George Washington's Blog

William White - former head BIS economist, currently chair of the OECD's Economic and Development Review Committee - is again schooling Ben Bernanke on economic fundamentals.

In an article published in the December-January OECD Observer, White wrote:

If it is not obvious that White is saying that Bernanke (and most other central bankers) are using inaccurate economic theories, and that we need to learn about the danger of bubbles from Austrian economics, listen to what White recently said at a talk at India's central bank:

• Everyone knows that excessive credit was at the heart of the "big mess" we're in

• The Fed has set up a straw man against the argument that central banks should act to moderate bubbles while they are being blown. Specifically, Bernanke says that you can't lean against asset prices, because it's not clear how to measure asset price bubbles or which asset prices to target
  

• But the proper question is whether we lean against the credit bubble itself and its underlying symptoms. Specifically, if credit is the underlying problem, it manifests itself in various imbalances in asset prices, crazy spending patterns like we've seen in the U.S., or crazy investing patterns as we've seen in China. That's easy to spot
  

• Economists have no insight into the effect of the unprecedented monetary easing measures recently undertaken

• The Fed says that it is always possible to clean up a bubble after it bursts, because it worked in the past (in 1987, 1991, 1997- 1998, and 2001-2003). But underneath it all, there is a "growing headwind of debt". This works for a while, but then it won't work forever.
  

• Economists have to learn that things work differently than we've been taught. The ideas that the economy is self-stabilizing and follows rational expectations are wrong

• Economists and central banks need to incorporate Austrian economic theory on supply side economics

In a pointed attack on the US Federal Reserve, it said central banks would not find it easy to "clean up" once property bubbles have burst...

Nor does it exonerate the watchdogs. "How could such a huge shadow banking system emerge without provoking clear statements of official concern?"

"The fundamental cause of today's emerging problems was excessive and imprudent credit growth over a long period. Policy interest rates in the advanced industrial countries have been unusually low," he said.

The Fed and fellow central banks instinctively cut rates lower with each cycle to avoid facing the pain. The effect has been to put off the day of reckoning...

"Should governments feel it necessary to take direct actions to alleviate debt burdens, it is crucial that they understand one thing beforehand. If asset prices are unrealistically high, they must fall. If savings rates are unrealistically low, they must rise. If debts cannot be serviced, they must be written off.

"To deny this through the use of gimmicks and palliatives will only make things worse in the end," he said.

Joseph Stiglitz - former head economist at the World Bank and a nobel-prize winner - said yesterday that the very structure of the Federal Reserve system is so fraught with conflicts that it is "corrupt" and undermines democracy.

Stiglitz said:

Stiglitz pointed out that - if another country had presented a plan to reform its financial system, and included a regulatory regime that copied the makeup of the Federal Reserve system - "it would have been a big signal that something is wrong."

Stiglitz stressed that the Fed banks have clear conflicts of interest, since the banks are largely governed by a board of directors that includes officers of the very banks they're supposed to be overseeing:

As I wrote in January:

Last May, I wrote about the rumor that the Obama administration might seize funds from American's 401k and IRA accounts.

Last week, Bloomberg pointed out:

The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged.

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort...

There is “a tremendous amount of interest in the White House” in retirement-security initiatives, Borzi, who heads the Labor Department’s Employee Benefits Security Administration, said in an interview.

In addition to annuities, the inquiry will cover other approaches to guaranteeing income, including longevity insurance that would provide an income stream for retirees living beyond a certain age, she said.

“There’s been a fair amount of discussion in the literature taking the view that perhaps there ought to be more lifetime income,” Iwry, a senior adviser to Treasury Secretary Timothy Geithner, said in an interview...

One proposal raised by Iwry as co-author of a paper while at the Retirement Security Project, before joining the administration, has reached Congress. A bill requiring employers to report 401(k) savings both as an account balance and as a stream of income based on an annuity was introduced on Dec. 3 by Senators Jeff Bingaman, a New Mexico Democrat, Johnny Isakson, a Georgia Republican, and Herb Kohl, a Wisconsin Democrat.

Washington is developing plans for your retirement savings.

BusinessWeek reports that the Treasury and Labor departments are asking for public comment on "the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams."

In plain English, the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years.

They will tell you that you are "investing" your money in U.S. Treasury bonds. But they will use your money immediately to pay for their unprecedented trillion-dollar budget deficits, leaving nothing to back up their political promises, just as they have raided the Social Security trust funds.

This "conversion" may start out as an optional choice, though you are already free to buy Treasury bonds whenever you want. But as Karl Denninger of the Market Ticker Web site reports: " "Choices' have a funny way of turning into mandates, and this looks to me like a raw admission that Treasury knows it will not be able to sell its debt in the open market--so they will effectively tax you by forcing your "retirement' money to buy them."

Moreover, benefits based on Treasury bond interest rates may be woefully inadequate compensation for your years of savings. As Denninger adds, "What's even worse is that the government has intentionally suppressed Treasury yields during this crisis (and will keep doing so by various means, including manipulating the CPI inflation index) so as to guarantee that you lose over time compared to actual purchasing power."

This proposal follows hearings held last fall by House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., of the Ways and Means Committee focusing on "redirecting (IRA and 401 k) tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute," as reported by InvestmentNews.com.

The hearings examined a proposal from professor Teresa Ghilarducci of the New School for Social Research in New York to give all workers "a $600 annual inflation-adjusted subsidy from the U.S. government" in return for requiring workers "to invest 5% of their pay into a guaranteed retirement account administered by the Social Security Administration."

Argentina provided a precedent in 2008, taking over that country's private retirement accounts for forced investment in government bonds to cover spiraling deficits. Ambrose Evans-Pritchard editorialized at the time in Britain's Daily Telegraph that this may be "a foretaste of what may happen across the world as governments discover . . . that the bond markets are unwilling to plug the (deficit) gap. . . . My fear is that governments in the U.S., Britain and Europe will display similar reflexes."...

Congressional Republicans should introduce legislation to block the government from ever proceeding with anything like this. Call it the "Keep Your Hands Off My 401(k) Act of 2010."

Hope In a Time of Hopelessness

Several long-time activists have told me recently they are overwhelmed, worried, and think that we may be losing the struggle ....

One very smart friend asked me if there is any basis for hope.

But hope is an act of will, not a passive mood. Admittedly, things are easier when circumstances bring hope to us, and we can just receive the hopeful and inspiring news.

But if we care about winning, we have to be able to decide to have hope even when outer circumstances aren't so positive.

I have children who are counting on me to leave them with a reasonably safe and sane planet. As I've said elsewhere, "I care too much about my kids and my freedom to be afraid. I care enough about them that it gets my heart beating, connects me to something bigger than myself, and that gives me courage, even when the chips are down."

