Where Does Money Come From? The Giant Federal Reserve Scam That Most Americans Do Not Understand

Michael Snyder
The Economic Collapse
Wednesday, June 27, 2012
How is money created?  If you ask average people on the street this question, most of them have absolutely no idea.  This is rather odd, because we all use money constantly.  You would think that it would only be natural for all of us to know where it comes from.  So where does money come from?  A lot of people assume that the federal government creates our money, but that is not the case.  If the federal government could just print and spend more money whenever it wanted to, our national debt would be zero.  But instead, our national debt is now nearly 16 trillion dollars.  So why does our government (or any sovereign government for that matter) have to borrow money from anybody?  That is a very good question.  The truth is that in theory the U.S. government does not have to borrow a single penny from anyone.  But under the Federal Reserve system, the U.S. government has purposely allowed itself to be subjugated to a financial system in which it will be constantly borrowing larger and larger amounts of money.  In fact, this is how it works in the vast majority of the countries on the planet at this point.  As you will see, this kind of system is not sustainable and the structural problems caused by such a system are at the very heart of our debt problems today.
So where does money come from?  In the United States, it comes from the Federal Reserve.
When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.
Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.
The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.
So why does the U.S. government go to all this trouble?  Why doesn’t the U.S. government create the money itself?
Those are very good questions.
One of the primary reasons why our system is structured this way is so that wealthy people can get even wealthier by lending money to the U.S. government and other national governments.
For example, last year the U.S. government spent more than 454 billion dollars just on interest on the national debt.
Over the centuries, the ultra-wealthy have found lending to national governments to be a very, very profitable enterprise.
The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.
But wait.
There is a problem.
Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.
So where will the U.S. government get the money to pay that debt?
Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.
But that never actually happens, does it?
And the creators of the Federal Reserve understood this as well.  They understood that the U.S. government would not have enough money to both run the government and service the national debt.  They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.
That is why I call the Federal Reserve a perpetual debt machine.  The Federal Reserve was created to trap the U.S. government in an endlessly expanding debt spiral from which there is no escape.
And the Federal Reserve is doing a great job at what it was designed to do.  Today, the U.S. national debt is more than 5000 times larger than it was when the Federal Reserve was first created.
Another way that money comes into existence in our economy is through the process of fractional reserve banking.
I originally pulled the following simplified explanation of fractional reserve banking off of the website of the Federal Reserve Bank of New York, but it has been pulled down since then.  But I still think it is helpful in understanding the basics of how fractional reserve banking works….

“If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money($100+$90+81+$72.90+…=$1,000).”

When you put your money into the bank, it does not say there.  The bank only keeps a relatively small amount of money sitting around to satisfy the withdrawal demands of account holders.  If all of us went down to the banks right now and demanded our money, that would create a major problem.
If I put 100 dollars into the bank and the bank lends out 90 of those dollars to you, now it looks like there are 190 dollars floating around.  I have “100 dollars” in my bank account and you have “90 dollars” that you just borrowed.
The new debt that you have taken on (90 dollars) has “created” more money.  But of course you are going to end up paying back more than 90 dollars to the bank, so more debt has been created than the amount of money that has been created.
And that is one of the big problems with our financial system.  It is designed so that the amount of debt and the amount of money are supposed to be perpetually expanding, and the amount of debt created is always greater than the amount of money that is created.
So is it any wonder that our society is swamped with nearly 55 trillion dollars of total debt at this point?
A debt-based financial system is unsustainable by nature because it will always create debt bubbles that will inevitably burst.
Are you starting to see why so many Americans are saying that we need to abolish the Federal Reserve system?
Our founding fathers never intended for our financial system to work this way.
According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.
So why has this authority been given to a private institution that is dominated by the big Wall Street banks and that has actually argued in court that it is “not an agency” of the federal government?
Thomas Jefferson once said that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing….

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.

But instead, we have become enslaved to a system where government borrowing actually creates our money.
The borrower is the servant of the lender, and we have allowed our government to enslave us to the tune of nearly 16 trillion dollars.
There are alternatives to this system.  Things do not have to work this way.
Unfortunately, the vast majority of our politicians consider the Federal Reserve to be good for America and steadfastly refuse to do anything to change the status quo.
So if you are waiting for “solutions” to these problems on the national level you are going to be waiting for a very long time.
The debt problems that the United States and Europe are experiencing did not come into existence by accident.  They are the result of fundamental structural problems with the financial system.
A debt-based financial system is always going to fail in the long run.  Unfortunately, most Americans still do not understand this and so we will all get to suffer the consequences.

Stockton, Calif., to file for bankruptcy

Unless there's a last minute deal, Stockton will become the largest U.S. city to file for Chapter 9 

 

Ben Margot  /  AP

A light standard rests at the dilapidated entrance to city hall Tuesday, June 26, 2012, in Stockton, Calif.

By Jim Christie

 

 

STOCKTON, Calif. — Stockton, California will become the largest U.S. city to seek protection from its creditors after its leaders approved a budget on Tuesday night based on the city filing for bankruptcy.

A Chapter 9 bankruptcy by the city of nearly 300,000 in California's Central Valley, about 85 miles east of San Francisco, could come as early as Wednesday.
Stockton's city council voted six to one in favor of the 2012-2013 budget after a contentious five-hour meeting where angry retired city workers pressed council members to reject the $155 million spending plan. It proposes eliminating retirees' medical benefits to help fill a $26 million budget deficit.
Retired police department employee Geri Ridge said she fears not being able to afford health-care insurance.
"I don't have that kind of income," said Ridge, 56, noting she is concerned a large share of her $1,895 monthly pension payment could be consumed by large insurance costs due to her history of heart attacks.
The council's vote followed three months of confidential talks between Stockton and its creditors aimed at averting bankruptcy. The negotiations ended on Monday with the city failing to win enough concessions to help close its shortfall for the fiscal year starting on July 1.
That left bankruptcy as the only way for Stockton to balance its budget in the near term while maintaining its current level of services and bringing stability to its battered finances, Mayor Ann Johnston said.

