Analysis of Financial Terrorism in America

Over 1 Million Deaths Annually, 62 Million People With Zero Net Worth, As the Economic Elite Make Off With $46 Trillion

David DeGraw
Global Research
August 11, 2011

Abstract: Welcome to World War III

Despite increasing personal financial hardship, most Americans remain unaware of the economic world war currently unfolding. An all-pervasive corporate and government propaganda campaign has effectively obscured this blatant reality. After extensive analysis, it is evident that World War III is a war between the richest one-tenth of one percent of the global population and 99.9 percent of humanity. Or, as I have called it, The Economic Elite Vs. The People [18]. This war has been a one-sided attack thus far. However, as we have seen throughout the world in recent months, the people are beginning to fight back. The following report is a statistical analysis of the systemic economic attacks against the American people.

Introduction

The American public has sustained intensive economic attacks across broad segments of the population. While the attacks have been increasingly severe in scale over the past four years, they have been implemented with technocratic precision. They have been incrementally applied thus far, successfully keeping the population passive and avoiding any large-scale civilian unrest, while effectively reducing living standards for the majority of the population. As you will see in this report, the 55 million Americans that have been hit the hardest have thus far acquiesced due to temporary financial assistance, such as food stamps and extended unemployment benefits.

The global Economic Elite have been much more strategic in handling the American public, as they are potentially the greatest threat to their continued consolidation of wealth, resources and power. National populations that are not as powerful, and on the periphery of the Economic Elite’s global empire, have been dealt with in much harsher fashion. In many smaller and less powerful countries the dramatic rise in food prices and costs of living have led to all-out revolt — Tunisia, Algeria, Albania and Egypt were among the first to rebel. While the contagion of rebellion has rapidly spread throughout Northern Africa and the Middle East, it is also spreading in a decentralized manner throughout most of the world, now threatening popular rebellion throughout Europe. Like the US population, the geographically clustered European nations represent a potentially powerful countervailing force to the Economic Elite’s continued domination.

Within the United States, the technocratic suppression of the population has been extensive. Increasingly severe economic and governmental policies have systematically eroded civilian wealth, power and rights. Intensive propaganda has effectively distracted, confused, isolated, marginalized and divided the US population. Despite the success of these efforts thus far, given the severe, prolonged, unsustainable and escalating level of economic suffering, outbreaks of civil unrest are inevitable. The US population, if a critical mass is reached, represents the greatest threat to the Economic Elite. In this regard, the American people are their primary adversary.

In writing this report, I will clearly demonstrate the severity and scale of the deliberate systemic economic attacks against the US population, in hope that we can urgently build a critical mass of aware and engaged citizens.

Part One :: The Economic Devastation

Snapshot: According to most recent Census Bureau data, from 2005 – 2009, average US household wealth declined by 28% [19]. This represents a loss of $27,000 per household. Currently, at least 62 million Americans, 20% [19] of US households, have zero or negative net worth.

The Census figures cited above are based on statistics that have been consistently proven to be lowball estimates. The government and corporate media spread propaganda on vital economic statistics that mask the severity of our economic crisis. Deceptive inflation, unemployment, poverty and GDP measures, which cast the illusion of recovery, are easily exposed with some research and a closer look at the data. Throughout this report, we will explore significant examples of government economic propaganda. In several cases, the government has been forced to revise their numbers due to proven inaccuracies. The government’s “revisions” are most always for the worse, and are usually just a footnote correction that the public is rarely ever aware of. All that being said, for many statistics we are forced to use government data, as there are not any other extensive data sets available from alternative sources.

I :: Record Breaking Poverty

The Census Bureau poverty rate is a horribly flawed measurement that uses outdated methodology. The Census measures poverty based on costs of living metrics established in 1955 – 56 years ago. They ignore many key factors, such as the increased costs of medical care, child care, education, transportation, and many other basic costs. They also don’t factor geographically-based costs of living. The National Academy of Science measure, which gets little if any corporate media coverage, gives a much more accurate account of poverty, as they factor in these vital cost of living variables.

The most current Census data revealed that 43.6 million Americans, 14.3% of the population, lived in poverty in 2009. While that is a staggering number that represents the highest number of American people to ever live in poverty, and a dramatic increase of four million people since 2008, it significantly under-counted the total. Last year, in my analysis [20], extrapolating data from 2008 National Academy of Science findings, I estimated that the number of Americans living in poverty in 2009 was at least 52 million [20]. Recently, the National Academy of Science released their latest findings, backing up my claim by revealing that 52,765,000 [21] Americans, 17.3% of the population, lived in poverty in 2009.

The poverty rate for children is even worse. According to Census data, a total of 15.5 million [22] American children lived in poverty in 2009, which is 20% of all children. The number of children in poverty increased 28% since 2000, and jumped 10% from 2008 to 2009. Extrapolating data from the 2009 National Academy of Science poverty rate, in relation to the Census childhood poverty data, the number of American children living in poverty in 2009 is more accurately 18.8 million, which is 24%, or nearly one in four.

Other than this rapidly increasing number children who are in families that have recently fallen into poverty, “every day in America 2,573 babies [22] are born into poverty.”

As the chart to the right shows, even with the lower Census numbers, nine major American cities have a poverty rate over 25%.

It is important to note, based on many key indicators, as you will see throughout this report, the overall poverty totals have increased since 2009. Also consider that the recent deficit reduction plan is going to cut “anti-poverty” programs that currently assist tens of millions of Americans. A study by the National Bureau of Economic Research estimates that “the poverty rate would double [23] without these programs.” It is predicted that the new deficit deal will cut the funding for these programs in half [24], which, based on these estimates, would bring the total number of Americans living in poverty up to 80 million people, 26% of the population.

II :: Record Breaking Food Insecurity

For another revealing statistic, which has been quickly increasing, we can look at the number of Americans currently surviving off of food stamps. In 2005, 25.7 million [25] Americans needed food stamps, currently 45.8 million people [26] rely on them. As the chart to the right shows, the number of people in need of food stamps has been rapidly increasing year-over-year.

Meanwhile, Congress is cutting the funding [27] for the food stamp program at a time when the Department of Agriculture estimates that an additional 22.5 million [28] people will need them, bringing the total number of Americans in need of food assistance to a stunning 68.3 million people.

III :: Record Breaking Unemployment

While the “official” unemployment rate hovers around 9%, 14 million people, the government’s numbers are deceptively low once again. The only reason unemployment has stayed below 10% for the past few months is because millions of long-term unemployed, and part-time workers who are looking for full-time work, are not included in the baseline government unemployment rate. John Williams, from ShadowStats.com [29], has a consistently proven method of tracking unemployment that provides a much more accurate view of the overall situation. As shocking as it may sound, when you apply his SGS method, counting the total number people in need of employment, you get a current unemployment rate of 22.5%, which is an all-time record total of 34 million people currently in need of work. Here is how the SGS rate is calculated:

“The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.

The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment.”

On top of these shocking figures, the labor force participation rate, which measures the percentage of the total population currently working, has fallen to a 27-year low of 63.9%.

Currently, an all-time record 6.3 million [30] people have been unemployed for over six months. As the chart to the right shows, the average time it takes for a person to find a job has also just hit an all-time high of 40.4 weeks [31].

As companies continue to downsize and shift jobs overseas, unemployment is once again accelerating. Private-sector job cuts in July surged 60% to a 16-month high [32]. When accounting for population growth within the total labor force, from December 2007 to present, we have lost 10.6 million [33] jobs.

With the implementation of state and federal budget cuts, public-sector unemployment is accelerating as well. According to the Center on Budget and Policy Priorities, since August 2008, state and local governments have cut 577,000 [34] jobs. The Economic Policy Institute estimates that cuts in the new deficit deal will lead to an additional 1.8 million [24] job losses.

Of the new jobs that have been added in 2010, 60% [35] of them are in low-wage fields. Since December 2007, the official unemployment rate has masked the fact that 2.8 million [35] of the news jobs created have been part-time jobs.

Breaking down the data, over the last 12 months [36], the National Employment Law Project found that well-paying jobs are rapidly decreasing, while low-paying jobs are helping to mask an increasingly dire employment crisis:

· Lower-wage industries constituted 23% of job loss, but fully 49% of recent growth

· Mid-wage industries constituted 36% of job loss, and 37% of recent growth

· Higher-wage industries constituted 40% of job loss, but only 14% of recent growth

IV :: Declining Income

While the cost of living from 1990 – 2010 increased by 67%, worker income has declined. According to the most recent available IRS data, covering the year of 2009, average income fell 6.1%, a loss of $3,516 per worker, that year alone. Average income has declined 13.7% from 2007 – 2009, representing a $8,588 [37] loss per worker.

The decline in worker income is due to the dramatic increase in CEO pay. CEO pay has consistently increased year-over-year since the mid-1970s. From 1975 – 2010, worker productivity increased 80%. Over this time frame, CEO pay and the income of the economic top 0.1% (one-tenth of one percent) of the population quadrupled [38]. The income of the top 0.01% (one-hundredth of one percent) quintupled [38].

