Pelosi Says She's Running Most Ethical Congress Ever!:

During a Friday press conference, House Speaker Nancy Pelosi (D-Calif.) said she was running the most ethical Congress ever.CNSNews.com reported Friday:

When a reporter prefaced a question about Rangel by noting that Pelosi had promised to run the "most ethical and honest Congress in history" she interrupted him to say: "And we are." 

Despite the absurdity of this remark, CNSNews.com and Fox News were by themselves amongst major press outlets in finding it newsworthy (readers are cautioned to stow fluids as well as sharp items, and make sure their mouths are free of food or liquid before proceeding to the hysterical video embedded below the fold):

Once again, despite the absurdity of her comment, it didn't get a lot of press coverage.

According to LexisNexis, on television, only Fox News reported this statement: once on Friday's "Your World" and again on "Hannity."

Although CNN did cover this press conference during the 5PM "Situation Room" Friday, her comment, "And we are" was not addressed.

Many newspapers also reported the press conference, but according to LexisNexis, not one mentioned her reply to the reporter about being most ethical.

Not one.

Wireservices also covered the press conference, but didn't mention her absurd comment either.

Of course, carrying the press's water were conservative bloggers - as usual. A Google blog search found the country's citizen journalists all over this story.

Hot Air's Allahpundit reported just how preposterous this comment was:

As of early January, "the most ethical Congress ever" hadn't punished a single congressman for ethics violations. Not one, despite the many, many imbroglios in which, to take a not-so-random example, Pelosi crony Jack Murtha was involved. In fact, seven more congressmen were exonerated of ethics charges just today despite their ties to the PMA lobbying group. 

Gateway Pundit's Jim Hoft was also all over this:

House Speaker Nancy Pelosi (D-Calif.) insisted on Friday that she is running the most ethical and honest Congress in history. At the same time, however, she indicated she will not ask House Ways and Means Chairman Charles Rangel (D.-N.Y.) to resign his chairmanship-at least for now. Democrook Charlie Rangel was found guilty of ethics violations yesterday. But, at least he wasn't caught stashing $90,000 of cold hard cash in his freezer like crooked democrat William Jefferson who was recently sent to the slammer for 13 years. 

By contrast, "real" journalists predictably boycotted Pelosi's comment.

Exit question: Can you imagine the kind of coverage former Rep. Dennis Hastert (R-Ill.) would have gotten if he made such a remark while he was Speaker?

Readers are advised that transcripts to LexisNexis can be spotty over the weekend. Some reports may not show up until Monday. Also, outlets like FNC and MSNBC don't transcribe all of their broadcasts.

—Noel Sheppard is the Associate Editor of NewsBusters. Follow him at Facebook and Twitter.

Oba-Kabuki: A box-office bomb

By Michelle Malkin  •  February 26, 2010 09:13 AM 

The Oba-Kabuki health care show at Blair House kicked off with a big lie on Thursday morning – and it all went downhill from there. The taxpayer-funded infomercial backfired by exposing the president’s thin skin, the Democrats’ naked disingenuous, and the ruling majority’s allergies to political and policy realities.

Responding to Sen. Lamar Alexander’s opening call for Democrats to renounce parliamentary tactics designed to limit debate, circumvent filibusters, and lower the threshold for passage of health care reform to a simple, 51-vote majority, Senate Majority Leader Harry Reid sputtered indignantly: “No one’s talking about reconciliation!” Everybody and their mothers have been invoking the R-word on Capitol Hill, starting with Reid himself.

Four Democratic senators pushed Reid to adopt the procedure, normally reserved for budget matters, in a letter on Feb. 16. A few days later, White House Press Secretary Robert Gibbs discussed the option. And then Reid himself talked up reconciliation on a Nevada public affairs show as an option to ram the government health care takeover through in the next 60 days. According to The Hill, Reid said “congressional Democrats would likely opt for a procedural tactic in the Senate allowing the upper chamber to make final changes to its healthcare bill with only a simple majority of senators, instead of the 60 it takes to normally end a filibuster.” A few days after that, Reid snapped that Republicans “should stop crying” about the abrogation of Senate minority rights since the GOP had used the reconciliation process in the past.



So, the cleanest, most ethical, holier-than-thou Congress ever is now defending the unprecedented adoption of ramdown rules for a radical, multi-trillion-dollar program to usurp one-seventh of the economy on the grounds of two-wrongs-make-it-right? Hope and change, baby.



For his part, President Obama responded with one part pique and two parts diffidence. After the summit lunch break, Republicans pushed the reconciliation issue again in the face of the Democrats’ refusal to disavow the short-circuiting of the deliberative process. “The American people,” an annoyed Obama asserted, “are not all that interested in procedures inside the Senate.” Oh, really?



A new USAToday/Gallup poll reports that 52 percent of Americans oppose using the procedural maneuver to pass the health care bill in the Senate on 51 votes rather than the 60 votes required to end any filibuster.

The survey also showed that Americans oppose Demcare-style health care “reform” by 49-42 – with those “strongly” opposed outnumbering those “strongly” in favor by 23% to 11%. Obama’s best and brightest team of Chicago strategists, new media gurus, and communications specialists still haven’t figured it out: Voters are as fed up with the corrupted process in Washington as they are with the White House’s overreaching policies. It’s both, stupid.



When he wasn’t cutting off Republicans who stuck to budget specifics and cited legislative page numbers and language instead of treacly, sob-story anecdotes involving dentures and gall stones, President Obama was filibustering the talk-a-thon away by invoking his daughters, rambling on about auto insurance, and sniping at former GOP presidential rival John McCain. “We’re not campaigning anymore,” lectured the perpetual campaigner-in-chief.



After ostentatiously disputing the GOP’s claims that health care premiums would rise under his plan, Obama walked it back. Confronted with more GOP pushback on the failure of Demcare to control costs, Obama told GOP Rep. Paul Ryan that he’d rather not “get bogged down in numbers.” Not numbers that he couldn’t cook on the spot without staff consultation, anyway.



Obama and the Democrats labored mightily to create the illusion of almost-there bipartisanship by repeatedly telling disagreeing Republicans that “we don’t disagree” and “there’s not a lot of difference” between us. But the dogs weren’t riding the ponies in this show.



This was a set-up from the start. The “we’re so close” mantra is the rhetorical wedge the White House will use to blame Republicans for fatal obstructionism, while whitewashing festering opposition from both pro-life Democrats who oppose the government funding of abortion services still in the plan and from left-wing progressives in the House who are clinging to a full, unadulterated public option.



While Republicans came off well and reasonably, the six-hour blowhard-fest was a monumental waste of time. Obamacare Theater tied up GOP energy and resources as the White House readies its “Plan B” (expanding government health care coverage, just at a slower pace) and Democrat leaders prep their reconciliation ramdown for early next week. This Washington box-office bomb is a prelude to much bigger legislative horrors still to come. Don’t you love farce?