It's heart-wrenching to think about the implications," she said. "I see no other solution."

Stockton officials have said since February their city's finances are suffering the combined effects of fiscal mismanagement over two decades, too much debt taken on in good times and generous pay and unsustainable benefits for city employees and retirees.
Stockton has also suffered a sharp drop in revenue since the collapse of its once red-hot housing market. The housing boom transformed the farming city into a distant bedroom community of the San Francisco Bay area and its bust put Stockton at or near the top of national foreclosure rankings in recent years.
To keep its budget in balance, Stockton has cut more than $90 million in spending in recent years and slashed its work force, including a quarter of its police officers, a pressing concern with a surge in violent crime in the city.



Deeper cuts to police payrolls would be intolerable, making a financial restructuring in bankruptcy a necessary if painful choice, according to council members who voted for the budget.
The $3.7 trillion U.S. municipal bond market has so far taken in stride Stockton's march toward bankruptcy despite the city's more than $700 million in bond debt. Bondholders and bond insurers are among Stockton's 18 creditors.
U.S. muni-debt landmark Because municipal bankruptcies under Chapter 9 of the federal bankruptcy code are rare, especially for larger cities, Stockton could set important precedents for how different types of creditors are treated in such cases.
In the past, large cities such as Bridgeport, Connecticut, have seen filings for bankruptcy protection rejected by the court. In the most recent case in October 2011, a filing by Harrisburg, Pennsylvania, a city of nearly 50,000, was rejected because a state law barred municipalities of a certain size from seeking legal protection from creditors.
Lawyers representing Stockton also worked for Vallejo, California when it filed for bankruptcy in 2008. The former Navy town emerged last year from bankruptcy with sharply reduced payments for its retiree medical program.
At $4.23 billion, Alabama's Jefferson County last November set the record for the biggest municipal bankruptcy filing, which is still working its way through the court.
Stockton officials have been considering bankruptcy since February and calling for the kind of drastic action in its budget. It suspends $10.2 million in debt payments, a move likely to trigger further downgrades of Stockton by ratings agencies.
Stockton has already defaulted on about $2 million in debt since February, allowing the trustee for one of its bond insurers to seize a building once slated to be its future city hall and three parking garages.
The intentional default prompted Moody's Investors Service and Standard & Poor's Ratings Services to drop their credit ratings on Stockton. Moody's has cut its issuer rating for Stockton to a junk level Ba2 from Baa1 while S&P has cut its issuer rating on the city from BB to SD, one notch above its D default rating.
Stockton's budget would also cut spending on employee compensation and retiree benefits by $11.2 million. About $7 million in savings would come from cutting retiree medical benefits for one year and then phasing them out, an idea that stuns John Skaff, a retired police officer.
Skaff said knee injuries forced him off Stockton's police department after 19 years there and he expects to need knee-replacement surgery, though he is uncertain how to afford it without his health coverage. "It's a big hit for us," he said.
(c) Copyright Thomson Reuters 2012. Check for restrictions at: http://about.reuters.com/fulllegal.asp

Strategic London Metal Exchange to Be Sold

June 20, 2012 | From theTrumpet.com

What are politicians thinking letting China buy this strategic company?

By Robert Morley

 

One of Britain’s last great independent companies has agreed to sell itself to China.

The 137-year-old London Metal Exchange (lme) has agreed to a $2.19 billion takeover from the Chinese state-controlled Hong Kong Exchanges and Clearing (HKEx).

If the deal goes through, the London Metal Exchange’s largest shareholders—JP Morgan, Goldman Sachs and Barclays—will reap big profits. But once sold, Britain will never again recoup the world’s most strategic metals exchange.

Although the lme was officially founded in 1877, its actual origins can be traced all the way back to 1571 during the reign of Queen Elizabeth i. Back then, traders bought and sold physical metal for the domestic market. But as Britain grew in global importance and rich metal deposits of tin and copper were found, it soon became both a major importer and exporter of industrial metals.

By the 1800s, with Britain’s empire fueling large portions of the global trade in metals, the lme became the global market place, not only matching buyers with sellers, but setting the price for virtually all major non-ferrous metals. Whether you were a Frenchman in need of tin, a Russian trying to sell zinc, or a Malaysian looking for a copper market, you probably went to London to do business.

Even today, lme handles approximately 80 percent of all non-ferrous metals contracts. All told, it manages $11.6 trillion worth of trade annually.

The lme was considered the crown jewel of the metals market because it sets global benchmark prices for the six major base metals. Its vast distribution network with storage facilities around the world plays a pivotal role in global trade.

lme board member Michael Overlander was in the Hong Kong Exchanges and Clearing House when the deal was announced. “I’m here in the reception and it’s buzzing in there, people are congratulating each other and slapping each other on the back,” he told Reuters by phone. “They really think they have got themselves a jewel in the crown.”

Overlander is right. China has captured a one-of-a-kind crown jewel. The lme was one of those companies that helped Britain punch above its geopolitical weight class.

Some analysts claim that the Anglo owners were justified in their sale. The new Chinese owners vastly overpaid. The lme made only $12 million in profit last year. That implies an astronomical price-to-earnings ratio of 183. The new Chinese owners will need 183 years’ worth of profits to make their money back.

But there is a reason the Chinese government was willing to pay so much. It wasn’t out of the goodness of its heart that it decided to lavish billions on lme’s previous owners.

China consumes approximately 42 percent of the world’s non-ferrous base metal production. Lead, zinc, copper, tin, aluminum, nickel—more than 4 out of every 10 tons goes to China. You can be sure the Chinese government will know exactly how to exploit lme’s gold mine of data.

The Chinese government will soon know exactly who is purchasing what from whom. It will know how much is being paid. It will be able to determine who has pricing power—who will need to come to the market and when to make purchases. There are literally thousands of ways the Chinese government will be able to rig the market in favor of its many state-owned metal importers, merchant banks and investment funds.

And China has shown that it is willing to manipulate markets. It is well documented that it regularly manipulates its virtual monopoly of rare earth minerals for political and economic gain.

