% 4.0% 4.1% 4.2%
Government 16.1% 17.9% 18.1% 16.8% 15.8% 16.1% 17.3% 17.0%
   Total Service Producing 65.5% 68.8% 73.2% 78.3% 81.3% 83.8% 86.3% 86.3%

In 1961 America was a well balanced economic powerhouse. Goods production accounted for 34.5% of all jobs, with manufacturing making up 27.7% of all jobs. Goods production now accounts for a pitiful 13.7% of all jobs in the country. The slack was picked up by financial analysts, accountants, lawyers, tax specialists, and bankers. They surged from supporting roles in a production society with 11.7% of the jobs in 1961 to the dominant big dogs today, with 18.9% of the jobs. The rest of the slack was taken up by teachers, school administrators, nurses, cabana boys and waitresses as they surged from 12% in 1961 to 25.3% of all jobs today. There is one problem with this shift. We have millions more educators, but our school systems churn out millions of functionally illiterate non-critical thinking drones. We have millions more healthcare professionals and are the most obese, unhealthy nation on earth even though we spend more per person than any other country. A country that employs one quarter of their workers in jobs that do not increase the wealth of the country is a country in decline. This shift has also pushed people into lower paying jobs.

1965 1970 1980 1990 2000 2007 2010 Mar-11
Total Private Industry $2.63 $3.40 $6.85 $10.20 $14.02 $17.43 $19.07 $19.30
Mining $2.87 $3.77 $8.97 $13.40 $16.55 $20.97 $23.83 $24.68
Construction $3.23 $4.74 $9.37 $13.42 $17.48 $20.95 $23.22 $23.36
Manufacturing $2.49 $3.23 $7.15 $10.78 $13.55 $17.26 $18.61 $18.90
   Total Goods Producing $2.63 $3.52 $7.66 $11.46 $15.27 $18.67 $20.28 $20.48
Trade, Transport, Utilities $2.94 $3.65 $7.04 $9.83 $13.31 $15.78 $16.83 $16.99
Information $4.47 $5.25 $9.47 $13.40 $19.07 $23.96 $25.86 $25.99
Finance $2.38 $3.07 $5.82 $9.99 $14.98 $19.64 $21.49 $21.63
Professional & Business Serv. $3.28 $4.04 $7.22 $11.14 $15.52 $20.15 $22.78 $23.10
Education & Health Services $2.12 $2.88 $5.93 $10.00 $13.95 $18.11 $20.12 $20.45
Leisure & Hospitality $1.17 $1.82 $3.98 $6.02 $8.32 $10.41 $11.31 $11.38
Other Services $1.25 $2.01 $5.05 $9.08 $12.73 $15.42 $17.08 $17.23
   Total Service Producing $2.63 $3.34 $6.43 $9.72 $13.62 $17.11 $18.81 $19.05
Consumer Price Index 31.50 38.80 82.40 130.70 172.20 207.34 218.06 221.31

The insidious effects of Federal Reserve generated inflation can be seen in the above chart. The BLS Establishment data going back to 1965 reveals much about the hidden impact of inflation over time. In 1965 the average hourly wage was $2.65. Back then, Americans put in a full work week, averaging 38.6 hours per week. The average American was making $101.52 per week. This was enough for a family to live comfortably on with only one spouse working. Fast forward to today and we have an average wage of $19.30 per hour and work week of 33.4 hours. This yields an average weekly pay of $644.62. It is also necessary for most households to have two working spouses to make ends meet. I added the government reported CPI at the bottom of the chart to provide some perspective on our 50 years of middle class wage compression. Applying the change in CPI since 1965 to the change in average weekly earnings provides the clearest view of what has been done to our country by the Federal Reserve and the government/corporate oligarchy. It would have taken weekly wages of $713.25 to have kept up with inflation since 1965. The average worker today is making 10% less than they did in 1965, on an inflation adjusted basis.

Wages in the service industries fell behind by even more, with the exception of bankers, doctors and teachers. The finance sector wages and the healthcare/education sector wages are 25% higher than their inflation adjusted wages in 1965. You reap what you sow. The country has decided that bankers, doctors, and teachers are relatively more important to our economy than people who make products, create wealth, and increase the productive capacity of the country. Any impartial outcome based assessment of these choices would conclude these choices have been an unmitigated failure.

The financial/ banking sector has peddled debt to the masses that didn’t realize their standard of living has been declining for 50 years, and blew up the worldwide financial system through their greed and fraudulent business practices. We spend more per child on education than any country in the world and test scores are lower than they were 40 years ago. Our children graduate high school with no critical thinking skills and the inability to decipher propaganda from truth. We spend more per person on healthcare than any other country, but obesity, diabetes, and heart disease are rampant. Administrative bureaucracy and vast amounts of rules and regulations consume billions in these sectors of our economy. The simple art of creating and producing things that other people need or want has been cast aside by a country who thought they could borrow and spend their way to long-term prosperity.

So, here we find ourselves 18 months into a “recovery” and the country has added 1.3 million jobs in the last year. We’ve added 529,000 lawyers, accountants, consultants and tax specialists. We’ve added 420,000 teachers, nurses and administrators. We’ve added 193,000 waitresses and hotel busboys. And we’ve added 238,000 Wal-Mart clerks. Our well balanced economy is back in gear. What could go wrong?

The truth is that the country remains in a 50 year death spiral of bad choices, delusion and fraud, created to benefit the few at the expense of the many. The average American wallows in a reality of low wages and high debt. Some of this reality has been self inflicted. Willful ignorance is a choice. Educating yourself to the truth is available to every American. Spending less than you make is something everyone can do. But, at the end of the day, the 1% at the top of the food chain controls the levers in this country. While the average American has fallen behind over the last 50 years, the ultra-wealthy elite have prospered.   The top 1% takes home 25% of the national income and control 40% of the financial wealth in the country. Their lives have improved considerably. Twenty-five years ago, the ruling elite “earned” 12% of the national income and controlled 33% of the financial wealth. These are the people who control the message. They own the mainstream media. They run the Wall Street banks. They control the Federal Reserve. They write the laws and the tax code. They control the politicians like puppets on a string. An economic system based upon debt and Federal Reserve generated inflation benefits these chosen few, while destroying the middle class of America. We’ve chosen this path and are destined to experience the same fate as Spain, the Dutch, and Britain.

TBP POLL # S

It has been a week since Smokey left TBP. In that week no one has been told to eat shit, swallow anything gross, fuck off, or 50 other Smokeyisms. I personally feel that the blog has dropped a notch or two with his departure. This might be because he was one of my biggest supporters from the day I started the blog. He was a supporter before I had a blog when I posted on Seeking Alpha. So, my opinion is skewed.

So that brings us to the new poll question.

Is TBP better or worse without Smokey as one of the chief commentors?

A. Better

B. Worse

C. The Same

D. Eat Shit and Die

E. Suck my 11 1/2 inch Vein-laden beef pipe

TBP’s RECORD MONTH

We had a record month, despite the tragic loss of Smokey. We had 211,000 visitors in March. That was a 30% increase over January and February. We are getting a lot of new visitors, as the number of unique visitors went up by 35%. You can see that on the days when I post a featured article, the visitor counts go sky high. Another interesting statistic is that the average visitor spends over 6 minutes on the site, with 9% of visitors staying for longer than 30 minutes at a time. You know who you are.

