The Neocon War within the Establishment

We’ve got to go to war with Iraq.
We’ve got to go to war with Libya.
We’ve got to go to war with Iran.
We’ve got to go to war with Syria.
Now, we’ve got to go to war with Russia.

These wars are not great for America, they are great for the people pulling the strings behind our government and the main stream media. These people are often called the establishment, the deep state, and/or the shadow government.

This is not a Democrat vs. Republican thing! Both parties have been captured, as evidenced by their media mouthpieces senators McCain and Graham.

In the big scheme of things, corruption is rampant in America today. But as bad as domestic corruption has become, it represents just a fraction of the money that can be made by pursuing foreign wars for profit. And that’s been the strategy of the neocon faction of the establishment since they took over decades ago.

But today, the establishment is at war with itself. Trump and his team of anti-neocon establishment players (including generals who got fired for opposing the neocon agenda), are challenging the old order. And that explains what’s happening today …

WHY TRUMP TWEETS

The media is still controlled by the neocon faction, so he’d rather bypass their obsessive attempts to distract and confuse, and speak directly to the people. It’s the same reason Trump is changing the way the white house will have press conferences, and on-site reporters.

WHY TRUMP SKIPS SECURITY BRIEFINGS

The 20+ security agencies that have proliferated since 9/11 are infested with neocons. Trump doesn’t want nor need their biased assessments designed to get us into yet another war for profit. He’d rather wait for his own appointees to give him an America first assessment.

WHY TRUMP IS RECALLING ALL AMBASSADORS

Just like the security agencies, the state department is also infested with neocons. That’s why Trump has taken the unprecedented step of firing all ambassadors as of the date of his inauguration.

WHY THE MEDIA BACKLASH

The establishment media is losing control. They used to put out all kinds of spin to influence the dialog, but it’s no longer working. When they tried to go after bloggers for spitting out “fake news”, it backfired when people rightly showed many examples of fake news originating from main stream media sources.

When they tried to deflect the way Clinton’s team conspired against Bernie Sanders by focusing on Russian hacking, it didn’t work. When an establishment reporter asked his readers who they believed, the results were overwhelming: Wikileaks beat the U.S. intel officials 83% to 17%.

https://twitter.com/JohnJHarwood/status/817180166942298113

CONCLUSION

The media drumbeat for war against Russia is just a continuation of the neocon agenda to divide and conquer, leading us towards perpetual wars for profit. Meanwhile, the real war is occurring behind the scenes, as the establishment fights among itself to remove the neocons from control.

Let’s all hope the forces for peace and rationality prevail.

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ICANN vs. the Federal Reserve

The Internet is about to go independent.

After years of support and supervision, the U.S. Government is about to irrevocably relinquish its control over the Internet by transferring its authority to an independent corporation named ICANN.

As part of this push, the current chairman of ICANN posted this article to the Wall Street Journal.

What’s truly amazing about this piece, is how well it’s done.

I found myself nodding in agreement with just about everything in it, especially the reasons why the U.S. Government should do the transfer, and the vision for the organization that takes over this role.

It was only after digesting this piece, that I remembered we are talking about ICANN here. You see, the Internet community has been deceived once before …

On July 2nd, 1997, the NTIA started the process to transfer its authority over the Internet via a Request for Comments. Then, after thousands of comments were submitted by a wide range of Internet stakeholders, they were compiled into a “Green Paper” which stated:

Principles for a New System. The Green Paper set out four principles to guide
the evolution of the domain name system: stability, competition, private bottom-
up coordination, and representation.

As the Green Paper devolved into the White Paper, and the White Paper devolved into ICANN, the “representation” principal was the one that was constantly at issue.

Initially, ICANN fought against any representation for Internet users.  But, in order to get the contract, ICANN begrudgingly allowed user representation on their board. For North America, that person was Karl Auerbach, one of the first elected representatives in cyberspace.

Unfortunately for everyone, this was a token gesture. Karl was excluded from all important decision making. Then when he complained and tried to change the system, he was removed from the ICANN board, along with all user representation.

Today, we don’t know how ICANN came about, we don’t know who is behind it, and we don’t know how decisions are made in ICANN.

