Co-Authored
by Gregory Olson, CEO – GRO Enterprises
One of the
traps all analysts fall into from time to time is their inability to see the
forest through the trees. We are all guilty of this from time to time, and
those who would deny this simple reality only set themselves up to miss
important changes in the paradigms in which they operate. Perhaps the
most famous example of this happened in the life and times of Christopher
Columbus. We’re sure you recall the mental model of that time; that the
Earth was flat. Many very wise people in Columbus’ day felt he was
going to sail the Nina, the Pinta, and the Santa
Maria right off the edge of the Earth. And there are many other classic
examples as well.
Today, we
might call such a condition extreme dogmatism, which is essentially the
clinging to a belief or set of beliefs despite overwhelming evidence to the
contrary. These days we find the same type of dogmatism in our world. The
belief that we can spend our way to prosperity is one. The belief that we can
do so with borrowed money is another. However, even within the knowledge that
both of these positions are completely reliant on fantasy, there is the
danger to just pin our trust on the opposite side of the argument without
really taking the time to consider what exactly we are espousing.
So one of
the questions we obviously need to ask ourselves constantly is ‘what
are we missing here?’ In looking at the current debt situation, we tend
to focus on the ‘national debt’ and its continuing rise, but in
truth, the national debt or public debt as it is also called is only a very
small part of the total picture. The truth is it goes way beyond that. We
have focused several times on consumer debt, and even that is only another
small portion of the overall picture. Back in 2008, leverage was the word of
the day and everyone was wrapped up in talking about which bank was leveraged
the most. Guesstimates of 100:1 were flying around with regard to certain of
the biggies that eventually would require an adrenaline shot to the heart in
the form of the commitment of years of future GDP just to keep them alive.
The truth
is that the debt problem is systemic. For the purposes of this paper, we are
not going to even look at the future in terms of unfunded liabilities. Most
understand that bleak picture fairly well. Instead we’re going to look
at current information as reported by the (non)USFed and USTreasury. And when
we’re done, we’re going to float the all-important question.
Sorry, but you’ll need to read the rest of the paper to find out what
that is. The balance of this essay is going to be from email conversations
between Greg and Andy on this issue. The reaches were far and wide, but
hopefully this will help readers to expand their thinking even further. Those
that recognize the problems are becoming greater in number on a daily basis.
Our goal is to enhance that understanding and hopefully to motivate people to
action in their own lives where real reforms can take place. Starting at the
top and working our way down has proven to be almost totally ineffective, and
frustrating on top of it. Many people who have gone to ‘End the
Fed’ rallies have come home euphoric, but that energy has dissipated
quickly as they’ve seen the bankers just wave it all off and continue
to sell our children and grandchildren into…. yes, debt slavery. So a
bottom up fix it must be. And if you’re in a good spot, chances are you
know a lot of people who aren’t. Encourage them to throw down the proverbial
chains and dare to be free.
Here are
some of the quotes from our email discussions. We only ask that you
use/distribute this to enhance understanding of the reality of the current
situation.
[Gregory
Olson] “I'm not an economist, and in a way I'm glad I'm not. I
can look at the numbers with fresh open views without being forced into
pre-defined boxes learned in college. For example, after looking at the
GDP, mortgages, and interest rates over 40 years, I don't believe the
interest rates have anything to do with the economy, but the Federal Reserve
sets them for their own agendas. The Fed slipped that
fact out by their declaring the rates will not be raised for two more
years. The statement proves they are in complete control of the rates,
not the markets. Otherwise, they would not have said it so
confidently. In fact, if you look at the prime rate for the last
40 years, it changes direction like clockwork on average about every 5.5
years. This leads one to believe on the surface that there are
"cycles" in the economy, when the GDP is not affected
significantly by the changes.
Over the
summer when I saw this pattern (or should I say no causal relationship), I
pegged that the next year of change of the interest rates is about
2013. One month later, sure enough, that is the exact time they are
going to change the rates. Basically, it means the Fed is full of BS,
and they have deliberately lowered the rates, added debt, and then they will
claim the market is raising the rates, when indeed, they are planning on
doing it themselves to bankrupt the United States and set up an one world
government. The data does not support the Keynesian views at all in
terms of the impact of inflation and interest rates. Indeed, though it
can't be proven, I believe the spike in rates in 1970 was the Fed's way to
get us conditioned to ridiculously high interest rates on credit cards, which
were being introduced into the economy at that time. The prime rate
decreases in the 1980s, but the credit card rates did not.
The
strategy was extremely successful. I believe this is the correct answer
based on the law of supply and demand. There is no "economic
law" when it comes to a fiat system, because the money supply is
unlimited, removing the natural laws of the universe. The Fed
actually knows how the "real laws" work, but they lie about it and
use the system to steal and cheat, profiting from the deception. They
deliberately lie, so they can control the rate. So they (the
Fed) feed the university economists and Ph.Ds
junk ideas, based on their man-made system, claiming it follows the universal
law of supply and demand, when it does not.
