Real Inflation, Real Wars And The History Of Money

Ad sent to me by Market Watch, peddling pure swill from a very evil man, Mr. Fisher.

September 27. 2007

Elaine Meinel Supkis

There are many theories about cycles. Why does the economy or wars or other things go in cycles? Much of the excuse for various government and banking systems is to prevent cycles but this always fails like clockwork. Indeed, the need for relentless cycles seems to get worse, not better, over time! The Federal Reserve likes to play with the rate of money making and inflation by moving interest rates up and down like someone fiddling with the thermostat constantly. Only they tend to go to extremes. But what drives all this? Why do these things happen? And what cycle are we on right now?

From the author of 'Crash of the Millennium', interviewed by Global Research:

TAYLOR: In your soon-to-be published book titled, "The Crash of the Millennium," you reviewed your enormously positive track record in predicting major events and social trends. Between the years 1978 through 1992 you made some huge predictions, like the collapse of the Soviet but not Chinese communism. You predicted George Bush would not be re-elected and that a third party would arise in 1996. And you made a host of predictions related to various markets and the decline of morality in western society. By my count, some of your predictions may not have yet come true, but appear to be very much possible. I believe there are only 2 out of 33 predictions that you made that have not come true or that have only partly come true. Perhaps the biggest prediction that did not pan out was the prediction that we would suffer a global economic depression beginning in 1990. Japan entered a devastating depression about then, but the U.S. escaped it. Despite the fact that the U.S. federal debt grew exponentially during the 1980's and into the 1990's and despite a huge trade deficit the U.S. managed not only to escape an economic calamity, but to experience economic growth that continues even now. How do you account for the fact that the U.S. has been able to escape the depression you also predicted back in 1989 when you suggested that "share prices will crash all over the world, leading to a seven-year-long depression"?

BATRA: What happened was that I had assumed that once the stock markets began to crash, the Japanese money would stay home because they had already lost billions of dollars in the U.S. markets. They lost almost 12 TRILLION dollars in the U.S. market. So, if they lost so much money, why would they touch that market again? But, I turned out to be wrong.

I think what the Japanese did was irrational but here is what happened. When their stock market began to crash in early 1990, their banks were also under great pressure. So to help their banks, the government of Japan simply pushed their interest rates close to zero. With such low returns available at home, a lot of Japanese money went abroad to the Asian Tigers and to America. At that moment in 1990, the U.S. was in a recession and had a budget deficit of almost $300 billion, which was driving up the rate of interest. If interest rates had continued to rise, that recession could have possibly turned into a depression. But the Japanese money saved the day by pouring into the U.S., so interest rates. fell in spite of the huge budget deficit. The result was that our economy began to revive.

It is very hard to analyze things if one thinks people are crazy. I would like to think Greenspan is crazy but he isn't. He very rationally did the stupid things that now are making life hell for us all. I assume the Japanese are very smart people. They certainly have proved this over and over again. They also live in an ethos which happens to be quite different from our own. For example, they protect their concept of 'Nippon' To protect Nippon, they must let in all sorts of foreign influences but they won't let foreigners be the influence. Namely, they will accept the data and information of the foreigners, the technology and some of the systems but not the idea that foreigners should run Japan.

This is the opposite of our ethos at the top. Our leaders can't wait to cash in and sell us out. The idea of protecting the US is far from their minds and desires. When Japan's currency jumped from 250 yen to the dollar to 100 yen to the dollar, they had this sudden wealth effect surge. We see this today in Europe. Their money suddenly bought much more than before. It was like a 150% pay raise. This giddy, very sudden rise in purchasing power went to everyone's heads, of course. People forget that prior to the modern concept of open FOREX trade to determine the value of currencies, everyone did this via fiat. And the US had to negotiate deals over and over again to jigger the value of the dollar.

With the Plaza Accords, making treaties like the Bretton Woods I and II deals were no longer considered necessary. All we had to do was trade in this FOREX market and the IMF would keep everyone in line via passing around information, making inter-bank loan guarantees, etc. The re-valuation of the yen caused a huge, huge bubble in Japan that swelled up and popped in near-record time.

What killed this bubble, anyway? The US stock market crashed but this didn't cause the Japanese economy to collapse. Something else happened. If we look at the ad at the top of this story, what is so outstanding about it is how evil it is if one has the slightest hope of protecting the United States from destruction. Note how Mr. Fisher sneers that stupid people think higher oil prices drive the stock market down. Or that worrying about the budget deficit is stupid. Of course, oil drives UP stock markets because the government produces increasing inflation to deal with the higher oil prices. Reducing the value of the dollars being sent to oil pumping nations is a tactic to cut losses due to high prices! This fuels inflation and inflation always gives a boost to stocks...but only if the bulls refuse to discount the inflation hikes when boasting about bull markets.

