Introduction and End Notes by Kennedy Applebaum
March 9, 2016
In the article posted below, Paul Craig Roberts lays bare the harsh facts of American personal economic deprivation. His excellent commentary is followed by my own editorial on how we can fight back, with pragmatic steps by which the truly impoverished can achieve wealth and well-being.
The Financial System Is A Larger Threat Than Terrorism
Commentary by Paul Craig Roberts
Paul Craig Roberts
March 8, 2016
In the 21st century Americans have been distracted by the hyper-expensive “war on terror.” Trillions of dollars have been added to the taxpayers’ burden and many billions of dollars in profits to the military/security complex in order to combat insignificant foreign “threats,” such as the Taliban, that remain undefeated after 15 years. All this time the financial system, working hand-in-hand with policymakers, has done more damage to Americans than terrorists could possibly inflict.
The purpose of the Federal Reserve and US Treasury’s policy of zero interest rates is to support the prices of the over-leveraged and fraudulent financial instruments that unregulated financial systems always create. If inflation was properly measured, these zero rates would be negative rates, which means not only that retirees have no income from their retirement savings but also that saving is a losing proposition. Instead of earning interest on your savings, you pay interest that shrinks the real value of your saving.
Central banks, neoliberal economists, and the presstitute financial media advocate negative interest rates in order to force people to spend instead of save. The notion is that the economy’s poor economic performance is not due to the failure of economic policy but to people hoarding their money. The Federal Reserve and its coterie of economists and presstitutes maintain the fiction of too much savings despite the publication of the Federal Reserve’s own report that 52% of Americans cannot raise $400 without selling personal possessions or borrowing the money. http://www.federalreserve.gov/econresdata/2013-report-economic-well-being-us-households-201407.pdf
Negative interest rates, which have been introduced in some countries such as Switzerland and threatened in other countries, have caused people to avoid the tax on bank deposits by withdrawing their savings from banks in large denomination bills. In Switzerland, for example, demand for the 1,000 franc bill (about $1,000) has increased sharply. These large denomination bills now account for 60% of the Swiss currency in circulation.
The response of depositors to negative interest rates has resulted in neoliberal economists, such as Larry Summers, calling for the elimination of large denomination bank notes in order to make it difficult for people to keep their cash balances outside of banks.
Other neoliberal economists, such as Kenneth Rogoff want to eliminate cash altogether and have only electronic money.
Electronic money cannot be removed from bank deposits except by spending it. With electronic money as the only money, financial institutions can use negative interest rates in order to steal the savings of their depositors. People would attempt to resort to gold, silver, and forms of private money, but other methods of payment and saving would be banned, and government would conduct sting operations in order to suppress evasions of electronic money with stiff penalties.
What this picture shows is that government, economists, and presstitutes are allied against citizens achieving any financial independence from personal saving. Policymakers have a crackpot economic policy and those with control over your life value their scheme more than they value your welfare.
This is the fate of people in the so-called democracies. Any remaining control that they have over their lives is being taken away. Governments serve a few powerful interest groups whose agendas result in the destruction of the host economies. The offshoring of middle class jobs transfers income and wealth from the middle class to the executives and owners of the corporation, but it also kills the domestic consumer market for the offshored goods and services. As Michael Hudson writes, it kills the host. The financialization of the economy also kills the host and the owners of corporations as well. When corporate executives borrow from banks in order to boost share prices and their performance bonuses by buying back the publicly held stock of the corporations, future profits are converted into interest payments to banks. The future income streams of the corporations are financialized. If the future income streams fail, the companies can be foreclosed, like homeowners, and the banks become the owners of the corporations.
Between the offshoring of jobs and the conversion of more and more income streams into payments to banks, less and less is available to be spent on goods and services. Thus, the economy fails to grow and falls into long-term decline. Today many Americans can only pay the minimum payment on their credit card balance. The result is massive growth in a balance that can never be paid off. It is these people who are the least able to service debt who are hit with draconian charges. The way the credit card companies have it now, if you make one late payment or your payment is returned by your bank, you are hit for the next six months with a Penalty Annual Percentage Rate of 29.49%.
In Europe entire countries are being foreclosed. Greece and Portugal have been forced into liquidation of national assets and the social security systems. So many women have been forced into poverty and prostitution that the hourly price of a prostitute has been driven down to $4.12.
