Guide to investing in gold & silver, 4

by Mike Maloney

 

Chapter Four:
Greed, War, and the Dollar’s Demise

With the outbreak of World War I, as with all the historical examples we’ve already covered in this book, the combatants halted redemption in gold, increased taxes, borrowed heavily, and created additional currency. However, because the United States did not enter the war for almost three years, it became the major supplier to the world during that time.

Gold flowed into the U.S. at an astounding rate, increasing its gold stocks by more than 60 percent. When the European Allies could no longer pay in gold, the U.S. extended them credit. Once the U.S. entered the war, however, it too spent at a rate far in excess of its income. The U.S. national debt went from $1 billion in 1916 to $25 billion by war’s end.

The world currency supply was exploding.

After the war, the world longed for the robust trade and economic stability of the international gold standard that had worked so well before the war. Thus, throughout the 1920s most of the world governments returned to a form of the gold standard. But the standard employed wasn’t the classical gold standard of the prewar period. Instead, it was a pseudo-gold standard called the gold exchange standard.

Governments never seem to learn that you can’t cheat gold. During the war, many countries inflated their currency supplies drastically. Yet when they tried to return to gold, they didn’t want to devalue their currency against that gold by making the number of units of currency (gold certificates, or claim checks on gold) match the number of units of gold that backed that currency. So here’s their “solution”:
 
Building pyramids

After the war, the United States had most of the world’s gold. Conversely, many European countries had large supplies of U.S. dollars (and depleted gold reserves) because of the many war loans the U.S. had made to the Allies. Thus was decided that under the gold exchange standard, the dollar and the British pound, along with gold, would be used as currency reserves by the world’s central banks and that the U.S. dollar and the pound would be redeemable in gold.

In the meantime, the U.S. had created a central bank (the Federal Reserve) and given it the power to create currency out of thin air. How can you create currency out of thin air and still back it with gold, you ask? You impose a reserve requirement on the central bank (the Federal Reserve), limiting the amount of currency it creates to a certain multiple of the units of gold it has in the vaults. In the Federal Reserve Act of 1913, it specified that the Fed was to keep a 40 percent reserve of “lawful money” (gold, or currency that could be redeemed for gold) at the U.S. Treasury.

Fractional reserve banking is like an inverted pyramid. Under a 10 percent reserve, one dollar at the bottom can be expanded, by layer upon layer of book entries, until it becomes $10 at the top. Adding a fractional reserve central bank, underneath fractional reserve commercial banks, was akin to placing an inverted pyramid on top of an inverted pyramid.

Before the Federal Reserve, commercial banks, under a 10 percent reserve ratio, could hold a $20 gold piece in reserve and create another $180 of loans, for a total of $200. But with the Federal Reserve as the foundation under the banking pyramid and having a reserve requirement of 40 percent, the Fed could put $50 in circulation for each $20 gold coin it had in the vaults. Then the banks, as the second layer in the pyramid, could create loans of $450 for a total of $500.

With the new gold exchange standard, foreign central banks could use dollars instead of gold. This meant that if the Federal Reserve had a $20 gold piece in the vault, and issued $50, then a foreign central bank could hold that $50 in reserve and, at a reserve ratio of 40 percent, issue the equivalent of $125 of their currency. Then when that $125 hit the banks, the banks could expand that to $1,250 worth of claim checks, all backed by a single, solitary $20 gold piece. That means that the real reserve ratio (the ratio of real money that could be paid out against their currency) was now only 1.6 percent.

Now there was an inverted pyramid, on top of an inverted pyramid, on top of an inverted pyramid. This was highly unstable. Ultimately, the gold exchange standard was a faulty system that governments imposed on their citizens, which allowed the governments to act as if their currencies were as valuable as before the war. This was a system that was destined for failure.
 
The rise of credit culture

But every pyramid scheme flourishes in its early days, and so did the gold exchange standard. With all the new currency available from the central banks, the commercial banks generated many new loans. This abundance of currency led to the greatest consumer credit expansion thus far in American history, which, in turn, led to the biggest economic boom America had ever experienced. In a very real sense, credit put the roar in the Roaring Twenties.

