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Wednesday, March 9, 2011

How Did The Wealth Melt Down Occur

The purpose of this post is to show a short history of how the Meltdown occured.  The second half offers energy saving ideas that could be implemented now.
WMD The Real Story
It’s All Fidel’s Fault
It seems no matter what President Obama does he can not get the WMD (Wealth Melt Down) off his back. Even though everyone, the Republicans included, know it is not a problem he created. He only gets the privilege of accepting all the blame, and no I did not vote for him. How the WMD started can be identified with some research. The market crash in 2008 was not the cause of the problem but an effect. Sky high oil prices that preceded the crash were simply the last straw on the camel’s back. The present high oil prices threaten to finish breaking that straw.  If it breaks the Great Depression will look like a cake walk in comparison.   Finding the source of the WMD requires going back almost sixty year if not longer.  It is almost like the story of David and Goliath from the Bible except in this story the survivors, unwittingly inflict the wounds that destroy themselves as well as their enemies.
    While there are many places one could point a finger. Big Banks, Wall Street, The Federal Reserve System to name a few. My choice is Fidel. Politicians certainly can not be expected to step up to the plate and accept any of the blame. As things have settled down the blame has shifted. It now has come full circle.

       The problem is the average American. They will not get up off their wallets. They are unwilling to do their duty to their country and spend some money. They are listening to what the president says, but something deeper keeps them from standing up. Is it voices from their past warning them not to. All those stories about the Great Depression their parents and grandparents told them did sink in after all.
        If you bear with me hopefully the rabbit trail I am about to take you on will bring us back here. Rabbit trails always end up where they started, that is why hunters use dogs to hunt rabbits. Once the chase commences the hunter just stands still and waits. Shortly the dogs will chase the rabbit back to where it started. Almost all rabbits run in a big circle when chased. The benefit of that is you know what to expect and where to point your gun. So if you bear with me I will get around the trail as fast as possible. If nothing else you may have learned something about hunting rabbits.
       With the world economy in chaos. Two wars going on in Asia. The memory of 9/11 not that distant. A national economy that is shaky at best. The middle east in turmoil. One might ask how we got here. Fingers are pointed every where and at everybody. The real source of the problem goes back a whole lot farther than the crash in 2008. It really goes back to bad decisions, made over a very long period of time and by a whole lot of people. It is like a snow ball rolling down hill and picking up momentum. Of course for a snow ball to start down hill someone usually has to give it a shove and then gravity takes over.
      The one person I can point my finger at is Fidel Castro. When I get done explaining, it is my hope people will understand he did it quite by accident. Castro has been fighting a David and Goliath fight with the United States for many years. It all started because of bad choices by him on a few counts. He had bad timing, a bad location and several bad political choices working against him. At the very height of America’s anti-communist paranoia he chose to try and establish a communist country on America’s doorstep. He even recruited the Russians to help him get the job done. Had he chosen fascism, or even liberation as a cause he would probably have just been ignored. That was not the case though. He chose Communism to thumb his nose at the United States for not helping him become the dictator he always wanted to be. The problem with that was that the Russians were also Communists. America was so upset that the CIA sponsored a Cuban liberation movement. It turned out to be a major fiasco called the “Bay of Pigs”which was a backed and failed invasion of Cuba in 1959. Castro pleaded with the Russians to come and protect him from the big time Yankee Imperialist.
      The Russians saw this as a chance to settle some scores and level the playing field so to speak The United States had helped Britain overthrow the democratically elected government of Iran in 1953 to put a more pro western government in power. Britain was worried that the original Iranian government was to friendly with the Russians. Britain in turn felt this threatened their oil holdings in the Middle East. This was not a problem during World War II as America used Iran as pathway to get weapons to the Russians who at that time were our allies. This all changed with the end of World War II and the Russians getting their own nuclear weapons. The United States used the turmoil as an opportunity to put nuclear armed missiles in Turkey and Europe aimed at Moscow.  A situation in which the Russians later used our own Monroe Doctrine against us.  It was a slick piece of political maneuvering on their part.
