Monday, April 13, 2015

The Federal Debt Is Worse Than You Think: $210 trillion and climbing

(Ron Haskins)  Of all the failures of recent Congresses and Presidents, none is more important than their failure to deal with the nation’s long-term debt. Although Congress tied itself in knots trying to address the problem, the growth of debt remains, in the words of the Congressional Budget Office, “unsustainable.”
Debt figures tell part of the story. When the Great Recession hit, the federal debt was equal to about 40 percent of GDP. But to fight the recession, Congress enacted an $800 billion dollar stimulus bill. Stimulus spending, combined with already enacted spending and tax policy, resulted in four years of trillion dollar deficits. As a result, the debt ballooned to 78 percent of GDP in 2013, almost twice the pre-recession level. The annual deficit is now declining at a stately pace, but by 2016 it will begin increasing again, and by 2020 under CBO’s alternative fiscal scenario, we will once again return to annual deficits above a trillion dollars, thereby once again greatly increasing the national debt.
The accumulation of debt should prevent federal policymakers from feeling any sense of accomplishment. In fact, CBO estimates that the debt will be well over 100 percent of GDP by 2039 under conservative assumptions about spending and revenue. When CBO incorporates its estimates of the impact of the continuing large federal deficits on the nation’s economy, it estimates that the accumulated debt held by the public will reach an astounding 180 percent of GDP by 2039. One wonders if members of Congress or the President read these CBO reports.
What’s the word for our fiscal situation? Stunning? Shocking? Desperate? In recent testimony before the Senate Budget Committee, Boston University Economics Professor Laurence Kotlikoff, in effect, told the Committee that all of these terms are pathetically inadequate to describe our true fiscal situation. In compelling testimony, Kotlikoff argues that the federal fiscal situation is much worse than the CBO estimates let on. The reason is that CBO’s debt estimates do not take into account the full financial obligations the government is committed to honor, especially for future payments of Social Security, Medicare, and interest on the debt. He asserts that the federal government should help the public understand the nation’s true fiscal situation by using what economists call “the infinite-horizon fiscal gap,” defined as the value of all projected future expenditures minus the value of all projected future receipts using a reasonable discount rate.
What difference does the fiscal gap approach make in our understanding of the true federal debt? CBO tells us that the national debt was a little less than $13 trillion in 2014. But the fiscal gap in that year as calculated by Kotlikoff was $210 trillion, more than 16 times larger than the debt estimated by CBO and already judged, by CBO and many others, to be unsustainable. If a $13 billion gap is unsustainable, what term should we apply to a $210 trillion gap? Kotlikoff also calculates that the fiscal gap is equal to about 58 percent of the combined value of all future revenue. Thus, we would need to reduce spending or increase taxes by enough to fill that 58 percent gap if we wanted to put the federal budget on a path to solvency that balances the interests of those now receiving benefits and those who hope to receive benefits in the future.
Kotlikoff goes on to illustrate that the fiscal gap is increasing at an alarming rate and that delay makes our problem much worse. In 2003, just a little more than a decade ago, the fiscal gap was $60 trillion. But by last year it had catapulted to $210 trillion. The fiscal gap may not continue increasing as rapidly as it has over the past decade, but with each passing year – as Congress and the President do their best to avoid action – our hole grows deeper by substantial amounts.
Under the CBO estimates used by Congress, we have a huge debt hole. Under the more comprehensive fiscal gap measurement, we have a chasm. But little if any Congressional action is planned to deal with the notorious level of debt. We’re headed toward a fiscal black hole.

