AN AMERICAN FREE PRESS SPECIAL REPORT
The U.S. Financial Crisis:
WHY WE ARE WHERE WE ARE AND WHAT WE CAN DO ABOUT IT
FED CHAIRMAN BEN BERNANKE
What Can Average Americans Expect to See in Near Future?
By Mike Finch
Formula Saves Big Bucks on Mortgage
ou can save big bucks on your house with loose change. Round figures will be used here. Say you pay $300 a month on a 30-year mortgage. Your amortization schedule shows that, on your first payment, $287 goes to interest and $13 to equity. So, write a check for $313 and you have knocked an extra month’s payment off your balance. Do this every month and your house is paid for in 15 years, not 30. Of course, as the months and years go by, the share of your payment that is
applied to the loan grows as the interest portion drops. That’s why it’s best to do this early in the game. As homebuyers grew wise to this, some banks inserted a clause in their loan agreements that rendered early payments moot for the first one or two years. So, in settling on a home purchase, ask if the lender has such a rule and how long does it apply. If you are already paying for a home, ask your bank the same question, get an amortization schedule and start making “extra” payments.
any prominent economic analysts are predicting bear markets, recession and even possibly a global depression in the years to come because of banking and federal mismanagement. “We think that the markets could decline 50 or 60 percent. We hate to say something so somber, but it’s not the time to be optimistic or pessimistic, it’s the time to be realistic. Our whole system has been built on credit expansion—we have to grow credit year after year in order to keep things going. The economy is not going to grow, it’s going to suffer recession, and once it enters recession it’s going to cascade on itself,” David Tice of Prudent Bear Fund said in a 2007 television interview. The market has not yet come close to the 50 to 60 percent devaluation mark, potentially because of the maneuverings of the Fed. But Tice primarily blames the Federal Reserve for the devaluation of the dollar. “The Fed screwed up,” Tice said. “The fed should not have kept interest rates so low in the past. We should have experienced some mini-recessions along the way. Right now the bubble has gotten so big . . . that it’s going to be very traumatic [when it bursts].” Billionaire financial commentator and Ron Paul supporter Jim Rogers also predicted a recession in a 2007 interview with the Financial Times. He had been predicting a big recession for about 10 years (as has AFP), and is finally seeing his predictions come true. He blames both the federal government and the Federal Reserve. “The U.S. dollar is a terribly flawed currency. As recently as 1987 the U.S. was a creditor nation. We are now the
largest debtor nation the world has ever seen. In only 20 years we owe the world over 13 trillion—with a ‘T’—dollars. That’s a bad number, but what’s worse is our national debt is increasing at the rate of one trillion every 15 months. It’s simple arithmetic at how fast it’s going to go up, but its pretty terrifying arithmetic,” Rogers said. “It does not take a genius to figure out that it’s a currency that is going to be going down for some time to come.” Rogers’ outlook has not changed since 2007; in fact it has gotten worse. “I’m extremely worried,” Rogers said in a February interview with CNN Money. “I have been for a while, but I just see things getting much worse this time around than I expected.” Rogers said that the Fed’s attempts to save the country from a recession are in fact making things worse. “Conceivably we could have just had recession, hard times, sliding dollar, inflation etc., but I’m afraid it’s going to be much worse,” he said. “Bernanke is printing huge amounts of money. He’s out of control and the Fed is out of control. We are probably going to have one of the worst recessions we’ve had since the Second World War. It’s not a good scene.” Rogers looks at the Fed’s willingness to add liquidity to an already inflationary environment and sees the history of the 1970s repeating itself. One example of an area of the Fed’s mismanagement is how they are dealing with bailing out the housing lenders. This month Bloomberg.com broke down Rogers most recent interview about an example of the Treasury Department’s mismanagement and money creation. “The U.S. Treasury Department’s plan
See EXPERT’S SEVEN-POINT, page B-6
AMERICAN FREE PRESS • August 2008
THE U.S. FINANCIAL CRISIS: A SPECIAL REPORT FROM AFP
The U.S. Dollar vs. the Euro: Predicting How Low Will it Go
By Pat Shannan
hen currency exchange rates change, businesses must adapt quickly. In this era of international trading, knowing how a weaker American dollar is likely to affect one’s business may avoid some critical mistakes. The dollar has shown continued weakness against other currencies as well, including the British pound, Australian pound and Japanese yen. However, the most dramatic losses have occurred against the euro. From its low of 84 cents in July 2001, the euro has risen steadily in value, stopping just short of $1.60 on July 11, 2008. When it rose to the then-record of $1.29 on Jan. 13, 2004, Jean Claude Trichet, European Central Bank (ECB) president, signaled mounting concern over the euro’s rapid rise by saying “brutal moves” in the dollar and “excessive exchange rate volatility were not welcome and not appropriate” and that Europe’s policy makers were concerned. His remarks and those of other European officials triggered a sharp fall in the euro. However, observers note that talk without supporting action usually produces only short-term results, and the dollar continued to trend downward in value. In recent years, Ferrari, the Italian sports car maker, reported that it is losing money on each car it sells in the U.S., its largest market, because of the falling value of the dollar. Other European carmakers, including BMW, Volkswagen and Porsche, have seen their profits plum-
