In light of recent events, I am republishing.]
By Catherine Austin Fitts
In the fall of 2001 I attended a private investment conference in London to give a paper, The Myth of the Rule of Law or How the Money Works: The Destruction of Hamilton Securities Group.
The presentation documented my experience with a Washington-Wall Street partnership that had:
- Engineered a fraudulent housing and debt bubble;
- Illegally shifted vast amounts of capital out of the U.S.;
- Used “privitization” as a form of piracy – a pretext to move government assets to private investors at below-market prices and then shift private liabilities back to government at no cost to the private liability holder.
Other presenters at the conference included distinguished reporters covering privatization in Eastern Europe and Russia. As the portraits of British ancestors stared down upon us, we listened to story after story of global privatization throughout the 1990s in the Americas, Europe, and Asia.
Slowly, as the pieces fit together, we shared a horrifying epiphany: the banks, corporations and investors acting in each global region were the exact same players. They were a relatively small group that reappeared again and again in Russia, Eastern Europe, and Asia accompanied by the same well-known accounting firms and law firms.
Clearly, there was a global financial coup d’etat underway.
The magnitude of what was happening was overwhelming. In the 1990’s, millions of people in Russia had woken up to find their bank accounts and pension funds simply gone – eradicated by a falling currency or stolen by mobsters who laundered money back into big New York Fed member banks for reinvestment to fuel the debt bubble.
Reports of politicians, government officials, academics, and intelligence agencies facilitating the racketeering and theft were compelling. One lawyer in Russia, living without electricity and growing food to prevent starvation, was quoted as saying, “We are being de-modernized.”
Several years earlier, I listened to three peasant women describe the War on Drugs in their respective countries: Colombia, Peru, and Bolivia. I asked them, “After they sweep you into camps, who gets your land and at what price?” My question opened a magic door. They poured out how the real economics worked on the War on Drugs, including the stealing of land and government contracts to build housing for the people who are displaced.
At one point, suspicious of my understanding of how this game worked, one of the women said, “You say you have never been to our countries, yet you understand exactly how the money works. How is this so?” I replied that I had served as Assistant Secretary of Housing at the US Department of Housing and Urban Development (HUD) in the United States where I oversaw billions of government investment in US communities. Apparently, it worked the same way in their countries as it worked in mine.
I later found out that the government contractor leading the War on Drugs strategy for U.S. aid to Peru, Colombia and Bolivia was the same contractor in charge of knowledge management for HUD enforcement. This Washington-Wall Street game was a global game. The peasant women of Latin America were up against the same financial pirates and business model as the people in South Central Los Angeles, West Philadelphia, Baltimore and the South Bronx.
Later, courageous reporting by several independent investigative reporters confirmed in detail that the privatization and economic warfare model I discussed in London had deep roots in Latin America.
We were experiencing a global “heist”: capital was being sucked out of country after country. The presentation I gave in London revealed a piece of the puzzle that was difficult for the audience to fathom. This was not simply happening in the emerging markets. It was happening in America, too.
I described a meeting that had occurred in April 1997, more than four years before that day in London. I had given a presentation to a distinguished group of U.S. pension fund leaders on the extraordinary opportunity to re-engineer the U.S. federal budget. I presented our estimate that the prior year’s federal investment in the Philadelphia, Pennsylvania area had a negative return on investment.
We presented that it was possible to finance places with private equity and re-engineer the government investment to a positive return and, as a result, generate significant capital gains. Hence, it was possible to use U.S. pension funds to significantly increase retirees’ retirement security by successfully investing in American communities, small business and farms — all in a manner that would reduce debt, improve skills, and create jobs.
The response from the pension fund investors to this analysis was quite positive until the President of the CalPERS pension fund — the largest in the country — said, “You don’t understand. It’s too late. They have given up on the country. They are moving all the money out in the fall [of 1997]. They are moving it to Asia.”
Sure enough, that fall, significant amounts of moneys started leaving the US, including illegally. Over $4 trillion went missing from the US government. No one seemed to notice. Misled into thinking we were in a boom economy by a fraudulent debt bubble engineered with force and intention from the highest levels of the financial system, Americans were engaging in an orgy of consumption that was liquidating the real financial equity we needed urgently to reposition ourselves for the times ahead.
The mood that afternoon in London was quite sober. The question hung in the air, unspoken: once the bubble was over, was the time coming when we, too, would be “de-modernized?”
In 2009 — more than seven years later — this is a question that many of us are asking ourselves.