Back to Japan: they were happy that their money was suddenly very valuable. They went shopping all over the planet and bought up many properties in the US. They bid against each other, driving up property values. I sold my mansion during this time frame and the markets were very hot indeed. Then a bad thing happened six months after I sold my property: Iraq invaded Kuwait and the world price of oil shot up and up and we had Desert Storm I and this caused great inflation and the US went into a recession and Japan fell off the cliff, hugely. Despite oil becoming ever-cheaper, Japan floundered due to the fact that cheap oil doesn't matter, what counts is their captive export market, the US: we had to cut back on buying and this nearly destroyed Japan. The volume of money flowing into Japan via trade fell. This caused a ripple effect in their homeland. Due to too much debts, many businesses floundered and went into bankruptcy. The Japanese can't be accused of being stupid: they did what the US does or Europe or anyone when they get a windfall. Spend like drunk sailors on shoreleave.

I got this chart from Sept. 27th issue of Time Magazine:

Something changed after the devaluation of the dollar began after WWII. The people able to gamble on Wall Street flipped. Institutional and speculator organizations went from 10% to 80% while individual investors dropped to 20%. When Greenspan dropped rates to 1%, the institutions and professional speculators took off. The average private investor is rapidly vanishing due to lack of free funds one can use to take chances on the vargarities of Wall Street. The herd instinct of institutional and professional speculators means the markets will go where their computers or their formulas tell them to go. This also means the parties moving funds around are very few in number. Instead of millions of investors, they are a small handful of people...and are betting the US down the tubes.

Here is the 'inflation every 30 years' chart created by Mr. Batra:

Back to the Intervention Magazine interview:

TAYLOR: You talked a bit about the 30-year cycle, which is really intriguing to me. You noted that the creation of money results in inflation. You have some charts in your book that illustrate quite surprisingly to me, that every 30 years we hit a peak in the growth of money and consequently in the growth of the rate of inflation. This 30-year pattern with a high degree of predictability goes all the way back to 1770. The only time the 30-year pattern was broken was around the time of the Civil War. But following that conflict, it has resumed and has remained in tract even now. With the current inflation trend down very significantly from its highs in the 1970's, history suggests we are due for another rise in inflation. Is this another reason why you think the depression we face will be inflationary?

BATRA: Yes that's right. As you said, the last peak of inflation was in the 1970's and now we are moving into the 2000's. So, yes, this is another reason I think we will head into an inflationary depression.

There is no '30 cycle.' As I showed earlier, this cycle is very much war-driven and the effects are altered by actual events such as the US suddenly quadrupling twice in size after the Louisiana Purchase and then, the Mexican American War. And forget the 'generational' aspect: I have lived through three inflation/war cycles now and they aren't 30 years apart or I would be over 90 years old and I am not. What is happening is very simple: we went to war and we created inflation to pay for this war and this inflation flowed into the markets and boosted them for a while but now we are in a classic meat-grinder that is now producing inflation, budget deficits and destruction of infrastructure and there war loot is far smaller than the overhead costs so this is causing financial distress.

I like to color in graphs and charts to catch the flow of things. In this case, I put all the wars in red. Note how they are like almost clockwork: revolutions or wars must occur with teeth grinding regularity. It is like the pulses of waves from a hurricane, striking the shores. The US war/inflation graph that I have here has some interesting historical glitches. For example, the war of 1812 which was global since the combatants were all the major European empires, it only made a glancing blow here. Our main expense was the money we sent to Napoleon that represented France's claim to the Louisiana Territories.

It wasn't owned by the French or even controlled by them except for the Mississippi river's lower sectors, especially the Port of New Orleans. So this inflation peak was truncated but wider than the Revolutionary war peak which was dealt with rather harshly by the new Congress simply refusing to honor the value of their script and issuing new currency at new values to the great rage of many soldiers and merchants holding the valueless IOUs. Since this nearly toppled the new government, the US Congress was rather chary about debasing the currency which also explains the longer inflation time but the lower rate of the War of 1812 and its aftermath.

1840 was a brief war with Mexico that solved the money shortage by opening up lands that had...GOLD in them thar hills! This surge of gold killed the war inflation instantly. But the lands taken destabilized the entire nation as the slave and free states began to fight over the creation of new states and the economic basis of these new states. This led to the Civil War and a big bout with inflation as big as the Revolution. In the late 1850's, Russia and England clashed in the Crimean Wars, too. As we look at the inflation/war chart, we can see this long deflationary period right after the Crimean War/US Civil War. This long deflationary period happened in Europe as well as the US. This long 'depression' was the result of the sudden surge of industrialization that swept all of Europe and the US and the inward-looking nature of Russia and the US doing business with themselves as they expanded into huge territories, the US West and Siberia, meeting in Alaska in the late 1800s.