Boycott, Divest and Sanction Corporations that Feed on Prisons

(Chris Hedges)  All attempts to reform mass incarceration through the traditional mechanisms of electoral politics, the courts and state and federal legislatures are useless. Corporations, which have turned mass incarceration into a huge revenue stream and which have unchecked political and economic power, have no intention of diminishing their profits. And in a system where money has replaced the vote, where corporate lobbyists write legislation and the laws, where chronic unemployment and underemployment, along with inadequate public transportation, sever people in marginal communities from jobs, and where the courts are a wholly owned subsidiary of the corporate state, this demands a sustained, nationwide revolt.
“Organizing boycotts, work stoppages inside prisons and the refusal by prisoners and their families to pay into the accounts of phone companies and commissary companies is the only weapon we have left,” said Amos Caley, who runs the Interfaith Prison Coalition, a group formed by prisoners, the formerly incarcerated, their families and religious leaders. “Mass incarceration is the most important civil rights issue of our day. And it is time for communities of faith to stand with poor people, mostly of color, who are unfairly exploited and abused. We must halt human rights violations against the poor that grow more pronounced each year,” Caley said here. He and other prison reform leaders spoke Saturday at the Elmwood Presbyterian Church.
“We have to shut down the system,” said Gale Muhammad, another speaker and the founder and CEO of Women Who Never Give Up. “All the companies that use prison labor have to be boycotted. And we can’t stop there. We have to boycott the vending machines in the prisons and the phone companies. We have to stop spending our money. Until we hit them in the pocket they won’t listen.”
Former prisoners and prisoners’ relatives—suffering along with the incarcerated under the weight of one of the most exploitative, physically abusive and largest prison systems in the world, frustrated and enraged by the walls that corporations have set in place to stymie rational judicial reform—joined human rights advocates at the church to organize state and nationwide boycotts inside and outside prisons. These boycotts, they said, will be directed against the private phone, money transfer and commissary companies, and against the dozens of corporations that exploit prison labor. The boycotts will target food and merchandise vendors, construction companies, laundry services, uniforms companies, prison equipment vendors, cafeteria services, manufacturers of pepper spray, body armor and the array of medieval instruments used for the physical control of prisoners, and a host of other contractors that profit from mass incarceration. The movement will also call on institutions, especially churches and universities, to divest from corporations that use prison labor.
The campaign, led by the Interfaith Prison Coalition, will include a call to pay all prisoners at least the prevailing minimum wage of the state in which they are held. (New Jersey’s minimum wage is $8.38 an hour.) Wages inside prisons have remained stagnant and in real terms have declined over the past three decades. A prisoner in New Jersey makes, on average, $1.20 for eight hours of work, or about $28 a month. Those incarcerated in for-profit prisons earn as little as 17 cents an hour. Over a similar period, phone and commissary corporations have increased fees and charges often by more than 100 percent.
There are nearly 40 states that allow private corporations to exploit prison labor. And prison administrators throughout the country are lobbying corporations that have sweatshops overseas, trying to lure them into the prisons with guarantees of even cheaper labor and a total absence of organizing or coordinated protest.
Corporations currently exploiting prison labor include Abbott Laboratories, AT&T, AutoZone, Bank of America, Bayer, Berkshire Hathaway, Cargill, Caterpillar, Chevron, the former Chrysler Group, Costco Wholesale, John Deere, Eddie Bauer, Eli Lilly, ExxonMobil, Fruit of the Loom, GEICO, GlaxoSmithKline, Glaxo Wellcome, Hoffmann-La Roche, International Paper, JanSport, Johnson & Johnson, Kmart, Koch Industries, Mary Kay, McDonald’s, Merck, Microsoft, Motorola, Nintendo, Pfizer, Procter & Gamble, Quaker Oats, Sarah Lee, Sears, Shell, Sprint, Starbucks, State Farm Insurance, United Airlines, UPS, Verizon, Victoria’s Secret, Wal-Mart and Wendy’s.
Prisons in America are a hugely profitable business. And since profit is the only language the involved corporations know how to speak, we will have to speak to them in the language they understand. In New Jersey the first boycott will be directed against Global Tel Link, a private phone company that charges prisoners and their families exorbitant rates and that has a monopoly. Organizers at the Saturday event, including Gale Muhammad, called on prisoners and families to stop paying into Global Tel Link accounts and boycott the prison phone service. She urged families and prisoners to write letters to each other until the company’s phone rates match those paid by the wider society for such a service.
“Prisoner telephone rates in New Jersey are some of the highest in the country,” Caley said. “Global Tel Link charges prisoners and their families $4.95 for a 15-minute phone call, which is about two and a half times the national average for local inmate calling services.”
Prison phone services are a $1.2-billion-a-year industry. Prisoners outside New Jersey are charged by Global Tel Link, which makes about $500 million a year, as much as $17 for a 15-minute phone call. A call of that duration outside a prison would cost about $2. If a customer deposits $25 into a Global Tel Link phone account, he or she must pay an additional service charge of $6.95. And Global Tel Link is only one of several large corporations that exploit prisoners and their families. JPay is a corporation that deals in privatized money transfers to prisoners. It controls money transfers for about 70 percent of the prison population. The company charges families that put money into prisoners’ accounts additional service fees of as much as 45 percent. JPay generates more than $50 million a year in revenue. The Keefer Group, which controls prison commissaries in more than 800 public and private prisons, and which often charges prisoners double what items cost outside prison walls, makes $41 million a year in profit. All of these companies have to be targeted.
It will be a long and hard battle. It will require tremendous sacrifices from those who have loved ones who are incarcerated and from the 2.3 million locked in cages in the United States’ vast archipelagos of prisons. It will require those on the outside to boycott corporations that use prison labor and corporations that gouge prisoners and their families. It will require us to build networks to support prisoners when they begin, as they must, to carry out work stoppages to demand the minimum wage. Building a movement is our only hope.
Michelle Alexander, the author of “The New Jim Crow,” is outspoken about the imperative for organizing to fight back. In a speech at Union Theological Seminary in New York City in March she told her audience: “Jesus taught that he who is without sin should cast the first stone. Well, we have become a nation of stone throwers. And in this era of mass incarceration it is not enough to drop your stone. We have to be willing to catch the stones raining down on the most vulnerable. And we must be willing to stand up to the stone throwers and disarm them.”
“I believe we now find ourselves at a fork in the road,” she went on. “We can continue down the road most traveled of business and politics as usual, the path of reforming our political institutions here and there, the path Dr. King was determined to leave behind, or we can choose a different path, the rocky, dangerous path that comes without a map. It is a path that is beckoning us again, thanks in large part to the courage of the young people in Ferguson who stood up when Michael Brown was shot down. It inspired thousands of people to wake up, get up and march here in New York City and beyond. If we choose this rocky path there will be no guidebooks, no map, no instructions. All we will have is our moral compass and the whispering of our angels and our ancestors in our ears reminding us to dig for deeper truths and to speak and to act with greater courage, reminding us, in the words of Dr. James Cone, that humanity’s salvation is available only through our solidarity with the crucified people in our midst.”
She called on the audience to “speak difficult and unpopular truths,” not to avoid “the racial dimensions or the profound moral questions for purposes of expediency” and not to seek “justice on the cheap.”
“We can and we must build a movement, and not only [about] mass incarceration and mass deportation, but a broad-based radical, human rights movement that ends once and for all our history’s cycle of creating caste-like systems in America, a movement for education, not incarceration, for jobs, not jails, a movement to end all forms of legal discrimination against people released from prison, discrimination that denies them basic human rights to work, to shelter, to food, a movement for voting rights for all, including those behind bars … a movement that will end the war on drugs, once and for all, and shift to a public health model dealing with drug addiction and drug abuse, a movement that will stand up to the police unions and transform the police itself from warriors into peace officers directly accountable to the communities they serve, a movement that will ensure that every dollar saved from ending the wars that have been declared on poor communities of color, the wars on crime and drugs, will be invested back into these communities, the communities most harmed, meaningful reparations and justice reinvestment, a movement that abandons our purely punitive approach to dealing with violence and violent crimes and embraces a more restorative and rehabilitative approach … a movement that is rooted in the dignity and humanity of us all, no matter who we are, where we come from or what we may have done.”
At Saturday’s gathering in Newark, among the roughly 100 participants were leading advocates for prison reform such as Bonnie Kerness, the director of the American Friends Service Committee Prison Watch Project; Gale Muhammad; and Larry Hamm, the chairman of People’s Organization for Progress. There were mothers and fathers of incarcerated sons and daughters, former prisoners including Earl Amin, who was leader of the Black Panthers in Newark and spent 34 years in prison solely for discussing the possibility of carrying out a bank robbery, and Ojore Lutalo, who was in the Black Liberation Army and spent 22 years in solitary confinement in Trenton’s supermax prison. There was universal and emphatic agreement that if we do not organize to destroy this country’s system of mass incarceration it will spread like a cancer, destroying more lives, more families and more communities.
The corporate state seeks to reduce all workers at home and abroad to the status of prison labor. Workers are to be so heavily controlled that organizing unions or resistance will become impossible. Benefits, pensions, overtime are to be abolished. Workers who are not slavishly submissive to the will of corporate power will be dismissed. There will be no sick days or paid vacations. No one will be able to challenge unsafe and physically difficult working conditions. And wages will be suppressed to keep workers in poverty. This is the goal of corporate power. The 1 million prisoners employed at substandard wages by corporations inside prisons are, in the eyes of our corporate masters, the ideal workers. And those Americans who ignore the plight of prison labor and refuse to organize against it will increasingly find prison working conditions replicated outside prison walls.
Prisons, to swell corporate profits, force prisoners to pay for basic items including shoes. Prisoners in New Jersey pay $45 for a pair of basic Reebok shoes—almost twice the average monthly wage. If a prisoner needs an insulated undergarment or an extra blanket to ward off the cold at night he must buy it. Packages from home, once permitted, have been banned to force prisoners to buy grossly overpriced items at the commissary or company-run store. Some states have begun to charge prisoners rent. This gouging is burying many prisoners and their families in crippling debt, debt that prisoners carry when they are released from prison.
The United States has 2.3 million people in prison, 25 percent of the world’s prison population, although we are only 5 percent of the world’s population. We have increased our prison population by about 700 percent since 1970. Corporations control about 18 percent of federal prisoners and 6.7 percent of all state prisoners. And corporate prisons account for nearly all newly built prisons. Nearly half of all immigrants detained by the federal government are shipped to corporate-run prisons. And slavery is legal in prisons under the 13th Amendment of the U.S. Constitution. It reads: “Neither slavery nor involuntary servitude, except as punishment for crime whereof the party shall have been duly convicted, shall exist within the United States.”
Vast sums are at stake. The for-profit prison industry is worth $70 billion. Corrections Corporation of America (CCA), the largest owner of for-profit prisons and immigration detention facilities in the country, had revenues of $1.7 billion in 2013 and profits of $300 million. CCA holds an average of 81,384 inmates in its facilities on any one day. Aramark Holdings Corp., a Philadelphia-based company that contracts through Aramark Correctional Services to provide food to 600 correctional institutions across the United States, was acquired in 2007 for $8.3 billion by investors that included Goldman Sachs. And, as in the wider society, while members of a tiny, oligarchic corporate elite each are paid tens or even hundreds of millions of dollars annually, the workers who generate these profits live in misery.
“It is an abomination that prisoners are paid 22 cents an hour, $1.20 cents a day,” Larry Hamm told the Newark meeting. “Every prisoner should get the minimum wage of New Jersey, $8.38 per hour.”
He went on. “Even when you come out [of prison] it moves from slavery to sharecropping because they have these fines and obligations that they put on people. … That is how sharecropping was. That is why a lot of our great-grandparents and grandparents couldn’t leave the South. Everything was owned by the former slave master. If they bought a plow they ended up in debt over the plow. If they bought seeds they ended up in debt over the seeds. They were tied to the land. Probation is like sharecropping. You are off the plantation, but you still belong to us. And look at this rapacious, exploitative system where phone companies make 50 times what a phone call should cost. And people are charging high commissary fees.
“This is capitalist exploitation, and it must stop,” Hamm thundered. “But it won’t stop unless we build a movement to make it stop. Every organization that calls itself a civil rights or human rights organization, if they do not have the plight and condition of the incarcerated on their agenda they need to hand in their credentials.”
Last week’s call to launch nationwide boycotts signals the start of the most important frontal assault yet against the prison-industrial complex. I do not know if it will succeed. But I do know it is our only hope. Halting the abuse and exploitation of the poor inside prisons is not only the most important civil rights issue of our time, it promises to be a vital check against a corporate state that, if not dismantled, will imprison us all.

