The Fourteenth Banker Blog

August 27, 2010

More on Regime Change

Filed under: Running Commentary — thefourteenthbanker @ 3:48 PM

Here are several perspectives from the last few days that deserve highlighting. This first piece discusses what has happened with our economy over the last several decades and what we should be acknowledging as the problems that need to be addressed.

Income: Average Real Weekly Earnings, (read: incomes adjusted for inflation), are below what what what they were in 1973. Income wise the average American family is worse off now than they were 37 years (4 decades) ago.

The Dollar’s Value: And it isn’t like we have a stronger dollar now. If we did perhaps we could get buy with less money. No, Uncle Buck is worth 95% less than he was 84 years ago when the “Creature From Jeckyll Island” (read: the “Fed”) came into existence.

Money is supposed to be a store of value. When you boil economics down to it’s core you are left with one law: Supply and demand. Increase the supply of anything and it’s value goes down. Our monetary system is flawed because if it isn’t expanded it collapses and when it is expanded the store of value is obliterated. The Fractional Reserve System is another example of a moronic idea created by greedy lunatics, It was doomed to failure upon inception. Debasing a currency only creates an addiction to debt.

Employment: In 2008 there were about 150 million workers. Today (U3-U6) unemployment is at 22%. The largest problem plaguing unemployment is the fact that most of the jobs lost were jobs that were created because of consumers binging on credit. For instance, in 2008 Americans tapped their home equity for stupid purchases. The best example of this is from Jim Quinn’s 2008 article: Consumers borrowed $9,000,000,000.00 (9 billion) dollars (from home equity loans) JUST to blow it on 4 dollar coffees at Starbucks, which has since closed 900 stores. Debt to expand a business or debt to purchase a home is sound debt for an economy. Debt to buy expensive coffees at “Fourbucks” won’t be economically sustainable (as proved by 900 closed stores).

Note that the first two points are not cumulative. The first, that real wages are stagnant, already considers the effects of inflation, though I suspect it is using a CPI deflator rather than change in the value of the dollar itself versus other currencies or commodities.

Further in the post the writer identifies several contributing factors including:

Corporatocracy: In a nutshell: Corporatocracy has replaced capitalism. I wrote about this in my last article “Why We Are Totally Finished”. Corporatocracy has permitted corporations to influence (bribe and control) the government which then rewarded select sectors for criminal activity. Fraud that led to our economy blowing up. The sectors which literally blew up the economy in 2008 was saved when they should been left to fail. TBTF translates to not regulated correctly to begin with. Nothing holds a gun to our head. Too big means too unregulated to be permitted to grow too big.

Which leads to the next piece and its main point, which is reminiscent of my rant of several months ago.

the entire profit recovery has been predicated not on GDP growth (which explains the constant skittishness about macro events), but on declining labor costs, and as the following JPM report points out, “the latest profit recovery (the three red dots) is reliant on declining labor costs like none before it.” What investors really want to know is how much more wage deflation can America take before it all collapses into a huge stinking deflationary mess?

Companies have brutally cut costs in order to produce profit growth. We have come to the point that each company acting individually in its interest is doing the same thing. They are all cutting headcount, health care benefits, pensions, 401K matches, etc. Management will say it is about competitiveness, but it is really about profit. The firms could accept less profit in given quarters with a view towards the long run. If all companies capable of doing so did, aggregate consumer demand would increase and perhaps the companies themselves would achieve better market valuation.

A profit recovery whose foundation is so reliant on sustained high productivity and low real wage growth should not command a very high P/E multiple.

Finally, this piece discusses the Bernanke speech today and the conditions tending towards revolutionary impulses. Fascinating how this keeps coming up. The title is The Elites Have Lost The Right To Govern. Of course, I agree with this. I’m not sure what to do about it. We need a revolution of justice, new corporate governance, new consumer and small business activism, elimination of the disparities between public sector and private sector benefits (meeting in the middle somewhere), an end to our predisposition to war, etc… to restore balance.  From the linked post:

One of my favorite quotes is from Joseph Schumpeter who said “everyone has elites the important thing is to change them from time to time.”