Thanks for your continued support and don’t forget to click “you know what”.

Day Number of visits Pages Hits Bandwidth
01 Mar 2011 4831 24244 123282 875.24 MB
02 Mar 2011 5296 28220 145400 1002.78 MB
03 Mar 2011 4932 24517 130817 948.57 MB
04 Mar 2011 4646 25097 126751 850.27 MB
05 Mar 2011 5925 24038 155720 1.21 GB
06 Mar 2011 6676 26790 173081 1.43 GB
07 Mar 2011 6936 34775 199818 1.51 GB
08 Mar 2011 5330 28650 148710 1.09 GB
09 Mar 2011 5203 29112 146201 1.01 GB
10 Mar 2011 5617 30305 163359 1.12 GB
11 Mar 2011 5306 28812 154734 1.01 GB
12 Mar 2011 4573 24072 125133 900.55 MB
13 Mar 2011 5622 24779 150733 1.13 GB
14 Mar 2011 20589 68983 621904 5.46 GB
15 Mar 2011 14142 53871 421735 3.84 GB
16 Mar 2011 7704 35540 216232 1.78 GB
17 Mar 2011 6159 33318 179168 1.34 GB
18 Mar 2011 5403 29117 152194 1.10 GB
19 Mar 2011 4524 22805 119363 904.50 MB
20 Mar 2011 4995 26103 132832 1022.38 MB
21 Mar 2011 5596 27319 152127 1.07 GB
22 Mar 2011 12105 41991 348815 2.71 GB
23 Mar 2011 12544 46608 370987 2.84 GB
24 Mar 2011 6840 29075 179105 1.30 GB
25 Mar 2011 5407 29573 153453 1.01 GB
26 Mar 2011 4463 25040 123630 890.66 MB
27 Mar 2011 4646 25597 129969 899.49 MB
28 Mar 2011 5637 31662 164440 1.08 GB
29 Mar 2011 5722 29404 154402 1.07 GB
30 Mar 2011 5623 28551 146634 1.00 GB
31 Mar 2011 8586 34872 231550 1.80 GB
Average 6825.10 31381.94 191686.42 1.45 GB
Total 211578 972840 5942279 45.01 GB

EXTEND & PRETEND IS WALL STREET’S FRIEND

“We now have an economy in which five banks control over 50 percent of the entire banking industry, four or five corporations own most of the mainstream media, and the top one percent of families hold a greater share of the nation’s wealth than any time since 1930.   This sort of concentration of wealth and power is a classic setup for the failure of a democratic republic and the stifling of organic economic growth.” – Jesse – http://jessescrossroadscafe.blogspot.com/

Source: Barry Ritholtz

“All of the old-timers knew that subprime mortgages were what we called neutron loans — they killed the people and left the houses.” – Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo

The storyline that has been sold to the public by the Federal government, Wall Street, and the corporate mainstream media over the last two years is the economy is recovering and the banking system has recovered from its near death experience in 2008. Wall Street profits in 2009 & 2010 totaled approximately $80 billion. The stock market has risen almost 100% since the March 2009 lows. Wall Street CEOs were so impressed by this fantastic performance they dished out $43 billion in bonuses over the two year period to their thousands of Harvard MBA paper pushers. It is amazing that an industry that was effectively insolvent in October 2008 has made such a spectacular miraculous recovery. The truth is recovery is simple when you control the politicians and regulators, and own the organization that prints the money.

A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the criminal Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and corrupt politicians in Washington D.C. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history. The authorities had a choice. This country has bankruptcy laws. The criminally negligent Wall Street banks could have been liquidated in an orderly bankruptcy. Their good assets could have been sold off to banks that did not take their extreme greed based risks. Bond holders and stockholders would have been wiped out. Today, we would have a balanced banking system, with no Too Big To Fail institutions. Instead, the years of placing their cronies within governmental agencies and buying off politicians paid big dividends for Wall Street. Their return on investment has been fantastic.

The plan has been as follows:

  • In April 2009 the FASB caved in to pressure from the Federal Reserve, Treasury, and Wall Street to suspend mark to market rules, allowing the Wall Street banks to value their loans and derivatives as if they were worth 100% of their book value.
  • The Federal Reserve balance sheet consistently totaled about $900 billion until September 2008. By December 2008, the balance sheet had swollen to $2.2 trillion as the Federal Reserve bought $1.3 trillion of toxic assets from the Wall Street banks, paying 100 cents on the dollar for assets worth 50% of that value.

  • In November 2009 the Federal Reserve and IRS loosened the rules for restructuring commercial loans without triggering tax consequences. Banks were urged to extend loans on properties that had fallen 40% in value as if they were still worth 100% of the loan value.
  • By December 2008 the Federal Reserve had moved their discount rate to 0%. For the last two years, the Wall Street banks have been able to borrow from the Federal Reserve for free and earn a risk free return of 2%. The Federal Reserve has essentially handed billions of dollars to Wall Street.
  • When it became clear in October 2010 that after almost two years of unlimited liquidity being injected into the veins of zombie banks was failing, Ben Bernanke announced QE2. He has expanded the Fed balance sheet to $2.6 trillion by injecting $3.5 billion per day into the stock market by buying US Treasury bonds. Bernanke’s stated goal has been to pump up the stock market. While taking credit for driving stock prices higher, he denies any responsibility for the energy and food inflation that is spurring unrest around the world.
  • The Federal Reserve has increased the monetary base by $500 billion in the last three months in a desperate attempt to give the appearance of recovery to a floundering economy.

FRED Graph

  • Beginning on December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions.  The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution.

When You’re Losing – Change the Rules

Wall Street banks had absolutely no problem with mark to market rules from 2000 through 2007, as the value of all their investments soared. These banks created products (subprime, no-doc, Alt-A mortgages) whose sole purpose was to encourage fraud. Their MBA geniuses created models that showed that if you packaged enough fraudulent loans together and paid Moody’s or S&P a big enough bribe, they magically became AAA products that could be sold to pension plans, municipalities, and insurance companies. These magnets of high finance were so consumed with greed they believed their own lies and loaded their balance sheets with the very toxic derivatives they were peddling to the clueless Europeans. They didn’t follow a basic rule. Don’t crap where you sleep. When the world came to its senses and realized that home prices weren’t really worth twice as much as they were in 2000, investment houses began to collapse like a house of cards. The AAA paper behind the plunging real estate wasn’t worth spit. After Lehman Brothers collapsed and AIG’s bets came up craps for the American people, the financial system rightly froze up.

After using fear and misinformation to ram through a $700 billion payoff to Goldman Sachs and their fellow Wall Street co-conspirators through Congress, it was time begin the game of extend and pretend. Market prices for the “assets” on the Wall Street banks’ books were only worth 30% of their original value. Obscuring the truth was now an absolute necessity for Wall Street. The Financial Accounting Standards Board already allowed banks to use models to value assets which did not have market data to base a valuation upon. The Federal Reserve and Treasury “convinced” the limp wristed accountants at the FASB to fold like a cheap suit. The FASB changed the rules so that when the market prices were not orderly, or where the bank was forced to sell the asset for regulatory purposes, or where the seller was close to bankruptcy, the bank could ignore the market price and make up one of its own. Essentially the banking syndicate got to have it both ways. It drew all the benefits of mark to market pricing when the markets were heading higher, and it was able to abandon mark to market pricing when markets went in the toilet. 

