A Fundementally Sound Economic Recession!!

 

A Fundamentally Sound Economic Recession?

 

It’s difficult, if not impossible, to listen to the television or radio without being bombarded with the sad news of the day. If you are among the few who refuse to watch television, then you are sure to get the distressing information from the news paper or magazine of your choosing. If you are a modern day monk who chooses to block out all media, then you, no doubt, get the reports from your friends, neighbors or workplace associates. You just can’t hide from the upsetting and painful economic woes that seem to be engulfing our country. Everyday brings further confirmation of the plight which threatens to destroy our economic system. Most of us are confused by the optimistic, but frequently, conflicting opinions of the experts. Many wonder if we are in a recession. Is the economy fundamentally sound? How should I plan for the future?     

 

Our current dilemma began in 2001 when slews of investors vacated the stock market after the dot com bubble burst. These investors had cash and looked to the highly leveraged housing sector to make their next quick buck. In the subsequent years, the residential home market had an astronomical price run up which left millions of Americans house rich. Indeed, during a 5 year period, extraordinary increases in home prices caused people to clamor and compete to get their piece of the American Dream. The excitement was amplified when the Federal Reserve printed and circulated trillions of dollars at some of the lowest interest rates since World War II. The banks and financial firms were quick to seize on the profit opportunities that develop when frenzied buyers meet easy money in a red hot market place.  They supported the rush with a host of mortgage products which made money available to just about anyone who was willing to sign off on a loan.

 

And so, the home buying panic increased and house prices rose amid the mountains of cash that was readily available. People and investors threw caution to the wind even as the level of speculation moved to an unsustainable pace. Seemingly, it was not an important consideration as most of us are programmed to leap after opportunities that do not have a down side. After all, there was nothing to worry about! Work was steady, the down stroke was minimal, the monthly payments were affordable, housing prices were going up and the future looked mighty good!  Investors, home buyers, and those with home equity scooped up their share of the piles of ready cash. Life was good, or so we thought.

 

But, what goes up must come down and the irrefutable law of gravity now commenced to grab hold of the housing sector! The slow down started about two years ago when home sales began to decline. The general opinion, at the time, was that the housing market was going through a slight correction.  Most refused to acknowledge the possibility of a bubble and the potential for a bust. The optimists proved to be correct.  There was no bust. Rather, there was a long and pervasive leak which crippled sales, increased available inventories and critically reduced prices. In the midst of all this, many home owners were overwhelmed by increased monthly payments which were the result of the creative financers and their adjustable rate mortgages. Some could no longer afford the payments while others found themselves saddled with mortgages far greater than the value of their homes. The rest is current history as millions of Americans are losing their homes through foreclosure. None the less, the questions remain the same. Are we in a recession? Is the economy fundamentally sound? How should I plan for the future?

 

Last week, I found the answers to these questions. It came in the form of a phone call from a former real estate client who is now a neighbor. George explained that he had friends who were losing their house. Could I help?  I explained my limitations, but George asked that I see his friend none the less.   I agreed and we set up a time to meet with his acquaintances, Frank and Mary Gibbons.

 

The door bell rang at the arranged meeting time, and I greeted George who proceeded to introduce me to Frank and Mary Gibbons. In rushed the three young children of Frank and Mary who were identified as Charles – age 6, Lisa – age 4 and Phillip – age 3. The 3 youngsters quickly went on a whirlwind tour of my home before being rounded up by their stern, but patient mother. Mary admonished the children to behave and to stay in the living room area. I pulled out a pile of toys reserved for visits from my grand daughter, and the children descended on them.

 

The four of us sat down at the dining room table which was in eye shot of the exploring young people. We looked at each other pensively until George nudged Frank and told him—“go on, explain this to Steve”. Frank was a massive man weighing in at well over 230 ponds and standing at least 6 feet tall. He had heavily calloused hands and a V shaped upper body evidencing his work at some type of hard labor. Frank scrambled through a handful of papers while reluctantly uttering. “Well Steve, I think I might lose my house. I have been out of work for seven months now, and I am three months behind on my house payments. I used up the last of my savings trying to keep my payments current. I’ve tried to find work, but there is nothing available in the construction business. My wife works, but she only makes about $400 a week, sometimes $500 if she gets overtime. George thought you might be able to help me refinance my home.” His big body was trembling as he continued to ramble on, sometimes incoherently, about his money problems. As he spoke, Frank was rapidly fingering through the pile of documents.  Frustrated, he laid out all the papers in front of me and asked. “Can you help us Steve?”

