by StarmanSkye » Fri Mar 31, 2006 7:41 am
Vital info to getting a better handle on how we've all been scammed and schemed -- the basis for America's lucrative wars and the advantageous merging of Intelligence, Black-ops and Criminal Syndicates, the Military Industrial Complex as a Public Works Project, and neocolonialism on global and local scales.<br>Starman<br>*******<br><br><!--EZCODE AUTOLINK START--><a href="http://www.scoop.co.nz/stories/HL0408/S00277.htm">www.scoop.co.nz/stories/H...S00277.htm</a><!--EZCODE AUTOLINK END--><br><br><!--EZCODE AUTOLINK START--><a href="http://www.sandersresearch.com">www.sandersresearch.com</a><!--EZCODE AUTOLINK END--> - Sanders Research Associates<br><br>--excerpts--<br><br>Fascinating and lucrative patriotism, <!--EZCODE ITALIC START--><em> <br>The negative return economy: a discourse on America’s black budget*<br><br>By Chris Sanders and Catherine Austin Fitts<br>*(Also published World Affairs, Journal of International Issues )<br><br>Keep the people frightened<br>Of things they cannot know<br>Is the secret of the Tomb<br>If they knew what you and I know<br>They would know it is just men<br>Who rob them, cheat them, kill them<br>Then start it all again <br>- Orville X <br><br>*********<br>Introduction<br><br>The United States government has operated a secret budgeting and spending program for decades outside the framework of the American Constitution. The institutional and political roots of this system of clandestine finance reach back to at least a century. The turn of the 19th and 20th centuries saw the consolidation of American industry and banking under the control of a restrictive cartel that for all practical purposes assumed control of the economy. The great magnates of American industry and finance in the late nineteenth century were superb practitioners of covert operations. Witness to this fact are the institutions set up during the twentieth century through which their descendants maintain control.<br><br>This paper is a summary of the structure of the American political economy which fits the facts better than the official model. Officially, American capitalism is characterised by democracy, opportunity, self-improvement, open and free markets, and constructive regulation for the public good, in short, happiness. Under this construct America has never fought a war of aggression and harbours no designs to do so. Its leaders have the nation’s interests at heart, and its politicians listen to their constituencies. The truth is different. Why the United States is so widely misunderstood is due in part to a controlled educational system and media. As the system evolved over the decades, time lent it legitimacy spanning the political spectrum. <br> . . .<br>The trusts are dead. Long live the trusts<br><br>The cartelisation of the American economy was for all intents and purposes completed by the end of the first decade of the twentieth century. [vii] In 1889, America’s leading banker JP Morgan held a meeting at his 5th Avenue mansion in New York. Its purpose was to reach a consensus whereby the owners of America’s railroads merged their competing interests. [viii] This was no mere group of transportation executives agreeing to fix prices. The railroads also controlled the nation’s coalfields and oil supplies, and were tightly bound to the nation’s largest banks. The creation of the Federal Reserve in 1914 completed this process of consolidation. In effect, Congress ceded control of the US currency system and the federal credit to the banks, thereby officially recognizing the cartel. This placed a relatively small number of men in a position to set prices across the economy with a degree of control heretofore unknown in US history.<br><br>The banking cartel’s interest in war<br><br>American foreign policy and the wars that America has fought over the course of the twentieth century (including the Spanish American War in 1898 [ix] and the present War on Terror) have successfully extended the cartel’s control over the world economy. The American Civil War was fought to determine control of the US economy. [x] Most Americans would explain the last 150 years of warfare as sadly necessary for reasons beyond America’s control. The implication is that America has accumulated its preponderant international position by some providential accident and not by design. Arguments for a contrary view elicit derisive accusations of falling victim to “conspiracy theory.” Reassuringly, they believe that self-interested individuals and organisations are incapable of collaboration to achieve common ends. When JP Morgan sat the owners of America’s railroads around a table and hammered out a non-compete agreement, it was no accident. Similarly, neither have America’s wars been accidents; they have been far more profitable than is widely understood. The US confiscated billions of dollars worth of German and Japanese war treasure at the end of World War Two. President Truman made a conscious decision to not reveal this to the public or repatriate it. Instead, it was used to finance covert operations. [xi] <br><br><br>***********<br>Command economy<br><br>Popular