My country, 'tis of thee

I thought as much:

Eighty is the new 65,” Joseph Ready, executive vice president of Wells Fargo Institutional Retirement & Trust, said in an interview at Bloomberg headquarters in New York before the survey was released today. “It’s a real sea change.”

"Sea change" is a good phrase - not entirely worn out yet, despite its antiquity. I think it's one of those imported Britishisms that have come into common use here in the States. Like, "at the end of the day." Nevertheless, I can't see how 80 can be the new 65, since 80 is beyond average American life expectancy. This whole Peter Pan thing can be carried too far. The point Mr. Ready (-or-Not) seems to be making is that retirement may become a thing of the past except for the "1%." And they won't retire for long, either, since they'll be eaten for food by the working 99%. Another "sea change."

I am only an amateur Doomsayer, however, so don't take my word for it. Doomsaying is a crowded field, and there are many, many practitioners these days, especially on the Internet. I read a few every day, just to keep my spirits down. The latest roiling fiasco is the financial insolvency of Europe. Here I must register a slight disappointment: it was one of the pleasures of my youthful years to favorably compare Europe's more gracious, socially-secure living to the Darwinist bloodbath more typical of life here at home. It was one of the ways we could get a dig in at this country that systematically deprived us of 6-week vacations, wall-to-wall free medical care, a year of "paternity" leave, retirement for everybody at 55, and so much more. I wasn't sure how Europe did it, but it sure seemed nice.

It now seems possible the same laws of thermodynamics apply in Europe as here Stateside, not surprising since most of the early important work in physics was done in Europe. What a come-down all this has been. Is it possible Europe was doing it all with mirrors? They're in hock up to their eyeballs now. Really, when you think about it, the U.S.A. is in better fiscal shape. That sounds strange to say about a federal government which borrows 42 cents of every dollar it spends, but consider: the total U.S. national debt of $15 trillion (about 100% of GDP) is considerably better than Italy, which is at 120% (equivalent to $18 trillion here). Further, the $15 trillion in the U.S. is not real. $4.5 trillion could be written off tomorrow simply by repealing Social Security and Medicare, and the finances of Social Security are now so ridiculously dismal that its days are surely numbered. For example, last month (October, the first month of the new fiscal year 2012), Social Security took in $39 billion and paid out $61 billion. The phantom interest paid by the phantom Trust Fund was, for the first time I noticed, inadequate to cover the shortfall. That is amazingly dire. When the hallucinated money is still not enough, what do you call it? A failure of imagination?

As I say, however, that's the bad news. The good news is that the U.S. national debt can be reduced by $4.5 trillion if the Super Committee simply drops acid and gets jiggy with it. Just eliminate these programs. Now we're at $10.5 trillion. Yet it gets better still. Of this remainder, about $1.3 trillion is held by the Federal Reserve, which only pretends to collect interest on its "holdings" so it can "credit them back" to the Treasury who supposedly paid...oh hell, we've covered this. So knock it down to $9.2 trillion.

Damn it feels good to be a gangsta. We're the toast of the OECD and NATO, as opposed to being, you know, toast. We're in good shape, in other words, with debt at 60% of GDP. We have more control over our debt than these Eurodogs, with their stinky cigarettes and silly pointed men's shoes. We are better prepared for the coming austerity than they are because we're already living the insecure life - our health care "system" sucks, the Social Security pension was always inadequate, we never got more than a couple of weeks off, no one ever heard of Dad taking a year off to be with the kids (the last place this hard-working threshing mill donkey would ever want to be anyway), and, in general, it's always been that big-fish-eats-little-fish situation that Woody Allen once described, in trying to come to terms with how the natural world works, "as one enormous restaurant."

So yeah, there's a retirement "plan" they can't take away from you. Work until you die. Wherever the human race is going, America always seems to get there first.

Dick & Jane Encounter the Fractional Reserve Loan System

True, what he said, you know:

All money is debt because we have allowed banks and the fed to create all our money through interest-bearing loans by using the fractional reserve system. The details are unimportant, the main point is that our money supply is created by interest-bearing loans of banks and the fed. Therefore, the economy must always grow in order to pay back the interest. When the economy can't grow anymore...collapse. -Dmitry Orlov, from a presentation at ASPO 2011 (Peak Oil Conference in Washington, D.C.)

See Dick. See Jane. They are riding in the back of the green 1948 Chevrolet. Father is driving. Mother is in the front seat. Spot is home with Grandfather.