Almost alone among major industries, the miners are entering a margin sweet spot, with higher selling prices and flat-to-falling costs.

by John Rubino
One of the oddities of floating exchange rates is that they cause people to view the world in terms of their own national currency. For Americans that means looking out through a window that is distorted by the dollar’s recent surge. A C$100-a-night Vancouver BC hotel room, for instance, cost about US$100 in 2013 and now costs about $80. Most other Canadian products are commensurately cheaper, making a week north of the border suddenly a lot easier to fit into the family budget. Though fundamentally not much has changed.
Another big distortion is in local-currency gold prices. Here in the US, gold has been in a brutal bear market since 2013. But for people in most other countries,living as they are with relatively weak currencies, gold’s bull market has resumed without missing a beat. In the past week, gold rose by 3.5% and 2.2% in euros and pounds, respectively. And that’s par for the recent course. Here’s a chart from Kitco showing the past six months’ gold price action. Note that it’s down a bit in US dollars but up by varying amounts against the other major currencies. These are six-month numbers, so annualizing them produces very nice gains, especially in euros where it’s about 35%.
Gold in other currencies April 2015 Two conclusions can be drawn from this:
1) People everywhere are getting seriously distorted pictures of their world. Europeans and Japanese especially are seeing zero consumer price inflation but rapid currency depreciation against assets such as equities, penthouses and, lately, gold. So is that inflation or deflation? This question is just as confusing for economists as it is for regular people.
2) The US, now feeling the impact of a too-strong dollar on corporate revenues and (potentially) earnings and therefore share prices, can’t keep this up much longer and will have to not just delay the promised rate increases but change course entirely and join the global devaluation party. Deflation is not an option when your debts exceed 300% of GDP.
But in the meantime, the world’s non-US gold miners (which comprise the vast majority of the sector) are seeing the world through a less-confusing, more rose-colored lens. The price of the gold they’re mining is up nicely, usually at a double-digit annual rate, while their labor costs are stable due to flat local wage growth and their fuel costs are down big thanks to the (partially strong-dollar-induced) plunge in oil prices.
So almost alone among major industries, the miners are entering a margin sweet spot, with higher selling prices and flat-to-falling costs.
They won’t blow the doors off of analyst expectations this quarter, especially with all the write-downs that are baked into the cake, though they might surprise to the upside a bit more than in the recent past. But let the current environment persist for a while and the gap between cost and sales trends might reach a point where it gets noticed. That combination — beaten-down stocks and widening margins — is what puts a period at the end of bear markets.