SOURCE: http://michellemalkin.com/2010/02/26/oba-kabuki-a-box-office-bomb/

 

 

 

 

 

 

 

Photoshop credit: Applecross Media and Big Fur Hat

My syndicated column today is a theater review of yesterday’s Demcare talk-a-thon. What’s next? Here’s the rundown.

***

Oba-Kabuki: A box-office bomb

by Michelle Malkin

Creators Syndicate

Copyright 2010



While Republicans came off well and reasonably, the six-hour blowhard-fest was a monumental waste of time. Obamacare Theater tied up GOP energy and resources as the White House readies its “Plan B” (expanding government health care coverage, just at a slower pace) and Democrat leaders prep their reconciliation ramdown for early next week. This Washington box-office bomb is a prelude to much bigger legislative horrors still to come. Don’t you love farce?

The Calm Before the Coming Sovereign Debt Storm

by Martin D. Weiss



If I’ve learned anything in the 39 years since I founded Weiss Research, it’s this: I can only help those who are ready to help themselves.



I’ve seen it happen so many times and it never ceases to concern me deeply:

Our research reveals a crisis on the horizon — something with the power to wipe out millions of portfolios and retirement plans. 

We shout our warnings from the rooftops over many

months — doing our very best to demonstrate that the crisis is inevitable and approaching quickly, urging investors to protect themselves.

But although a sizable minority do get their money to safety, the MAJORITY are lulled by the calm before the storm. They do not heed our warnings. They do not make it to a safe haven in time. And they do not take steps that could multiply their wealth in the worst times.

What concerns me the most, however, is the undeniable reality that …

Each major new crisis is coming with greater frequency AND breadth

The first major crisis of the 21st Century came with the Tech Wreck of 2000-2002, causing U.S. investors and households losses of $6.5 trillion in their stocks, mutual funds, life insurance and pensions, according to the Fed.

The second major wipeout struck six years later, with the Housing Bust of 2008-2009, causing more than DOUBLE the damage — $15.5 trillion.

Now, just ONE year later, we can already see a third big round of losses on the horizon because of the Great Sovereign Debt Crisis. And, unfortunately, this new episode has the potential to cause even deeper wounds — not only to individuals, but to entire nations … not only bringing turmoil to financial markets but also threatening to destabilize governmental institutions.

The signs are everywhere and they’re so clear even the most secretive among our leaders have been forced to admit them:

• We have reckless stimulus spending. We have shrinking tax revenues. And, we have the greatest explosion of government debt in history.
  
  
  
  


• Major euro-zone nations — Greece, Portugal, Spain, Italy, Ireland and others — are now so indebted that some could find it difficult — if not impossible — to make payments on that debt in the weeks and months ahead.
  
  
  
  


• Other countries outside the euro zone — the Ukraine and Iceland … Latvia and Lithuania … Pakistan and Dubai … Argentina and Venezuela — are even more likely to default than Greece, according to the latest cost of 5-year insurance contracts (credit default swaps). 
  
  
  
  


• ANY kind of default by just ONE of the major nations could trigger a chain reaction of bond market price collapses, ultimately costing investors trillions of dollars.
  
  
  
  


• Interest rates would spike and credit markets, already shaky, could freeze globally.
  
  
  
  


• And the fledgling recovery in the U.S. would be crushed, prompting a potentially vicious double-dip recession.

Right now, in order to help major euro-zone nations avoid default, bailouts are being discussed — even promised — by European leaders. But any such bailouts could be both too little and too late.

They would be too LITTLE because they would do nothing for the counties outside the euro zone.

And they would be too MUCH because any such bailouts would …

1. Be a blatant violation of the rules upon which the European Monetary Union was founded. Breaking them can only shatter confidence in its bonds and its currency, the euro.
   
   
   
   


2. Tacitly commit European leaders to bailing other member states.
   
   
   
   


3. Potentially sink the finances of the “stronger” euro-zone countries that would, in effect, be assuming the bad debt of the weaker ones.
   
   
   
   


4. Destroy the value of the euro, quite possibly ending its tenure as a world currency.

As a result, euro-zone officials find themselves in a classic lose-lose situation: 

If they allow Greece to default, investors will dump sovereign debts in up to a dozen other countries, setting off a chain reaction of bond market collapses in the euro zone, driving the euro deep into the gutter and gold sharply higher.

I they bail Greece out, they will effectively assume a direct or indirect liability for the bad debts of nearly every nation in the euro zone, also driving the euro into the gutter and gold higher.

Either way, Either way, you MUST not ignore what’s happening and how it can impact you. If you haven’t done so already.

1. Dump long-term bonds of any color or shape.
   
   
   
   


2. Except for some very special situations we’ve recommended in our services, reduce your exposure to the stock market dramatically.
   
   
   
   


3. Maintain a very LARGE cash position, stashed in the safest, most liquid instruments in the world — short-term Treasuries.
   
   
   
   


4. To help protect yourself against money printing and currency erosion, hold a long-term position in gold.
   
   
   
   


5. Above all, approach all investments with caution. Do NOT overinvest.

Good luck and God bless!

Martin



Source:  Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

Let's Enjoy The Depression!

By Bill Bonner

Baltimore, Maryland



The depression is alive and well!



US unemployment claims just came in higher than expected.



And new house sales in January were at their lowest ever. Pundits were quick to blame the snow. But sales were off even in areas that had better-than-usual weather.



Household income has gone nowhere in 10 years. Stocks have suffered a lost decade too. And now Ben Bernanke says we’d better be careful... because the recovery ain’t no sure thing.



The economists have no clue. But average people know what’s going on. They know how hard it is to find a job. And if you’re in the building trades... or you have only a year or two of college... you’re pretty much out of luck. You may have to retire before you ever start work again.



That’s why there was such a big drop in consumer confidence.



But look on the bright side. Building more houses for people who couldn’t afford to live in them was not exactly the greatest business strategy. And all the people who were appraising, mortgaging and selling houses can now find more useful work. Real jobs. What are those real jobs going to be? We don’t know yet. But it could take a long time to find out. And in the meantime, we have a depression on our hands...



So, let’s enjoy it…





How do you enjoy a depression? Well, the first thing is to make sure you’re not in its way...



Dear readers may not know this, but in addition to writing the Daily Reckoning your editor also has a serious job...



Yes, in the morning he is a moral philosopher... gratuitously insulting public officials, whole professions, and entire nationalities. He is grateful to them all... they make life so entertaining! Imagine what kind of world we would have if people minded their own business and got on with their lives... People would be richer and happier, we don’t doubt it... but at whom could we point a finger and laugh?



