Monday, November 30, 2009

Default, Default, Default!

If they only knew what is going on....

The deliberate and total destruction of the American middle class by Wall street banks, assisted by US politicians, is real.
Finally people are starting to fight back:

i. stop using your credit cards;

ii. withdraw all you money from banks and put it in an account of a community bank;

iii. 401 (K)'s should be placed in a roll over account which holds physical gold and silver.

iv. stop paying your 401 (K)'s and buy instead gold and silver

v. stop paying your debt.

Trust Busting By The People, For the People

A direct action plan for bringing down the US financial system

Secessio Plebis

The FDIC, the agency that insures the nation’s $4.8 trillion on deposit with banks, recently reported that it is out of money. The FDIC has no funds to back its promise to insure up to $250,000 of the money in banks in checking, NOW, and savings accounts, money market deposit accounts and certificates of deposit. Our “insurance” is an unfunded promise.

But that’s only half of the story. The FDIC didn’t have the money they said they had to begin with! As reported by Sprott Asset Management in its October report, “Dead Government Walking,” “the real shocker . . . is that the FDIC ‘funds’ were never even held in a segregated bank account -- the fees collected from the banks are accounted for as a part of the government’s general revenues that go towards military spending bailouts, interest costs and other government programs. The FDIC ‘fund’ merely consisted of IOU’s from the general revenues accounts.” Imagine that! Just like Social “Security”! The Social Security Administration doesn’t hold the social security funds it collects in a segregated, dedicated account, either. The government spends every penny and provides the SSA with IOU’s from a “Treasury” that is empty and hell-bent on borrowing even more! Like the FDIC’s “insurance,” our retirement benefits are unfunded.

In the world of private commerce, collecting funds with a promise to provide insurance or retirement benefits and not holding, investing and using the funds for that purpose, but spending every cent on every passing fancy like, say, adventures in reforming governments abroad, would constitute fraud and a breach of fiduciary obligation. Clearly, the US is no trustee or fiduciary of the people. When companies like General Motors or Northwest Airlines go bankrupt and leave their workers with billions of unfunded retirement benefits, people think it is unconscionable that the companies did not fund their employees’ retirement benefits and wonder how the laws of this country can permit such a thing. When the government does it, it’s -- what exactly? -- just fine? It’s not as though we can fix it by voting for someone new. The money’s gone and the only source for replenishing the funds is -- us. There’s no one to sue to recoup losses for mismanagement or waste, and in any event it’s not a breach of contract or a crime. In other words, there’s absolutely no accountability, and we’ve been impoverished. Lolz, aren’t we the suckers! What a scam! We’ve been completely rolled! And the government’s only “solution” is — let’s go double or nothing!

That people believe programs like the FDIC or Social Security provide a genuine “safety net” is a testament to the phenomenal power of magical thinking, and our own ability to delude ourselves. The reality is that the government is under no constraint to dedicate the funds collected to the purpose for which they were supposedly taken, but can spend every cent on anything it likes. Its supposed “commitment” to insure our deposits or to pay retirement benefits, therefore, is nothing more than a promise that, after it takes all the funds we have already provided for insurance or our retirement and spent them on something else, it will take even more from us to supply the funds it still needs to pay those promises which, of course, will also not be dedicated to the purpose for which they are taken but can be used for any purpose whatsoever. Its “promise”, in other words, is nothing more than a commitment to progressive impoverization.

The vaunted “safety net” is not a true, actuarial-based insurance fund administered by a trustee or fiduciary who is responsible to hold, invest and use the funds for a dedicated purpose, but is nothing but an IOU backed with zero assets, whose payouts are based solely upon the power to keep taking ever more from us until there is nothing left to take. Because the “safety net” is, by design, unfunded, its real function and purpose is to serve as a moral justification for unlimited expropriation for any purpose. “Oh, sorry, the money’s gone! Yes, in retrospect maybe we were unwise or irresponsible and wasted it, but we still have this noble purpose, we can’t abandon people now, so empty your pockets and send more so we can ‘protect’ you.” Wooo-ee! Here we go again! Double or nothing!