met as they have tried to absorb some of the loss rather than pass through the price increases to consumers. A few European shops and restaurants have refused to accept dollars from American tourists this summer because the business owners don’t know what the exchange will cost them when they go to the bank the next morning. Others have simply added an extra 5% tariff over and above the known exchange rate of that day in order to protect against that unknown of tomorrow’s rates. In some countries in the last century, the hyper-inflating currency got so out of hand that people were paying for their restaurant meals at the time they ordered, fearing that the cost would increase before they could finish eating. This brings to mind an anecdote from the 1923 postWWI hyperinflation in Germany. A woman was standing in line outside the grocery market holding a bushel basket full of deutschmarks, waiting to buy bread and a few other staples. Suddenly, her four-year-old child broke and ran from the sidewalk into the dangerous street. The young mother set down her basket full of cash and ran after the child, grabbing and scolding him. When she returned only a half minute later, her paper money was dumped on the sidewalk, and someone had stolen her basket. This is the ultimate result of any paper currency unbacked by something of intrinsic value, and no fiat currency in the history of this planet has ever survived. The term “sound as a dollar” is gone with the wind because
there no longer is anything behind it to keep it sound, and no fiat currency is any more intrinsically valuable than another. Richard Russell, who is sensitive to changes in market sentiment, commented on his web site July 7, 2008: To start with, my instinct tells me that we are moving into an era of momentous events. I believe that huge changes are being thrust upon us. I don’t think these changes are being recognized as yet. I believe that underlying those changes will be the subject of fiat money and the importance of central banks throughout the world. The creation of “wealth” through the mechanism of fiat money is basically irrational and yes—immoral. You cannot mandate prosperity through the process of printing money. Yet nations and their politicians and central banks have been doing this since 1971. My guess is that we are fast moving toward the period in which “the piper will be paid.” That’s the big picture as I see it. The U.S. dollar index was 120 seven years ago. It is now 72, a decline of 40 percent. Market participants believe that the dollar will continue to fall against the euro. Forecasts that the euro will continue its increase are rampant as the once great American dollar continues its decline. U.S. firms that export their products to Europe can look for another banner year. U.S. firms that import from Europe should protect themselves by hedging in foreign exchange markets, say the experts. And what are the implications for U.S. citizens? One financial writer put it this way: “Have you ever seen the Grand Canyon?” Consider yourself forewarned. #
Pat Shannan is the assistant editor of American Free Press. See more from Pat at www.patshannan.com or www.AmericanFreePress.net. He is the author of One in a Million: An IRS Travesty from AFP. Softcover, 270 pps., $20. Call 1-888-699-NEWS toll free to charge to Visa/MC.
Is Money the 12th and FINAL Religion? What Does the Bible Teach About Money?
AL L -NE W BOOK FROM T HE BARNES REVIEW
THE 12TH & FINAL RELIGION
UTHOR R. DUANE WILLING gives you the key to understanding why the illuminated ones of the New World Order need to substitute secrecy for justice. Learn how God Moloch, devoid of any capacity for either mercy or forgiveness, is moving with brute force for world control behind the myth called Israel. The Moloch myth conceals the invention of credit based money. Belief in money drives the human condition to prey on the planet and its inhabitants. Money creation has Biblical consequences called usury. The key to usury is hidden in the legend of the Holy Grail. The covenant obligation to take dominion and prosper in harmony with nature is subverted by secretive organizations. There is talk of Bilderbergers, and various councils and globalist corporations. As if by design, the collective mind remains hypnotized by their Moloch magic of central banking with its perpetual (national) debts, money at interest and stock exchanges and income taxes.
Money: The 12th & Final Religion
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THE U.S. FINANCIAL CRISIS: A SPECIAL REPORT FROM AFP
August 2008 • AMERICAN FREE PRESS
Retail Store Closures Symptomatic ofAiling Economy
By Pat Shannan
ollowing on the heels of the surge of small business closings all over the country, dozens of chain stores have announced massive cutbacks and closings of less productive outlets.
