I'm very afraid, something I'm not normally afraid of..

By: Bob Murri  5/17/2012

We are in the 2012 presidential election cycle to determine who will govern the USA the next four years. I can say with all certainty that I’m a nervous wreck. I’m so anxious that I can hardly concentrate on anything but what his happening in our politics and around the world.

I’m not one to normally be so pessimistic about the future, but I’m terrified of what appears to be our future, especially the next generations.

I’ve posted to nauseam my feelings about my political position, so that is no secret to anyone who knows me. I know I get long winded in my writings, but I feel that a good understanding of were I'm coming from helps understand my sometimes disjointed arguments and comments. I hope you take the time to read it through and comment on it.

Another anxiety is living in a red state that has so demonized anyone who is something other than a raw meat tea party conservative. Most of the members of the Mormon faith are compelled to accept this political position because their faith indirectly dictates this. Many of the Mormon leadership have stated that if you are anything but an ultra-conservative, you cannot be a worthy Mormon. Yet their public statements comport with IRS laws to encourage political involvement, regardless of party.

As I see what is happening is that the USA has lost most of its democratic structure to several cabals that have secured power here and are moving quickly to do the same in all democratic nations. Why would these cabals do such a thing? Well that is a very easy one to answer. Money and power are strong bed fellows and the breeder reactor we call Wall Street has created a new investment psychosis of extreme greed.

This has been the economic and power cycle since humans created economic models and civilizations. As civilization rose with some limited form of democracy or at least aristocratic democracy that created some level of the middle-class, there became great civilizations that prospered. But after some time and generations have passed, the upper class always moves into the greed behavior and starts to manipulate the process to shift the wealth of the civilization into the hands of just a few. In that, they create a secondary economic model that is like a breeder reactor that can sustain itself without the common person being part of the equation. But that only will occur for a limited period of time, until the monetary foundation of the middle-class crumbles because there is no actual worth to support the monetary system. When the middle-class is degraded, the underpinning of the economy is also degraded, much like a crumbling bridge or building. The upper surface may look great, but underneath it is ready to topple.

This cycle has played out time and time again. The last time was in the Roaring Twenties that ultimately led to the Great Depression. Now we had bad depressions in the century prior, but as a country, we were still very small and our economy was still very agrarian as the mighty industrial revolution had not kick in to become the larger percentage of the GDP. But by the end of the 19^th century and the early 20^th century with lower cost steel and iron combined with steam, electricity and fossil fuel power, it exploded.  The middle class rose and people enjoyed life, but then the spread between the 1% upper income and the middle class grew farther apart. Banks and companies started creating new types of investment instruments, beside the ownership of stock of a company. This increased risk, just as it does when gambling in Las Vegas, and these high risks ultimately failed and the markets and banks failed. There was not enough money to cover the middle-class deposits they gave the banks to keep secure for them.

There was no government FDIC agency to insure the deposits, so most people lost everything they had saved. We were in the worst depression the world had ever seen to that date. With the increase of global trading, our depression moved quickly to the rest of the world, especially those who were also in their industrial revolutions. The end result of that depression was the rise of Hitler and Mussolini and World War II, which was also the biggest pubic works program with tax dollars ever, the cost of the war. All that demand for good pulled us out of the depression by the end of the war and were were the last major industrial nation still standing until the 1970s.

I give this short history lesson to lay the bases for my fears. We are in the midst of another global economic tight rope. The legislation put in place in 1933, the Glass-Steagall Act, was to prevent another Great Depression separated the various functions of the financial institutions and it worked for 50 years.  No one bank or entity could become too large to fail again.

Retail banking or also called commercial banking was prevented from using depositor’s money or even their own money to invest in the speculative markets. These retail banks also could only be local banks, national banks were prohibited. Which did make things more difficult when traveling, thus the invention of the credit card for those who could afford to travel, and it was a way to do monetary transaction across borders though a single financial institution. Diners Club was one of the first ones. These small retail banks had to use their assets for strictly loans to consumers, home owners or businesses. 

Investment banks could only operate in the higher risk of stocks, bonds, and other financial paper, such as corporate junk bonds, they were the brokerage houses such as Merrill Lynch, Lyman Brothers, etc..  These banks were also prohibited from investing their own money in the markets to shield their client’s money from stock manipulations that would benefit the brokerage firm and bank.