What’s really going on here, is the powers that be are about to grant a perpetual franchise of control over who is who, and what is what, on the Internet.

It’s similar to the transfer of authority over the money supply by the U.S. Congress to the Federal Reserve. Except in ICANN’s case, once the transfer is done, there will be no way to undo it.

So while it may be true that many people and organizations support the transfer of authority from the U.S. government to an independent entity, many of the names mentioned in the article below have also expressed concerns with ICANN (in its present form) being that entity.

Today, ICANN continues to refuse all attempts to put in place some form of user representation, and continues to operate in secret with no transparency or sunshine.

If this transfer is allowed to go forward as is, I predict that, years from now, we will be watching with bated breath for decisions from ICANN, just like we watch for announcements from Janet Yellen today:

  • Will the Fed raise interest rates by 0.25%?
  • Will ICANN limit what transgender people can say in cyberspace?

Either way, we’ll watch these decisions from afar, and wonder how those people came to have so much power and control over our lives.

Jay Fenello
770-516-6922

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The Illusion of Internet Governance

There’s been a lot of controversy over the U.S. Government’s proposal to give up their supervisory role over ICANN. This led Karl Auerbach, one of the only people ever elected to represent end-users in cyberspace, to write this letter to Congress.

Karl did an excellent job as North America’s first elected representative in cyberspace. He fought for things that would have made Internet governance more representative, and more transparent.

Unfortunately for all of us, he ended up losing most of these battles, and in the end, losing the war as well (when ICANN revoked end user representation).

This was not Karl’s fault. In fact, it was anticipated, and one reason that the Commerce Department was originally tasked with overseeing ICANN in the first place.

From the beginning, there have been two opposing camps in this debate: One fighting for an open, representative, and transparent governance structure … and one fighting for something else.

Something else won.

In order to secure their victory, however, the winning camp was forced to allow limited end-user representation on their board, and ongoing Commerce Department oversight.

These were hard fought concessions.

Apparently for naught …

As Karl describes it, there’s never really been effective end-user representation in the direction of ICANN, and there’s never really been much visible oversight by the NTIA.

Now the Commerce Department wants to allow ICANN to govern itself, and possibly even move to another country.

Should we really be surprised?

Why would we expect a dysfunctional government, one that has been increasingly captured by monied interests, to be able to create a governing structure for the Internet that isn’t subject to hidden levers of control … and capture?

Truth of the matter is, ICANN is a reflection of what our own government has become. They are both cloaked in dysfunction, while the real power brokers remain hidden from view, and benefit from the ignorance of the masses.

(More than $400,000,000 for ICANN in 2013 alone.)

Comments welcome …

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Turkey for America

What will America look like if current trends continue?

What if big money and big business gain even more control over our government — and over our lives?

What if the executive branch becomes even more authoritarian, to the point where reporters, congressmen and judges become fearful of repercussions?  What if more and more laws to control people are introduced, while those at the top break laws with impunity?

If all of these things came to pass … we’d have Turkey today in America.

For those who don’t know, the people of Turkey are in their second week of anti-government protests (which have been mostly ignored in the U.S. media).   What was once a liberal democracy,  has turned into an authoritarian police state controlled by business interests.

Frustrated by the actions of Prime Minister Erdogan, the people of Turkey have had enough.  Erdogan has been using state power with increasing corruption and brutality, and there have been reports that their press, judiciary and legislature are afraid to speak out against the leadership.

Last week, this all came to a head as about 300 mostly young women gathered in a park to peacefully protest its planned destruction.  The official response was so brutal, that it brought 10’s of thousands out into the streets, and has since spread to 78 cities across the country.  (it’s been reported that the park’s redevelopment was an inside deal beneficial to the Prime Minister’s in-law)   Let’s pray for a positive outcome.

While differences between Turkey and America remain, recent revelations about NSA spying on all Americans, IRS targeting political groups, and government wire-tapping of news agencies, show that we are heading down the same path.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized. 4th Amendment

The reason this clause is in the Constitution, is to protect the people against an authoritarian government.  The power of government to tax, imprison and execute is unique, and easily abused.  When government can search anybody, anytime, anywhere, people live in fear of their government.

