we headed for another
My talks with Elaine Meinel Supkis
By Mike Whitney
|"The blue collar class which is the
backbone of any society, is so oppressed and crushed
under debts here in the US, they see no hope, being
hired for a lifetime in some industry, they have
been told, they must fend for themselves and be
rootless, moving from job to job across the country
or if displaced, removing themselves entirely via
crime or death. No longer being asked to be part of
a specific community, they are told; they must be
more flexible and move from region to region, a leaf
in a thunderstorm in the gutter of life".
Elaine Meinel Supkis, "Culture of Life New"
-- -Question: I've been getting get more and more e-mails
from people who are worried that the policies of the Bush
administration will bring about a severe economic downturn or,
perhaps, even another Great Depression. Do you believe that the
problems in the real estate market, the falling dollar, the
massive current account deficit, or the shaky hedge fund
industry are likely to cause major meltdown?
E.M.S. : Great Depressions like the one that hit in 1929 are
very rare. They usually happen only after two great empires
exhaust their finances. WWI involved two of the biggest
industrial powers in a massive death-struggle that didn't
destroy their industries but wrecked their currencies and
beggared their workers. Russia was a major empire but a minor
industrial power so when the workers there revolted, the loss of
this sector's industrial base had much less impact than the
collapse of Germany's currency and its huge war debts.
This chart is from one of my most dog-eared books, one of the
greatest works explaining relative power and why empires
collapse, 'The Rise And Fall Of The Great Powers' by Paul
Kennedy. This chart shows how England, the leading nation in the
world, supposedly the richest, spent the most money during that
grinding, depressing stalemate of a war.
Germany spent $3.9 billion less than England. Inflation since
1913 has been ferocious. This probably would represent well over
several trillion dollars in today's currency. Even today, no
nation can take a financial hit that big and stay solvent.
Europe's industrial production fell 30% and the US, fattened off
of billions of dollars of loans to all parties in Europe, lived
high and mighty during the 1920's. But with industrial
production lagging, Europe spiralled downwards. The US
cheerfully gave everyone more and more loans and the promise of
being repaid was fantastic! Why, these were basically AAA
Then Germany couldn't pay and kept asking for better terms. This
was OK with the US but not with bankrupt England or France. So
they demanded full payments and Germany defaulted. This
triggered the Great Depression. Even though the US was now the
world's largest manufacturing power, our currency was mostly for
home use so the British had to keep the pound strong. Trying to
do this made things worse.
And so it is today: our empire won't retreat from its distant
borders but these same borders are bankrupting us for we never
recovered from the Vietnam War, we literally papered over the
mess which remained and continues to poison our nation. The
military/industrial complex is not making us rich, it is making
us poorer. And the paper being laid over all this is the same
paper the Germans used in 1924 to paper over their own
bankruptcy: printed money.
When an empire does what we are doing today, society falls
apart. And if this happens, there is no easy way out.
Individuals can avoid the worst by avoiding debts but outside of
that simple thing, there is no other answer. Of course, the true
answer is a strong working class that believes in unity and not
underselling each other. Alas, the USA has a long and tragic
history of slavery. And the legacy of this culture divides the
nation and half loves slavery and enables wretched working
conditions and thinks the road to wealth is via cheap labor.
Germany has an advantage here: their recent attempt at slavery,
the Nazi empire, was a total disaster and they don't want a
repeat. I only wish the USA felt the same way. For no nation
gets very rich for very long if the working class is poor and
can't work their way into the middle class.
Question: Would you explain what is meant by “reserve currency”
and how it serves the greater political interests of the United
States? Do you think that preserving “dollar hegemony” was an
important part of the decision to go to war with Iraq?
E.M.S.: It may sound trite but thinking about great banking
matters as if it is one's own bank account no matter how small,
works. Namely, it is dangerous for anyone to live life where
everything is juggled and there isn't a penny to spare. Then
something bad happens and boom. You go bankrupt. This is why
savings accounts matter and why inflation is so deadly. No one
in their right mind keeps a savings account because it can't
grow, it shrinks!
The Federal Reserve was set up to maintain a reserve funds that
supposedly wouldn't be touched by politicians. But alas, this is
a fiction. Just like your own bank account, if one is married
and sharing an account and one party keeps raiding it and
spending it on guns and cars or fur coats or whatever, it runs
out of funds and then something bad happens like a hurricane
hits, and the cupboard is bare.
In the case of empires, a way to gage solvency is, how big is
their own reserves compared to the size of these same currency
reserves held by potentially hostile rivals? In the case of the
USA, we send dollars out as fast as we can print them. If too
many people getting this flood of money, around $800 billion a
year now!!!!!! If they don't keep a big chunk in bank vaults,
the value of the dollar drops. So they keep it in reserve, in
case of a 'rainy day'. Like 9/11.