No, dear reader, the world needs its bumblers, fools, politicians (are we repeating ourselves?), grifters (sorry... we did it again!), and megalomaniacs. It needs someone to challenge the gods from time to time. Otherwise, the gods wouldn’t have the fun of whacking them. And we wouldn’t have the fun of watching.



But getting back to the point... what was the point? Oh yes, the point is we have a serious job to do too. In addition to writing about the world of money, we also have to actually figure out what to do...



You see, we have a Family Office... a little group of researchers and analysts that actually has to make decisions... What to do? Long or short? Buy or sell?



One thing we need to be on guard against is allowing our emotions to take over. For all our deep thinking and cynical detachment, we’re human too. We get emotionally attached to our own ideas. Then, we’re very reluctant to give up on them... no matter how bad they turn out to be.



We remember... sadly... our own feet dragging after the bull market in gold of the late ‘70s. We didn’t want to sell. So we, delayed... we hesitated... By the time we realized how wrong we were we didn’t have to sell. The bear market in the yellow metal was over! Gold had hit bottom. We’d lost 70% of our money. Much more in real terms. But there’s nothing like a 20-year bear market in your favourite asset class to sharpen your wits.



We realized that we needed a better way. Some discipline... some rules. So, we’ve developed a methodical approach that let’s us choose investment themes very carefully – after much thought, consultation and deliberation. And then it prevents us from making any changes... again, except with much reflection and discussion. We also have our own timing index which would practically take an act of congress to over-ride. If the timing index says to get out... we get out.



Why are we telling you this? Oh yes, because you need to make sure you enjoy the depression too, rather than suffer from it.



*** What the risk of the depression? There’s the risk of losing your job, for example. How do you avoid that? Easy, you work harder than the guy next to you. So when it comes time to lighten up the payroll, management fires him, not you.



Just to make sure, you could encourage your fellow workers to take more breaks... and offer them sips from your whiskey flask, just before important meetings... just make sure you don’t have any yourself!



Another risk is that you lose money from your investments. How does that happen? Everyone loses in a depression. All assets go down. Against what? Against money... cash. So, the thing to do is obvious. Get rid of your investments. Sit tight. Do nothing. When you’re given an investment opportunity, just say no. But there’s something in human nature that makes doing nothing almost impossible.



That’s why you need rules... discipline... a system that is hard to ignore. Right now, we’re still in a deflationary trend. If Japan is any indication, this could go on for another 10 to 20 years – with generally sinking prices for just about everything, but particularly for stocks and real estate.



It’s going to be hard to sit out a downturn that long. You’re going to be tempted to speculate... to get back in... You’re not going to want to be left behind.



And yet, in a real depression, getting left behind is best you can hope for...



More news: Investors are getting the jitters about China



Writes MoneyWeek editor, John Stepek:



“The upheaval in Greece is of course making investors nervous. With the country riven by mass strike action, and Greek politicians now throwing the Second World War in Germany's face, the odds of a bail-out are surely declining.



“But it's not just Greece. China is giving investors the jitters with every suggestion of tighter monetary policy. The most recent sign is that the state-owned banks are in a rush to raise money to prop up their balance sheets after the government-driven lending boom of the past year. "This week alone," says the FT, "Chinese lenders have announced plans to raise up to £7.2bn through equity and bond sales." Another £14bn-odd is "in the pipeline."



“However, the general consensus remains that China is the future. Most investors seem to be betting that China can 'walk the tightrope' of monetary policy (i.e. keeping inflation under control without crushing growth), despite the fact that no one else seems to be capable of doing it.



“And as you've no doubt noticed, superstar fund manager Anthony Bolton is about to launch an investment trust investing in the country. But I'm not sure that's a good sign. Bolton's past performance rightfully commands respect. But this launch will likely represent a huge influx of private investor money into the Chinese market. And like it or not, history shows that when retail investors are piling into an asset en masse, it's usually on the turn. All the highest-profile tech fund launches came when the tech bubble was topping out. Same with the more recent commercial property bubble.



China may be the next decade’s biggest disappointment



“Chris Rice of Cazenove Capital puts it bluntly. He told Citywire recently that for investors, China will be the biggest disappointment of the next decade. His point – which seems reasonable to me – is that even if all the expectations for China come true, investors are paying too much for exposure to the story. After all, the internet has revolutionised business, much in the way that tech bubble investors envisioned. "The problem was that the amount equity markets paid for the potential profits was too high.”



“ China sceptics are in the minority for now. Most of the fund managers at our latest Roundtable discussion were cautiously upbeat on the country. But a few anecdotes were telling. One of our experts mentioned visiting an upmarket penthouse flat in Shanghai that cost more per square foot than a house in Chelsea.



“To be fair, she believes there's a bubble in property in the major cities. But for me, the story was uncomfortably reminiscent of the old story that the land around the Imperial Palace in Tokyo was at one point worth more than the entire state of California. It just doesn't stand up – particularly when you consider that a house in Chelsea is hardly trading at bargain levels right now itself.



“Of course, being wary of a bubble and knowing when it will burst are two different things. In the meantime, my colleague Merryn Somerset Webb suggests a much safer, cheaper way to get exposure to the China story on our blog page.



John Stepek is the editor of MoneyWeek magazine. Subscribers can read the full Roundtable discussion in this week’s issue.



Get your first three issues of MoneyWeek free here if you’re not already a subscriber. You’ll also receive the MoneyWeek Property Report the banks, government and estate agents DON’T want you to see. Click here. (It could save you £46,000.)



And more thoughts...



*** A year or two ago, we would have thought that you couldn’t increase the monetary base so dramatically without grave inflationary consequences. Inflation – with a lag of about 18 months – was a dead certainty. Now that we’re closer to the situation, we see that inflation may be hard to avoid... but it’s hard to summon up too. Japan couldn’t do it. And now the Bernanke Fed can’t seem to do it either.



Central bankers are talking about increasing their inflation targets from 2% to 4% in order to give themselves more flexibility to deal with situations such as the crisis of the last 2 years. But they are dreaming. They can’t really control inflation that perfectly. In fact, they can’t really control it at all, except in the grossest, clumsiest way. They have tripled the world’s monetary reserves in the last 7 years. Prices for gold and oil have responded more or less in line with the monetary base. But most consumer prices are heavily dependent on capital investment in China... housing prices in the US... and a million other things that the economists at the Fed can’t begin to control.



Of course, in extremis, as Ben Bernanke once told the world, a central bank can always create inflation. They “have a technology known as the printing press,” he said. Crank up the presses... and let people know that you are cranking up the presses... and you’ll have price inflation lickety split.



But the financial and economic costs of cranking up the presses is so great that very rarely is any central bank... and certainly not any major central bank of a civilized nation... reckless or bold enough to do it. It’s the nuclear option of the monetary world. You have to be very desperate to take the nuclear option. We don’t think Bernanke and crew will get there... not for a long time.