U.S. Economic Recovery Illusion Is Falling Apart

Greece has six days to present their proposals for the next payment. Italy wants to leave the Euro zone. Malls are closing down. Real estate recovery is a hoax. The White House warns states to be prepared for the next collapse. Protesters use holograms to protest the gag law. German businesses angry because they are losing billions because of the Russian sanctions. NATO getting ready the Russian Rapid Force by having drills. US not evacuating US citizens in Yemen. FBI sets up another fake IS sting.

8 Forgotten Survival Skills Your Great Grandparents Used Everyday

By Idealist Revolution

Our modern society is highly dependent upon the “system.” Not only do we rely upon utility services to bring us electricity, water and natural gas, but also on an incredibly complex supply chain which provides us with everything from food to computers. Without that supply chain, most of us wouldn’t know what to do.

This situation is actually becoming worse, rather than better. When I compare my generation (I’m in my 50s) to that of my children, I see some striking differences. In my generation it was normal for a boy to grow up learning how to do a wide variety of trade skills from his father, and seemingly everyone knew how to do basic carpentry and mechanic work. But that’s no longer normal. - See more at:

United States is facing global economic isolation

From Filip Karinja, for Birch Gold Group
Just this week, former Treasury Secretary Larry Summers wrote an eye-opening and scathing op-ed outlining where America stands in the rapidly changing global economy.
Titled ‘Time U.S. leadership woke up to new economic era’, the piece looks at the many ways in which the United States is losing influence around the world to China and other emerging markets, while at the same time becoming increasingly isolated.
Summers especially points to the charade that is our two-party political system as a main culprit for our dysfunction, saying that both the left and right are responsible for not only the decline of the country, but also allowing other nations, like China, to fill the void we’ve created.
Larry Summers
Former Treasury Secretary Larry Summers
China’s rise in power has been well documented, and appears to be only growing stronger as more and more nations turn their back on the U.S. dollar.
What’s the latest move away from the U.S. as global economic superpower? Despite serious disapproval from Washington, many of America’s allies are joining China’s proposed new financial institution, the Asian Infrastructure Investment Bank (AIIB). This include our closest of allies, including England and Israel.
What’s more, many countries that the U.S. has an open disdain for, such as Russia and Iran, are founding members of the AIIB.
They say a picture tells a thousand words. Here’s that map again from the top of this article, of who’s in and who’s out of the AIIB:
AIIB Asian Infrastructure Investment Bank Countries
Take a good look at this map. Think the U.S. is becoming isolated and irrelevant?
Besides the U.S., the only other notable non-applicant country is Japan, who is facing a debt crisis of their own. But even the Japanese are ultimately expected to join – and that’s despite its ongoing and bitter dispute with China over the Senkaku Islands.
Summers argues that institutions such as the AIIB are rising because the U.S. has increasingly and stubbornly refused to cede power within the International Monetary Fund (IMF) to other nations. Another attraction for many nations is that, unlike at the World Bank and IMF, powerful nations like the UK, China and U.S. are not given veto powers. This ensures a level playing field.
A level playing field on the global stage is not something the U.S. is accustomed to. Without veto powers, the U.S. is like Dorothy from the Wizard of Oz without her ruby slippers; although in the case of the AIIB, Dorothy is not even in Neverland, let alone wearing her slippers!
Just to show you how fed up the rest of the world has become with the U.S., take a look at the 10 million Venezuelans that have signed a petition this month protesting U.S. aggression. That’s one-third of the entire country putting pen to paper!
It seems former Congressman and Presidential candidate Ron Paul was right all along in saying that American prosperity would be damaged by welfare, warfare, corporatism and fiat money.
Now that the decline of America is in full view, this message is starting to find its way into the mainstream, with people like Larry Summers stating what many of us have been saying for a long time.
It might be too late for America to remain the world’s super power. But it’s not too late to save face.
If the U.S. does indeed decide to join the AIIB, it will be part of a network of emerging economies that will trade in a more democratic style than the current structure. But should the U.S. continue to stubbornly sit on the sidelines, it will face being ostracised by rapidly growing foreign economies at a time when it needs all the help it can get.
Read more…

Decisions: Life and Death on Wall Street

by Jesse’s Café Américain
I have just started reading a new book by Janet Tavakoli called Decisions: Life and Death on Wall Street.
There is also a paperback version of it available in the US and Canada here.
This is a non-fiction story of her travels in the world of finance that asks the question, ‘What would you be willing to do for money and power?’
As usual Janet does not pull her punches. The description on Amazon is rather intriguing.
In New York, the Federal Reserve Bank hides damaging information about too-big-too-fail banks from the public eye. A prominent bank CEO seems on the verge of a nervous breakdown.
In Washington D.C., a former Wall Street regulator checks into a hotel using the name of a hedge fund manager for an illicit meeting with a prostitute. In a D.C. suburb, the CFO of a beleaguered mortgage giant chooses a drastic personal end to “relentless pressure”.
In a picturesque suburb of Zug, Switzerland, the CFO of a major insurance company decides to end his life. In London, a financier kills himself in a way he once said he never would.
In her new memoir, Janet Tavakoli shines a bright light on the money-driven culture of Wall Street and Washington, and the life and death consequences of our decisions that put profit above all.
“The U.S. went off the gold standard in August 1971. With no benchmark, central banks could print money and debase currencies. That opened the door for huge bailouts after big banks screwed up in a big way. Taxpayers—not incompetent bankers—paid the price.
By [the late 1980’s], the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.
Banks didn’t have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money.”
If ‘rule under law’ were more than just a slogan in the United States, men who occupied the senior-most positions in too-big-to-fail banks would have been disgraced, prosecuted, and jailed. But no bank executive was held accountable.”