My personal Bible for international finance and diplomacy is Paul Kennedy's great work, the Rise and Fall of Great Powers. From Wikipedia:

Kennedy argues that the strength of a Great Power can only be properly measured relative to other powers and he provides a straightforward and persuasively argued thesis: Great Power ascendency (over the long-term or in specific conflicts) correlates strongly to available resources and economic durability; military "over-stretch" and a concomitant relative decline is the consistent threat facing powers whose ambitions and security requirements are greater than their resource base can provide for.

This graph shows how the US became very powerful and wealthy during the long 'depression' period of 1875-1900. Europe's depressed pricing ability translated into a flood of economic refugees coming here thanks to the free land/free labor prospects in the US which was digesting a century of victories over the European Empires trying to exploit the New World. By century's end, our GDP was 4X greater than Britain's.

The general economic status of all the fledgling European Empires were similiar. Bankrupt Spain isn't even part of the statistics due to its rapid collapse during the 19th century ending with the Spanish/American war where we stripped away the last bits after a series of revolutions had swept away Spanish dominion the previous 80 years. The important thing is, Germany and Britain tripled their GNP while Russia, France and Austria only doubled. Our per capita income was double Germany's and on top of that, we had a huge influx of Germans with many skills coming here to strengthen the US.

Per capita (in 1960 dollars) , in 1830, there is less than a $100 spread between Britain and the other empires of mainland Europe. But thanks to the rapid industrialization of Britain coupled with aggressive imperial ventures, by 1890, Britain had a per capita spread advantage of over $500 compared to its rivals. The long 'depression' of post Civil War/Crimean War to the Spanish-American/Franco-Prussian War made Britain very rich compared to the other powers in Europe. So one can't characterize this as a 'depression' but rather, the effects of rapid industrialization/market building which mainly was happening in Britain and the United States and increasingly, Germany and France. Note this period ended with Germany physically attacking Paris directly.

This chart shows what has happened ever since the US won WWI and then, WWII.

We engaged in this arms race with Russia. We kept doubling and redoubling our spending on the military. During all this, inflation began to eat away at our systems at home. All my life, I have watched money vanish in buying power. When assembling statistics about this, we see a cessation of inflation starting in 1980 only this is false. What changed was not the rate of inflation but the way inflation is judged. Namely, the Federal Reserve and the US Treasury began to tinker with tabulating and judging inflation in order to minimize it. So it 'fell' but really fell like an axe upon the necks of the working classes.

Real incomes have dropped which is deflationary, but the value of the dollar vis a vis any other currency is quite a different story. The chart above shows how only the US and Russia spent wildly on military junk while Europe and Japan ran off and used their incomes for industrial gains. By 1972, the US was at the end of its financial tether due to the Vietnam War and wild military spending and had to surrender to our allies which was the Bretton Woods II Accords. We asked for the hither-to stable currency regime set up by us to be amended. The fomer Axis powers were asked to double the value of their own currencies against ours. Inflation, seething since the Vietnam war began, took off with the Middle Eastern wars that led to an oil boycott.

At the top of this story is that chart by Mr, Batra showing deflation in the 1970's. The dollar deflated BUT NOT PRICES! Prices shot up! We had the worst inflation I have seen in my life. I was working for a landlord in NYC and had to buy heating oil. This ate into his profits, hugely. Food inflation: ditto. Cost of medical insurance: doubled and redoubled.

The price of things we don't need so badly dropped like a rock. But lending money shot higher and higher. I bought a brownstone at a very cheap price, $36,000, which is 'deflation' but the interest rate I paid was over 9% which is raging inflation! The wars in Asia and the Middle East were hammering us here at home. Our banking system nearly collapsed, our economic activity went into a depression. Which is often the case after a war ends and the central bankers and the government have to deal with all their birds coming home to roost. A mountain of IOUs rebounding along with inflation of necessities. Just like the end of WWII: cameras, cars, furniture were all cheap, cigarettes, chocolate candy, coffee and gold were all very expensive!

And oil. These things were so expensive, US soldiers openly traded these trivial, cheap items for all sorts of loot. My dad got a fine German camera with Schott lenses for a carton of cigarettes! The displacement of value in these 'depressions' are very common in the wake of wars.

So let's revisit the Great Depression: there was no war which triggered it directly. It came popping up suddenly and took everyone unawares. The inability of Germany to repay any principal on reparations collapsed and with this, the entire banking system of the world. Unlike today's developing depression, oil, chocolate candy, coffee and gold became cheaper and cheaper. Food and fuel fell in price, rapidly. The cost of lending didn't shoot up like it does after wars, it fell, rapidly.

The riddle of money, inflation, depressions, wars and market cycles can't be solved using simple data. Breaking down what is inflating, what is deflating and why is key to understanding what is going on today.