As an aside, you can see that the idea that we must have programs like Social Security and can’t “allow” people to keep their money and provide for their own retirement because they will just spend it all is completely meritless, a straw man. The people could not be more irresponsible than the government itself is with these funds — it blows every penny! Its “savings” plan, its “self-discipline,” is to spend it all and then take more as needed.

Along with national defense, providing “social insurance” is one of the principal grounds of legitimacy of modern government yet, like “national defense”, which principally involves waging wars of aggression abroad, these programs are complete frauds. You find out just how illusory it all really is, and how you were completely played for a sucker, after the money’s gone. If previously you have been a supporter of the idea of “government as social insurance provider,” let me suggest here that you admit to yourself — and then finally act upon — what would be obvious if you were dealing with anyone besides this mythic, magical thing called “government”: People who perpetrate fraud against you do not really have your best interests at heart. Not even when they say over and over that they do, or that they went into politics to Help People and because They Care. Not even when they promise that if you vote for them and give them a little more time to fix things and give their party a bigger majority they’ll make everything right and transform the world into the Beautiful Vision in Your Mind. With the exception of a very small handful of men of principle whose actions have long corresponded with their words, like Ron Paul or Dennis Kucinich, they should be treated as the lying, thieving reprobates, snake oil salesmen, sponsors and procurers of the police state at home and destruction, expropriation and murder abroad that they are, and certainly shouldn’t be dignified with titles such as “Representative,” “Senator,” or “President.”

By far the biggest confidence game, and the one on which they all depend, is the Federal Reserve’s fiat dollar, a paper IOU backed by zero assets and subsisting on nothing more than pure trust and our own continued willingness to play “let’s pretend.” Confidence (fraudulently obtained and fraudulently maintained, to be sure, but confidence nonetheless) is the fuel that keeps the entire corrupt system going. We need to withdraw that confidence, completely.

As a store of value, the Federal Reserve’s dollar is useless. It has declined over 95% in value since the Federal Reserve’s creation in 1913, and the Federal Reserve is currently actively engaged in driving it even lower. Money “saved” loses value, even when placed in banks to earn interest. Ever wonder why the banks do not pay any real amounts in interest on your deposits, why it never even covers cost of living increases? It’s because banks don’t really need the money in order to make loans. By making unlimited quantities of credit available to banks with the push of a button at zero interest or 25 basis points, the Federal Reserve has made our deposits unnecessary to banks and essentially worthless as a means of making money, so that we cannot even earn interest on our money sufficient to offset the decline in its value. The ability of banks to obtain cheap, unlimited credit from the Federal Reserve actually prevents your money from participating in the making of money. The Federal Reserve shunts you out of growth of your money through savings and investment because it can always provide vast sums of credit more cheaply than either depositors or investors.

With (i) an inability to earn sufficient interest on savings with banks, (ii) securities regulations that create large entry barriers to raising capital and which favor large companies and wealthy investors and preclude the creation of local or regional exchanges where small investors can provide funds to start-up businesses in their communities or regions and trade their securities, and (iii) tax incentives to put our funds into withdrawal-penalized IRAs and 401(k)s, our savings are herded into mutual funds as the one means open to us to earn money on our money. There, too much money chases too few stocks, because the Federal Reserve’s unlimited supply of cheap credit also makes stock irrelevant. Companies almost never issue publicly-traded stock to raise capital for their businesses. First, companies can get credit from banks via the Federal Reserve cheaper, easier and with lower transaction costs than they can get it publicly from investors. The Federal Reserve undercuts public investment in favor of financial institutions. Second, the payment of interest on debt is a deductible expense for income tax purposes, but dividends (payments on capital) are not, so that the after-tax cost of debt is even less than the nominal interest rate.

As a result of these huge structural biases toward debt financing, there is a very limited supply of publicly traded stocks in which to invest. Too many investment dollars chasing too few stocks results in overvalued stocks, whose price no longer reflects the fundamental underlying value of a percentage ownership interest in the company, but instead is a “bubble” reflecting (i) the momentary relative demand for the shares among the pool of largely captive investors (“captive” because people who have put their funds into IRAs and 401(k)s face very high extraction costs), and (ii) the amount of credit available to banks and other speculators and traders seeking to profit from short-term price swings in the stock. Providing zero interest credit to banks to trade in securities, as the Federal Reserve is currently doing, further inflates bubble prices to reflect the surfeit of credit available to the speculators playing with these chips, rather than any underlying real value of the securities.