Oppressive Taxes And Regulations Killing Upstate New York Economy

Oppressive Taxes And Regulations Killing Upstate New York Economy
Oppressive government regulations and taxes beating down Upstate New Yorkers have assaulted the region for years, leaving cities like Binghamton on the path to Detroit-level devastation. However, all is not lost. The hope of prosperity is evidenced in the success of less regulated and prosperous Native American tribe businesses
in the state.
The Upstate cities of Rochester, Buffalo, Syracuse, and Binghamton have experienced poverty levels upwards of 30 percent in 2013, all having increased from 2010 levels, according to U.S. Census data. Detroit sits at a 39.3 percent poverty rate with Syracuse, Binghamton, and Rochester right behind at levels of 34.6 percent, 33.3 percent, and 32.9 percent respectively.
Detroit edges out the others in home ownership, with 52 percent homeowner-occupied housing between 2009 and 2013, whereas the New York cities mentioned host rates as low as 39 percent. Each city had a similar population density to Detroit.
Jobs, income, and residents in the former agriculture and manufacturing-leading Upstate New York regions have been experiencing the pain of government overreach for over 50 years, argues a Deseret News article.
“Basically what you’ve got in New York is a state tax code and regulatory regimen written for New York City,” Joseph Henchman, vice president
for state projects at the Tax Foundation in Washington, told the paper. “Legislators say, `Look, New York is a center of world commerce. Businesses have to be here. It doesn’t matter how high we tax them.’ I hear that a lot. But when you apply that same logic to upstate, the impact is devastating.” Similar to the exodus seen from California, businesses have forsaken the Upstate region for more friendly venues. “In 1988, Kodak employed 62,000 people in Rochester, ” Rochester Business Alliance president
Sandra Parker told Deseret News. “Today it employs 4,000. Xerox has moved most of its people out while Bausch & Lomb, which was founded in Rochester in 1858, has left entirely.”
How high taxes and regulation are killing one of the most prosperous states in the nation
Upstate New York is becoming Detroit with grass.
Binghamton, New York — once a powerhouse of industry — is now approaching Detroit in many economic measures, according to the U.S. Census. In Binghamton, more than 31 percent of city residents are at or below the federal poverty level compared to 38 percent in Detroit. Average household income in Binghamton at $30,179 in 2012 barely outpaces Detroit’s $26,955. By some metrics, Binghamton is behind Detroit. Some 45 percent of Binghamton residents own their dwellings while more than 52 percent of Detroit residents are homeowners. Both “Rust Belt” cities have lost more than 2 percent of their populations.
Binghamton is not alone. Upstate New York — that vast 50,000-square mile region north of New York City — seems to be in an economic death spiral.
The fate of the area is a small scene in a larger story playing out across rural America. As the balance of population shifts from farms to cities, urban elites are increasingly favoring laws and regulations that benefit urban voters over those who live in small towns or out in the country. The implications are more than just economic: it’s a trend that fuels the intense populism and angry politics that has shattered the post-World War II consensus and divided the nation.
Upstate New York, the portion that lies beyond the New York metropolitan area, has become “The Land That Time Forgot,” a broad swath of depressed cities and low-profit farmlands that stretches from Newburgh and Poughkeepsie in the Hudson Valley through the old manufacturing centers of Schenectady and Troy, across the Allegheny Plateau to Syracuse, Rochester and Buffalo, all the way west to Jamestown, the city with the lowest percentage of college graduates in America.

50% of America’s wealth is concentrated inside the green circle

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50% of America's wealth is concentrated inside the green circle 

How high taxes and regulation are killing one of the most prosperous states in the nation

Upstate New York is becoming Detroit with grass.
Binghamton, New York — once a powerhouse of industry — is now approaching Detroit in many economic measures, according to the U.S. Census. In Binghamton, more than 31 percent of city residents are at or below the federal poverty level compared to 38 percent in Detroit. Average household income in Binghamton at $30,179 in 2012 barely outpaces Detroit’s $26,955. By some metrics, Binghamton is behind Detroit. Some 45 percent of Binghamton residents own their dwellings while more than 52 percent of Detroit residents are homeowners. Both “Rust Belt” cities have lost more than 2 percent of their populations.
Binghamton is not alone. Upstate New York — that vast 50,000-square mile region north of New York City — seems to be in an economic death spiral.
The fate of the area is a small scene in a larger story playing out across rural America. As the balance of population shifts from farms to cities, urban elites are increasingly favoring laws and regulations that benefit urban voters over those who live in small towns or out in the country. The implications are more than just economic: it's a trend that fuels the intense populism and angry politics that has shattered the post-World War II consensus and divided the nation.
Upstate New York, the portion that lies beyond the New York metropolitan area, has become “The Land That Time Forgot,” a broad swath of depressed cities and low-profit farmlands that stretches from Newburgh and Poughkeepsie in the Hudson Valley through the old manufacturing centers of Schenectady and Troy, across the Allegheny Plateau to Syracuse, Rochester and Buffalo, all the way west to Jamestown, the city with the lowest percentage of college graduates in America.
For more than half a century, this huge region — once the nation’s breadbasket and a manufacturing capital — has been losing jobs, dollars and people. “It all began in 1959 when the interstate highway system was completed,” says Carl Schramm, professor of innovation and entrepreneurship at Syracuse University. “That was also the year commercial jets went into service and half the homes in Florida were air-conditioned.”
Weather was certainly a contributing factor. Of the country’s 12 medium- and large-sized cities with the heaviest annual snowfall, nine are in upstate New York, with Syracuse on top of the list at 115 inches. Not for nothing is the 363-mile long corridor of the old Erie Canal called the “Snow Belt.”
But other states — New Hampshire, Minnesota, North and South Dakota, Colorado — have similar weather and have not seen mass evacuation. The difference is that upstate New York is tethered to New York City, whose residents overwhelmingly support higher taxes, stricter regulation and bigger spending than the national averages. Those policies are blamed for upstate’s economic woes by many in the region.
“Basically what you’ve got in New York is a state tax code and regulatory regimen written for New York City,” says Joseph Henchman, vice president for state projects at the Tax Foundation in Washington. “Legislators say, `Look, New York is a center of world commerce. Businesses have to be here. It doesn’t matter how high we tax them.’ I hear that a lot. But when you apply that same logic to upstate, the impact is devastating.”
The exodus
The lives of Bill and Janet Sauter, brother and sister, sum up the sad story of upstate New York. They grew up in the Long Island suburbs. He went to Clarkson College in Potsdam, N.Y., near the Canadian border, studied software and enjoyed a highly successful career in Texas’ oil industry.
Janet went upstate too, marrying a minister and settling in rural East Chatham, 30 miles south of Albany. In 1999, she and her husband wanted to move to Texas to be closer to their daughter. But they couldn’t sell their home. Months passed without a single inquiry. For Janet, there was no escape from New York. Her neighbors had similar experiences, she said.
Bill is now retired and living in Steamboat Springs, Colo., where he skis at every opportunity — while Janet and her husband Bob are trying to eke out a living in what has become one of the poorest regions in the country. “There just isn’t much work around here,” says Janet, who supplements her husband’s income by working all night in a home for the elderly. “I’m lucky to have this job.”
Industry has fled upstate New York. “In 1988, Kodak employed 62,000 people in Rochester,” says Sandra Parker, president of the Rochester Business Alliance. “Today it employs 4,000. Xerox has moved most of its people out while Bausch & Lomb, which was founded in Rochester in 1858, has left entirely.”
As a result, Rochester is now the fifth poorest city in the country, with 31 percent of the population living in poverty. Buffalo is right behind at No. 6 (30 percent).
Syracuse was devastated when Carrier, the nation’s largest manufacturer of air conditioners, General Electric and auto-parts manufacturer Magna International shuttered their last manufacturing plants in Onandago County. A Wall Street Journal survey of the nation’s 2,737 counties, shows that only nine other counties have suffered greater job losses per capita than Onandago County since 2009.
Bob and Janet Sauter were not alone in their desire to leave New York for more prosperous parts of the country. New York state has lost 350,000 people in the past three years, according to the Empire Center for New York State Policy, an Albany-based research group. This is the largest out-migration of any state.
New York was the most populous state in the union in 1960, with 45 representatives in Congress. By 2012, New York fell to third place and its congressional delegation plummeted to 28. The 2020 Census will likely cost New York even more congressional seats. Without the hundreds of thousands of immigrants moving into New York City, the state’s depopulation would be even greater. A remarkable 36 percent of New York City is foreign born — twice the percentage in 1970.