To understand the affect CEO pay increases have had on workers’ declining share of income on an annual basis, after analyzing 2008 tax data, leading tax reporter David Cay Johnston summed up [39] the situation with these revealing statistics:

“Had income growth from 1950 to 1980 continued at the same rate for the next 28 years, the average income of the bottom 90 percent in 2008 would have been 68 percent higher…. That would have meant an average income for the vast majority of $52,051, or $21,110 more than actual 2008 incomes. How different America would be today if the typical family had $406 more each week…”

As shocking as that is, over the last two years, workers have lost an even higher share of income to CEOs. In the last year alone, CEO pay skyrocketed by 28% [40]. Looking at 2009, according to a recent Dollars & Sense report [41], workers lost nearly $2 trillion in wages that year alone:

“In 2009, stock owners, bankers, brokers, hedge-fund wizards, highly paid corporate executives, corporations, and mid-ranking managers pocketed—as either income, benefits, or perks such as corporate jets—an estimated $1.91 trillion that 40 years ago would have collectively gone to non-supervisory and production workers in the form of higher wages and benefits.”

As bad as these numbers are, consider that the attack on American workers has increased significantly since 2009. From 2009 to the fourth-quarter of 2010, 88% of income growth [42] went to corporate profits (i.e. CEOs), while just 1% went to workers.

As the NY Times reported in an article entitled, “Our Banana Republic,” from 1980 – 2005, “more than four-fifths of the total increase in American incomes went to the richest 1 percent.” Again, as bad as that was, since 2005 it has gotten even worse, as Zero Hedge recently reported [43], labor’s current “share of national income has fallen to its lowest level in modern history.” This chart shows how workers’ percentage of income has been rapidly declining:

The bottom line, as statistics clearly demonstrate, these trends are getting worse and the attacks against us, as severe as they have been over the past four years, are dramatically escalating.

Part Two :: The Economic Elite
“There’s class warfare, all right, but it’s my class,

the rich class, that’s making war, and we’re winning.”

– Warren Buffett, Chairman and CEO of Berkshire Hathaway

V :: How Much Wealth Do The Economic Elite Have?

While 68.3 million Americans struggle to get enough food to eat and wages are declining for 90% of the population, US millionaire household wealth has reached an unprecedented level. According to an extensive study by auditing and financial advisory firm Deloitte, US millionaire households now have $38.6 trillion [44] in wealth. On top of the $38.6 trillion that this study reveals, they have an estimated $6.3 trillion [45] hidden in offshore accounts.

In total, US millionaire households have at least $45.9 trillion in wealth, the majority of this wealth is held within the upper one-tenth of one percent of the population.

If all this isn’t obscene enough, to further demonstrate how the global economy has now been completely rigged, Deloitte’s analysis predicated, based on current trends, that US millionaire households will see a 225% increase in wealth to $87.1 trillion by 2020. Accounting for wealth hidden in offshore accounts, they are projected to have over $100 trillion in total within the next decade.

Most people cannot even comprehend how much $1 trillion is, let alone $46 trillion. One trillion is equal to 1000 billion, or $1,000,000,000,000 [46]. To put it in perspective, last year the entire cost of feeding all 40 million Americans on food stamps was $65 billion [28].

Now consider, according to the latest IRS data, only 0.076% of the population, less than one-tenth of one percent, earned over $1 million [37] in 2009.

The graph below, based on data from the Tax Policy Center, shows how much income is earned by a household at any given percentile in income distribution:

The highest bracket for annual income is $50 million or more. Only 74 Americans are in this elite group. The average income within this category was $91.2 million [39] in 2008. As astonishing as that is, in 2009 they averaged $518.8 million [39] each, or about $10 million per week. This means, in the depths of the recession, the richest 74 Americans increased their income by more than 5 times within this one year. These 74 people made more money than 19 million [39] workers combined.

In context, overall, the richest 400 people [47] in the US have as much wealth as 154 million Americans combined, that’s 50% of the entire country. The top economic 1% of the US population now has a record 40% of all wealth [48], and have more wealth than 90% [49] of the population combined.

VI :: Who Rules America? Revealing The Economic Top 0.1%

Here is an analysis [50] from an investment manager with mega-wealthy clients breaking down the economic top 0.5% of the population, recently published by William Domhoff, sociology professor and author of Who Rules America? [51]:

“Unlike those in the lower half of the top 1%, those in the top half and, particularly, top 0.1%, can often borrow for almost nothing, keep profits and production overseas, hold personal assets in tax havens, ride out down markets and economies, and influence legislation in the US. They have access to the very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers, a network of other wealthy and powerful friends, lucrative business opportunities, and many other benefits.

Folks in the top 0.1% come from many backgrounds but it’s infrequent to meet one whose wealth wasn’t acquired through direct or indirect participation in the financial and banking industries…. Most of the serious economic damage the US is struggling with today was done by the top 0.1% and they benefited greatly from it…. For example, in Q1 of 2011, America’s top corporations reported 31% profit growth and a 31% reduction in taxes, the latter due to profit outsourcing to low tax rate countries…. The year 2010 was a record year for compensation on Wall Street, while corporate CEO compensation rose by over 30%.…

In 2010 a dozen major companies, including GE, Verizon, Boeing, Wells Fargo, and Fed Ex paid US tax rates between -0.7% and -9.2%. Production, employment, profits, and taxes have all been outsourced….

I could go on and on, but the bottom line is this: A highly complex and largely discrete set of laws and exemptions from laws has been put in place by those in the uppermost reaches of the US financial system. It allows them to protect and increase their wealth and significantly affect the US political and legislative processes.

They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%….

… the American dream of striking it rich is merely a well-marketed fantasy that keeps the bottom 99.5% hoping for better and prevents social and political instability. The odds of getting into that top 0.5% are very slim and the door is kept firmly shut by those within it.”

To get into the top economic 0.01% (one-hundredth of one percent) of the population, you have to have a household income of over $27 million [52] per year.

If you look at some of the central players who caused this economic crisis, you will see that they are among this Economic Elite group.

Former Goldman Sachs CEO and Bush Treasury Secretary Hank Paulson had already amassed at least $700 million prior to moving to the US Treasury in 2006. Current Goldman Sachs CEO Lloyd Blankfein and a few other top executives at Goldman Sachs just received $111.3 million in bonuses. Blankfein just took home $24.3 million, as part of a $67.9 million bonus he was awarded. Goldman’s President Gary Cohn took home $24 million, as part of a $66.9 million bonus he was awarded. Goldman’s CFO David Viniar and former co-president Jon Winkelried both took home over $20 million in bonuses.

Citigroup CEO Vikram Pandit just took home $80 million, in what may eventually total more than $200 million in compensation and bonuses. Coming in at the top of the list is JP Morgan Chase CEO Jamie Dimon, who just took home $90 million.

If you think people in this income level don’t control the US political process, you are not paying attention. After they caused this economic crisis, they got the government to give them trillions of dollars in taxpayer support, and then, after taking our tax dollars, they gave themselves all-time record-breaking bonuses. 2009 was an all-time record-breaking year for Wall Street executives bringing in a total of $145 billion [53]. And then, in 2010, they raised the bar even higher, breaking the all-time record set the year before by pulling in another $149 billion [54]. The audacity of it all is stunning.

Finding people more grotesquely greedy than Wall Street executives would seem to be impossible. However, health insurance CEOs are giving them a run for their money. As the LA Times reported [55]:

“Leaders of Cigna, Humana, UnitedHealth, WellPoint and Aetna received nearly $200 million in compensation in 2009, according to a report, while the companies sought rate increases as high as 39%….

H. Edward Hanway, former chief executive of Philadelphia-based Cigna, topped the list of high-paid executives, thanks to a retirement package worth $110.9 million. Cigna paid Hanway and his successor, David Cordani, a total of $136.3 million last year….

Ron Williams, the CEO of Hartford, Conn.-based Aetna Inc., earned nearly $18.2 million in total compensation, down from $24.4 million in 2008.”

Aetna CEO Ron Williams has recovered from his down year in 2009 by making $72 million [56] in 2010.

Given this level of obscene profiteering within the health care industry, it is not surprising that Americans pay more for medical care than any other nation in the world. In fact, Americans are forced to pay twice as much as most nations, and get lower quality care in return. As health insurance companies admitted, they have been reaping windfall profits because people with health insurance plans still cannot afford to go to the doctors and have stopped going unless it is an absolute emergency. With well over 50 million people unable to afford health insurance and the skyrocketing costs, it is not surprising that over 60% of all personal bankruptcies are the result of medical bills. In fact, 75% of the medical bankruptcies filed are from people who have health insurance.

Within this Economic Elite group, you also have the war profiteering [57] oil companies, which themselves are in large part owned by the big Wall Street banks. The biggest five oil companies, while gas prices have been skyrocketing, reaped $36 billion [58] in profit last quarter. These companies also receive an average of $6 billion [58] per year in tax subsidies.