And if we think of these funds as boats, then China has Noah's
Ark, Japan has an aircraft carrier, Europe has a holiday cruise
liner, Russia has a very fancy yacht and the USA has a rowboat
made out of an old bathtub. That is leaking.
China has $1.3 trillion in its reserves and is therefore, King
of the Mountain. Japan has $900 billion and is no longer holding
new currency so all the red ink in trade is no longer staying
away, it is floating back home to here, as inflation. Europe has
about $600 billion and Russia, $330 billion. The USA has only
$66 billion and the numbers released today by the Federal
Reserve shows that number is DROPPING. Yikes.
Question: President Bush has said that he intends to make his
tax cuts “permanent” even though they have produced enormous
deficits. At the same time the Federal Reserve has kept interest
rates below the real rate of inflation and increased the money
supply to approximately 10% per annum. Are these policies
designed to maintain a healthy economy with a potential for
strong growth or are they the means for transferring wealth from
working people to the “very rich”?
E.M.S.: How do they 'transfer' wealth? Through unfair taxes.
Under Reagan, American workers, worried about the eventual baby
boomer retirement event horizon, decided to double taxes on
Social Security. This pile of money was instantly, less than a
year later, leaped upon and devoured by our corrupt government.
They insantly gave unfair tax cuts to the upper incomes and
basically used SS excess funds to pay for the government.
This worked OK until Bush took over. He and the GOP have run up
debts so high, they added half a trillion a year in red ink and
over the last six years, this is nearly $3 trillion and our
national debt stands at nearly $9 trillion. During the last
major money crisis, the 1972 collapse of the Bretton Woods
concord, we had a national debt of not even $1 trillion. We have
not had 900% inflation so I would say, this debt that the GOP
rang up consisted of taking taxes out of the hides of the
working class and handing it on a golden platter to the rich
who, incidentally, buy bonds.
But no more! Today, the chief buyer of bonds is the Treasury
itself. Next is China!
Question: Will you explain how the inflationary policies of the
Federal Reserve are causing the stock market to soar and what
the potential dangers are for the global economic system?
E.M.S.: Oh, that is so simple! In 2003, interest rates were
dropped to 1% despite inflation of +5%. Instantly, the value of
all assets shot upwards as bankers moved money along as fast as
possible since the Fed undercut their own interest rates! So
mortgages were below the rate of inflation. But this didn't make
enough money so banks and other entities offered loans to bad
risks who had to pay a higher rate. As inflation rages, they
need to give loans to worse and worse customers who pay over 11%
Alas, the fly in this ointment is exactly that: risky customers
can't pay back loans! They go bankrupt and everyone acts like a
good little domino and over they fall, one after another. Right
now,the crashing sound of dominoes falling is like the hissing
of waves on a distant shore but it is rapidly approaching. We
can certainly hear it coming.
Question: Last week, reports showed that US manufacturing
unexpectedly rose in March. However, the Financial Times said
that, “The rise in the ISM index is impossible to square with
either the regional surveys released over the past few weeks or
our medium-term yield-driven model. We think it is quite likely
that in their next iterations the ISM will drop sharply.” Do you
think the government is deliberately falsifying data on
manufacturing to make the economy look stronger than it really
is? Could they be doing this in areas as well, such as money
supply, inflation, employment, and GDP?
E.M.S.: Do alligators bite? Of course, they lie all the time.
Some things were sacred and they didn't lie about them. The M3
data that shows how much money the Fed prints as well as how
much is in circulation, etc, just last year, they announced, 'No
one is really interested in these numbers and they are too hard
to compile.' Like a drunken, gambling spouse declaring there is
no need to balance the check books or look into the bank
accounts, so it is here. Many people yelled about the M3 numbers
being suppressed but to no avail, of course.
Onwards! Since they are lying about basic bank accounting, they
have to lie about everything else or people will figure out,
something smells rotten in Denmark, DC.
They redrew the rules for figuring out inflation so it no longer
tracks inflation. This is so they can cheat retirees and have
fake interest rates and thus, steal from granny and gramps and
starve school children while lining their own pockets.
Question: Do you believe that the extraordinary “police-state”
measures enacted by the Bush administration (Patriot Act,
Military Commissions Act, repeal of habeas corpus, NSA
“surveillance” of American citizens without court order) are
intended to address the threat of terrorism or the social
disorder that may arise in response to an economic collapse?
E.M.S.: They planned this for a long, long time. Do note that
the 'war on drugs' was launched as we lost the Vietnam War.