Among the larger chains, Home Depot said it is closing 15 stores due to the slumping economy and poor housing market. This is the first time the world’s largest home improvement chain has ever closed an outlet for performance reasons, and the move will affect over 1,300 employees. Shoe seller Foot Locker announced a year ago that it had begun drastic clearance sales to move out the inventory of 250 of its stores prior to closing the doors, and CEO William Dillard II announced earlier this year that Dillard’s Inc. will continue to focus on closing underperforming stores, reducing expenses and improving its merchandise in 2008. Late last year the Bombay Company closed all 384 of its U. S.-based stores. The company’s online storefront has discontinued operations as well. The clothing industry, especially women’s apparel,
seems to be suffering the worst impact of the recession. Eddie Bauer, established in the northwest in 1920, has shuttered 27 stores already and has earmarked at least two more for shutdown by the end of the year. Ann Taylor is closing 117 nationwide; the owners of Lane Bryant, Fashion Bug, and Catherine’s have earmarked 150; Women’s retailer Cache announced “20 to 23”; Talbots knocked about 78 last year and will close 22 more this year; Pacific Sunwear of California, having closed 74 outlets in 2007, has now announced that the remaining 154 are to go away in 2008. Gap Inc. is closing 85 stores. In addition to its namesake chain, Gap also owns Old Navy and Banana Republic. The company said the closures—all planned for fiscal 2008—will be weighted toward the Gap brand. Both Levitz and Wickes, longtime furniture retailers, are going out of business. Wickes, a 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month. Richard Levitz opened his first furniture store in Lebanon, Pa. in 1910, and the next generation introduced the warehouse-showroom concept to its customers in the 1960s. Another furniture retailing giant, Ethan Allen, is closing 12 of its more than 300
stores in an effort to cut costs. Both Sharper Image, known for its high-tech novelty gadgets, and Lillian Vernon, which sells low-cost gifts and gadgets through it catalog and website, have filed for bankruptcy. Other store names, some better known to Americans than others, that have closed, are closing or are in a “cut back mode” are Zales and Piercing Pagoda from the jewelry industry; Walt Disney, Children’s Place and KB Toys for children; Sprint/Nextel and CompUSA in the computer and electronics market; Macy’s Department Stores; Movie Gallery and Hollywood Video stores; Wilson’s and the Leather Experts; Lowes and Office Depot. Even the great department store chain, reborn in the 1930s through the efforts of one of its founders, James Cash Penney, following the crash of 1929, is scaling back in an effort to avoid another wipeout. J.C. Penney’s revival was one of the great business success stories of the Depression Era. Now it could be over. Meanwhile, the Bush administration and Ben Bernanke at the Federal Reserve Bank continue to insist that the economy is stable. And they’ll keep telling you that as long as you’ll believe it. #
Common Cents Solutions Exist to U.S. Energy Crisis
By Pat Shannan
mazing how $4 a gallon gas has made every politician in the country ready to help solve the energy crisis, isn’t it? Well, not quite everyone. Nancy Pelosi and the Democratic leadership in the House of Representatives are refusing to allow a floor vote on legislation to allow drilling in the Alaska wilderness or offshore. The solution to this so-called energy crisis was being discussed 30 years ago, and the answers are still the same. Everyone who can read knows that there’s oil buried under the oceans and the arctic tundra. We may not know exactly how much. We can, however, be fully confident that it’s more than we’re getting now. Meanwhile, any chance of finding how much there is and getting our hands on it is being blocked by Nancy Pelosi and her cohorts in the Democratic leadership. Of course, this is not an energy crisis but a leadership crisis, and we have to think back a long way to remember when there was a worse example of “leadership” in Congress. This is the most blatant betrayal of America’s interests—and the clear wishes of an overwhelming majority of the American public—that’s happened in years. Once again, we’re permitting Congress to stick it to us, and just how much more evidence do we need to see that the crisis is contrived. For the past 30 years or more, former Alaskan pipeline Chaplain Lindsey Williams has been citing the United States government-mandated policies that were absolutely guaranteed to create an energy crisis in this country. Consider: We prohibited new drilling off the Atlantic and Pa-
cific coasts. We went apoplectic at the thought that anyone would disturb the caribou in the remote northern corner of Alaska by trying to drill for oil. We refused to allow any new refineries to be built in the U.S.—even in places that were desperate to have one. We also refused to build any new nuclear power plants—even though the evidence is overwhelming that nuclear is the safest, most efficient way to generate electricity that has ever been invented. We’ve also refused to allow any new pipelines to be built, to import natural gas from Canada. Now, George Bush is getting headlines for finally lifting the Presidential ban on offshore drilling. “It’s all Congress’s fault,” the White House declares—hypocritically ignoring all that the administration has done—and is still doing—to prolong the energy crisis. Why didn’t the White House lift the ban seven years ago? Why doesn’t it release some of the billions of dollars worth of oil and gas that are locked up in its “strategic reserves?” If you want to lower prices, there’s no better way to do it than by increasing supplies. In regards to the energy crisis, the United States has two choices, and only two choices, before us today. • We can determine to do everything possible to produce more energy here. Despite the negative laments you hear from Washington, there’s a great deal we can do, starting here and now, to increase domestic energy production. Specifics to follow. • We can face the terrible consequences of doing without. Remember the last time we had gas lines and fuel shortages and more than a few people muttered, “will folks be freezing to death in the dark?” Before this