If I allowed myself to lose hope about exposing falsehoods, about protecting our freedom and building a hopeful future, I would be dropping the ball for my kids. I would be condemning them to a potentially very grey world where bigger and worse things may happen, where their liberties and joys are wholly stripped away, where every ounce of vitality is beholden to joyless and useless tasks.

Many of us may be motivated by other things besides kids .... Only you can know what that is. But we each must dig down deep, and connect with our most powerful motivations to win the struggle for freedom and truth.

I don't know about you . . . but I don't have the luxury of giving up hope. When I get depressed, overwhelmed or exhausted by the stunning acts of savagery, treason, and disinformation carried out by the imperialists, or the willful ignorance of many Americans, I will myself into finding some reason to have hope.

Because the struggle for liberty is too important for me to give up.

If you lose hope, somehow you lose the vitality that keeps life moving, you lose that courage to be, that quality that helps you go on in spite of it all. And so today I still have a dream.
- Martin Luther King, Jr.

Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach. Check your road and the nature of your battle. The world you desired can be won. It exists, it is real, it is possible, it is yours.
- Ayn Rand

Hope is like a road in the country; there was never a road, but when many people walk on it, the road comes into existence.
- Lin Yutang

Hope is passion for what is possible.
- Soren Kierkegaard

Turn your face to the sun and the shadows fall behind you.
- Maori Proverb

I steer my bark with hope in the head, leaving fear astern. My hopes indeed sometimes fail, but not oftener than the forebodings of the gloomy.
- Thomas Jefferson

He who does not hope to win has already lost.
- Jose Joaquin Olmedo

When you do nothing, you feel overwhelmed and powerless. But when you get involved, you feel the sense of hope and accomplishment that comes from knowing you are working to make things better.
- Pauline R. Kezer

Hope is a state of mind, not of the world. Hope, in this deep and powerful sense, is not the same as joy that things are going well, or willingness to invest in enterprises that are obviously heading for success, but rather an ability to work for something because it is good.
- Unknown

We should not let our fears hold us back from pursuing our hopes.
- John Fitzgerald Kennedy

Your hopes, dreams and aspirations are legitimate. They are trying to take you airborne, above the clouds, above the storms, if you only let them.
- William James

Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.
- Helen Keller

The capacity for hope is the most significant fact of life. It provides human beings with a sense of destination and the energy to get started.
- Norman Cousins

When I despair, I remember that all through history the way of truth and love has always won. There have been tyrants and murderers and for a time they seem invincible but in the end, they always fall -- think of it, ALWAYS.
- Mahatma Gandhi

We must accept finite disappointment, but we must never lose infinite hope.
- Martin Luther King, Jr.

There is no medicine like hope, no incentive so great, and no tonic so powerful as expectation of something better tomorrow.
- Orison Marden

Difficulties are meant to rouse, not discourage. The human spirit is to grow by conflict.
- William Ellery Channing

Hope is medicine for a soul that's sick and tired.
- Eric Swensson

Hope has two beautiful daughters. Their names are anger and courage; anger at the way things are, and courage to see that they do not remain the way they are.
- Augustine of Hippo

What oxygen is to the lungs, such is hope to the meaning of life.
- Emil Brunner

The very least you can do in your life is to figure out what you hope for. And the most you can do is live inside that hope. Not admire it from a distance but live right in it, under its roof.
- Barbara Kingsolver

Hope is not the conviction that something will turn out well, but the certainty that something makes sense regardless of how it turns out.
- Vaclav Havel

Hope is the companion of power, and mother of success; for who so hopes strongly has within him the gift of miracles.
- Samuel Smiles

Of all ills that one endures, hope is a cheap and universal cure.
- Abraham Cowley

Every area of trouble gives out a ray of hope; and the one unchangeable certainty is that nothing is certain or unchangeable.
- John Fitzgerald Kennedy

Let perseverance be your engine and hope your fuel.
- H. Jackson Brown Jr

Develop sincere desire for the goal. Out of fire of desire comes success.
- Unknown

You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty.
- Mahatma Gandhi

Everything that is done in the world is done by hope.
- Martin Luther King, Jr.

Don't lose hope. When it gets darkest the stars come out.
- Unknown

Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all.
- Dale Carnegie

The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.
- Winston Churchill

The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless and yet be determined to make them otherwise.
- F. Scott Fitzgerald

It is from numberless diverse acts of courage and belief that human history is shaped. Each time a man stands up for an ideal, or acts to improve the lot of others, or strikes out against injustice, he sends forth a tiny ripple of hope, and crossing each other from a million different centers of energy and daring, those ripples build a current that can sweep down the mightiest walls of oppression and resistance.
- Robert F . Kennedy

Courage

It all comes down to courage . . .

If you have courage, then you're willing to face that really stinky mess in the garage and clean it up.

You have faith you can clean it up, because you've cleaned up other really stinky messes, or seen other people do it. In other words, you have faith because you have experience of succeeding in the past.

Fat and Happy

We Americans have led a very pampered life for the past couple of decades. Sure, there has been inequality and exploitation, and some have had it a lot worse than others. But, other than stopping extreme forms of racism (Ku Klux Klan, etc.), we haven't had to defend our borders or our liberties.

Basically, we complain if our tv goes on the fritz, or our team loses the game, or we can't afford that new, nicer whatzit, or if our boss is mean. We think those are big, Earth-shattering, history-changing events. But they are quite small in the grand scheme of things

And even those of us who think of ourselves as brave heroes usually only act like that when we know it is within the bounds of safety, within the limits of what we can handle. "Tough guys" tend to turn into meek mice whenever they are really threatened.

So we're basically lazy and timid, but we don't know or admit it. We like to pretend we are like the Founding Fathers or John Wayne (at least the cowboys had to rough it a little).

But we have no experience of successfully standing up to tyrants, so we have no faith that it can be done, and while the evidence is right before our noses that our current leaders are tyrants, we're so terrified that we have our knickers in a bunch.

What Would They Do?

Even if you haven't experienced success in standing up to tyrants, remember that the Founding Fathers did just that. They were just men, not gods. Sure, they were too persistent and stubborn to give up, but that's because they CARED about something: freedom and the possibility of a better life.

They may have lived hundreds of years before our time, but that doesn't matter -- we can still learn from their experience as if it were happening now. Time is an illusion, since human nature is the same now as it was then. Just as many people of faith ask "what would Jesus do?", we can also ask "what would the founding fathers do?" If they could do it, we can do it.

Take Heart

There is a real misunderstanding of what it means to be courageous. In America, courage is often thought of as a testosterone-driven toughness. There's nothing the matter with testosterone. Masculinity is a great thing. But many American men secretly fear that they don't have sufficient testosterone to really be brave when the chips are down. As I said above, even those of us who think of ourselves as brave men usually only act like that when we know it is within the bounds of safety, within the limits of what we can handle.