China knows the geopolitical value of strategic enterprises. Britain will never be able to buy the exchange back even if it wanted to. Foreigners are not allowed to buy more than a 5 percent interest in Hong Kong Exchanges and Clearing without the government’s consent. Fat chance of that happening. Three years ago, the lme tried to open a branch office in China—but Beijing banned it. Yet Britain is willing to stand idly by and let one of its last great companies be sold to China.

“We are handing over strategically crucial assets that are part of global trade’s infrastructure, and once they’re gone, they’re gone forever—there’s no way Hong Kong or Beijing will allow them to be surrendered again,” writes the Telegraph’s Damien Reece. Britain’s “short-term gain on a financial level is also a long-term loss at a more profound level,” he says.

Like a lamb being led to slaughter, London has surrendered the Metal Exchange. Reece continues:

The lme’s success took London 135 years to create. But its control has now gone to a place from where it can never be recovered because a different set of state-sponsored rules apply that would never be tolerated here.

If we’re willing to let lme go under such lop-sided conditions, what’s next?

Sadly, there are not too many strategic assets left that Britain still owns that are worth much. And that may be why China is being allowed to purchase this incredibly strategic asset. Except for its financial sector (which was severely weakened in the 2008 Wall Street meltdown) and the London Bullion exchange, its last vestiges of global empire, Britain’s cupboards are empty.

You don’t allow another nation to buy this kind of asset, especially a nation like China, unless there is something else going on behind the scenes.

Britain’s extremely weak economic condition has made it very vulnerable. It relies on China and other foreign nations to finance much of its government spending. More dangerously, it relies on these same foreigners to continuously roll over its debt. China is probably exploiting this leverage to pick up the remaining pieces of England’s once vast economic empire.

There is no reason for British regulators to let this deal go through, except for some form of geopolitical/economic blackmail. And that in itself shows how weak Britain is.

The forfeiture of lme is the latest sign in the decline of a nation that was once the head of the greatest empire the world has ever seen.

But unlike the other great imperial nations of history, the British never lost their empire to any conquering power. They gave it away! This has never happened in all of human history.

And now, not content with having given away its vast land possessions, a whole slice of global geography upon which “the sun never set,” it seems the British nation is on a headlong rush to give up every last vestige of capital investment in British-owned businesses.

This is all the more remarkable when one considers that the rest of the world once rode on the coattails of the Industrial Revolution spawned on British soil, with British inventiveness underwritten by British capital. The reality is that Britain—which once ruled the waves, controlling every key sea and land gate in the world, the envy of the world for the sheer massiveness and opulence of its globe-girdling empire—this Britain, which under the leadership of Winston Churchill stood alone just 65 years ago against a tyranny that could have swept the world into its cruel grasp—is now in the process of selling off what remains of its once vast national business assets.

And, in large part, these gems of British ingenuity are being sold to nations that traditionally regarded Britain as, if not an enemy, then certainly a competitor during the former colonial era.

The fact is that, since World War ii, Britain has embraced a foreign policy that has steadily changed it from the greatest imperial nation in man’s history to one that is opening itself up to becoming a vassal of the greatest current colonizing power of this age, the European Union!

To deliberately choose to place strategic national assets in the hands of enemy nations surely represents the most extreme perversity of government policy operating directly against Britain’s own national interest. Britain will yet rue the day that it literally sold off the jewels of its own, homegrown national industries! •

22 Statistics That Prove That The American Dream Is Being Systematically Destroyed

Michael Snyder
The American Dream
Tuesday, June 26, 2012
The American Dream is being systematically destroyed right in front of our eyes and most Americans don’t even realize what is happening.  In the old days, if you were a hard worker and you played by the rules you could always find a good job.  That good job would enable you to buy a house, buy at least one car and support a family.  It would also enable you to take a couple of vacations each year and buy some nice things for your family.  After working for 30 or 40 years you would look forward to a comfortable retirement.  But these days fewer and fewer Americans are able to enjoy the American Dream.  Once upon a time, the United States had the largest and most prosperous middle class in the history of the world, but now that is changing at a breathtaking pace.  Our economy is not producing nearly enough jobs for all of us anymore, and an increasing percentage of the jobs that are being produced pay 10 dollars an hour or less.  The cost of living continues to rise steadily every single year while wages do not.  Close to half of all American workers are living month to month, and many American families have gone deep into debt as they struggle to pay the bills.  Millions more Americans are falling into poverty each year and dependence on the government is at an all-time high.  Something is fundamentally wrong with our economy.  It is not working the way that it used to, and the middle class is being absolutely shredded.  Most American families are finding it harder and harder to make it through each passing year, and unless a miracle happens things are going to continue to get even harder.
The following are 22 statistics that prove that the American Dream is being systematically destroyed….
#1 As the economy has declined, the number of Americans living month to month has soared.  At this point, millions upon millions of Americans are living without any financial cushion whatsoever.  If you can believe it, one recent survey found that28 percent of all Americans do not have a single penny saved for emergencies.  Another survey found that 42 percent of all American workers are currently living paycheck to paycheck.
#2 Thanks to horribly oppressive regulations, red tape and taxes, it is incredibly difficult to run a successful small business in America today.  According to the Christian Science Monitor, more than half of all small business owners in America cannot even afford to put food on the table from their small business earnings….

A shocking figure from the Wave survey relates to how well the business owners were able to meet their basic needs through their business. An incredible 52% of American small business owners can’t put food on the table through the earnings from their business over the past twelve months.