This is the United States not some sort of petty monarchy.  There is no divine right of any family or group of families to rule.  When this starts to happen you get the disaster we are now faced with.  That said, the bigger point is this.  What Obama has attempted to do is to wipe a complete economic collapse under the rug and maintain the status quo so that the current elite class in the United States remains in control.  The “people” see this ploy and are furious.  Those that screwed up the United States economy should never make another important decision about it yet they remain firmly in control of policy.  The important thing in any functioning democracy is the turnover of the elite class every now and again.  Yet, EVERY single government policy has been geared to keeping that class in power and to pass legislation that gives the Federal government more power to then buttresses this power structure down the road.  This is why Obama is so unpopular.  Everything else is just noise to keep people divided and distracted.

So the situation is intolerable and more and more bloggers are coming to the same conclusion, which is that there must be a realignment of power. How do we do that peacefully?



  1. Franklin famously said words to the effect that you now have a republic if you can keep it. Who was the “you” in his day but the compromise groupings between southern aristocratic planters and kin on one side and the northern mercantilist elites in the more northerly colonies. These people understood the need to maintain the narrow middle against the bottom. That and the West.

    Note that the nation was given a Federal republic of sovereign republic states. The nation was not given a monolithic central state that was cohesive. A sizeable plurality , if not outright majority still deep down believe in states rights . All political power resides locally for no other reason that every citizen’s interaction with the state is personal. Outside of the postman that is almost entirely local , county and state government. At least you could once be drafted in the past. The US state organization is irrevocably local and sectional . The elites have gone global , a spurious deceitful global at that. The elites have the daily interaction with the Federal State. The non elites almost never do and it almost always is hatefully negative when they do.

    Revolutionary breakdown in the US means dissolution along different paths. In terms of geography and continental geopolitics vast swaths of the US are soldly states rights localists while the global sophisticate elites are concentrated in the major metros , particularly on the coasts. Geopolitically, the key area of the US is red state white dominated. Even blue state areas are mostly red state. Illinois south of I 80, for example, is about as red state rural as it comes.

    Here is a major question where the answer is almost surely already known. If a constitutional convention were called would a a ratifiable result emerge other than dissolution? If no result of such a convention is possible would a stalemate lead to such federal weakness that the whole thing falls apart?

    Might we actually wind up breaking up along the lines suggested by the Russian academic Igor Panarin? His break up is completely sectional in nature. Unfortunately for us, what is happening is that the white majority is beginning to react politically and in very unsavory ways. I read several days ago that 22 states are thinking of emulating Arizona and quite a few have sent officials to Arizona to confer with lawakers and others in Arizona. Nullification as a defacto tool looks to be a result in the not too distant future. The state governments ignore the Federal officials and the Federal government would be hard pressed to do anything about it. State governments if they are not bailed out financially in the next couple of years will draw the proper conclusions that they count less as the agreeing sovereigns in the Federal union than Wall Street big shots.

    Might not the whole Jacobin thing in France be not much more than romantic ideas by those without a revolutionary bent? When the bad ass solutions start arriving in the US, they will be nationalist in character. It will require a charasmatic leader along the lines that Noam Chomsky so fears arising in the US. Might it really be that more than a century of romantic era hangovers have so obscured political relationships in a Federal Republic that real life politics can no longer reassert itself?

    Might Obama be the high tide of diversity ? It now seems too late for him. Has his time has passed politically? I hope not, but we will know the first Wednesday in November.

    Comment by Jerry J — August 27, 2010 @ 10:39 PM | Reply

  2. Just what kind of political organization would evolve quickly to set the US right side up? The US has a long standing nationalist bent embodied in the idea of American Exceptionalism. Study after study seems to classify the US voter as ” center right”. The vast tract of “Red States” and ” Red Counties of Blue States” reduce the Blue States to mostly major metro areas. Outside of metro areas these areas are mostly bastions of Protestant sects.