The result of all of these factors is that the stock’s price (having ceased to have much to do with its real underlying value) is susceptible to huge, rapid increases and declines that, again, do not necessarily correspond to any change in the company’s actual business or prospects, but instead reflect credit expansion or contraction and the activities of short-term traders and speculators seeking profits. As a result of the bust last year when, practically overnight, the Dow Jones Industrial Average fell almost 34% and the S&P 500 Index fell about 38%, we all know now that the advice we were given long ago that we should just put our money in stocks and forget about it until retirement (“Over the long run, you will make money!”) was effectively sheer BS designed to get us to put money into what are really high-risk assets. Thanks to the massive price inflection risk caused by massive underlying fiat credit, speculative trading and churning for trading and management fees, this is a high-stakes game rigged for speculators, traders and mutual fund managers, and is certainly not a game anyone should be playing with funds they will need to live in their old age. And yet, this is the corral into which our savings are driven by our government’s policies.

We are never going to have a government that is constrained by economic reality until it is forced to use and reckon in sound money, and not in a fiat currency that can be created out of thin air completely unconnected to, and unlimited by, the real economic value of assets or productive capacity. We are never going to be able to save funds that have any lasting value, or grow our savings through a return in the form of interest or through real public investment opportunities under the current system. It is time for us, the people, to do our own trust busting, to bring down these huge financial institutions, including the Federal Reserve, and the oligarchy that transform our savings into chips in a global financial casino and transform us into tax and debt slaves. We can do it, and we don’t need the politicians.

It hasn’t received anywhere near the attention it deserved, or prompted the sustained action it warrants but, shades of Howard Beale!, on October 21, something pretty significant happened. Someone in the “main stream media” went beyond the formulaic, toothless recommendations to “contact your representatives in Washington and demand that they do something” and called for direct action. MSNBC financial commentator Dylan Ratigan recommended that we stop helping the nation’s largest banks gamble with our money and make record profits off of taxpayer funds by (i) taking all of our funds out of the largest banks and moving them into community banks, (ii) using cash as much as possible, and (iii) stop using our credit cards. He actually urged self-help to stop the pillage of our wealth and our future.

Unfortunately, he is not as radical, yet, as he could be, because he seems to still believe it is possible to get Washington to work for the people. In the same October broadcast in which he called for direct action, he also urged that we write and complain to our representatives. Again, on November 16th, he hosted a discussion of the need for people to burn up the phone lines with their anger and come to Washington to protest so that their representatives start “getting it” and pass legislation to protect the people.

Now, just let the bitter implications of that suggestion sink in for a moment. Our “representatives” don’t know what serves our interests, that is, they can’t perceive it by putting themselves in our position, or do and won’t act on it, but need to hear from us in large numbers, with impassioned voices, and we actually have to go to Washington and provide a visual demonstration to them of how important this is to us, before they will stop doing the bidding of the lobbyists who provide funds for their campaigns and actually represent us. Hmmm, maybe we have a far bigger systemic problem here than can be addressed by phone calls, emails and bus trips to Washington.

Mr. Ratigan, give up this last vestige of hope in our utterly corrupt political system, so you can more fully throw yourself into the work that actually needs to be done!

“Burning the phone lines,” and protests in Washington aren’t going to accomplish anything. Calls to Washington opposing TARP were running close to 400 to one against, and Congress passed it anyway. When people in France take to the streets it has some effect because they are really teed off and “communicate” this by burning cars, smashing things, bringing public transit or truck deliveries to a halt or shutting down parts of the city. When people in France take to the streets, it still recalls to the minds of their elected representatives a time 220 years ago when members of the ruling class were guillotined in those very streets, and tens of thousands of aristocrats and clergy had to flee their country and leave their estates behind to avoid a similar fate. When Americans “take to the streets” in Washington we have, what, exactly? Picnics on the Mall, family outings with the kids, people listening to fiery speeches from activists and celebrities, protest songs from popular singers and maybe memories of free love from the 60s? Oh, how they tremble in the halls of Congress!