“Suspending mark-to-market accounting, in essence, suspends reality.” – Beth Brooke, global vice chair, at Ernst & Young

Wall Street desired all the billions of upside from creating new markets for new products. Their creativity knew no bounds as they crafted MBOs, MBSs, CDOs, CDSs, and then chopped them into tranches, selling them around the world with AAA stamps of approval from the soulless whore rating agencies. When the net result of a flawed system of toxic garbage paper was revealed, there was no room at the exits for the stampede of investment bankers. The toxic paper was on the banks’ books and no one wanted to admit the greed induced decision to purchase these highly risky, volatile “assets”. The trade had not gone bad, the ponzi scheme had unraveled. Suspending FASB 157 has been an attempt to hide this fraudulent business model from investors, regulators and the public. By hiding the true value of these assets, the financial system has never cleared. The banks remain in a zombie vegetative state, with the Federal Reserve providing the IV and the life support system.

Let’s Play Hide the Losses

Part two of the master cover-up plan has been the extending of commercial real estate loans and pretending that they will eventually be repaid. In late 2009 it was clear to the Federal Reserve and the Treasury that the $1.2 trillion in commercial loans maturing between 2010 and 2013 would cause thousands of bank failures if the existing regulations were enforced. The Treasury stepped to the plate first. New rules at the IRS weren’t directly related to banking, but allowed commercial loans that were part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors.

 

The Federal Reserve, which is tasked with making sure banks loans are properly valued, instructed banks throughout the country to “extend and pretend” or “amend and pretend,” in which the bank gives a borrower more time to repay a loan. Banks were “encouraged” to modify loans to help cash strapped borrowers. The hope was that by amending the terms to enable the borrower to avoid a refinancing that would have been impossible, the lender would ultimately be able to collect the balance due on the loan. Ben and his boys also pushed banks to do “troubled debt restructurings.” Such restructurings involved modifying an existing loan by changing the terms or breaking the loan into pieces. Bank, thrift and credit-union regulators very quietly gave lenders flexibility in how they classified distressed commercial mortgages. Banks were able to slice distressed loans into performing and non-performing loans, and institutions were able to magically reduce the total reserves set aside for non-performing loans.

If a mall developer has 40% of their mall vacant and the cash flow from the mall is insufficient to service the loan, the bank would normally need to set aside reserves for the entire loan. Under the new guidelines they could carve the loan into two pieces, with 60% that is covered by cash flow as a good loan and the 40% without sufficient cash flow would be classified as non-performing. The truth is that billions in commercial loans are in distress right now because tenants are dropping like flies. Rather than writing down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as “performing.” The reality is that the values of the property behind these loans have fallen 43%. Banks are extending loans that they would never make now, because borrowers are already grossly upside-down.

Extending the length of a loan, changing the terms, and pretending that it will be repaid won’t generate real cash flow or keep the value of the property from declining. U.S. banks hold an estimated $156 billion of souring commercial real-estate loans, according to research firm Trepp LLC. About two-thirds of commercial real-estate loans maturing at banks from now through 2015 are underwater. Media shills proclaiming that the market is improving, doesn’t make it so. The chart below details the delinquency rates from 2007 through 2010 as reported by the Federal Reserve:

  Real estate loans Consumer loans
All Booked in domestic offices All Credit cards Other
Residential Commercial
2010 4th Qtr 9.01  9.94  7.97  3.71  4.17  3.10 
2010 3rd Qtr 9.77  10.90  8.69  4.03  4.60  3.39 
2010 2nd Qtr 10.02  11.32  8.74  4.25  5.07  3.37 
2010 1st Qtr 9.78  10.97  8.66  4.63  5.76  3.48 
2009 4th Qtr 9.48  10.29  8.74  4.64  6.36  3.48 
2009 3d Qtr 9.00  9.67  8.57  4.72  6.51  3.61 
2009 2nd Qtr 8.19  8.69  7.84  4.85  6.75  3.69 
2009 1st Qtr 7.19  7.89  6.55  4.62  6.50  3.52 
2008 4th Qtr 5.99  6.57  5.49  4.29  5.65  3.37 
2008 3rd Qtr 4.88  5.26  4.66  3.73  4.80  3.05 
2008 2nd Qtr 4.21  4.39  4.15  3.55  4.89  2.80 
2008 1st Qtr 3.56  3.70  3.50  3.48  4.76  2.76 
2007 4th Qtr 2.89  3.06  2.75  3.41  4.60  2.66 
2007 3rd Qtr 2.40  2.78  1.98  3.20  4.41  2.48 
2007 2nd Qtr 2.01  2.30  1.63  2.99  4.02  2.37 
2007 1st Qtr 1.77  2.03  1.43  2.93  3.97  2.29 

 

Delinquency rates on residential and commercial loans in early 2007 were in the range of 1.5% to 2.0%. Now the MSM pundits get excited over a decline from 8.7% to 8.0%. These figures show that even after trillions of Federal Reserve and Federal Government intervention, delinquencies remain four times higher than normal. In the real world, cash flow matters. Payment of interest and principal on a loan matters. Actual market values matter. According to Trepp, LLC, a data firm specializing in commercial data, non-performing commercial real estate loans makes up 72% of the $320 million in non-performing loans reported by banks in February. These figures are after the “extremely” relaxed definition of non-performing allowed by the Federal Reserve. The game is ongoing. Misinformation abounds. The SEC now issues press releases saying they are worried that banks are covering up losses, when they were involved in encouraging the banks to cover-up their losses. Last week the SEC announced they have become concerned that extend and pretend, along with another practice known as “troubled debt restructuring” that allows banks to break loans into pieces, may have been abused in order to diminish the volume of reserves banks are holding. What a shocking revelation. Who could have known?

Are You Smarter than a Wall Street CEO?

The Federal Reserve paid shills and Wall Street front men are out in droves declaring that TARP was a success and the banking system is recovering strongly. Columnists like Robert Samuelson declare  TARP was a great investment and will profit the taxpayer. Samuelson says that the Treasury has recouped $244 billion of the $245 billion it invested in banks and that, when it winds down its last investments, it likely will show a $20 billion profit from the banks. This type of propaganda is ludicrous, as Barry Ritholtz succinctly points out:

“No, we are not profitable on the bailouts. TARP has $123B to go before breakeven, and the GSEs are $133B in the hole. All told, the Taxpayers have a long way to go before we are breakeven. That’s before we count lost income from savings, bonds, etc., the increased costs of food stuff and energy due to inflation (the Fed’s has done this on purpose as part of their rescue plan), the higher fees the reduced competition of megabanks has created, and the future costs our Moral Hazard will have wrought in increased risks and disasters.” – Barry Ritholtz

Source: Barry Ritholtz

Fannie Mae and Freddie Mac have hundreds of billions in bad loans sitting on their balance sheets. Their total cost to taxpayers will reach $400 billion, and never be repaid. The Federal Reserve has over $1 trillion in toxic assets on its balance sheet, off loaded by the TARP recipient banks in 2009. The taxpayer will never be repaid for this toxic waste. The government is implementing the Big Lie theory. If you tell a big lie often and loud enough, the non-thinking masses will believe it. That leaves us with today’s fantasy world.