      Needless to say the Russians were not happy with this situation. So when Castro called for their help they were more than willing to do so. They even started placing nuclear missile sites in Cuba in 1961 which ended in the Cuban Missile Crisis in October 1962. It was a case of brinkmanship which was settled through back water channels when Russia agreed to pull the missiles out of Cuba in return for a promise from the United States that we would not invade Cuba. Under the table and behind closed doors America also agreed to pull its nuclear missiles out of Turkey and Europe. You have to wonder if the whole thing was not a calculated chess move by Russia to make themselves feel a little safer using Cuba for a pawn.
       Regardless of who did what and why, the end result was a financial embargo and severing of diplomatic relations with Cuba by the United States. It was an action that created much hardship on the Cuban people. We had a physical war with Vietnam at the cost of 58,000 American lives and we have already normalized relations with Vietnam. Yet fifty four years later we are still embargoing Cuba. It is my personal belief if we had normalized relations with Cuba the Communist government would have fallen years ago. We didn’t and it hasn’t and the situation goes on.
     The embargo created several hardships on Cuba as they had to find other sources of supply. Cuba also had to pay double on all financial deals that they made. If they wanted to buy items in Europe they had to convert their currency to dollars. Then the dollars had to be converted into the currency of the country they were dealing with. Basically the same transactions had to be done going the other way also. Each transaction had a fee attached. Cuba had no choice but to use the dollar as a reserve currency. The dollar was the standard reserve currency all countries used after World War II. The dollar determined the value of other nations money when they made purchases or exchanges of currency on world markets. The price of oil was also tied to the value of the dollar. Cuba was not the only country hurt by the dollars dominance. Europeans were also paying the fees to transact international business.   

       In the nineteen nineties the European Union came into existence and one of its goals was to liberate their currency and trade from the tyranny of the dollar on world markets. They created the Euro to free their economies from American domination.
      When Castro heard of the Europeans plans to introduce the Euro as currency which could be used for all financial transactions a little light came on. He leaped at the idea. Castro saw a way out of his double cost on transactions. He was one of the first countries to accept and use the Euro as his countries reserve currency in 1998. The Euro did not officially go into effect till 1999 but Castro was committed. It saved Cuba tons of money. They could finally see a light at the end of the tunnel. It was a way of reducing America’s hold on his country. Castro was quick to share this good news with his strange clique of friends. To get in that circle the rules were and are very simple. Either hate the United States or be hated by the United States. Saddam Hussein of Iraq, Chavez of Venezuela, Iran, Libya, Syria, and North Korea were top friends. They all shared another distinction. They were all on the Axis of Evil list. Depending on which speech you listened to, determined who made the list.
        Saddam Hussein was also on America’s embargo list. Following Fidel’s lead Saddam pulled a fast one by going to the United Nations in October 2000. Saddam secured authorization to exchange his oil for Euros instead of dollars. This set a pattern that was soon followed by Iran, Venezuela and most of the Axis of Evil countries. When Europeans found they could buy oil with out the losses in the exchange markets it gave the Euro a major boost.
       This situation created a problem for America. All of a sudden the dollar was not the only fish in the sea so to speak. Slowly the price of oil started climbing as the dollar had to compete with the Euro on world markets for oil. The “Perfect Storm” was brewing for oil, when Bush and Cheney came to power in America. They were both experienced oil men and could read the writing on the wall. They had to defuse the situation. They just needed and excuse and September 11th, 2001 provided it. A recent book by retired USMC Lt. Gen. Michael De Long makes it clear Bush and Cheney were much more interested in attacking Iraq than Afghanistan. Lt. Gen. De Long argues the case for WMD’s was a strong foundation for the attack. However one has to wonder which kind of WMD’s Bush and Cheney were really concerned with. My argument would be that they agreed more with my definition of WMD’s
       It is my belief the Bush administration did everything they did with what they considered the best interests of the United States first in their minds. The problem was the damage was done. Getting rid of the Euro was not feasible. (Of course with all the financial turmoil in Europe's financial markets we might want to take a harder look at what is causing the problems.)  Taking Iraq was the only  way to stall or slow down the problem. One of the first actions taken by the United States after “winning the war” was to put Iraqi oil back on the dollar. The real problem was that other factors had started creeping into the picture.