What our government is doing today is making it easy for them to silence, blackmail, or imprison any one of us.  With recently revealed technology, anyone who becomes a target will have years of electronic “footprints” for the Feds to analyze and scrutinize. And since most Americans commit Three Felonies a Day, if they want to get you, they’ll be able to get you.

What’s really criminal, is that these secret policies have been put in place in the first place, with the full knowledge and consent of judges and elected officials.  What’s really criminal, is not the whistle blower breaking a confidentiality agreement, it’s our government officials ignoring their sworn oaths to protect and preserve the U.S. Constitution.

This has to stop … else it’s Turkey for America.

As always, comments welcome.

Jay Fenello
www.fenello.com

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For the Love of God, Guns, and Governance

I love the story of America.  How a group of people just like us, living in the colonies at the time, came to declare themselves free and independent.

Instead of following the dictates, taxes, and punishments of a King far away in England, the people of America would now govern themselves.

This was a radical departure from their prior history, which had been dominated by Kings, Popes, and Emperors.

Instead of control originating at the top (through a bloodline, battle, or indoctrination), America would be built on the power granted to it by the people.

God > Ruler > Subject became …

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.  That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.

God > People > Government.

These were concepts born out of the Enlightenment, that period of time after the dark ages when knowledge and wisdom exploded.

These were concepts our founding fathers used to establish a nation.

To enshrine these concepts into a self governing system, our founding fathers also gave us the rulebook for the nation– the U.S. Constitution.  It establishes the various branches of government, and the rules we all agree to live by.  It is the supreme law of the land.  It is the law that all other law must follow.

To make sure that government never came to oppress the people, our founding fathers fought to include protections for the God > People > Government alignment:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Collectively, these constitutional protections are known as the Bill of Rights.  They also include, in part:

  • Right to trial by jury, speedy trial, public trial
  • Prohibition against cruel and unusual punishment
  • Protection against unreasonable search and seizure
  • Right to due process, rules against self-incrimination
  • Right to keep and bear arms

The right to keep and bear arms is a constitutionally protected right.  It’s not there for hunting, and it’s not there for personal protection.  Like the other civil liberties listed above, it’s there to ensure the God > People > Government alignment.

While nobody wants another Newtown, the current push for gun control appears to be coordinated propaganda at work.  (For a sad/funny look at hypocrisy in the gun control debate, see this Jon Stewart Gun Control clip.)  When combined with the recent attacks on the rest of our civil liberties, it’s easy to see why patriots are freaking out.

Today, our government can pick you up, take you away to an unknown location, hold you indefinitely, without notifying anyone, nor charging you with a crime.  Today, our government is assassinating people without charge, even if they are a U.S. Citizen, or the family member of a purported terrorist.  Today, our government records everything you electronically transmit or receive, without a warrant, to be used as they see fit.

Because of the many new laws that have been passed in our “war against terror,” it is estimated that every person in America commits three felonies a day.  As a result, today people are facing years in prison, and 10’s of $1,000’s in fines, for copying digital movies, or electronically protesting corporate/government policies (see the Aaron Swartz articles).

All the while, corporate executives earn hefty bonuses, while evading criminal prosecutions in actions that result in harm many orders of magnitude greater.

Now gun ownership is under attack.

Some fear that civil war is coming.

That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

We are very fortunate in this country.  We have a great historical tradition to build on, one that gives us a peaceful way forward.

Before breaking out the heavy weapons, let’s use one of the most powerful civil rights we have remaining:  The right to petition the government for a redress of our grievances.

Now, I’m not talking about sending letters to city hall, or your congressman or senator.  I’m talking about taking your complaints directly to an authority who can rule and enforce decisions.  I’m talking about taking your complaints to court.

As long as the Constitution is the law of the land, any action that violates our civil liberties will eventually be enforced as enacted.  The problem is, forcing the government to change through court action can take decades, and can be very expensive.

But the Internet is changing all of that.