They are on the way to the Bank, to see Mr. Smith, the Banker. Father wants a new loan to buy a new house. He will sell the present house, probably with Grandfather & Grandmother still in it.

Father has a bank account at Town Bank. Many of the neighbors also have accounts there. See all the money. See it all pile up. The Bank has one million dollars in deposits! The Bank has loaned money to many of the neighbors, too. All of its loans add up to ten million dollars!

"WTF?" exclaims Dick.

"Watch your mouth, Dick-face," says Jane.

"The Bank makes many loans," says Father. "The Bank must have one dollar for every ten dollars it loans out."

"Where does the Bank get the rest of the money?" asks Jane.

"It creates it when it makes the loan. It is called fractional reserve lending," answers Father.

"We do fractions in school," says Jane.

"Big whup, brown-nose," says Dick.

"We will pay the money back," says Father. "With interest of 6%."

"Why do they call it interest?" asks Dick.

"It's what makes it interesting to the Bank," answers Father. "We will pay it back over 30 years. We can use the rule of 72 to see how much the Bank will get from us. We use the rule of 72 at the Company, where I work. We can divide 6 percent into 72 and get 12. That means every 12 years the money will double. We can divide 12 into 30 years. That tells us that the money will double two and a half times. That means we will pay the Bank $250,000."

"That's a buttload," exclaims Dick.

"Fuckin' A," agrees Father.

Father and Mother get the loan. They make payments on the new house. Grandfather and Grandmother still live in the old house, wondering where everyone went. Father gets into a thing with Miss Jones, his secretary at the Company. Father gets canned. Uh-oh, he doesn't have any money anymore!

Soon many of the neighbors also have trouble making payments on their loans to the Bank. There is a Recession. This is bad news for the Bank, too. Oh, oh, see the Bank become a financial zombie. We can do another fraction to see what kind of trouble the Bank is in now. The Bank has only 10% equity for all of its loans. If 10% of the loans go bad, the Bank is bust-o. Uh oh! Thirty percent of the loans went bad. Tits up for the Bank!


Mother meets Jack the Milkman at the back door. Mother is wearing only a pink nightie. Oh, oh, see Mother leave and go to live with Jack the Milkman. Jack is now a pimp. Lots of Mothers now live at his house and turn tricks for Jack.

"Where is Mother?" asks Jane.

"She is with Jack the Milkman," answers Father between hits on Dick's bong pipe. "She a ho now."

"Oh oh," says Jane.

"Oh oh is right," answers Father.

"Where is the money for our loan?" asks Dick.

"Gone," says Father. "It disappeared, along with the Bank. Along with the country."

Glenn Greenwald at the Hillside Club

Went to see Glenn Greenwald in Berkeley last night. He was speaking at the Hillside Club on Cedar Avenue on the north side. It was a very packed house, all come to hear Glenn talk about his new book With Liberty and Justice for Some. Or at least that was the ostensible reason. Glenn is something of a folk hero of the civil liberties Left, and I am one of his admirers.

He's a little shorter than I imagined, a little stockier, and I had the strange, slightly out-of-body perception as I listened to his hard-driving, uncompromising style of oration (he is hyper-articulate, and forms complete sentences together in his head as he speaks so that it is almost like reading a ticker tape from the brain), that this must have been a little like things were about 235 years ago when the somewhat nervous Revolutionaries of the Colonial Period heard John Adams get up and give the Brits hell. Which is to say, this guy is a formidable intellectual presence, and infused with passion for what he does.

One interesting aspect for me particularly was that Mr. Greenwald began blogging about the same time I did, and apparently for many of the same reasons. That is, he was a lawyer concerned with civil liberties, and he simply could not believe that the country was sitting idly by while the Bill of Rights was torn utterly to shreds, amendment by amendment, right by right, with the lamest possible excuses given by Congress and Big Media for letting it all go by. That the years after 9/11 were now so "special," that we were in such mortal peril, that a country which had nurtured the founding precept of a "government of laws and not of men" since the Declaration of Independence could now let it all safely go in favor of an arbitrary, case-by-case, subjective rule by elites, who could grant or withhold Due Process at their whim.

That process has continued unabated since the arrest, imprisonment, denial of counsel, and merciless torture of Jose Padilla, an American citizen detained on American soil and abused to the point of insanity by the Bush Administration, all while Congress sat idly by, afraid to challenge any injustice taken in the name of the Holy War on Terror. I wrote at the time that the Bush/Cheney Administration knew that Padilla had not credibly been involved in any "dirty bomb plot," and that the sole purpose of violating every known precept of the 4th, 5th and 6th Amendments with respect to Padilla was to see, quite simply, if they could get away with it.