myth has it that the trusts were broken up in the first decade of the twentieth century thanks to the crusade of Theodore Roosevelt on behalf of the middle class. Roosevelt certainly used his public stance against “big business” to successfully bid for campaign money from the very businessmen whom he was attacking. This perhaps explains why he subsequently signed legislation repealing criminal penalties for those same businessmen. This is a common trait of “liberal” or “progressive” presidents. The second Roosevelt, Franklin, is remembered as the champion of the downtrodden, who put an end to the Great Depression. It was he who established the nation’s social security system which in reality was (and is) funded by a highly regressive tax on its beneficiaries. Matching contributions from business were allowed to be deducted as a business expense before tax which simply extended the regressive nature of the program by financing business’ share out of foregone tax revenue. Roosevelt, a superb politician, won a landslide victory on a platform of reform which he adroitly sidestepped fulfilling. Instead, he declared a national economic emergency, short-circuiting any constitutional challenge to his power in the court. He promptly defaulted on the gold clause in the government’s bond contracts, and established the Exchange Stabilisation Fund (ESF) in 1934. Ostensibly meant to promote dollar stability in the foreign exchanges, the Fund in practice was and is something quite different. It is exempt from reporting to Congress and is answerable only to the President and Secretary of the Treasury. It is, in short, an undisclosed fund that can tap federal credit.<br><br>Apparatus of a Command Economy<br><br>The establishment of the ESF was an extension of the same logic behind the creation of the Federal Reserve in 1914. The latter, the Fed, was also created in response to a crisis: the crash of 1907. The Wall Street legend credits JP Morgan’s genius and patriotism with saving the Nation. In reality, the crash and resulting depression enabled Morgan to destroy his competitors, buy up their assets and in the process revealed to the nation and the world just how powerful the banks and Morgan were. Not all were grateful, and some demanded legislative action to bring the federal credit and national monetary system under public oversight and control. In a campaign of masterful political legerdemain, the Federal Reserve was created in 1912 by an act of Congress to do just this. But by creating it as a private corporation owned by the banks, Congress effectively ceded to the banks a position even stronger than they had occupied before. Even today it is not widely understood that the Fed is a privately held business owned by the very interests that it nominally regulates. Thus the control of federal credit and the US monetary system and the rich flow of insider information that results from that control are veiled from public view and are privately controlled in secret which rather explains the Delphic nature of the Fed’s chairman.<br><br>The extension of secret control was not limited to finance. The National Security Act of 1947 created the Central Intelligence Agency (CIA) and the National Security Council (NSC) and consolidated control of the three armed services under one roof at the Pentagon. This merely served to extend this principle of secrecy to the field of “national security.” Like the Fed, the CIA was exempted from public disclosure of its budget and was given budgetary control over the entire intelligence community, while the National Security Council was set up as a policy-making body separate from the existing organs of state policy such as the State Department and the military commands reporting directly to the president.<br><br>The CIA Act of 1949 created a budget mechanism that allowed the CIA to spend as much money as it wanted “without regard to the provisions of law and regulations relating to the expenditure of government funds.” In short, the CIA has a way to fund anything –legal or illegal – behind the protection of national security law. [xii] <br><br>Implementation<br><br>Having created the bureaucratic means to conceive and make policy in secret, the next development was to create the means to implement it. The main issue was how to control money flows in the national economy. The government’s solution was to assume a commanding position in the credit markets. To that end, it created first the Federal Housing Authority in 1934 (forerunner of HUD and now part of HUD) [xiii] and subsequently Ginnie Mae and then Fannie Mae and Freddie Mac, which are government sponsored enterprises (GSEs) to supply mortgage finance and insurance for homebuyers. The underlying political purpose is more subtle. Combined with the power of the Federal Reserve (i.e. the cartel) to set the price of money, the ESF, the GSEs, and latterly the Department of Housing and Urban Development (HUD), have proven to be a powerful force for regulating money flows and demand in the US economy.