Just like the Internet has drastically changed the music, travel, and newspaper industries, it’s about to change law and governance as well.  No longer will the courts be a battle ground reserved for the wealthy and well funded.

Thanks to the Internet, people who have had enough can learn how to file their own complaints without an attorney, for very little money.  It’s called proceeding “pro se,” and anyone who is so inclined can do it  …

  • Don’t like the gun control laws?  File suit.
  • Being treated poorly by your monopoly cable provider?  File suit.
  • Is your city wasting money on homeland security projects?  File suit.

In upcoming articles, I’ll explain how small groups of pro se litigants working together in coordinated ways, can defeat the biggest and best law firms on Wall Street and K Street.

And in the process, we can take our country back.

After all, we are the people …

Jay Fenello

Jay Fenello is currently suing Bank of America without an attorney in Federal court,
and is sharing his experiences in his blog “Adventures of a Pro Se Litigant

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Ending the Great Recession: From Smith, to Keynes, to Batra?

Today, we face the prospects of continuing high levels of unemployment, the default of sovereign nations (i.e. Greece, Italy, Spain, etc.), and a repeat collapse of the global financial system.  While all this is going on, I don’t hear anyone speaking about the real problem, and consequently, a solution that will lead us back from the abyss.  For my part, I believe the problem is obvious …

The World According to Smith

235 years ago, modern economics was born when Adam Smith wrote The Wealth of Nations. Smith gave us a model of national wealth that grows through the efficient use of land, labor and capital.  He believed that the best way to achieve this growth was through the “invisible hand” which magically guides free markets.

Smith wrote his book in 1776, the same year as the birth of  our nation.  It was at a time when Monarchies first started losing to the modern nation-state, and industrialization had just started to ramp.  By embracing the free market philosophies of Adam Smith, capitalistic societies were able to rapidly expand throughout the world, growing along with the dramatic changes brought about by industrialization.

As successful as the free market was in expanding capitalism and industry, one nagging little problem kept cropping up.  Every once in a while, the invisible hand would break down, and the free market would stop working.  This was especially troubling when the result was prolonged unemployment for the new industrial worker — a worker who needs a job to keep a roof over their head, and food on their table.

The World According to Kondratieff

While many people saw recurring cycles in the economy, most believed the pattern was simply a mild business cycle that recurred every 4 years or so.  Some did recognize a longer cycle that lasted around 11 years, but there was no consensus on why this might be the case.

Then, in 1926, three years before the Great Depression, Nickolai Kondratieff wrote a paper titled “Long Waves in Economic Life.” He was one of the first to observe that capitalistic economies undergo decades-long cycles of inflation, followed by deflation. Today, his observations are known as the Kondratieff Wave.

The World According to Keynes

While Smith espoused free markets, and Kondratieff recognized and predicted the “long wave” result, John Meynard Keynes decided to study historical panics, recessions and depressions, with a special focus on unemployment.  In 1936, he wrote The General Theory of Employment, Interest, and Money, and Keynesian economics was born.

Keynes gave us a model of the economy that, for the first time, included a framework for governments to actively participate in the business cycle.  Instead of solely relying on the invisible hand to manage free markets, governments were now empowered with fiscal and monetary policies that they could use to mitigate recessions and depressions.  His model worked so well, that by the end of the 1960’s, almost every western nation had adopted Keynesian economics.

When I studied economics in the late 70’s, the professor was Denslow, the textbook was Samuelson, and the concepts were Keynesian.  While Keynes had worked for 30+ years, the Keynesian model seemed to stop working in the high inflation, high unemployment environment at that time.  As Keynes lost favor, so called “supply side” economics came on the scene, eventually to be replaced with a return to the free market ideology prevalent under Smith.

It is that free-market ideology that has brought us again to the brink.

The World According to Batra

I first learned of the long wave back in the early 80s, and I’d been expecting what is today known as the Great Recession ever since.  Because of this, in the late 80s, I read a book titled The Great Depression of 1990 by Ravi Batra.  While his timing was a little off, his insights into the causes of market failures were spot on, and describe perfectly what’s going today.