       Other United States government programs to push home ownership were starting to have issues. The placement of marginally qualified owners into homes they could not really afford started taking its toll. As long as no one rocked the boat everything was okay. The home owners were living at the very edge of their limits. Unfortunately the boat started rocking.
      Over the next couple years as oil prices went up so did bankruptcies. Families that had been living on the edge had to make choices about what to pay. They were not going to quit eating. They were not going to quit driving the cars they also could not afford. Something had to give. Most chose to stop paying their house payments. The higher the gas prices went the worse the situation got. Suddenly loans that had been sold on international markets started defaulting.

      The snowball was picking up speed. Then the market collapsed and everything started falling apart. The federal government tried to save the situation but to no avail. The damage was done. The slide down hill suddenly turned into an out of control avalanche. The economic collapse now started taking its toll on pension funds and any other investments that had been secured by the shaky mortgages. Companies getting slammed financially started reining things in. Eventually we had over fifteen million people unemployed. The government has done to little and to late to save it all. The jobs are gone. Many are not coming back as the companies they were based on are gone.
       The Fed keeps saying it will all work out. However in reality the stage is set to only get worse. It may have slowed down but it is only temporary. Why do I say that? It is really pretty simple as the people who were the hard working core of America start falling off unemployment another round of foreclosures will start. The government is broke and it can not afford to keep giving people unemployment. Borrowing the money to pay unemployment will only push the budget and debt beyond legal limits. The government will go bankrupt. The truth is that it already is. If the government does not pay the unemployment the unemployed will start losing their homes and the cycle will continue on down the hill.
       The present situation is tenuous at best. The governments predictions are based on things remaining stable or hopefully getting better. Their plans do not allow for things that will sink all their hopes. The price of oil is going to go up. It will continue to go up because of increased demand as the rest of the world starts recovering and needs more oil. 
Some other unknown and unforeseen event could create more instability in the oil markets. It could be the European financial crisis or instability in the Middle East. Both can effect America and our recovery.        America can not borrow its way out of debt. It is going to require action and some tough decisions will have to me made. Fifteen million people unemployed means that fifteen million people are not creating income or paying taxes. That means the debt snowball just got another shove down the hill. Unemployment could go a lot higher in the long run if something is not done. As the housing market continues to collapse so does the tax base that states and the government depend on, The problem rolls on.      Somebody better come up with some solutions. The   Republican plan to cut spending and put even more people out of work is only going to magnify the problem. It certainly will not solve it.
      The rabbit trail is back to its start. Thanks Fidel you may have saved Cuba for a few days. Ultimately though the whole financial system worldwide is liable to collapse. That is good for nobody. States are broke already and crying the blues that they need money. There has to be a solution and I think I have a few. Nobody may like them but they can help if implemented. The old saying is, "if there is no pain there is no gain" What is my solution? Spend more and borrow less. It is simple but it works. It is a matter of how you do it that determines if it works. Let me explain it. It will take commitment and sacrifice. The alternative is something nobody really wants to experience. It will take the American electorate holding the politicians feet to the fire. It will not be fun. The first step is to freeze the government budget till the plan I am proposing can kick in. If America does not do that, it is all over but the crying. So here is the program.
      It is called “One for 20/80.” Here is how it works. The price of gas is to be raised $1.00 per gallon and the money is to be given directly to the states it is collected in. Many will say they can not afford a $1 a gallon. Well that is chump change when you look at the long term reality. Sooner or later it will be $6 or $7 a gallon or higher. When I was a kid gas was sixteen or seventeen cents a gallon. Five us pitched in all we had,  all we could gather up between us  was 87 cents. That gas ran us around all night. Laugh if you want but it was a challenge to come up with the 87 cents between five of us.
        Getting back on track. The plan is broken down in two parts. Eighty percent for infrastructure repairs and development. It can not be used for the state budgets. The other twenty percent is to be put into programs to reduce energy consumption and develop new alternatives like cheaper renewable energy programs. The up side of this program is that it is financed with real money. Not with borrowed money. As it creates jobs and grows it will stimulate spending. The upside is that it does not increase the debt. Yet it starts stimulating the economy. It gives a way to hold things together till the budget can be dealt with. It also shows the rest of the world the United States is serious about dealing with our problems.