VII :: Tax Breaks For The Rich, Budget Cuts For The Rest Of Us

To further demonstrate how the mega-wealthy have seized control our political process, consider that the richest 400 Americans paid 30% of their income in taxes in 1995, but they now pay only 18% [59].

In fact, 1,470 Americans [60] earned over $1 million in 2009 and didn’t pay any taxes.

The average tax rate for millionaires was 22.4% in 2009, down from 30.4% in 1995. The average millionaire saves $136,000 [61] a year due to reduced tax rates.

Looking at the tax rate from a long-term perspective, the amount of money the richest people and most profitable corporations pay in taxes has fallen dramatically since 1955. Corporate tax accounted for 27.3% of federal revenue in 1955. In 2010, corporate tax accounted for only 8.9% [62] of federal revenue. Corporate taxes accounted for 4.3% of overall GDP in 1955, in 2010 they accounted for only 1.3% [62].

Part Three :: The Perfect Storm Overhead:

(Inequality = Debt = Austerity = Civil Unrest = Inflation + Deflation = Stagflation)

The cuts in taxes for the mega-wealthy have led to record wealth inequality and resulted in a record national deficit. Meanwhile, to make up for the deficit that the richest one-tenth of one percent of the population has created, Democrats and Republicans are committed to making draconian budget cuts to vital social services, which target the poor, middle class, elderly and sick, while handing out billions more in corporate welfare annually. (Inequality = Debt = Austerity)

Just as the government has done, to make up for tax revenue lost to the mega-wealthy, Americans have made up for the decline in income by taking on large amounts of debt as well. (Inequality = Debt)

In a severely unequal society, massive debt will always be created, thus forming a vicious cycle of increasing inequality and increasing debt, until the fragmentation of society reaches a breaking point when those in debt cannot afford to pay back their debts without starving to death. We are now reaching that breaking point. (Inequality = Debt = Austerity = Civil Unrest)

VIII :: Debt Slavery

The Indentured Servant Has Become The Indebted Citizen

As for statistics on Americans being buried in financial debt, the indentured servant has evolved into the indebted citizen. As mentioned before, from 1990 – 2010 costs of living have increased 67%, while wages have stagnated and declined. As the national debt has reached a record $14.6 trillion, total personal debt is now over $16 trillion [63]. Consumer debt is $2.5 trillion. Credit card debt is $805 billion and student debt now exceeds $1 trillion [64].

Obviously, the more severe your debts are, the more you have to cut back in spending and the less money you have to buy new items. (Debt = Austerity)

Meanwhile, a perfect storm circles overhead as society breaks down and falls into an economic death spiral – health care, food and gas costs are skyrocketing, while income and home values are plummeting. (Inflation + Deflation = Stagflation)

Given these conditions, it is not surprising that over 250 million Americans, another record-breaking number, are currently living paycheck-to-paycheck struggling to make ends meet.

IX :: Inflation

The following charts, from Advisor Perspectives, show the increase in costs of living since 2000:

As you can see, the price of basic necessities are consistently increasing, only clothing (apparel) has declined. The second chart highlights the crucial skyrocketing cost of energy:

The third chart highlights the pernicious skyrocketing cost of education:

The cost of education essentially buries a young person in a debt that they will spend a significant portion of their life attempting to get out of. Given the increasing costs of living, and the decreasing ability to make an expected income from such an expensive level of education, this young demographic will most likely live an entire life locked into spiraling levels of debt that they will never be able to get out of.

Propaganda Inflation

When reporting on inflation, the Bureau of Labor Statistics has twice, since 1980, revised their methodology to mask the severity of inflation, similar to how they mask the severity of unemployment. In their Consumer Price Index (CPI), which measures inflation, they have heavily discounted the measurement weight of energy, food and education – three of the most significant costs for most American households.

To understand the significance in their revised methodology, current “official” CPI is at a 3.6% annual rate. However, if calculated the way it was before former Federal Reserve Chairman Alan Greenspan altered it in 1980, it would be 11.1% [65], three times worse than officially stated.

So while the government and the Federal Reserve claim that inflation is low, at 3.6% [66] over the past year, food prices have increased 39% [67] and US gas prices have increased 34% [68] over the same time frame.

The increase in gas cost over the past one-year masks the severity of total gas price inflation, which is currently 125% more [68] expensive since December 2008, increasing from $1.67 per gallon to $3.75.

The Hidden Tax

The Federal Reserve’s strategic policy known as Quantitative Easing (QE) has been a significant factor in the rising cost of basic necessities by deliberately stimulating inflation, while decreasing the value of the dollar. Looking at their recent QE2 program, the dollar lost 7.5% [69] of its value from January 2010 through March 2010. From August 2010 through March 2010, the dollar lost 17% [69] of its value. To understand how this acts as a hidden tax, consider if you had $10,000 in the bank, over this time frame you would have lost $1700 in purchasing power. So your $10,000 would now be worth $8300. At the same time, the cost of gas and food drastically increased.

The Phantom Recovery

By decreasing the value of the dollar, the Federal Reserve is also inflating the stock market by creating the impression that stock prices are rising, which, when measured in dollars, they have. However, in real terms, their overall value has decreased. To understand how deceptive this strategy has been in giving the appearance of a rising market, instead of measuring overall stock value in dollars, let’s look at their overall value when measured in terms of gold:

Dow/Gold Chart from January 1, 2003 – August 8, 2011

As investor Michael Krieger explains:

“You can see from the chart above the downtrend of stock prices in real terms is completely intact and they have now hit a new low, below the previous low point in March 2009. In fact, although stocks did temporarily rise in real terms from the low in 2009 for the year as a whole, they were still down 5% in real terms. Then last year, stocks were 14% lower in terms of gold. Finally, despite a brief rally early in 2011, stocks in terms of gold are down 23% year-to-date.”

Dollar Vs. Gold

When comparing the value of the dollar to the value of gold, the dollar has lost a stunning 84% of its value since 2000. In 2000, gold was worth $279 per ounce, as of August 8, 2011, gold is $1,725 per ounce. In fact, the dollar continues to fall in value while gold continues to rise.

Stagflation

All these factors together create a perfect storm of stagflation. As 90% of Americans experience income declines, and the value of the dollar declines, the price of necessities are rising, while the one major asset many Americans have, a house, is also declining in value. Already, thanks to declining home values, 28% of US homeowners owe more on their mortgages than their home is currently worth. With 10.4 million American families having lost their homes to foreclosure since 2007, Amherst Securities, a leading broker/dealer focused on mortgage-related investments, estimates that another 10.8 million [70] homes are at risk of default over the next six years. This will obviously continue downward pressure on home values.

X :: The Beaten Masses

Confronted With Severe Financial Hardship, Why Do Americans Remain Passive?

With an unprecedented sum of wealth, tens of trillions of dollars, held within the top one-tenth of one percent of the US population, we now have the highest and most severe inequality of wealth in US history. Not even the Robber Barons of the Gilded Age were as greedy as the modern day Economic Elite.

As famed American philosopher John Dewey once said, “There is no such thing as the liberty or effective power of an individual, group, or class, except in relation to the liberties, the effective powers, of other individuals, groups or classes.”

In The Economic Elite Vs. The People [18], I reported on the strategic withholding of wealth from 99% of the US population over the past generation. Since the mid-1970s, worker production and wealth creation has exploded. As the statistics throughout this report prove, the dramatic increase in wealth has been almost entirely absorbed by the economic top one-tenth of one percent of the population, with most of it going to the top one-hundredth of one percent.

If you are wondering why a critical mass of people desperately struggling to make ends meet are still not fighting back with overwhelming force and running the mega-wealthy aristocrats out of town, let’s consider two significant factors:

1) People are so busy trying to maintain their current standard of living that their energies are consumed by holding on to the little that they have left.

2) People have very little understanding of how much wealth has been consolidated within the top economic one-tenth of one percent.

Considering the first factor, it is obvious that people have become beaten down psychologically and financially. A report in the Guardian entitled, “Anxiety keeps the super-rich safe from middle-class rage,” suggests that people are so desperate to hold on to what they have that they are too busy looking down to look up: “As psychologists will tell you, fear of loss is more powerful than the prospect of gain. The struggling middle classes look down more anxiously than they look up, particularly in recession and sluggish recovery.”

Considering the second factor, people do not understand how much wealth has been withheld from them. The average person has never personally experienced or seen the excessive wealth and luxury that the mega-rich live in. Wealth inequality has grown so extreme and the wealthy have become so far removed from average society, it is as if the rich exist in some outer stratosphere beyond the comprehension of the average person. As the Guardian report mentioned above also states:

“… having little daily contact with the rich and little knowledge of how they lived, they simply didn’t think about inequality much, or regard the wealthy as direct competitors for resources. As the sociologist Garry Runciman observed: ‘Envy is a difficult emotion to sustain across a broad social distance.’… Even now most underestimate the rewards of bankers and executives. Top pay has reached such levels that, rather like interstellar distances, what the figures mean is hard to grasp.”