    We do have an ominous comparison . The areas of Germany that voted heavily for the NSDAP were in North Germany. East Prussia, West Prussia, Pomerania and on west to the Netherlands Border. Indeed, studies biased or otherwise consistently have noted that the earliest and heaviest NSDAP support came from rural Protestant areas of Germany. Dr. William Temple, Archbishop of Canterbury, is quoted in a conference in 1941 as saying ” It is easy to see how Luther prepared the way for Hitler”.

    When push comes to shove is the US citizen default move to the far right? According to Gallap,Non Hispanic white conservative vote is 63 % of Republicans, 25% of Independents and 12 % of Democrats. Non-Hispanic non conservative whites comprise 26 % of the Republicans,48 % of the Independents and 53 % of the Democrats.

    So again , politically the 2010 election results reside in the Independent Non- Hispanic, non Conservative white voters. Will these voters move right. Of course, each state/ district is different in Congressional elections. This tells me the Senate will probably go to the Republicans this year. Perhaps, even the House. The swing is in the hands of a small group of Independent white voters , whatever that really means. A lot of Independents are just nominally so in core beliefs. It is chic to be an Independent. Even if you are not.

    Our bias is to the right and the right wing solution must fail a number of times before a left wing solution is tried as a last resort. Are we going to wind up with a right wing stalemate where a Republican Congress is unable to override an Obama veto? I would think that a new financial crisis would be politically abandonded to sort itself out unlike the 2008 crisis. The next time, the banks are bankrupted and judicially/ regulatory reorganized with creditor claims shifted to equity. That ends the present elites wealth and consequently, their power.

    Comment by Jerry J — August 28, 2010 @ 12:10 PM | Reply

  3. Well, we can start with this, ‘The Secret of Oz’……..
    Let the games begin…;>)

    Comment by iceobar — August 28, 2010 @ 6:54 PM | Reply

  4. How many times are we to peacefully have our butt’s kicked before we must react!

    Comment by Robert Bradford — August 28, 2010 @ 9:19 PM | Reply

  5. Years ago the French had a solution-it involved a big knife and a basket. Of course you need to be wary that it is not your head that ends up in the basket!

    Comment by Anonymous — August 28, 2010 @ 11:04 PM | Reply

  6. Correction: the people that destroyed the U.S. economy should all be mass graved. End of.

    Comment by Antiks72 — August 29, 2010 @ 11:31 AM | Reply

    • This is the kind of emotion that needs to be directed to constructive solutions. Rage is out there and is understandable. How might that emotion be turned to something useful? What would you want done at a public policy level?

      Comment by thefourteenthbanker — August 29, 2010 @ 11:57 AM | Reply

      • >>What would you want done at the public policy level?<<
        I think the big problem is that there has been too much "public policy". Government gets involved in everything! How well do you get along with your neighbor? Do you try and tell him what kind of light bulbs to use? Do you force a multithousand page document on him specifying how and when he can go to the doctor? Do you force him to contribute to a savings plan that you administer to the point of default? (Think social security.) Do you put his signature on a loan so your friend Walley Street can continue to visit the big casino? My point is, if you did to your neighbor what the federal government does to us you would no longer have a good neighbor.
        When government becomes all powerful (and corrupt) you can not afford to have the "wrong" side in charge of it. Consider election violence in third world countries. Consider the probable implications of electronic voting machines and computers run by private programs without a recountable paper trail. I think the recent ruling allowing unlimited corporate "donations" to political entities is the final nail in the coffin of democracy. I fear a constitutional convention would only make it worse. Imagine big elite money with private security showing up and "securing" the convention. Imagine free speech zones set up outside and miles away for those of us with another opinion.
        What we need is more personal policy. Perhaps not voting for any democrat or republican? Perhaps taking our savings back to a private level? There was a time when our constitution limited government. There was a time when corporations had to be chartered for the public good and for a limited time. Perhaps we remember how good men defeated unjust laws. Perhaps we remember Martin Luther King and the individual power of boycott. Perhaps we remember Gandhi and the idea of the general strike. Change is coming to our country. The brick wall of debt default or hyperinflation looms ahead. I just pray the change can be nonviolent.