The commodities exchanges were separate and traded only in commodities such as grain, oil, and other variable natural resources. Oil and mineral could only be traded in large quantities by entities that used large quantities of the material to prevent price manipulation of natural resources vital to our economy.

At the time there was no default swaps or other insurance models on your investments, you just had to take the risk based on your best guess and hope things turn out the way you wanted it.

Insurance companies were also separate and created as “Mutuals” which means that the policy holder owns the company. Any gains or losses are passed onto the policy holders. The same as today's credit unions.

Starting in the 1980s, the conservative Republicans started a movement to change this. Even though capitalism was working rather well, we had huge post WWII growth, mainly because our competitors were bombed into nothing, all their industries had been destroyed, so we were the supplier of all new products to the world. The middle class rose to such a large segment of the population and controlled over 50% of the nation’s wealth. But greed started to take over.

During the Reagan years many financial and insurance laws were repealed and amendments to Glass-Steagall started to allow these institutions to take on greater risk, use depositors money in risky investment, i.e. the collapse of the Savings and Loan market that were small retail banks designed strictly for low risk savings and the place to get lower cost home mortgages, they operated much the same as your Credit Union today and most were owned by the depositors. They were required to hold a majority of the loans and they could "sell" a minority to other investment groups, such as insurance companies or other consumer credit entities. Your mortgage was not bundled and handled by some processing company, you dealt with the company owning your mortgage directly. 

But then Reagan and the Republican deregulated S&Ls, so they scrambled to became publicly traded companies and started taking your deposits and investing them in stocks and commodities which had much higher risk that led to corruption and the ultimate failure of them. They also deregulated insurance companies and they scrambled to become publicly traded companies also. Your insurance rates started to climb, especially medial malpractice and product safety insurance rose so fast that physicians and companies couldn't afford the premiums.

Industrial banks were created. These banks were formed by corporations that had enough cash and assets to cover the required reserve to issue direct consumer credit from the company and not using a third party bank. Most of the major auto companies formed these banks to finance the purchase or lease of their cars, truck and heavy equipment. Other followed and by the mid 2000s racked up huge debt loads that was pushing their reserves and in many cases exceeding them. This placed these companies at risk should the consumer market decline, forcing people to default on their consumer debt. These types of banks were used to create more and more credit cards like Discover that was created by Sears Corp and some other small ones that didn't survive the shake out. Again in the mid 2000s they started having huge defaults on credit card debt by consumers and putting stress on the credit market.

In the late 1990, I think it was Chase Manhattan Bank that was lobbying Congress and President Clinton that they were losing business to offshore banks because these offshore banks provide retail banking, as well as investment banking so that the customer can move their money between the two needs as they desire without the hassle and cost of wire transfers between the different types of banks in the US. After much lobbying, the repeal of Glass-Steagall was completed in 1999. Chase purchased Travelers Insurance and J. P. Morgan investment bank in 2000 as a result and becoming the largest bank in the country.

Immediately you saw major mergers and acquisitions of small local banks, combining with investment banks and also the merging of insurance companies into one entity.  Most of us thought it was about time, the world was getting smaller and our banking needs extended beyond our home turf. National banking chains such as Interstate Bank, Bank of America, Wells Fargo, Chase, and many others became the norm. You could travel to most any US city and have a branch of your bank available, as well as the every growing presence of ATM machines. Credit Cards and Debit card were flowing like water to any name on any list, whether alive, dead or infant.

The other major change was the defined pension plan that most companies had, which was a secured plan that the company sponsored and paid into regularly. Your growth was guaranteed, you knew how much money you would have upon retirement. But companies didn’t like this model and it was costly, given the changing paradigm of competition in the markets as Europe and Asia recovered from the war destruction and was competing with goods in the global economies.  This led to a great slow down and a recession in the 1970s and into the 90s. Reagan changed the model and established the well-known 401(k) model that is a plan that the employee owns the investment account that trades in stocks, bonds and anything else it wants to invest in, and the employer can participate or not in the plan, buy given some level of money to the employee in their 401(k), but they are not required to do so. This infused 2 trillion dollars of new capital into the stock and commodes markets, as well as the new founded Mutual Funds designed for a mixed portfolio for these new 401(k)s. Wall Street went nuts with all this money. They actually had more money than stock or other investment vehicles to invest in. They were sitting on use sums of money in just simple low yield money markets.