In fact, the average American vastly underestimates the severe wealth disparity that we currently have. This survey, featured in the NY Times, reveals that Americans think our society is far more equal than it actually is:

“In a recent survey of Americans, my colleague Dan Ariely and I found that Americans drastically underestimated the level of wealth inequality in the United States. While recent data indicates that the richest 20 percent of Americans own 84 percent of all wealth, people estimated that this group owned just 59 percent – believing that total wealth in this country is far more evenly divided among poorer Americans.

What’s more, when we asked them how they thought wealth should be distributed, they told us they wanted an even more equitable distribution, with the richest 20 percent owning just 32 percent of the wealth. This was true of Democrats and Republicans, rich and poor – all groups we surveyed approved of some inequality, but their ideal was far more equal than the current level.”

Here is a chart showing the results from their survey:

The fact of the matter is that the overwhelming majority of US population is unaware of the vast wealth at hand. An entire generation of unprecedented wealth creation has been concealed from 99% of the population for over 35 years. Having never personally experienced or known of this wealth, the average American cannot comprehend what is possible if even a fraction of it was used for the betterment of society as a whole.

In fact, given modern technology and wealth, not a single American citizen should live in poverty. The statistics clearly demonstrate that we now live in a Neo-Feudal society. In comparison to the wealthiest one-tenth of one percent of the population, who are sitting on top of tens of trillions of dollars in wealth, we are modern day serfs, essentially propagandized peasants.

The fact that the overwhelming majority of Americans are struggling to get by, while tens of trillions of dollars are consolidated within a small fraction of the population, is a crime against humanity.

The day the average American fully comprehends how much wealth is consolidated within just the top one-tenth of one percent of the population, there will be a massive uprising and all the paid off politicians will be run out of town.

The next time you are stressed out, struggling to make ends meet and pay off your debts, just think about the trillions of dollars sitting in the obscenely bloated pockets of one-tenth of one percent of the population. The first step in overcoming your peasant status is to understand that you are indeed a peasant. This is a bitter pill to swallow and most will prefer to, as they have been conditioned to do, continue on their path of media-induced delusion, denial, apathy and ignorance.

However, I still cling to the hope that once enough people become aware of this hidden and obscured fact, we can have the non-violent revolution we so urgently need. Until then, the rich get richer as a critical mass with increasingly dire economic prospects desperately struggles to make ends meet.

Part Four :: Fascism in America

Other than driving large segments of the American population into poverty, and pushing the majority into massive debt and a state of financial desperation, there is an ever darker side to what is unfolding today. The Economic Elite have turned America into a modern day fascist state.

Fascism is a very powerful word which evokes many strong feelings. People may think that the term cannot be applied to modern day America. However, as Benito Mussolini once summed it up: “Fascism should more properly be called corporatism, since it is the merger of state and corporate power.” In the early 1900s, the Italians who invented the term fascism also described it as “estato corporativo,” meaning: the corporate state.

Very few Americans would argue the fact that corporations now control our government and have the dominant role in our society. Through a system of legalized bribery – campaign finance, lobbying and the revolving door between Washington and corporations – the most power global corporations dominant the legislative and political process like never before. Senator Huey Long had it right when he warned: “When fascism comes to America, it will come in the form of democracy.”

As President Franklin D. Roosevelt once described fascism: “The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it comes strong than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group, or any controlling private power.”

The most blatant modern example of this was the bailout of Wall Street, when the “too big to fail” banks got politicians to promptly hand out trillions of tax dollars in support and subsidies to the very people who caused the crisis, without any of them being held accountable.

XI :: Modern Day Slavery

Another shocking example of how far we have descended into fascism is the American Legislative Exchange Council (ALEC), which is a group of corporate executives who literally write government legislation. They have gone as far as setting up a system that imprisons the poor and then puts them to work, instead of paying living wages to non-imprisoned workers. Make no mistake, this is a modern day system of slavery unfolding before our eyes.

At the leadership of ALEC and various other Economic Elite organizations, poverty has essentially become a crime. To demonstrate these attacks against the poor, there was $17 billion cut from public housing programs, while there was an increase of $19 billion in programs for building prisons, “effectively making the construction of prisons the nation’s main housing program for the poor [71].” Before laws began to be rewritten in 1980, with direct input from ALEC [72], we had a prison population of 500,000 citizens. After laws were rewritten to target poor inner city citizens with much more severe penalties, the US prison population skyrocketed to 2.4 million people.

We now have the largest prison population in the world. With only 4% of the world’s population, we have 25% of the world’s prison population. As I reported previously, in a report entitled, “American Gulag: World’s Largest Prison Complex [71]“:

“The US, by far, has more of its citizens in prison than any other nation on earth. China, with a billion citizens, doesn’t imprison as many people as the US, with only 308 million American citizens. The US per capita statistics are 700 per 100,000 citizens. In comparison, China has 110 per 100,000. In the Middle East, the repressive regime in Saudi Arabia imprisons 45 per 100,000. US per capita levels are equivalent to the darkest days of the Soviet Gulag.”

XII :: The Death Toll

The dramatic increase in poverty has obviously torn many families apart and caused a devastating psychological toll, but consider the increase in deaths as a result of poverty and severe wealth inequalities. This is a very difficult statistic to accurately measure, but Columbia University’s School of Public Health [73] conducted an intensive examination of mortality and medical data and estimated that “875,000 deaths in the US in 2000 could be attributed to a cluster of social factors bound up with poverty and income inequality.”

As a report by Debra Watson sums up [73] the study, “There is no reason to believe, after a decade that has seen sustained attacks on social programs and consistently high unemployment rates, that the social mortality rate has declined. On the contrary, it has likely risen.” Indeed, poverty and income inequality have skyrocketed since 2000.

Now, let’s consider the fact that, according to the Census Bureau, 31.1 million [74] people lived in poverty in 2000, and according to Columbia’s study 875,000 deaths came as a result. This means that 1 out of every 35.5 people living in poverty die annually as a result of their impoverishment. If you extrapolate this data to the 2009 total of 52.8 million people living in poverty, you get an estimate of 1,486,338 deaths within that year. Even if you use the lower poverty totals from the Census Bureau, 43.6 million people, you get an estimate of 1,228,169 deaths in 2009.

XIII :: Deliberate Systemic Attacks

The dramatic increase in economic inequality and poverty, along with the unprecedented rise in wealth within the top one-tenth of one percent of the population has not happened by mistake. It is the designed result of deliberate governmental and economic policy. It is the result of the richest people in the world, and the “too big to fail” banks, using the campaign finance and lobbying system to buy off politicians who implement policies designed to exploit 99.9% of the population for their financial gain. To call what is happening a “financial terrorist attack” on the United States, is not using hyperbole, it is the technical term for what is currently occurring.

Compare the million people who die annually as a result of these economic attacks, to the 2,977 that died on 9/11. As someone who lived three blocks from the World Trade Center, as tragic as 9/11 was, these economic attacks are much more severe and damaging to us as a nation, albeit a much slower and unseen death toll. Nonetheless, the result is of genocidal proportions. One can statistically compare the economic attacks on the US to the invasion of Iraq, which some estimate as leading to one million deaths. Once again, many of those deaths came in brutal and spectacular fashion in bombing campaigns known as “shock and awe.” However, the death toll compares to the hidden brutality of a four-year campaign of economic “shock and awe.” Just as Iraq was invaded, the US has been invaded by a global banking cartel.

As shocking as that is to realize, consider that this is happening throughout the world. While the US poverty death rate is probably higher than in most European countries, the Federal Reserve’s economic policies [75] — along with policies from the International Monetary Fund, World Bank and Bank of International Settlements — have caused rioting and uprisings over skyrocketing food prices and costs of living throughout the world. The fact of the matter, and very harsh and unfortunate reality of this crisis, is that the global economic central planners are deliberately carrying out genocidal economic policies.

As Che Guevara, a man who took on the global financial elite, once said, “The amount of poverty and suffering required for the emergence of a Rockefeller, and the amount of depravity that the accumulation of a fortune of such magnitude entails, are left out of the picture, and it is not always possible to make the people in general see this.”

When tens of trillions of dollars deliberately flow to the top economic one-tenth of one percent of the global population, while large percentages live in poverty, you have to conclude, in technical terms, that a Neo-Feudal-Fascist state is upon us. The rich have never been richer, while their paid off politicians make budget cuts for the poor and middle class, and cause the cost of basic necessities to skyrocket.

You can call me extreme, but the reality of this is extreme, these people, the global economic top one-tenth of one percent, are genocidal fascists carrying out a holocaust. Fascism has evolved. There is no need to get blood on your hands while rounding up people and putting them into concentration camps when you can do it through economic policy while sitting in a jacuzzi on a corporate jet, or in a three-piece custom-made Armani, completely detached and insulated from the world in which you plunder.