        Comment by Tom Nacey — August 30, 2010 @ 9:22 AM

      • Regulation is a crude but necessary tool. It also has a sort of waxy build up. I would like to see incisive public policy that does not ignore the elephant in the room and that eyes power warily.

        But then, it must not seek it’s own power either.

        Is this possible in a Republic? If you believe in human progress then it follows that progress is possible for our institutions.

        Comment by thefourteenthbanker — August 30, 2010 @ 1:48 PM

  7. I feel everything you say is basically true; even if the smoking gun hasnt been found to blow this thing wide open; most people can feel when something isnt right, can smell when something isnt right, etc…unfortunately this isnt often enough for a large number of people to take concerted action to stomp the perpetrators. Hence the issues continue to build over decades.

    I think you can even link whats happening today to the political events of the sixties, including the assassinations of leaders. Asassinations of 3 key leaders within a few years of each other.

    We have obviously been the victims of a handfull of elitists that want global government and global control (in other words not a Democracy or Republic) and are willing to work patiently over decades to execute their plans of undermining Nationalism and regional government, one domino at a time. Their plan is cleverly a multiple headed hydra, such that if one head is chopped off, another can immediately fill in. Acorn is a good example; Acorn goes down but there many other surreptitious front organizations able to take up the guantlet.

    The achilles heel of America is its open and trusting nature, we cannot see past a friendly smile to the eyes.

    Comment by major — August 29, 2010 @ 11:31 PM | Reply

  8. There is a story that the English executed the bankers by pouring molten silver down their throats as depicted in “The Matrix” To me the Matrix trilogy is the Wizard of Oz updated for the 21st century.

    Comment by Frank — August 30, 2010 @ 8:25 AM | Reply

  9. Other than the invasion by the British Empire around … 1812 ??? … America has never suffered wars, revolutions or other such stuff, prevalent in Europe for centuries, if not a millennium.) I purposefully exclude the War of Northern Aggression which consisted of subterfuge within)

    Now with hordes of the worst and most stupid, (instead of the best & brightest) illegally invading America; the wide spread Marxist MSM (Main Stream Media) broadcasting of he politics of entitlement, and historical grievance ( for some decades), America faces danger, heretofore never experienced. The culmination of these purposeful policies are arriving most swiftly.

    The last bubble (that of US Treasury instruments) is near bursting. Literal printing press “money” and creation of computer blip “money is at a never before seen out pour.

    All of this is reaching a critical mass.

    I believe that massive social disorder is to ensue, very much sooner rather than later.

    I don’t think that mechanical head chopping will be the method of “entitled persons”.

    However impaling selfsame upon large stakes, just might become the vogue.

    All of the above said, I don’t believe that the “Illuminati”, or any other “conspiracy theory” boogyman has taken into account
    the mounting rage of the so called “red state” people possess. Nor the resourcefulness either. Add to the aforementioned tenacity, skill sets, and other factors to the arrogant assumptions
    of the “Would Be Rulers of Planet Earth”.

    It is going to be very interesting for sure.

    And, IMHO, it is inevitable.

    However anthropologists, historians and of the like, have been to state that total chaos (or “armegeddon” if you will), is necessary every once in awhile.

    Stirring up the gene pool, breaking up of “elites” who have elite for just too long, etcetera.

    It is possible that the Second European War was just a warm up heat, to what is going to occur now. The technology is now beyond the pale,
    as to the genocidal capability of modern day military capability.

    Comment by Joseph — August 30, 2010 @ 10:09 AM | Reply

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