crisis is over, that dire warning could literally come true. There is no third choice. We cannot purchase enough oil or gas from other countries, no matter how much we’re willing to pay (with shrinking “dollars” many don’t even want), to preserve and protect our present lifestyle. Our present policies are costing us a fortune. They are reducing our standard of living. And they are financing the enemies of freedom. Isn’t it long past time to change them? Where are we going to get the energy we need? Here are three places we can start: • Coal. The United States has rightly been called “The Saudi Arabia of Coal.” We have enough of the black stuff underground to supply a major chunk of our energy needs for at least another century. Let’s figure out better ways to extract it and cleaner ways to burn it. Sixty years ago, Germans invented technology to turn coal into oil. Why can’t we do it today? • Nuclear. There is absolutely no question that nuclear power is the cleanest, safest, most efficient way to produce energy that we’ve ever discovered. Why have we allowed a handful of hysterics to keep us from building one new power plant in the past 30 years? • Oil and gas. It is absolutely insane not to encourage the people and the companies who can produce more energy for us to go out and do so. Instead, we permit a handful of demagogic grandstanders in Washington to treat the oil companies like criminals. Instead of promising to seize all their so-called windfall profits, how about we give them incentives to produce more energy? Insanity out of Washington? What else is new? It’s almost like the whole thing has been planned for a long time, isn’t it? #
AMERICAN FREE PRESS • August 2008
THE U.S. FINANCIAL CRISIS: A SPECIAL REPORT FROM AFP
Transferring your wealth to the wealthy—as planned
By Pat Shannan
hile the benefits to the money creators go beyond this basic reason, the very purpose of the invention of paper “money” was to transfer all production and wealth to the state and the banksters without payment. Anything that can be created to infinity with political incentive eventually becomes worthless. There are no exceptions. So while so many of the common phrases in today’s rhetoric are no more than double-speak, there is one that is very real—inflation—and with it we see the destruction of the American economy before our very eyes. Most Americans simply do not understand that gasoline prices are not up, but that the dollar is down. The recent doubling in the amount of Fed notes necessary to own gold and silver is but a reflection of the shrinking value of the paper currency. As more is created, such as with the harebrained scheme called “Economic Stimulus,” where 130 million American households got $1,200 or so, nothing is stimulated except the soon-to-arrive hyperinflation. The modern “dollar” is a myth. With imaginary money, such things as the “national debt” and “taxpayer’s money” are imaginary, too. How can there be such a thing as “taxpayer’s money” when there is no lawful money circulating in existence? The income tax funds nothing. Everything is “paid” with the creation of “money.” The people are “taxed” to maintain the illusion that they are actually funding something and “paying their fair share” to keep the nation operating. Nothing could be further from the truth.
Are you really concerned that Social Security will soon be broke? What an out-of-focus worry that is. Some blowhard senator planted that fear in your mind last year so he can claim to have fixed it next year. Note this: no government-funded program will go broke as long as the printing presses and credit computers are operating. Americans have been living in this fantasy world since June 24, 1968—the day that the banks quietly closed the window on silver redemption for the lawful Federal Reserve notes promising to “pay to the bearer on demand” the designated amount of lawful money. In short, the banksters reneged on the promise because they had created too much paper to possibly redeem with real specie. Such a move did manage to postpone the inevitable, but now the chickens are coming home to roost. 12 USC 152: “The terms ‘lawful money’ and ‘lawful money of the United States' shall be construed to mean gold and silver coin of the United States.” The “notes” that have been issued since June 24, 1968 (and for five years before) are not lawful because they do not offer to pay anything to the bearer. In effect, the “receipt” for the gold and silver in the storehouse was transformed into the entity. A “dollar” was no longer a measurement of gold or silver but a simple piece of paper claiming to be the actual dollar. It was sort of like the hatcheck girl telling the patron that she was keeping his hat but that he could now wear the check on his head because it was the same thing. Mainstream media “economists” like to write about the government’s curbing of inflation and that it is “down” to 4 percent this quarter when it was “up” to eight percent (or whatever imaginary figure they want
FORMER FED CHAIRMAN ALAN GREENSPAN
The Lost Science of Money:
The Mythology of Money—the Story of Power
Stephen Zarlenga’s new book, The Lost Science of Money, traces the money power through three-and-a-half millennia from barter to the euro. This book draws fascinating, previously lost monetary principles from ancient Greece and Rome, from the experience of the Moslems, Venice, the Templars, the Jews, the Bank of Amsterdam and the Bank of England, plus the Federal Reserve System. The book also shows that the question of usury is far from settled, and that monetary reform is more a matter of morality and law than of economics. Zarlenga’s book also demonstrates that a good money system must be based in law, not in commodities. The book also defines the essential elements needed to remove structural injustice from our money system. The Lost Science of Money (hardcover, 724 pages, item # 1070, $80—AFPRC Members pay $70) is available from FIRST AMENDMENT BOOKS, 645 Pennsylvania Avenue SE, Suite 100, Washington, D.C. 20003. Call 1-888-699-NEWS (6397) toll free to order by Visa or MasterCard.