We might jump in a bar room brawl to protect our buddy, but that's because we know we're only going to get knocked around a little bit -- nothing but bruises that will go away in a little while. The stakes just aren't that high.

But most American men secretly doubt whether they are macho enough to pull it off under fire. They may watch alot of action movies, and talk tough, and stand up when its not really dangerous (or when they clearly outgun the other guy), but they are secretly terrified that they don't have quite enough backbone to pull it off against the big boys, such as tyrants.

I would argue that this view fundamentally misunderstands the nature of courage, and ensures that we will never have true courage when it counts.

By way of analogy, the word "discipline" comes from "disciple". If you are a true "disciple" of an idea of a plan or a strategy or a religion, then you will stick to it and "have discipline" to reach your goal. It is not just a matter of willpower; it is also devotion to something bigger than ourselves.

Similarly, the word "courage" comes from the French "with heart". Why does it have this root meaning? Because it takes heart to act bravely. That's how my childhood Karate teacher used the word: when I was practicing with courage, power and focus, he would say "you have alot of heart today" (indeed, many old-school warriors use the phrase "fighting with heart" in that way).

If courage is acting "with heart", we've lost heart. And without heart, we cannot face the truth.

So how do we regain our heart? Well, let's start with what gets our hearts beating.

Remember that the mother bear is one of the fiercest animals of all. Just get between a mother bear and her cub and you'll see what I mean. It is her love of her cub which gives her the heart to face any enemy when her cub is threatened. It is not her level of testosterone, but rather her love for her cub which makes her so fierce.

Just as discipline is more than just willpower, courage stems from something bigger than just cajones. In fact, the strongest courage comes from the love of something we care about, since our heart will sustain us even when the chips are really down and we are really up against a tyrant. As the ancient Chinese philosopher Lao Tzu said: "Being deeply loved by someone gives you strength, while loving someone deeply gives you courage. "

In addition, we're no longer living in the old west. Individualism is very important in numerous ways, but we can only win against the tyrants as a team, as a community, as a nation. And only by opening our hearts to what matters will we be able to work together, to fight for all of our kids, and all of our freedom. Only then will we be able to put the crooks and the looters and the tyrants back in the box.

Do we care about our kids, our significant others, our parents, our friends? Do we care about the freedom to choose what we want, instead of having our "great leader" choose for us?

If not, what DO we care about? Because if that is where your heart is, that is what will give you courage.

I care too much about my kids and their future to be afraid. I care enough about them that it gets my heart beating, connects me to something bigger than myself, and that gives me courage, even when the chips are down.

Courage is an innate human quality. It is within each of us, waiting to reveal itself when we open our hearts. When we act with heart, by definition, we are courageous.

It is not because things are difficult that we do not dare; it is because we do not dare that they are difficult.
- Seneca

Those who would trade safety for freedom deserve neither.
– Thomas Jefferson

Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure, or nothing.
- Hellen Keller

Whatever you can do or dream you can, begin it. Boldness has genius, power, and magic in it.
- Goethe

Courage is not the absence of fear, but rather the judgment that something else is more important than fear.
- Ambrose Redmoon

Courage is an everyday thing. When we look reality squarely in the eye and refuse to back away from our awareness, we are living courage.
- Anonymous

To have courage for whatever comes in life - everything lies in that.
- Mother Teresa

It is from numberless diverse acts of courage and belief that human history is shaped. Each time a man stands up for an ideal, or acts to improve the lot of others, or strikes out against injustice, he sends forth a tiny ripple of hope, and crossing each other from a million different centers of energy and daring, those ripples build a current that can sweep down the mightiest walls of oppression and resistance.
- Robert F . Kennedy

Courage is the first of human qualities because it is the quality which guarantees the others.
- Aristotle

Courage is being scared to death but saddling up anyway.
- John Wayne

Courage is doing what your afraid to do. There can be no courage unless you're scared.
- Eddie Rickenbacker

Courage is fear holding on a minute longer.
- George Patton

One man with courage makes a majority.
- Andrew Jackson

Be bold and courageous. When you look back on your life, you'll regret the things you didn't do more than the ones you did.
- H. Jackson Brown, Jr.

You gain strength, courage, and confidence by every experience in which you really stop to look fear in the face.
— Eleanor Roosevelt

Within each of us is a hidden store of energy. Energy we can release to compete in the marathon of life Within each of us is a hidden store of courage. Courage to give us the strength to face any challenge Within each of us is a hidden store of determination. Determination to keep us in the race when all seems lost.
- Roger Dawson

We must never despair; our situation has been compromising before; and it changed for the better; so I trust it will again. If difficulties arise; we must put forth new exertion and proportion our efforts to the exigencies of the times.
- George Washington

We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.
-Sonia Johnson

Never doubt that a small, group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.
- Margaret Mead

I've read countless news headlines recently about how economists are "surprised" over an "unexpectedly bad" economic indicator.

But it's not surprising at all. It's no mystery.

The government hasn't taken the necessary actions, and has instead been doing all of the wrong things.

Let's recap.

The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach. Nobel economist Paul Krugman and leading economist James Galbraith agree. They say that the government's attempts to prop up the price of toxic assets no one wants is not helpful.

The Bank for International Settlements – often described as a central bank for central banks (BIS) – slammed the easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, "the use of gimmicks and palliatives", and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts "will only make things worse".

BIS also cautioned that bailouts could harm the economy (as did the former head of the Fed's open market operations).

And BIS warned that the Fed and other central banks were simply transferring risk from private banks to governments, which could lead to a sovereign debt crisis.

Virtually all leading independent economists have said that the too big to fails must be broken up, or the economy won't be able to recover (and see this). Instead, they have been allowed to get even bigger (and see this and this).

While modern economic theory shows that debts do matter (and see this), the U.S. is spending on guns and butter like debts are a good thing.

Nobel prize winning economist George Akerlof predicted in 1993 that credit default swaps would lead to a major crash, and that future crashes were guaranteed unless the government stopped letting big financial players loot by placing bets they could never pay off when things started to go wrong, and by continuing to bail out the gamblers. (Not only has the government rewarded the gamblers, bailed them out and let them engage in a new round of risky betting, but it hasn't even reined in credit default swaps.)

And instead of trying to restore trust in our financial system - which is a prerequisite for any sustainable economic recovery - Summers, Geithner, Bernanke and the boys have tried to sweep the problems under the rug and con the public into believing that everything is okay and that no real reform is needed.

As I wrote in October:

William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency.

Black also says:

PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:

***

Time Magazine called Tim Geithner a "con man" and the stress tests a "confidence game" because those tests were so inaccurate.

William Black said:

And see this.