That said, there are also conventional weapons... such as those being used now. One in particular... quantitative easing... packs a lot of firepower. It’s not nuclear. But it can still make one helluva mess. Stay tuned.



*** We had a friend in Haiti when the earthquake hit. No one knew what had happened to him. But a few days ago, they found his body. Mutual friend John Mauldin reports:



R.I.P., Walt Ratterman



A few weeks ago I wrote about my friend Walt Ratterman, who was at the Hotel Montana in Haiti when the earthquake hit. Walt’s wife Jeanne received an email only 10 minutes before the quake, which placed him in the courtyard, where he would have been OK. After the quake there was an eerie silence. We all assumed that Walt was helping those injured in the quake and that he and his friends would surface when they got a break. Those who knew Walt understand the passion he brought to many relief operations. Walt was known for sneaking into Myanmar in the bottom of a boat where, if discovered, he would have been summarily executed. Walt was the subject of the documentary Beyond the Call, which showed him braving Afghanistan a month after 9/11, Myanmar, and the most dangerous region of the Philippines.



Walt’s love of helping people who, for no fault of their own, couldn’t help themselves caused him to relocate his family to the West Coast, to be better able to continue his work. Walt traveled the world to help the needy, visiting Asia, Africa, South America, and Central America. Each time he brought food, medical relief, and solar power, and had a sustaining impact on all the lives he touched. Walt was part of a team brought into Haiti by USAID (United States Agency for International Development) to bring solar power to Haiti. Walt was working there on several projects, including a few hospitals where electricity brought them out of the dark ages, allowing them to perform surgeries and other treatments that were unavailable in Haiti previously. Many of the projects were completed prior to the quake and provided much-needed support for the injured, saving countless lives.



The great irony is that Walt almost never stayed in nice hotels. He stayed with those he helped.



The men and women who loved Walt mobilized to raise money and travel to Haiti. My own readers have been very generous. Six teams made their way at various times throughout the search and rescue phase of the operation. Each of those teams brought much-needed food, water, or medical relief. Dr. Sir James Laws hired a bus in the Dominican Republic and loaded it with bottled water that was given to many who were thirsty in Haiti. Sir Edward Artis loaded a 20-foot truck with food and braved the road from the Dominican Republic as well, in spite of reports of looting and hijacking of other vehicles on the road. The first team was given the emotional task of handling the morgue at the Hotel Montana. Without complaining, each member of that team stepped up and did what was asked of them. Each night this team cried themselves to sleep from the emotional toll of dealing with the dead that day. Each of the Knights and friends of Walt reached out to their entire networks and brought awareness to the search for Walt and the hundreds of others trapped in the rubble at the Hotel Montana.



As time wore on it became obvious that a miracle wasn’t meant to be. Hope gave way to preparation for the inevitable. Walt’s backpack and laptop were found a few days before his body was discovered. And then there was a wait for positive identification, before dental records confirmed that Walt was a casualty of the devastating earthquake. He was one of more than two hundred thousand souls separated from their bodies in that quake. No doubt Walt was busy in the spirit world, calming and organizing this mass of men, women, and children for their trek to meet their maker.



Each of us who has been involved in the life of Walt, and now with his untimely death, knows that he lived a life of honor and that he died doing the work that he loved. His death was certain to be a death of honor because of the way he chose to live his life. Each of us has the opportunity to rededicate ourselves to living our lives in a manner more aligned with the values that Walt applied every day he was here. Walt stared death in the face so many times and lived, that we all expected him to be immortal. Each of us has limited time on this planet, and we can use Walt’s example to make that time count.



You, gentle reader, have given generously to make a great deal of difference in Haiti and over the years to Knightsbridge. Would you join me one more time to honor the life and work of our fallen hero Walt Ratterman? The world does not have enough Walts, and he will be sorely missed. Rest in Peace, my friend.



Please make your generous donations today, by sending a check made out to



“Steps for Recovery” but clearly marked “FOR KNIGHTSBRIDGE / HAITI” to:



Steps For Recovery

P.O. Box 67522

Century City, CA 90067



(A California 501(c) 3 Tax Exempt Corporation

Federal ID # 95.4472343)



Or you can make an immediate ONLINE donation via PayPal, by going to the Knightsbridge website, located at: KBI.org and hitting the Donate icon found there.



Until Monday,



Bill Bonner

For The Daily Reckoning

Doomsday Tax Predictions for Illinois

State watchdog group calls for 'historical' increase in personal income tax

By JENEL NELS

Updated 11:27 AM CST, Mon, Feb 22, 2010

In order to crawl from beneath crushing debt and reach fiscal solvency, Illinois legislators must choose from a series of options that range from bad to worse, according to a prominent watchdog group.

The Civic Federation wants to launch an intervention that includes significant budget cuts and the largest tax increase package in Illinois history, all in an effort to save the state from a

$12.8 billion budget deficit.

“Doomsday is here for the state of Illinois,” said Laurence Msall, Civic Federation President, to the Sun-Times.

The group says it would support a state income tax increase from 3 percent to 5 percent. It also recommends the state tax retirees’ pension and Social Security checks be taxed for the first time at the same rate as workers’ paychecks. They want another $1 increase on a pack of cigarettes and to eliminate $181 million in corporate tax breaks.

If implemented, the Federation's recommendations could shave off $8 billion, but there is a catch.



In order to implement those increases, the Civic Federation says unions should pay more toward their pensions and health care -- but the unions aren't interested.

“Illinois’ fiscal crisis has been many years in the making. It was caused by more than 30 years of pension underfunding and many years of spending unfettered by the state’s shrinking revenue resources,” said Msall.

The group’s plan would help alleviate the deficit by 2012, they say.

The state’s red ink has already caused a backlog of unpaid bills to public universities and schools, transit systems and social services.

“The Civic Federation does not enjoy advocating a significant tax increase in the middle of a difficult recession. However, continuing to do nothing would be by far a worse option,” said the Civic Federation in a statement on the group’s website.

The Greatest Suckers Rally In History!