The world is split in two with rapid expansion in one sector, rapid de-industrializing in another sector, the price of gold, food and fuel as well as many other raw materials rising rapidly while the dollar and yen, the currencies of the two top economic nations, falls. And the US is hyper-overspending while Japan is hyper-depressing domestic markets. We, in the US, are beginning to live in an economy of a defeated nation: the price of things like chocolate, bread, milk, gasoline and gold, etc, are rising higher and taking up more and more of our incomes.

The web is filled with people advising their readers to avoid 'inflation' by buying gold which is, naturally, inflating very fast right now. So the dollar is deflating but gold is shooting up? But I hoard other things and one of them is coal, for example. It is rising in value even as the cost of computers and cars drop like rocks and the sellers offer ever-more attractive financing to buy these things. I would suggest, if the dollar collapses entirely, we will see people selling their cars for candy bars and milk just like Germany in 1945.

Since we can detect this 'post-war' economy, this means we must see if the country falling into this dire condition is spending a lot on military stuff. And the US certainly is! After record budget gains, the military is now so bold, they are seizing more and more of our economy. Gold-plated weapons systems run alongside a collapsing economy at home where a gallon of milk is so dear, mothers fear to buy it.

First, let's check to see if there is inflation at the Federal level. Here is a screenshot of the Federal Reserves in the last decade:

In 1998, the reserves were at $85 billion, foreign currencies held were at $36 billion. Today, it is at only $67 billion and foreign currency is at $42 billion which is $6 billion more. During this time, foreign powers amassed from less than $500 billion to now, over $4 trillion in US dollars! Gold is valued at $42 an ounce which is silly. We have the same $11 billion according to that caclulation. This number doesn't vary throughout the years in these charts. We certainly had considerable inflation in the last decade. One dollar of gas that bought over a gallon in 1997 now buys a quart today. The reserve funds dropped rather than rose to keep up relative value. So instead of keeping $250 billion in reserves, this sum dropped! Our gold reserves have shot up in value, the post-1933 ounce has risen from $34 an ounce to around $800 an ounce, significant inflation. Most of this rise in value is in the last 10 years, too!

So far, post-war shortages haven't hit yet like in 1972, for example when we had gas rationing and long lines. But this is on the horizon! As inflation rages within the stuff that retains value after defeats during wars, the possiblity that China, the oil exporting nations and others may end up boycotting our markets and causing rationing, hysteria and great inflation of imported stuff we need to stay alive. Namely, oil.

Time to turn back to the news this year. From Bloomberg:

April 23 (Bloomberg) -- The biggest bull market in U.S. Treasury bonds is over, according to the analysts who rely on historical price patterns to make their assumptions.

The proof that it now pays to be bearish can be found in financial futures based on the government's 4 3/4 percent bond maturing in 2037, a benchmark for the 22-year, 11-month rally that began in May 1984 and ended on April 6, says John Kosar, president of Asbury Research in Lake in the Hills, Illinois. That's when the price of 30-year Treasury bonds for delivery on the Chicago Board of Trade fell below 110 20/32 and signaled a new direction for the market, he said.

This 'rally' is directly attached to Japan. At the top of this story which seems to ramble a little bit (sorry about that), Mr. Batra thought the Japanese were stupid or something because they did these odd things. I would suggest these 'odd' things were part of the machinery that prevented inflation. And they needed to do this to clear out a mountain of bad debts. And they wanted to strengthen their industrial base and beat their trade rivals such as the US. So they did two odd things that to this day, seems to baffle many economists and commentators in the news: they bought American bonds with no worry about inflation since these bonds were set against the deflating yen and deflating interest rates in Japan itself. And the dollars that began to flow into Japan starting in 1995 and onwards, about 30% of this was set aside every year and parked in the Bank of Japan's FOREX reserves. These grew from only $50 billion in 1990 to nearly $1 trillion today. A mere 17 years later.

In this time, their trade surplus grew by leaps and bounds and even better, their profit margin differentials grew even faster. If they could keep the yen weak, interest rates below 1% and squirrel away much of the money they made, they could keep this system going for nearly forever, it would seem.

Namely, the deflation in the US was illusionary after the Plaza Accords. The Plaza Accords, by definition, were very inflating. But after that, inflation seemed to vanish. Along with much of our industrial base, our assets and our ownership of our facilities. Every time inflation of MANUFACTURED goods tried to rise, these goods were removed from the US and sent to low-wage countries like Mexico and then, China. So the deflation was false. It was created via trade and government interventions that removed inflation raging at home via seeking ever cheaper labor outside the US. So our import statistics began to erode faster and faster during this 'deflationary' cycle.

From the Bloomberg deflation/inflation article:

While former traders like Kosar don't get much respect in academic circles, they insist their charts confirm what some investors already know: ``that inflation is the issue,'' he said.

The Federal Reserve's preferred measure of inflation, the price index for personal consumption expenditures excluding food and energy, has been 2 percent or higher since April 2004. In the previous eight years, it topped that level during only six months. Core inflation was as high as 4.7 percent in 1984 when 30-year bond yields rose to 13.9 percent.