Another recent survey found that 23 percent of all small business owners have gone an entire year without pay.
#3 In recent years U.S. families have experienced an astounding decline in wealth.  According to the Federal Reserve, the median net worth of families in the United States declined “from $126,400 in 2007 to $77,300 in 2010“.
#4 The U.S. economy is not producing nearly enough jobs for all of us at this point.  For example, it was reported that 20,000 people applied for just 877 jobs at a Hyundai plant in Montgomery, Alabama earlier this year.  Sadly, the official U.S. unemployment rate has been above 8 percent for 40 months in a row, and this is supposed to be “the recovery”.
#5 Eight million Americans have “left the labor force” since the recession supposedly ended.  If those Americans were added back into the unemployment figures, the unemployment rate would be somewhere up around 12 percent.
#6 Corporate profits as a percentage of GDP are at an all-time high.  Meanwhile, wages as a percentage of GDP are near anall-time low.
#7 The United States was once ranked #1 in the world in GDP per capita.  Today we have slipped to #12.
#8 Just paying for the basics is becoming increasingly difficult for many Americans.  For example, there are now 20.2 million Americans that spend more than half of their incomes on housing.  That represents a 46 percent increase from 2001.
#9 The average American household spent approximately $4,155 on gasoline during 2011, and electricity bills in the U.S. have risen faster than the overall rate of inflation for five years in a row.
#10 Health insurance continues to become more expensive.  Health insurance costs have risen by 23 percent since Barack Obama became president. According to the Bureau of Economic Analysis, health care costs accounted for just 9.5% of all personal consumption back in 1980.  Today they account for approximately 16.3%.
#11 As the cost of living goes up, wages continue to stagnate or even fall in many areas of the country.  Sadly, this is part of a long-term trend.  According to one study, between 1969 and 2009 the median wages earned by American men between the ages of 30 and 50 declined by 27 percent after you account for inflation.
#12 The percentage of low paying jobs just continues to increase.  At this point, one out of every four American workers has a job that pays $10 an hour or less.  If that sounds like a high figure, that is because it is.  Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.
#13 Over the last several decades, the debt burdens being taken on by average Americans have absolutely exploded.  All of this debt is making things incredibly difficult on American families.  The following is from a recent CNN article….

In 1983, the bottom 95% had 62 cents of debt for every dollar they earned, according to research by two International Monetary Fund economists. But by 2007, the ratio had soared to $1.48 of debt for every $1 in earnings.

#14 During this time of the year, there are large numbers of new college graduates entering the work force.  Unfortunately, there are not nearly enough jobs for all of them.  In fact, approximately 53 percent of all U.S. college graduates under the age of 25 were either unemployed or underemployed last year.
#15 Many young adults have found that they can’t make it on their own at all in this economy.  Today, approximately 25 million American adults are living with their parents.
#16 Wealth in this country is becoming highly concentrated in fewer and fewer hands.  Today, the wealthiest 1 percent of all Americans own more wealth than the bottom 95 percent combined.
#17 Increasingly, our country is being divided into “two Americas“.  According to Forbes, the 400 wealthiest Americans now have more wealth than the bottom 150 million Americans combined.
#18 The rise in poverty is hitting children particularly hard.  If you can believe it, the poverty rate for children living in the United States is now 22 percent.  Large numbers of children in this country would go hungry without assistance.  At this point, approximately one-fourth of all American children are enrolled in the food stamp program.
#19 The more money the government spends on poverty, the more poverty seems to increase.  The federal government spent about 80 billion dollars on the food stamp program last year, but they can’t even tell us how that money is being spent.
#20 While Barack Obama has been president, the number of Americans on food stamps has increased from 32 million to 46 million.  But the Obama administration has decided that is not enough so they are spending taxpayer money on ads that will encourage even more Americans to go on food stamps….

The U.S. Department of Agriculture has been running radio ads for the past four months encouraging those eligible to enroll. The campaign is targeted at the elderly, working poor, the unemployed and Hispanics.
The department is spending between $2.5 million and $3 million on paid spots, and free public service announcements are also airing. The campaign can be heard in California, Texas, North Carolina, South Carolina, Ohio, and the New York metro area.

#21 As the middle class shrinks, the ranks of the poor continue to expand.  Sadly, at this point 48 percent of all Americans are either considered to be “low income” or are living in poverty.
#22 More Americans are becoming dependent on the government than ever before.  According to an article in the Wall Street Journal, 49.1 percent of all Americans live in a home where at least one person receives financial benefits from the government.

Too Much Debt: Our Biggest Economic Problem

Michael Snyder
The Economic Collapse
June 26, 2012
What is the biggest economic problem that the United States is facing?  Very simply, our biggest problem is that we have way too much debt.  Over the past 30 years, household debt, corporate debt and government debt have all grown much faster than our GDP has.  But no nation on earth has ever been able to expand debt much faster than national output indefinitely.  All debt bubbles eventually burst.  Right now, we are living in the greatest debt bubble in the history of the world.  All of this debt has fueled a “false prosperity” which has enabled many Americans to live like kings and queens.  But no nation (or household) can pile on more debt forever.  At some point the weight of the debt becomes just too great.  It is amazing that the United States has been able to pile up as much debt as it has.  Over the years, many authors have predicted that U.S. government finances would collapse long before the U.S. national debt ever got to this level.  So the mountain of debt that we have accumulated is quite an “achievement” if you want to look at it that way.  But the clock is ticking on this debt bubble and when it collapses we will say “bye bye” to our vastly inflated standard of living and we will discover that we have destroyed the economy for all future generations of Americans.
Household Debt
Sometimes a picture is worth a thousand words.  When most Americans think of the “debt problem” in this country, they think of the debt of the federal government.
But that is not the only debt bubble that we are facing.
Thirty years ago, household debt in the United States was approaching the 2 trillion dollar mark.  Today, it is sitting at about 13 trillion dollars….

We have been trained to pay for everything with debt.
We pay for our homes with debt, and mortgage debt as a percentage of GDP has more than tripled since 1955.
We pay for our cars with debt, and at this point about 70 percent of all auto purchases in the United States involve an auto loan.
We pay for higher education with debt, and the total amount of student loan debt in America recently surpassed the one trillion dollar mark.
Wherever we go we pay with plastic.
If you want a heated cat bed and a cute little cat sweater for your little kitty just put it on your Visa or Mastercard.
Amazingly, consumer debt in America has risen by a whopping 1700% since 1971, and if you can believe it, 46% of all Americans carry a credit card balance from month to month.
We are absolutely addicted to debt and we do not know how to stop.
State And Local Government Debt
Our state and local governments are also addicted to debt.
30 years ago, state and local government debt was approaching the 400 million dollar mark.  Today, state and local government debt is hovering around the 3 trillion dollar mark….