The reality on the ground does not match the rhetoric coming from the government, Wall Street and the corporate mainstream media. The truth is as follows:

  • The vacancy rate for office space in the U.S. is currently 16.5%.
  • The vacancy rate for industrial space in the U.S. is currently 14.2%.
  • The vacancy rate for retail space in the U.S. is currently 13%.
  • Delinquencies within collateralized debt obligations in commercial real estate loans rose to 14.6% in February. The increase signals a trend of higher delinquencies in the segment. Signs of pressure surfaced as early as January when the delinquency rate on CDOs within commercial real estate loans hovered well above 13%.
  • According to Moody’s, CRE prices are down 4.3% from a year ago and down about 43% from the peak in 2007.
  • The delinquency rate on loans packaged and sold in commercial mortgage-backed securities rose to a record 9.2% in February, according to a March 15 report by Moody’s.
  • Regional and local community banks have as much as 80% of their balance sheets tied up in commercial real estate, and very few other sources of significant fee income to offset CRE losses.
  • CRE once had an estimated national value of $6.5 trillion.  Today it stands at an optimistic $3.5 trillion.
  • There are 1.8 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale.
  • There are about 2 million current negative equity loans that are more than 50% “upside down”.
  • Home prices are off 31.3% from the peak. The Composite 20 is only 0.7% above the May 2009 post-bubble bottom and will probably be at a new post-bubble low soon.

In the face of this data, mouthpieces for the Federal Reserve go before Congress and try to paint an optimistic picture. “While we expect significant ongoing CRE-related problems, it appears that worst-case scenarios are becoming increasingly unlikely,” Patrick Parkinson, the Federal Reserve’s director of banking supervision and regulation, told Congress. Parkinson said that since the beginning of 2008 through the third quarter of 2010, commercial banks had incurred almost $80 billion of losses from commercial real estate exposures. Banks are estimated to have taken roughly 40% to 50% of losses they will incur over this business cycle, he said.

The Federal Reserve will be forced by the Federal Courts to reveal the banks they have saved from failure since 2008 by funneling billions of practically interest free tax payer dollars into their hands. The Fed is expected to release this week documents related to discount window lending from August 2007 to March 2010, including the peak month of October 2008, when loans hit $111 billion. It will be revealed they kept alive hundreds of banks that should have died. Shockingly, the supposedly taxpayer protecting Dodd-Frank law exempts past discount window lending from an audit by the Government Accountability Office, that’s examining much of the central bank’s other crisis-era programs. That champion of the little people, Barney Frank, said such disclosures might have “a negative market effect. If people saw the data the next day, they come to the conclusion that the bank must be in trouble.” Openness and transparency are evidently grey areas for Mr. Frank. Despite the non-disclosures, free Fed bucks, accounting fraud and uninterested regulators, over 300 banks managed to go out of business in the last two years, essentially bankrupting the FDIC. Have no fear. The Treasury gave the FDIC an unlimited line of credit with your money.

 

It is fascinating that every Friday afternoon the FDIC announces approximately three bank failures. Steady as she goes. No panic. Just a slow trickle of failure. But the reality is much worse than the show. Despite the gimmicks of extending and pretending, there are 900 banks essentially insolvent sitting on the FDIC “Problem” list. This is after closing the 300 banks. There are at least a couple hundred billion of losses in the pipeline, to be funded by the American people/Chinese lenders. A critical thinking American might ask, if things are getting better, why does the number of troubled banks continue to rise week after week, month after month?

One year ago the website www.businessinsider.com listed the 10 major regional banks with the highest risk from commercial real estate loans. These 10 banks had $133 billion of commercial real estate loans on their books. Most, if not all, are still in business today. The fact is those real estate loans are worth 30% to 50% less than they are being carried on the books. A true valuation of these loans would put all 10 of these banks out of business. They are dead banks walking. In a world where transparency, honesty, and true free markets reigned supreme, these banks would pay for their poor risk taking choices. They would be liquidated and their assets would be sold off to banks that did not make horrific lending decisions. Failures would fail.  

Bank CRE Loans (bil.) % of Tier 1 Capital
NY Community Bank $22.0 915%
Wintrust Financial Corp. $3.4 419%
M&T Bank $20.8 378%
Synovus $11.2 376%
Wilmington Trust $4.0 369%
Marshall & Iisley $13.8 283%
Zions Bancorporation $13.4 253%
Regions Financial $28.3 218%
UMB Bank $1.3 156%
Comerica $14.3 97%

 

How could anyone deny the world is back on track after examining the following chart?

 

It should warm your heart to know that Financial Profits have amazingly reached their pre-crash highs. All it took was the Federal Reserve taking $1.3 trillion of bad loans off their books, overstating the value of their remaining loans by 40%, borrowing money from the Fed at 0%, relying on the Bernanke Put so their trading operations could gamble without fear of losses, and lastly by pretending their future losses will be lower and relieving their loan loss reserves. The banking industry didn’t need to do any of that stodgy old school stuff like make loans to small businesses. Extending and pretending is much more profitable. 

The big four of JP Morgan, Citigroup, Bank of America, and Wells Fargo should have undergone orderly bankruptcy liquidation in 2008. They took on a vast amount of leverage and a vast amount of risk. Their greedy bets went bad. In a true capitalist system, they would have failed. Instead, in our crony capitalist system, they were bailed out by taxpayers and continue to function as zombie banks pretending to be healthy. They reported profits of $34.4 billion in 2010. Every dime of these profits was generated through accounting entries that relieved their provisions for loan losses. These “brilliant” CEOs who virtually destroyed the worldwide financial system in 2008, looked into their crystal balls and decided their loan losses in the future would be dramatically lower. I’ll take the other side of that bet. I dug into their SEC filings to get the information in the chart below. Just the fact that Citicorp and Bank of America have still not filed their 10K reports after 3 months tells a story.

Bank   Source CRE Mortgages Credit Card Total Loans Loss Reserve % of Loans
JP Morgan 12/31 10K $53,635 $174,211 $137,676 $692,927 $32,266 4.7%
Citicorp 9/30 10Q $79,281 $209,678 $216,759 $654,311 $43,674 6.7%
Bank of America 9/30 10Q $77,062 $394,007 $142,298 $933,910 $43,581 4.7%
Wells Fargo 12/31 10K $129,783 $337,105 $22,375 $757,267 $23,022 3.0%

 

These four “Too Big To Fail” bastions of crony capitalism have $340 billion of commercial real estate loans on their books. That’s a lot of extending and pretending. Just properly valuing those loans at their true market value would wipe out most of their loan loss reserves. I wonder if Vikrim and his buddies have noticed that home prices have begun to plunge again. Deciding to not foreclose on home occupiers that haven’t made a mortgage payment in two years is not a long term strategy. These four banks have $1.1 billion of outstanding mortgage debt on their books. I wonder what a 20% further decline in home prices will do to these loans. Throw in another half a billion of credit card loans to Americans being hammered by soaring energy and food prices and you have a toxic mix of future losses. These banks are gonna need a bigger boat.

The game of extend and pretend at the expense of the American working middle class is growing old. When this game is over, Wall Street will be looking for another bailout. The American people will not fall for the lies again. Wall Street’s oppression reeks of greed and disgrace. They are liars and thieves. They have pillaged and stolen all that was left to steal. I will be surprised if they get out alive.