Well, they did get away with it, and after that illegal wiretapping (another felony, committed thousands, maybe millions of time), torture, denial of habeas corpus, indefinite detention and now White House-sanctioned murder of American citizens were very easy to get away with. Once the populace gets used to the idea that there are simply no rules, they take the next logical step: they look out only for themselves, and the State simply becomes something to protect yourself from. If that sounds more or less like the stories we used to hear of life behind the Iron Curtain, the resemblance is not coincidental. Both Hitler's Gestapo and Stalin's NKVD were unconstrained by principles of Due Process; whatever the state wanted to do to you, it could do, and it was pointless to talk about "rights." Why is it that Americans cannot see that starting down a road where the President is given an unquestioned right to murder fellow citizens, without presenting any evidence, let alone an indictment or conviction, is already a long way down the road toward a similar tyranny? I simply do not understand the naivete that permits such a devolution.

As Mr. Greenwald relates, America has 5% of the world's population yet incarcerates 25% of the world's prison inmates. Although the United States is always careful never to inconvenience the political, military or economic elites with prosecution or even investigation. The greatest financial crimes in the history of the world (systematic violations of the criminal aspects of Rule 10-b5 of the Securities & Exchange Act, to give a specific example) were committed on a massive scale in the previous decade, but not a single Wall Street banker has ever faced prosecution or imprisonment.

Mr. Obama says it is because what the banksters did was "immoral but not illegal," but in this Mr. Obama, as in so many things, is just completely, absolutely wrong, leaving one with one of two (and only two) unpalatable choices: he is either (1) in way over his head or (2) a complete stooge. That he might be both is, of course, not logically eliminated. Whatever the reason, Mr. Obama, with his mantra of "Looking Forward, Not Backward" as the "answer" to all questions about why we never did anything about financial crimes, or war crimes and violations of the Convention Against Torture which were admitted on the record, before Congressional panels, and in television interviews, is, as Mr. Greenwald sadly relates, simply part of the problem.

Thus, Glenn's enthusiasm for the Occupy Everything movement. With his rigorous logic, Mr. Greenwald points out that if the Occupy movement had anything to do with support for Obama, the assemblers would take the much easier, nicer step of going door-to-door and canvassing for Mr. Hope&Change, sending him those frequent donations as in 2008, and not facing down billy clubs and cold weather. The Occupy Movement is all about a rejection of that, a statement that the Commoners are not going to be taken again by a smooth-talking phony, a bag man for Big Money, without an ounce of sincerity in his body, nor a spark of fire in his belly. Deficiencies not shared by Glenn Greenwald.

Leaving the question, of course, what's left? Personally, I don't think there needs to be an answer right now. Grasping at "answers" has accomplished nothing except to change the oversight of the economic and constitutional destruction of the country, as the voters, in bipolar spasms, throw out first one group of scoundrels and replace them with another, then grow restive and disappointed and do it all over again in two-year cycles.

Something else needs to happen, which is why it's so interesting to listen to a mind as protean and resourceful as Mr. Greenwald's. Real hope, real change, begin with first realizing where you are.

Econothermodynamics

I confess that I don't quite get it. Money is supposed to be a representational medium - it stands in for wealth, but paper currency (other than the value of paper as fuel for a Franklin stove or maybe as wall insulation after the gas service is shut off) is not intrinsically valuable itself. I realize that this contradicts the ideas of the so-called Modern Monetary Theorists or Chartalists - if I understand the ravings of this quasi-cult, they are convinced that the creation of money out of nothing, whether or not offset by debt, is a useful economic tool in and of itself. Further, I was not aware, until I read some of his recent columns and blogs, that Paul Krugman has apparently come under the sway of the MMT people, although he likes to draw specious, irrelevant distinctions between his particular brand of cash conjuration and the MMT cult.

Just as an aside: the Op-Ed pages of the New York Times are in a real sense dominated by cultists. Thomas Friedman, the porn-'stached (h/t: Matt Taiibi) major domo of the columnists there, is a globalization freak, for example. It doesn't matter that globalization does not work toward the well-being of the United States. All that globalization has ever done is to enrich the U.S.-based multinational corporations who use it to arbitrage cheap labor and environmental destruction, at the expense of the American middle class. Nevertheless, Friedman, who is taken seriously for reasons I have never remotely understood, is so ga-ga over flat earths, and plug-and-play platforms, and taxi drivers in Bangalore who explain to him how international trade works, that he keeps the global meme coming, book after poorly-written book.