       The second part of the 20/80 program is that the federal government must adopt not only a balanced budget, but it must be debt free by 2080. What it takes in each year must pay off what it owes each year. That is a novel idea. It is far off but it will help keep the politicians focused that they must reduce spending and cut cost.
       How do we save energy in significant amounts. I have several plans and I am sure millions of other Americans have similar plans. It simply takes focus. The ideas I am proposing are basic common sense. The technology to do them is already available. If something is not done and soon the consequences are going to be staggering in their impact. Later I will give what I see as the cost if it is not done. You can ignore the problem but it is not going to go away. It was 60 to 80 years in the making. It is not going to be fixed with the stroke of a pen. If you do not like the ideas I come up with lets hear yours.
        This first idea is rather novel. If you have a car that gets fifty miles per gallon you get a one dollar tax break. You say no cars get fifty miles per gallon. Well that is the incentive. If people know they can get it back they will push the car makers to develop cars that can get fifty miles per gallon. How do you control it or prove it. The manufacturers would put a sensor on the speedometer and fuel tank to monitor it. It would be done via a flash drive you plug in your dash and when you pay for your gas the register or pump would calculate if you qualified. They can do almost anything with computers they can do this I am sure. The challenge would be for the engineers to come up with the ideas to do it. Whether it is through gearing or metering fuel it should not be a challenge. The challenge will be to get fifty mile per gallon SUV’s. but we are Americans and we can do it if we put our mind to it. Shut down NASA and tell them when they get to sixty miles per gallon they get their funding back. It will get done quickly then.
        The second one that can be done out of the twenty per cent for energy savings. There are power plants all across America. They use tons of energy and most of it goes up the stack and is wasted. Each plant should be refocused to capture all the benefit from energy being used. The heat that goes up and out the smoke stack could be used to heat greenhouses and fish ponds. Their are plants are all over America. Large enough green houses in large enough quantity would reduce energy consumption. First it would be maximizing the energy that is used. Secondly it would reduce the need to transport food clear across America. When people are eating vegetables and fruit that is hauled three thousand miles from California to New York it is a waste. Could we totally eliminate the need to haul it. Not really but it could make a significant dent. That left over heat could be used to heat ponds for fish. This would reduce the need to haul fish thousands of miles from the ocean. It would also reduce the need to have boats burning fuel trying to find contaminated fish in the oceans.
      This next one will go over big. Try and keep an open mind read it all the way through and then chew on it awhile before writing me off as nut case. To start with think about this. George Washington and Thomas Jefferson both grew hemp plants on their farms. Why did they do it? Hemp can be made into a wide variety of products like rope. It could replace all the nylon and other products made from fossil fuels. They can even make bio diesel from hemp. Canvas(root word cannabis, Mr. Webster said that not me) bags and hemp tarps could replace the ones made from fossil fuels. Oh yes and it is biodegradable. The strands of it could be used as filler in most fiberglass products. That would replace a lot of need for fossil fuels. The very respectable Popular Science magazine has an article on a car that the entire body is made from hemp fiber. Check out the March 2011 issue if you do not believe me. The products listed here would not only reduce our dependence on fossil fuels. They would create jobs. Hemp is basically a weed it will grow most anywhere. It could be grown in medians of highways and drainage ditches. That would free up land that is good to grow much needed food crops. The shortage of food world wide demands we find ways to stop using consumable crops to produce bio fuels. It is a misallocation of resources that needs to be addressed just as do the economic and manpower problems that are facing the world as whole.
