Today's widespread economic crisis has starkly revealed that Americans are not only addicted to oil, but more precariously to "credit" and the pernicious bondage it creates called "debt".
Unwittingly, US consumers have opted for a voluntary debt servitude in their quest for the growing myth of the American Dream. While this choice may be a matter of personal responsibility, it is not wholly of their own free will. For some of us, our sinful relationship with debt is like being a co-dependent partner in an unequally yoked marriage of convenience. Things may be good for a while, but eventually the partner providing the lion's share of the bennies is going to be talking divorce.
Consider some serious numbers about consumer debt as reported by the Federal Reserve Board:
- Americans carry $2.56 trillion in consumer debt, up 22 percent since 2000 alone
- The average household’s credit card debt is $8,565, up almost 15 percent from 2000
- College debt has more than doubled since 1995. The average student emerges from college carrying $20,000 in educational debt
- Household debt, including mortgages and credit cards, represents 19 percent of household assets, compared with 13 percent in 1980
- As debt has been mounting, incomes have been declining
- The percentage of disposable income that consumers must set aside to service their debt has risen to 14.5 percent from 11 percent just 15 years ago
When you add the volatile costs of a plethora of government taxes and entitlements, fuel, food, education, and health care to the capital losses and credit freeze created by the Wall Street high rollers, it ain't a pretty picture for American citizens. A recent CNN poll cites that about 78% of Americans believe we're already in a recession!
I wonder why?
Considering that Americans have been "dumbed-down" over the past decades, it's no wonder that there are so many disconnects between our perceptions and reality about life in America these days. For too many, the American Dream has become the American Delusion.
It's obvious that credit in its many variants is the villain in today's economic Faustian Drama. The hero used to be personal savings, those monies left over (surplus) after all expenses have been paid. Personal savings represents the "capital" money (liquidity) that drives the system of capitalism on which our economy stands and depends. Maybe we need to look for a new hero.
Here's some startling facts.
According to the Bureau of Economic Analysis, the nation’s savings rate, which exceeded 8 percent of disposable income in 1968, has dipped to as low as -1.1 percent during the 40 years since. As consumers have hunkered down spending in response to the current economic crisis, the nation's saving rate has skyrocketed to a whopping 5%! But hold on ... this translates to a mere nickel saved for every dollar earned. Sadly, savings rates in many other countries easily exceed 25%.
So what's our problem?
We can't understand the current economic turmoil unless we first understand the basic components of our economic system. Let me give it to you straight up: no savings, no capital, no liquidity, no economy, no country.
Industrial Revolution
The early years of the 20th century shepherded in an explosion of new and useful industrial and consumer products that enterprising business persons could manufacture inexpensively, and sell profitably at affordable prices to many buyers. This was the era of mass production that created millions of jobs and raised the standard of living for average Americans. This period in our history has been called the "Industrial Revolution".
Some of America's leading businessmen seized on the opportunity to capture and funnel growing reserves of consumer money to their enterprises and personal coffers. So they developed a partnership with European financiers to corner the expanding wealth of America. These men were experts in banking, industry, and seizing control of the national economies of countries like Great Britain, Germany, France, Italy, and Austria. Together, they decided to create and implement a 4-pronged plan that would enable them to gain control of America's economy.
Some of America's leading businessmen seized on the opportunity to capture and funnel growing reserves of consumer money to their enterprises and personal coffers. So they developed a partnership with European financiers to corner the expanding wealth of America. These men were experts in banking, industry, and seizing control of the national economies of countries like Great Britain, Germany, France, Italy, and Austria. Together, they decided to create and implement a 4-pronged plan that would enable them to gain control of America's economy.
- Control of US Industry
- Control of the US Banking System
- Control of the US Financial System
- Control of the US Consumer
Many of the greatest industrial powers of the US were financed by the European financiers in such industries as steel, railroads, chemicals, agriculture, infrastructure, mining, and consumer product manufacturing. To control public knowledge, influence consumer behavior, and form public opinion, the industrialists either purchased or created the major media companies that provide today's advertising, news, and entertainment. As more and more American industrialists were brought into the elite orbit of industrial enterprise, they cooperated to form business conglomerates and a money trust that eventually controlled much of US industry. They became very good at either defeating or co-opting US Anti-trust laws so they could achieve their goals.
They also knew that small businesses represented a significant portion of the suppliers of goods and services to Americans. These businesses had to depend on using their personal savings to invest in their own entrepreneurial pursuits. This strategy made them very vulnerable to larger companies taking their profits and having to rely on the industrialists' lenders for credit. When credit tightens, small businesses can't easily get the short-term working capital they need to operate and sell their goods and services. That's why so many of them fail within the first 3-5 years. The industrial powers knew this, and could syphon off the market share and profits of small businesses that failed on a regular basis.