 

I picked up the papers just as my Golden Retriever made his way into the living room. The 3 youngsters were initially horrified at the sudden appearance of the large dog. Seminole, my dog of 13 years had just awakened, and hastily entered the room to investigate the playful shouts of the children. After some assurances from their mother, the kids settled into petting Seminole, who was now lying on the floor enjoying the attention of his youthful audience. I returned my attention to the documents, and quickly ascertained that Frank and Mary had purchased their home for $267,000 and had a mortgage remaining on it of $266,000.  In addition, they owed $8,600 in past due payments. I knew the area where the house was located and noted the residence is worth $140,000 at most. I would have bad news for Frank and Mary Gibbons.

 

I looked up at Frank and Mary and explained the situation to them in detail. There is no easy way to tell someone they will lose their home. I attempted to soften the blow by offering to negotiate with the lender, but they had already attempted that on their own. I explained the short sale process and encouraged them to get a lawyer, but they had no money for a lawyer. In the midst of all this, the squeals and laughter of the children had become pervasive. Seminole was in the process of returning the playful caresses with a series of affectionate kisses using his slobbering tongue. It was a scene out of Norman Rockwell Americana as the kids first ducked, and then placed their smiling faces in the direct path of the darting tongue. I smiled briefly at the antics before apologizing to Frank and Mary for my inability to assist them.

 

Mary was quite solemn. I had not told her anything she did not strongly suspect. Her young face bore the hard lines of many sleepless nights and her shoulders stooped under the burden of her personal struggle. It crossed my mind that women suffer this type of loss much harder than men. She clasped my hand gently and assured me that there is nothing for me to be sorry about. I was clearly shaken by this tragedy. I felt strongly for the couple knowing they were hard working people. They had placed all their savings into the ill fated adventure, and through no fault of their own, they would soon be forced to abandon their dream.

 

We all shook hands and briefly embraced as we concluded the meeting. There was a final meeting of weary eyes and a tormenting silence. Mary and Frank retrieved the kids from the overly affectionate retriever. Just then, Charles, the oldest of the 3 siblings inquired. “Dad, can we stop for some ice cream?” Frank was stepping rapidly toward the door and responded. ”I’m sorry son—I forgot my wallet!”  The young man retorted. “Awe Dad, you’re always forgetting your wallet.” The big man turned around and hoisted his son into his arms, while quickly brushing a lone tear from his eye. It was obvious that the man was emotionally torn.

 

“Wait a minute” I responded. “It’s my treat tonight because you guys did such a great job of keeping Seminole out of trouble”. I forced a $20 bill into the Frank’s large hand and quietly reiterated. “It’s my treat”. The kids screamed their approval, but there were no other words that needed to be said. As I watched everyone walk to the driveway, I was troubled by the tormenting thoughts of their future. Soon they would be forced from their home and would have to begin a new life.  Would they survive as a family, or will a divorce rip them apart? Will crime enter the equation as survival at any cost is the final solution for many? Or will they simply put their heads down and make a new future?

 

Of one thing I am certain, Frank and Mary are in a recession and soon will be in a depression.  The economy is not at all sound for this family. In fact; it is a tragic train wreck. As to their future, only God knows how they will weather the storm. There are millions of Frank’s and Mary’s suffering a similar fate. I am certain that there is no question as to the existence of a recession in their minds. But as the financial debacle continues to unwind, I sense more of us will be drawn into the growing recession. In the meanwhile, as I watch Frank and Mary enter their car, I am reminded of the words of an elderly friend who admonished “There, but for the grace of God, go I”.

 

 

My book, The Road to the Third World”, explores the housing calamity as well as a plethora of other issues which threaten the viability of our great country. It is left to the rest of us to contain the problem, less we become the next Frank and Mary.   