The government has committed to give trillions to the financial industry. President Obama's stimulus bill was $787 billion, which is less than a tenth of the money pledged to the banks and the financial system. [106]

Of the $787 billion, little more than perhaps 10% has been spent as of this writing. [107]

The Government Accountability Office says that the $787 billion stimulus package is not being used for stimulus. [108] Instead, the states are in such dire financial straights that the stimulus money is instead being used to "cushion" state budgets, prevent teacher layoffs, make more Medicaid payments and head off other fiscal problems. So even the money which is actually earmarked to help the states stimulate their economies is not being used for that purpose.

Indeed, much of the $787 billion was earmarked pork [109], not for anything which could actually stimulate the economy. [110]

Mark Zandi - chief economist for Moody's - has calculated which stimulus programs give the most bang for the buck in terms of the economy:

[111]

But very little of the stimulus funds are actually going to high-value stimulus projects.

Indeed, as the Los Angeles Times points out:

Even as many Americans still struggle to recover from the country's worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.

The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

"Risk-taking at banks," the report cautions, "will soon be larger than ever."

Without more stringent reforms, "another crisis – a bigger crisis that weakens both our financial sector and our larger economy – is more than predictable, it is inevitable," Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.

The institute's chief economist, Nobel Prize-winner Joseph Stiglitz, calls the report "an important point of departure for a debate on where we are on the road to regulatory reform."

The report blasts some of Washington's key players. Johnson writes, "Our government leaders have shown little capacity to fix the flaws in our market system." Two other panelists, Simon Johnson, a professor at MIT, and Peter Boone of the Centre for Economic Performance, voiced similar criticisms.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner "oversaw policy as the bubble was inflating," write Johnson and Boone, and "these same men are now designing our 'rescue.'"

The study says that "In 2008-09, we came remarkably close to another Great Depression. Next time we may not be so 'lucky.' The threat of the doomsday cycle remains strong and growing," they say. "What will happen when the next shock hits? We may be nearing the stage where the answer will be – just as it was in the Great Depression – a calamitous global collapse."

***

Frank Partnoy, a panelist from the University of San Diego, claims that "the balance sheets of most Wall Street banks are fiction." Another panelist, Raj Date of the Cambridge Winter Center for Financial Institutions Policy, argues that government-backed mortgage giants Fannie Mae and Freddie Mac have become "needlessly complex and irretrievably flawed" and should be eliminated. The report also calls for greater competition among credit rating agencies and increased regulation of the derivatives market, including requiring that credit-default swaps be traded on regulated exchanges.

With the Senate Banking Committee, led by Chris Dodd, D-Conn., poised to unveil its financial regulatory reform proposal sometime in the next week, the report calls on Congress to enact reforms strong enough to prevent another meltdown.

"Sen. Dick Durbin once said the banks 'owned' the Senate," says Johnson. "The next few weeks will determine whether or not that statement is true."

(Here is the Roosevelt Institute report.)

Heck of a job, guys.

As Bloomberg notes:

While the international aspect of Fisher's proposal may be unusual, other Fed officials have also called for breaking up the TBTFs, including:

• Former chairman of the Federal Reserve, Alan Greenspan

• Former chairman of the Federal Reserve, Paul Volcker

• President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)

As I noted in October, many others have also called for breaking up the banking giants:

The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashio

• Nobel prize-winning economist, Joseph Stiglitz

• Nobel prize-winning economist, Ed Prescott

• Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard

• Simon Johnson (and see this)

• Deputy Treasury Secretary, Neal S. Wolin

• The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine

• The Congressional panel overseeing the bailout (and see this)

• The head of the FDIC, Sheila Bair

• The head of the Bank of England, Mervyn King

• The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz

• Economics professor and senior regulator during the S & L crisis, William K. Black

• Economics professor, Nouriel Roubini

• Economist, Marc Faber

• Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

• Economics professor, Thomas F. Cooley

• Former investment banker, Philip Augar

• Chairman of the Commons Treasury, John McFall

Even the Bank of International Settlements - the "Central Banks' Central Bank" - has slammed too big to fail. As summarized by the Financial Times:

The report was particularly scathing in its assessment of governments’ attempts to clean up their banks. “The reluctance of officials to quickly clean up the banks, many of which are now owned in large part by governments, may well delay recovery,” it said, adding that government interventions had ingrained the belief that some banks were too big or too interconnected to fail.

House majority leader Steny Hoyer - a close ally to President Obama - says the U.S. needs to raise taxes and cut spending .

As Agence France-Presse reports:

The United States must embrace a blend of tax increases and spending cuts to rein in its deficit or face a potentially crippling debt crisis like the one in Greece, a top US lawmaker warned Monday.

"It is enough to look across the Atlantic at Greece's extreme economic crisis and understand: It can happen here. If we don't change course, it will happen here," said Democratic House Majority Leader Steny Hoyer...

"It seems to me that the only solution that can win the support of both parties is a balanced approach: one that cuts some spending and raises some revenue while avoiding extremes in either direction," he said.

Of course, many others have warned of the massive debt overhand in the U.S. as well.

But why aren't our government "leaders" talking about slashing the military-industrial complex, which is ruining our economy with unnecessary imperial adventures?

And why aren't any of our leaders talking about stopping the permanent bailouts for the financial giants who got us into this mess? And see this.

And why aren't they taking away the power to create credit from the private banking giants - which is costing our economy trillions of dollars (and is leading to a decrease in loans to the little guy) - and give it back to the states?

If we did these things, we wouldn't have to raise taxes or cut core services to the American people.

You know the big banks have gotten bigger.

As Rolfe Winkler noted last September:

For the big have gotten even bigger since the start of the financial crisis. At the end of 2007, the Big Four banks — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo — held 32 percent of all deposits in FDIC-insured institutions. As of June 30th, it was 39 percent.

But Simon Johnson gives an even broader perspective on how big the too big to fails have gotten:

Johnson also points out that:

As I've previously noted, the government created the mega-giants (they are not the product of free market competition), and their very size destroys the real economy like a massive black hole destroys the matter around it.

And as Johnson and many others have pointed out, the very size of the giant banks enables them to easily capture politicians ... about as easily as the Great Attractor captures galaxies.

Free market capitalism is based on the idea that "the invisible hand" of the market will create the best possible outcome for the most people.

But as I noted a couple of weeks ago, the man who came up with idea of the invisible hand did not believe in unrestrained free market capitalism:

Americans have traditionally believed that the "invisible hand of the market" means that capitalism will benefit us all without requiring any oversight. However, as the New York Times notes, the real Adam Smith did not believe in a magically benevolent market which operates for the benefit of all without any checks and balances:

Smith worried about the encroachment of government on economic activity, but his concerns were directed at least as much toward parish councils, church wardens, big corporations, guilds and religious institutions as to the national government; these institutions were part and parcel of 18th-century government...