Well you are my accuser, now look in my face
Your opression reeks of your greed and disgrace
So one man has and another has not
How can you love what it is you have got
When you took it all from the weak hands of the poor?
Liars and thieves you know not what is in store

There will come a time I will look in your eye
You will pray to the God that you always denied
The I’ll go out back and I’ll get my gun
I’ll say, “You haven’t met me, I am the only son”

Dust Bowl Dance – Mumford & Sons

ADMINISTRATOR LOOKING FORWARD TO THE GOOD PARKING SPOT

Well, it looks like the Administrator has done it again. My timing is imeccable. Our beloved government agency, the EEOC, has expanded the definition of disabled under the ADA law to include people with diabetes. The new rules go into affect in May. The new expanded definition of disabled will only add 12 to 38 million new people to the exclusive club and add $60 million to $183 million of new annual costs for employers. Since that is a government estimate, multiply it by 10 to get an accurate figure.

I’m in heaven. With my recent diagnoses of diabetes, I’ve hit the jackpot. I’ll be applying for my handicap parking sticker. This way, I’ll get the good parking spot at McDonalds and Dunkin Donuts (no drive thru at the Harleysville store). I won’t have to illegally park in handicap spots anymore like George Costanza. I can’t wait to order my new free Hoveround. They are so cool.

And finally I won’t have feelings of guilt every day when I use the huge handicap stall at work. I love the roominess. And best of all, if they ever try to fire my fat ass from this place, I’ll sue them because of my handicap. God, I love this country. 

New regulations to add millions to pool of those protected by Americans with Disabilities Act

By Sofia Resnick | 03.29.11 | 11:58 am

Come May, employers will be required to provide accommodations for a new range of issues and diseases that have recently been given the distinction of “disability” after an update to the Americans with Disabilities Act.

The Equal Employment Opportunity Commission last week published the guidelines as to how to define a disability under the latest version of the Americans with Disabilities Act of 1990, which was amended in 2008 as the ADA Amendments Act.

The document published in the Federal Register includes the final revised ADA act and interpretative guidelines, which, according to an EEOC release, are ”designed to simplify the determination of who has a ‘disability’ and make it easier for people to establish that they are protected by the Americans with Disabilities Act.” The regulations go into effect May 24.

In the most current version of the act, “disability” is defined as a “physical or mental impairment that substantially limits one or more life activities of such individual.” In other words, a disability was always considered to be constantly “debilitating.” The new regulations maintain the ADA’s definition of disability, but major changes come from how the terms “impairment” and “life activities” are interpreted. With the new language, “impairment need not prevent or severely or significantly restrict performance of a major life activity to be considered a disability. Additionally, whether an impairment is a disability should be construed broadly, to the maximum extent allowable under the law.”

Impairments that are in remission or are episodic, such as cancer or epilepsy, can now be interpreted as “substantially restricting the performance of a life activity”  when the condition is active.

Under the regulations, “major life activities” include “major bodily functions,” such as functions of the immune system, normal cell growth, and brain, neurological, and endocrine functions. The rules document clarifies that not every impairment will be considered a disability and gives clear examples, such as HIV infection, diabetes, epilepsy and bipolar disorder.

Formerly, the burden of proof was on the worker to prove he or she suffered from a condition that required certain accommodations; now it will be up to individual employers to make certain they have not overlooked any condition or disability that could be covered under the law.

A census estimate (PDF) from 2005 found that of all Americans, 16.5 percent of people aged 21 to 64 had some level of disability; 45.6 percent of this group was employed.

In its preliminary estimation of the effects of the amended ADA, the EEOC, predicted that the new regulations would increase the pool of those considered to be workers with disabilities by 160,000 people; but further analysis and input from academics and experts raised that estimation to between 12 million and 38.4 million new disabled workers.

The EEOC further estimates that the broadened definitions will lead to between 400,000 and 1.2 million new accommodations employers will be required to provide, which is estimated to cost between $60 million and $183 million annually. The commission notes that many of these accommodations will be low-cost, such as allowing breaks or making small modifications to office equipment.

“Just as the ADAAA [ADA Amendments Act]  was the result of a considerable bipartisan effort by Congress, the final rule represents a concerted effort of EEOC Commissioners representing both parties to arrive at regulations that hold true to that bipartisan Congressional intent,” said EEOC Commissioner Constance S. Barker in a press statement. “I was pleased to have been able to vote in favor of the final rule.”

Read the full analysis and implications of the regulations here.

Law firm Seyfarth Shaw LLP provides a list of implications for employers, essentially suggesting new tactics for fighting lawsuits. These include:

  • “Defendants are far less likely to prevail in court by arguing that an individual is not disabled and therefore is not covered under the ADA and/or does not require accommodation. “
  • Now more than ever, employers must focus on reasonable accommodation, and on whether an individual with a physical or mental condition is otherwise qualified to perform essential job functions, with or without reasonable accommodation.”
  • “Lawyers defending ADA cases in court must, in most cases, wean themselves off arguing that the plaintiff is not disabled … the employer must typically focus its arguments on accommodation – it made accommodation, the plaintiff failed to request accommodation, the plaintiff declined accommodation, the plaintiff failed to participate meaningfully in the accommodation process, etc.”
  • “The class action epidemic that continues in most parts of the country will now likely expand further to encompass mass actions under ADAAA. Some such actions will be brought by the EEOC under pattern and practice theory. Others will be filed by plaintiffs seeking class certification under Rule 23. … The EEOC’s repudiation of that approach could well mean a rise in class cases, e.g., by numerous individuals with a particular impairment, or numerous individuals having various impairments – all of them now protected.”

SUPER RICH

It still amazes me that a MSM outlet allows Paul Farrell to write such revolutionary articles. I applaud him. He’s got a big set of cajones. His article is full of truth. I think George Carlin and Paul would have gotten along just great.

Tax the Super Rich now or face a revolution

Commentary: A ‘Super-Rich Delusion’ is leading us to ruin

By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, tax the Super Rich. Tax them now. Before the other 99% rise up, trigger a new American Revolution, a meltdown and the Great Depression 2.

Revolutions build over long periods — to critical mass, a flash point. Then they ignite suddenly, unpredictably. Like Egypt, started on a young Google executive’s Facebook page. Then it goes viral, raging uncontrollably. Can’t be stopped. Here in America the set-up is our nation’s pervasive “Super-Rich Delusion.”

We know the Super Rich don’t care. Not about you. Nor the American public. They can’t see. Can’t hear. Stay trapped in their Forbes-400 bubble. An echo chamber that isolates them. They see the public as faceless workers, customers, taxpayers. See GOP power on the ascent. Reaganomics is back. Unions on the run. Clueless masses are easily manipulated.

Even Obama is secretly working with the GOP, will never touch his Super Rich donors. Yes, the Super-Rich Delusion is that powerful, infecting all America.

Here’s how one savvy insider who knows described this Super-Rich Delusion: “The top 1% live privileged lives, aren’t worried about much. Families vacation at the best resorts. Their big concerns are finding the best Pilates teacher, best masseuse, best surgeons, best private schools. They aren’t concerned with the underlying deterioration of America or the world, except in the abstract, because they aren’t directly affected by it. That’s not to say they aren’t sympathetic, aware, or don’t talk about the issues you bring up. They are largely concerned with protecting and enhancing their socio-economic positions, ensuring their families live well. And nothing you write about will change things.”

Warning, in 2011 that attitude is delusional, deadly, yet pervasive in America.