And now Krugman, whose colossal intellectual arrogance is such that he looks with pity on any other analyst who fails to see that America's economic problems are not even necessary, that they all result from the universal failure to appreciate that he (and he alone) is right -- declares that salvation for America and Europe is at hand, through the simple mechanism of money creation by the central banks. He's at a loss to understand why everyone can't see that this is so clearly the way to go.

As I said, I don't quite get how that works. Economics is certainly not a hard science, I understand that. It's full of "principles" and "laws," but they don't mean anything. In a field such as physics, laws such as those for the conservation of matter and energy have to be observed. For example, let us suppose you decide to drive from Ely, Nevada to Tonopah, Nevada on U.S. Highway 6, a distance of 168 miles. It's desolate out there, but as you leave in your Buick Riviera you are aware that you have one gallon of gasoline in your fuel tank, and your gas-guzzling car gets about 16 miles to the gallon. Moving the mass of the Riviera (and you) requires energy supplied by burning gasoline in the engine. Since you are scientifically inclined, you are aware you can conserve gasoline by coasting on downslopes (so that the engine is at idle RPM) and keeping the speed down, since wind resistance increases on the square of velocity. These sophisticated adjustments allow you to go 18 miles before you run out of gas, which means that your scientific acumen actually placed you two miles farther from help than you otherwise would have been.

At this point, I assume that Krugman and the Chartalists would simply declare the existence of more gasoline and be on their way again. Lesser mortals would have to thumb a ride back to Ely.

When the United States ran out of money in 2008, the Federal Reserve stepped into the breach through the first of its quantitative easing episodes. The "quantity" in question was the monetary base, which at the time was about $800 billion, almost all in the form of Treasury securities held by the Fed. The Fed decided to "purchase" mortgage-backed securities to the tune of about $1.2 trillion, not by exchanging the Treasury notes and bonds in its vaults but by declaring the existence of money sufficient to take the MBS off the owners' hands. The Fed further "purchased" about $300 billion of Treasuries through "POMO" operations, that is, Treasuries purchased mostly from Primary Dealers on the secondary market. In QE II, the Fed extended the POMO operations and "purchased" another $600 billion in Treasuries on the secondary market. These exercises in artifice increased the "monetary base" of the Fed to its present roughly $2.7 trillion.

Krugman and the other Keynesian Kultists have been taking relentless victory laps because of the failure of Weimar-style inflation to break loose in the United States, and because the interest rates on U.S. Treasury securities have remained very low. Of course, one needs to point out that even the Fed's roughly $1.3 trillion in mortgage-backed securities represents only about 10% of the total American mortgage market of $13 trillion. By physical analogy, if one were to pour 8 fluid ounces of sulphuric acid into an Olympic-sized pool 50 meters in length (with an average depth of 2 meters), and allowed time for dispersion and dilution, it is doubtful that any harm would come to any swimmers using the pool.

I think this is why we have "gotten away with" wholesale money conjuration by the Federal Reserve. Compared to the total capital stock of the United States (about $50 trillion), the money which Bernanke has pulled out of his silk top hat is not a lot of cash. It's heavily diluted by the preexistence of all the money and credit aggregates already in existence; however, if fiat creation becomes a standard way of doing business, it will, at some point, tip the balance so that anyone swimming in the pool will suffer a third degree burn.

This is why I think cash conjuration is so fundamentally insane. It seems obvious that introducing fake money into the system can have a marginal effect on real wealth, as for example, the "support" which the Fed's MBS "purchasing" program has had on the real estate market. The Fed, by becoming the New American Century of the post-crash era, has created a small secondary market for all the mortgage trash floating on the surface of underwater America. The goal, as with the suspension of FASB 157, which allows banks to pretend that all the worthless encumbrances they hold on real estate (the value of which is less than the loan, or, worse, stand in second place behind an underwater loan), are nevertheless worth 100 cents on the dollar, is always the same. The particular set of politicians and banking chiefs in charge at a given time do not want to be the ones in power when the remnants of the economy spiral down the toilet. Thus, rather than face the music, the goal is to use any means, fair or foul, visionary or extremely short-sighted, to keep the contraption huffing and puffing along on the road to Tonopah for as long as possible.