Headlines 1930



1. February 2, 1930: Market Recovering Faster Than Expected



2. February 2, 1930: Banks Have Started Hiring Again



3. February 5, 1930: The Cash On The Sidelines Is Coming Back!



4. February 7, 1930: Easy Money Driving Recovery



5. February 9, 1930: "New Era" Not Over Yet!





6. February 14, 1930: More Green Shoots!



7. February 16, 1930: Speculators And IPOs Come Back



8. February 28, 1930: Uh Oh, The Market's Getting Overbought



9. March 2, 1930: Loving The Volatility



10. March 4, 1930: That Wasn't A Crash--It Was Just A Dip!



11. March 6-7, 1930: More Easy Money



12. March 7, 1930: The Crash Wasn't So Bad After All



13. March 9, 1930: Unemployment Is Finally Under Control



14. March 12, 1930: But What Happens If Foreigners Stop Financing Us?



15. March 14, 1930: Even More Easy Money



16. March 22, 1930: Is It A New Bull Market Or A Sucker's Rally?



17. March 25, 1930: More Green Shoots!



18. March 26, 1930: The New Bull Market Is Great For Business



19. April 16, 1930: But Wait, Are The Fundamentals Really That Good?



20. April 17, 1930: The End. The sucker's rally peaks. The DOW hits a level it will not see again until July, 1954

Obama Opens Door for 401(k)s

By Margaret Collins

Feb. 9 (Bloomberg) -- Insurers and mutual-fund companies are starting to sell retirement accounts with built-in annuities in response to concerns Americans will outlive their savings.

President Barack Obama on Feb. 1 called for a change in government rules to allow adding annuities to 401(k) retirement plans. While the annuities offer a steady stream of income in exchange for upfront payments, the price for peace of mind may be higher fees and less access to cash.

“You’re paying for a benefit that you may or may not use,” said Glenn Daily, a fee-only insurance consultant, referring to annuities. “These things are so complicated I doubt many people will

understand what they’re buying.”

MetLife Inc. and Prudential Financial Inc., the two largest U.S. life insurers, are aiming to tap into what may become a $1 trillion market by blending annuities with target-date 401(k) funds, which shift to more conservative assets such as bonds as an investor nears retirement. The funds were used as the default investment by 87 percent of retirement plans in 2008 with automatic enrollment, according to Vanguard Group Inc.

Insurers are working with mutual-fund companies to build the guarantees into 401(k) funds because state laws require an insurance charter to sell annuities.

The income guarantee that insurers and mutual-fund companies are developing lets workers pay for an annuity in installments using their regular contributions to retirement accounts, said Garth Bernard, chief executive officer of the Boston-based Sharper Financial Group, which specializes in retirement income solutions for financial companies.

Fund Scrutiny

Legislators have scrutinized target-date funds because some lost as much as 41 percent in 2008. The funds attracted $45 billion last year, up from $28.7 billion in 2006, according to Chicago-based Morningstar Inc.

“It’s a huge market,” said Tom Johnson, senior vice president in New York Life Insurance Co.’s retirement income security business, of the potential for annuity/retirement accounts. Americans held $6.8 trillion in 401(k) plans and IRAs as of September 2009, according to the Investment Company Institute, a Washington-based mutual fund trade group. If 15 percent of those assets went to guarantees, it could mean more than $1 trillion for insurers, Johnson said.

“We believe guaranteed income is important because it locks in a level of retirement income,” said Jamie Kalamarides, senior vice president of retirement solutions for Prudential, based in Newark, New Jersey. “Most Americans aren’t saving enough.”

Prudential, MetLife

Prudential and MetLife have already introduced income guarantees designed for target-date funds. Investment-management firm BlackRock Inc. is offering to employers a target-date fund with a MetLife annuity as the fixed-income component, said Kristi Mitchem, head of New York-based BlackRock’s U.S. defined contribution.

Asset manager AllianceBernstein Holding LP is working on a similar product with multiple insurers including Axa SA, while Putnam Investments LLC expects to announce a lifetime income benefit for its 401(k) funds this year, the companies said. John Hancock Financial Services, a unit of Manulife Financial Corp., has a guaranteed lifetime income benefit available in some of its 401(k) plans, said spokeswoman Melissa Berczuk in an e-mail.

Fidelity Investments, the largest target-date fund provider, offers employers a 401(k) fund with an annuity through insurer Genworth Financial Inc., said Michael Doshier, vice president of the Boston-based company’s workplace investing group. Vanguard is also exploring income stream options within its retirement plans, said spokeswoman Linda Wolohan.

Two Forms

The types of guarantees being developed vary and have trade-offs, said Bernard of Sharper Financial. One type has relatively high fees and another prevents retirees from liquidating their savings once they start receiving monthly income, he said.

Annuities and guaranteed income benefits in retirement plans can be an important safeguard against outliving savings as more Americans fund their own retirement, said Moshe Milevsky, a finance professor at York University in Toronto. Combining them with target-date funds is a concern, he said.

“Let’s not get carried away,” said Milevsky, who specializes in insurance. “To say that we are going to lever these guarantees on top of target-date funds that have not been fully tested yet, I’d be wary.” The Department of Labor endorsed target-date funds as a default investment option for employers in 2007.

The Treasury and Labor departments started reviewing public comments this month on how to make it easier to convert savings into lifetime income streams.

Government Guidance

“Many plan sponsors would like explicit guidance from regulators,” said Tom Idzorek, chief investment officer at Ibbotson Associates, a unit of Morningstar. A government endorsement would create “a rush of sponsors trying to add these to plans,” he said.

Last year, 4 percent of employers offered a plan that allowed participants to allocate a portion of contributions to an income guarantee, according to Callan Associates Inc., which surveyed 90 plan sponsors with more than $100 million in assets. The previous year, the total was 3 percent. Employers are concerned about cost, portability and how to pick an insurance provider, said Lori Lucas, defined contribution practice leader for the San Francisco-based investment-consulting firm.

Annual fees for guarantees in 401(k)s can be 95 basis points or more above the retirement plan’s investment-management fees, she said. A basis point is 0.01 percentage point.

Hard to Transfer

“Those fees may reduce account values by 7 percent to 9 percent over 10 years,” said Drew Denning, vice president of retirement and investor services at Principal Financial Group Inc. The Des Moines-based firm, the fourth-largest provider of target-date funds, recommends investors wait until retirement, when they know their financial circumstances, before deciding to shift a portion of their savings to an annuity, Denning said.

Employers also are concerned that guarantees will prevent employees from exiting their retirement plans if they transfer jobs, said John Carl, president of the New York-based Retirement Learning Center, which consults plan sponsors.

“The portability of these contracts at this juncture is minimal between insurers,” Carl said. “You’re essentially locked into the program you choose -- or are defaulted into.”

That’s because an insurer calculates its annuity payments based in part on the life expectancy of a pool of individuals holding such contracts, which makes it harder to switch from one insurer to another, Carl said.

Company Solvency

Solvency of the offering company is another impediment, said Robert Toth, an attorney who specializes in retirement plan products and services.

“How do you make a decision that the insurance company will still be here 30 years from now?” said Toth, who is based in Fort Wayne, Indiana. “Employers fear making that choice and being responsible.”

Longevity insurance, another type of income guarantee, may be a better, cheaper option for protecting against outliving savings, said Daily, the New York-based insurance consultant. Longevity insurance guarantees future monthly income typically around age 80 and may be less expensive because “you’re only buying the tail end” of the benefit, Daily said.