Smith was sometimes tolerant of government intervention, ''especially when the object is to reduce poverty.'' Smith passionately argued, ''When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.'' He saw a tacit conspiracy on the part of employers ''always and everywhere'' to keep wages as low as possible.

As Paul Krugman writes:

Moreover, as I pointed out in September:

One of the leaders of the new science of financial modeling - Rama Cont - points out that Adam Smith was wrong about the "Invisible Hand".

Specifically, investors in financial markets rationally pursuing individual profit can produce outcomes that are bad for almost everyone.

As an article in City Journal notes:

Does this mean that free market capitalism is dead?

No. And I'm not sure that there is any better alternative.

But capitalism has to grow up and become less naive, relying less on a blind faith in "the invisible hand" and more on an understanding of human nature, including insights from the field of behavioral economics.

It must include sophisticated checks and balances to make sure that thesystem is not gamed, instead of childish ideas about the "inherent stability" of the market.

And it must make sure that the poker game doesn't suddenly end when one of the players gets all of the chips.

Of course, with high-frequency trading dominating the market (and see this), frontrunning, permanent bailouts (and see this), government-sponsored credit rating scams and enterprises, the creation and maintenance by the government of banks so big that their very size warps the entire system, socialism for the big boys, and all of the other shenanigans going on, we don't currently have free market capitalism.

I have repeatedly argued that naked credit default swaps should be banned. See this and this.

Savvy commentators like Wolfgang Munchau and Yves Smith are saying the same thing.

As I wrote last July:

Obama's regulation of credit default swaps leave loopholes large enough to drive the biggest trucks through. Specifically, it forces over-the-counter credit default swap transactions to be traded through an exchange unless it is a non-standard cds. So all that the "financial innovators" who melted down the economy have to do is get a little creative in drafting their cds' - or just to tell regulators "oh no, that wasn't a standard contract", and they are excepted from the regulation.

Similarly, the Obama administration has just passed a new set of regulations "getting tough" on the naked short selling of stocks, which independent economists say can manipulate stock prices and bring down otherwise healthy companies.

But the regulation will exempt hedge funds, and allow them to continue hiding their shorts from regulators.

As I wrote last September:

Now, the head of credit strategy at investment giant UniCredit is saying the same thing:

Bernanke is now joining Rosenberg, Ferguson and Faber, Edwards, Grice and many others in warning that the debt crisis rearing its head in Greece may spread to America, causing U.S. interest rates to climb.

As the Washington Times wrote yesterday:

With uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke warned Congress on Wednesday that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt.

Recent events in Europe, where Greece and other nations with large, unsustainable deficits like the United States are having increasing trouble selling their debt to investors, show that the U.S. is vulnerable to a sudden reversal of fortunes that would force taxpayers to pay higher interest rates on the debt, Mr. Bernanke said.

"It's not something that is 10 years away. It affects the markets currently," he told the House Financial Services Committee. "It is possible that bond markets will become worried about the sustainability [of yearly deficits over $1 trillion], and we may find ourselves facing higher interest rates even today."

Yes, massive debt overhangs do matter.

Contrary view: A very smart financial expert disagrees, telling me:

Fed chair Ben Bernanke is nicknamed "Helicopter Ben" because of his 2002 speech recommending that money be dropped from a helicopter in order to prevent deflation (and then actually doing it).

Similarly, I think we should nickname Secretary of Treasury Tim Geithner "Pallet Tim".

As I wrote last July:

A soon-to-be released report by special inspector general Neil Barofsky finds:

[The banks have also distributed] bailout money to pay executives fat bonuses which they used to buy gold toilets and prostitutes, and to lobby Congress to stop any meaningful reform.

The report by the special inspector general also calls on the Treasury Department to require regular, more detailed information from banks about their use of federal aid provided under the Troubled Asset Relief Program.

According to the Post, the Treasury has refused to collect such information, and:

In July 2009, Congressman Henry Waxman stated:

The Los Angeles Times reported at the time:

Rep. Paul Hodes, D-N.H., claimed that recent college graduates with Republican ties were sent to Iraq instead of experienced government personnel.

Rodes challenged, "I want to know why half the U.S. staff had never been outside of the country before and had to get a passport for the first time?"

$2.4 billion of these $100 dollar bills were loaded onto pallets, put on C-130s and shipped to Iraq in June 2004:

Then, when the shipment date changed, officials had to scramble to line up U.S. Air Force C-130 cargo planes to hold the money. They did, and the $2,401,600,000 was delivered to Baghdad on June 22, 2004.

Yup ... Pallet Tim.

Note: I am not implying that the Fed's shipment to Iraq were illegal (they were apparently part of a UN-sponsored Iraqi oil revenue arrangement). And I am not implying that Geithner is responsible for the theft of billions of dollars by defense contractors or others - he was never asked to oversee distribution of the funds once they arrived in Iraq, and he wasn't head of the New York Fed when the shipments started.

I am simply saying that Geithner has long been a yes-man to the powers-that-be, who ships pallets of money wherever he is told without question or any follow-up or tracking whatsoever.

Even after General Petraeus joined all of the experts saying that torture doesn't work, decreases national security, and is bad for our country, the Democrats are scrambling to be as pro-torture as the Republicans.

As Raw Story reports today:

Democratic leadership in the House was in disarray last night after having to withdraw the 2010 Intelligence Authorization Act, moments before it was to have been voted upon, as the result of a controversial anti-torture provision.

The amendment was added in the House Rules Committee late on Wednesday and had not previously been vetted in committee. It would have criminalized the most extreme forms of "enhanced interrogation" and provided stiff sentences for intelligence officers or medical professions who engaged in them.

Republican opposition caused the Democrats to attempt to remove the provision from the bill on Thursday by a unanimous consent agreement. When the Republicans refused to go along, the Democratic leadership was forced to pull the bill entirely.

In the wake of the debacle, there was confusion as to how the provision had gotten into the bill, and Democratic leaders appeared to be attempting to distance themselves from it.

The American Prospect had reported earlier that the amendment was proposed by House Intelligence Committee Chair Sylvestre Reyes (D-TX). After the withdrawal of the bill, however, Politico cited Democratic sources as saying that "House Rules Chairwoman Louise Slaughter attached the provision to the bill Wednesday over the objections of other House leaders." One source told RollCall (reg. req.), "No one wanted it in there," and Rep. Jane Harmon (D-CA) insisted, "It's a mystery how that language got in there."

***

The amendment would have banned the most extreme forms of "enhanced interrogation" -- including waterboarding, stress positions, sleep deprivation, prolonged isolation, and forced sexual acts -- and imposed sentences of up to fifteen years, or even life if a detainee died as a result of such treatment.

Instead of revealing the truth that torture doesn't work, Democrats and Republicans are both pandering to the lowest common denominator. See this, this and this.

America the Beautiful is turning into America the Barbarian before our very eyes.