 

 

 

 

 

 

 

 

WWW.authorsden.com/stephencafaro

FDIC — For Dummies In-need-of Comfort

        

 

Recently, my wife, Helen, and I visited a local bank for the purpose of setting up a new account. I rarely do any banking as this task is customarily done by my wife. Some decades back, Helen and I entered into a pact whereby I made the money and she managed the money. The arrangement worked well and she proved to be an excellent custodian of our funds. My wife has the type of gregarious personality I lack. As we entered the bank together, she was warmly greeted by everyone from the receptionist to the bank manager. It came as no surprise to me when everyone addressed my wife by her first name, and a few even embraced her. I stood silently by her side until the initial greetings were completed. Helen then introduced me to her banking buddies who, no doubt, were wondering about my identity. We were then led into an office where one of Helen’s friends rounded up the necessary forms for our transaction.

 

The two woman exchanged stories of their lives, children and events as they attempted to catch up with each other. While the females chattered, I was eyeing my way around the office. The furnishings were sparse, conservative and orderly as befits a banking environment. My view fixated on the corner of the desk where a bronze plaque sat. I read the inscription on the tablet.  The large letters, FDIC, were underscored by the words, Federal Deposit Insurance Corporation. I picked up an explanatory pamphlet which described the FDIC in some detail. I was struck by a phrase that was repeated throughout the leaflet.  No doubt, the repetitive slogan “backed by the full faith and credit of the United States of America” was meant to instill confidence. In essence, the FDIC promised to guarantee up to $100,000 in my account should the bank have a financial problem. For a moment, I felt reassured. After all, we are talking about my money being protected by the full faith and credit of the good old US of A.

 

I continued to check out the office until a business magazine grabbed my attention.  The cover headline read — “American government debt now at 53 trillion dollars”. I thumbed through the magazine and found the article. It seems The General Accounting Office had recently completed a survey of America’s debt and the magazine was reporting on the conclusions of the audit.  Of significance in the report was the national debt, which as of June 30, 2007 was a shade under 9 trillion dollars. The report went on to say that the debt was legal because the President had approved an increase in the statutory debt limit to 9.8 trillion dollars. At the rate our legislators are spending money, I figure that gives them 6 months before they have to, once again, raise the debt limit. Just when I started to feel somewhat informed, the report went on to say that the 9 trillion dollar debt “excludes many items, including the gap between scheduled and funded Social Security and Medicare benefits, veterans health care, and a range of other commitments and contingencies that the Federal Government has pledged to support”.  The statement went on to conclude “If these items are factored in, the total burden in present value dollars is estimated to be about 53 trillion dollars.” The report simplified the immense number by stating that the total debt represented a liability of $175,000 for every man, woman and child in the United States. Imagine, our country could be debt free tomorrow if every American forks up $175,000.   I was gasping for air and choking on my outrage when I read the next sentence.  The report confidently stated that the Treasury Securities issued to cover our debt were guaranteed by the full faith and credit of the United States.

 

I was fidgeting in my seat and was near ready for resuscitation when the banker shoved the papers in front of me for my signature.  I signed off on the documents, and grabbed my wife for a hasty retreat. I needed to get home and get a first hand look at the actual report.

 

At home on my computer, I googled and found the full GAO report. Sure enough, the magazine article was accurate, but incomplete. The 9 trillion dollar debt was real. However, it is comprised of 2 factors. Approximately $5 trillion was financed by securities issued to investors which included over $2 trillion contributed by foreigners. This was a bummer as it was painfully clear that we are indebted to other countries for our financial existence. The remaining $4 trillion dollars was obtained from the cash surpluses in trust funds that exist in Social Security, Civil Service Retirement, Medicare, Military Retirement and a host of other government controlled programs. It seems our government takes the cash from the trust funds, spends it and replaces the money with government securities. Get the picture! Our government is using the money that is deducted from our paychecks, ostensibly for Social Security and Medicare, to pay off debts that the government has incurred. But, don’t panic as the GAO assuredly concludes that the debt obligations are backed by the full faith and credit of the United States! As for the $53 trillion liability, it was duly noted in the GAO report as a highly probable future cost which needs to be addressed.