However, as what happens with all empires, greed and arrogance makes them overreach. The beaten down masses get to a point where they literally can’t live under these conditions. This desperation spreads throughout the population until it reaches a critical mass, then, suddenly, they rise up [75] and the empire begins to collapse… Tunisia, Algeria, Egypt, Israel, (Northern Africa, the Middle East), Albania, Greece, Spain, Britain (Europe), Wisconsin…

The Economic Elite are overreaching and their empire is collapsing.

The decentralized global rebellion [75] has begun…

Welcome to World War III.

Which side of history do you want to be on?

As a wise old friend once said [76], “You can’t be neutral on a moving train.”

David DeGraw is the founder and editor of AmpedStatus.com [77]. His long-awaited book, The Road Through 2012: Revolution or World War III [78], will finally be released on September 28th. He can be emailed at David[@]AmpedStatus.com. You can follow David’s reporting daily on his new personal website: DavidDeGraw.org [79]

NOTES

[1] : http://twitter.com/home/?status=EXCLUSIVE%3A+Analysis+of+Financi…

[3] Abstract :: Welcome to World War III: #abstract

[4] Introduction: #intro

[5] I :: Poverty: #poverty

[6] II :: Food Insecurity: #food

[7] III :: Unemployment: #unemployment

[8] IV :: Declining Income: #income

[9] V :: How Much Wealth Do The Economic Elite Have?: #elite

[10] VI :: Who Rules America? Revealing The Economic Top 0.1%: #rules

[11] VII :: Tax Breaks For The Rich, Budget Cuts For The Rest Of Us: #tax

[12] VIII :: Debt Slavery: #debt

[13] IX :: Inflation: #inflation

[14] X :: The Beaten Masses: #passive

[15] XI :: Modern Day Slavery: #slavery

[16] XII :: The Death Toll: #death

[17] XIII :: Deliberate Systemic Attacks: #attacks

[18] The Economic Elite Vs. The People: http://ampedstatus.org/full-report-the-economic-elite-vs-the-people-of-the-united-states-of-america/

[19] declined by 28%: http://pewsocialtrends.org/files/2011/07/SDT-Wealth-Report_7-26-11_FINAL.pdf

[20] my analysis: http://ampedstatus.org/census-bureau-poverty-rate-drastically-undercounts-severity-of-poverty-in-america/

[21] 52,765,000: http://www.census.gov/hhes/povmeas/data/nas/tables/2009/web_tab4_nas_measures_historical.xls

[22] 15.5 million: http://www.childrensdefense.org/child-research-data-publications/data/state-of-americas-2011.pdf

[23] poverty rate would double: http://www.offthechartsblog.org/public-programs-keep-millions-out-of-poverty-new-study-shows/

[24] in half: http://motherjones.com/politics/2011/08/united-states-of-austerity

[25] 25.7 million: http://www.cbpp.org/cms/index.cfm?fa=view&id=460

[26] 45.8 million people: http://www.fns.usda.gov/pd/29SNAPcurrPP.htm

[27] cutting the funding: http://blogs.abcnews.com/thenote/2011/05/congress-mulls-cuts-to-food-stamps-program-amid-record-number-of-recipients.html

[28] additional 22.5 million: http://www.arcamax.com/health/healthtips/s-917916-690577

[29] ShadowStats.com: http://ShadowStats.com

[30] 6.3 million: http://news.yahoo.com/blogs/lookout/down-not-voices-long-term-unemployed-125453267.html

[31] 40.4 weeks: http://www.zerohedge.com…

[32] 16-month high: http://www.challengergray.com/press/PressRelease.aspx?PressUid=184

[33] 10.6 million: http://www.zerohedge.com…

[34] 577,000: http://www.thenation.com/blog/162577/after-debt-ceiling-debacle

[35] 60%: http://www.zerohedge.com/article/how-fed-spent-2-trillion-and-exchange-we-got-650000-temp-leisure-and-retail-jobs

[36] 12 months: http://www.huffingtonpost.com/2011/02/23/us-economy-trades-high-pa_n_827360.html

[37] $8,588: http://www.reuters.com/article/2011/08/04/us-usa-economy-incomes-idUSTRE77302W20110804

[38] quadrupled: http://www.washingtonpost.com/business/economy/with-executive-pay-rich-pull-away-from-rest-of-america/2011/06/13/AGKG9jaH_print.html

[39] summed up: http://www.tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8AGMUZ?OpenDocument

[40] 28%: http://www.huffingtonpost.com/2011/06/15/executive-pay-soars-worker-pay-stagnates_n_877519.html

[41] report: http://dollarsandsense.org/archives/2011/0711cypher.html

[42] 88% of income growth: http://thinkprogress.org/economy/2011/06/30/258388/corporate-profits-recovery/

[43] recently reported: http://www.zerohedge.com/article/attention-marxists-labors-share-national-income-drops-lowest-history

[44] $38.6 trillion: http://www.zerohedge.com/…

[45] $6.3 trillion: http://www.democracynow.org/2011/4/15/offshore_banking_and_tax_havens_have

[46] $1,000,000,000,000: http://www.pagetutor.com/trillion/index.html

[47] richest 400 people: http://ourfuture.org/blog-entry/2011020612/understanding-extreme-incomewealth-gap

[48] 40% of all wealth: http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105?currentPage=all

[49] more wealth than 90%: http://www.youtube.com/watch?v=IykY6WlUIiA

[50] an analysis: http://ampedstatus.org/…

[51] Who Rules America?: http://www.amazon.com/exec/obidos/ASIN/0078111560

[52] $27 million: http://washingtonindependent.com/107493/americas-super-rich-continue-to-make-mind-boggling-sums

[53] $145 billion: http://nymag.com/daily/intel/2010/01/wall_street_pay_for_2009_will.html

[54] $149 billion: http://www.aflcio.org/corporatewatch/paywatch/ceopay.cfm

[55] reported: http://articles.latimes.com/2010/aug/11/business/la-fi-insurance-salaries-20100811

[56] $72 million: http://blogs.courant.com/connecticut_insurance/2011/04/aetnas-former-ceo-ronald-willi.html

[57] war profiteering: http://daviddegraw.org/2011/08/leaked-document-bp-rules-iraq-with-stranglehold-over-economy-by-controlling-largest-oil-field/

[58] $36 billion: http://daviddegraw.org/2011/08/the-joke-is-on-us-once-again-big-five-oil-companies-reaped-36-billion-in-profit-last-quarter/

[59] only 18%: http://blogs.forbes.com/robertlenzner/2011/07/25/the-400-richest-americans-pay-an-18-tax-rate/?partner=yahoofeed

[60] 1,470 Americans: http://www.huffingtonpost.com/2011/08/04/irs-incomes_n_918458.html

[61] $136,000: http://www.commondreams.org/view/2011/08/05-5

[62] 8.9%: http://www.ritholtz.com/blog/2011/04/corporate-tax-rates-then-and-now/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+(The+Big+Picture)

[63] $16 trillion: http://www.usdebtclock.org/

[64] $1 trillion: http://www.huffingtonpost.com/2011/04/12/student-loan-debt-may-top_n_848093.html

[65] 11.1%: http://georgewashington2.blogspot.com/2011/07/official-cpi-is-running-36-but-if-it.html

[66] 3.6%: http://www.bls.gov/news.release/cpi.nr0.htm

[67] increased 39%: http://www.fao.org/news/story/en/item/81577/icode/

[68] increased 34%: http://docs.google.com/viewer?…

[69] lost 7.5%: http://www.zerohedge.com/article/gold-just-1-record-nominal-high-1444oz-risk-dollar-crisis-increases-day

[70] 10.8 million: http://daviddegraw.org/2011/07…

[71] housing program for the poor: http://ampedstatus.org…

[72] direct input from ALEC: http://www.justicepolicy.org/uploads/justicepolicy/documents/gaming_the_system.pdf

[73] Columbia University’s School of Public Health: http://www.wsws.org/articles/2011/jul2011/pove-j13.shtml

[74] 31.1 million: http://www.census.gov/prod/2001pubs/p60-214.pdf

[75] Federal Reserve’s economic policies: http://ampedstatus.org…

[76] once said: http://www.youtube.com/watch?v=Ehc3V1g5pm0

[77] AmpedStatus.com: http://AmpedStatus.com

[78] The Road Through 2012: Revolution or World War III: …

[79] DavidDeGraw.org: http://daviddegraw.org/

[80] donate to support our efforts here: http://ampedstatus.com/donation.php

$1.2 Quadrillion Derivatives Market Dwarfs World GDP

AOL Finance

One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives market. It’s complex, it’s unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost — and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.

A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion.

To understand the concept of “notional value,” it’s useful to have an example. Let’s say you borrow $1 million to buy an apartment and the interest rate on that loan gets reset every six months. Meanwhile, you turn around and rent that apartment out at a monthly fixed rate. If all your expenses including interest are less than the rent, you make money. But if the interest and expenses get bigger than the rent, you lose.