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Citi Economist Says It Might Be Time to Abolish Cash to Save World Economy

()  The world’s central banks have a problem. When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.
In a new piece, Citi’s Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates.
Fundamentally, the ELB problem comes down to cash. According to Buiter, the ELB only exists at all due to the existence of cash, which is a bearer instrument that pays zero nominal rates. Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction?
Cash therefore gives people an easy and effective way of avoiding negative nominal rates.
Buiter’s note suggests three ways to address this problem:
  1. Abolish currency.
  2. Tax currency.
  3. Remove the fixed exchange rate between currency and central bank reserves/deposits.
Yes, Buiter’s solution to cash’s ability to allow people to avoid negative deposit rates is to abolish cash altogether. (Note that he’s far from being the first to float this idea. Ken Rogoff has given his endorsement to the idea as well, as have others.)
Before looking at the practicalities of abolishing currency, we should first look at whether it could ever be necessary. Due to the costs of holding large amounts of cash, Buiter puts the actual nominal rate at which the move to cash makes sense as closer to -100bp. So, in order for a cash abolition to become necessary, central banks would need to be in a position where they wished to set nominal rates much lower than that.
Buiter does not have to go far to find an example of where a central bank may have wanted to set interest rates much lower to -100bp. He uses (a fairly aggressive) Taylor Rule to show that Federal Reserve rates should have been as low as -6 percent during the financial crisis.
It seems Buiter is correct: Sometimes strongly negative nominal rates are called for.
Buiter is aware that his idea may be somewhat controversial, so he goes to the effort of listing the disadvantages of abolishing cash.
  1. Abolishing currency will constitute a noticeable change in many people’s lives and change often tends to be resisted.
  2. Currency use remains high among the poor and some older people. (Buiter suggests that keeping low-denomination cash in circulation — nothing larger than $5 — might solve this.)
  3. Central banks and governments would lose seigniorage revenue.
  4. Abolishing currency would inevitably be associated with a loss of privacy and create risks of excessive intrusion by the government.
  5. Switching exclusively to electronic payments may create new security and operational risks.
Buiter dismisses each of these concerns in turn, finishing with:
In summary, we therefore conclude that the arguments against abolishing currency seem rather weak.
Whatever the strength of the arguments, the chances of an administration taking the decision to abolish cash seem vanishingly small.
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Really Well-Timed: GE Gets Out At The Top, It Appears That Ge’s Managers Have Decided That They Don’t Want To Live Through A 2008 Replay.

by John Rubino
Back in the early 2000s, General Electric — previously known as the world’s biggest, best managed maker of cool, useful things like jet engines and wind turbines — discovered that it could make even more money by exploiting its AAA credit rating to borrow cheap currency and lend it out at higher rates. It ramped up its vendor financing, enabling customers to buy more of its stuff, and built a real estate empire that spanned the globe.
It took a while for people to figure out the the company
, via its GE Capital division, had in effect become one of the world’s biggest, most highly-leveraged banks. But eventually they got it, and when the real estate/derivatives bubble burst in 2008, being a major bank was like being a dot-com in 2000 or a silver miner today: a very bad thing in the eyes of shell-shocked investors. GE’s market value reflected its new corporate persona: image:
GE share price Now it appears that GE’s managers
(unlike most of the people running today’s governments and big banks) actually remember all the way back to the previous decade, and have decided that they don’t want to live through a replay. This morning the company announced that it is selling a big part of GE Capital’s real estate assets and using the proceeds to buy back stock. Some details from MarketWatch:

GE’s Immelt shows how to break up a big bank

General Electric CEO
Jeff Immelt has a good reason to be smiling, because he is delivering on his promise of focusing the company on its core industrial businesses.General Electric Co. just became a much safer stock for long-term investors, as CEO Jeff Immelt has finally delivered on his promise of turning the company back into an industrial powerhouse.
General Electric said on Friday that it would sell most of the assets of GE Capital Real Estate for roughly $26.5 billion to investment funds managed by Blackstone Group % with a portion of the loans going to Wells Fargo & Co.
The asset sale will result in $16 billion in first-quarter after-tax charges, of which $12 billion will be noncash charges.
This move follows the initial public offering of Synchrony Financial, GE Capital’s consumer finance unit, in August. GE holds 85% of Synchrony’s stock, but plans to complete its full exit from the business
through a tax-free spinoff by the end of 2015. GE Capital’s remaining activity will be limited to providing financing for the parent company’s industrial customers.
GE’s news release announcing its latest and greatest reduction of GE Capital summed up the move beautifully, saying “the business model for large wholesale-funded financial companies
has changed, making it increasingly difficult to generate acceptable returns going forward.” “Wholesale-funded” refers to GE Capital’s traditional reliance on the commercial paper market for liquidity. The problem with this short-term funding model for a balance sheet with long-term assets is that during a financial crisis, overnight liquidity tends to dry up as it did for GE late in 2008. When the company had difficulty finding buyers for its paper, the Federal Deposit Insurance Corp. stepped in and through its Temporary Liquidity Guarantee Program (TLGP) was covering $21.8 billion of GE commercial paper. GE Capital registered for up to $126 billion in commercial-paper guarantees under the TLGP.
General Electric obviously wishes to avoid ever needing another government bailout. When GE Capital’s ending net investment declines to roughly $90 billion at the end of 2015, the company estimates needing just $40 billion in funding, which is a relatively small amount. GE Capital will also “work with regulators” to end the unit’s designation by the Financial Stability Oversight Council as a “systemically important financial institution.” This means it will no longer be subject to the Federal Reserve’s annual stress tests or the regulator’s heightened level of scrutiny for major lenders.
Some thoughts
Wise move, now that virtually every measure of financial leverage is once again flashing red. Rich-world government debt has doubled in the past five years, student loans and subprime auto loans have replaced subprime mortgages at the junk paper buffet, and big-bank derivatives books are, amazingly, even bigger than when they nearly destroyed the global financial system. The next few years, in short, are going to be another terrible time to be a big bank, and GE’s exit from that part of its business will look a lot like Sam Zell’s exit from his real estate empire in 2007: really well-timed.
This won’t make GE immune to a global slowdown, of course, and that’s probably coming, given the oil debt and hedges on which banks now have to make good, the soon to be soaring default rates on subprime auto loans in the US and dollar carry trade plays in the developing world. So the share buybacks will probably be seen, in retrospect, as one of those peak-of-the-cycle cautionary tales for future CEOs
. But GE will at least be spared the indignity of another government bailout and share-price near-death experience.

GE sees bubble, dumps assets – with impeccable market timing.

Wolf Richter,
GE’s announcement that it would shed the bulk of the assets held by GE Capital is a doozie of a deal. GE Finance, the seventh largest financial institution in the US, generated $43 billion in revenues in 2014, compared to $108 billion of GE’s industrial operations. GE Capital is so big that it has been designated a “systemically important financial institution.” Regulators are crawling all over these SIFIs. And it seems GE wants to get them out of its hair.
GE has been trimming down its financial operations since the Financial Crisis. Back in 2007, GE Capital, sporting an ending net investment (ENI) of $580 billion, generated 57% of GE’s revenues. By now it’s down to 25%. After the deal is implemented and $200 billion in financial assets have been sold, ENI drops to $90 billion. By then, GE Capital’s revenues are expected to be a mere 10% of total revenues.

GE is immensely smart.

It got bailed out by the Fed during the Financial Crisis when it was running out of liquidity – having borrowed short-term for long-term investments, among other sins. TARP was peanuts compared to the money the Fed handed out. The New York Fed handled these bailouts. And who was a director of the New York Fed at the time? GE’s CEO Jeff Inmelt.
So now he wants to “create a simpler, more valuable industrial company
by selling most GE Capital assets,” GE claimed on Friday. But there’s a price: On “day one,” income will get hit by $16 billion in charges, including a $2.4 billion loss on the sale of its commercial property assets, $6 billion in taxes payable on “repatriating” $36 billion in cash, and $5 billion in impairments. GE also expects an additional $7 billion in costs, for a “total exit impact” of $23 billion, wiping out most of its $28 billion in 2013 and 2014 net income. Becoming more “valuable” is expensive.

Did GE sell at the Peak of the Commercial Property Bubble?

US-Commercial-Property-Index=Green-Street GE confessed to be a market timer: It’s a “strong seller’s market for financial assets,” it said.
So it’s dumping its commercial property assets of $26.5 billion. Funds managed by Blackstone agreed to buy the bulk of the assets of GE Capital Real Estate. Wells Fargo will pick up a portion of the performing loans. Other buyers have agreed to buy another $4 billion in commercial property assets.
It’s an “excellent environment for creating value from financial assets,” GE said.
Commercial property prices have soared 87% from May 2009, according to the Green Street Commercial Property Index (CPPI), and are now 14% higher than they were in September 2007, at the peak of the prior crazy commercial property bubble that collapsed so spectacularly. GE is selling during what might turn out to be the final phase of an even crazier commercial property bubble. Impeccable timing.

There are some quirks, however.

GE is selling the assets of GE Capital, but it’s not shedding the liabilities: as part of the deal, it will fully and unconditionally guarantee $210 billion in GE Capital debt. So it’s still on the hook for the $210 billion. But most of the assets are gone, and so are the $43 billion in revenues.
To cover up the loss of income from GE Capital on an earnings-per-share basis, it would buy back $50 billion of its own shares by 2018, GE said. This will be the second largest share buyback program ever, after Apple’s $90 billion program announced in early 2014. This comes after GE’s $35 billion buyback announced in December 2012. GE doesn’t have this kind of cash flow, not anywhere near. So it will have to borrow much or all of this money. Hence more debt with fewer assets to support it. To top it off, GE will continue to pay out rich dividends.
Ironically, when GE announced the Alstom acquisition last year, it claimed that it would exercise some restraint in these sorts of things. But that was last year.
Selling $200 billion in financial assets, remaining on the hook for $210 billion in associated debt, incurring $23 billion in costs to do so, and buying back $50 billion in shares mostly with borrowed money amounts to a masterpiece of financial engineering designed to trick up its earnings per share. Not many companies
can pull this off.

But Moody’s had a cow.