“Why should you take the plunge now instead of waiting?” said Daily. “Some of these guarantees are so hard to value that you have to be an economist to figure it out.”

--Editors: Rick Levinson, Rob Urban.



To contact the reporter on this story: Margaret Collins in New York at +1-212-617-8925 or mcollins45@bloomberg.net.



To contact the editor responsible for this story: Rick Levinson at +1-212-617-3377 or rlevinson2@bloomberg.net.

 confiscation

A brief history of the US… as it enters “the final stage”…

By Bill Bonner

Paris , France



No lobbyist left behind!



That’s the new motto of the whole Washington establishment. Every spending bill has something in it for everybody.



Today is a holiday in America. It’s “Presidents Day,” a day set aside for Americans to honour those who rule over them. Most Americans think of Washington, Lincoln and Roosevelt... but here at the Daily Reckoning we honour America’s truly great presidents – William Henry Harrison, Chester Arthur and Warren Harding – those who didn’t make things worse.



But look on... ye dead chiefs... at what your country has become:





Europe has only 1,800 registered lobbyists. There are 15,000 of them in the US. Most of them probably live in our new neighbourhood... getting in our way as we drive around the Beltway... taking our parking places... hogging the tables at Starbucks... The parasites!





The Financial Times reports that companies spent more lobbying in 2009 than they had the year before. Investment in new plant and equipment fell dramatically. But investment in lobbying rose by 5%.



You don’t need a Ph.D. in political science or economics to figure out why. Returns from lobbying were higher. That is the big shift in the US economy... the final shift.





The US economy began as a frontier economy on the tidewater area of the East Coast... with a few big planters, but mostly small farmers, merchants and artisans.



Then came the entrepreneurs with their mills and factories.



Then, a few of the entrepreneurs grew to be captains of industry – the Vanderbilts, Carnegies, and Rockefellers.



When the inventors, founders and innovators died off, their businesses were taken over by corporate managers.



And then the leading corporations shifted their focus, from making things to marketing them. This shift corresponded roughly with the ascendancy of New York over Chicago... and, then after 1980, the focus shifted again – to financing. Wall Street grew rich. Motown – Detroit’s automotive industry – fell into decline. For a while, even the auto businesses made more money financing cars than they made building them.



Finance blew itself up in 2007-2009. Now, there’s a new shift underway... from the private economy to the government. Mommas in the ‘20s and ‘30s wanted their babies to grow up and go into manufacturing. In the middle of the century, marketing was more rewarding – Madison Avenue was the best address in America. And by the end of the century, the best and the brightest were headed to finance.



Where should bright young grads go now? Well, follow the money... ! Where’s the money now? Not in manufacturing... at least not in US-based manufacturing. And not in marketing either – gone are the days of selling soap to big families with big pay raises. How about finance? Forget it. The boom in credit lasted more than 50 years. But who can borrow now? Only the feds. Sure a few big banks will make money by helping the feds raise cash. But the big expansion in consumer credit is over.



Now, government is about the only major industry that is expanding. The feds have the money now. They’re even handing it out. Get in line!



*** Remember our Daily Reckoning Dictum:



Anyone can make a mistake, but to really make a mess of things you need taxpayer support. Well, now the feds are getting plenty of it...



Over the last decade federal spending in the US has gone from less than 35% of GDP to well over 40%. In Britain, the increase has been even more dramatic, from about 36% of GDP to nearly 55%.



Not only are the feds taking up a bigger percentage of GDP they’re also becoming bossier. During the Bush years the federal registered recorded 7,000 more pages of new rules.



And, of course... they’re making a monumental mess of things. They’re spending money they don’t have on things no one in his right mind would pay for with his own money.



Want an example? Go to Jonestown, Pennsylvania. They’ve got an airport there that is the envy of travelers everywhere. Lots of airport, in other words; few passengers. That’s because John Murtha, when he was still among the quick, used his power in Congress to build an airport that would be convenient for him... and reward local contractors and unions who had supported him over the years.



Few politicians dug more deeply into the pork barrel than John Murtha. But almost all stick their hands in it. Why else would you bother with the trials and tribulations of ‘public service?’ There’s got to be a payoff that makes it worthwhile, right? Of course, there are a few – like our friend Ron Paul – who are just trying to do the right thing. But for every Ron Paul there must be dozens of Congressmen and federal employees who are in it for the power, the money – or both. (Neither Stalin nor Hitler squeezed much personal wealth from the taxpayer tube. Mao Tsetung, on the other hand, knew how to live – with plenty of palaces and young women. Most government employees are probably more like Mao than Hitler. That is, they are motivated by money as well as power.)



Have you wondered why the costs of running for public office have soared? That’s obvious too – because the stakes are higher. As the federal budget grows so does the pork that each member of congress can pull out of the barrel.



The number of congressmen is more or less constant (though it grows with population... after a 10-year lag for the census). But the amount of money given out increases... making each congressional seat more lucrative. You can do the maths yourself, but the point is – crime pays. At least, for a while...



*** The trouble with crime is that it only makes the criminals rich. Everyone else gets poorer. That’s the problem in places such as Nigeria and Haiti. Crime pays. Nothing else does. Economists have done studies of this... and, of course, they’ve discovered the obvious. In “high trust” societies, people are wealthier. No wonder; when people know they won’t be ripped off they accumulate more money.



A high trust society is one where property rights are respected... and where the rules of the game are known... and change very slowly. A change in tax rates, for example, discourages wealth – especially if it comes unexpectedly. So does a change in monetary policy. When people don’t know what to expect from the currency they become reluctant to invest for a long term payoff. Instead, they invest in lobbying.



For the most part, tax rates haven’t gone up. Instead of taxes, government gets its money from borrowing. The immediate effect is much the same; resources are absorbed out of other sectors of the economy and into the public sector. Once in government service, they are used inefficiently or completely squandered. Result: John Murtha gets an airport... a kid in Brooklyn doesn’t get a bicycle... The long-term effect is unknown... but will almost certainly be unwelcome. The government will eventually be unable to borrow at low rates... and unable to finance its deficits. This will result in default... or hyperinflation... or both. In anticipation, trust in the future will go down... and so will America’s wealth.



That’s why the shift to politics is the FINAL stage of an economy... It is inherently wealth-destroying. In politics the rewards are distributed according to who you know or who you are. What you know and what you can do scarcely matters. Trust declines... because the rules changes as wealth is taken away from some and given to others. The incentive to produce new wealth declines. Investments in new capital, new businesses, new innovations and so forth go down. Investments in lobbying go up. The insiders get rich. The rest get poor. And the nation’s wealth declines... along with its economy and its power. This will continue until the political sector blows itself up – either in default, bankruptcy, hyperinflation, revolution or defeat by a foreign power. Then, the cycle can begin again.