According to Batra, the reason markets break down, is that capital gets accumulated at the top, and ceases to circulate in the economy.  When the bottom of the wealth pyramid collapses, those people at the bottom have nothing left to spend, and the low end of the market freezes.  Then, when those who sell or otherwise depend on the low end of the market start to lose their income and wealth, they stop spending as well. This leads to a general market failure, as money is taken out of circulation, and the market failures spiral upward.

We can see this today.  Recent poverty numbers confirm that many former members of the middle class, have now entered the ranks of the poor.  Many people have lost their life savings, their retirement, and their homes.  Those who depend on these people (the retailers, the taxing authorities, etc.) have seen their income evaporate as well.

At the same time, those at the top have been hording money.  We can see this in the estimated $2 Trillion held by large corporations, that they are not investing in factories or employees.  We can see this in the many Trillions more on the books of the big banks, that they are not lending to borrowers.  So long as there is not an expanding market for goods and services, they will continue to sit on their holdings.  Instead, they will seek the highest returns possible by speculating in commodities and financial products, or by bribing Congress for tax breaks and more corporate welfare.

Public Policy Response

When the housing bubble burst and the markets froze in 2007, our leaders turned to Keynes for a response.  That’s why the U.S. Government authorized the $900 Billion stimulus plan.  That’s why the Federal Reserve has injected over $1.5 Trillion into the system.  And that’s why foreign governments have injected Billions of Euros into their system as well.

Unfortunately, they did all this without acknowledging nor addressing the real reasons for the market failure.

Today, this folly continues.  How many times have you heard someone say that Americans must be retrained with new skills to be competitive to find a job?  How many times have you heard someone say that we must invest in new industries, to create jobs and be competitive in the world markets? None of these address the real problem — a lack of demand for goods and services, caused by a lack of capital in the low end of the market.

The Real Way Forward

If we really want to end the Great Recession, the prescription is simple.  Stop putting money in at the top of the pyramid, and put it where it will make a difference and start the spending again.  Instead of giving $900 Billion to the banks, instead of borrowing $1.5 Trillion from the Fed to support the too big to fail, instead of spending $447 Billion on a jobs program that at best will create 1 million jobs, give it directly to the people, and cut out the middle man.

Consider this.  If we conservatively estimate that the entire amount of money spent through fiscal and monetary policy to prop up these too big to fail institutions, it is approximately $3,000,000,000,000.  If instead, we issued a check to every man, woman and child in this country, each person would receive approximately $10,000. That’s $40,000 for a family of four.

With this type of Keynesian stimulus, our economy would be humming again.  And those too big to fail institutions would be gone, and no longer a problem.  I know this one will ruffle some feathers, but as always, comments welcome.  Until next time.

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Money Creation, Destruction, Bankruptcy and Default

Last time, we explored our money supply — how it’s a fractional reserve system, built on a small amount of base money, that is lent against to create greater and greater amounts of more highly leveraged money.  Today, we are going to look at that system in action.  Specifically, how money is created, destroyed, and how that process has been affected by the Great Recession.

Money Creation and Destruction

The first thing to know about our money supply, is that every day, millions and millions of dollars are created.  At the same time, millions and millions of dollars are destroyed.  The most obvious example of this is the way old, worn out dollars are destroyed, with new dollars printed to replace them.  Historically, the amount of new dollars printed has exceeded the amount of dollars destroyed.  This shows up as an ever increasing amount of dollars in circulation.

Just like physical money is printed and destroyed, electronic money is as well.  To understand how this works, it is helpful to realize that money = debt.

Money = Debt

If we pretend to live in a world without money, and we ask the U.S. Government (USG) to pay us $5, they would walk over to their printing press and print a $5 bill.  When the USG gives us that bill, we are now $5 richer, and the USG now has an outstanding obligation to provide $5 worth of goods and/or services to anyone who presents them with that bill.  In other words, the USG has just created a $5 debt obligation.

When that money is returned to the USG, it then has the option to spend it again (roll over the debt), or to keep and/or destroy that money (retire the debt, and decrease the money supply).  To summarize, anything the USG does to print or borrow money creates more money, and anything the USG does to retire its debts destroys money.