Super Rich replaying “Great Gatsby” age, won’t learn till it’s too late

Our top 1% honestly believe they’re immune, protected from the unintended consequences of beating down average Americans for three decades with the free-market, trickle-down Reaganomics doctrines that made them Super Rich.

They honestly believe those same doctrines will protect them in the next depression. Why? Because they have megabucks stashed away. Provisions for the long haul. Live in gated compounds with mercenaries guarding them.

They believe they’ll continue living just fine in a depression. But you won’t. Nor will your retirement. Neither will the rest of America. And still the Super Rich don’t care, “except in the abstract, because they aren’t directly affected.”

Warning: The Super-Rich Delusion has pushed us to the edge of a great precipice: Remember the Roaring Twenties? The Crash of 1929? Great Depression? Just days before the crash one leading economist, Irving Fisher, predicted that stocks had “reached what looks like a permanently high plateau.”

Yes, he was trapped in the “Great Gatsby Syndrome,” an earlier version of today’s Super-Rich Delusion. It was so blinding in 1929 that the president, Wall Street, all America were sucked in … until the critical mass hit a mysterious flash point, triggering the crash.

Yes, we’re reliving that past — never learn, can’t hear. And oddly it’s not just the GOP’s overreach, the endlessly compromising Obama, too-greedy-to-fail Wall Street banksters, U.S. Chamber of Commerce billionaires and arrogant Forbes 400. America’s entire political, financial and economic psyche is infected, as if our DNA has been rewired.

The Collective American Brain is trapped in this Super-Rich Delusion, replaying the run-up to the ’29 Crash.

Nobody predicted 2011 revolutions in the oil-rich Arab world either

Warning: Mubarak, Gaddafi, Ali, Assad, even the Saudis also lived in the Super-Rich Delusion. Have for a long time. Were vulnerable. Ripe for a revolution. They, too, honestly believed they were divinely protected, chosen for great earthly wealth, enjoyed great armies.

Then, suddenly, out of the blue, a new “educated, unemployed and frustrated” generation turned on them, is now rebelling, demanding their share of economic benefits, opportunities, triggering revolutions, seeking retribution.

Still, you don’t believe there’s a depression ahead here in America? The third great market crash of the 21st century? A new economic revolution about to blow up in our faces? No, you don’t believe, can’t believe … you, me, we are all infected by the Super-Rich Delusion, just as Americans were in the Roaring Twenties.

Check the stats folks: The last time America’s wealth gap between the Super Rich and the other 99% was this big was just before the 1929 Crash and the Great Depression.

You can’t remember? Or you won’t? America is trapped in “terminal denial,” a setup for failure. Too many still live in the false hope of this Super-Rich Delusion. Do you believe government stats hyping a recovery? Believe Wall Street’s nonsense about a new bull market ahead? Believe Exxon-Mobile’s misleading ads about energy stocks. Believe Bill Gross’ when he says dump Treasurys, and buy his emerging country bonds? Dream on.

Start preparing for the third meltdown of the 21st Century, and depression

Denial and lies. Remember, 93% of what you hear about markets, finance and the economy are guesses, wishful thinking and lies intended to manipulate you into making decisions that suck money from your pockets into Wall Street. They get rich telling lies about securities. They hate any SEC fiduciary rules forcing them to tell the truth.

But the fact is, on an inflation-adjusted basis, Wall Street lost 20% of your retirement money in the decade from 2000 to 2010, over $10 trillion. And “Irrational Exuberance’s” Robert Shiller warns of a third meltdown coming. You better start preparing now.

Before you start betting any more at Wall Street’s rigged casinos, think long and hard about these six megatoxins lurking in America’s Super-Rich Delusion, a mind-altering pandemic infecting our nation’s leadership in Washington, Corporate America and Wall Street … but also “trickling down,” infecting many Americans. Listen:

1. Warning: Super Rich want tax cuts, creating youth unemployment

Bloomberg warns: “The Kids Are Not Alright.” Worldwide, youth unemployment is fueling the revolution. In a New York Times column, Matthew Klein, a 24-year-old Council on Foreign Relations researcher, draws a parallel between the 25% unemployment among Egypt’s young revolutionaries and the 21% for young American workers: “The young will bear the brunt of the pain” as governments rebalance budgets. Taxes on workers will be raised and spending on education will be cut while mortgage subsidies and entitlements for the elderly are untouchable,” as will tax cuts for the rich. Opportunities lost. “How much longer until the rest of the rich world” explodes like Egypt?

2. Warning: rich get richer on commodity prices, poor get angrier

USA Today’s John Waggoner warns: “Soaring food prices send millions into poverty, hunger: Corn up 52% in 12 months. Sugar 60%. Soybeans 41%. Wheat 24%. For 44 million the “rise in food prices means a descent into extreme poverty and hunger, warns the World Bank.” Many causes: Speculators. Soaring oil prices. Trade policies. Population explosion. But altogether they expose “the underlying inequalities and issues related to the standard of living that boil beneath the surface,” says a Pimco manager.

3. Warning: Global poor ticking time bomb targeting Super Rich

A Time special report, “Poor vs. Rich: A New Global Conflict” warned that a “conflict between two worlds — one rich, one poor — is developing, and the battlefield is the globe itself.” Just 25 developed nations of 750 million citizens consume most of the world’s resources, produce most of its manufactured goods and enjoy history’s highest standard of living.” But they’re now facing 100 underdeveloped poor nations with 2 billion people with hundreds of millions living in poverty all demanding “an ever larger share of that wealth.” Think Egypt. British leader calls this a “time bomb for the human race.”

4. Warning: Next revolution coming across ‘Third World America’

We are ripe for one: In “Third World America” Arianna Huffington warns: “Washington rushed to the rescue of Wall Street but forgot about Main Street … One in five Americans unemployed or underemployed. One in nine families unable to make the minimum payment on their credit cards. One in eight mortgages in default or foreclosure. One in eight Americans on food stamps. Upward mobility has always been at the center of the American Dream … that promise has been broken… The American Dream is becoming a nightmare.” Soon it will implode. a meltdown, revolution, depression.

5. Warning: Super Rich must be detoxed of their greed addiction

In “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You With the Bill),” David Cay Johnston, warns that the rich are like addicts, and to “the addicted, money is like cocaine, too much is never enough.” A few years ago an elite 300,000 Americans in “the top tenth of 1% of income had nearly as much income as all 150 million Americans who make up the economic lower half of our population.” The Super Rich Delusion is an addiction that requires a painful detox.

6. Warning: Politicians infected by Super-Rich Delusion, revolution

In “Washington’s Suicide Pact,” Newsweek’s Ezra Klein warns: “Congress is careening toward the worst of all worlds: massive job losses and an exploding deficit.” How bad? As many as 700,000 more jobs lost, says Moody’s chief economist, Mark Zandi. What a twist: Remember vice president Dick Cheney said “deficits don’t matter.” Today the GOP is so blinded by its obsession to destroy Obama’s presidency, deficits are now the only thing they say matters.

Wake up folks. The Super-Rich Delusion is destroying the American Dream for the rest of us. The Super Rich don’t care about you. They’re already stockpiling for the economic time bomb dead ahead. Don’t say you weren’t warned. Time for you to plan ahead for the coming revolution, for another depression.