Inflation has been much higher than 2% a year here. I have much greater trouble buying necessities these days because we are on a fixed income due to my husband's disabilities. So unlike in the past, I have much greater trouble dealing with the family budget. What the government considers 'core' is actually non-core. They don't take the items I tallied earlier, what I call, the post-war economy items, and track THEM! They track the stuff that falls in price when things go bad.

Thanks to real inflation in China, war in the Middle East driving up the price of oil and other matters, we are now seeing inflation in all things that matter. The smaller the thing, the more the inflation is showing up. The cheap stuff is rising at a faster rate than the expensive stuff.

Foreign investors and central banks also drove down U.S. yields by doubling their holdings of Treasuries to $2.1 trillion in the five years ended February, according to Treasury Department data.

``It's the triumph of the competitive market,'' said Edward Yardeni, who coined the term ``bond vigilantes'' in 1983 to describe investors who protest monetary or fiscal policies they consider inflationary by selling bonds and driving up government borrowing costs. He now heads Yardeni Research Inc. in Great Neck, New York.

The rise in bond yields from 1946 to 1981 ``was the modern world's greatest bear market in bond prices,'' said James Grant, publisher of Grant's Interest Rate Observer in New York. The decline in yields to four-decade lows in June 2003 ``began what may prove to be another long-lived march upward, and will probably carry longer and further than people can imagine.''

Hunt says Treasury yields will resume their decline, pushing 30-year bond yields to a record low of 3.5 percent in the coming years as economic growth slows in response to the Fed's 17 interest rate increases since June 2004.

Some chart readers say the rally in Treasuries ended two years ago. A line drawn from the 10-year note's yield peak of 15.8 percent in September 1981 through the December 1999 high of about 6.9 percent was broken as the yield rose in August 2005.

Competition is certainly causing Japan, China and Saudi Arabia to buy our US bonds. But not because they think these paper IOUs will be worth anything in the future! They are buying our government out from under us! These bonds, traditionally, were sold only to Americans and the main and perhaps ONLY function of these things was to pay for...WARS. And to prevent inflation by sopping up excess money generated by the central banks in order to pay for wars! Instead, we now sell them to our rivals seeking to control our nation. This isn't smart, this is suicidal. So we are at war and our war bonds are super cheap and Americans are no more buying them than buying stocks. If 80% of our stocks are bought by large consortiums, so are our bonds!

This also means our inflation at home isn't being sopped up by war bonds! This money floats about our nation and raises prices as we can plainly see, far beyond the fake 'core' statistics. In 1981, Americans weren't going to buy US bonds unless the rates were higher than the rate of inflation caused by the rise in oil prices due to the Iran/Iraq war. Oil was more expensive back then than today! Normally, we would see bonds selling at 7% or higher today due to wars and sudden hikes in oil and other real core items. But we don't have this because our economic system is now thoroughly taken over by hostile rivals seeking to pin us down and control us.

From Prison Planet:

Mansoor Mohi-uddin at UBS said last week’s aggressive 50 basis point interest rate cut from the Federal Reserve had reinvigorated markets around the globe, easing heightened levels of risk aversion sparked by the recent turmoil on the world’s credit markets.

“Paradoxically, it may have made it easier for other central banks to continue with their tightening cycle, putting downward pressure on the dollar via yield differentials,” he said.

Yikes. So, the US is now being forced to do what Japan has done only with a very significant difference: we are not amassing a huge FOREX reserve nor are we buying Japanese or Chinese bonds and holding them. Instead, as the yen and yuan stay weak, the dollar weakens! European and other banking systems are 'tightening' the screws but the US has its screws loose, eh? And I keep saying, if interest rates have no relation to inflation, why bother having them at all? A lot of people feel this way and we just might end up like Japan without any rates at all. A disaster for us since this will cause a collapse of peace-time commerce and end up dumping us into a war-economy we want to avoid even as we go to war.

Here, at Lew Rockwell, Mr. North talks about how the Fed might be depressing money creation:

This means that the FED need not purchase T-bills to inject new money into the economy. It can purchase other assets. I believe this is mainly what the FED is buying today. I cannot prove this, but it makes sense. It is trying to bail out banks that are in trouble and which need very short-term money.
*snip*
How could it reduce the AMB? There is only one way. It had to sell assets. When the FED sells an asset, the money received from the buyer disappears – the monetary deflation side of fractional reserve banking.

Third, we know from the record that the FedFunds rate for over two months had been pushing against the targeted 5.25% rate. Often, it would exceed 5.25%. Then the rate would decline, inter-day. Look at the high-range figures.

I like tinkering with charts so I took his charts and started cutting them up, looking for patterns. What I seek is simple: signs of the Fed using the gas pedal and brakes on our economic car.

Here are two charts from Lew Rockwell: Click on image to enlarge.