 

If you’re not running a little scared at this point, you should be!  Presently, the debt is continuing to grow even as the economy slows. Government revenues are declining causing the unsustainable debt obligations to climb at an accelerated pace. Just the interest expense on $9 trillion amounts to approximately half a trillion each year. In a few years, the cash surpluses in the trust funds will begin to diminish when the baby boomers become eligible for Social Security and Medicare. These funds will have to be replaced by investors. Will American investors be able to meet the new financial demands or will we be forced to accept the money from foreign investors, thereby increasing our dependence on outside influences?  What happens if we piss off the foreign investors and they elect to cash in their Treasury securities? What occurs when we have further demands on our financial system as a result of the housing, mortgage, and credit impasse? Can we continue to produce hundreds of billions of dollars to plug the gaping holes in the financial infrastructure? The dollar is already under severe pressure from other countries that are spurning the dollar.  Dollar devaluation is a direct result of the mismanagement of our finances and the money supply by our government and the Federal Reserve! And just to sour the milk a little more, it is no secret that we are overdue for a severe bout of inflation.  Can America survive the economic crisis or will we be forced to declare national bankruptcy?

 

Each of us should begin to research these problems and demand solutions from our government representatives. There is no good short term answer, but it is critical that we immediately stop the financial blood letting. Together, we can make a difference!  Of one thing I am sure – the good faith and credit of the United States is under attack and may well become an irrelevant slogan. As to the meaning of FDIC, I think it more aptly refers to — For Dummies In-need-of Comfort!

 

My novel, The Road to the Third World, explores financial irregularities and a number of other issues which threaten America’s existence as a world leader. The book is concerned with the political, economic and social consequences of the excesses of capitalism, and the triumph of apathy over our great country.   

The Road to the Third World — Conspiring to Destroy America

      The Road to the Third World

                                   Conspiring to Destroy America

                                   

                                   By Stephen Cafaro

    

 

                                        Synopsis

 

 

The book opens in the late 1970’s when 2 Harvard College room mates are confronted with a fight for their life in Boston’s notorious Combat Zone. The plot develops with the assassination of Joe Robbins, a business mogul in Boca Raton, Florida. His son, Todd Robbins, swears revenge upon the bankers who ordered the execution. Todd is well educated and street smart with access to many wealthy and powerful businessmen. Soon, he comes to realize that the reason for his father’s death goes far beyond the actual killers to a malady that infects the basic economic structure of the country. Todd becomes obsessed with a plan to destroy the American economy by using the negative aspects of a system grounded in greed, arrogance and dollars. He enlists Chou Bing, a devoted Chinese friend, to assist him. Together, they embark on a thirty year crusade to obliterate capitalism.

 

The carefully choreographed plan is designed to take advantage of a rapacious, self serving mentality that permeates American government and big business. Over time, Todd Robbins and Chou Bing partner with some of the third world aggrieved countries who have been victimized by American policy. These nations have suffered as a result of military wars, economic transgressions and covert political actions, and they all have an axe to grind with the American oppressor. Silently and submissively, the consortium accumulates the profits and dollars which enable them to buy the commodities and resources which will be used to counter the arrogant and condescending American giant. By 2008, the groundwork has been carefully prepared. America is now vulnerable and is positioned to be economically devastated without a war being fought or a shot being fired.     

 

In 1984, a furloughed steel worker, David Paine, finds himself without a job, a pension or any strong prospects for the future. After 20 years on a job he thought to be his career, he is laid off as his company seeks to move to a more profitable part of the country. David is incensed by the betrayal, and turns to political activism to channel his outrage.   He becomes consumed with the growing list of financial inequities and dedicates himself to economic solutions. Over the years, he becomes increasingly frustrated by his inability to bring about meaningful change. He comes to think that the Democrats and Republicans have melded into one giant special interest group, and that they failed to represent the needs of common Americans. By 1988, he is leading an effort to elect an independent presidential candidate. Once again, he becomes discouraged as he comes to realize that his special candidate is just another product of a discriminatory system whose only concern is money, wealth and power. Dissatisfied, he turns away from political work. A prolonged hiatus ends in 2006 when he feels obligated to confront the political system again. This time, he will try a different approach and he will attempt to engage Americans on the issues. He starts a grass roots effort at a local library speaking before 20 concerned citizens.  Before long, he forms Wake Up America with the assistance of a wealthy patriotic supporter.  His timely message energizes tens of millions of followers. Ultimately, a 700,000 person group marches on Washington DC in an effort to change the motivations of elected officials. The populist group is close to a successful conclusion when David Paine is assassinated. The government, under a pretense of terrorist infiltration, orders the dissolution of the group.  This covert action will effectively eliminate any further resistance from the American people, and will deny America a final reprieve from her self imposed death sentence.  