RE’s Daily Rant- 3/27/2011

On the Consequences of Napalm Contests

 

Daily Rant Archive

2/11/11, 2/12/11, 2/14/11, 2/15/11, 2/17/11, 2/18/11, 2/19/11, 2/20/11, 2/21/11, 2/23/11, 2/25/11, 2/27/11, 2/28/11, 3/2/11, 3/3/11, 3/5/11, 3/7/11, 3/8/2011, 3/10/11, 3/12/11, 3/15/11, 3/17/11, 3/18/11,3/19/11, 3/20/2011, 3/24/11, 3/25/11

 

Top  Links

  

Reverse Engineering 

Automatic Earth 

Zero Hedge 

Economic Undertow 

Of Two Minds 

  

Rant Lite

Today’s rant is Tin Foil speculation on the Existence of God.

  

Quote of the Day

Luk 21:10Then He said to them, “Nation will rise against nation, and kingdom against kingdom.

Luk 21:11“And there will be great earthquakes in various places, and famines and pestilences; and there will be fearful sights and great signs from heaven.
 

 

  

 

 A Tale of Two Depressions

As the Great Depression progressed onward, the early collapse in RE prices made many Banks insolvent, which then precipitated the Stock Market Crash of 1929. 

 
 
 
 
 

  

Geological and Cosmological Event Watch Thread

Not sure if there is really a significant increase in geologic events right now, but at least reading the MSM over the last year it appears to me that there has been an increase in frequency and in amplitude.

 

  

Other Shoes and the Uselessness Premium

“Creating fuel production in a failed- state Libya is beyond the grasp of the EU’s and United States’ unconventional ‘assets’. Blatant military intervention would be opposed by Russia, China and no doubt the other oil- producing autocracies.”

 

 

    

 
http://www.youtube.com/watch?v=6xXBAoxHYpM&feature=related

Recent “Quitting Events” related to the vitriolic and hateful Napalm that passes for debate here on TBP have caused me to put on hold yet another Daily Rant I was more than half finished with on the nature of money.  The meta-topic of how the members here behave is more immediately important in terms of determining how successful we will be with carrying the message of how the Financial Collapse and the effects of Peak Oil will transform our culture, however you personally think that transition will turn out.  I know that is Jim Quinn’s primary purpose here in administering this forum, he has told me so several times, and it is my primary purpose in writing as well.  We don’t see all the outcomes precisely the same way, but we both do want to warn people that “Something Wicked this Way Comes”.

Predating the financial collapse of Bear Stearns, I participated on and administered message boards on other topics, and like all message boards they were subject to differing levels of Napalm.  Napalm can be subtle or it can be blatant, but in all cases it is Ad Hom argument.  It attacks the writer rather than addresses the ideas being presented.  I will write examples of both here.

First, subtle Napalm:

“You clearly have not researched this topic well enough and do not understand the graphs I presented.”

This sentence isn’t addressing anything the person actually wrote, it’s merely attacking his intelligence.  Its going to anger the person it is directed at, and he is likely to scale up the napalm himself in his next response.

Next, blatant Napalm:

“You are a fucking moron.  Your wife is a goddamn slut who sucks my 11.5” Smokestack.  You Eat Shit.”

This form of Napalm doesn’t just attack the person, it takes the debate completely off topic into sexual innuendo and scatology, two forms of imagery that evoke emotional responses in anybody who reads them.  Distilled down, those 3 sentences represent 90% of everything Smokey ever wrote on TBP.

Now, like JimQ, I never censored any Napalm on my message boards.  In order to SQUASH the Napalm artists who joined my boards, I would just out-napalm them.  I would get positively mean and vicious to do so.  Generally I don’t use sexual innuendo or scatology to do it, I either use Comedy to ridicule the opponent or I draw from the Chattaqua School of Fire and Brimstone preaching.  After absorbing trash from LLPOH and Smokey for a few weeks a while back, I got really pissed off and LET IT GO.

Room gets suddenly still and when you’d almost bet
You could hear yourself sweat – he walks in
Eyes black as coal and when he lifts his face
Every ear in the place is on him
Startin’ soft and slow-ow, like a small earthquake
And when he lets go-o, half the valley shakes

I Damned to Hell LLPOH in what is generally regarded as one of the most hateful posts ever made on these pages.  At least that is how Stucky characterized it at the time.  On my own boards, this was pretty effective, but they were much smaller boards than this one is and I never had anyone turn up on the boards so insistent on perpetuating Napalm contests as Smokey is/was.

For a while here, I engaged both Smokey and LLPOH in Napalm contests, but neither one was going to quit and it was making it very difficult for me to continue my primary goal, which is to inform and to analyze the issues at hand from my POV.  When I reformatted to the Daily Rants, I decided as part of that to stop responding to any napalm in them, whether the Napalm came as the Subtle or the Blatant varieties.  It hasn’t entirely stopped the Napalm in the Rants, but there is quite a bit less of it now than there was before.

In the recent Napalm Contest between Stuck and Smokey, the emotions ran so high as to instigate a “Quitting Event”.  Quitting Events happen when people on the board become so disgusted by what is going on that they no longer want to participate on the board.  Its not JUST the people involved in the Napalm Contest either, there is Collateral Damage done in terms of Lurker Readers who stop reading the board because of these contests.  I had a few Quitting Events happen on my boards, but again not to the scale you see on a board this size.

Now, in the aftermath of this event, Stuck has returned to the board and Apologized to Smokey, which is a pretty impressive thing to do since the kind of Napalm Smokey was using to taunt Stuck was of the most visceral and personal kind.  He sensed a weakness in Stuck because of aspects of his personal life he had written about here, and used them to make Stuck feel even worse than he otherwise does about the situation.  In the world of Napalm, this is a “Low Blow”.  Hitting below the belt.  But of course a true Napalm Artist respects NO Rules at all, because there are NO RULES in a Knife Fight.  I did find it interesting that Smokey himself quit in the aftermath of this, which shows that Smokey has a conscience, or at least an inability to face the consequences of his actions, which is that everyone on the board was pissed off at him for causing Stuck to quit.

There was also something of a change in Smokey recently, the fact he came into my Existential thread and debated it free of his usual napalm was rather odd.  It did not fit in with the persona he was pursuing here at all.  Unless someone admits to outside circumstances impacting on them, you cannot know for sure why their behaviors will change in writing on these pages.  You can speculate on it, you can observe the effects, but you cannot really know the underlying cause.  Stuck has been fairly open about the problems his son is facing, so we can understand his reactions and behaviors in light of that, but Smokey’s behaviors are more opaque.

As we move forward here from this, I am going to offer a few words of advice.  First, I never believe in Censorship under any circumstances, so to Jim Quinn my advice is to Carry On as he has, letting the membership post as they will, whatever the outcome of that is.  I am even sorry that Jim chose to delete both DP and Hugh Betchya.  However, it is his board, so he can do that if he so chooses.

The REAL POWER though to control the Napalm Artists is not in the hands of the CHIEF, it is in the hands of the TRIBE.  The way you control people as a group who will not maintain community standards is by SHUNNING them.  Do not respond to Napalm Artists, pay no attention to them.  In the aftermath of Smokey quitting, Colma Rising has attempted to “assume the mantle” of the board’s chief flamethrower.  If you buy into that shit, he will continue onward.  If you ignore it, he may continue onward if he is a persistent sort of fellow, but he won’t get any satisfaction from it.  If/when Smokey returns and pursues this paradigm again, I suggest the same tactic. He is a bright enough guy, he doesn’t really need to write that sort of shit to make  point.  I certainly won’t respond to any Napalm they pitch, although if like Smokey did in the Existential thread  he writes good stuff to topic, I’ll treat them like any other good debater and welcome the input.  Smokey is a smart fellow clearly, but he took on a certain persona here which overall was not real productive.  Why he did that is unclear, and probably will remain unclear unless he returns.