First, the adjusted monetary base: this is our banks at work. This shows the rate of change in our money manufacturing business. I used yellow to mark two data intersections: December, 2006, when the banking crisis first began to creep out into the open. The intersecting date is early March right on the heels of the global markets shuddering quite hard. Stocks shot up and the buy-out banking deals accelerated rapidly after this event. Not how the rate shot up to 4.0 where these two dates intersect.

The next nexus that is important is mid-June this year and August 15th when the global banking crisis nearly destroyed the Western banking systems. The intersecting numbers are in red, the ones that shot up much higher than the average. And then there is the point where the two dates cross each other: 5.6.

Where the 12th of September crosses with 7/17/7, we see all the numbers very low! All of them under 2, the intersection between these two dates is 0.4.

I am still thinking about what this reveals. I find it most queer. If readers here have any hints that might help here, feel free to inform me. I think ths riddle will be solved in good time. As data comes in, the picture grows in detail.

Here is another chart showing the Federal Reserve's adjusted monetary base. Click on image to enlarge.

Mr. North thinks the Fed is causing deflation of the money supply. What I see is the infamous 'gas pedal/brake' system at work. Every month, as the data comes in at the beginning of the month, the Fed presses the brakes due to obvious inflation. But the need for more money for the wars forces their hand and they give the US car more gas and inflation and money creation surges to a higher level. So at the beginning of 2007, they gave more gas. Between February and March, they stomped very briefly on the brakes and then reconsidered due to all the screaming of the speculators and others who rule us. So they pulsed the brake and gas pedal, keeping things at $852 billion. But something in July scared them again and they gave the car more gas but not quite as much as in February. It now went up to $860 billion which is $25 billion more than a year earlier.

Then at the beginning of September, they stomped on the brakes again. I believe the latest data for this week will show the gas pedal is being used yet again. Certainly, the math and computer whizes hired by the biggest brokerage houses are pacing this pulsating policy and include it along with a lot of other data to pre-guess what will happen next. And they use this to also demand the Fed do as they desire and as we see at the very top ad, they desire to lie to us about harsh economic reality and want us to think that the trends we are living in are good for us and we should exploit them for our own benefit.

From CBPP:

On August 13, 2007, the Centers for Medicare and Medicaid Services issued a proposed regulation that would eliminate federal Medicaid funding for important services provided to adults and children with disabilities (particularly those with mental illness), as well as other beneficiaries. The rule would significantly limit states’ ability to provide rehabilitative services, including those designed to enable individuals with disabilities to improve their mental or physical capacities and remain out of an institution.

When Germany had a financial crisis due to dropping foreign sales while trying to pay reparations, one of the Nazi's favorite themes was the story of the mentally ill eating honest burgers out of house and home. All those useless mouths! How dare they? The very, very first victims of the Holocaust were the mentally ill and the severely disabled. The first gas chambers and crematoriums were set up to empty out the asylums.

Back in the early 1970's, when the US faced inflation and war costs coupled with defeat, we did the exact same thing. Suddenly, it was all the rage to empty out the asylums. But the mentally ill were dumped into the gutter, literally. I was thoroughly enraged by this. I found many a helpless, befuddled and mentally crushed people on the streets at night in winter, shivering in the cold, literally starving and freezing to death. Many of these poor people died.

So it is again! Another sign that we have very real inflation and it is hammering the helpless.

In 2005, the Administration tried — and failed — to persuade Congress to restrict rehabilitative services as part of the Deficit Reduction Act. In its last two budgets, the Administration has announced that it intends to restrict these services anyway, bypassing Congress and acting administratively.

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Comments

[ginnie]

Elaine:

Thanks for the heads-up on the proposed regulation change by Medicare/Medicaid; this had somehow escaped my notice. I became disabled 6 yrs ago, so I was aware of the 2005 change; I read my CMMS quarterly statements with a magnifying glass.

Unfortunately, I need rehab services on a continuing basis - and an aide. Those bastards really do want to throw people in the ditch - I mean a nursing home.

Thanks for all your great work.

[TKN]

Mephistopheles claims to be a part of that power that always wants to do evil, but always makes good. The converse is the bumbling idiot who always tries to do good, but ends up causing nothing but trouble.

This blog brings things down to earth, so that financial matters are not much different to buying a few kg. of potatoes at the shop. If someone explains how you go to the supermarket shelf take the potatoes and pick up the price from the checkout as you leave, he is probably an addle wit.

Webster Tarpley piece on the Great Depression was something like that: "When this Wall Street Bubble had reached gargantuan proportions in the autumn of 1929, Montagu Norman sharply cut the British bank rate, repatriating British hot money, and pulling the rug out from under the Wall Street speculators, thus deliberately and consciously imploding the US markets." [NOTE: Actually raised the British bank rate from 4.5% to 5.5% in February 1929 to repatriate gold and stop speculation.]