 

The characters debate and analyze many of the self destructive tendencies evident in today’s society. Some of the issues include the export of American industries, the import of millions of illegal immigrants, the demise of living wage jobs, the pilferage of pension funds, questionable free trade agreements, the over production of dollars, the failure of labor unions,  and the financial manipulation of various major markets. The common denominator in all these concerns is the ever present need for greater profits. All must be prepared to be sacrificed on the altar of capitalism in order to sustain the new level of greed. Corporate leaders, wealthy elitists and government officials are the antagonists who proclaim the virtues of existing policies. Working stiff Americans and small businessmen represent the protagonists who financially suffer while waiting for the promised benefits of trickle down economics to arrive at their doorsteps. However, even those dispossessed or unable to participate have difficulty revolting against the stifling system. Unemployment, social security and social assistance programs have effectively quelled the whispering spirit of rebellion. The dialogue intensifies as the crumbs falling from the elitist tables become fewer even as the privileged few enjoy a lavish banquet. Lower wages, reduced health care, disappearing pensions and a reduced standard of living become the mantra of the American worker, while record profits, enormous salary packages, guaranteed retirements and ever increasing wealth reward the corporate and government leaders. The rich have gotten richer at the expense of the poor and the middle class. These factors all work toward the inevitable conclusion. Unchecked capitalism alienates and demoralizes the American people while eroding the economy of the United States. The revolt is slow to develop due to the general apathy of the people, but it does happen when the mass media messages of David Paine finally awakens the masses.   

 

A group of disgruntled countries, led by China and Russia, join the Robbins master plan to destroy America. They will use the tools of capitalism as their only weapons in this endeavor. Over time, the syndicate gains control of many of the worlds critical resources. They accumulate gold, silver, oil, coal, essential minerals, strategic commodities and most important, dollars. These countries have used the dollar profits of a liberal American trade policy to make the purchases. Adding insult to injury, they have bought up close to 45 percent of the national debt of the United States. They will use this special holding to begin the financial onslaught.  They plan a new monetary unit, backed by gold, which will replace the declining dollar as the reserve currency of the world. By late 2008, the project is ready for implementation. The impending calamity waits only for the approval of Todd Robbins who has been drawn to procrastination in the final days. The United States government and her greedy businessmen, mesmerized with overconfident feelings of self-importance and superiority, never see the threat. America, under a system of unregulated capitalism, will destroy herself for a profit.

TaxationWithout Representation is Still Tyranny!

“Taxation without representation is tyranny” is the proclamation generally attributed to James Otis, a revolutionary war politician. Otis used this statement to proclaim his contempt for the Stamp Act taxes that were imposed on the colonists by the mother country. A few years later the slogan “no taxation without representation” became the battle cry of the American colonies as they sought recognition from King George and the parliament of Great Britain. England became offended by the verbal attack on their sovereign decrees, and decided to subjugate the colonies with their military might. The rest is history as the Boston Tea Party led to the Boston Massacre and the unleashing of the dogs of war.  Somehow, the conflict was resolved with the defeat of the greatest military of the time by a ragtag army of mostly part time farmers. It was an inconceivable defeat of biblical proportions akin to the toppling of the huge professional soldier, Goliath by the rock slinging shepherd, David. None the less, the victory was final, and America was forever free of England.