They also knew that small businesses represented a significant portion of the suppliers of goods and services to Americans. These businesses had to depend on using their personal savings to invest in their own entrepreneurial pursuits. This strategy made them very vulnerable to larger companies taking their profits and having to rely on the industrialists' lenders for credit. When credit tightens, small businesses can't easily get the short-term working capital they need to operate and sell their goods and services. That's why so many of them fail within the first 3-5 years. The industrial powers knew this, and could syphon off the market share and profits of small businesses that failed on a regular basis.
Control of the US Banking System
To leverage their power, America industrialists colluded with these foreign financiers to establish the Federal Reserve system (Fed), which is really a privately-owned banking cartel that pretends to be the US government's central bank. The industrialists also decided to purchase, create, and control commercial and retail banks that would also be members of the Federal Reserve System as well as Wall Street.
This syndicate cajoled the US government to hand over to them the exclusive power to issue paper currency, control US monetary and fiscal policies, and control the money flows between banks and other financial institutions. In the meantime, if the US government needed money it could buy and "borrow" it from the Fed at interest. These Fed loans would be backed by US taxpayer dollars. The US government's addiction to debt (in lieu of frequently raising unpopular taxes) put it at the mercy of the institution it sponsored and legitimized. The Fed essentially became Adam Smith's all powerful and untouchable "invisible hand". Since our economy has tanked, the Fed has presented itself as the "savior" in the crisis. Most Americans are only beginning to learn that the Fed's secret activities are not subject to public accountability or audit by anyone or any organization (including the US government itself). Regrettably, our government fell for their okee-doke.
Control of the US Financial System
With the Fed-led banking club, bankers were then in a position to institute 2 nefarious money-leveraging methods their foreign financiers taught them called "fractional reserve banking" and "fractional reserve lending" (discussed under Control of the Consumer). With their invention of fractional reserve banking, the European financiers taught the Fed operatives how to lend "credit" money (at interest, or profit) by leveraging the actual money they held in deposits by up to 10 times!
Consumers could now "borrow" this credit money in order to buy the goods and services they needed and wanted on the promise to pay back the principal plus interest at some later time. Corporations, banks and financial lending institutions, and the shareholders of the Fed took obscene profits.
In the meantime, to finance their manufacturing operations with the increasing savings Americans held, the industrialists set up another exclusive membership-based club of market exchanges (e.g., NYSE, AMEX, NASDAQ) that allowed member companies to trade (buy/sell) small ownership interests in their companies (stocks) and other financial instruments. Investors could use their surplus money (savings) to buy stocks in member companies in exchange for the hopes of making their own profit.
The member companies would use investor monies (capital) to operate their companies at little risk. If member companies didn't perform well, investors could lose their money and it was their tough luck taking a chance on holding a companies' stocks. The industrialists further realized that the banks they owned could lend money to other members against the promises of the revenues those members would earn from sales (earned income). The surplus "risk" associated with free investor monies could be packaged as financial products that could be another source of profit. This exchange trading system is collectively what we call "Wall Street".
Control of the US Consumer
As mentioned before, the industrialists realized that to sell more and more of their products, they needed to enable American consumers to buy them now and pay for them later. So the banks and other non-bank lending institutions (e.g., Countrywide Mortgage for home mortgages) went full-fledged with "fractional reserve lending" which allowed them to use deposits, earnings, and other assets as collateral and reserves against the risks they assumed for granting "credit" to consumers. They did everything possible to gain control of consumer purchasing power.
To determine if a consumer was worthy of credit (risk assessment), the industrialists formed a partnership with credit rating agencies who would evaluate a consumer's credit and payment history and assign what is now called a FICO score. Lenders and business members could use the FICO score (risk factor) to decide if and to what extent they would grant credit to a consumer. Qualified consumers could now "borrow" this credit money in order to buy the goods and services they needed and wanted on the promise to pay back the principal plus interest at a later time.
Over a period of decades, the system of fractional reserve lending worked so well that American consumers have now become excessively dependent on credit. Today, our economy depends on nearly 70% of consumer buying, much of it using credit. We are a debt-slave nation.
Truthfully, American consumers don't have the cash for the goods and services they need and want. And they've become accustomed to substituting MONEY with CREDIT. Unfortunately, when the credit system tightens up as it has so dramatically, it becomes very difficult or impossible to obtain credit, and money evaporates quickly to cover living costs or is hoarded for a "rainy day". When the rainy day funds run out, fear sets in and more and more folk face the prospect of a declining standard of living.