Yesterday, I quoted an economist with the U.S. House of Representatives Financial Services Committee for eleven years who assisted with oversight of the Federal Reserve to show that there might be some basis for Ron Paul's questions to Ben Bernanke about the Federal Reserve's alleged shipment of money to Iraq.

Here is some more information.

In July 2009, Congressman Henry Waxman stated:

The Fed starting shipping the money a month after Saddam went into hiding (but long before he was captured), so the money likely did not go to Saddam. (Update: I have since discovered additional information about these shipments.) However, it shows how well the Fed can move money around the world.

And an interesting New York Times op-ed written in 2004 by Martin Mayer, a prolific financial journalist, Brookings Institution scholar, and the author of more than 30 books on financial market issues, argues:

Answering this question would help our understanding of terrorist financial networks. And if the cash is sequentially numbered, as is likely, then the question could be easily answered.

All United States currency is printed by the United States Mint, to the order of one of the 12 banks of the Federal Reserve system. It comes into circulation through a bank that has an account at the Fed for which it was printed. The Fed deducts the face value of the bills from that account, and an armored car takes them to their new owner.

That regional Federal Reserve Bank keeps a record that identifies the purchasing bank. And the purchaser knows how it disposed of the bills. When they are found all together, it means that the bank that bought the bills did not feed them out from the teller window or the cash machine, but delivered them to a single customer.

And the bank knows who that customer was. Between, say, Philadelphia and Iraq, there is no doubt a chain, perhaps involving banks in the Cayman or Channel Islands, in Abu Dhabi or Dubai. Still, each bank in the chain can give the name of the customer to which it gave these bills.

Although Saddam Hussein's government had many sanctions against it, it may well be that no laws were broken in the passage of the Federal Reserve notes from the mint to Tikrit. But it would be interesting to know which banks were collaborators in getting that cash to the tyrant of Iraq.

Unfortunately, the search for these witting or unwitting collaborators cannot even get started, because the Federal Reserve Board will not permit regional banks to reveal the identity of the purchasers of large blocks of United States currency. There is no law that prohibits such disclosure; it's simply a Fed policy. Yet in this age of payroll services and electronic payments, there are few legitimate uses outside the banking system for very large orders of hundred-dollar bills.

The Fed has always resisted placing American banks under obligation to reveal skulduggery, whether it involves drug smuggling, commercial fraud, terrorism or other international conspiracy. Banks are not, the Fed insists, law enforcement agencies. It may be that the F.B.I. has access to the Fed's records -- a spokesman for the Fed, after checking with the main office, would not say yea or nay -- but it is not clear that the F.B.I. has authority to continue such searches beyond American borders.

The Fed's manual on the Bank Secrecy Act still says that ''know your customer'' rules, while desirable, are ''not presently required by regulation or statute'' -- though the Patriot Act has spawned some rules on the identification of new customers. At any rate, the manual says rather mysteriously, such rules ''should not interfere with the relationship of the financial institution with its good customers.''

Senators Charles E. Grassley and Max Baucus, chairman and ranking member, respectively, of the Finance Committee, complained to the Treasury Department last year that not enough has been done to keep the financiers of terrorism from paying their bills through the American financial system. Perhaps Congress should tell the Fed to release its hold on information about which banks supply the bundles of cash that facilitate international crime.

Professor Robert Auerbach was kind enough to send me an email to let me know that Ron Paul read the following letter written by Auerbach into the Congressional record today:

I would like to enter into the record the following letter from Professor Robert D. Auerbach, a professor at the LBJ School of Public Affairs at the University of Texas. This letter provides additional information regarding remarks I made at yesterday's Financial Services Committee ... hearing, remarks which Federal Reserve Chairman Bernanke categorized as “bizarre.”

***

First, consider the Fed’s coverup of the source of the $6300 in hundred dollar bills found on the Watergate burglars when they were arrested at approximately 2:30 A.M. on June 17, 1972 after they had broken into the Watergate offices of the Democratic Party. Five days after the break-in, June 22, 2003, at a board of directors’ meeting of officials at the Philadelphia Fed Bank, it was recorded in the minutes [shown on page 23 of my book] that false or misleading information had been provided to a reporter from the Washington Post about the $6,300. Bob Woodward told me he thought he was the Washington Post reporter who had made the phone inquiry. The reporter "had called to verify a rumor that these bills were stolen from this Bank" according to the Philadelphia Fed minutes. The Philadelphia Fed Bank had informed the Board on June 20 that the notes were "shipped from the Reserve Bank to Girard Trust Company in Philadelphia on April 3, 1972." The Washington Post was incorrectly informed of "thefts but told they involved old bills that were ready for destruction."

The Federal Reserve under the chairmanship of Author Burns not only kept the Fed from getting entangled in the Watergate coverup, which the Fed’s actions had assisted, it allowed false statements about bills the Fed knew were issued by the Philadelphia Fed Bank to stand uncorrected. Blocking information from the Senate and House Banking Committees [letters shown in my book, Chapter 2] and issuing false information during a perilous government crisis imposed huge costs on the public that had insufficient information to hold the Fed officials accountable for what they had withheld from the Congress. Had the deception been discovered the Fed chairmen following Burns may have been forced to rapidly implement some real transparency to restore the Fed’s credibility. That would have reduced or eliminated many of the lies, deceptions, and corrupt practices that are described in my book.

The second subject brought up by Congressman Ron Paul is the exposure of faulty examinations of the Federal Reserve of a foreign bank in Atlanta, Georgia through which $5.5 billion was sent to Saddam Hussein that a Federal Judge found to be part of United States active support for Iraq in the 1980s.

On November 9, 1993, several federal marshals brought a prisoner, Christopher Drogoul, into my office at the Rayburn House Office Building of the U.S. House of Representatives. The marshals removed the manacles. Drogoul took off his jump suit and changed into a shirt, tie, and business suit. He immediately looked like the manager of the Atlanta agency with domestic headquarters in New York City of Banca Nazionale. Drogoul had come to testify about a “scheme prosecutors said he masterminded that funneled $5.5 billion in loans to Iraq’s Hussein through BNL’s Atlanta operation. Some of the loans allegedly were used to build up Iraq’s military and nuclear arsenals in the years preceding the first Gulf War.” 1

Drogoul’s “’off book’ BNL-Atlanta funding to Iraq began in 1986 as financing for products under Department of Agriculture programs.”2 The loans allegedly had been authorized by the U.S. Department of Agriculture. Since Drogoul told the committee he was merely a tool in an ambitious scheme by the United States, Italy, Britain and Germany to secretly arm Iraq in their 1980-88 war, the testimony was politically contentious and unproven. He was sentenced in November 1993 to 37 months in prison and he had already served 20 months awaiting his sentencing hearing.