<br><br>The military, too, was reformed with the adoption for the first time in American history of a wartime military budget and force structure in peacetime. In the early 60s this was fine tuned with the adoption of an explicit cost-plus acquisition process. The justification for this was, as usual, national security. This military budget has proven as effective in regulating the industrial sector as control over home finance has proven in regulating credit. Together they confer virtual control over the economy as conventionally measured in terms of money GDP.<br><br><br>***********<br>Credit, credit, and more credit<br><br>A few moments reflection on the institutional structure briefly outlined above makes clear the central importance of the federal credit in underwriting it. The federal government underwrites the GSEs by extending to them a subsidised line of credit from the Treasury. An additional indirect subsidy in the form of lower borrowing costs flows from the belief in the marketplace that this constitutes an implicit government guarantee of their solvency. While this subject from time to time excites controversy, the truth is that the GSEs are not the only corporate entities benefiting from government support. Since the failure of Continental Illinois in the early 80s, the government has informally made it clear that it stands behind the banking system. This was made even more explicit with the bailout of Citibank in the early 90s and the implicit subsidy that the entire banking industry received as a result. Nor are financial institutions the only ones to enjoy this kind of support. Both Lockheed Martin and Chrysler have been effectively saved from insolvency by the taxpayer in the past, presumably due to their status as major defence contractors.<br><br>Such a system places a significant value premium on sheer size, if for no other reason than what the banking system cheerfully and disingenuously refers to as the “too-big-to-fail” doctrine. But for industrial firms, too, there is significant value in having a contracting relationship with the Pentagon. Not only is there the economic nirvana of cost-plus contracting but, if you are big enough, your fundamental business risk is underwritten for national security reasons. Thus, there is a tendency for firms to migrate their businesses to military rather than purely civilian markets; today the Boeing Company is a perfect case study of this in action. And a result is that civilian business in sector after sector has been driven into insolvency or into acquisition by the very national security industry that is ostensibly protecting them. [xiv] <br><br>The dynamics of cost-plus contracting are such that profits rise as costs rise. [xv] This explains a great deal about the size of American military budgets, which have risen inexorably over the years even as military preparedness has fallen. [xvi] But as we have seen, the losses in terms of lower productivity are felt across wide swaths of the economy as non-military contracting competition is squeezed out or acquired. Obviously these losses in the real economy have to be financed, producing a higher demand for credit than would otherwise be the case. Given declining productivity and a narrowing production base, it was inevitable that at some point net exports would become negative, a condition that the US entered in 1982 and which has intensified since. Today the US net foreign debt [xvii] is on the order of $3,000 billion (30% of GDP) and is increasing at a rate of some $500 billion per year (5% of GDP). [xviii] <br><br><br>***********<br>Concentrating capital<br><br>To finance such a large foreign borrowing requirement without currency depreciation requires both the ability to control as much of the national cash flow as possible as well as the collaboration of at least a few key foreign countries to achieve the same sort of control over international cash flows. In the latter case, this takes the form, in part, of ever larger amounts of intervention on the part of those countries running dollar surpluses and strong net export positions to prevent the markets from driving the dollar lower. In practice this means that they accumulate more and more dollars, which they in turn invest in US Treasury securities. Foreigners now own some 45% of US Treasury debt outstanding. In January this year the Bank of Japan intervened in the currency markets on behalf of Japan’s Ministry of Finance, purchasing a whopping $69 billion in that month alone, or more than 30% of its total intervention in 2003 which was itself a record year. <br><br>Current trends<br><br>All of this may seem to have little to do with the black budget, which most people associate with intelligence covert “black” operations. The truth, however, is that the black budget cannot be understood in isolation without understanding the political, historical and economic context from which it springs. One way of understanding this is by comparing trends. For example, in 1950 the Dow Jones Industrials stood at 200, and today the Dow is at 10,600. In 1950 narcotics trafficking was a relatively unknown crime in the United States. Today it is endemic, and not only in cities but in smaller towns and rural communities as well. In 1950 the US possessed most of the world’s gold and was the world’s biggest creditor. Today it is the world’s biggest debtor. In 1950 the US was a major exporter of industrial goods to the rest of the world. On current trends the US is not self-sufficient in manufactured goods and will not even have a manufacturing industry worth the name by 2020.