So I'm
glad I'm not an economist, and I can look at the data and think out of the
box like this. The "stagnation" idiot ideas of the 70s to
explain the "inflation" that didn't fit into the Keynesian models
is simply a way to force fit an explanation that hides the more accurately
and simple explanation, which is, the Fed raises and lowers
the interest rate at its own bidding, to secretly promote their own
hidden agendas.
If I'm
wrong about the interest rates, then prove it from the data over 50 years to
me; I'm all ears. The data does not support a free market economy at
all! It supports a manipulated one. The bottom line is the fiat
system does not follow demand and supply laws because the money supply is unlimited,
circumventing natural law.
We've been
duped. That's what I've concluded so far, among other things.
At first I
thought everyone should know about this, or that the government should take
control of the rate itself to prevent it from rising in two years according
to the Federal Reserves' hidden strategy. (They will raise it 2
or 3 points to bankrupt the US and say it’s
market forces driving it, doing the famous double-talk). Then I
realized the Fed has us over a barrel. If we now let that idea gain
traction, the credibility of the United States will be shot, and the whole
globe will blame us and our greedy Fed for the world's financial problems, and nobody will want our dollars. So down
goes the United States by telling the truth.
On the
other hand, maybe telling the truth is better, and we should take the
world's rejection and transition slowly to a better system after being thrown
into bankruptcy and poverty.”
[Andy
Sutton] “I
agree 100% there; the Fed has clearly used interest rates and the money
supply to manipulate the economy. The irony is that the Fed was allegedly
created to eliminate the prior boom-bust cycles, bank panics, and other
financial and economic dislocations. It has done nothing but take those
cycles and amplify them by an order of magnitude. Then when it all goes bad,
the consumer is blamed – aka the ‘roaring 20s’ and the
housing ‘crisis’. Sure, consumers signed the dotted line in both
instances and so they’re ultimately responsible, but there was a good
deal of misinformation propagated by the banking syndicate and the media to
entice people to make bad decisions. Terms weren’t properly disclosed,
nor were conflicts of interest. There was little due diligence on either
part, but the bankers knew something the consumers didn’t. They knew
(because of history) that when push came to shove that they would be made
whole – at the consumer’s expense. Want proof? Just take a look
at the government’s actions with regard to the scads of bank failures
back in the early 1800s. Every time the banks over issued scrip and
precipitated a run, the government bailed them out by allowing them to
default rather than forcing them to come up with the silver that was owed to
the depositors. Save Andrew Jackson, every instance of bad behavior resulted
in a ‘bailout’. This is common knowledge in banking circles, but
not consumer circles. A classic case of imperfect information. Would
consumers have cared? I’ll give you two guesses, but you’ll only
need one. So there is plenty of blame to go around on this one.
As to your
comments about being an ‘economist’, I have been called one many
times, but it is a title/label I really bristle at to be honest, mostly
because of guilt by association. I reject all of Keynesianism out of hand,
but that is a subtlety that many people don’t pick up on because all
they know is Keynesianism. It is the prevailing thought process taught at all
levels of education, with very few exceptions.
I think a
final point here is that this is not ‘our’ Fed. That institution
is owned by and large by 12 large banks that have no loyalty to any flag or
other sovereign power including God Almighty. I have said this before, that
they are men without a country, but seek to conquer all countries. I was
having a conversation with a client yesterday and he mentioned a quote and I
can’t attribute it to the author, but it is a very good one –
Give a man a gun and he can rob a bank, but give a man a bank and he can rob
the world.”
[Gregory
Olson] “ I appreciate your attention to this
important topic. Bernanke let the cat out of the bag by his declaration
of holding interest rates stable for two years. I have vacillated
over the solution of turning the setting of the rate to the government,
rather than to a private banking cartel, wondering if it’s too late or
not. Your thoughts will be helpful to hear.
Indeed,
these people are not stupid, and Bernanke's comment appears to be a threat of
sorts, in an extremely subtle manner, to those who are paying
attention. Those who want the United States to go down must be
celebrating right now. He is communicating congratulations to those who are
on his side. Their victory is only two or three years away. That is the
message to them. After working on the destruction of the freedom of
the United States for more than one hundred years, they
no doubt are delighted to see the end in sight.”
[Andy
Sutton] “That said, the interest rate conundrum is an interesting one
because for a long time, there were two rate markets really - the manipulated
short end (Fed Funds / Discount Rate) and the 'free market' long end from
about one year out. So in theory, the USFed could
drive the short end, but not the long end. I have opined and others have
demonstrated that the USFed has been messing with
the long end for a while now according to its own agenda. Those in charge
certainly couldn't give a rip about the US economy beyond its ability to further
enrich them.
This said, I am not sure there is much to be gained by debating out
the minutia of economic manipulations. We know the basic principles. Nobody
borrows their way to prosperity, etc. There is no free lunch. These are
facts. We can base what we do around them and leave the rest to the quants. I
enjoy playing with the numbers just to try to understand a little deeper what
is really going on and I suspect you're the same way. In either case, if you
know the trend, it is your friend. I think the biggest problem with returning
monetary policy to the Congress at this point is that those people are also
bought and paid for by the same people that own Bernanke, et al. So it really
doesn't matter. Congress certainly isn't equipped to deal with this complex a
monetary environment and that was done intentionally in my opinion to make it
harder to dissolve the banking cartel.