U.S. District Judge Ernest Tidwell found that the United States had actively supported Iraq in the 1980s by providing it with government-guaranteed loans even though it wasn’t creditworthy. The judge said such policies “clearly facilitated criminal conduct.”3

Gonzalez was drawn to Drogoul’s answer about the Fed examiner who had visited his Atlanta operation. Gonzalez said that:

“At the November 9, 1993 Banking Committee hearing I asked Christopher Drogoul, the convicted official of the Banca Nazionale Del Lavoro agency branch in Atlanta, Georgia, how the Federal Reserve Bank examiners could miss billions of dollars of illegal loans, most of which ended up in the hands of Hussein.

Mr. Drogoul stated:

The task of the Fed [bank examiner] was simply to confirm that the State of Georgia audit revealed no major problems. And thus, their audit of BNL usually consisted of a one or two-day review of the state of Georgia’s preliminary results, followed by a cup of espresso in the manager’s office.”

Gonzalez was appalled at the of lack of effective examination of a little storefront bank and also appalled by the gifts exchanged by officers of the New York Federal Reserve and the regulated banks in New York City where the main U.S. office of BNL was located. A description of what followed is in my book.

The Fed voted in 1995 to destroy the source transcripts of its policy making committee that had been sent to National Archives and Records Administration. Chairman Alan Greenspan had the committee vote on this destruction, telling the members: “I am not going to record these votes because we do not have to. There is no legal requirement.” (p. 104 in my book.) Greenspan thus removed any fingerprints on this act of record destruction. Donald Kohn, who is now Vice Chairman of the Board of Governors at the Federal Reserve, answered some questions I had sent to Chairman Greenspan about this destruction. Kohn replied in a letter on November 1, 2001 to me at the University of Texas that they had destroyed the source records for 1994, 1995 and 1996, they did not believe it to be illegal and there was no plan to end this practice. That is one reason why the Federal Reserve audit supported by Congressman Ron Paul is needed. The Fed must stop destroying its records.

Robert Auerbach is Professor of Public Affairs at the Lyndon Baines Johnson School of Public Affairs, The University of Texas at Austin. He was an economist with the House of Representatives Financial Services Committee during the tenure of four Federal Reserve Chairmen: Arthur Burns, William Miller, Paul Volcker, and Alan Greenspan. Auerbach also served as an economist in the U.S. Treasury's Office of Domestic Monetary Affairs during the first year of the Ronald Reagan administration and as a financial economist with the U.S. Federal Reserve System. Auerbach has been a professor of economics at the American University in Washington, D.C. (1976-83), and a professor of economics and finance at the University of California-Riverside (1983-93). He has written numerous articles, and two textbooks in banking and financial markets. He received two Masters degrees in economics, one from the University of Chicago and one from Roosevelt University, where he studied under Abba Lerner, and a Ph.D. in economics from the University of Chicago, where he studied under Milton Friedman.

1 Marcy Gordon, “Banker Imprisoned in BNL Case Tells Story to House Committee,” The Associated Press, November 9, 1993.

2 U.S. Newswire: “Former Executive of Atlanta Agency of Italian-Owned Bank Pleads Guilty to Conspiracy”, from U.S. Department of Justice, Public Affairs, June 2, 1992.

3 Peter Mantius, “Drogoul given 37 months Judge in BNL case also blasts actions of U.S. prosecutors,” The Atlanta Journal and Constitution, December 10, 1993, Section A, p. 12.

Today, Ron Paul accused the Federal Reserve of having a hand in nefarious plots such as Watergate and arming Saddam Hussein. House Financial Services Committee Chair Barney Frank said that the Committee should look into it.

However, in 2008, the University of Texas published a book by Robert D. Auerbach - an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin - which seems to support Paul's questions.

In Deception and Abuse at the Fed, Auerbach claims:

Major instances of Fed mismanagement and abuse of power that were exposed by [House Financial Services Committee Chairman/Ranking Member Henry] Gonzalez, including:

• Blocking Congress and the public from holding powerful Fed officials accountable by falsely declaring—for 17 years—it had no transcripts of its meetings;
• Manipulating the stock and bond markets in 1994 under cover of a preemptive strike against inflation;
• Allowing $5.5 billion to be sent to Saddam Hussein from a small Atlanta branch of a foreign bank—the result of faulty bank examination practices by the Fed;
• Stonewalling Congressional investigations and misleading the Washington Post about the $6,300 found on the Watergate burglars.

Moreover, a 1982 article from the Miluawakee Sentinel alleges:

Police who searched the room the Watergate burglars used found $4,200 in $100 dollar bills, all numbered in sequence. [Senator] Proxmire asked the Federal Reserve Board where the money came from. As he explained in a letter to the late Rep. Wright Patman (D-Tex.), chairman of the House Banking Committee: “I got the biggest run-around [from the Federal Reserve] in years. They ducked, misled, lied, and gave me the idiot treatment."

As reporter Sebastian Jones points out (see this and this), former Congressman Richard Gephardt runs a lobbying firm representing giant insurance and pharmaceutical companies.

Retired General Barry McCaffrey sits on the board of a giant defense contractor, DynCorp, and lobbies for war.

And many other "pundits" interviewed by the mainstream news are really high-level lobbyists for giant companies, pushing their agendas.

And yet they are treated as "independent experts" by the media.

Indeed - 2 years after Jones asked the large networks why they don't have a disclaimer on the screen beneath the pundits' names saying who they really work for - nothing has been done.

The corporate media are acting like virtual "escort services" for the powerful, selling access - for a price - to viewers and to powerful government officials, instead of actually investigating and reporting on what those in power are actually doing.

And see this.

I'm agnostic about different cycle systems, but - for what it's worth - the Foundation for the Study of Cycles is predicting:

• Gold will head north of $2000 ounce by the 3rd or 4th quarter of 2011

• This will happen in middle of a sinking stock market and economy

• Other PMs will do well, but not as well as gold

• A major new dollar decline will start in the 3rd quarter of 2010, and end in early 2012 (the dollar's value against gold will plummet)

• A convergence of cycles will make 2012 a total train wreck. For example, the 500 geopolitical cycle will shift, with power and wealth heading from West to East. Other cycles will bottom during the period from late 2011 to late 2012, so things will get really ugly. The 4th quarter in 2012 will be a horrible time for America

Greenspan just said that the current credit crunch is "by far the greatest financial crisis, globally, ever" -- including the 1930s Great Depression.