You might be able to hedge this risk of a spike in interest rates by swapping that variable rate of interest for a fixed one. To do that you’d need to find a counter party who has an asset with a fixed rate of return who believed that interest rates were going to fall and was willing to swap his fixed rate for your variable one.

The actual cash amount of the interest rates swaps might be 1% of the $1 million debt, while that $1 million is the “notional” amount. Applying that same 1% to the $1.2 quadrillion derivatives market would leave a cash amount of the derivatives market of $12 trillion — far smaller, but still 20% of the world economy.

Getting a Handle on Derivatives Risk

How big is the risk to the world economy from these derivatives? According to Wilmott, it’s impossible to know unless you understand the details of the derivatives contracts. But since they’re unregulated and likely to remain so, it is hard to gauge the risk.

But Wilmott gives an example of an over-the-counter “customized” derivative that could be very risky indeed, and could also put its practitioners in a position of what he called “moral hazard.” Suppose Bank 1 (B1) and Bank 2 (B2) decide to hedge against the risk that Bank 3 (B3) and Bank 4 (B4) might fail to repay their debt to B1 and B2. To guard against that, B1 and B2 might hedge the risk through derivatives.

In so doing, B1 and B2 might buy a credit default swap (CDS) on B3 and B4 debt. The CDS would pay B1 and B2 if B3 and B4 failed to repay their loan. B1 and B2 might also bet on the decline in shares of B3 and B4 through a short sale.

At that point, any action that B1 and B2 might take to boost the odds that B3 and B4 might default would increase the value of their derivatives. That possibility might tempt B1 and B2 to take actions that would boost the odds of failure for B3 and B4. As I wrote back in September 2008 on DailyFinance’s sister site, BloggingStocks, this kind of behavior — in which hedge funds pulled their money out of banks whose stock they were shorting — may have contributed to the failures of Bear Stearns and Lehman Brothers.

It’s also the sort of conduct that makes it extremely difficult to estimate the risk of the derivatives market.

How Positive Feedback Loops Crash Markets

Another kind of market conduct that makes markets volatile is what Wilmott calls positive and negative feedback loops. These relatively bland-sounding terms mask some really scary behavior for investors who are not clued into it. Wilmott argues that a positive feedback loop contributed to the 22.6% crash in the Dow back in October 1987.

In the 1980s, a firm run by some former academics came up with the idea of portfolio insurance.

Their idea was that if investors are worried about their assets losing value, they can buy puts — the option to sell their investments at pre-determined prices. They can sell everything — which would be embarrassing if the market then started to rise — or they could sell a fixed proportion of their portfolio depending on the percentage decline in a particular stock market index.

This latter idea is portfolio insurance. If the Dow, for example, fell 3%; it might suggest that investors should sell 20% of their portfolio. And if the Dow fell 20%, it would indicate that investors should sell 100% of their portfolio.

That positive feedback loop — in which a stock price decline leads to more selling — boosts market volatility. Portfolio insurance causes more investors to sell as the market declines by, say 3%, which causes an even deeper plunge in the value of investors’ holdings. And that deeper decline leads to more selling. Before you know it, many investors are selling everything.

The portfolio insurance firm started off with $5 billion, but as its reputation spread, it ended up managing $50 billion. In 1987, that was a lot of money. So when that positive feedback loop got going, it took the Dow down 22.6% in a day.

The big problem back then was the absence of a sufficient number of traders using a negative feedback loop strategy. With a negative feedback loop, a trader would sell stocks as they rose and buy them as they declined. With a negative feedback loop strategy, volatility would be far lower.

Unfortunately, data on how much money has been going into negative and positive feedback loop strategies is not available. Therefore, it’s hard to know how the positive feedback loops have gained such a hold on the market.

But it is not hard to imagine that if a particular investor made huge amounts of money following a positive feedback loop strategy, other investors would hear about it and copy it. Moreover, the way traders get compensated suggests that it’s better for them to take more and more risk to replicate what their peers are doing.

Traders Make More Money By Following the Pack

There is a clear economic incentive for traders to follow what their peers are doing. According to Wilmott, to understand why, it helps to imagine a simplified example of a trading floor. Picture yourself as a new college graduate joining a bank’s trading floor with 100 traders. Those 100 traders each trade $10 million: They “win” if a coin toss lands on heads and “lose” if it lands on tails. But now imagine you’ve come up with a magic coin that has a 75% chance of landing on heads — you can make a better bet than the other 100 traders with their 50-50 coin.

You might think that the best strategy for you would be to bet your $10 million on that magic coin. But you’d be wrong. According to Wilmott, if the magic coin lands on a head but the other 100 traders flip tails, the bank loses $1 billion while you get a relatively paltry $10 million.

The best possible outcome for you is a 37.5% chance that everyone makes money (the 75% chance of you tossing heads multiplied by the 50% chance of the other traders getting a head). If instead, you use the same coin as everyone else on the floor, the probability of everyone getting a bonus rises to 50%.

When Traders Say ‘Jump,’ Risk Managers Ask ‘How High?’

Traders are a huge source of profit on Wall Street these days and they have an incentive to bet together and to bet big. According to Wilmott, traders get a bonus based on the one-year profits of those on their trading floor. If the trading floor makes big money, all the traders get a big bonus. And if it loses money, they get no bonus — but at least they don’t have to repay their capital providers for the losses.

Given that bonus structure, a trader is always better off risking $1 billion than $1 million. So if the trader, who is the king of the hill at the bank, asks a lowly risk manager to analyze how much risk the trader is taking, that risk manager is on the spot. If the risk manager comes back with a risk level that limits how big a bet the trader can take, the trader will demand that the risk manager recalculate the risk level lower so the trader can take the bigger bet.

Traders also manipulate their bonuses by assuming the existence of trading profits before they are actually realized. This happens when traders get involved with derivatives that will not unwind for 20 years.

Although the profits or losses on that trade have not been realized at the end of the first year, the bank will make an assumption about whether that trade made or lost money each year. Given the power traders wield, they can make the number come out positive so they can receive a hefty bonus — even though it is too early to tell what the real outcome of the trade will be.

How Trader Incentives Caused the CDO Bubble

Wilmott imagines that this greater incentive to follow the pack is what happened when many traders were piling into collateralized debt obligations. In Wilmott’s view, CDO risk managers who had analyzed a future scenario in which housing prices fell and interest rates rose would have concluded that the CDOs would become worthless under that scenario. He imagines that when notified of that possible outcome, CDO traders would have demanded that the risk managers shred that nasty scenario so they could keep trading more CDOs.

Incidentally, the traders who profited by going against the CDO crowd were lone wolves whose compensation did not depend on following the trading floor pack. This reinforces the idea that big bank compensation policies drive dangerous behavior that boosts market volatility.

What You Don’t Understand, You Can’t Properly Regulate

Wilmott believes that derivatives represent a risk of unknown proportions. But unless there is a change to trader compensation policies — one which would force traders to put their compensation at risk for the life of the derivative — then this risk could remain difficult to manage.

Unfortunately, he thinks that regulators aren’t in a good position to assess the risks of derivatives because they don’t understand them. Wilmott offers training in risk management. While traders and risk managers at banks and hedge funds have taken his course, regulators so far have not.

And if regulators don’t understand the risks in derivatives, chances are great that Congress does not understand them either.

Brazil is getting hot. Too hot, too fast

If there is one thing proven beyond doubt during this crisis is that government interventionism in the free market is nefarious.  Developing countries are again and again the victims of globalist inspired management.  Argentina was one notorious case, Iceland and Greece have followed; and now Brazil, a fairly prosperous country in the last decade, is on the way to becoming another victim of artificial implosion.

Financial Times

Brazil’s central bank raised its policy interest rate by three quarters of a percentage point on Wednesday evening in another sign thatBrazil getting too hot the country’s breakneck pace of growth is causing concern over rising prices.

Brazil’s economy expanded by 2.7 per cent in the first quarter over the previous quarter and by 9 per cent over the first quarter of 2009, the national statistics office said on Tuesday. That is much faster than what many economists consider to be the potential, or non-inflationary, rate of about 4.5 to 5 per cent.

“This shows there has been no change in the bank’s position since its previous increase in April,” said Silvio Campos Neto of Banco Schahin in São Paulo. “It is clear from all the indicators that the economy is heating up and inflation is still above target. This is worrying and demands further increases in rates.”

The bank raised its target overnight Selic rate to 10.25 per cent a year, the second three-quarter-point increase at the last two six-weekly meetings of its monetary policy committee.

Consumer price inflation ballooned from a low of 4.17 per cent a year last October to 5.22 per cent in the 12 months to May. Many economists expect inflation to reach 6 per cent by the end of this year, well above the government’s target of 4.5 per cent. Economic growth is expected to be about 6.6 per cent this year.

Mr Campos said he expected the bank to raise the Selic rate to 11.75 per cent by the end of this year.

He said successive interest rate increases would help bring growth back to sustainable levels and predicted the economy would grow by about 4.3 per cent in 2011.

