By Karl W. B. Schwarz
During my professional career I have done three tours of duty with Wall Street firms helping to sort out the huge market crashes that have hit the USA in the past. I have often equated the boom and bust cycle in the USA to being one of color blindness in that Wall Street and DC cannot tell the difference in the three lights on a traffic light; green is ‘go’, yellow does not mean ‘go faster’, and red means ‘stop’ but they keep going in spite of warnings or sanity, and yes, big wrecks happen.
The reason I am sharing that with complete strangers is I know the warning signs of when an economy is about to go into a flat spin, the plane will go out of control and crash and few if any will get out alive. Such warning signs are everywhere that the USA economy is headed for a major crash that may well be many times worse than the 2008 crash of Lehman Brothers.
Instead of stop and think about what they are doing wrong, they are pushing ahead and that will cause the biggest economic collapse in the history of the world.
In the early 1980’s I sort of did it out of necessity when my home state had a constitutional limit on interest rates of 10% and US Prime Interest Rate during the Reagan Administration hit 21% and US Treasury bonds were yielding 11% to 14%. The sucking sound we heard in Arkansas was the capital flying out of state and drying up the economy in ways that sort of resembled Zimbabwe. Things were dire and only the smart, strong and creative survived.
My alma mater architectural school could not fathom why my focus was outside of a black hole state and I was doing well when others were crashing. My banker said it best, cannot borrow at 15% from the Fed, loan at 10% maximum due to Arkansas constitutional law, and make up the difference in volume. The only home state projects we were designing, developing and building were ‘all cash’ and pre-leased to credit national tenants due to the mortgage problem in Arkansas.
However, that is what DC has been doing for a long time [more volume of nonsense than they can pay for even when that light is ‘red’]. The hole is now so deep it will destroy the US economy and standard of living. The rot and the cancer are already in progress and are visible in every direction.
That period during the early 1980’s of high interest rates happened for two reasons that have not been written about much. First, President Carter devalued the US dollar and that caused major unrest about the intentions of the USA regarding its credit rating and paying its debts, which were miniscule compared to now. That devaluation was sort of a USA kick to the balls to those foreign investors holding US Treasury bonds and during the 1980’s they kicked back.
The US government has continued to devalue the dollar through economic and fiscal policies that are now seen for what they are… bordering on insane. The USA credit rating was downgraded and another probably looms in the near future because they keep doing the stupid things that devalue the true worth of the US dollar. Low dollar means high energy prices and is sucking the life out of most nations.
The second reason was the world was sending a clear message that the US policies towards the Russian Afghan War from 1980 to 1988, the US armed and supported Iraq - Iran War also from 1980 to 1988, and then surfaced the incredible amount of US government sleaze during the Iran Contra scandal.
For all of the talk by the Far Right about what a great leader Reagan was, I knew better. It was during that administration that the moral fabric of America started becoming frayed and unglued due to the demands of the elite few and the military industrial complex forcing American policy in directions that have been disastrous for the United States.
Reagan was inspirational in speeches and his focus on defeating communism had a valid mission. However behind the scenes were some very sleazy things going on, especially Iran Contra, BCCI and other things that should have never happened. I have known for years that one of the biggest problems in the Reagan Administration was making George H W Bush the Vice President ‘CIA choice’.
It was during this same period that gave rise to the likes of Michael Milken predatory practices and capital markets fraud that have grown worse with each passing year for the past 30 years. Fraud rarely rears up its head in Europe; it does almost daily in the USA so… so much for ‘rule of law’ for that phrase is now pretty much meaningless in the USA except when being applied to political enemies of DC.
It was during the period 1980 to 1988 that the entire world knew the USA was a direct sponsor of terrorism as part of its business plan to achieve its objectives. Defeating communism was a worthy goal up to a point depending on the methods and means, but since 1991 for the USA to exchange the standoff with communism to directly engaging in more terrorism was a stupid business plan.
One cannot claim to be on the moral high ground when they are neck deep in the sewer they created.
The objective my team was charged with was develop putable trading strategies that could beat that 21% prime rate by 500 to 700 basis points so certain key and strategic projects could be financed. We focused mainly on hospitals, power plants and refineries with some very creative ways to take advantage of the interest rate differentials between the US Treasuries and much lower interest rates in Germany and Switzerland. It worked but took the focus of a major NY investment bank to lead the way.
Then along comes Reagan again with the 1984 TEFRA Act [Tax Equalization and Fairness Reduction Act] that had the unintended consequence of wiping out many of the Savings & Loans and some banks. That one was due to the rampant amount of fraud that was going on in falsified inflated appraisals, people borrowing more than projects were worth, and out the back door a lot of money went for mansions and personal play toys. This travesty happened because too many were living on OPM and sucking all they could get out of the system.