Before 1913 the vast majority of loans had been commercial. Loans on nonfarmland real estate and consumer installment credit, like auto loans, were almost nonexistent, and interest rates were very high. But with the advent of the Fed, credit for cars, homes, and stocks was now cheap and easy. The effect of low interest rates combined with these new types of loans was immediate; bubbles sprang up everywhere. There was the Florida real estate bubble of 1925, and then of course the infamous stock market bubble of the late 1920s.

During the 1920s, many Americans stopped saving and started investing, treating their brokerage account as a savings account, much like many Americans treated their homes in our most recent housing bubble. But a brokerage account is not a savings account, nor is a house. The value of a savings account depends on how many dollars you put in. But the value of a brokerage account or a house depends solely on the perception of others. If someone thinks your assets have value, then they do, but if they don’t think they have value, then they don’t.

In a credit-based economy, whether the economy does well or does poorly is largely based on people’s perception. If people believe things are great, then people borrow and spend currency, and the economy flourishes. But if people have the least bit of anxiety, if they have doubts about tomorrow, then watch out!

In 1929, the stock market crashed, the credit bubble burst, and the U.S. economy slid into depression.
 
The mechanics of a depression

The popping of a credit bubble is a deflationary event, and in the case of the Great Depression it was massively deflationary. To understand how a deflation occurs, you need to know how our currency is born, and how it can join the ranks of the dearly departed.

When we take out a loan from a bank, the bank does not actually loan us any of the currency that was on deposit at the bank. Instead, the second the pen hits the paper on that mortgage, loan document, or credit card receipt that we are signing, the bank is allowed to create those dollars as a book entry. In other words, we create the currency. The bank is not allowed to do it without our signature. We create the currency, and then the bank gets to charge us interest for the currency we created. This brand-new currency we just created then becomes part of the currency supply. Much of our currency supply is created in this way.

But when a home goes into foreclosure, a loan gets defaulted on, or someone files bankruptcy, that currency simply disappears back into currency heaven where it came from. So as credit goes bad, the currency supply contracts, and deflation sets in.

This is what happened in 1930-1933, and it was disastrous. As a wave of foreclosures and bankruptcies swept the nation, one-third of the currency supply of the United States evaporated into thin air. Over the next three years, wages and prices fell by one third.
 
Run, baby, run

Bank runs are also enormously deflationary events because when you deposit one dollar into the bank, the bank carries that dollar as a liability on its books. It someday owes that dollar back to you. However, under a fractional reserve system, the bank is then allowed to create currency in the form of credit (loans), in an amount many times that of the original deposit, which it carries on its books as assets. As we’ve discussed, under a 10 percent reserve, a one dollar liability can create another $9 of assets for the bank.

This is normally not a problem, as long as the bank isn’t loaned-up to the maximum amount permitted. With just a small amount of “excess” reserves, the bank can cover the day-to-day fluctuations because most of the time deposits and withdrawals come close to balancing out.

But a serious problem can develop when too many people show up to make withdrawals at the same time without the counterbalancing effect of the relatively same amount of people making deposits. If withdrawals exceed deposits, the bank will draw from those “excess” reserves. Once those “excess” reserves have been used up, however, fractional reserve banking is then thrown into vicious reverse. From that point on, to be able to pay out one dollar against deposits, the bank must liquidate $9 of loans. This was what was happening in 1931, and it was one of the major contributing factors to the collapse of the U.S. currency supply.

Also, prior to the advent of the Federal Reserve, the public had about one dollar in the bank for each dollar in its pockets, and the banks kept one dollar of reserves on hand to pay out against each $3 of deposits. But thanks to the Federal Reserve, by 1929 the public had $11 in bank deposits for each dollar in its pocket, and the banks only had one dollar on hand to pay out against every $13 in deposits. This was a very dangerous situation. The public had lots of deposits and very little cash, and the banks also had very little cash to back up those deposits.