This then led to approval by the SEC for speculative derivatives and to hedge their risk, hedge funds and default swaps were created to lessen the down side of these very high risk investments. With this guarantee now, the banks started to take on more and more high risk by providing huge money warehouses for mortgage brokers. There was so much money coming in from 401(k), IRAs, RothIRAs, and other new savings models for the middle class that they would loan out the money for mortgages to high risk buyers with just “verbal stated income” without documentation to prove they could afford the payments.

Now this was bad enough, but they started to take these mortgages and bundle them into another form of investment instrument called the mortgage back derivative. The investment rating companies were paid by the banks to rate them as AAA, meaning low risk very good investments, but they were not, most had very high risk loans for homes that were too large and expensive for the level of income of the buyer. These had low upfront costs and escalating payments to a large balloon at the end. Some were interest only for 5 or more years, then a big, big balloon payment.

But wages have been stagnant and actually have gone down, so this plan didn't work, as the monthly payment increased, their salary did not. Unemployment was creeping up as more and more companies became multinational and moved their labor to offshore workers in India, China and other parts of Asia. The loss of employment forced more people to default on their mortgages and foreclosures started to escalate.

As foreclosures occurred in neighborhoods the adjoining properties would fall in value, this would place these mortgages in jeopardy because the house is now worth less than the balance on the mortgage, even thought the owner has been making payments on time, every time. A good risk buyer, but now they have negative equity. Lenders don't like holding a note that has a face value and was purchase for more money that the asset securing the note. So they went after these homes also foreclosing on them, throwing people into a bad credit rating with it wasn't their fault. 

The perfect storm hit in 2008 when the confidence by the holders of these derivatives fell and started to call the notes and question the value of them and their rating regarding risk. Too many home owners were defaulting on their mortgages. This caused the snowball effect as the smaller banks who purchased some of these derivatives as well as international banks and governments, started to see their value dropping like a ball of lead in a vacuum. Money dried up, credit was frozen, companies that normally work with a line of credit to cover the cycles of their cash flow couldn’t make payroll, even though they would have money coming in from receivables. This led to firing the employees, thus creating greater unemployment and the downward cycle starts to move even faster. It was a free fall to the abyss.

It took tax dollars to pull it out of the tail spin, but the way they did it, and they being Pres. Bush and Paulsen, stopped the fall but there was no strings attached to the billions of dollars. Many of these companies knew they could survive, but with the free money from the government and the help of the Treasury department, these larger banks started to take over all the small banks still standing and those who got in trouble because of these bad derivatives they purchased. Now we are down to 8 large banks that are all too large to fail even more so than in 2008.

The financial sector is now 25% of our national GDP, up from less than 10% before deregulation. History has shown that when the financial sector climbs to over 15% of GDP, the value of labor declines to near zero and that is where we are today.  Also these 8 banks hold more than 9 trillion dollars in USA net worth and cash. That is way too much being held by such few banks, they can't fail again, and they know it. Add to that our current technological revolution is eliminating thousands of jobs each month through computers and automation of production. The productivity of the country is at an all-time high. How can that be with over 8% unemployment and more workers coming into the market place? The simple reason is automation.

Now we have the big problem of Europe and the Euro. Unlike our Fed, their central bank has a limited power to set monetary policy because each member nation sets its own monetary policy. That does not work with a single currency. Secondly many of these multinational banks had convinced many of the European nations to mix their bonds with these derivatives and re-package them in Europe and Asia. This left Greece, Italy, Ireland, and Spain holding the bag when these derivatives exploded.

Then Germany and the Central bank forcing the member nations into austerity models that has caused huge layoff of government workers, which in turn has reduced demand for goods and services, which then the private sector responds by reducing its labor force, so unemployment in Ireland is 15% and climbing, in Spain its over 24% and put Spain in an actual depression, England is right behind with over 12% and climbing. Even now Germany who was fairing very well during the global recession is now seeing reduction on private sector jobs.  This means they no longer can prop up the other nations with bail outs. Their system is ready to fall into that abyss.