The Role of Interest, Taxes, Bankruptcy and Default

Normally, this process of creating and destroying money would be a system in equilibrium.  However, with the imposition of interest expenses, our money supply is guaranteed to ALWAYS be constrained.  You see, money created will circulate until it returns to its source and is retired.  However, if interest is charged on the money that has been created, that interest payment must come from someplace.

Using our prior example, if the $5 we received from the USG was lent out for one year at $1 interest, there now exists $6 in obligations.  Where did the extra $1 come from?  How was it created?  Easy answer is that it doesn’t exist, and it wasn’t created.  The person who now owes us $6 must borrow an extra $1 to pay us back.

Another major drain on our money supply is federal taxes.  While it’s true that some taxes are used to redistribute money from one stakeholder to another, there is also some amount of taxes that are used to retire debt.

These drains on the money supply guarantee that money will always be constrained, and ensures that extra debt obligations can only be eliminated through bankruptcy or default.

Putting this all together, here are the major sources of money creation and destruction:

Major Sources of
Money Creation & Destruction
Creates Money Destroys Money

Printing Money
Borrowing Money

Destroying Money
Paying off Interest
Retiring Debts
Paying Taxes
Bankruptcy
Default

Summary

Today we’ve covered the assorted ways that money is created and destroyed, the role of the U.S. Government in the process, and why bankruptcy and default are built into the system.  Next time, we’ll look at the National Debt Limit, the role of the Federal Reserve, and alternatives and consequences to our current system.  As always, comments welcome.  Until next time …

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Printing Money to Counter Deflation in the Great Recession

In my prior post, I described three major tactics that are being used to combat deflation.  Today, we’ll talk more about the printing of money, and how it might actually help stop deflation.  Before we begin, however, let’s take a look at what the chairman of the Federal Reserve has had to say about printing money.  On June 7th, 2009, Ben Bernanke told viewers of 60 Minutes:

You’ve been printing money?” Pelley asked.

“Well, effectively,” Bernanke said. “And we need to do that, because our economy is very weak and inflation is very low. When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.”

In a follow-up interview on December 5th, 2010, Bernanke said this:

“One myth that’s out there is that what we’re doing is printing money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we’re doing is lowing interest rates by buying Treasury securities.”

So which is it?  Is the Fed printing money, or not?  Did Ben Bernanke misspeak, or worse, misrepresent the truth?  Perhaps the Fed was printing money in 2009, but not in 2010?  Or is something else going on?

Before we can answer these questions, we must first define money.  Is money the dollar bills you carry in your wallet?  Is it the money you keep in a checking account at the bank.  Is it the money you keep with your stock broker in a money market account?

Truth of the matter is, all of these are considered forms of money, but not all money is created equal.  In these cases, the money in your wallet is considered M0, the money in your checking account is considered M1, and the money in your money market account is considered M2.  Generally speaking, the larger the M-number, the less liquid and more highly leveraged is the money.

Fractional Reserve Banking, and the Multiplier Effect

In order to understand the relationship between these categories of money, we must first explore the way money is created.  In most of the world, the supply of money is created and controlled through a fractional reserve banking system, coordinated by a central bank.

These central banks can influence the supply of money by printing currency, by lending money into existence, and by changing the reserve requirements for member banks.  It’s called a fractional reserve system, because for every dollar on deposit with a member bank, that bank must retain a fraction of those deposits in their account.

If the reserve requirement is set to 10%, for example, the banks can lend out up to 90% of their deposits.  If a bank does lend out 90% of their deposits, those dollars will land in another bank, who in turn can lend out 90% of that balance.  So on, and so forth, until the original deposit creates money worth many times the original deposit.  This is called the “multiplier effect,” and can be calculated as 1/(reserve requirement).

Leverage, and the Money Supply

If we put all of this together, we can now see the various forms of money, and how they are related to each other.  Consider the following chart:

Components of the Money Supply
M0 Currency $0.9 Trillion
M1 Cash Equivalents $1.8 Trillion
M2 Bank Leveraged Money $8.8 Trillion
M3 Business Leveraged Money $14 Trillion
Unregulated Money
Derivatives $600 Trillion

 

From this chart, it’s important to know that the Fed can inject money into all of the buckets above.  If they choose to inject money into M0 or M1, they are putting high powered, un-leveraged money (base money) into the system which will be greatly expanded through the multiplier effect.