In the United States today, we don’t just have one “government debt problem” – the truth is that we have hundreds of them.  All over the country, state and local governments are facing bankruptcy because of too much debt.
For example, according to Fox News the city of Stockton, California is right on the verge of declaring bankruptcy.  In fact, an announcement could come as early as this week….

Stockton, Calif., is set to declare bankruptcy as early as this week, according to local officials, a move that would make it one of the largest U.S. cities ever to file for reorganization.
On Monday, a state-required mediation with creditors to find a fiscal solution is scheduled to expire. Stockton’s City Council is then slated to meet Tuesday to decide whether to adopt a budget for operating in bankruptcy, a move widely considered the last step before the city formally submits a Chapter 9 petition to federal bankruptcy court.

Federal Government Debt
Of course the biggest offender of all is the federal government.  30 years ago, Ronald Reagan was running around proclaiming what a nightmare it was that the U.S. national debt was reaching the one trillion dollar mark.

 Well, now we are about to blast through the 16 trillion dollar mark with no end in sight….

Running up debt at a much faster rate than our GDP is rising is a recipe for national financial suicide.  Our politicians continue to steal about 150 million dollars an hour from future generations and everybody just acts like this is perfectly normal.
We are going down the same path that Greece, Portugal, Italy, Ireland and Spain have gone.
In fact, we already have more government debt per capita than all of those nations do.
Both political parties have been doing this to us, and it just keeps getting worse and worse.
Incredibly, the national debt has grown more under Obama in less than 4 years than it did under George W. Bush during his entire 8 year term.
Since Barack Obama entered the White House, we have accumulated more than five trillion dollars of additional debt.
We are on the road to national financial oblivion, and most Americans don’t seem to care.
Debt From Sea To Shining Sea
Now let’s add up all the debt in the country.  When you total up all household debt, business debt and government debt, it comes to more than 300% of our GDP….

In fact, if current trends continue we will hit 400% of GDP before too long.
As you can see from the chart, there was a little “hiccup” during the last recession, but now the debt bubble is growing again.
So how high can it go before the entire system collapses?
Total credit market debt owed is roughly 10 times larger than it was about 30 years ago.
How in the world did we accumulate 10 times more debt in just 30 years?
If we do that again in the next 30 years, our total debt will be more than 500 trillion dollars in the 2040s.
Unfortunately, that is the way that debt spirals work.  They either have to keep expanding or they collapse.
So will the U.S. debt spiral continue to expand?
Or will we soon see a collapse?
Sadly, this exact same thing is happening all over the world.  The government debt to GDP ratio in Japan (the third largest economy in the world) blew past the 200% mark quite a while ago, and almost every country in the EU is absolutely drowning in debt.
The world has never faced anything quite like this.  There is way, way too much debt in the world, but the only way we can continue to enjoy this level of prosperity under the current system is to pile up a lot more debt.
The western world is like a debt addict in a deep state of denial.  Some debt addicts end up with dozens of credit card accounts.  They will keep opening more accounts as long as someone will let them.  Most debt addicts actually believe that they will be able to get out of the hole at some point, but most never do.
Most Americans still believe that we are experiencing “temporary” economic problems that will eventually go away.  Most Americans still believe that even greater prosperity is still ahead.
Sadly, what the mainstream media and the two major political parties are telling them is a bunch of lies.
We have enjoyed the greatest prosperity that we will ever see in the United States, and when the debt bubble bursts there is going to be an immense amount of pain.
That is a very painful truth, but it is better to come to grips with it now than be blindsided by it later.

Drone Used To Spy On Miami Partygoers

Footage shows surveillance UAV keeping tabs on revelers
Paul Joseph Watson
Prison Planet.com
Friday, June 22, 2012
The rollout of domestic spy drones to watch the American people is accelerating, with footage taken during a recent Memorial Day event in Miami illustrating how authorities are using surveillance drones to keep tabs on partygoers.

People attending last month’s Miami Beach’s Memorial Day weekend celebrations, dubbed Urban Beach Week,expected a police crackdown that never came. But the revelers did get a taste of the new America in the form of a small police surveillance drone that hovered over bars and sidewalks recording the partygoers.
“That’s the police, that’s the police,” the man filming the video is heard to say as the drone hovers close to a bar between palm trees.
The reader who sent us the clip commented, “I live in Miami, Florida and on memorial day weekend Miami Beach turns into a POWER CRAZED police state. Besides the unlawful arrest quota of 2,000 for urban music weekend, military style roadblocks, and violating our rights, DRONES are now being deployed LIVE on and caught on video spying on the American people.”
In January 2011, the Miami-Dade Police Department announced that they would be the first in the country to use drones to patrol a city, with an array of UAVs the size of a “small office garbage can.”
Concerns regarding the unconstitutional use of spy drones against the American people in violation of the fourth amendment have exploded in recent weeks after Congress passed legislation paving the way for what the FAA predicts will be somewhere in the region of 30,000 drones in operation in US skies by 2020.
Privacy advocates have warned that the FAA has not acted to establish any safeguards whatsoever, and that lawmakers are not holding the agency to account.




In addition, a recently uncovered Air Force document circumvents laws and clears the way for the Pentagon to use drones to monitor the activities of Americans.
Incidents involving the drones in recent months have hardly provided positive spin for the industry, which is why Americans are set to witness a massive PR campaign that will “bombard the American public with positive images and messages about drones in an effort to reverse the growing perception of the aircraft as a threat to privacy and safety.”
Last month a mystery object, thought to be a military or law enforcement drone, flying in controlled airspace over Denver almost caused a catastrophic mid air crash with a commercial jet.
Last summer, police in North Dakota used a Predator drone to spy on a family who refused to give back back three cows and their calves that wandered onto their 3,000-acre farm.
A Predator surveillance drone was also filmed over Chicago skies during last month’s NATO summit.
Experts predict that the future of surveillance drones will see the devices become smaller and smaller, with drones already in use that are no larger than the size of an insect.
Skip forward to 3:29 in the clip to see the drone (the rest of the video is irrelevant).