<br><br><br>Then And Now<br><br><br><br>1950 Dow Jones Industrials at 200 2004 Dow Jones Industrials 10,600 <br>1950 Drug trafficking virtually unknown 2004 Drug trafficking endemic <br>1950 US had the largest gold reserves 2004 Gold reserves … <br>1950 US world’s biggest creditor 2004 US world’s biggest debtor <br>1950 US industrial giant 2004 US no longer self-sufficient <br><br><br>Narcotics trafficking and the stock market<br><br>Is there a connection between these trends or are they random? It may seem strange to think of a positive correlation between narcotics trafficking and the stock market, but consider: in the late 90s the US Department of Justice estimated that the proceeds of such trade entering the US banking system were between $500 and $1.000 billion annually, or more than 5-10% of GDP. Now the proceeds of crime need to find a way into legitimate, that is legal, channels or they are worthless to the holders. If one further imagines that the banking system earns a fee of 1% for handling this flow (rather low considering that money laundering is a seller’s market) then the profits for the banks from this activity are on the order of $5 to $10 billion. Applying Citigroup’s current stock market multiple of 15 or so to this yields a market capitalisation of anywhere from $65 to $115 billion. One can thus readily see the importance of the illegal drug trade to the financial services industry. As it happens, this trade in illegal profits is concentrated in four states: Texas, New York, Florida and California, or four Federal Reserve districts: Dallas, New York, Atlanta and San Francisco. Can anyone seriously suppose that the Fed is unaware of this if the Department of Justice is? It, after all, handles the flows.<br><br>Narcotics trafficking and the National Interest<br><br>One reason for the Fed’s silence is that agencies of the government itself have been involved in drug trafficking for sixty years or more. [xix] For the purposes of understanding the black budget, one needs to be aware of the American practice of opening the American consumer market for drugs to foreign exporters in order to pursue strategic objectives abroad. The portability of narcotics and the huge price mark up from production to point of sale makes them a particularly useful source of financing for covert operations. Even more important is that the proceeds from narcotics sales fall completely outside conventional, constitutional channels of funding. This helps explain the ubiquitous presence of narcotics trafficking in zones of conflict around the world, from Columbia to Afghanistan. [xx] <br><br>Little examined, however, is the impact of narcotics trafficking on communities and economies at the point of sale. Consider, for example, the impact on real estate markets and financial services. Real estate is an attractive area in which to employ the cash surplus resulting from narcotics sales because it is, as an industry, entirely unregulated with respect to money laundering. Because cash is an acceptable and in some places familiar method of payment, large sums can be disposed of easily and with little comment. This can and does result in considerable distortion to local demand, and in turn provide fuel for real estate speculation and increased credit demand to finance it along with considerable opportunities for speculation and fraud. [xxi] The Iran Contra episode during the 1980s contained all these elements; although many are familiar with the sale of arms to Iran to provide cash to finance CIA backed guerrillas in Nicaragua and death squads in El Salvador, less well-known is the systematic looting of local financial institutions and narcotics sales in the US. Banking allows the application of leverage to the cash that is generated by “illegal” activity while simultaneously making it possible to launder the funds. And when a bank fails, it is the shareholders, uninsured depositors and the taxpayer who pick up the bill. The point here us that narcotics trafficking creates a milieu in which the incentives to engage in uneconomic activity are greater than those to engage in economic activity. In a word, the profits from stealing are higher than the profits from playing by the rules.<br><br><br><br>What counts from a public policy point of view in the cartelised economy is the ability to control and concentrate cash flows of any kind. To this end, it is less important that a bank fails than that the federal credit is available to make good the losses. In doing so, the cash cost of losses is shifted, or socialised, to the national taxpayer base. As long, therefore, as there are willing lenders to the Federal Government, the game can go on.