      Some will say, “Hey it is illegal.” Well legalize it. The whole issue is a moral one. America’s fight over moral injustices started before the country was even born. The Boston Tea Party was about taxation without representation. The Constitution has been changed because of moral injustices several times. Slavery was a moral issue. How can there be 3/5 of a person. It is and was just wrong. Why did they put it in the Constitution. Had they realized the cost in lives to correct that moral issue would it have made a difference. If they had not compromised there would have been no Constitution and no United States. That is why they put in a way to amend the Constitution. They knew their would be problems down the road. Women’s right to vote was a moral problem. How can people be equal if they do not have equal rights. Oh Yes and what about prohibition. They passed it and then they repealed it. Mistakes are made. Anything that infringes on a persons right to live as they choose is wrong. As long as it does not infringe on others rights. There is a saying I like,  "Your rights end where mine begin." The government allowing their drugs of choice to be legal and discriminating against others is wrong. Prohibition should have proved something to America, but evidently it did not.  You can not legislate morality. Native Americans had ceremonies which used some of the banned plants, but now they are liable to jail time if they follow their traditions.
       America calls itself a Christian nation, but it does nothing for many of the people who have problems. Incarcerating them is certainly not the answer. Offering them hope and showing them a better way to live by example is the way to change America. If people raise themselves up to live by a higher standard it will not matter if bad choices are available. If Christians are not going to reach out and help those that need help they should at least not make their lives more miserable by stuffing their hypocritical self righteous ideas on them.
        It is my view all drugs should be legalized. At least the drugs would be clean and not kill as many people. People die from contaminated drugs every year. The dealers put anything they want in the drug to increase their profits. When legalized the government can tax the heck out of it. All the way to the gates of hell. That is just my opinion. The Bible said man has all herbs for his use. Surely God knew some plants could kill man, just as he knew some had medicinal values that would help heal or relieve pain. Figuring out what did and does what is man’s problem. Each person has to make his own choice about drugs.
      Spinach is legal and green and supposedly good for you, but there is no room for it on my plate. What does that first sentence have to do with anything. Well it is all about choices. The government loves to play the fear card. Think about this if you will. Now some people may disagree, but I think most are like me. If they legalize pot tomorrow am I going to go out and buy pot. Not lately. I don’t smoke and am not about to start. I don’t drink or do other drugs either, unless they are prescribed for my health. So why would anyone start just because they made it legal. The only thing making it legal is going to change is that it can be taxed and the price will collapse. If anybody can grow it why would they pay ridiculous amounts for it. It is illegal now and it certainly does not seem to be stopping anyone that wants to do it from doing it. All it is doing is creating bunches of jobs for prison guards, that I am paying for. It is putting a burden on the medical system that you and I are also paying for. At least if they taxed it the money from the idiots using it could pay the bills instead of expecting me to. Oh yes and what of all the law enforcement people that could chase real criminals. Of course if it did not cost to so darn much maybe the dopers would not have to rip off law abiding citizens. Finally if there is no money to be made in it the dealers will have to find other ways to make a living. That would be sad wouldn’t it.
        In closing I would like to put in a funny about a conversation with my grandfather way back in the sixties. He heard me and my cousin arguing about why pot was illegal. We were both fresh back from Vietnam. He put in his two bits. Pot was not illegal till 1934 he told us. He said lots of people smoked it during the Prohibition era. When prohibition ended the alcohol companies were not getting their business back and the booze companies lobbied to make it illegal so they could get their business back. My grandfather was born in 1892 and served in the First World War. He drove a team of mules and hauled supplies to the front. He said they hauled an awful lot of rope to the front. Hemp of course. My grandfather never lied to me that I know of and I believe what he said. It makes sense if you think about it. Hope you enjoyed the side trip with that little side story.
     Another way and more practical for America to save energy and money would be to go to the four day work week. It would create jobs. They could maybe go to ten hour days and keep the forty hour week or maybe cut it to thirty two hours. Think of the savings. Just what would be saved in fuel from parking millions of buses one day a week. It could be sold as a benefit. States could argue they do not have to give any raises for a long time. Some people would argue that it would create a child care problem. This will come up again when I get to the internet. Well what would be wrong with a parent staying home and taking care of the children. The median or average income in the United States is supposedly $33,000 dollars. (Which by the way is $400 less than it was twenty years ago. We are making progress aren’t we.) Based on a forty hour week that would be almost $16 an hour. If they raised the minimum wage to that level maybe families could be families again. Latch key kids which live lives with a lack of direction in the home are a lot of what has created the problems we have in American society today. The savings in energy is only one reason to do it.