Meanwhile, over at Huffington Post, to take it as but an example of the supplicant form of “activism” that is prevalent and accepted among polite society, we are treated to earnest blog entries explaining the steps that our government should be taking to help us, as if our “representatives” were people of good faith who really want to help us but just need it carefully explained to them so they know what to do. Or we are treated, in “Bearing Witness 2.0,” to tales of people who are suffering from the financial crisis or our health care system, as if appeals to compassion and conscience will trump the built-in dictates of the system.

Expecting to bring about reform by pushing for “change” in the next election, reporting the horrendous consequences of failed government polices, “speaking truth to power,” petitioning Congress, protesting — tell me again, what is the definition of “insanity”? The American progressive agitating for “change” is the very incarnation of the hapless, inept George Constanza, who badly needs to have an epiphany and start doing the opposite.

The Barons at Runnymede were not petitioning their government. Magna Carta, the great font of Anglo-American law that secured liberty from 1215 until the latter part of the 20th Century, was not obtained by begging for it. It is time to take direct action to bring the entire corrupt, central banking, fractional reserve, fiat currency system down. It is time, not for us to go to Washington, but to create so much financial havoc that our “representatives” come to us, begging us, with the entire edifice crashing down around them, for the chance to represent and serve us. It is time to engineer the downfall of the oligarchy that controls our government, so that all the financiers who created this crisis lose their jobs and flee to their offshore fortresses of solitude to enjoy some permanent time off with their ill-gotten gains. There, they can begin plotting anew how, after a few generations, when the world has forgotten the lessons of the current crisis, their grandchildren or great grandchildren can regain control of the world’s financial system and governments. That is the plan we need.

Dylan Ratigan has the right idea, but I don’t believe he takes it far enough. People with far more knowledge and insight into the workings of the current financial system than I currently have are needed to help plan this downfall, and many are needed to spread the word, but we should build and start acting now on Dylan Ratigan’s proposal.

Please note that in what follows, I am not rendering investment advice. I am not talking about a plan to protect or preserve your wealth or to profit in this crisis, or the actions you can take as a solitary individual to assist you and your family to weather this storm. I have no idea whether the actions recommended below will preserve or increase your wealth. In what follows I am talking about a grassroots uprising, a communal undertaking, to bring an end to the corrupt money system that rules and ruins our lives. At its utmost reaches, it is a scorched earth plan, and it would cost us, dearly. However, I believe that if we do not act now, we will simply face an even greater consolidation of power over us, and will be reduced even further into tax and debt peonage.

Herewith the Plan. None of it is illegal. Yet.

1. According to Bernie Sanders, the four largest banks in America — JP Morgan Chase, Bank of America, Wells Fargo, and Citigroup — now issue two-thirds of all credit cards and hold 40% of all bank deposits in the country. As Dylan Ratigan suggested, and we should keep suggesting and urging people to act upon, everyone who is a depositor in any these banks or any other large or regional bank should take all of their money out of those banks, terminate the accounts and open new accounts in small community banks and credit unions, and people should stop using their credit cards.

2. We should take, and keep, as much money out of the banks, all banks, as possible. Use cash to pay all local merchants and stop using your debit card. When CDs come to term, do not renew them, but withdraw the funds. In that community bank account you establish, leave in, or deposit when needed, only enough money to cover checks or bills you pay electronically and monthly fees, with a cushion against errors. Because banks have only a small fraction of the amount people have in deposits, and so many payments are made by digital account entries, taking our money out of banks en masse may force the Federal Reserve to actually have to print money, so that we can hold it in our hot little hands, and may actually force paper money into system. It will also decrease bank reserves and create bank instability, if not actual bank closings.

3. All amounts of long-term savings withdrawn from banks (i.e., not the cushion you keep for unexpected events or planned-for future expenses, like those new tires you are going to need for your car in a few months) should be used to purchase physical gold or silver. By doing this, you affirm that you want a currency that more than mere scrip that allows you to purchase current goods and services, but serves as a long term, stable store of value, is tied to some underlying commodity and independent measure of value that trades freely and therefore reflects real market or economic value, and is not subject to manufacture out of thin air or ready manipulation. For every ounce of gold or silver that you buy, you cast a vote of no confidence in the US dollar and the US government far more powerful than any vote you can cast for or against any politician and directly challenge the corrupt, manipulative central banking fiat money system that is destroying the middle class, destroying your wealth, reducing the value of your labor and condemning you and your children to perpetual debt and tax servitude.