to portray) at this time last year. All of it is smoke and mirrors. Their economic theory states that there are four major factors that determine the exchange rate between two currencies: the comparable interest rates; the relative inflation rates; the comparative level of income; and the macro policies of the respective governments—with a whole lot of blah-blah-blah in and around each citing. We say that there is a much simpler way for Joe Average in the street to understand why his favorite cigarettes are now $50 a carton and why he now has to think twice before taking his car out of the garage. There is no government hocus-pocus or gobbledy-gook here: the more paper “money” pieces you insert into the system, the less each individual piece becomes worth. Very little education is sufficient to understand this. Short term interest rates and trade deficits be damned, fiat money is tyranny, and it guarantees a criminal government. All modern wars are paper money wars. Paper money pays the politicians their lavish profligacy, and they all (except Ron Paul) keep their mouths shut about the fiat system. All the tyrants in modern history did their dirty work with paper “money.” Governments suppress the truth (with control of the press) and oppress the people (by arming more agents to enforce unconstitutional statutes) with the power of a paper currency creatable at will. Fiat money from its inception was created to defraud. The phony monetary system builds the centralized power within the state and diminishes the individual. It bestows all power on the money creators and enslaves the people. Paper money, personal freedom and privacy are incompatible, and while its own inflation will be its ultimate destroyer, the process will first take the wealth, life savings, land and homes from a large percentage of the people. #
Pat Shannan is the assistant editor of American Free Press. See more from Pat at www.patshannan.com or www.AmericanFreePress.net.
THE U.S. FINANCIAL CRISIS: A SPECIAL REPORT FROM AFP
August 2008 • AMERICAN FREE PRESS
GOLD STANDARD:The Remedy for Rising Prices?
By Antonius J. Patrick
s nearly every American is painfully aware, prices of just about all goods, especially fuel and food, have escalated significantly over the past year. Even the government, which is loath to admit such things, has confirmed the obvious with the latest Labor Department report for the month of June showing a 1.1 percent increase in consumer prices. The notion, often put forward by the clueless media, that the rise in overall prices is the result of higher fuel costs is a fallacy. Instead, the rising prices which Americans are suffering through is the result of the expansion of the money supply by the Federal Reserve. The Federal Reserve is able to do such mischief because the U.S. dollar is not tied to a commodity (gold or silver) which thus allows the Federal Reserve, which has monopoly control of the money supply, to increase it ad infinitum. There is no check on such power. The Fed’s reckless expansion of the money supply (inflation) has been going on since the start of the current financial bust as monetary officials have sought to avert a general collapse by bailing out the mortgage industry. The “cost” of the bailout has been higher domestic prices and a fall in the purchasing power of the dollar overseas. Until there is a limit put on the nation’s central bank to print money or a different system is put in its place, price inflation will continue. The only viable solution to the current situation and the key to sustained economic growth is a return to a gold-backed monetary system and the termination of the Federal Reserve. Under a gold standard, the only way money can be “produced” is by mining it or converting existing sup-
plies. While it is true that governments have fraudulently found ways to debase commodity money throughout history, such underhandedness is difficult to do so on a routine basis. The present fiat system (today a feature of every nation) is a counterfeiter’s, dream. The “value” of a dollar, under a gold standard, would be determined by “market forces,” not arbitrarily at the behest of the power elite. A gold standard would benefit all, but especially wage earners, retirees, and those on fixed incomes while it would impose a mighty check on bankers and governments from inflating. One of the great misconceptions of the present era is
“The Federal Reserve is able to do such mischief because the U.S. dollar is not tied to a commodity which thus allows the Federal Reserve to increase it ad infinitum.”
that the money supply is needed to be increased to sustain economic growth. Nothing is further from the truth. Money, by its very nature, is a medium of exchange. It facilitates exchange, without it, mankind would quickly revert to primitivism becoming completely self sufficient and desperately poor. Unlike any other good, money is not “consumed” in an exchange such as food or gasoline. Since money is not consumed, it remains in “circulation.” Thus, increasing its supply will only decrease its “value” (purchasing power).
The key to economic growth is savings. Savings allows for production which takes place over time. Savings “pays” for the wages, purchases the supplies and resources during the period of production before an eventual good is brought to market. Increases in the money supply will only dilute its purchasing power. Additional saving allows for more production and thus, in the long run, greater amounts of goods and services. Under a gold standard, money (which is gold) cannot be increased without it being mined and minted—an arduous process. In contrast, under central banking, the Federal Reserve can create money virtually costless without restraint, by merely printing paper bills. The existing political establishment wants nothing to do with a gold standard. Elites understand that if the U.S. or other nations convert to a gold standard, one of their chief power-enriching mechanisms would be lost. This is why they have tried to marginalize one of this era’s great proponents of the gold standard, Ron Paul, in his recent presidential bid. No one should be surprised that in a time when nearly every social institution is in steep decline, the lifeblood of economic life should also be corrupted. Gold has long since proven to be the supreme monetary medium of exchange. It is “honest money” which is why the Establishment has always sought to discredit it and those who have championed it. Until there is a return to a monetary system based on gold, American consumers can expect rising prices, economic stagnation and the continual devaluation of the dollar. #
Antonius J. Patrick is the pen name of a college professor who lives in the Washington, D.C. area.