J.K. Galbraith was a stuffed shirt, and responsible for much incantation himself. Besides he always fell back on the dubious axioms of economics. Actually the present situation is much like he said things were in 1929, from his books published in 1975 when he was flavour of the month, and popular guru paving the way for the present situation. He said the Federal Reserve lowered the bank rate in August 1929 by 0.5%, then walked away from the mess. The market completely recovered, only to completely crash in October. [NOTE: Apparently classical theory says that central banks should raise the bank rate and lend freely but only on good security - a politically difficult manoeuvre these days.]

Now things are completely different to 1929, owing to the vigorous application of Cart-before-horseism over the last several decades. Today the local outrage was a strident woman explaining how those people defaulting on their utility bills due to falling wages and high mortgages, will be lost and forever excluded from future credit. The local stock exchange is back in record territory, 6500; after falling to nearly 5500 about a month ago, but due only to a computer malfunction.

I apologise for being a little behind the game.

[Greg]

i couldnt believe it when i saw that you yanks measure inflation minus food and energy, WTF???? i thought to myself, the 2 basic cores of survival arent measured.... crazy stuff but crazy is to be expected from the good ole US of A these days.

[aitrader]

Interesting analysis. This begs the question whether the US will continue increasing debt to overseas holders until they can no longer service the debt with new debt. And what happens if the Chinese and Japanese quit or slow their debt purchases? Seems like a giant Ponzi scheme waiting to unravel.

Will the US massively devalue the dollar and leave the debt holders with nearly worthless paper or will they let things ride until the system self-adjusts and devalues the dollar for them?

What will this do to the dollar as the reserve currency?

Any guesses Elaine?

------------------------

With the US at 25% or global GDP and an economy that is 70% consumer based any kind of a shock to the system could remove up to 15% of global consumer demand.

When tied to your earlier piece about Peak Oil this bodes especially ill for the US economic outlook 3-5 years out IMO.

[Elaine Meinel Supkis]

The dollar has basically ceased to be the reserve currency of the world. Or rather, so much of it has been parked inside of the reserve FOREX funds in Russia, China and Japan, they can't be bothered with more funds and they are now buying euros which is why euros are going up and up and up while the dollar is going down and down and down.

And Peak oil is just about here: we can't tell until all the data comes in and there is a 6 month timelag in all this and on top of this, several big oil exporting nations are also very secretive.

TKN, thanks for the long comments. Gives me something to think about. The devil is in the details and the magic making money machine is very satanic which is why I am now saying we are deep within a currency-speculative bubble which my latest story has some elements concerning this mess.

We are DEFINITELY in a monetary bubble created by lopsided world trade based on the dollar. This will pop badly and the rising value of gold proves there are many betting this will happen.

[Elaine Meinel Supkis]

Ginnie, my dear husband is disabled and very vulnerable. So we track this sort of news closely. I greatly fear old-fashioned fascism which tends towards depression and saving money by killing people starting with the disabled.

[JSmith]

Ravi Batra again?! I thought he went away after his last crash didn't materialize.

"In your soon-to-be published book titled, "The Crash of the Millennium..."

Crash of the MILLENIUM? Ravi... the current millenium has 993 years left in it yet.

"Institutional and speculator organizations went from 10% to 80% while individual investors dropped to 20%. ... The average private investor is rapidly vanishing due to lack of free funds one can use to take chances on the vargarities of Wall Street."

Not so. The average private investor... invests in funds. 401K, mutial funds, annuities, etc., etc. in the heyday of the private investor, there just weren't that many places to invest besides portfolios of individual stocks. Now people don't have to pick stocks... they just put their money in some "Wilshire 5000"-type fund that buys the entire market.

"Suddenly, it was all the rage to empty out the asylums. But the mentally ill were dumped into the gutter, literally.'

That was a confluence of two bad ideas. First, it was decided that confining people involuntarily violated their Constitutional rights. They were supposed to be released into "voluntary" community treatment... but the small numbers of community treatment centers that were built weren't voluntarily utilized by the mentally ill.

[Elaine Meinel Supkis]

Well, the Thousand Year Reich lasted um, as long as this century so far. So one can talk about 'Millenium' to one's heart content. It is a term of endearment.

[Neuro Artist]

Batra is probably correct about the crash of the millenium.

The coming crash will result in wwIII, and I doubt those surviving that, will want (or have the capacity) to speculate in vague things like paper money, bonds, CD's, Hedge Funds etc. They would probably be more prone to speculate in how to survive the winter, when there will be rain, and how to make a house, and how to make use of that flatscreen TV. In about 600 years or so I predict the next major speculative bubble might re-appear, probably in something stupid like tulip bulbs.

[John]

"Crash of the MILLENIUM? Ravi... the current millenium has 993 years left in it yet."

*sigh* You are nothing if not predictable.

The crash actually started in 2000.

