Politics: Bread and Circuses, Part II
"You can't save the world if you can't pay the rent."
- Morton Blackwell, conservative activist
The current political debate in the United States is completely divorced from economic reality. Candidates are discussing domestic and foreign affairs as if current events were just “business as usual.” Typically, political theater ignores fundamental economic realities.
The United States is bankrupt. Our major banks and financial institutions now have majority foreign (China -- Arabs) ownership. The Chinese have kept our economy afloat by buying our worthless FRN debt securities -- they own us. So of course, the Chinese could crash our economy any time they feel like it. That's why the political debate is so ludicrous -- "national security" is just a joke, nowadays. Nero fiddles while Rome burns, and history repeats itself. The only thing holding the Chinese back is that the world is awash in FRN's and that if the dollar goes, everybody gets hurt, including them.
Of course Bush is way out on the extreme – but everyone in the Dem-Rep party understands the economic realities, but they do nothing. That's because of the "off the books" economy that has developed over the past 20 years, which is a story that is too complicated to go into here, and anyway, I am not an expert. Suffice it to say that since the first Bush administration (poppy, Bush 41), the Fed, in cooperation with Congress and successive administrations, including the two Clinton administrations, have played fast and loose with the dollar. The debts of most of the world (including our own) have been monetized, using the authority of the Monetary Control Act of 1980, a little known piece of legislation that has done more harm to our economy and our nation that a million Saddam’s and Bin Laden’s.
If you want to know how the dollar has become hyperinflated planet–wide –– and, as a result, why it is losing value and purchasing power –– Google CDO (Collateralized Debt Obligations** ). These are financial instruments that in many cases resemble (IMHO) monopoly money, because they are created using fancy accounting gimmicks that often have little to do with financial and economic reality. Most of these paper securities are dollar denominated, and many of these financial instruments are generated off the books (see footnote and emphasis).
According to Wikipedia, approximately 86% of CDO’s are arbitrage motivated, which means that CDO managers are betting on the spread between higher yielding assets and lower yielding bonds. What’s the difference between this and sports betting, you ask? Not a lot, IMHO!
The whole idea of the new Basel II banking regime is to eliminate "off the books" transactions and clean up international finance, making the system more accountable. The problem is that US banks are awash in these derivatives. According to Thomson Financial, the top underwriters of CDO’s are Bear Stearns, Merrill Lynch, Wachovia, Citigroup, Deutsche Bank, and Bank of America Securities, the institutions that are in the most trouble.
Our major banks literally cannot balance their books. Which is why the Chinese (who have the world's greatest accumulation of legit, on the books wealth) have been able to buy us at firesale prices.
So what’s the point?
The point is that the United States, far from being “the world’s only superpower,” is an empty shell, existing on borrowed money. Our politicians, however, bleat and preen as if the underlying economic realities didn’t exist.
There is only one candidate who understands the issues, and is facing them: Ron Paul. Which is probably why he is scorned by the rest of the political world, and the mainstream media. This isn’t a diatribe for Ron Paul, but it IS a plea to wake up and smell the coffee!
** From Wikipedia (emphasis mine) : “a CDO investor takes a position in an entity that has defined risk and reward, not directly in the underlying mortgages or asset backed securities. Therefore, the investment is dependent on the quality of the metrics and assumptions used for defining the risk and reward of the tranches, as well as the quality of the inventory. The qualities of the CDO that are defined by the CDO issuer can define the outcome of an investment in a CDO, in some cases as much or more than the quality of the inventory.
"The manufacturer of this entity, typically an Investment Bank, takes a cut of the value of the inventory and obtains management fees. The bank also typically does not have to maintain the underlying assets on it's own accounting ledgers, a significant financial advantage ( Note under Basel II, which went into effect In Jan 2008, this is no longer true, which is why U.S. some major U.S. banks are in such deep do–do). An investment in a CDO is therefore an investment in the cash flows of the assets, and the promises and mathematical models of this intermediary, rather than a direct investment in the underlying collateral. This differentiates a CDO from a mortgage or a mortgage backed security (MBS).”