If that happens, the USA and China will be right behind. With our current dead-locked Congress and a political movement bent on eliminating as much government as possible, they see the opportunity to also use Austerity to eliminate it as a way to stimulate the economy. But as has been proven in Europe, it doesn’t work. But this movement doesn’t really care about the economy and the 99% of the population, they are so ideologically bent on anarchy that they are seeing their goal come true.

The recent report that J. P. Morgan Chase lost 2 billion dollars, of their own money, in very risky hedge fund speculative investment is an indicator that they know they are too large to fail and will be bailed out by governments again. So they are taking more and more very high risk ventures without care or concern. That is very dangerous in a very weak economic global market.

The real engine that drives the economy is demand for goods and services. To have high demand, you have to have a strong middle-class that has enough disposable income to purchase all the gadgets and services any company can dream up. When you have low demand for goods and services, there is no need for employees to make things or to provide service, except for fast food and other local service that can't be outsourced. Austerity kills demand, low wages kills demand and we have both right now in Europe and increasingly here in the USA. The is pushing us into the abyss even faster.

These anarcho-capitalist are looking for the aftermath of this destruction as the great rebuilding of the world in an anarchist sort of way, as Ayn Rand and others have voiced.  Freedom to do anything you want. Capitalism will be honest and pure by providing everything a person will want at the price you can afford. Utopia will arrive.

It is that philosophy that is the scariest. It has been around forever, but they never had enough political power to achieve much, but their day has come with the 2010 elections and they are willing to see the country go into armed revolt to get the world they want.

So the bottom line is that we are on the edge of the abyss, teetering oh so carefully. Which way will it move? Slipping all the way and into civil war or will it pull back and regroup for the good of everyone?

For met that is what is keeping me awake at night. For me, it’s not a meteor or some other physical natural event that is going to destroy the world, it is the economic and civility collapse that is so near that will destroy, not completely, but very badly, the civilized world as we know it.

Now I know many will say I'm just paranoid, but here are some observations that you can verify just by Googleing. In 2005 there was a Florida Senate hearing on what appeared to be manipulation of the voting machines in that state and Ohio that gave the election to Bush in 04. A computer programmer testified that he was asked to write some code that would not be detected but would change the outcome of an election. This was asked by the Speaker of the House in Florida who then became a US Senator. This most likely will happen again this year. Why they didn't use it in 2008 is unclear, except that whoever the organization behind this might not of wanted mainly Palin as a potential problem if McCain might die or disabled. So Obama was the better shot.

Second. The US military, except for the National Guard, are prohibited from performing police actions within the border of the US, unless under direct attack from a known enemy. However, for several months now, regular full-time military have been doing exercises in small towns around the nation in how to patrol and clear houses of guns and other threats. Why would the defense department give order to do something this is clear violation of law? Observation would tell me that they expect an armed revolution. I would suggest that the daily security threat report that the NSA does indicates the huge amount of weapons and ammunition that is being stockpiled around the country to an unprecedented level that would make civil stability questionable if several scenarios were to occur, i.e. the assassination of Obama,  or revolt due to his reelection by the tea party wackos or Europe collapses and so do we or a combination of all of these.

If any of these events happen we will be in a depression like no depression has been before, and the 1930s were very, very bad. American’s have a fantasy that all will be good. Not to worry, it has always been good and it always will. "We are blessed."

The American Exceptionalism that so many proclaim is a fantasy. We are no different from any other western democratic country. We are all susceptible to collapse as so many great empires have done before throughout time. We are not protected by some divine God. We are just humans trying to get along with each other and survive during our lifetime; to contribute to the betterment of civilization though our work and efforts so that each succeeding generation will have a better civilization to live in than ours. But that goal has been lost to greed, hate and fear.

I don’t know what I will do if we slip over the edge into the abyss. I’ve contemplated terminating my presence here, for I have lived a long life so far; a good one with Judy who has given me more than I can ever repay in hundreds of lifetimes.  I know that it is something I do have to give some strong consideration to and talk to Judy about her feeling as well.

I suspect that should we enter a depression and fall over the edge, many of my generation will not attempt to survive and simply end it all, with the exception of those who may have very strong family ties with adult children. But for us who have no one, what’s the point…  Only time will tell if my fears are for not or became reality. We will see….