But Easy Al did the bidding of his fascist masters and blew a lending bubble (usually and erroneously described as a housing/real-estate bubble) to bail out the stock speculators.

So we've compounded a bubble with a bubble.

The impending crash, is, in fact, a millenium crash. And thanks to the stall tactics practiced by Easy Al and BushCo, it's going to be a lot worse than it needed to be.

Elaine, everey time I read your blog, the urge to dust off my magick and put the mother of all bindings on Dubya, Poppy, Cheney, Putin and those chumps in China and Japan grows very strong. (The deaths of Cheney and Putin, in particular, would remove a tremendous amount of shadow from this world.) Their callous selfishness, at the expense of so many, simply enrages me. However, I'm content in the knowlesge that I've worked off all my Karma, and all I have to do is make it thorugh this life. Because my only clear intention at this point is never to come back to this wretched little kindergarden.

[Neuro Artist]

John, are you sure that little urge will not play a trick on you and you will have to come back and work it out? Anyway, what is a few more lives post wwIII?

[DeVaul]

"Anyway, what is a few more lives post wwIII?"

Well, for one thing, you can definitely say you live in interesting times. Imagine holding hands with your loved one and staring at that beautiful glowing flower on a moonless night.

After WWIII, I fear we can only hope and dream that there may some day be something called a "tulip bulb mania".

[John]

Well, the ire at their selfishness arises, and then I release it. So no, unless I act upon it, I will not have a problem. And besides, all the bad actors are storing up mountains of Karmic debt by their own actions.

However, this has given me an idea; employing a defensive/restitution technique I perfected a long time ago. Hadn't really thought to apply it to people I'm not personally and directly in contact with. All such people I've employed this technique on have come to a most unhappy state of existance, without my having taken any untoward action against them in any way; the advantage, of course, is that by not setting any negativity into motion, I incur no repercussions. But after all, these creeps are harming me and those whom I care for by their selfish actions; so why not?

[Elaine Meinel Supkis]

Oh, the battles over control of Geronimo's skull!

Doing these things involves lightning bolts and of course, Karma plays a big roll. Alas for us imperfect humans. After all, what are we doing?

I killed a bunch of wasps today, for example. Their dead tree fell down in the forest. They were homeless so a thousand of them tried to make a new home...in my chimney! So I poisoned them. I guess, my karma took a big hit as far as the Insect Kingdom was concerned. They will be out looking for me later, in the Other Realm.

Hahaha. Stay clear!

But the main thing is, we do make the bed we sleep in which I keep saying. Fixing things is hard work and we must work harder.

[John]

I don't think that killing wasps in your chimney incurs bad Karma.

That whole "turn the other cheek" business has been used by unscrupulous elements to promulgate an attitude of rolling over and taking whatever unpleasantness comes your way. I'm having none of that.

No, incurring bad Karma would involve purposely roaming your land, making a point of killing wasps wherever you find them, when they posed no harm to you.

In fact, what I do revolves largely around the idea that Karma must be paid. I've merely realized some rights that each of us have, and at times choose to deliberately excercize these. Central to this principle is the surrender of all outcomes to Creation/God/call-it-what-pleases-you.

[Neuro Artist]

Sounds very reasonable John. I guess you mean it is the intent behind the action that is determening your Karma?

[John]

Ohh, yes. Intention is everything. While you will pay a penalty if you inadvertently kill someone, or do something that screws up their life, by far the biggest generator of Karma is willful bad intention. We see this reflected in our own legal system, (Earth is but a reflection of Eternity, after all!) where murder carries a whole different penalty structure than involuntaery manslaughter. And if an outright accident kills someone, often no charges are files, under the premise that sometimes, things just happen. Of course, Karmically speaking, there are no accidents and no coincidences. Still, intention is the single key determining factor.

One might just as easily say that the wasps in Elaine's chimney incurred the bad Karma that led to their deaths by nesting there. They had any number of places in which to nest, that would not bring them into conflict with her or anyone else.

[Elaine Meinel Supkis]

Worse, I was working on the roof when this mob of wasps came out of the woods, thousands of them! I now know how the natives of the New World felt when my WASP ancestors came. But they didn't have cans of Raid available.

Karma: that is when the ruling class fights each other.

[Neuro Artist]

Ah, Raid, that isn,t very good for your nerve system, Elaine. Though obviously it was even worse for the WASPs....

I pray for the release of the Karma incurred by Greenspan et al, in this life, though its obviously gonna be difficult. Hanging might help his (and his accomplices) soul to slightly better futures.

Wonder if you can take out options on his soul, just speculating....
:)

[Elaine Meinel Supkis]

Spray them all with Raid.

[Neuro Artist]

YES!

Wouldn't be surprised if the ingredients in Raid were developed by IG Farben. Its about time the elites taste their own medicine.

Next time smoke the WASPs in your chimney! Better for you! Get rid of your wasps by all means too....