        With the arrival of the internet kids can be home schooled on the internet. It is possible. The thing is we have to make that choice. Are we going to wait till gas hits ten dollars a gallon to do it. It would cut down on the need for schools and busing which would save money for the states to pay wages to other employees. Hopefully the jobs created by the “One for 20/80 program” will increase the tax base and take some of the burden off of the states and make them independent of the Federal government. The truth is many parents do not want to stay home with their kids. With the moral collapse many who are married do not want to be married. They are because it was “the right thing to do” Testing systems will need to be set up to make sure students are in fact learning. Kids who do not want to learn are not going to learn whether they are in school or home school. Sports could be changed to community after school systems and done on a volunteer basis. Are we going to balance the budget or create jocks for the professional teams to scrape up and pay ridiculous salaries to.
       Another way to save tons of energy would be to make a lot of the long haul trucks pull tandem trailers. Not the short thirty foot types we normally see in double units. The key would be to use tandem 48 and 53 foot trailers. It is already being done in NY on the turnpikes and in Montana and Oregon. The catch is the state gets a fee for allowing it. The fact that the trucking companies do it proves it will work. In the past I asked Wal-Marts transportation manager why they did not adapt it. The manager replied they do it where they can. Many states do not allow it. It would only work on the interstate highway system. Areas to break the trucks into single units and assemble the doubles would have to be built near the exit and entrance ramps. That equals jobs. Equipment would have to be modified. That equals jobs. The technology is already available. It would just be a matter of implementing it. The present weight restrictions per axle would still be used and would avoid damage to the infrastructure. It interested me when I was trucking. There is a lot of freight that is light enough that even with two trailers the truck would be under the legal maximum for a single unit which is 80,000 pounds. My specialty was kitchen cabinets and other high volume low density freight. A truck fully loaded with two trailers hauling cabinets, desks, tables, appliances and many other things would be under 70,000 pounds. It would reduce the highway congestion. The energy savings would be very significant. The above ideas are just a few ways that energy and costs could be cut.
      My final suggestion is another extreme one but it needs to be addressed. The insurance companies and lawyers are what keeps driving up American medical costs. This may sound drastic but think about it. Instead of having a medical lottery which is what we now have. The philosophy being get rich by accident. How about if all medical personnel, mainly doctors and nurses who take a hypocritical oath are exempt from paying taxes on their first million dollars of medically job related income. These people take high risks daily to save lives and swear an oath to save lives. This would create and incentive to dedicate a persons life to helping others. They would also be exempt from being sued. All hospitals should be made non profit businesses so they do not have to profit from peoples misery. The money doctors and nurses make from investments and incidents outside of the medical field would still be open for taxes and lawsuits. Each state would have to establish a review board and if there is a case where the person should be compensated for malpractice or whatever the board will make the award. It will would be based on that persons income and needs to live not on the get rich lawsuit plans. The board would also have the right to remove licenses from people who are criminally negligent. The need for malpractice insurance would be eliminated. Companies that make medicines and supplies would not be exempt from lawsuits.
       Saving America is going to take Americans getting involved and doing something about the problems. In studying the Great Depression a couple things came to my attention. The twenty five percent unemployment at its peak did not really bother me. If I have come to where I do not have a job I have always managed to create one to tide me over. The first thing that bothered me is that it took almost three and a half years from the high to the low, we ain’t there yet. Second, when the market fell from its high to its low it lost over 89% of its value, which would make an equivalent market bottom today around 1560. Thirdly back then it was big business and the banks that failed and the government was somewhat solvent. The biggest days loss on the market was almost three times the national debt at that time. The government was solid enough financially to whether the storm. Unfortunately this time it is the government that is bankrupt and everybody else is doomed to follow them into the abyss they have created. So in closing I would like to say it is not going to matter to Fidel in the long run because he will probably croak before it is all over. For those who survive if nothing is done let me say this. “The collapse that is to come if something is not done will make the Great Depression seem like a cake walk.” So what ever comes to pass, enjoy the ride. I am old enough I will probably join Fidel and miss the party.

1 comment:

  1. You have some very interesting points here, although it took me almost a week to find the time to read this post. After all is said and done, it was definitely worth reading.