Truthfully, American consumers don't have the cash for the goods and services they need and want. And they've become accustomed to substituting MONEY with CREDIT. Unfortunately, when the credit system tightens up as it has so dramatically, it becomes very difficult or impossible to obtain credit, and money evaporates quickly to cover living costs or is hoarded for a "rainy day". When the rainy day funds run out, fear sets in and more and more folk face the prospect of a declining standard of living.
Not a pretty picture . . . but don't take my word for it. Do your own research.
The Present Economic Crisis
America's addiction to credit has been a major contributor to the present Economic crisis, and has caused the US government, the Federal Reserve, and corporate America to scramble to save the system. To a lesser extent, they are concerned with protecting democracy, capitalism, and social order.
The fact is that any government faces the daunting challenge of maintaining social order. They have to be vigilant in keeping the natives under control while they continue to take taxes, fees, and fines from an ever-increasingly cash poor citizenry.
As for corporate America, they are struggling to maintain profit-taking from credit-junkie citizens living paycheck to paycheck. And their lifeblood is personal savings that are invested in America's Casino Royale called Wall Street. Corporations are pressing even more so for higher productivity, executing cost-cutting layoffs, redeploying advertising dollars, and dealing nervously themselves with credit-stingy lenders who make credit and money available to investors and consumers, a portion of which can return to them as profits.
All of this against the backdrop of the Fed's socialist action to pump $750 billion in credit money to "rescue" Wall Street. The Fed's action was by no means altruistic. It's looking out for its members (investment banks like Bear Sterns, Lehman, and Merrill; commercial/retail banks like JP Morgan, Bank of America, WaMu, and Wacovia; and corporations like GM, Ford, Countrywide, and AIG) so they can continue to gamble (oops, I mean "trade") exotic (now toxic) debt-leveraged financial products (e.g., mortgage-backed securities, credit default swaps, commercial paper, and interest rate swaps) on the stock exchanges in the hopes of hitting big jackpots.
While the Fed was fiddling around, however, many banking and industrial powers of the American economy found themselves under the bus. Some were thrown there; others couldn't get out of the way fast enough. Those who survived crawled to the Fed trough to feed on the rescue money we have to pay for.
Now US Treasury Secretary Hank Paulson alleges that after the Feds doled out the bounty to these corporate scalawags, he couldn't dictate to them what to do with the money! It's understandable that he backed away from the "recapitalization" moniker because the skinny on the Street is that some are hoarding the cash, while others are paying their gambling markers. Paulson's actions are making it ever-so-difficult to make clear distinctions between capitalism, nationalization, and socialism.
What happened to the credit thaw?
Oh yeah . . . American taxpayers are stuck with the multibillion dollar tab as a "hedge" (insurance) against any losses the Fed might suffer if the shylocks on Wall Street can't repay their loans (remember, the Fed has private shareholders they have to keep happy). And let us not speak about those poor souls who are seeing their 401k and Mutual Fund accounts tank.
We can expect the big boys on Wall Street to hoard the money transfers from the Fed, and take care of their gambling debts on the taxpayer's account.
But Nancy Pelosi & Company (God bless her soul) is simultaneously fighting tooth-and-nail to help American citizens by lobbying for the 2008 Economic Stimulus Package II ($150 billion credit money borrowed by the US Government from the Fed at interest) that pumps ever-inflationary fake money into circulation to appease us struggling Americans. I guess what's good for the goose, is good for the gander.
Ironically, Fed Chair Ben Bernacke's blessing of this approach suggests that the money trust wants to make sure that there's money out there that can circulate back to them. His tacit endorsement of Obama probably means that the powers-that-be are again playing both sides, especially when you consider Clintonite Lynn Forester Rothchilds defecting to McCain's camp.
But Nancy Pelosi & Company (God bless her soul) is simultaneously fighting tooth-and-nail to help American citizens by lobbying for the 2008 Economic Stimulus Package II ($150 billion credit money borrowed by the US Government from the Fed at interest) that pumps ever-inflationary fake money into circulation to appease us struggling Americans. I guess what's good for the goose, is good for the gander.
Ironically, Fed Chair Ben Bernacke's blessing of this approach suggests that the money trust wants to make sure that there's money out there that can circulate back to them. His tacit endorsement of Obama probably means that the powers-that-be are again playing both sides, especially when you consider Clintonite Lynn Forester Rothchilds defecting to McCain's camp.
For the moment, this post is just a basic expose' about "consumer" credit and debt. Future posts in the series "Til Debt Do Us Part" will exam the arguments for why you should consider suffering the withdrawal of breaking your vows with credit/debt addiction in exchange for some semblance of dignity and personal freedom.
Faith is the key.
Stay tuned for Part 2: Credit and the FICO Score
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