By November of 1930, bank failures were more than double the highest monthly level ever recorded. Over 250 banks with more than $180 million in deposits would fail that month. But this was only the beginning.

The largest single bank failure in U.S. history happened on December 11, 1930. The sixty-two-branch Bank of the United States collapsed. This failure would have a cascading effect, causing over 352 banks with more than $370 million in deposits to fail in that month alone. Worst of all, this was before deposit insurance. People’s entire life savings were lost in the blink of an eye.

Then, to top it all off, on September 21, 1931, Great Britain defaulted from the gold exchange standard, throwing the world into monetary chaos. Foreign governments, along with businesses and private investors from the United States and around the world, began to fear that the U.S. might follow suit. Suddenly, there was a dash for cash.

Within the U.S., banks were running out of gold coin, and at the same time tremendous outflows of gold began to leave the vaults of the Federal Reserve, destined for far-off lands. The pyramid scheme that was the gold exchange standard began to crumble. To stop the bleeding, the Fed more than doubled the cost of currency in the U.S., raising the rates from 1.5 to 3.5 percent in one week.

As a result, between August 1931 and January 1932, 1,860 banks with $1.4 billion in deposits suspended their operations.

However, 1932 was an election year. Three long years into the Depression people were desperate for a change, and in November, Franklin Delano Roosevelt was elected president. Even though his inauguration wouldn’t be until March, rumors started flying that he would devalue the dollar. Again gold flowed out of the vaults as foreign governments, foreign investors, and the American public lost even more faith in the dollar, and the most devastating bank run in American history began. But this time the American public wouldn’t be fooled.

As Barron’s put it in its March 27, 1933, issue: “It has been aptly observed that the stages of deflation since 1929 have been the flight from property (chiefly securities) into bank deposits, next a flight from bank deposits into currency, and finally, a flight from currency into gold.”

Incredibly, the currency supply of the United States was falling so fast that if it continued at that pace for a year only 22 percent of it would remain. The U.S. economic outlook was dire, and it seemed as if the dollar would fall into oblivion.
 
Executive order

On March 4, 1933, Roosevelt was inaugurated, and within days he signed executive proclamations closing all banks for a “bank holiday,” freezing foreign exchange, and preventing banks from paying out gold coin when they reopened. A month later he signed an executive order requiring U.S. citizens to turn over their private property (gold) to the Federal Reserve, in exchange for Federal Reserve notes.

On April 20, he signed another executive order, ending the right of U.S. citizens to buy, or trade in, foreign currencies, and/or transfer currency to accounts outside the United States. On the same day, the Thomas Amendment was sent to Congress, authorizing the president, at his discretion, to reduce the gold content of the dollar to as low as 50 percent of its former weight in gold. It was enacted into law on May 12, and then amended to give Federal Reserve notes the full “lawful money” status.

But there was still one major hurdle to overcome before Roosevelt could devalue the dollar: the infamous gold clause.

During the Civil War, President Abraham Lincoln had to come up with a way to pay the troops and introduced a second purely fiat currency to the country the greenback dollar. When it first appeared, the greenback was worth the same amount as gold notes. But by the end of the Civil War they had fallen to just one third of the value of the gold-backed dollar. Many people who had made contracts or taken out loans before the war in gold notes paid them back in depreciated greenback dollars. Of course this was cheating the creditors and many lawsuits were filed.

After the end of the Civil War most contracts contained a “gold clause” to protect lenders and others from currency devaluation. The gold clause required payment in either gold or an amount of currency equal to the “weight of gold” value when the contract was entered into. The big problem for Roosevelt was that most government contracts and obligations also had this clause written into them. So devaluing the dollar would also increase the cost of government obligations by the same amount.

So at the behest of President Roosevelt, Congress passed a joint resolution on June 5 defaulting on the gold clause in all contracts, public and private, past, present, and future. In essence, the government simply said to American citizens and businesses, “We don’t have to pay you.”