Thanks to inflation and a collapsing currency as well as a
sudden hike in oil prices due to the US hitting the Hubbert Oil
Peak here in 1972, there was great unrest. I saw some of this
right up close. Once, when the lights went out in NYC during a
thunderstorm of all things, riots and looting spread like
wildfire. My community was nearly burned to the ground and all
the businesses destroyed.
This, the rulers fear a lot. But no number of police can stop it
if it happens. I have seen up close when a whole city revolts.
More than once, including in Europe in 1968. The new, right wing
French President will learn this the hard way next year. There
will be riots and insurrections there.
Question: Can you explain--in simple “layman’s” terms--the
effect of Japan’s low interest “carry trade” on the U.S. stock
market? Is this practice inflating the value of securities in
foreign markets? What are the risks? How is it affecting the
E.M.S.: Europe lends money for more than 5% interest. So does
the USA now although the financiers are getting worried about
this and are egging on the Fed to lower rates back down to 1%.
This is pure insanity. Japan has near zero inflation because
they have decided to utterly destroy the purchasing power of the
people in Japan who are living worse and worse off if they are
below the top 20%. Many are now homeless. It is pathetic.
The world's #2 economic power that holds the world's #2 FOREX
reserves can't give pay raises to anyone earning below $10 an
hour because this will 'cause inflation' and so they get to live
on the street and starve. Great. Anyone can eliminate inflation
by enslaving the workers. Then they get cut out of the profits
entirely and can't buy things and thus, can't cause inflation!
This is the plan being readied for us! We get to live in
shanties while the rich live in palaces. And we won't buy
anything while they have a zillion servants earning practically
nothing. Sort of like England, circa 1914.
Bush and his gangsters hosted the Queen of England who loves him
because he is making her very rich via Carlyle. And the royals
of England didn't care if they starved their subjects who lived
like savages under the rule of the royals. We are sliding
backwards, not moving forwards here.
Question: Consumer spending is 70% of US- GDP, and yet, workers
wages have not kept pace with the real rate of inflation. This
has led to increased borrowing on the part of the American
consumer. Now that housing prices have flattened out; consumers
can no longer draw on their home equity for their spending. This
has resulted in a huge spike in credit card spending. For
example, “first-quarter profits at MasterCard surged 70% to a
record $214.9 million following a 19% jump in transactions.”
(Peter Schiff) As the weary American consumer is forced to
curtail his spending, GDP will shrink and foreign investment
will dry up. Are we likely to see “capital flight” from American
markets or are foreign investors still confident in America’s
E.M.S.: In most places, housing prices are falling by 30%! All
the people who responded to ads about getting cheap loans are
now discovering they can't use their homes as ATM machines and
simply re-finance over and over again. The house is supposed to
be an asset: if you have to sell it to pay bills or move because
of a job situation, if the debt is greater than the selling
price, you go bankrupt. And this is happening all over the place
now. And it will impact on buying.
Last year, Americans took out half a trillion in extra loans on
the house! The surge in MasterCard (gads, Snidely Whiplash!)
charges is because banks are no longer giving loans to people
who are too deep in debt. The money that flowed there is flowing
into the stock market just like it always does during the first
half of an inflationary binge.
The second half is when the stocks collapse like they did in
1974. Then we see a 5 year bear market. Housing markets ALWAYS
take 5+ years to recover from a bubble. But this last bubble
launched by 1% Fed interest rates will take 20 years to recovery
in most places.
Question: You have stated in your blog that the Federal Reserve
is “buying back its own debt”. Would you explain how this works
and whether it is intended to confuse the public about the real
value of their currency?
(In your blog you say: “The US is the fulcrum for world trade.
As the yen goes down (the yuan is so low, even as it gains, it
is very minimal), the euro goes up. This is crushing the dollar
because the US is printing money like mad to keep commerce
flowing at home since it is bleeding red ink in trade and in
government spending. Most of the bonds issued by our own
government are bought by our own government. The only entity to
buy much of that on the open market today is China. Japan is
selling its hoard of US bonds.)
E.M.S.: Yes, aside from forcing Social Security to buy
government bonds, the Treasury sells them to the Feds. This is
Peter selling to Paul who then gives it back to Peter only it
shrinks in value during this time. The Fed and Treasury can play
this game to infinity. The only country to nearly reach that
upper limit was Germany in 1924. They added more and more zeros
to the money they printed every hour, day and night until they
ran out of room on the bills. Literally! Then they simply
cancelled the money! Bang. It was gone. Forever.
If no one stops us, we will do this just the same way.
Question: Wall Street reacts with wild enthusiasm every time two
mega-corporations merge. These mergers always seems to generate
boatloads of new credit from maximizing leverage and “creative
financing”.. You say in your blog that this is “also a sign of
impending collapse. For every pfennig of this is debt-loaded and
is seeking a stable currency and high interest rates.” What do
you think are the hidden dangers of these mergers?