And it slashed GE’s credit rating. It saw “a growing level of financial risk tolerance, in favor of equity holders and at the expense of creditors.” And it’s the creditors that Moody’s serves. Here are some peppery highlights:
The pending GE Capital asset sales, with virtually all benefits inuring to equity owners, taken together with high share repurchase activity and a high dividend payout in recent periods, and the liquidity-consuming Alstom acquisition that is still pending, reflect a noteworthy shift by GE to more aggressive financial policies.
GE has been increasing cash payments to shareholders for several years but has not yet achieved a commensurate increase in operating earnings and cash flow.
In fact, the reduction of earnings and dividends from GE Capital during a period of heavy investment by GE and under difficult market conditions for many of GE’s industrial business
lines will further undercut financial ratios that we already expected to be weaker than peers at the same rating level over the next several years…. Moreover, the full and unconditional guarantee from GE of all existing GE Capital debt imposes additional overhang relative to the current income maintenance agreement and further exacerbates the declining leverage profile that is already heavily strained by substantially underfunded pension liabilities.
The current cash consumptive stage of GE’s business cycle and ongoing heavy capital spend as anticipated will continue to constrain the company’s free cash flow generating capability and earnings over the next few years.
In other words, creditors end up with the short end of the stick.

So to heck with the creditors.

And with risks and leverage. So be it that the guarantees, if called upon, would break the company. It can always get bailed out again by the Fed. There are in fact no more risks in the financial world. The Fed has removed them from the calculus.
It was a masterful stroke of “aggressive,” as Moody’s said, financial engineering! It will be talked about for years to come. It will be the model to follow. GE shares had been in decline since December 31, 2013, despite all prior efforts at financial engineering, including $35 billion in share buybacks. And so the mere announcement on Friday caused Wall Street to foam at the mouth, and the languishing shares jumped nearly 11% in a single day! That’s how you do it!
But the Fed, which has encouraged this sort of thing, is now clueless how to unscramble its omelet. It fears “outsized market reaction” to even the smallest moves. Other central banks keep adding to the omelet. Absurdity reigns. Read… Keep Pushing Until Something Really BIG Breaks?

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THE COMING GOLD RUSH: There’s A Lot Less Gold In The World

The Western U.S. Dollar based monetary system is headed for a train wreck.  This isn’t a matter of IF, it’s a matter of WHEN.  Investors lulled to sleep by the low paper price of gold are losing out on the best buying opportunity of a lifetime.  The precious metals will be one of the best insurance policies to own when the U.S. Dollar finally catches on fire and burns down the entire system.
There are several gold theories circulating around the alternative media on how the global financial situation will play out going forward.  While it’s impossible to really know how events will turn out in the future, there are some that I can guarantee, WILL NOT TAKE PLACE.
I will not get in to the particulars in this article, but rather provide two charts and a bit of common sense that will destroy some of what I label as FAULTY GOLD CONSPIRACIES.
There’s this notion put forth by some very intelligent people that the world has a great deal more gold than stated by official sources stashed away, hidden in vaults around the world.  All we have to do is take this gold and back the U.S. Dollar…. and then everything will be OKAY.
I have read estimates from 500,000 to 1,000,000 metric tons (mt) of gold stored in different vaults throughout the world.  I find this claim simply astonishing as a bit of 3rd grade math would totally destroy this lousy conspiracy theory.  Let’s take a look at the next two charts:
World Gold Production 1493-2014
According to the figures put out by the U.S. Bureau of Mines in their 1930 Summarized Gold Production data, the world produced 714 mt of gold from 1493-1600, 897 mt from 1600-1700, more than doubled to 1,904 mt during the next century, and went completely exponential from 1900-2014 at a staggering 151,482 mt.  Thus, 98% of all the gold mined since 1493 came after 1900.
Some readers may think this information was manipulated by the so-called POWERS THAT BE.  However, if governments were manipulating gold production data prior to 1930, I would imagine they were INFLATING the figures, rather than underestimating them.  Why?  If you read over some of these older U.S. Bureau of Mines reports, you will see just how detailed and meticulous they were.
We must remember, gold was still the King Monetary Metal prior to 1930, and countries with high production saw it as bragging rights to share this data.  So, I believe the estimates of world gold production put forth by that report is very trustworthy… even though the figures may not be 100% accurate.
In addition, there just weren’t many places in the world that had a great deal of easy to find and extract gold before 1900.  It wasn’t until Americans expanded to the west of the country did we find a lot of gold and silver.  One such place and event was the Great California Gold Rush.
This following chart came from the article The Bakken Boom:  Modern Day Gold Rush, which compared peak production during the California Gold Rush to what would take place in North Dakota Bakken oil production:
Gold production in California started in 1848 and peaked just four years later at 3.9 million ounces (Moz).  Production continued to decline, even with using high-tech techniques of hydraulic mining by using massive amounts of water to wash away mountain sides to get the gold.
The California Gold Rush from 1848 to 1888 yielded approximately 57 Moz of gold.  How much is this in metric tons?  It turns out to be 1,773 mt.  This was one of the biggest gold discoveries in the world at the time, but it only accounted for 1.1% of the total 155,000 mt of gold mined in the world since 1493.
Folks, there just weren’t that many big gold discoveries in the world prior to the 1900’s.  Of course the huge gold discovery in the late 1800’s in South Africa was another, but again… these were few and far in between.
It wasn’t until oil was discovered in the late 1800’s were we able to seriously ramp up gold production.  Here is the breakdown since 1900:
1900-1960 = 47,242 mt
1960-2014 = 104,240 mt
In the first six decades, the world produced 47,242 mt of gold, but it more than doubled in the next 54 years to 104,240 mt.  I discussed this in a recent interview titled, “Mad Rush Out of Paper Assets Coming “The Data to Prove It!”  You can find this topic in PART 2 towards the last third of the interview.
The official sources such as GFMS state there were a total of 170,000 mt of gold mined in the world, and this to me is pretty accurate assuming about 15-20,000 mt were mined before 1493.  I say this is pretty accurate because if we make a plot on a chart over the past 2,000 years and input world population, gold, silver, lead, copper and oil production, they will all look flat up until the 1700’s.  Yes, of course oil production did not come in the picture until the late 1800’s… but you will catch my drift here in a minute.
By the 1800’s world population, gold and silver production started to move up higher and it wasn’t until the 1900’s did ALL OF THEM GO EXPONENTIAL.  Why?  You can thank the exponential rise in oil production that impacted the same rate of increase in world population, gold, silver, lead and copper production.
So, don’t count on some group to magically save the system by taking the supposed 100,000’s mt of gold hidden in vaults around the world to back the soon to be worthless Dollar.  There’s a hell of a lot less gold in the world than we realize.
And….. when the Dollar finally does die, I would imagine there will even be a great deal less to buy.