What ARE our Community Values?  Is it really that important to us to value Napalm Artistry just because it can be creative and sometimes even funny?  Or is the Value of this board to INFORM on the important topics of our time?  I believe the latter is the important Value of this board, and if we expect it to be successful, being a good source of information and opinion on these topics, this is what we must strive for.

For each of the Writers here, whether you are a Contributor or just respond in the Comments, I have two suggestions.  First is to watch your own writing carefully for Subtle Napalm.  Its often an unconscious thing to make an Ad Hom attack that will cause someone else to escalate up in napalm.  Try to respond only to the ideas, rather than the author who writes them.  I get a lot of Napalm pitched my way simply because it comes off the keyboard of RE.  Even when I write stuff most of you will agree with, I get responses like “Much as it PAINS me to do so, I have to agree with RE here.”  That is a subtle form of Napalm of course. You take the opportunity to say that even though you think what I wrote is correct, you STILL think I am an asshole.  See how easy it is to write Napalm?

The second suggestion is to SHUN the Napalm Artist.  Don’t perpetuate the contests by responding with ever increasing levels of Napalm.  Nobody “wins”, everybody LOSES.  Even if you enjoy these exercises in creative scatology and sexual innuendo, it’s a fucking waste of time and makes the board unreadable for most people. It’s a major turn-off for the average reader.  If you support this stuff, you are marginalizing the board as an effective communication medium.

As for me, here in the Daily Rants I will continue to observe and analyze the collapse, and respond to anyone who makes a good argument.  I will also continue to Troll other threads, and I no doubt will use both logical argument and my gift for comedy to make fun of the IDEAS other people write, but I will try very hard not to attack ad hom.  Be your OWN censor.  As far as challenging me goes, I welcome all challengers who will write to topic.  TAKE ME ON.  It is what I live for as an Internet Debater of the topics of our time.  I will respect you as long as you respect me.

LLPOH brings up a point here in the Self-Censorship debate, which is that in addition to censoring the type of prose you write, you should also self-censor on its length.  He prevails upon me to make my posts SHORTER.  Does he prevail on Jim to make his posts shorter?  No he does not, because he mostly agrees with what Jim writes.  Jim’s stuff is just as long as mine is, he just doesn’t write quite so often as I do at such length.  Quality is not an issue here, merely length and frequency.  Length in and of itelf is not a bad thing, its only bad if you pursue ad hom in the diatribe, which I do not do.  When I write LONG, I write to topic.  When I Napalm in response to napalm thrown my direction, its in the Comments, not in the OP.   I do not see a reason to make my articles shorter, I am not attacking anyone by having diarheah of the keyboard. LOL.  My means of delivering my message is to write at length and exhaustively.  It is not Napalm to do that.

Please realize one very important TRUTH if you do take me on, which is that I will NEVER quit, and I will write long and in detail responding to what you write if I do not agree with it.  I have a Fast Gun here under my fingertips on this Keyboard, I will use this gift,  and I will spit the bullets out faster than you can, or anyone else. In fact I will write it faster than ALL the anybody elses will together. Live with it.  NOBODY can keep up with the pace I write at, I think I have proved that one beyond a shadow of a doubt.  I run the Marathon on the keyboard against a few sprinters, I’ll grind you to DUST over the whole course of the race. Unless you are the kind of Zealot I am and are as smart as I am, you will be crushed over time.  Are you that far up the end of the Bell Curve of Smart People and Ideological Zealots?   I have not yet run into someone who can compete on this playing field.  LLPOH thinks he can, and I welcome his challenge.  Fair and Square, my arguments of IDEAS against his, I am all for it. I will match my intellect up against his anytime, it’s a fun thing for me to do against another smart guy.  Think of it like John McEnroe against Bjorn Borg at the US Open.  Clearly,I am the Bad Boy Johnny Mac here of course. LOL.  Regardless of being a bad boy though, I am a better Tennis Player than LLPOH is. He has more MONEY than I do, but elsewise he has little to defend himself.  He isn’t as smart as I am, and he cannot keyboard so fast as I can.  He will eventually lose as result. (OK, I admit to doing some TAUNTING here. This still IS TBP after all. LOL)

 LLPOH writes his “Short Stories” as means to pontificate on his perspective. All well and good there.  I will challenge his Short Stories when I think they represent WRONG ideas, but that is not Napalm.  I’m not attacking LLPOH, merely what he is trying to communicate as a philosophy with his short stories. I welcome him to challenge my ideas as well in any of my Daily Rants.  This is not Napalm, as long as it is the IDEAS that are being attacked, not the WRITER of those ideas. Please Place Your Bets here on TBP, LLPOH vs RE, who do you think will be proved correct in the long term?  Side with the Unrepentant Capitalist or the Repentant Tribalist, your choice.  I KNOW my Sins, I admit them and hope for forgiveness in the Great Beyond.  LLPOH does NOT Repent, this is his CHOICE, and if you side with him your choice as well. We ALL will have to pick our sides here in the maelstrom before us now, this is only the first of many choices you will have before you, but in that choice you reveal the core of what you believe in.  Principles you cannot abandon without giving up how you define your understanding of the world.

Nobody DIES in these Gunfights in Cyberspace, so they will continue onward for so long as TBP lights up the Internet.  Who “wins” here when we engage in good debate?  EVERYBODY WINS.  Good debate elucidates the underlying ideas and principles so everyone who reads grasps a better understanding of them.  I learn things all the time from these debates, and my ideas evolve as a result of it.  If you read for comprehension, your ideas will evolve as well.  The TRUTH is that we must ALL evolve if we are to find a Better Tomorrow, although to be sure, its not going to come in our lifetimes.

See You on the Other Side.

RE

HURT

I wanted to write my new article today. I haven’t been able to focus because of the departure of Smokey and Stuck. This is a tough site with strong personalities. I find it to be entertaining and intellectually stimulating. I like the brawls and no holds barred flamefests. I would never want to become the school teacher telling people to behave. I’ve had nasty battles with Stuck and Smokey. I’ve gotten really pissed off with both of them. But, we’ve always let bygones be bygones.

The departure of these two intelligent, funny, and caring people from this site will hurt the site tremendously. I’ll let Johnny Cash doing Nine Inch Nails sum up my feelings today.

 

I hurt myself today
to see if I still feel
I focus on the pain
the only thing that’s real
the needle tears a hole
the old familiar sting
try to kill it all away
but I remember everything
what have I become?
my sweetest friend
everyone I know
goes away in the end
and you could have it all
my empire of dirt

I will let you down
I will make you hurt

I wear this crown of thorns
upon my liar’s chair
full of broken thoughts
I cannot repair
beneath the stains of time
the feelings disappear
you are someone else
I am still right here

what have I become?
my sweetest friend
everyone I know
goes away in the end
and you could have it all
my empire of dirt

I will let you down
I will make you hurt

if I could start again
a million miles away
I would keep myself
I would find a way