Until tomorrow,



Bill Bonner

The Daily Reckoning 





 GB Wishes to apologize to Bill Bonner for posting this without permission from the publisher.

But wasn't it good? I receive the newsletter every day and it's one of the few that I actually look forward to reading. It's mostly about investments and finance but a lot of big picture stuff is included. Here's a link if you would like to try it out: The Daily Reckoning

People are afraid to lose money and an unusual study released on Monday explains why

the brain's fear center controls the response to a gamble study of two women with brain lesions that made them unafraid to lose on a gamble showed the amygdala, the brain's fear center, activates at the very thought of losing money.

The finding, reported in the Proceedings of the National Academy of Sciences, offers insight into economic behavior and suggests that humans evolved to be cautious about the prospects of losing food or other valued possessions.

Benedetto De Martinoa of the California Institute of Technology in Pasadena and University College of London and colleagues were studying why people will turn down gambles that are likely to lead to gain.

"Laboratory and field evidence suggests that people often avoid risks with losses even when they might earn a substantially larger gain, a behavioral preference termed 'loss aversion'," they wrote.

"For instance, people will avoid gambles in which they are equally likely to either lose $10 or win $15, even though the expected value of the gamble is positive ($2.50)."

They studied two women with a rare genetic condition called Urbach-Wiethe disease, which damages the amygdala, the almond-shaped center in the brain that controls fear and certain other acute emotions.

The researchers compared the women's responses to 12 people with undamaged brains. They noted this kind of study usually involves only a few people as it is not possible or ethical to deliberately damage a person's brain to see what happens.

The volunteers were asked to make gambles in which there was an equal probability they would win $20 or lose $5 (a risk most people will take) -- or would win or lose $20 (one most people will reject).

The two patients with damaged amygdalas fearlessly risked a $50 pot.

.We think this shows that the amygdala is critical for triggering a sense of caution toward making gambles in which you might lose," Colin Camerera of University College London, who worked in the study, said in a statement.

"A fully functioning amygdala appears to make us more cautious," added his colleague Ralph Adolphs. "We already know that the amygdala is involved in processing fear, and it also appears to make us 'afraid' to risk losing money."

The study could also help researchers understand why some people are more willing to take risks than others. Perhaps genetic differences in the DNA activated in the amygdala explain it, the researchers said.

(Edited by John O'Callaghan)

UPDATE:Asian Shares Tumble; Europe Debt Concerns Spur Sell off

By Colin Ng and Leslie Shaffer

Of DOW JONES NEWSWIRES

SINGAPORE (Dow Jones)--Asian equity markets tumbled Friday, dragged by sharp losses in Wall Street Thursday as heightened concerns over European sovereign debt hurt demand. Resources stocks were hit hard as a spike in risk aversion and renewed strength in the U.S. dollar dented commodities.

"The concerns are global, with sovereign debt issues in Greece, Spain and Portugal affecting investor sentiment," said Macquarie Private Wealth Associate Director Marcus Droga in Sydney. Investors were worried that the European nations could not bring their budgets under control, jeopardizing a fragile euro-zone economic recovery.

Investors cashed out of stocks in the wake of the Dow Jones Industrial Average's 2.6% fall, for its biggest percentage-point drop since July 2.

Min Sang-il at E*Trade Securities in Seoul said: "Investors are anxious that more negative factors may emerge. European debt concerns have strengthened the U.S. dollar and this has stoked concerns that the dollar carry trade may end soon and risk aversion may heighten further."

Japan's Nikkei 225 was down 2.5%, Australia's S&P/ASX 200 lost 2.3%, touching five-month lows, and South Korea's Kospi Composite was down 3.1%. Hong Kong's Hang Seng Index dropped 2.9%, while on the mainland, the Shanghai Composite shed 1.8%. DJIA futures were 21 points higher in screen trade.

Resources and energy plays were among the region's biggest decliners as a stronger U.S. dollar spurred declines in underlying commodity prices. In Australia, heavyweights BHP Billiton shed 3.6% and Rio Tinto dropped 5.4%. Jiangxi Copper's Hong Kong-listed shares dropped 4.5% and its mainland-listed stock fell 3.5%.

Energy firms lost ground after crude futures dropped sharply Thursday. Australia's Woodside Petroleum fell 3.5%, Japan's Inpex lost 2.1% and Hong Kong-listed Cnooc fell 3.3%.

"We suspect that the bias in energy will be lower over the next two days, particularly if the dollar continues to regain its footing, as it seems to be doing over the past 24 hours," said Edward Meir at MF Global.

In Tokyo, Sony bucked the market, rising 0.3% after posting better-than-expected results for the fiscal third quarter after the market closed Thursday. Hitachi added 0.7% after posting solid results for the fiscal third quarter. But other key exporters fell, with Nikon losing 4.0% and TDK falling 4.5%.

"The stronger yen is offsetting positive sentiment in some exporters' earnings," said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets, after the dollar dropped below the psychologically-important Y90 level Thursday.

Toyota Motor added 1.0% despite concerns it may have to extend its vehicle recall to its popular Prius hybrid model. Shares were boosted by its announcement Thursday that it swung into the black in the quarter ended December and now expects to post a profit for the full year. Toyota also raised its earnings forecast for the current fiscal year despite taking a hit from its massive vehicle recalls in Europe and the U.S.

In Korea, Taihan Electric Wire bucked the trend and rose 1.8% after the company sold its entire 9.9% stake in Italy's Prysmian SpA in a block sale for about KRW400 billion, or $348 million, to improve its financial standing. Taihan sold the stake for less than it paid.

Among other markets, New Zealand's NZX-50 lost 1.3%, Singapore's Straits Times Index shed 1.9%, Malaysia's KLCI fell 1.1%, Taiwan's Taiex dropped 4.2% and Philippine shares were down 1.9%. Thailand's SET index shed 1.4% and India's Sensex was down 2.1%.

In the foreign exchange market, the Swiss franc lost ground against the U.S. dollar and the euro, apparently led by intervention moves from the Swiss National Bank. The dollar was buying CHF1.0736, after earlier touching CHF1.0795, compared with CHF1.0666 in late New York trade Thursday. Against the euro, the franc traded at CHF1.4727 after hitting CHF1.4809 earlier.

Several traders in Tokyo said the SNB has been in market, and the main move did come in the euro/Swiss franc cross, which seems to have been the central bank's main intervention vehicle in recent times.

The U.S. dollar and the euro were also higher against the yen, buoyed by speculators covering short positions after sharp falls Thursday.

The dollar bought Y89.63, from Y88.94 in late New York trade Thursday while the euro fetched Y123.00 from Y122.20. The single currency was at $1.3715 from $1.3741.