When the house of cards collapsed many of the projects could not even be justified to complete them. The falsified appraisals were being used to distort loan to value ratios and people were getting more than 100% financing on projects of questionable value, often no money in the project personally. That is banking fraud.
Many were fined or sent to prison, many more deserved to go to prison. That was the same scandal that should have landed Neil Bush in prison along with Charles Keating of Lincoln Savings and then the Silverado S&L scandal.
This was also the same period of time that the savings rates in the US started to plummet, and that is always a bad sign for things ahead. There was a complete disconnect between growth, incomes, disposable income, US policies, and the real prices. That all led to lower retirement savings and less stability in the banks, S&L’s and real growth of the US economy and wellbeing.
As a design-build executive I could easily tell if projects had been victimized by fraud and whether or not a project that claimed to be say 50% complete it was actually so. The reason that was important is when the FSLIC [later the RTC, Resolution Trust Corporation] would take over an S&L the loans were treated as LIP [Loans in Progress] and construction was brought to a halt while matters were reviewed during federal receivership. Of course, they were still collecting interest on the loans while not moving the projects to completion.
It was during this time that the concept of “Good Bank” and “Bad Bank” arose to where the taxpayers ate the fraud and the new buyers got the good bank assets. After the 2008 collapse of Lehman Brothers the huge bailouts should have never happened. There is no such thing as ‘too big to fail’ and the US government is proving that right now.
That interest expense and no progress towards completion of the project put a lot of people out of business that had nothing to do with the fraud that caused the problem but they sure did suffer because of it.
Many projects were literally bulldozed because the fraud had been so rampant because completing them would have increased the losses to the taxpayers. During the years 1985 to 1989 the amount of new construction was way down and I helped to sort out the huge amount of overbuilding and loan fraud that was part of the underlying problem.
That was mainly in the states of Arkansas, Oklahoma and Texas. Then the tsunami reached the East Coast in what everyone thought was the recession proof Washington DC area. Thanks to George H W Bush he crashed the US economy and sure enough the bank and S&L failures in the metropolitan DC area were colossal. I did many workouts there from 1989 to 1992 on banks and S&L’s that no longer exist such as Sovereign Bank, Perpetual Mutual S&L, etc.
Then we see today and the collapse is in every direction.
The top 25 big box retailers suffered huge losses in the first quarter of 2014. Many are closing stores even in the regional malls. Even the American icon Sears is struggling to survive and the recession buffer Wal-Mart has taken a big nose dive.
The big Wall Street banks that got the bailouts would rather play with the money in the stock market for their own account than make loans that would create new jobs and real growth. Buffett, Paulsen and Soros have dumped their holdings of US bank stocks.
I recently reported that in the 2005 Bankruptcy Reform Law pushed through by the Bush Administration, they allowed those same banks to monetize their huge exposures on derivatives with bank depositor money. Many of those derivatives are worthless, but if the end beneficial user of those derivatives files for bankruptcy the domestic and foreign holders (owners) of those derivatives have standing in the bankruptcy as creditors and you as a depositor do not.
Said another way, the US government has allowed the banks to use your money to save their butts and they have left you as a depositor with no recourse in any bankruptcy involving these derivatives. Yes, that was a knife in your back in case you read that and are wondering. The foreign derivative holders will wind up owning the bank, not the US depositors that will have paid for their own demise by being unwitting depositors.
The US economic growth report was adjusted downward to reflect reality and shows a drop of 2.9% in the First Quarter rather than the projected growth and rosy reports from Washington DC. That was the biggest drop in 5 years but other factors are serious warning signs.
That First Quarter adjustment to reality is bigger than the US economy was projected to grow during all of 2014.
Odds are very high that during the 2Q, 3Q and 4Q the real growth for this year will be negative and further contraction of the US economy. If things were not bad enough, they are headed to worse.
Even the IMF is telling the USA is must increase the minimum wage before the damage is irreversible. Actually, it is too late to increase the minimum wage because the gaping holes in the ship are too large and its sinking is inevitable.
Increasing the minimum wage right now would be akin to putting a band aid on a .357 magnum chest wound. The patient is probably not going to make it without major surgery.
There is one metric that is impossible to measure but is a factor in the decline of the USA. How much are US companies suffering on production and exports due to despicable foreign policies of Washington DC? It is a huge number and is also having a big negative impact on all of the USA except the defense and security industry.