Now that we have some common reference points, let’s return to Ben Bernanke’s comments, and see what’s been happening to our money supply since the real estate bubble burst, and the Great Recession began:

Chart of U.S. Money Supply Growth

As this chart clearly shows, the most leveraged forms of money started to collapse in 2008, along with the real estate bubble.  To compensate, base money was infused into the system by the Fed.  So, was Ben Bernanke being truthful?  I guess it depends on what your definition of money is.  A strict definition of “printing money” would only involve increasing M0.  Using this definition, Bernanke was correct.  He was printing money in June 2009, but he was not “printing money” in December 2010.

Next time, we’ll continue our discussions about the money supply, deflation and the U.S. Government’s role in printing money.  As always, comments welcomed and encouraged.

Tranzitioning.com is a blog by Jay Fenello, principal and founder of BizPlacements.com, an Atlanta-based
Business Brokerage and Placement firm that helps people buy and sell small businesses and franchises.

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Deflation Interruptus, and Paths Out of the Great Recession

For a little over a year now, I’ve been writing this blog about the Great Recession — how it began, and how it is likely to proceed.  Back then, I predicted a deflationary cascade, brought about by the collapse and panic surrounding the mortgage backed securities market.  I believed that, as the bad debts that existed in the market were recognized, the effect would propagate from one sector to another, until the system reset and was healthy again.

While I still believe this to be true, the deflationary cascade I predicted has been interrupted.  This is in part due to the unprecedented spending by the U.S. Government, and by the printing of money by the Federal Reserve Bank.  It is also due to certain policy decisions that have allowed much of the bad debt to simply be ignored.  For the moment at least, these actions appear to be working.

But the system remains precarious.  Today, there exists trillions of dollars in losses that have yet to be recognized, and there remain imbalances between nations on the international stage.  If any of these blow up, many large banks, insurance companies, and pension funds could fail, and many municipalities, states and governments could default.

Truth of the matter is, until we recognize the bad debts that were created in the mortgage bubble, our system will remain crippled and unhealthy.  In 2011, I believe we will finally see some movement on this front.

Over the last couple of months, we have started to see some details about the mortgage backed securities market that have significant implications about how we might resolve the current logjam.  It started out as an inquiry into “robbo signing,” a claim that thousands of documents have been submitted to the courts, signed and attested to by people who were not qualified to make such claims.  Turns out, there is much more to this story …

To create profitable mortgage-backed securities, the investment banks had to control two expenses:  taxes and recording fees.  To control taxes, they created the securities as a trust, and to control recording fees, they decided to ignore hundreds of years of legal precedent, and track ownership of mortgages through a new electronic exchange called MERS – Mortgage Electronic Registration Systems.  This would allow them to forgo the time and expense of filing original documents, and paying recording fees to counties throughout the nation.

While this decision saved the industry millions of dollars (at the expense of our counties), recent court decisions have found that MERS is not considered sufficient legal proof of ownership to have standing.  That the only way to prove you have the legal right to evict someone, is to have a properly recorded claim in the county where the property is located.

This is where the decision to create trusts causes problems.  In order to preserve the tax advantages of a trust, all assets of the trust must be held in the trust within so many days of its creation.  That time limit is now over.  The trusts can no longer add these notes without violating its tax exempt status.  In other words, a MERS entry cannot be “fixed” by simply recording a claim in the proper county.

Further, it appears likely that most if not all of the original documents were scanned, then destroyed.  This means that  the original “wet signature” document needed for recording purposes no longer exists.

What we end up with is a real mess.  The person who thinks they are owed money (the mortgage-backed securities holder), has no legal standing to collect.  The person who has standing to collect (the loan originator), has already been paid in full.  Worst of all, we are left with no easy way to resolve these issues.