The U.S. dollar was also stronger against Asian currencies as traders moved into the safe haven of the greenback. It was sharply higher against the Korean won, at KRW1,167.70 from KRW1,150.9 late Thursday in Seoul. Against the Singapore dollar, the greenback traded at S$1.4198, after touching its highest level since September 2009.

Still currency traders were particularly wary of key U.S. nonfarm payrolls data due later in the global day, especially after Thursday's news of worse-than-expected jobless claims. A flat reading was expected for January's payrolls, after December's 85,000 job drop.

Japanese government bonds were sharply higher as investors shied away from risk. Lead JGB futures were up 0.25 at 139.05 points and the 10-year cash JGB yield was down 2.0 basis points at 1.355%.

Spot gold was last bid at $1,065.10 per troy ounce, down $1.90 from late New York trade, after tumbling about $45 Thursday and breaking key technical support around $1,075.

March Nymex crude oil futures were up 12 cents at $73.26 per barrel on Globex after plunging $3.84 Thursday.

The three-month London Metals Exchange copper futures contract was stabilizing in Asia after its second consecutive session of heavy losses in London Thursday. The contract was at $6,373 per ton, down $7.00 from the London afternoon kerb after dropping 3.2% Thursday, hurt by the rallying dollar. LME three-month aluminum was at $2,045 a ton, up $1.00.

-Colin Ng, Dow Jones Newswires; +65-6415-4140; colin.ng@dowjones.com

It Is Now Mathematically Impossible To Pay Off The U.S. National Debt

A lot of people are very upset about the rapidly increasing U.S. national debt these days and they are demanding a solution. What they don't realize is that there simply is not a solution under the current U.S. financial system. It is now mathematically impossible for the U.S. government to pay off the U.S. national debt. You see, the truth is that the U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.

And the U.S. government would still be massively in debt.

So why doesn't the U.S. government just fire up the printing presses and print a bunch of money to pay off the debt?

Well, for one very simple reason.

That is not the way our system works.

You see, for more dollars to enter the system, the U.S. government has to go into more debt.

The U.S. government does not issue U.S. currency - the Federal Reserve does.

The Federal Reserve is a private bank owned and operated for profit by a very powerful group of elite international bankers.

If you will pull a dollar bill out and take a look at it, you will notice that it says "Federal Reserve Note" at the top.

It belongs to the Federal Reserve.

The U.S. government cannot simply go out and create new money whenever it wants under our current system.

Instead, it must get it from the Federal Reserve.

So, when the U.S. government needs to borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.   

The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. The Federal Reserve either sells these U.S. Treasury bonds or they keep the bonds for themselves (which happens a lot these days).

So that is how the U.S. government gets more green pieces of paper called "U.S. dollars" to put into circulation. But by doing so, they get themselves into even more debt which they will owe even more interest on.

So every time the U.S. government does this, the national debt gets even bigger and the interest on that debt gets even bigger.

Are you starting to get the picture?

As you read this, the U.S. national debt is approximately 12 trillion dollars, although it is going up so rapidly that it is really hard to pin down an exact figure.

So how much money actually exists in the United States today?

Well, there are several ways to measure this.

The "M0" money supply is the total of all physical bills and currency, plus the money on hand in bank vaults and all of the deposits those banks have at reserve banks.  As of mid-2009, the Federal Reserve said that this amount was about 908 billion dollars.

The "M1" money supply includes all of the currency in the "M0" money supply, along with all of the money held in checking accounts and other checkable accounts at banks, as well as all money contained in travelers' checks.  According to the Federal Reserve, this totaled approximately 1.7 trillion dollars in December 2009, but not all of this money actually "exists" as we will see in a moment.

The "M2" money supply includes everything in the "M1" money supply plus most other savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).  According to the Federal Reserve, this totaled approximately 8.5 trillion dollars in December 2009, but once again, not all of this money actually "exists" as we will see in a moment.

The "M3" money supply includes everything in the "M2" money supply plus all other CDs (large time deposits and institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.  The Federal Reserve does not keep track of M3 anymore, but according toShadowStats.com it is currently somewhere in the neighborhood of 14 trillion dollars.  But again, not all of this "money" actually "exists" either.

So why doesn't it exist?

It is because our financial system is based on something called fractional reserve banking.

When you go over to your local bank and deposit $100, they do not keep your $100 in the bank.  Instead, they keep only a small fraction of your money there at the bank and they lend out the rest to someone else.  Then, if that person deposits the money that was just borrowed at the same bank, that bank can loan out most of that money once again.  In this way, the amount of "money" quickly gets multiplied.  But in reality, only $100 actually exists.  The system works because we do not all run down to the bank and demand all of our money at the same time.

According to the New York Federal Reserve Bank, fractional reserve banking can be explained this way....

"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)."

So much of the "money" out there today is basically made up out of thin air.

In fact, most banks have no reserve requirements at all on savings deposits, CDs and certain kinds of money market accounts.  Primarily, reserve requirements apply only to "transactions deposits" – essentially checking accounts.

The truth is that banks are freer today to dramatically "multiply" the amounts deposited with them than ever before.  But all of this "multiplied" money is only on paper - it doesn't actually exist.

The point is that the broadest measures of the money supply (M2 and M3) vastly overstate how much "real money" actually exists in the system. 

So if the U.S. government went out today and demanded every single dollar from all banks, businesses and individuals in the United States it would not be able to collect 14 trillion dollars (M3) or even 8.5 trillion dollars (M2) because those amounts are based on fractional reserve banking.

So the bottom line is this....

#1) If all money owned by all American banks, businesses and individuals was gathered up today and sent to the U.S. government, there would not be enough to pay off the U.S. national debt.

#2) The only way to create more money is to go into even more debt which makes the problem even worse.

You see, this is what the whole Federal Reserve System was designed to do.  It was designed to slowly drain the massive wealth of the American people and transfer it to the elite international bankers.

It is a game that is designed so that the U.S. government cannot win.  As soon as they create more money by borrowing it, the U.S. government owes more than what was created because of interest.

If you owe more money than ever was created you can never pay it back.

That means perpetual debt for as long as the system exists.

It is a system designed to force the U.S. government into ever-increasing amounts of debt because there is no escape.

Of course if we had listened to our very wise founding father Thomas Jefferson, we could have avoided this colossal mess in the first place....

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

But we didn't listen, did we?

We could solve this problem by shutting down the Federal Reserve and restoring the power to issue U.S. currency to the U.S. Congress (which is what the U.S. Constitution calls for).  But the politicians in Washington D.C. are not about to do that.

So unless you are willing to fundamentally change the current system, you might as well quit complaining about the U.S. national debt because it is now mathematically impossible to pay it off.

Source: The Economic Collapse