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The Worst Swindle in American History —The Federal Reserve Banking Act— is explained in a devastating exposé entitled
Truth About Money
COAUTHORS STEPHEN M. CLARK AND FRANK WALLACE believe in a few things. They believe that there is no good reason for any American to lose their home going bankrupt over medical bills. They believe that college graduates should be able to begin their lives without unbearable school loan debt. Quite simply, they believe that home and student loans should be simple interest at a rate of 6% and that charging interest above a reasonable rate, ballooning or adjustable rates, and other deliberately confusing mortgage contracts should be considered criminal and made unlawful. They believe that the United States had a constitutional money system from its founding until 1913, when the Federal Reserve Act was passed and all sense of fairness was thrown out the window. Money funds, controls, and determines virtually everything that happens in our modern, increasingly digital financial world. As Americans, we must ask, who ultimately and morally deserves to own the rights and benefits of money creation? The choice is clear. All Americans deserve to benefit, not just the private banking cartels. Imagine debt-free money for education, health care, infrastructure and disaster relief. Imagine how things are supposed to be. Truth About Money (hardback, 165 pages, #TAM) is available from FIRST AMENDMENT BOOKS, 645 Pennsylvania Avenue SE, #100, Washington, D.C. 20003 for $16. No charge for S&H inside the U.S. Call 1-888-699-NEWS (6397) toll free to charge to Visa or MasterCard.
AMERICAN FREE PRESS • August 2008
THE U.S. FINANCIAL CRISIS: A SPECIAL REPORT FROM AFP
Reckless Finance & the Global Crisis of U.S. Capitalism
By John Tiffany
ith an unconstitutional, privately owned central bank, our monetary system is based on a dollar that is based on nothing solid. If it is based on anything, it is based on debt. Smaller banks operate on the basis of a “fractional reserve system” that is nothing else than legalized crime. Our economic system is a house of cards. In a new book, Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism, onetime Republican strategist Kevin Phillips documents in painful detail how those cards started tumbling. This reality should, in the words of Thomas Jefferson, wake us up and “fill us with terror.” Yet even now, most of the media refuses to expose the disaster facing us. Where are the investigations of the greedy and unscrupulous billionaire speculators? That’s who gave us the subprime crisis, or, in Phillips’s words, the “reckless finance,” that brought the market down, sending prices and joblessness up. You can’t really track these mounting problems by watching TV or even reading many of our so-called newspapers, which failed to cover the crisis as it was building steam from 2002 to 2006, and when it might have been stopped. Deregulation, especially of the banking and financial services sector, and privatization policies, started by Carter in 1978 and continued by all American presidents
since, has converted the United States into speculatortype economy, where financial sector firms seek to extract a profit by the manipulation of balance and income statements. The goal, seemingly, is to get money without any actual production of goods or services. The government lies to itself as well as us. As a result, we are now $50 trillion in debt. Phillips points out that over the last 30 years, incredibly, “financial services” have nearly doubled, to a record 20% of GDP, while manufacturing’s share has halved, to 13%, greatly imperiling the economy. Along the way, Washington has provided government bailouts and/or liquidity when big banking barons got themselves into trouble (e.g. S&L crisis; Citibank forced into technical failure, but allowed to stay open; bailing out junk bond investors by lowering the federal funds rate etc.). This only encourages bigger problems down the road. The positive impact of borrowing has declined tremendously from the 1970s and 1980s, when such monies would mostly be used for useful things like factory and highway construction, compared to today’s increasingly likely use for increasing leverage for hedge funds, leveraged buyouts and other forms of speculation. Meanwhile, the likelihood of families experiencing a huge (say 50 percent) drop in income has increased dramatically from 1970 Our own awareness of our problems has been covered up with tricky revisions to the CPI (understating costs of home ownership) and unemployment measures (not
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counting those who gave up and quit looking for a job). This is the modern equivalent to the coin clipping and debasement of yore, when money consisted of gold and/or silver coins, says Phillips. Phillips makes numerous comparisons between the U.S. today and the Great Depression (e.g., total indebtedness was three times the size of GDP in 2007, higher than the prior record set in the years of the Great Depression), as well as the declines of Rome, Holland, Spain and Britain. #
Expert’s Seven-PointAction Plan Makes Good Sense
Continued from page B-1.
to shore up Fannie Mae and Freddie Mac is an unmitigated disaster and the largest U.S. mortgage lenders are basically insolvent, according to Rogers. “Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson’s request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac,” Rogers said. “They’re ruining what has been one of the greatest economies in the world,” Rogers said. Bernanke and Paulson “are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this.” Many share the sentiment put forth by The Last Trumpet Newsletter: “The United States of America is a malfunctioning and dying corporation. The economy of our nation is terminal, and all indicators reveal that there is great trouble just ahead.” The current state of the dollar is affecting the economy in several ways. “Our GDP grew an anemic 0.9 percent in the first quarter,” Martin Weiss from Safe Money Report said. “Corporate America is shedding jobs, driving unemployment claims to the highest level in four years. Banks are
tightening lending standards. Home prices are falling at the fastest rates on record, while the surging cost of virtually everything else—gas, food, airline tickets, utility bills and more—is swallowing up $117 billion of economic stimulus checks. And everywhere, the debts are coming due—massive debts accumulated over decades that cannot be refinanced, often cannot be paid and, ultimately, cannot even be papered over by the Fed or Congress.” Many around the world, including the Royal Bank of Scotland, are warning of the possibility of a global depression. That’s right, it could get worse. Safe Money Report predicts double-digit global inflation with three “explosive forces” driving inflation. First, the global food crisis; second, the world energy crisis; and third the huge emerging markets that are “growing at a breakneck pace.” So what can the average reader do in response to such dire predictions? Donald S. McAlvany in The McAlvany Intelligence Advisor has seven “Foundations” to live by: 1. Put faith and family first—remember finances are merely a means to an end. 2. Live within your means—spend less than you make. 3. Stay out of debt.