Moody's downgrades credit of 15 major banks

 

Bank of America

Bank stocks were hit hard in anticipation of the move.

By Jim J. Jubak 20 minutes ago

Thursday's downgrade of 15 big global banks is just the latest stop on Moody's Investor Service's world tour of the financial sector. 

Back in February, Moody's announced that it would review the credit ratings of 17 global investment banks. On May 14, it downgraded the credit ratings of Italian banks that included UniCredit and Intesa Sanpaolo (ISNPY -2.52%). On May 18 it downgraded 16 Spanish banks including Banco Santander (SAN -2.72%). June 6 brought downgrades to seven German and three Austrian banks.

Thursday, Moody’s downgraded Bank of America, Barclays, BNP Paribas, Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan Chase, Morgan Stanley, Royal Bank of Canada, Royal Bank of Scotland Group, Societe Generale, and UBS. (Moody's had already downgraded Macquarie Group and Nomura Holdings on March 15.)

Bank stocks were hammered in anticipation of the downgrades. For example, shares of Bank of America (BAC -3.93%) fell 3.93%, shares of HSBC (HBC -2.46%) declined by 2.46%, and shares of JPMorgan Chase (JPM -2.58%) dropped 2.58%. The drop in bank shares helped power Thursday’s 2.23% fall in the Standard & Poor’s 500 stock index.

Why does the downgrade matter? Because it costs banks money.

For example, before the Moody's announcement Morgan Stanley (MS -1.69%) estimated that a three-notch downgrade to Baa2 would force the bank to put up more collateral for about 8% of its derivatives contracts. That would have could cost the company somewhere between $868 million and $7.2 billion in additional collateral and termination payments, according to filings with the Securities & Exchange Commission. As for the other banks, a one-notch downgrade for Bank of America could mean the bank has to put up an additional $2.7 billion in collateral. A two-notch downgrade for Citigroup (C -3.57%) could cost the bank an additional $4.7 billion in collateral. A two- notch downgrade to Goldman Sachs (GS -2.74%) could cost $2.2 billion in additional collateral.

Of the 15 banks in the list Thursday, Moody's gave a three-notch downgrade to just one, Credit Suisse. Morgan Stanley, which had been expected to get a three-notch downgrade, was downgraded by just two notches. (The stock rallied in afterhours trading by 3.6%)

Ten banks got two notch downgrades, including JP Morgan Chase, Goldman Sachs, and Citigroup.

The opportunity from all this may lie in the shares of the bigger regional banks such as U.S. Bancorp (USB -1.54%), PNC Financial Services (PNC -2.04%) and BB&T (BBT -1.02%). Those stocks were hit Thursday in sympathy with the big global investment banks -- PNC Financial fell 2.04%, for example -- but the big regionals don’t have the complex trading and derivative operations that are hurting the global investment banks and they look like their taking market share in such bread-and-butter bank business as commercial lending. (U.S. Bancorp is a member of my Jubak’s Picks portfolio.)

Its Official China Has All Of Americas Money!

Asia has more millionaires than North America -- that's a first

Jack Ma, chairman and chief executive of Alibaba Group, is among the growing cadre of millionaires (and richer) in Asia. (Daniel J. Groshong / Bloomberg News / June 19, 2012)

By Tiffany Hsu

June 19, 2012, 12:13 p.m.

North America no longer has the most millionaires.
For the first time, the Asia Pacific region is now home to the largest group of people with more than $1 million to invest.
The U.S. and Canada together still make up the richest territory, even though overall wealth fell 2.3% to $11.4 trillion last year amid market volatility, according to a report from Capgemini consultancy and RBC Wealth Management.
But the area lost 1.1% of its millionaires in 2011, as its 3.35-million affluent households were outnumbered by their 3.37-million peers in China, Japan and other Asian nations.
The ranks of millionaires in the Far East swelled by 1.6%, though their wealth slid 1.1% to $10.7 trillion. Surprisingly, given its severe debt crisis, Europe saw its own count increase by 1.1% to 3.2 million, though wealth stumbled a bit to $10.1 trillion. The Middle East had 450,000 high net-worth households, up 2.7%, a group that together boosted its wealth 0.7% to $1.7 trillion.
Worldwide, the population of millionaires climbed 0.8% to hit a record 11 million. In 2010, the demographic expanded 8.3%.
Their overall personal worth, however, slumped 1.7% to $42 trillion amid general economic lethargy, instability in Europe, the tsunami in Japan, the "Arab Spring" and the U.S. debt downgrade. It was the first global decline since the 2008 downturn, when global wealth slid 19.5%.
Among individual countries, the U.S. remains top-ranked, followed by Japan and Germany, together claiming 53.3% of all millionaires.
The number of well-off Indians slumped 18% to 125,500, while their counterparts in Hong Kong dipped 17.4%. Despite the beginnings of a slowdown in China, the nation’s cadre of millionaires grew 5.2% to 562,400 people. Brazil’s number increased 6.2%.