Brazil’s domestic market has recovered quickly from a brief recession during the global crisis, spurred on by a rising consumer class that has benefited from more than a decade of economic stability and low inflation, and from low-cost but effective income transfer programmes.

But the fast pace of growth has exposed bottlenecks such as the poor quality of Brazil’s infrastructure and its heavy tax burden. The rate of investment has risen in recent years but is still short of what is needed to deliver fast, sustainable growth.

Background: Fears of overheating

Brazil’s economy was among the fastest growing in the world during the first quarter, according to figures released on Tuesday that add to fears the economy is overheating and to expectations that the central bank will raise rates again on Wednesday.

The economy grew at a faster-than-expected annual rate of 9 per cent in the three months to March and by 2.7 per cent compared with the previous quarter, according to the IBGE, the national statistics office.

Part of the reason for the growth was an increase in investment, with the rate of investment rising to 18 per cent from 16.3 per cent a year earlier, spurred by gross fixed capital formation, which leapt by 26 per cent year on year, the fastest rate since the IBGE’s current series began in 1995.

“This confirms that the economy is very heated,” said Rafael Bacciotti, economist at Tendências, a consultancy in São Paulo. “The stand-out sectors were industry and services. Employment and wages are also growing strongly and we expect this to continue throughout the year.”

The manufacturing industry grew by 17.2 per cent year on year and the retail sector by 15.2 per cent. Imports also set a record, surging by 39.5 per cent year on year.

The central bank’s most recent weekly survey of market economists showed expectations of overall growth this year rising to 6.6 per cent, the 12th consecutive week of climbing expectations.

But many believe the economy cannot grow at more than 4.5 or 5 per cent a year without provoking an increase in inflation.

The central bank has been forced to act by steadily rising inflation expectations over recent months. Since October, Brazil’s consumer inflation rate has surged from an annual rate of 4.17 per cent to 5.26 per cent in April. However, the central bank’s most recent survey showed a slight drop in forecasts for inflation during 2010, with the average falling to 5.64 per cent from 5.67 per cent a week earlier.

Most economists expect the central bank to announce a second consecutive three-quarter percentage point rise in its policy interest rate, the Selic, at the end of its monetary policy committee’s regular two-day meeting tomorrow.

The committee meets every six weeks to decide whether to change the Selic rate in pursuit of the government’s annual consumer price inflation target, currently 4.5 per cent a year.

If expectations are confirmed, the Selic will rise to 10.25 per cent a year, up from 8.75 per cent when the current tightening cycle began in April.

Europeans are fed up with the elites and get to the streets

Spain’s parliament has passed a €15bn (£12.7bn) austerity package by just one vote, leaving the Socialist government nakedly exposed to popular fury.

Telegraph

Its glaring lack of political solidarity is the latest sign of rising resistance to deflation policies across the eurozone.

Prime minister Jose Luis Zapatero had to rely on the abstention of Catalan nationalists to push through public sector wage cuts of 5 percent this year and a freeze in 2011.

The 1930s-style pay squeeze was effectively imposed upon Spain by Brussels as a quid pro quo for the EU’s €750bn “shield” for euro zone debtors. It is a bitter climb-down for a workers party that vowed to resist salary cuts. Public sector unions have called a strike on June 8 to protest an act of “ultimate aggression” against the people.

The conservatives voted against the measures, prompting a fiery rebuke from finance minister Elena Salgado. “Unpatriotic, irresponsible, and hardly very European: one day they will pay for this,” she said.

The measures include cancellation of the €2,500 “baby cheque” and lower pension benefits. Mr Zapatero hopes to cut the deficit by an extra 1.6pc over GDP over two years, though unemployment is already 20 percent. The deficit will fall from 11.2pc in 2009 to 6pc this year.

Raj Badiani from IHS Global Insight said cuts may not be enough. The government is relying on growth projections that are “far too optimistic” to do the heavy lifting of the deficit reduction.

In Italy, the main CGIL trade union is launching two sets of strike in June to protest “unjust and unsustainable” cuts announced on Tuesday night, claiming that axe falls squarely on ordinary workers. “Those who earn over €500,000 won’t have to put up a single cent,” it said.

Premier Silvio Berlusconi said the sovereign bond scare sweeping the euro zone had forced Italy to build up a security buffer. “This crisis has been provoked by speculation and is like no other. These sacrifices are necessary to save the euro,” he said.

The €24bn austerity package (1.6pc of GDP) over two years aims to cut the bloated bureaucracy, chiefly by reducing grants to regional governments.

“Italy’s spending is out of control: this irresponsible system worked as long as we could devalue the currency,” said Mr Berlusconi. “

The Geopolitical Hegemony of the Anglo-Saxon Empire in Latin America

The Military Presence to Maintain Neo-colonialism, Instability and Poverty

by Luis R. Miranda
The Real Agenda
May 1, 2010

By obtaining its independence, the colonies were preparing for what will inevitably come: the road to development andanglo-saxon empire modernization. Many countries, was suggested, would be developed quickly; politically and economically. But these nations soon realized the sad reality. The dream would not be realized. Underdevelopment in Latin America found strong allies: the colonizers and their new social, economic and military agendas to ensure that those who had recently proclaimed its independence did not come out of their reach.

The Anglo-Saxon empire, mainly supported by a banking system without military or economic boundaries, swallowed the first semi-democratic bastions left in the planet now known as G7, and once these were controlled, it was a matter of time before the rest of the planet was well absorbed. Working through proxy governments like the United States, Canada, France, Spain, England, Italy, Australia, Colombia and more recently Iraq and Afghanistan, the empire used mainly three tools: the model of dependence, foreign aid and military hegemony .

With the dependency model, the empire was guaranteed, and still is today, that countries could not compete with their former owners. The unit includes illegal policies of protectionism, subsidies, establishing trading programs (FTAA, NAFTA, CAFTA)-to flood markets with cheap products, which together amount today to a perpetual trade imbalance tilted to favor bankers. This resulted in the fact that developing countries were never competitive in international markets and rather remained as subjects of the Anglo-Saxons to a greater degree. Developing countries continued to be territories where the globalist-controlled developed nations got their materials to perpetuate their development, while taking advantage of third world countries’ cheap labor to strengthen the corporatist system that has ruled the planet for nearly 200 years.

With financial aid, the corporatists inflicted a second blow that destroyed more dependent countries on the intentions of reaching the much desired development. When third world countries failed to develop, it just seemed like a great idea to borrow money to boost their economies towards development. However, the trojan horse with this new method was to keep the borrowing countries deep indebted to prevent their development. Most of the money from the World Bank, IMF and governments dominated by European bankers were given as loans. These loans are so attractive because of the time is provided for the repayment, but at the same time are brutal due to their high interest rates of 30%, 40%, etc., which makes it mathematically impossible to pay the accrued interests, let alone the capital. This effectively tied up the wings of any development momentum the third world had. Along with high-interest loans, the agreements contained in them also requires the adoption of austerity policies that further restrict governments from encouraging development; less money is spent on education, health, infrastructure, creation of projects that in turn generate jobs, etc.. Also attached to these limitations exists an obligation on the part of the debtors to pass on the debt to three or four generations to ensure that countries cannot allocate resources and/or plan ahead.

While the globalists plundered -and continue plundering resources-, developing are also the markets for selling finished products with added value, which transformed them not only in slaves, but also in mindless consumists molded through the Madison Avenue hollow propaganda. Then, a third strategy was implemented. The creation of military conflicts in the region by where corporatists simply collapsed large areas, almost the entire continent. This is very clear in Latin America today. The U.S. proxy government, led through the decades by various puppets of the Anglo-Saxon empire, flooded Latin America officially and unofficially, using his terrorist organizations like the Central Intelligence Agency (CIA). They used for operations in countries like Colombia, Mexico, Venezuela, Panama, Argentina and others to create resistance movements to destabilize the nations. This is one of the most common strategies used to create divisions among the people who end up eating away any country that shows a vestige of independence. The corporatists also ensure that only their pawns are elected presidents in these countries. Only those who attend the most famous universities in the U.S. and Europe, where they are indoctrinated or bribed, have a real chance to “steer” the destinies of their people.

The existence of common understandings through these governments ensures access to the country, establishing policies that assure more underdevelopment and the continued plundering of more resources. Today, the bankers who control the U.S. government has established military bases throughout Latin America. Along with this armies, the implementation of aid packages and coporatist policies, have also secured access to unlimited sources of energy, water and biodiversity. Some of the most influential are: the Plan Colombia, the FTAA, Plan Puebla Panama, and soon in 2010, the new carbon emissions agreement to be negotiated in Mexico under the command of the Prince of change, Barack Hussein Obama .