US Exports showed a huge decrease in the 1Q 2014 and is a major element of why the 2.9% decrease has happened.
What the US government has done since September 11, 2001 has turned much of the world against the USA.
People outside of the USA clearly see that the Global War on Terror is a fabricated lie, and this endless warmongering, funding of terrorism and creation of chaos around the world is not productive except for those inside the USA that want it that way.
Hostile actions towards Russia and China are having huge blowbacks against the dollar and more and more nations are starting to trade in their own currencies and distancing from the US dollar and the warmongering terrorism driven insanity of Washington DC.
The US dollar is no longer viewed as a desired reserve currency and losing that status will be like an economic nuke to the US economy as currency collapse and real inflation set in fast. The backside effect of that will be hyper-inflation and then a deep devaluation of the US dollar and that alone will severely impact the net worth of everything and everyone in America. That is when USA joins Zimbabwe and Argentina in the bread lines.
Regardless of the rhetoric coming out of Washington DC, this colossal damage to the US dollar and its economy is not due to any act of any foreign nation. The problem lies within Washington DC and its fascist drive at global domination. The pigs at the DC Hog Trough Diner have sucked the life out of the USA and yet they incessantly squeal begging for more.
The time is rapidly approaching that the Central Banks of nations will decrease or divest their US dollar holdings. That may well be in the form of taking over US assets, US corporations, land, etc. The idiots in DC seem to not know what ‘margin call’ means and no, they are not immune from it.
The lust for American Empire and over 700 military bases, plus funding terrorism and regime change, is one of those karma things that like a boomerang it is now hitting the USA in the back of the head while they myopically focus on the wrong things.
The USA can blow billions on regime change and financing terrorism in foreign lands yet not focus on getting what is wrong in America fixed.
I saw this coming in 2005 and is why I moved to Europe on June 1, 2006 and completely got out of the way of the tsunami of economic disaster that these idiots in Washington DC have created. The land I was born in has turned into the Fascist United States of America with complete lunatics running the insane asylum in DC.
I read this article [link below] just before starting this and it reads like a Steven King horror novel but it is the statement of fact on why things suck in America except for the elite. Imagine 50% of all Americans earning less than $27,520 per year. Folks, you could not begin to live in Western Europe on such a paltry amount of income.
That is not the American Dream unless that phrase now fits The American Delusion.
In spite of the chest thumping about how great America is, the EU economy is $2 trillion bigger per year than the US economy. The two world leaders in production output and exports are China and Germany. The USA lost that leading role a long time ago.
Minimum wage in the USA is $7.65 an hour, about one-third what people make in Switzerland where there is no minimum wage. The Swiss economy works, the US economy is a self-enriching aberration mostly for the elite few and crushing everyone else to death financially. Unless one is a doctor, dentist or other type professional, things are not good in the American economy. If a person is not employed directly by Big Defense, Big Security, Big Oil, Big Banks and Big Pharma, or Big Lobbyists, their plight in life is one of struggling to survive. The signs that it is true are everywhere and clear to see.
I have jokingly said for years that the reason we have so many misfits running for Congress is they cannot cut it out in the real world but even after 1 two year term in the US House they have a pension for life. What a retirement plan for misfits!!!!! After about 20 years of watching that phenomenon it is sad to say it is true more often than not. Many in Congress are the worst among us and leading the USA to an early grave.
Major retail chains are shutting down a large portion or all of their stores. The economic cancer has become terminal. The ‘shop ‘til you drop’ mantra has taken its toll. I have watched over the years as DC and Wall Street have pushed towards a consumer based economy with little in the way of real durable goods production, while at the same time taking one stupid step after another to kill the consumer.
It is a simple reality that it cannot be had both ways. To have a production economy means to support and grow production for domestic consumption and exports. To have a consumer based economy the overall system has to promote that, not kill it. Actually it has to be both running parallel because endless debts of DC are not a viable business plan. Endless massive trade deficits are not a sustainable business model.
Add in on top of the trade deficits the debts they are racking up for in an endless thirst for war, financing of mayhem and terrorism, these derelicts in DC are digging the hole fast. It would be different if they were spending cash assets, but they are not. They are leveraging and making debt bubble so big it will implode and when it does it will be very fast.
If you take the time to read the following article and pay attention, you will understand why almost 59% of Americans no longer believe the American Dream is achievable. That is a recent CNN poll, and reading on down the article is like reading an obituary. Those facts and figures are the requiem for the stupidity of the failed leadership from Washington DC.
Actually the American Dream is achievable but first Americans need to clean house in Washington DC and get rid of what is killing America. The real need for ‘regime change’ is get these idiots out of DC and away from the US purse strings and decision making process.