Part II: Rethinking Diversification
Related Reading:
Dillon, Read & Co. Inc. and the Aristocracy of Stock Profits
I first began questioning economic orthodoxy by trying to figure out how Paul Volcker cured inflation by raising interest rates. Yes, inflation is caused by loose money, but higher rates hurt demand, ie, the borrower, while rewarding supply, ie, the lender. How do you cure an oversupply with perverse incentives? You don’t. What cured inflation was Reagan’s deficit spending. Not only was it direct demand for capital, but the public spending had a multiplier effect in the private economy. Meanwhile those loaning the money have its value supported and get paid interest. Interesting how a surplus of capital gets blamed on those lacking wealth, while those with a surplus of capital get rewarded. So I’m concerned that Volcker is now President Obama’s financial guru.
One of my arguments over the years has been that money has become a tax based public utility and our current financial system is a transition state between private banks issuing private currency, to now a publicly supported currency leased out to a private banking system and the next step will be a public banking system that will be incorporated at all levels of government, so that profits are re-cycled back through the communities which created them and depositors would naturally bank with those institutions that support the services they are most likely to use. Competition would be a function of the various communities trying to provide the best environment for people and business.
That is why I find it interesting to watch the banking system being rapidly nationalized. Rather than spending untold wealth to restore it to health and return it to the private sector, it needs to be broken up and distributed to the various levels of government, from counties and towns, to cities and states, with some degree of federal oversight of the banks and control of the currency. Though even the function of currency might be dispersed as well, with state and regional currencies supplementing a broad national currency.
The problem with Capitalism is that money is saved by investing it. This means loaning it to someone else. Therefore total savings are determined by how much can be prudently loaned, not by how much can be reserved from earnings. In order to accommodate surplus savings, loan standards were lowered and fantasy investment vehicles were created, creating an old fashioned credit bubble, enhanced by modern technical proficiency. That is why it is necessary to understand money as the public commons/wealth that it is, not the private property we have been led to believe. As an analogy, you own your house, car business, etc. but not the roads connecting them. Money is similar to the roads. It’s the interchangeability that makes it work. It is both medium of exchange and store of value, but as store of value it amounts to fat cells in the economy. Necessary in moderation and broadly dispersed, but dangerous in excess and concentration.
Viewing money as a public utility would incline us to store wealth in our communities and environment, rather than drain value out to put in a bank. Like democracy, it’s about strengthening the bottom up growth process, while defining the top down control mechanism to its most efficient functions.
Think of the current system as a world wide hurricane that has been sucking value out of resources and regions for the benefit of those riding it, while a broadly dispersed public banking system would be about local weather systems trained to deposit the liquidity of abstracted public wealth where it is most useful. Those systems which are corrupted and waste their resources would fall behind better run communities.
Obviously there are potential problems with any model, but this seems to me to be what the next step up the evolutionary ladder entails.
I’ve been reading articles on Huffington Post about creating new money. ok, so the old game is over…and fuel is the link in modern society. if people do not develop the will to rebuild their lives right now, they are lost. Global warming is happening and these people will be trumped by changes in nature. the banana is now infected with a virus that kills it…despite all the corporate money Chiquita has…..these corporations are also dependent on the systems for their control. the people in Mexico, South America and US can rise up, like Iceland and replace the systems. But we must have the personal will to do it.
Hi Catherine,
I like your stuff.
This certainly supports what I tell my friends in Mexico, that the reason we don’t have corruption in the USA is that we legalized it. Federal laws were undoubtedly broken, but very few will go to federal prison where they belong.
I was really surprised to hear Alan Greenspan say that he thought the financial institutions would self-regulate. I thought, gee, he must have had a different education than me, and he must have forgotten about Enron, the 1980s Savings and Loan scandal, and 1980s HUD scandal.
I have an answer for your question >> “was the time coming when we, too, would be “de-modernized?”
My original article with links is here: http://survivingpeakoil.blogspot.com/2009/02/peak-oil-and-global-economy.html
“Peak Oil and the Global Economy”
Recent news headlines reveal that the U.S. economy is deteriorating rapidly: “Be Prepared for More Cutbacks,” “Mass Layoffs Continue at Rapid Pace,” and “Economy’s Plunge is Worst in Quarter-Century.”
The Work Bank forecasts that the recession of 2008 will extend into 2009 and probably to 2010:
“A pronounced recession is believed to have begun in mid-2008 in Europe, Japan, and most recently, the United States. This recession is projected to extend into 2009. The possibility of a serious global recession cannot be ruled out. Even if the waves of panic that have inundated credit and equity markets across the world are soon brought under control, the crisis is likely to cause a sharp slowdown in activity stemming from the deleveraging in financial markets that has already occurred and that is expected to continue.”