It stands to reason that creating money out of thin air, and then using it to buy something "real," cannot by definition actually create any new wealth. To the extent that the real estate market, for example, has been slightly levitated by these tricks, this anti-gravity maneuver represents a form of disguised inflation (too subtle for Krugman to see), since the delta between the "real" value and the values maintained by counterfeit money is a form of inflation. Again, this idea is borrowed from physical science: you could call it "negative deflation."

But here's the problem: you can only do this to the point where, by definition, it's not enough to matter. At the threshold of non-triviality, you must introduce so much fake money into the system that in fact you completely debase your currency (pour too much H2SO4 into the pool - I suppose that's acid rather than base), and then Weimar, 1922, does ensue. As soon as the existence of all the extra fake money becomes perceptible, in a tangible way, to the general public, as opposed to the little klatch of insiders who fatten their binary accounts at the Federal Reserve courtesy of the Fed's favoritism, the game is over. However, the charade has the intended effect of extending the game of make-believe a little longer, while meanwhile doling out something of a "moneyish" character (lots of 1's and 0's) to computer entries of Primary Dealers, which are then payable as bonuses. This is the actual "threshold" used: can the Federal Reserve do its magic trick just enough so that the moneyish, digital flow keeps moving to the owners of banks which were in reality bust-o long ago.

The Ungrateful Nouri shows us the door

A comment thread on Facebook recently explored, in a revealing way, the various attitudes that a certain cross-section of liberals display when it comes to President Barack Obama. His die-hard partisans wanted credit for Obama's "decision" to finish the Iraq War by bringing home all combat troops by December 31, 2011. The usual cynics (who, me?) pointed out that the Exit Sign was flashing red because time was up: the Status of Forces Agreement (SOFA) expires on December 31, 2011 and under the express terms of the agreement negotiated years ago by the Bush Administration, we have to be out.

The O Man did not actually want to leave; in order to stay, however, the USA needed continuing immunity (as currently enjoyed by U.S. forces) from the criminal justice system of the Iraqi courts. A lot of stuff has happened over the last eight-plus years, involving U.S. soldiers and Iraqi civilians, and it is highly probable that the continued presence of American soldiers in 2012 and after would engender more such unfortunate incidents. Glenn Greenwald has written extensively about a 2006 incident in the central Iraq town of Isahqi, where a group of at least ten Iraqi men, women (including the elderly) and children were massacred in a raid by American troops, and a U.S. airstrike was called in after the fact to obliterate the evidence. A coverup of the true nature of the event was then engineered by the military. The damning details were revealed by some of the Wikileaks cables voluminously released in May, 2011, to the great consternation of Message Control Central at the White House.

The Iraqi citizenry, on the other hand, are not subjected to the same level of Pravda-like propaganda as their American counterparts receive courtesy of the New York Times and Washington Post. The 2006 incident has become common knowledge in Baghdad, and if Maliki had any lingering misgivings about the SOFA and the 12/31/11 exit date, he lost most of his negotiating latitude when the Wikileaks cables hit the wires. Although I don't think that the Ungrateful Nouri actually had any such hesitations. It seems that even Mr. Greenwald has forgotten that the "immunity issue" has been around for years, and Maliki (and I confess here that I have long marveled at how this clever politician, involved as he is in completely "asymmetrical" negotiations given the disparity in power between Iraq and the U.S., finds ways to level the playing field) has used this issue precisely because he knows there is no way the Americans are ever going to turn over their own GI's to the tender mercies of the Iraqi mullahs.

Thus, Obama's "announcement" of a troop pullout was simply presidential campaigning, an extremely cynical exploitation of the profound ignorance of the American voting public concerning the historical record in Iraq. The Big Media went along with the gag, of course, except for some of the usual complainers.

We'll still have lots of "contractors" and mercenaries in Iraq, of course, but they will be taking their chances with the local legal system. It remains to be seen what happens with Iraq's oil, which was, after all, the main reason we invaded in the first place. The removal of all combat troops would seem to place our ability to direct the outcome of this vital resource in serious doubt. It also opens the door to much greater Iranian influence, and it should never be forgotten that Maliki spent a great deal of time in exile in Iran when he worked with the Dawa Party to undermine Saddam Hussein.

4,500 American soldiers dead; multiples of ten thousand grievously wounded, maimed, crippled; maybe a million Iraqis killed, millions more displaced; a trillion dollars spent; a huge burden added to an already unsustainable national debt.

This is the way the war ends: not with a bang but a whimper.