Bloomberg notes:

As I pointed out last May:

The following experts have said that the economic crisis could be worse than the Great Depression:

• Fed Chairman Ben Bernanke
  

• Economics professors Barry Eichengreen and and Kevin H. O'Rourke (updated here)
  

• Investment advisor, risk expert and "Black Swan" author Nassim Nicholas Taleb

• Former Fed Chairman Paul Volcker

• Nobel prize winning economist Joseph Stiglitz

• Economics scholar and former Federal Reserve Governor Frederic Mishkin

• Well-known PhD economist Marc Faber

• Former Goldman Sachs chairman John Whitehead

• Morgan Stanley’s UK equity strategist Graham Secker

• Former chief credit officer at Fannie Mae Edward J. Pinto

• Billionaire investor George Sorors

• Senior British minister Ed Balls

Stop preaching to the choir!

Start reaching a larger audience!

The people you talk with and the websites which publish what you write might think you're great, but the vast majority of people out there aren't hearing it.

You're Reaching a Very Small Audience

Communications experts like George Lakoff (who I recently interviewed) and Frank Luntz say that most people don't make political decisions based on fact and logic. Instead, they make decisions based on their ideas of morality and pre-existing "frames" of reference.

So if you are just reciting facts, you are not going to persuade anyone except the minority of people who reason and make decisions based on logic. (You may say "but all of the websites I read and people I talk to make decisions based on logic". Okay, but that only means that you don't read the overwhelming majority of websites or talk to the overwhelming majority of people who make decisions based on other factors. See this and this).

Associating an issue or person with an emotion is called “anchoring”.

Some words convey strong positive or negative emotions, and act as powerful anchor words. For example, in 1995, Newt Gingrich pushed the following positive words for use by politicians:

Let's take the example of economic policy. You can write about the bailouts, credit default swaps and oligarchy until the cows come home. But you won't reach anyone who doesn't already know about those issues.

Instead, start out by framing the issue in terms the majority can understand. For example:

The overwhelming majority - 75% - of all Americans consider themselves to be Christian. It is irrelevant for this discussion on reaching a larger audience whether or not those 75% are all living up to their values, whether every word of the Bible is true, whether Christianity is a detrimental force undermining democracy and reason, or whether all organized religion is a con.

Let's take an example. The facts are that governments from around the world have admitted that they carry out false flag terror for political ends. But rounding up the confessions and facts won't persuade anyone except the small minority of people who think rationally and make decisions based on facts.

To reach a wider audience, I have to invoke Christian values, morality and the frames which are meaningful for people of faith.

For example:

• "Punish the sinners"

• Expose the "wolves in sheep's clothing"

• "Root out evil"

• "Protect national security"

You could say something like:

If you think that this is beneath you, you are mistaken. Specifically, the first step is to climb up from the fog of unreason to logic. Congratulations, you've done that.

But the second step is to translate that logic into language that the majority can understand. If you don't do that, you have failed as a communicator.

For example, good science writers don't use a bunch of technical jargon. They translate that jargon into plain English that everyone can understand, and use everyday images that people will get. The same is true for any communication.

(And if you are an atheist and speaking in religious language seems dishonest, think of this as speaking a little Spanish when you travel to Mexico or a little French when you go to Paris: you're trying to converse a little in the "local language". Even if your accent is horrible, you'll get credit for trying.)

3 Brains Are Better than One

If you want to reach a larger audience, you also have to stop talking to only one out of three brains.

Yup, every person actually has 3 brains. Top-notch communicators appeal to all 3 brains.

The 3 brains are:

• (1) The human brain (neocortex), where we handle logic, abstract thought, words, symbols and time. This is the one you've been preaching to and reaching only a small audience.
  

• (2) The reptilian brain, which focuses solely on survival, fight-or-flight, and getting away from pain. This is, largely, what fearmongering politicians try to stir up.
  

• (3) The mammalian brain, which handles emotions: love, indignation, compassion, envy, hope, etc. This is what, largely, what Obama's "hope" politics has focused on.

Most people incorrectly assume that if enough facts and logic are presented, people will believe the truth. In fact, psychologists, marketing experts and trial lawyers have found that facts are less persuasive for most people than emotions in reaching decisions.

Why?

The reptilian and monkey portions of our brain reach decisions based upon survival and emotion before the neocortex can make rational decisions. So facts alone won’t convince most people. Instead, stories, images and emotions are what sway most people.

For example, one political psychologist writes:

People are driven primarily by one of two emotions:

• (1) Moving away from pain. People whose primary drive is to move away from pain usually believe that the world is primarily a scary and dangerous place, and that people are basically bad. Conservative political advisors typically try to manipulate this emotion.

• (2) Moving towards pleasure. People whose primary drive is to move toward pleasure usually believe that the world is fundamentally a fair and good place, and that people are basically good. Liberal political advisors typically try to manipulate this emotion.
  

If someone falls into the first category, discussing how truth will help them avoid pain will be effective. For people in the second category, stressing the pleasure that truth will bring will be useful.

Of course, if you are communicating with more than one person at a time, you should mix both messages.

These illustrations brilliantly illustrate how those in power can manipulate these two emotions.

Motivating people through a moving away from pain/fear strategy works very effectively in the short run. This is because the reptilian brain reacts first and overrides the higher thinking functions. But, over time, it stops working, and the moving away from pain strategy eventually becomes ineffective. In the long run, hope and a positive vision works better than fear. The fact that we went from Bush to Obama make sense in this light.

Seeing, Hearing, Touching

Most modern people process information primarily through their visual sense. Some process information through hearing. Other process information kinesthetically (through touch and feeling).

People not living in modern societies process information primarily kinesthetically, as that is how we are biologically wired. As stated above, we are wired to make decisions largely based on feeling and emotion.

As a neuroscientist points out:

Smells and tactile stimuli are routed immediately through the amygdala the emotional seat of the brain most responsible for the fear response. To give you a simplified explanation, this means that smells and touch can evoke much more vivid memories and emotional responses than sights or sounds.

Sights and sounds are shunted first to the thalamus. The thalamus deconstructs your vision into basic chunks of information: shape, size and color. Audio signals are similarly reduced to information about volume and dissonance. Only after this has happened does the signal get passed to the amygdala and the frontal cortex. As a consequence of this slightly more circuitous route, visual and auditory cues often trigger emotions that feel less intense than those of smell and feel.

So what does this mean on a practical level?

Unless you communicate using a person's primary mode of learning (called "submodality"), you won't be speaking in his language, and so probably won't be able to persuade him.

Moreover, studies show that communications which rapidly switch back and forth between visual, auditory and kinesthetic cues best help the listener focus on the message.

Therefore, the world's top communicators will frequently and rapidly switch between "seeing", "hearing" and kinesthetic words.

Some examples of visual words and phrases are:

This phenomenon may help explain why large numbers of Americans incorrectly think that Saddam Hussein was directly involved in planning the Sept 11, 2001, terrorist attacks, and that most of the Sept. 11 hijackers were Iraqi. While these beliefs likely arose because Bush administration officials have repeatedly tried to connect Iraq with Sept. 11, the experiments suggest that intelligence reports and other efforts to debunk this account may in fact help keep it alive.