4. Save and invest. 5. Elect politicians who will protect our freedoms and our country’s sovereignty over capital appreciation 6. Buy gold as a hedge against the eroding dollar. 7. Diversify your investments. Rogers said the commodities bull market has “a long way to go.” Many other analysts agree. Rogers advised buying agricultural commodities and investing in China and the East. In 2007 Rogers moved his family to Singapore because he wanted to be where he thinks the action will be during this century. Safe Money agrees—energy, commodities, overseas investments and precious metals are the staples of an inflation-ridden market. The maneuverings of the Fed and the government could stabilize the economy for a while, but eventually the bubble will burst. Several economists are saying that if bigwig decision makers continue as they are now, we are headed for a major economic disaster within the next 10 years regardless of any maneuvering by bankers. #
Mike Finch is an intern for AFP. He has a Master’s degree in journalism and is working on his Ph.D. in Communication. At the end of Mike’s internship, he promises he will continue to submit articles to American Free Press on important, under-reported topics.
THE U.S. FINANCIAL CRISIS: A SPECIAL REPORT FROM AFP
August 2008 • AMERICAN FREE PRESS
Bailout of Mortgage Giants May Kill Bond Market
By Pat Shannan
ot long ago there was an eruption of political correctness because the National Weather Bureau named hurricanes after women only, and the inevitable result was that the storms are now bi-gendered. However, the coming financial storm could appropriately be tagged with a name of dual gender—maybe “Fannie/Fred”—as the nation continues its nosedive toward financial Armageddon. Far from calming financial markets, the announcement by U.S. Treasury Secretary Henry Paulson, together with Federal Reserve Chairman Ben Bernanke, that the U.S. government will bail out the two largest guarantors of the country’s housing mortgage debt—Fannie Mae and Freddie Mac—has confirmed what so many financial watchers have been warning: the financial tsunami that began in August 2007 in the relatively small “subprime” high-risk mortgage securitization market is only gathering momentum. The United States economy is in the early phase of its worst housing-price collapse since the 1930s. No end is in sight. Fannie Mae and Freddie Mac, as private stock companies, have gone to excesses in leveraging their risk, much as many private banks did. The financial market bought the bonds of Fannie Mae and Freddie Mac because they bet that the two were “too big to fail,” that is, in a crisis the government would be forced to step in to bail them out. In case you have wondered, “Fannie Mae” comes from the acronym FNMA, which is Federal National Mortgage Association, created in 1938. “Freddie Mac” was derived from Federal Home Loan Mortgage Corporation (FHLMC, 1970). The scale of the latest wave to hit, the collapse of confidence in the two government-sponsored entities, Freddie Mac and Fannie Mae, is a harbinger of worse to come in what will be the most devastating financial and economic catastrophe in United States history. The impact will be felt globally. While he is getting praise in the financial media for his “innovative” and quick reactions to the unraveling crisis, those in the know say that Fed Chairman Bernanke in
“If Bernanke continues to provide unlimited liquidity to prevent a banking system collapse, he risks destroying the U.S. corporate and Treasury bond market and with it the dollar. If Bernanke acts to save the bond market by raising interest rates, it will only trigger the next devastating round of shock waves.”