Of course, the very act of selling a security that does not legally contain the items that you claim is considered securities fraud.  While the SEC and other regulators appear to be ignoring this crime, it is also something that can be challenged in civil court.  And that’s exactly what’s starting to happen, as Allstate sues Countrywide for exactly this tort.

Given all of this, I believe that the powers that be will have to address the bad debt that is stuck in the system.  Some possible solutions include 1) forcing all of the bad debt back onto the originating banks (then bailing them out), or 2) passing a law that retroactively allows the use of MERS, and absolves those guilty of this securities fraud (this has already been attempted once, but was vetoed by Obama).  Either way, we’ll see many more bad debts resolved this year, allowing the deflationary cascade to work towards its natural conclusion.

In closing, all of this is speculation of course, and I encourage your comments.  In addition to the discussion list I announced last week, I’ll also be posting this to a new public LinkedIn Group dedicated to Tranzitioning.  (either I’ve missed the public option before, or someone was listening :-).  Until next time.

Tranzitioning.com is a blog by Jay Fenello, principal and founder of BizPlacements.com, an Atlanta-based
Business Brokerage and Placement firm that helps people buy and sell small businesses and franchises.

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Social Media, Discussions, and Tranzitioning the Great Recession

For a little over a year now, I’ve been writing this blog about the Great Recession, and experimenting with many of the new social media vehicles that are now available.  And while services like Facebook, Twitter and LinkedIn are extremely valuable, I find that they are primarily a one-to-many communication vehicle.

I really miss the good old days, where mailing lists were prevalent.  With open mailing lists, you can easily have a many-to-many dialog, all carried out via email.  They are easy to subscribe to, they are easy to respond to, and best of all, the dialog is available in an online archive that can be accessible to everyone.

That’s not to say that the social media sites don’t offer similar services.  For example, I had an extensive online conversation through the Spirituality and Consciousness Group on LinkedIn about “The Five Dimensions of Consciousness.”  There I was able to get some feedback as I was writing my last two posts.  As valuable as this was, today I am unable to link to any of the messages in that dialog, and only members of LinkedIn who subscribe to that group will ever be able to see them.

For this reason and more, I’ve set up an open mailing list on Yahoo where people who are interested can comment on AND discuss any of the posts that appear in this blog.  Here are the details:

Tranzitioning Discussion List Info
To Post a message:   Send an email to
tranzitioning@yahoogroups.com
To Subscribe: Send an email to
tranzitioning-subscribe@yahoogroups.com
To Unsubscribe: Send an email to
tranzitioning-unsubscribe@yahoogroups.com
To See messages: http://groups.yahoo.com/group/tranzitioning/messages

To get an idea of what you’ve been missing, here is a representative post on the Fifth Dimension of Consciousness from the LinkedIn group (posted with permission):

“What is nirvana?”

I believe from our discussions that you understand it is ineffable. One cannot know it without experiencing it. It is like true, unconditional love. We can “think” we know it (intellectually) but this is not the same as actually feeling it, experiencing it with our hearts, uniting with it from our souls. When this happens, one cannot not know it. It reminds us who we really are.

There will be many who try to describe it – for different reasons. I believe this is with good intent. It is like trying to describe love or bliss. Perhaps it is with intent to show others the way, to help them on their paths.

The Buddha referred to it as liberation. Followers of Jesus often called it salvation. It is an experience where we “see with the vision of Christ (consciousness)”. We are truly free. We are in-Spirit. We are innocent and guilt-free. All is beautiful. There is no fear or doubt. Time seems to stand still – or not exist at all. We feel at one with God and life force. We are whole and complete. We have transcended the ego thought system – and, with it, karma.

It is a state of grace found only in heaven, which is also ineffable. Just remember what Jesus said, “The kingdom of heaven is within.”

Written by John Murphy,
Author of Beyond Doubt: Four Steps to Inner Peace
www.johnjmurphy.net

Soon, I will post several new topics for discussion in the new Tranzitioning Discussion List.  These will include an exchange with a social activist who is trying to change the world, and a Muslim student of Comparative World Religions.  I will also post some responses to thoughtful comments that have been made to my prior postings.

Now, more than ever, comments welcome.  Until next time …

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