 

I can not help but think that good old King George kicked himself for allowing the crown jewel of his empire to slip away. I wonder how many sleepless nights he spent pacing in his royal chambers as he lamented the loss of close to 300 years of work in growing, financing and cultivating his American colonies. He must have chastised himself for failing to be more diplomatic in dealing with the conflict. With his power and prestige, he could have promised the revolutionaries the relief they sought, and would have won the day. He could have been an advocate of change, and thereby defused the smoldering outrage. He could have unleashed his spin machine and advanced the propaganda that would have assuaged his outraged subjects. Whoops, my time machine just slipped into the 21^st century!

 

Fast forward to 2008 to an America that has grown to greatness by hard work, declined to mediocrity through apathy, and is threatened by destruction for its greed. We’ve come a long way baby!  But, it seems we have arrived, full circle, where we started some 235 years ago when our ancestors rebelled in the streets of Boston to the chant of “no taxation without representation”! Today, we are not in a revolutionary mood as we are more conditioned to the politics of hope and change. It is these ignoble virtues which I think King George may have used to salvage his colonies. But, perhaps the monarch was caught up in a predicament analogous to modern day America. Today, many Americans think we have our own version of King George, namely President George Bush. The colonial era king with a ruling style similar to our current president may have been too arrogant to negotiate, too powerful to submit, too righteous to change, and too financially beholden to his aristocratic colleagues. None the less, a good spin machine may have saved the day for the ailing sovereign. But, I digress.

 

Today, our politicians have massive spin machines capable of inventing countless scenarios to pacify the concerns of disgruntled Americans.  At first, the officials counter objections with bombastic dialogue full of half truths and innuendo, which has the effect of confusing their constituents. Later, they invent issues which are meant to divide and subdivide the people until the citizens fight one another, thereby dismissing the legitimate concerns of the people. When all else fails, the aspiring leaders make promises of change and hope for the future. Who among us can dismiss such heartfelt pledges of a better tomorrow, and so we succumb to the talk with the belief that, this time, someone just may make a difference. But the inevitable conclusion soon becomes apparent when an elected official dismisses the needs of the people in favor of some sudden revelation which causes him to vote his conscience.

 

And so, here we are, once again, without representation in a new era where a Stamp Act would be a pittance welcomed by the masses of the overtaxed. The cry of “no taxation without representation” should be a resounding and deafening cry, but instead, we are silenced by promises of change. I suggest these political pledges for an altered America are convenient fabrications at best, and are, in all probability, outright lies. I confess to being a political cynic, but the dire history of political promises, has justified my skepticism. And yet, I like all Americans, remain hopeful for a better and more representative government.

 

Our country has an urgent need for legitimate change from perceptive leaders who truly understand the problems of Americans, and are willing to commit themselves to the solutions. The most important modification that we all desire is a return to representative government. We need leaders who will stand up for the will and needs of the people who elected them, and who will cast their votes accordingly. Politicians must have the fortitude to ignore the special interests, lobbyists and corporations whose needs frequently conflict with the welfare of the American people.

 

The new proponents of change must amend the way America does business.  They must return the lost jobs, factories and industries to the Americans who built this country rather than continue to surrender them to foreigners under the fictitious banner of free trade. They must replace free trade with the social justice concept of fair trade. Free trade is the unrestrained pursuit of profits at any cost. Fair trade is the recognition of the greatness of America in advocating laws concerned with wages, working conditions, child labor, workplace safety, product safety, union recognition, environmental concerns, etc. If our government must persist in exporting democracy and global trade, they must do so in a manner reflective of the standards that generations of Americans have developed and built. Any other approach is hypocritical and a repudiation of American values.

 

Our leaders must recognize that the minimum wage law has to be replaced with a living wage law. Any American who works in our economy should earn an income sufficient to raise and feed a family, and provide adequate shelter and health care. Our economy and social systems will work most efficiently when all working people are able to financially participate. Many would claim that a living wage would be inflationary, but then neglect to account for the supplemental social cost that the government pays when someone fails to earn a living wage. If you pay a worker a living wage, he will no longer need government handouts in order to make ends meet. 