10 Things That Will Happen If Barack Obama Continues To Systematically Legalize Illegal Immigration

Michael SnyderThe American Dream
June 18, 2012
Barack Obama seems completely obsessed with systematically legalizing illegal immigration.  The United States borders a failed narco-state that is one of the most crime-ridden nations on the entire planet, but Barack Obama refuses to secure the border and the consequences for the American people have been absolutely catastrophic.  Right now it is already costing us tens of billions of dollars a year to provide welfare for illegal immigrants and to educate their children in our public schools.  Right now illegal immigrants are already working millions of jobs that should belong to American workers.  Right now Mexican drug cartels are already active in more than 1,000 U.S. cities.  But apparently that is not good enough for Barack Obama.  He wants to roll out the red carpet and give the green light to tens of millions more illegal immigrants.  Last year, Obama issued a list of 19 factors for government officials to use when deciding whether to use “prosecutorial discretion” in deportation cases.  In essence, under that new set of rules criminals and “national security threats” were to be deported and virtually everyone else was to be allowed to stay.  But now Barack Obama has taken things to a whole new level.  Now, if you are under the age of 30, came to the United States under the age of 16 and have lived here for at least five years you will be able to apply for legal status and a work permit.  With the election less than 6 months away it is obvious that Barack Obama is pandering for votes.   But this kind of “banana republic politics” is only going to divide America even more deeply and is going to result in some very serious pain for this nation in the years ahead.
How close do you think officials are going to check to see if people applying for this new amnesty are really under the age of 30 or really have been in this country for at least five years?
As I have written about previously, illegal immigrants lie to the IRS all the time.  Every year they file hordes of fraudulent tax returns that result in them receiving 4 billion dollars in tax refunds that they are not entitled to.
So if they are willing to even lie to the IRS, then why wouldn’t they lie about when they came to the U.S. or about how long they have been here?
For a long time Barack Obama has supported “sanctuary cities” for illegal immigrants, but now he has essentially turned the entire country into a “sanctuary city”.  Our immigration laws are still on the books, but everyone knows that Obama is not going to enforce the vast majority of them.
And that is really sad.  The United States will always need immigration, but the way that we do things today is really stupid.  We make legal immigration an absolute nightmare, but we leave the back door completely wide open for anyone that wants to break the rules and come in illegally.  So those that would like to come in legally and do things the right way are greatly discouraged from doing so while criminals, drug dealers, gang members, welfare parasites and those willing to survive in the underground economy are given the green light to come on over any time they would like.
Our immigration system makes no sense whatsoever and now Obama has just made things a whole lot worse.
The following are 10 things that will happen if Barack Obama continues to systematically legalize illegal immigration….
#1 There Will Be Fewer Jobs For American Workers
In the United States today, 53 percent of all college graduates under the age of 25 are either unemployed or underemployed.  Many of them are absolutely desperate for work.
Overall, there are more than 100 million working age Americans that do not have jobs right now.
Meanwhile, millions of illegal immigrants are occupying jobs that could otherwise be held by American citizens.  Many employers prefer to hire illegals because they work for a lot less money.
Sadly, many prominent politicians actually support the “right” of these “undocumented workers” to steal our jobs as a recent article by Devvy Kidd pointed out….

In April 2008, the very popular, New Jersey Gov. Chris Christie, prostituted himself during a speech for votes at an event sponsored by the Latino Leadership Alliance of New Jersey by assuring his audience illegal aliens were not really here illegally, but were simply “undocumented.”
The ‘unofficial’ number of unemployed Americans is close to 25 MILLION. Those “undocumented” criminals Gov. Christie refers to are illegally holding 11.5 MILLION jobs that belong to Americans and naturalized citizens. Shame on you, Gov. Christie for thumbing your nose at our federal immigration laws and encouraging even more criminals to break into our country. Roll out the welcome mat. Unemployment in New Jersey is holding at a steady 9.3%. Gov. Christie apparently doesn’t care if jobs go to illegal aliens instead of legal citizens in his state. After all, they’re simply “undocumented”.

#2 Wages For American Workers Will Continue To Decline
When you have a lot more workers competing for the same number of jobs, what happens?
That is right – wages go down.
We are seeing this happen in industry after industry.
For example, several decades ago a roofer could live a nice middle class lifestyle and support an entire family on one income.
But today that is no longer the case.
So what has changed?
A flood of illegal labor has entered the marketplace.
#3 Illegal Immigrants Will Overwhelm Our Welfare System
Every year, illegal immigrants receive tens of billions of dollars in welfare payments.  They get free food assistance, free housing assistance, free health care benefits and free education for their children.  Life is good if you are an illegal immigrant and you know how to game the system.
In fact, many cities in United States now openly advertise that they will help illegal immigrants with these things.
Unfortunately, according to Devvy Kidd the cost to taxpayers is getting to be astronomical….

Last year alone, the cost to taxpayers of LA County was whopping $600 MILLION dollars in welfare for children of illegal aliens. I guess it doesn’t bother the people there getting fleeced in taxes to pay for all that welfare because they continue to elect governors who refuse to lock down the border and sympathizers of the invasion across the southern border of California to their legislature.

Overall, it has been estimated that U.S. taxpayers spend $12,000,000,000 a year on primary and secondary school education for the children of illegal immigrants.
#4 Mexican Drug Cartels Will Establish A Presence In Nearly Every City In The United States
Mexican drug cartels continue to expand their influence inside the United States at a frightening pace.  They are slowly taking over our communities.  How far do things have to go before we say enough is enough?
The amount of money that Mexican drug cartels bring in from selling drugs inside the United States is absolutely staggering….

In the sober reckoning of the RAND Corporation, for instance, the gross revenue that all Mexican cartels derive from exporting drugs to the United States amounts to only $6.6 billion. By most estimates, though, Sinaloa has achieved a market share of at least 40 percent and perhaps as much as 60 percent, which means that Chapo Guzmán’s organization would appear to enjoy annual revenues of some $3 billion — comparable in terms of earnings to Netflix or, for that matter, to Facebook.

Can you imagine that?
We are talking about serious money.
And Mexican drug cartels are not just operating in huge cities such as Los Angeles, Chicago and New York.  The truth is that they have become deeply embedded in many rural communities as well….

News of cartel machinations are common in cities near the border, such as Phoenix, and the far-flung drug hubs of New York, Chicago or Atlanta, but smaller towns bring business, too. In unsuspecting suburbs and rural areas, police are increasingly finding drugs, guns and money they can trace back to Mexican drug organizations.
The numbers could rise in coming years. The Justice Department’s National Drug Intelligence Center estimates Mexican cartels control distribution of most of the methamphetamine, heroin and marijuana coming into the country, and they’re increasingly producing the drugs themselves.
In 2009 and 2010, the center reported, cartels operated in 1,286 U.S. cities, more than five times the number reported in 2008. The center named only 50 cities in 2006.