As mentioned above, there are about $4.8 trillion in deposits in banks. The goal is to get as much of this into our hands as physical dollars for current or short-term needs and as much of our long-term savings into physical gold and silver as possible. If we can move sufficient amount of our funds permanently out of the largest banks, even the too-big-to-fails may tumble, and the system the oligarchs have set up for themselves might implode. In pursuing this goal we will not be alone. If we can move enough of our deposits into gold and silver, the world will see that even the American people are rejecting their worthless currency and have no trust or confidence in the fiat dollar or their government, and would join us in an exodus from dollars that may well overwhelm the capacity of central banks to control.

From a purely personal perspective, thus far, there is little cost to these actions, other than the necessity of continually managing your cash needs to avoid credit and debit card transactions and to keep your bank balance as low as possible, and the transaction costs of purchasing bullion, which seem to run generally from 5 to 7 percent. That will be an expense that has to be recouped before you begin “profiting” from owning bullion. Of course, there would be personal costs associated with actually succeeding in bringing about a collapse of the banking system, somewhat unquantifiable! You will also need to make appropriate preparations for those.

Now let’s deal with funds in IRAs and 401(k)s. It is difficult to obtain current information but, based on information compiled by the New York Times from data supplied by the Employee Benefit Research Institute and presented in an article on October 31st, it appears that, shortly after the market crash in 2008, there was approximately $3.7 trillion in IRAs and approximately $2.7 trillion in 401(k)s, or $6.4 trillion in retirement savings. Let’s address what we can do with these.

4. Funds from previous employment in rollover IRAs or in 401(k)s that are in former employer plans because you didn’t roll them over into your own IRA can be taken out of stock and bond funds and placed in a new qualified rollover account which holds physical gold and silver.

Generally, creating a gold and silver rollover account can be done with relatively minimal cost, but check carefully before you act because in some cases you will be charged fees for taking money out of your existing stock or bond funds. You are definitely going to lose anywhere from 5 - 7% of your funds in transaction fees to acquire bullion, unless you can make a very large purchase. However, because of the large amount of funds in rollover accounts that can be rolled over into bullion accounts, this action would be a massive vote of no confidence not only in the central banking, fiat currency system, but also in the rigged, captive investment, mutual fund stock market system, as people made it clear they will no longer put their savings into a relatively closed and limited pool of securities whose underlying prices bear little to no real relationship to the underlying economic value of the companies that issue those securities.

I caution again that I am not giving investment advice here, but describing a tactic to take down the existing corrupt financial system. I have no idea whether this will make you “better off” financially. The more people who do this, the more the price of gold and silver will rise, and the value of the dollar decline. But do not make the mistake of thinking that gold and silver have some inherent value immune from the relativity that affects all other assets. They do not. Should the entire fiat dollar system implode, there may well be massive deflation in the prices of assets, as the portion of asset prices attributable to the massive underlying credit disappears into thin air. In such a scenario, gold and silver prices may readjust downward as well, to a level below the amount you paid to acquire them, to reflect their real purchasing power. This is not a plan to make money, but to eliminate a corrupt system that consigns us to the status of mere consumers and renders us incapable of accumulating any of our own wealth or making any genuine returns on our own money, and reduces us to debt peonage. War is hell, and it is not going to be cost-free.

There are at least three other steps we can take, but each of them will involve even greater personal costs.

5. Cease contributing funds to IRAs and 401(k)s and use the available after-tax funds to purchase gold and silver. You will pay more in taxes, but you will stop feeding the asset bubbles in securities, undermine the Wall Street traders and money managers that make their profits from trading these inflated assets and managing mutual funds and further undermine the dollar with your purchases of bullion.