 

Our representatives must commit to dealing with the problems of illegal immigration. Today, our government and businesses are content to exploit this group as a source of cheap labor . In doing so, they have eroded the standard of living of tens of millions of Americans, while failing to give the illegal immigrants a path to reasonable livelihood. Illegal they are, but inhuman, they are not. Once again, the concept of a living wage will do much to solve the real problems of illegal immigration while simultaneously restoring the dignity of the American worker.   

 

We need representatives who will deal with the Federal Reserve System which has grown accustomed to overproducing dollars thereby creating constant inflation, dollar devaluation, financial bubbles, and the threat of economic collapse. As I write this article, the financial markets are in disarray as investors seek some safe haven for their cash. The Fed has, once again, lowered interest rates and is in the process of loaning hundreds of billions of dollars in a futile attempt to stimulate an out of sync economy. In just the last 10 years, the Federal Reserve policies have sponsored the dot.com bust, the stock market roller coaster, the housing collapse, the mortgage debacle, the credit glitch, and soon to come, the complete failure of the American economy. The Fed is out of control and must be stopped.  

 

The future of America is in the hands of the American people. The people should not rely on the promises of an aspiring presidential candidate, a congressional hopeful or any other government official in deciding our future. There is too much remedial work to be done if we are to salvage America. We can no longer afford the luxury of complacency. We, the people, must insist that those who make promises of social and economic change be forced to honor their campaign commitments, or we must force them out of office. We must be prepared to recycle congress, the president and the judiciary until the welfare of the American nation is recognized as our only priority – by vote if it is still possible or by revolution if we must!  In conclusion, I have modified the words of James Otis to meet our current crisis. “Taxation without representation is still tyranny and must be abolished if our nation is to survive”.

 

My book,”The Road to the Third World”, explores the root of these and many other problems in detail. Essentially, the book is concerned with the social, economic and political consequences of the excesses of capitalism. The novel, with its plots and characters, traces the decline of America over a 60 year period. The book is a work of fiction, but most Americans will find it relevant to our present day financial dilemma.

The Perfect Economic Storm

The Perfect Economic Storm

 

 

Some may recall the epic sea adventure, The Perfect Storm, which found fame as a novel and later as a movie. The plot developed around a fishing boat captain and his five man crew. The crew of the Andrea Gail had struck upon some bad financial times as the sea refused to give up a profitable catch of fish. The skipper convinced his team that he could bring in the illusive bounty and they agreed to follow the unlucky captain on another expedition.

 

The captain brought his boat and crew far out into the ocean certain that he would find the treasure trove of fish. After a few failed attempts, he went further out to sea until he finally located and caught the mother load. The jubilation was palpable until fickle fate intervened via a broken ice machine. The commander was forced to choose between a safe route home which would result in the spoiling of his bonanza, and a more direct path through treacherous waters in which a known storm was brewing. The captain convinced his reluctant mates that he could safely deliver the ship, crew and catch to the home port via the precarious route. But, the storm worsened and a combination of meteorological events created the environment for the storm of the century. The end result was the death  of the crew and the destruction of the Andrea Gail. Nature claimed victory over the captain who was so obsessed with his own objectives that he failed to see the damage he would inflict on those who followed him. It is a story with a tragic, but meaningful ending. Tragic in that all who participated in the precarious plan are forever lost! Meaningful in the sense we can all learn the lesson of following those whose vision is clouded by factors we know are against our best interests. It is a message that serves as a warning to all Americans today!

 

Currently, there is massive perfect storm brewing in the United States. This tempest is far greater than that which caused the demise of the blinded fishing crew. At stake in our present encounter are the lives of hundreds of millions and the continuity of the good ship, America. We are entering dangerous seas which threaten to destroy us. This is not just a 100 year storm. Rather, it is a catastrophic squall that appears only once in a civilization and defies conventional remedy because it is a product of unchartered waters. The only similarity to the ill fated Andrea Gail is the assurances we receive from our leaders. Our leaders, like the obstinate sea captain, claim that all is well and we will be delivered to a safe harbor if we trust in their direction and approve of their decisions.