The World Bank sees some signs of optimism for 2010, but concludes that “global recession is likely to be protracted” and “an even sharper recession is likely.”
A variety of analysts of The Wharton School, forecast a deep recession extending through 2010 and possibly beyond.
Gerald Celente, Editor and Publisher of “The Trends Journal,” forecasts a global economic collapse beginning in 2009 (interview summary, not quoted directly):
The global economy will collapse in 2009, resulting in the worst recession in the post WW II period. The commercial real estate sector is highly leveraged and will collapse beginning in late February or early March as major retailers fail, leaving vacant rental space that will not be filled. This will lead to further failures in the finance and banking sectors and higher unemployment which is at 13% and growing.
Some two-thirds of the U.S. economy is based on consumerism, which is declining rapidly due to increasing unemployment. Declining personal income means a shrinking tax base and a need to raise state, local, and federal taxes and user fees.
This economic collapse, Celente believes, will lead to the “Greatest Depression,” more corporate fraud, increased street crime, taxpayer revolts, rioting, and revolution. Survival is now a real concept as people lose investments and jobs. A return to frugality and self-sufficiency will characterize the economy in years to come.
Financial analyst Gail Tverberg explains the economic crisis in terms of a “Tower of Debt.” Because most debt ultimately rests on personal income, as personal income declines most debts are at risk: unfunded pension liabilities, unfunded Medicare and Medicaid, Social Security debt, publicly held federal debt, government sponsored enterprises (such as Fannie Mae and Freddie Mac), state and local government debt, financial businesses, businesses, and household debt (mortgages, credit cards, and education loans). This supports Gerald Celente’s forecast. When personal income declines (due to increasing unemployment), consumerism declines, retails businesses fail, highly leveraged commercial centers fail and default on loans, causing banking and financial institutions to collapse.
ASPO-Ireland examines the economy in light of Peak Oil (excerpts from the ASPO Newsletter [not copywrited):
“Oil demand had begun to outpace supply around 2005, when the production of Regular Conventional Oil passed its peak. The shortfall was however relatively small and was partly met without undue difficulty by a modest reduction in consumption.
But as prices began to firm, oil traders and other speculative financial institutions began to take a position in the market, which had the effect of driving up the price. Gradually the process built momentum as huge notional profits were reaped from the appreciating asset. In a conventional market such movements would soon be countered by increased production, but in the case of oil, there was no spare capacity to release, and the speculative surge fed on itself leading to an extreme escalation in price which reached about $150 a barrel by July 2008. However as this peak [in prices] was approached, the traders began to conclude that a limit was close and began to buy future options at lower prices, which began to undermine the price in a self-fulfilling process. In parallel the high prices began to undermine many other aspects of the economy with for example airlines and automobile manufacturers facing difficulties. They themselves relied heavily on debt, which itself was traded between banks without adequate genuine collateral, and were forced to unload their speculative oil positions in order to try to shore up their failing businesses. Gradually the whole edifice collapsed, and oil prices fell to around $50 a barrel, although nothing particular had changed in the actual supply/demand relationship.
The flaw in the system was to treat a finite resource whose production was largely controlled by the immutable physics of the reservoir as if it were a normal commodity capable of responding to ordinary market pressures. If the price of potatoes increases, farmers can grow more and the market responds, but oil is different.
Governments responded to the crash by pouring yet more money, itself lacking genuine collateral, into the system in the mistaken belief that this would restore the position of assumed eternal growth, and quite possibly the stock market will respond positively as traders sense a new upward direction. They have no real interest in reality: their job being to try to reap rewards from short term movements.
But if there is an economic recovery, that would serve to increase the demand for oil, which is in a sense the lifeblood of the modern world, and oil prices would again begin to surge. Probably, it will take several such vicious circles before governments and, more important, people at large at last come to grasp the reality of the situation, which will likely prompt radical changes in the human condition.
Meanwhile, desperate efforts are being made around the world to shore up the crumbling financial system. For example, the Bank of England has radically reduced interest rates in a country facing a severe recession, effectively taking money from savers to give to spenders.
The Government has evidently failed to grasp the underlying causes of recession and hopes that pumping a bit of money into the system will restore it to its previous condition. That was premised on eternal economic growth, which is a somewhat unrealistic proposition for a Planet of finite dimensions, but Governments subject to re-election are by nature short-term in their thinking.