E.M.S.: That happened in Germany, too. Everyone merged as money
moved faster and faster and inflated more and more. Bubbles
inflate because currency inflates. They are one and the same.
And mergers are caused by money bubbles.
Question: What do you think the real rate of inflation is?
E.M.S.: Inflation is around 10% now. How do we know? The Federal
Reserve just demanded banks hold 10% of their currency rather
than rush it out the door. This reserve ratio is always a good
indicator of inflation. In China, it was raised to 11% last
week. Japan sets theirs at 0%, of course. They are insane.
Question: Is there a chance that the dollar could collapse?
E.M.S.: I hate to say this but I have a whole book of dead
currencies my family has collected this last 180 years. From
1848 to today, in the USA, Germany, China, Japan, etc. Many 'pay
the holder in gold' bonds. All worth something as historic
documents but all ended up being worthless. Hope springs ever
eternal and bad money is like winter: it always is around the
Question: In 1966, Alan Greenspan wrote an article called “Gold
and Economic Freedom” in which he described the events leading
up to the stock market crash of 1929 and the Great Depression.
In his essay he says:
“When business in the United States underwent a mild contraction
in 1927, the Federal Reserve created more paper reserves in the
hope of forestalling any possible bank reserve shortage. More
disastrous, however, was the Federal Reserve's attempt to assist
Great Britain who had been losing gold to us because the Bank of
England refused to allow interest rates to rise when market
forces dictated (it was politically unpalatable). The reasoning
of the authorities involved was as follows: if the Federal
Reserve pumped excessive paper reserves into American banks,
interest rates in the United States would fall to a level
comparable with those in Great Britain; this would act to stop
Britain's gold loss and avoid the political embarrassment of
having to raise interest rates.
The "Fed" succeeded; it stopped the gold loss, but it nearly
destroyed the economies of the world, in the process. The excess
credit which the Fed pumped into the economy spilled over into
the stock market-triggering a fantastic speculative boom.
Belatedly, Federal Reserve officials attempted to sop up the
excess reserves and finally succeeded in braking the boom. But
it was too late: by 1929 the speculative imbalances had become
so overwhelming that the attempt precipitated a sharp
retrenching and a consequent demoralizing of business
confidence. As a result, the American economy collapsed. Great
Britain fared even worse, and rather than absorb the full
consequences of her previous folly, she abandoned the gold
standard completely in 1931, tearing asunder what remained of
the fabric of confidence and inducing a world-wide series of
bank failures. The world economies plunged into the Great
Depression of the 1930's.”
Hasn’t the Federal Reserve created similar “speculative
imbalances” today through its increases in the money supply, its
low interest rates, and the massive liquidity it pumped into the
housing bubble? And, haven’t the deregulatory policies of the
Fed exacerbated our current account deficit---forcing US exports
to compete with countries that artificially lower the prices of
their manufactured goods by manipulating their currencies?
If the economic policies of the Federal Reserve and the Bush
administration are deliberate, than how can we say that the
destruction of the dollar and the subsequent crushing of the
American middle class are accidental?
Greenspan’s essay proves that he fully understood the
implications of “excess credit” and “excessive paper reserves”
and yet he persisted with the same destructive policies for 6
years. So---Is the housing bubble merely the “unintended
consequence” of the Fed's policies or is it the clearly
E.M.S.: Hahaha. The preacher telling us how to avoid the evils
of drug abuse and hanging out with prostitutes comes to mind,
doesn't it? The very moralists warning us about our sins are
usually the worst sinners.
I'll never forget Congress praising Greenspan and telling him
they should stuff him and use him as a scarecrow for this would
mean no one would ever question him about finances! Well, I say,
hang him high. He is a criminal. He destroyed our economic
might. Treason, it is! And all those people who betrayed us in
order to make a mighty empire on our backs and bank accounts
should be held accountable! There is no excuse for this mess! It
was fixable. But alas, too many people are making too much money
off of it the way it is now and they won't stop no matter what.
Just like their latest imperial wars: endless.
I wish I could say something happy here but history is a bitch
who laughs at us all. We should listen to her.
Elaine Meinel Supkis (Bio)---Born at Yerkes Observatory, grew
up on many observatory mountains and secret government testing
grounds, burr under the saddle of the Real Rulers of America
since childhood, family black sheep with three bags of wool,
pulled down more than one politician in life, winner of the
"Struck by Lightning Indoors" award for most hits in lifetime,
three direct and seven glancing blows. Now living on a mountain
with horses and cats and dogs and chickens and a husband. Yikes.
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