6. Withdraw funds from IRAs and 401(k)s and use the after-tax proceeds to buy gold and silver.

This one will really hurt. Amounts withdrawn from these accounts prior to age 59-1/2 are subject to a 10% tax penalty (except in limited cases) and are also subject to income tax, so taking any funds out of these accounts prior to that age and while you are still earning income from employment and subject to high tax rates will cost you. The 10% penalty is imposed to prevent you from taking your money out before retirement and blowing it all, like, you know, the government does. Depending on your federal and state tax brackets you could easily lose up to 50% of the total amount you take out. This tax burden effectively dissuades most people from withdrawing their funds, even in the face of huge swings in the market and huge uncertainty about the future value of their stock and bond investments. It would be quite costly, personally, but a large-scale termination of these accounts would massively deflate the value of stocks and other securities and the use of the after-tax funds to purchase gold and silver would further strike a huge blow against the fiat dollar.

7. Finally, the “nuclear option” — a large-scale permanent default on payment of personal debt.

This would be a complete refusal to pay any amount owed to lenders until part of the debt is written off and the financial system is completely reformed. People in some debtor nations that are in extremis, like Iceland and Latvia, are talking about this. The underlying justifications for a write-down are:

(a) morally, no person may own another, and it is as wrong to accomplish this by reducing people to debt peonage as it is to seize them and subsequently buy and sell them outright;

(b) economically, the central bank, fractional reserve banking system, in possession of a legally-created monopoly on credit by virtue of legal tender laws that require people to use the central bank’s currency, permits credit to be created out of thin air with the push of a button in amounts both untethered and unrelated to the real economic value of assets or productive capacity (the necessary implication of any fractional reserve system that is untied to any physical commodity the price of which is difficult to manipulate (such as gold) and has no real upper bounds), resulting in asset prices that reflect, not underlying economic reality, but the surfeit of underlying available credit, and it is necessary to deflate this artificial bubble inflated by the rent-seeking behavior of financiers so that people can again engage in real economic transactions on the basis of economic reality, and the real economy can again begin to thrive, and

(c) legally (although an argument that is unlikely to be accepted in any court of law), unlimited credit made available at artificial interest rates (interest rates produced by a central bank under legal tender laws inherently cannot reflect any “real” cost of money because central banks can literally create infinite supplies of credit by simply commanding it into existence) and lowered credit standards result in inflated asset prices that are far more a function of artificially created mass demand fueled by limitless cheap credit than the underlying economic value of assets, amounting to both price manipulation and “fraud in the inducement” by financial institutions, entitling debtors to damages or to vitiate their contracts.

Reform in America would mean, at a minimum, that all the people who helped create the crisis are out of all positions of power in government and replaced with people who saw it coming and understand why it happened, ending the Federal Reserve’s power to create credit, print money and act as lender of last resort, auditing it and putting it into receivership for liquidation, repeal of legal tender laws (so that people can freely use whatever currency they believe is the soundest and best store of value), repeal of the utterly disastrous Gramm-Leach-Bliley Act to re-separate commercial banking from investment banking, prohibition of sales of loans originated by commercial banks to a secondary market (banks will be far more careful lenders if they know they are the ones stuck holding the mortgage), and either elimination of all tax advantages that favor debt over equity, or grant of corresponding tax advantages to equity investment.

Large-scale, intentional default on all debt payment to lenders would be a fatal blow to the financial system. The goals are worthy, and should be the goals we have. Unfortunately, I suspect that the strategy of mass default as a means of achieving those goals is one of those shimmering visions like the syndicalist idea of the General Strike: absolutely awe-inspiring in its potential power and perfectly correct in theory, but near-impossible to actualize because of the degree of social cooperation needed to pull it off. I mention it principally to suggest we not be sidetracked by it but instead proceed immediately to do as much as possible with the readily available actions.

If Americans ever hope to have a government that is fiscally responsible and reflects the government we can actually afford, we have to take away its ability to play with monopoly money and force it to base its decisions on the much more limited supply of a sound currency that is rooted in economic reality and not in the rent-seeking activities of financiers. The political process is completely broken, captured by financial interests and utterly corrupt. The time has come for Americans to abandon “hope” in “change” coming from that quarter and do some trust-busting on their own. Écrasez l’infâme! Let’s get to work!

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