reality is in a panic mode as he is caught in a “Catch-22.” If Bernanke continues to provide unlimited liquidity to prevent a banking system collapse, he risks destroying the U.S. corporate and Treasury bond market and with it the dollar. If Bernanke acts to save the heart of the U.S. capital market—its bond market—by raising interest rates (the Fed’s only anti-inflation weapon), it will only trigger the next even more devastating round in tsunami shock waves. With so many deceivers in print, it is refreshing to read one of the few who understands and will say it. Lew Rockwell explains: Place the blame not only on the banks, but also on the institutions that are siphoning off their liabilities for irresponsible behavior, and that would be Freddie and Fannie. And who created these? “They were created by FDR in 1938 to fund mortgages insured by the Federal Home Administration. They were used by every president as a means to achieve this peculiar American value that every last person must own a home, no matter what. So they were given the legal permission to purchase private mortgages and make them part of their portfolios. Still later, under LBJ and Richard Nixon, they became public companies and sold stock. The U.S. government passed the law creating Fannie Mae during the Great Depression as part of Franklin D
Roosevelt’s New Deal. It was intended to be a private entity, although “government sponsored,” that would enable Americans to finance buying of homes as part of the country’s attempt at economic recovery. Freddie Mac was formed by Congress in 1970, to help revive the homeloan market. Congress started the companies to promote home buying and their charters give the Treasury the authority to extend a $2.25 billion credit line. Freddie Mac owes $5.2 billion more than its assets today are worth, meaning under current U.S. “fair value” accounting rules, it is insolvent. Fair value of Fannie Mae assets has dropped 66 percent to $12 billion and may go negative next quarter. As home prices continue to fall across America, and corporate bankruptcies spread, the size of the negative values of the two will explode. On July 14, Treasury Secretary Paulson, former chairman of the Wall Street investment bank Goldman Sachs, stood on the steps of the Treasury building in Washington and announced that the George W. Bush administration would submit a proposal to Congress to make government guarantee of Freddie Mac and Fannie Mae explicit. In effect, in the present crisis it will mean nationalization of the $6 trillion agencies. The bailout statement by Paulson was accompanied by an announcement by Bernanke that the Fed stood ready to pump unlimited liquidity into the two companies. It will sound the death knell for the stability of the American economy, already hanging by a thread. The Federal Reserve is already the world’s largest financial garbage dump. Now it agrees to add to its trash pile another $6 trillion in GSE (Government Sponsred Enterprise) real estate debt. Is this insanity in action or a planned collapse ? Yet the disaster in the two private companies has been obvious to some for five years or more when grave accounting abuses were made public. In 2003, William Poole, then president of the St. Louis Federal Reserve, publicly called for the government to cut its implied guarantee of Freddie Mac and Fannie Mae, claiming then that the two lacked capital to weather a severe financial crisis. Poole, whose warnings were dismissed by then-Fed Chairman Alan Greenspan, called repeatedly in 2006 and again in 2007 for Congress to repeal their charters and avoid the predictable cost of a huge bailout. #
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THE U.S. FINANCIAL CRISIS: A SPECIAL REPORT FROM AFP
Accountability Needed atAll Levels
By Mike Finch
he majority of Americans live in comfortable ignorance to much of what happens in the world around them in regard to government and economic realities. Who can blame them; the government is such an immense system that even those within it do not fully understand it, and the economy is vastly complex set of interconnected systems that is volatile and unpredictable? The world has become so complex that most do not even attempt to understand the forces that work in the systems they live within. It is almost as if those systems are seen as forces of nature. We complain about them when they negatively affect us, but don’t really see anything we can do about them. Most of humanity desires peace and prosperity in regard to government and economy, but often have differing perspectives regarding how the goals of peace and prosperity can be achieved. When one begins looking at global realities it seems there is a spectrum of perspectives as to how such realities should be governed. On one end of the spectrum you have the globalists, who want to create larger structures of government, and those large government structures will affect peace and prosperity. On the other end you have anarchists, who believe that peace and prosperity can only be found in radical individual choice. Unfortunately both ends of the spectrum
are inadequate, because they both lack several necessary ingredients to create peace and prosperity. Globalism, as seems to be the goal of such clandestine groups as the Bilderbergers and Masons, is flawed because its answer is to control from the top down what happens in the world to effect change. It lacks moral guidelines, but the primary flaw of globalism is the immense amount of power it gives to the relatively few who govern. Globalism might work if those who had global power were guaranteed to be omniscent, kind and beneficent, such power would corrupt. It is also likely that such power would dehumanize humanity. The larger a body of people becomes, the less human each individual is. To send one person you know to go die for you is much more difficult than sending fifty thousand you don’t know. Any form of government must create systems to ensure that the humanity of each individual is respected. Global power structures (even the ones that currently exist) often do not lend themselves to respecting the humanity of the individual, though they try. So we should be anarchist? Some believe so, but this also is not the answer. Anarchy also has no moral structure built into it. When there is no law, each man becomes a law unto himself, and that extremely individualized system would also allow humans to be dehumanized. The individual would have all power, and if all individuals were kind and beneficent this would work,
but we all know this not to be the case. Individual desires without structure also tend to dehumanize humans. Globalism and anarchy are two ends of a spectrum, but strangely both have the same problem: they create an atmosphere that is conducive to the abuse of human rights. What is the answer then? I am not sure. There may be many answers. But the one thing that both globalism and anarchism lack is accountability. This simple concept is extremely significant. Those with power, whether it is the individual, or the state, require community. They require a mitigation of their power, for absolute power corrupts absolutely. This simple idea, accountability, is often lost in the polarized realities of current American culture. On one hand you have the extremely individualistic aspect of pop culture, where a near anarchic state of mind reigns, and on the other hand you have huge forms of government, business, and banking that seem to only answer to themselves. Our entire culture is lacking accountability from top to bottom, which is to say we are lacking community. We are a lonely people just searching for peace and prosperity. Unfortunately we are searching in all the wrong places. What are the answers to our problems? I am not sure, but I know one thing that will help with everything from individual to global issues: accountability. #
Mike Finch is an intern for AFP. He has a Master’s degree in journalism and is working on his Ph.D. in Communication.
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