 

In perusing the news of the past month, the factors which play into this economic perfect storm become evident. The housing crisis continues to intensify as foreclosures, short sales and rising inventories attest to a failing market place.  New revelations in the mortgage fiasco indicate large financial firms are threatened by a liquidity emergency even as the Federal Reserve pours hundreds of billions of dollars into the ailing companies in an effort to resuscitate them. In a single day, Bear Sterns, an 85 year old brokerage giant saw its stock fall from $70.00 to $2.00 despite a FED bailout of some 30 billion dollars.  Prior to that, Countrywide Mortgages, the nation’s largest lender was bought up by Bank of America to avoid a pending bankruptcy. No one knows or cares to comment as to how many other companies may be caught up in this fiscal crisis. 

 

The stock market has been on a wild roller coaster ride as values rise and fall on the pronouncements of the Federal Reserve. In an effort to avoid a fiscal melt down in the United States, which threatened as a result of falling prices on foreign stock exchanges, the FED reduced a key interest rate 2 times in 8 days. The reprieve was short lived as the effects of the lowered interest rates failed to stop an eventual decline of the United States stock markets. Soon after, the foreign markets reacted with more declines, and the FED intervened with still lower interest rates. Again, the stock markets of the world reacted with increasing stock prices which were ultimately discounted by a skeptical business community. Later, the FED committed to lower rates and/or to print money to whatever extent might be required for the continued stability of America’s financial system. To date, the FED actions have been successful in averting a financial Armageddon, but it is important to understand the relatively short term effects of the new money and the reduced interest rates. It is somewhat disconcerting to note that the ability of the Fed to influence economic conditions is clearly diminishing.

 

And if all this is not sufficient to stoke your fires, let me mention the unmentionable. The government is not talking about it and the FED is blatantly ignoring it, but you and I know of the devastating toll it is taking on our household budgets. The unspoken malady is none other than inflation. Gas prices are rising rapidly, along with food, clothing, energy and something called commodities. Commodities are the base resources from which other products are manufactured. Crude oil, grains, livestock products and many base metals are experiencing sharp price increases. This is very scary as these commodities represent the benchmark for the future prices of just about all household goods. In other words, future inflation is assured as a result of the increases in commodity prices. I know you’ve heard enough, but I would be remiss if I didn’t mention the future inflationary implications of the Fed’s current monetary policy. Be aware that you can not continue to exponentially increase the money supply without ultimately introducing the inflationary pressures that come from overproducing dollars. In this environment, the prospect of hyperinflation becomes a very real possibility.

 

If you are not in a revolutionary frenzy by now, then this one should set you off! The world community is losing its faith and commitment in the American dollar. It seems as the FED produces more dollars, the relative value of existing dollars decline. The world reacts by devaluing the dollar thereby making American imports more expensive. One might think that this would be good for American producers who would fill the void, but they would be sadly disappointed. It seems our government and corporate businesses have done such a great job of de-industrializing America that we no longer have the capability to meet the needs of our own country. We are no longer self sufficient as we are dependent on foreigners for our clothes, our shoes, our household goods, our oil and oh yes, for the dollars that pay for our national debt. Soon, we may have to add the first amendment to our Declaration of Independence so as we can properly acknowledge the foreign countries that make our existence possible!

 

As all this is happening, our leaders continue to insist that the fundamentals of our economy are solid. Our eloquent President dismisses our current fiscal problems as “a little rough patch”. But take heart, his discerning vision spotted the problem early and just sit tight until your $600.00 cure all arrives. This dog bone is billed by our great leader as the panacea for all things gone wrong in our economy.

 

By now, you must be sick of all this. You are either really turned on or completely turned off.  If the switch is turned on, you are now obligated to do something about it. Get further educated on the problems, and when you are comfortable, take action to reverse the negative trends before it is too late. We can no longer afford the luxury of complacency. If you are turned off or consider this information as a downer, cast your eyes to the sea, rent a boat and join the crew of the Andrea Gail at the bottom of the Atlantic. Your fate is that of the devoted, benign and confused follower who refuses to act in your own self interest.

 

This article is a brief summary of many of the issues that are making America an impotent force in the world. My novel, “The Road to the Third World” offers a more detailed expression of America’s fragile existence. The book is fictitious, but the plots and characters bring to life the potential for calamity if we continue to ignore the evident signs of decline!