Throughout the Western world the financial system has become an exploiter of the people and a deadweight loss on economies.
There are only two possible solutions. One is to break the large banks up into smaller and local entities such as existed prior to the concentration that deregulation fostered. The other is to nationalize them and operate them solely in the interest of the general welfare of the population.
The banks are too powerful currently for either solution to occur. But the greed, fraud, and self-serving behavior of Western financial systems, aided and abeted by governments, could be leading to such a breakdown of economic life that the idea of a private financial system will become as abhorent in the future as Nazism is today.
Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts’ latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West, How America Was Lost, and The Neoconservative Threat to World Order.
How to Fight Back and Become Well-To-Do
By Kennedy Applebaum
Paul Craig Roberts’ shocking report about the loss of personal financial control in the United States exceeded even my own imagination. That 52% of Americans do not have $400 in readily available cash, and that most cannot pay more than the minimum on their credit card bills, is a sign that the majority of us are financially desperate. Meanwhile, those who do have money in savings are seeing it slowly diminish through confiscation via de facto negative interest. And the possible future elimination of cash would mark the end of any way to personally protect what savings we have and live free of the banks.
What can we do to fight back?
Those who have small to moderate resources can protect their money in several ways. First, assuming all credit card debt is paid off, divide what money you have between five types of assets: cash stored at home, gold and silver stored at home, money in CD’s, investment in tangible goods, and real estate owned outright—if you can afford it. So for example, if you have a savings of $16,000, keep $4,000 in the bank, mostly in CD’s, but with a checking account balance sufficient to avoid a monthly fee; keep $4,000 in cash at home; buy $4,000 worth of gold and silver; and begin investing the other $4,000 in nonperishable necessities that you will eventually use.
Also good as low-cost investments against dire future scenarios are coffee beans, split peas, whole-grain flour, protein powder, nonfat dry milk, rolled oats, pasta. and essential vitamins and minerals, kept in cool, dark, dry storage. If prices rise, you have saved yourself money while ensuring an emergency food supply. If someday we should have to resort to barter, coffee beans are always in demand. Bottled wine is also a possible trade item. (There was a period in earlier post-Soviet Russia when people were paying their rent in vodka!)
If you have credit card debt, pay that off first before you think about investing.
If you have a larger savings, consider real estate, but always including land, and never with a mortgage or high taxes. Land generally holds its value, but sometimes may not rise in worth for several years.
Never buy too much gold. There is always the chance gold can be confiscated, and there may come a time when it’s hard to to sell it back for cash. Silver pieces, on the other hand, can be traded for a neighbor’s eggs, should commerce come down to barter.
For the very hard hit—students, young people, the unemployed, minimum wage workers or creative artists—frugality is absolutely essential. It is a game of how little you can spend, Every dollar you don’t spend means you’re winning against the system.
Eat eggs and split peas, two of the highest quality and cheapest sources of protein, instead of meat, prepared foods, or fast food. Shop only every other week, planning purchases ahead. Drive as seldom as possible, saving on gasoline, tires, and repairs. Buy small fuel efficient cars, but not hybrid vehicles that may be expensive to purchase and maintain. Pay extra on all credit card bills to cut back on interest. Set thermostats at 60 degrees or below, and use fans instead of air conditioning. Cancel cell phones and cable TV. Turn off your water heater between showers. Cancel your trash service and haul your own trash to the landfill.
These steps can save you hundreds of dollars a month, and in no time it will add up to thousands.
How to invest those thousands? The best investment is to pay off credit card debt. What other investment is there that earns you a guaranteed 8 to 30% percent annual interest? Don’t hang on to credit card debt to give yourself “flexibility”—that’s an illusion created by the bankers. Dispel that illusion. Debts are like handcuffs. True flexibility is having no debt at all, giving you a bigger reserve of cash by savings tens or hundreds in interest each month. You can always borrow the money back. Interest is theft. Defy the thieves!
Once you have accumulated twenty to fifty thousand dollars or more, buy a parcel of land directly from the owner, outright with no mortgage and no real estate fees. Acreage can be a bargain. Buy land you would love to live on. Trust no one’s judgment but your own. Land is especially cheap when no one wants it because some incidental factor obscures its true value. Some day you may live on that land, or you may even find you can live off the land. Meanwhile, your savings is locked in, and you’ve given yourself a fallback position.
Never be a victim of financial predation. Fight back and be free!