<br><br><br>***********<br>Technology gives an edge<br><br>Government’s power combined with advancing computer technology has over the last thirty years vastly simplified the task of managing the national--and by extension the international--cash flow. Politically, the American victory in the Second World War meant that the entire West and its dependencies were co-opted into the International Monetary Fund (IMF) negotiated at Bretton Woods in 1944. Forty-five years later, the collapse of the Soviet Union in 1989 meant that for the first time in history there was no alternative monetary or political choice in the international arena. The British Empire had surrendered to the Americans precisely because America, represented an alternative to sterling, namely the dollar.<br><br>Today the US presides over a more or less fully closed global monetary system centred on the dollar. In practice this means that those countries within the system must exchange real value in the form of manufactures and commodities with the US cartel in exchange for dollars, which are no more than an accounting entry created out of thin air. This is analogous to a company with no assets exchanging watered stock for cash, and indeed this is no accident. It was a favoured technique by which the JP Morgans of the nineteenth century successfully financed the consolidation of American industry and finance. Today their heirs are busily dong the same thing, but on a global scale.<br><br><br><br>The diagram is a stylized representation of the relationship between the cartel and its allies outside the United States. Flows are both concrete and abstract. Concrete flows are manufactures, narcotics and commodities (mainly oil) inwards and arms outwards. Abstract flows are money outwards in payment for concrete flows inwards, which profits are recycled inwards where they both finance the inflation of the Federal Credit as well as buying political influence.<br>Technology has transformed the possibilities for creative management in banking. Its sheer number-crunching power has rendered the cost of iterative calculations to more or less zero. This has enabled the creation of a new sector in the industry, the derivatives business, which is nothing more than the breaking down of financial instruments such as stocks and bonds into their constitutive parts. This has increased the power of the banks many-fold, thanks to the cooperation of the Federal Reserve and Congress, who have allowed the banks to not only self-regulate their derivatives portfolios and businesses but have enacted rules to force other banks to use derivatives to “control” risk. In practice this has meant that the most profitable business of the banks has been moved off balance sheet, in effect creating a high level of secrecy in their business. It also confers a huge advantage on the largest banks to whom the others have to come for their derivatives. This has, in part, fuelled the manic consolidation in banking over the last twenty five years and has been applied with tremendous success internationally thanks to the imposition of the Basel Accords on money and banking which have forced other country’s financial institutions to either cooperate, which in practice has largely meant be acquired, or go out of business.<br><br>The banks’ tactics have been copied and refined by industry. An excellent example of this is the case of Enron, nominally an industrial company engaged in the production and transport of petroleum and natural gas, but which was transformed into a highly leveraged financial operation with a huge off balance sheet business trading derivatives. It secured a release from regulatory oversight by the time-tested method of purchasing lawmakers and by suborning its auditors. This gave it the power to restate earnings, virtually at will, simply by changing the assumptions on future interest rates embedded in the options, swaps and futures contracts constituting its unregulated derivatives book. Enron is a model also of the increasingly blurred distinction between the public and private sector. It employed as many as twenty CIA officers. One of its senior executives, Thomas White, was an army general before joining Enron and then left Enron to become Secretary of the Army. Enron executives were intimately involved with Vice President Richard Cheney’s energy task force. It is difficult to avoid concluding that Enron was anything other than a money-laundering operation employed in the interest of “National Security” on behalf of the cartel. [xxii] <br><br>The US has embarked on a costly global military adventure the outcome of which is anything but certain. This marks the culmination of more than fifty years of nearly continuous overt and covert warfare. In this it is supported by the most sophisticated financing apparatus in history, capable of mobilising the cash generated from a wide variety of activities both open and covert. The price has been the progressive hollowing out of the American economy itself, and the progressive erosion of civil liberties and the rule of law. The black budget is not the cause of this but the mean</em><!--EZCODE ITALIC END--> <p></p><i>Edited by: <A HREF=http://p216.ezboard.com/brigorousintuition.showUserPublicProfile?gid=starmanskye>StarmanSkye</A> at: 3/31/06 5:28 am<br></i>