The military hegemony and the exercises that assure it are practiced in various countries by the Southern Command, which is an American paramilitary organization that for years has eaten away the independence and sovereignty of all countries in which it operates. Its main purpose is to train Latin American militaries to fight “terrorism”; that deluded idea created during the administration of George Bush and that is based on the assumption that Islamic extremists want to destroy the American dream and that if it was achieved, we would all suffer. Military exercises are conducted throughout Latin America, with recruits from countries like Brazil, Argentina, Peru, Paraguay, Chile and Bolivia. The most notorious example of these military exercises took place in 2001 when international troops invaded the Argentine territory of Salta to practice against suspected insurgents. New military bases are opened each year through the signing of new agreements for the establishment of more bases in Latin American and Caribbean territories. “The plan of economic and political domination, which has spearheaded the U.S. military dominance, goes also to monitor and control the dynamics of popular movements in the region or, as the Mexican teacher Ana Esther Cecena calls, deter, prevent the enemy from forming. ”

The creation of military and naval bases is the daily bread for more and more Latinos. The facilities vary in names and sizes: the Tres Esquinas, Colombia; Iquitos, in Peru, Manta in Ecuador; Palmerola, Honduras; Comalapa, El Salvador, Queen Beatrix, on the island of Aruba, Liberia, Costa Rica. Resistance by many Latino citizens has had few positive results. In Brazil and Argentina, the banker controlled Washington, DC has developed a possible handover of the base of Alcantara, installed in Brazilian territory, and the possibility of installing a base in Misiones, on the triple border between Argentina, Paraguay and Brazil is almost a reality as well. The military hegemony not only consolidates the imperialist war power, but also enables the control of resources in the region. As bankers have done it in Asia, Latin America is also a source of precious materials. The 21st century colonialists who are the same for the past two centuries, have sacrificed the lives of millions of people in their desire to grab more territory. The United States in particular, has mechanisms of domination and overexploitation of the FTAA and NAFTA policies promoted by the IMF and World Bank, which are agencies of the Anglo-Saxon imperialist power. And why is there so much interest in what Latin America can provide? “Latin America and the Caribbean possesses 11 percent of the world oil reserves and produces nearly 15 percent of the oil extracted in the world,” cites the website visionesalternativas.com. “In addition, Latin America accounts for about 6 percent of natural gas reserves, large coal reserves – enough for about 288 years of exploitation – and abundant hydro-energy resources, estimated at over 20 per cent the global potential.

The Latin American natural wealth should be added to the fact that the globalists seek to implement more comprehensive policies in order to get more control over the population. Brazil, for example, has already adopted the RFID technology to impose property taxes on animals and in 2010 for the identification of individuals. Also in Brazil, the president recently signed a law that transferred huge tracts of land in the Amazon to the hands of the UN. A new “green police” also limits the development of projects and land use for food crops, thereby jeopardizing the supply of products to local and international markets. Mexico is currently the country with the continent’s most oppressive government where citizens are targeted by the military and paramilitaries, both groups are funded and controlled by the United States in order to ensure easy traffic of drugs to North America. Mexican cartels that do not obey the imperialists are exterminated and those who do pay their share of the goods and profits are free to murder anyone who opposes their reign. Just as in Afghanistan and Colombia, the U.S. army trained and armed Southern Command, controls the planting, harvesting and selling of tons of drugs that are then sent in the U.S., Canada, Europe, and of course in Latin America. The proceeds are then laundered through the big banks on Wall Street. The Anglo-Saxons have also hijacked the continent through the imposition of restrictions on commerce and military agreements between Latin American countries and other competitors such as China and Russia.

And what is the common denominator of imposing economic, political and military rules on the continent? The result is very clear. All you have to do is to review the overall state of the countries to realize that the objective of limiting or nullifying the development has been reached. According to the World Bank, the external debt only from the Mercosur countries increased from $185 million in 1990 to $325 million in 2005. The crime continues to increase in countries like Costa Rica, Mexico, Brazil, Colombia, Argentina, where gangs and drug cartels control populations on the outskirts of the metropolis, and remains highly stable in Guatemala, Honduras, Dominican Republic, Haiti and others. But perhaps the clearest result of policies imposed on Latin America is the underdevelopment in which all countries are maintained. No country in this block is considered to be developed after having proclaimed themselves independent nations for decades. Poverty in Latin America has gotten worse in many countries due to their internal and regional conflicts as well as corrupt governments that serve the globalists.

A recent study by ECLAC, an organization of the UN reveals that at least 182 million people live in poverty in Latin America, and the number of those living in extreme poverty reached 12.9 percent. The study reveals that the number of people regarded as poor increased due mainly to higher inflation and higher food prices. The poverty rate is divided into four groups. The first highlights countries whose levels are below 22% such as Argentina, Chile, Uruguay and Costa Rica, the second poorest group includes Brazil, Mexico, Panama and Venezuela, the third and even poorer has Colombia, Dominican Republic, Ecuador, El Salvador and Peru, and the fourth is composed by the worse off countries such as Bolivia, Guatemala, Honduras, Nicaragua and Paraguay.

Neo-colonialism does not allow developing countries to prosper, that’s a fact. The patent monopoly, control of natural resources and energy sources stop any progress. The use of military and paramilitary terrorism by globalists also stifles the nations and makes them victims of a system that is aimed at undermining the sovereignty and independence of any State. However, there is another fact that does not help in implementing development policies in Latin America. The legal and illegal choice of tyrants like Hugo Chávez in Venezuela, Fidel Castro in Cuba, Daniel Ortega in Nicaragua, and puppets like Oscar Arias, Ernesto Cedillo, Luis Inacio da Silva, Kristina Fernandez, Felipe Calderón, Alvaro Uribe and many others, contributes to all countries in Latin America continued in the hands of the imperialists. The tyrants, restrict progress because of their thirst for power denies their people the real benefits of development. Venezuela and Cuba are hit daily with attacks on freedom of speech, assembly, property rights and others. The puppets also limit development because they follow directly and indirectly imposing on the continent the plans that seek to restrain their countries from developing at all costs. It is a deadly combination of corruption and selfishness.

We must remember that the Anglo-Saxon plan’s main objective is to increase their control over the rest of the planet, and thereby promote and impose their policies on the nations of Latin America and beyond by using their own governments or organizations such as Mercosur, the North American Union, the African Union, Asian Union and of course the UN, the European Union, the World Health Organization, the World Trade Organization. The only way to start the path to development is thus breaking any existing relationships with these organizations to which all countries subject their decisions.

No organization has power over any country. This power that seems so hard to break is only valid if people let it rule them. In Iceland for example, Congress is about to vote on a measure to not pay external debt incurred in with the World Bank and IMF which was created through their illegal schemes of development loans. In the U.S., member states have and continue to proclaim their independence from the federal government which is bound to them by the system of slavery of the globalists. In Europe, at least half of the countries question the installation of malicious scanners at airports under the pretext of terrorism. When we understand that we are free to do what our Constitution allows, and that this is the only document that governs each of our lands, is when we will hold the Anglo-Saxon imperialists at bay. Therefore, progress, independence and freedom are realistic and achievable goals that are will come when each of the citizens as individuals make the decision to educate themselves, to understand how to the globalists deceive them with names, ideologies, political parties, false choices and even with religious extremism to keep them as slaves. No individual, no ideology, no political party, no politician or religion is the solution to progress by itself. The solution begins with each one of us first as thinking individuals and groups of active citizens demanding their governments the results for which they were elected.


Sources for this article include but are not limited to the following:

United States Imperialism in Latin America
http://www.hartford-hwp.com/archives/40/index-dca.html

US Interventions in Latin America Since 1823
http://www.mindfully.org/Reform/2003/US-Interventions-1823.htm

Neocolonialism: a bibliography
http://science.jrank.org/pages/7920/Neocolonialism.html

U.S. Military Aid Before and After 9/11, Region Breakdown
http://projects.publicintegrity.org/militaryaid/regiondetail.aspx?REGION=Western Hemisphere

The Bush Effect: U.S. Military Involvement in Latin America Rises, Development and Humanitarian Aid Fall
http://www.commondreams.org/views05/1105-21.htm

Qué es el ALCA?
http://www.visionesalternativas.com/militarizacion/geoestrategia/alca.htm

El Plan Puebla Panama
http://www.visionesalternativas.com/militarizacion/geoestrategia/ppp.htm

El Plan Colombia
http://www.visionesalternativas.com/militarizacion/geoestrategia/pcolom.htm

La Triple Frontera
http://www.visionesalternativas.com/militarizacion/geoestrategia/3front.htm

US Navy Deploys Around Latin America
http://rinf.com/alt-news/war-terrorism/us-navy-deploys-around-latin-america/3375/

Honduras deal a boost for US influence in Latin America http://www.csmonitor.com/World/Americas/2009/1030/p06s19-woam.html

US Navy Re-establishes Fleet for Caribbean, Latin America http://rawstory.com/news/afp/US_Navy_re_establishes_fleet_for_Ca_04242008.html

US builds up its bases in oil-rich South America
http://www.independent.co.uk/news/world/americas/us-builds-up-its-bases-in-oilrich-south-america-1825398.html

US launches major military exercises in the Caribbean as a warning to Venezuela and Cuba
http://www.handsoffvenezuela.org/us_military_exercises_venezuela_cuba.htm