As
evidence of the inability of Congress to manage a complex environment,
I’ll present several policy gaffes, namely the stimulus, which just
prolonged the inevitable, the TARP mess, which further unequally yoked us to
this corrupt system, and a complete failure to bring ANYONE to justice over
the 2008 mess, and more recently the MF Global blowup. Although to be fair,
the subpoenas just started flying and the denials by Corzine and others have
only begun. I have zero confidence in Congress, given the fact that they
allow Bernanke to testify on a regular basis and blatantly lie, refuse to
provide information, and obfuscate without nary a
word of protest. Congress would have a hard time managing a lemonade stand in
my view, let alone interest rates. The only real answer there is to return
rates to an unencumbered free market and take what comes with it. It
certainly can’t be worse than what we’re dealing with
now.”
The US
Debt Mix
[Gregory
Olson] The following numbers and graphs show the root cause of the financial
problems of the US economy today and how we got there. The Federal
Reserve, or whoever had responsibility for the debt mix of the United States
from 1946 to 2008, decided to reduce the % of government debt in favor of
rapidly increasing debts in the financial sector, mortgages, the foreign
sector, and the household sector, while simultaneously decreasing the
business operational debt. Only the business sector produces real
wealth in the economy. It is clear the economy has been
manipulated by man to create cash from nothing, producing multiple bubbles in
the economy as the fabricated cash changed into different forms over time.
The business sector cannot sustain the debt trends, and thereof, the economy
has hit its financial limits. Trading financial paper and flipping a
home mortgage 4 times in 30 years does not create real wealth. Rather,
it inflates home prices.
Please
note, rather than the banks losing interest income due to decreasing debt
after 2008 in mortgages, the household sector, and the financial sector, they
have opted to increase government borrowing, swapping one debt for another
one. Otherwise, the total debt would actually have decreased after
2007. Credit cards and mortgages decreased, for example. The
banks are not motivated to allow the total debt to decrease. Thus, in
spite of the economic troubles of the United States of America, the banks
still have managed to keep the debt growing to sustain their
income. Tilt. Game over.
[Andy
Sutton] Whether
people want to admit it or not, the above chart shows a definite separation
between debt and GDP in the 1970s, starting around 1974. Most conventional
logic would tie this divergence into the abandonment of the gold standard,
and for the most part, that is correct. It is very applicable, especially
when considering the discipline that even the pseudo-gold standard imposed on
the system at that point in time. Our external debts were still settled in
gold prior to August 15, 1971. But there is likely a lot more at work here, and
that is the agenda of the international bankers and their policy tool, the USFed. When considering the big picture, it becomes
fairly obvious that the gold really didn’t go to other countries per
se, but rather into the pockets and vaults of the banking syndicate. They
knew all along that eventually the US would run out of gold to settle foreign
trade deficits. It wasn’t an accident, like most conventional sources
of news and history books will try to assert. This was all part of the
agenda, from the very beginning. It reeks of incrementalism,
which is the signature of most subversive movements in history.
[Andy
Sutton] The above
chart is really a paradigm buster, when you think of all the emphasis that
has been placed on the last several years and the massive ramp-up of
America’s public debt. That ramping up can be seen clearly in the
chart, but the debt profile has become much more even, with all areas of the
system coming under equal pressure and more and more parties ‘making
payments’ on various expenditures. This is a fiat money system’s
dream come true: everyone making payments. These payments require real labor
and other inputs to pay back something that was created from nothing.
The $56
Trillion Question
With all
of this information out there, the obvious question becomes this: who exactly
is all of this ‘money’ owed to anyway? The quick answer would be
the banks, but if you look at them, they’re in hoc too. Sure, Ma and Pa
Kettle owe the commercial banking side of BofA
$150,000 for the mortgage, and another $25,000 in credit cards, while the
investment banking side of BofA owes untold
billions to who? Who exactly is the counterparty to
all this debt? Who exactly are we committing at present count roughly 4 years
of aggregate economic output to pay off? This debt is claiming our country,
our families, our kids, and our way of life and we don’t feel that
we’re overstating this in the least. Since we can’t even effectively
answer this question in a specific manner, wouldn’t it seem prudent to
rid yourself of as much of the ‘making payments’ mentality as
humanly possible?
Greg Olson is the CEO of GRO Enterprises; a
company devoted to helping people spend money at optimal
levels, removing all debts in 12 years or less, including the home
mortgage. His company develops software solutions to unleash the
power of spending money. He has an Accounting degree and
a MBA and has worked in finance for companies such IBM, CBS, Fox, and
Paramount before changing his career focus to personal
finances.
Until Next Time,
Andrew W. Sutton, MBA
Chief Market Strategist
Sutton &
Associates, LLC
Interested in what is going on in the markets and
the economy? Read Andy Sutton's weekly market and economic commentary 'My Two
Cents' - go to www.my2centsonline.com