The figures in that article are real and are why the Middle Class, the literal backbone of the US economic engine is becoming virtually extinct. Each day the ‘haves’ and ‘have not’s’ gap widens and being crushed in the process is the Middle Class that once made up the largest sector of the US economy. The economic engine of America was driven by the Middle Class workforce.
That so many are underpaid, prices rising, or have no job at all are each and every one Warning Signs that something is terribly amiss and disaster is inbound.
You Americans living in those 50 states need to come to grips with the reality that your voting habits and laziness as citizens is in part what has led to the demise of America. These idiots in DC cannot lead starving animals to food and water. While America partied, stayed distracted, surfed the Internet and TV channels, and did not engage in putting a stop to the insanity in DC has led to the failure of a nation.
Worst of all is the lock-step of vote Republican or Democrat because that is the only personal identity you have. This lunacy of “Bush RNC Person” or “Obama DNC Person” is sheer stupidity when both are flying the USA into the side of the mountain; big crash ahead, no survivors.
Maybe someday American voters will reflect back and realize that on September 11, 2001 the USA intentionally morphed from a land to be admired to a totalitarian fascist state. That is a date that will truly be remembered in history as the day of infamy when the USA killed itself.
The approval rating of Congress is down around 7%, yet inexplicably lazy voters keep putting the same morons back in office that are clearly despised in and outside of the USA. It does little good to grouse about lousy ineffective leadership or pathetic results when the American voters keep them in office. I watch the vote results in America and whether it is the US House or the US Senate the voting electorate keeps putting their “Pet Nitwit” back into office knowing already they suck.
It is only a matter of time before the collapse will happen and there is nothing anyone can do to stop it. If anyone is hoping (in the absence of any reason to hope) that Washington DC is going to change they need to wake up and grasp the realities for what they are.
“Change We can Believe in?” I believe… the change was change for the worse. Just look around you and it is clear to see. The RNC is not the answer; the DNC is not the answer; both are dead from the neck up.
These idiots in DC have been so out of control that if they confiscated the entire paychecks of all US workers they still cannot afford the debt and IOU’s they have racked up. The official national debt stands at almost $18 trillion and rising. However, when the unfunded liabilities are factored in it is more like $160 trillion and rising. The 2013 GDP was $15.68 trillion so current debt is more than 10 entire years of GDP at the 2013 level. That means they cannot fix it if they applied the entire GDP to debt reduction for the next 10 years.
Debts are not assets… except in the La La Land of Washington DC.
There is no way to do a ‘work out’ that is driven solely by taxes and growth of GDP, and meet the obligations on $18 trillion and then over time meet the $160 trillion. If interest rates were to reflect the real inflation rate right now the USA could not afford the interest payments alone on the $18 trillion debt.
To add insult to injury new manipulative laws like FATCA will bring foreign investment into the USA to a grinding halt and could even trigger a debt default on US Treasuries due to how stupid bureaucrats and leadership is in DC.
Add in TPP, TISA and other steps to further provoke Russia, China and even many US allies that are drowning in US debt and weakening US dollars… the stage is set for a huge backlash.
The first step in righting the ship so it does not sink would be to slash and burn the wasteful spending of Washington DC chasing policy objectives that will not work and blow up in their faces every time.
We are seeing such right now in Iraq, Libya, Syria and Ukraine. They keep throwing billions away on unachievable objectives. Worse, they are funding terrorism and making things much worse because their business plan in Washington DC sucks; is bankrupt and is a failure in every way there is to define that word.
The only solution to the problem is to reverse course 180 degrees from the direction the US is headed on. They are that wrong and that clueless in Washington DC.
If you want to learn about how fast the USA could wind up the next Yugoslavia, Argentina or Zimbabwe take the time to listen to this video:
As one of the parties said in the presentation, none are so blind as those who refuse to see.
What is glaringly apparent to me is the USA game plan on job creation and economic development is a disaster. To add insult to injury the number living under the poverty line has steadily increased as have the number of people dependent on Food Stamps, welfare and unemployment benefits while they try to find jobs that are not being created fast enough. There is no way that the preponderance of US citizens can develop and achieve any type of long term financial security while they work, have no additional money to put into savings, and then will have very doubtful retirement years.
What has slowly happened is some in America got the American Dream and most of the rest got either poverty or slowly waking up to the reality that the USA is now a Low Wage Labor pool due to the greed of Wall Street and the corporations, and the pathetic leadership from Washington DC.
It is much more than just illegal immigration. The entire system has devolved into a low wage market and things getting worse and worse as prices keep going up.