One is led to conclude that the entire Stock Market, including especially the oil market, has become a thoroughly debased speculative institution. In earlier years, investors clubbed together to build a specific project, such as a canal or railway, with the resulting dividend being the prime motivation. Things seemed to have gone wrong when such investments were traded on markets by financial institutions which naturally can have no serious knowledge of the underlying business or the true value to be placed upon it.”
Energy investment banker Matthew Simmons, like ASPO-Ireland, notes that today’s low oil prices and credit shortage will reduce investments needed for oil production, resulting in lower oil production in the future, followed by increasing oil prices as demand out strips supply, which will then cause another economic downturn in the future. Simmons also notes that the aging oil infrastructure of drilling rigs, rusting platforms, pipelines, and refineries must be renovated, requiring trillions of dollars in investments at a time when credit is tight..
Independent studies indicate that Peak Oil occurred between 2005 and 2008 and that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil the U.S. conserves will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly. More and more oil is expended in oil production and processing as lower grades of oil are extracted from an increasing number of smaller oil fields that are located in hard to access ocean depths. These factors will increase the oil production decline rate above the six percent that is forecasted in a few years
These Peak Oil factors suggest that there will be no economic recovery following the economic collapse of 2009 and that the recession will deteriorate into a permanent economic depression that will worsen over time.
In 2007, the U.S. General Accountability Office (advised by a panel of 13 scientists of the National Academy of Sciences) examined the potential of alternative energies for replacing liquid fuels (that are vital for transportation and food production):
“An imminent peak and sharp decline in oil production could have severe consequences. The technologies we examined [ethanol, biodiesel, biomass gas-to-liquid, coal gas-to-liquid, and hydrogen] currently supply the equivalent of only about 1% of U.S. annual consumption of petroleum products, and DOE [U.S. Department of Energy] projects that even under optimistic scenarios, these technologies could displace only the equivalent of about 4% of annual projected U.S. consumption by around 2015. If the decline in oil production exceeded the ability of alternative technologies to displace oil, energy consumption would be constricted, and as consumers competed for increasingly scarce oil resources, oil prices would sharply increase. In this respect, the consequences could initially resemble those of past oil supply shocks, which have been associated with significant economic damage. For example, disruptions in oil supply associated with the Arab oil embargo of 1973-74 and the Iranian Revolution of 1978-79 caused unprecedented increases in oil prices and were associated with worldwide recessions. In addition, a number of studies we reviewed indicate that most of the U.S. recessions in the post-World War II era were preceded by oil supply shocks and the associated sudden rise in oil prices. Ultimately, however, the consequences of a peak and permanent decline in oil production could be even more prolonged and severe than those of past oil supply shocks. Because the decline would be neither temporary nor reversible, the effects would continue until alternative transportation technologies to displace oil became available in sufficient quantities at comparable costs. Furthermore, because oil production could decline even more each year following a peak, the amount that would have to be replaced by alternatives could also increase year by year.”
There is no plan nor capital for a so-called electric economy. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and surface mining equipment.
The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”
“By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame.”
With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work.
We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair.
When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances.
With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.
Governments, business and individuals should prepare for the impacts of Peak Oil. END OF ARTICLE.
Peak Oil is documented here: http://www.peakoilassociates.com/POAnalysis.html
This is a catastrophic situation, but I have a life boat waiting for anyone who has resources to buy land here, (I don’t sell land). clifford dot wirth at yahoo dot com or call me at 603-668-4207 which is my old US number, but connects here in a small town in the State of Veracruz, Mexico, and a really nice place to live.
Catherine,
I absolutely LOVE your language “Financial Coup d’Etat”!!!! Your anecdote about the three South American women struck a personal note with me, as I have spent much of my life working in South and Central America. The process of economic and cultural colonization has nearly robbed these proud people of their land and heritage, but I believe they are a shinning example to the rest of the modern world, including us here in the USA, that people can reclaim their natural inheritance from the forces of greed and corruption. I was pleased to see you give credit to the work of Naomi Klein and Greg Palast. Are you familiar with the writings of Robert Parry?
Having recently retired, for the third time, I am now doing some consulting work and languishing in northern California. If you need a “soldier” in the fight against “de-modernization” let me know. You have my eMail address, and I will respond promptly.
Thank you for your commitment to economic justice.
ta
Tom:
Good for you!
Centexn
Yes. I just finished watching it. It is still quite relevant to our current situation.
Catherine
Captains and the Kings. Is this the mid 70’s series with Patti Duke?
Catherine, I recently ran for Congress, thought I would not do it again. You helped change my mind – I will try again…because there is no one else who is willing and able…and I must “ride to the sound of the guns” one more time. I hope to be better armed this time($).
Regards,
Tom
215-230-5330