#5 There Will Be Increasing “Anti-American Violence” Inside The United States
These days a lot of Americans are being attacked (and sometimes killed) down in Mexico.
The following is from a recent ABC News article….

American travelers to Mexico should beware of possible violent retaliation for this week’s arrest of alleged Zetas drug cartel associates and family members inside the U.S., the U.S. State Department has warned.
Though the warning does not specify which “Transnational Criminal Organization” might engage in “anti-American” violence, on Tuesday federal authorities arrested seven alleged associates of the powerful Zetas drug cartel in New Mexico and Oklahoma for allegedly laundering millions in drug profits through breeding and racing quarterhorses in the U.S. Those arrested included Jose Trevino Morales, the brother of Zetas leaders Miguel Angel and Oscar Omar Trevino Morales, who were also indicted but remain at large in Mexico.

As Mexican drug cartels and criminal gangs expand north, it is inevitable that “anti-American violence” will spread deeper and deeper into the U.S. itself.
The level of violence that we are seeing down in Mexico right now is absolutely frightening.  These drug cartels can beabsolutely brutal….

Fourteen dismembered bodies were found in a truck in the center of a town in northern Mexico on Thursday in what appeared to be the latest atrocity committed by rival gangs battling over drug-smuggling routes, local media said.
The bodies of 11 men and three women were discovered in the sugar-cane farming town of Ciudad Mante in the south of Tamaulipas state, which borders on Texas, daily Milenio reported on its website.

Overall, more than 55,000 people have been killed in drug-related violence in Mexico since 2006.
Is that the kind of violence we want in this country?
Already the region along the U.S./Mexico border is an open war zone.
Just across the U.S. border, the city of Juarez, Mexico is considered to be one of the most dangerous cities on the face of the earth.  In fact, Juarez is now the murder capital of the western hemisphere.
But instead of strengthening security along the border, Barack Obama wants to make the border meaningless.
#6 Massive Bribes Will Corrupt Our Judicial System
When there are billions of dollars involved, it is inevitable that some members of the police and some members of the judiciary will take bribes.
Just look at what has happened down in Mexico.  The following is from a recent article in the New York Times….

When you tally it all up, bribery may be the single largest line item on a cartel’s balance sheet. In 2008, President Felipe Calderón’s own drug czar, Noe Ramirez, was charged with accepting $450,000 each month. Presumably, such gargantuan bribes to senior officials cascade down, securing the allegiance of their subordinates. “You have to recruit the high commands, so they can issue the information to lower ranks and order whatever they want,” the corrupt cop, Fierro Méndez, testified. But in key jurisdictions, the cartel most likely makes payments up and down the chain of command. In a 2010 speech, Genaro García Luna, Mexico’s secretary of public security, speculated that together, the cartels spend more than a billion dollars each year just to bribe the municipal police.

What would you do if you were offered a bribe of $450,000 a month?
Don’t assume that Americans are so much more “moral” than the Mexicans are.
#7 Gang Activity Will Continue To Grow In The United States By Leaps And Bounds
Gang activity is absolutely exploding inside the United States.
According to the FBI, there are now 1.4 million gang members involved in the 33,000 different gangs that are active inside the United States.
The number of gang members in America has increased by 40 percent since 2009.
Those stats should be very alarming to all of us.
What are we going to do if gangs keep growing at this rate?
According to federal statistics, gang members are responsible for up to 80 percent of all violent crimes committed in the United States every year.
A very large percentage of these gang members have entered the United States from Mexico, but the federal government refuses to do anything to stop it.
#8 The Decline Of Our Health Care System Will Continue To Accelerate
Illegal immigrants are overwhelming emergency rooms all over the country.  They walk in, receive high quality treatment and often never pay after they leave.
Things have gotten so bad in many areas of the nation that it is causing entire hospitals to go bankrupt and shut down.
In a previous article, I described what unchecked illegal immigration is doing to the health care system in California….

Thanks to illegal immigration, California’s overstretched health care system is on the verge of collapse.  Dozens of California hospitals and emergency rooms have shut down over the last decade because they could not afford to stay open after being endlessly swamped by illegal immigrants who were simply not able to pay for the services that they were receiving.  As a result, the remainder of the health care system in the state of California is now beyond overloaded.  This had led to brutally long waits, diverted ambulances and even unnecessary patient deaths.  Sadly, the state of California now ranks dead last out of all 50 states in the number of emergency rooms per million people.

 





#9 Legalizing Illegal Immigrants Will Cause A Huge Shift In Voting Patterns
Instead of looking out for the American people, many Democrats support legalizing illegal immigration because it will give the Democratic Party more support at the polls
This is incredibly selfish and self-serving, but this is the way that the political game is played in 2012.
#10 There Will Be A Flood Of New Illegal Immigrants
Amazingly, far more people move into the United States illegally than come in through the legal immigration process.
As word spreads of the “Obama amnesty”, millions more will come on over.  After all, what would they have to lose?  If they get caught crossing over they will just get nicely sent back and can try again in a few days.
If they make it they can take advantage of all the free goodies here in the United States.  Thanks to Obama, the odds of deportation are now very slim.  And they can often make significantly more money in the “underground economy” in the U.S. than they can back home.
So what is the downside for illegal immigrants?
Where is the pain?
If you do get deported, you can always sneak back in.  Security along the U.S. border with Mexico is a total joke.
Sadly, many politicians on both sides of the border seem very pleased that the United States and Mexico are slowly but surely being integrated through illegal immigration.
In fact, one gets the impression that Barack Obama would be quite pleased if the border between the United States and Mexico were to disappear completely.
Politicians like Barack Obama don’t seem to care about the catastrophic impact that illegal immigration is having on this country.  They are absolutely obsessed with their social and political agendas and they aren’t going to allow a few inconvenient “details” to derail them.
Unfortunately, there is not much hope for significant change any time soon.  Mexico is already a “failed state” and we are freely allowing millions of their bad guys to pour into our country.
In the end, we will pay a very great price for our foolishness.