Outraged by what he viewed as the government’s blatant disregard for Americans’ rights, Senator Carter Glass, chairman of the Senate Finance Committee, lamented, “It’s dishonor, sir. This great government, strong in gold, is breaking its promises to pay gold to widows and orphans to whom it has sold government bonds with a pledge to pay gold coin of the present standard of value. It’s dishonor, sir.” But Senator Thomas Gore of Oklahoma put it even more succinctly when he said, “Why, that’s just plain stealing, isn’t it, Mr. President?”

But these protests fell on deaf ears. On August 28, 1933, Roosevelt signed Executive Order 6260, outlawing the constitutional right of U.S. citizens to own gold. To keep from having to default on its commitments (declare bankruptcy), and to keep concealed the fraud of fractional reserve banking, the banking system’s only choice was to get the government to make gold (the legal money of our constitution, an inert, inanimate element) illegal for U.S. citizens to own. Roosevelt gladly obliged.

First under threat of publishing the “gold hoarders”—names in the newspaper, and then under threat of fines and imprisonment, the United States of America, land of the free and home of the brave, ordered its citizens to turn over their own private property (the money in their pockets) to any Federal Reserve Bank. As far as I can tell, no one seems to know exactly who penned these proclamations and executive orders. But one thing was now clear. The government was no longer a government of the people, by the people, and for the people. Instead it was a government of the bankers, by the bankers, and for the bankers.

But there was still one more dastardly deed to be done.
 
Weight watchers

On January 31, 1934, Roosevelt signed an executive proclamation effectively devaluing the dollar. Before this proclamation it took $20.67 to buy one troy ounce of gold. But now, since the dollar instantly had 40.09 percent less purchasing power, it took $35 to buy the same amount of gold. This also meant that, with regards to international trade, the government had just stolen 40.09 percent of the purchasing power of the entire currency supply of the people of the United States—all with the stroke of a pen. That is the power of fiat currency.

The worst part of this whole situation is that people who followed the rules and turned in their gold as decreed were the ones who suffered the most because those who illegally hung on to their gold realized a 69.33 percent profit due to the pressures Roosevelt’s policies applied on the dollar. Less than 22 percent of the gold in circulation was turned in, however, and it seems not a single person was arrested or prosecuted for hoarding.

But despite the efforts of the U.S. government, gold won in the end. Gold and the will of the public forced the government’s hand. By forbidding the U.S. population from laying claim to any of its own gold, and by devaluing the U.S. dollars, the United States was able to avert international runs on the dollar and was able to continue international trade under the gold standard. By declaring the claim checks on gold held by U.S. citizens null and void, and by requiring more claim checks from foreign central banks to purchase each unit of gold, there was now a far lower multiple of claim checks to gold, and the fractional reserve system was once again manageable.

[Note of the Ed.: In his books and audiovisual materials, Maloney loves charts. Here we are not reproducing Chart 2. U.S. Monetary Base and Gold Reserves, 1918-1935, but the curious reader can see it: here.]

By devaluing the dollar from one twentieth of an ounce of gold to one thirty-fifth of an ounce, the value of the gold held by the U.S. Treasury now exactly matched the value of the monetary base. This meant the dollar was once again fully backed by gold. It also meant that there was no reason for gold to continue being illegal since there was now enough gold to pay out against every paper dollar in existence, and the dollar could have been fully convertible into gold once again.

Gold had once again revalued itself, not with the knockout blow and the death of the currency as in previous chapters, but this time by a technical knockout. To halt the implosion of the U.S. banking system and to regain the trust of our international trading partners, gold had forced the government to devalue the currency by stealing from its citizens, and it had once again accounted for all the excess currency the banking system had created. Gold was still the undefeated heavyweight champion of the world.

But all the pain and suffering could have been avoided. Gold and silver require discipline and constraint from banks and governments, and both banks and governments resent gold for it. Numerous factors contributed to the Great Depression, but there was only one root cause. Governments around the world, along with the Federal Reserve, foreign central banks, and commercial banks, all tried to cheat gold.

Guide to investing in gold & silver, 3

by Mike Maloney

 

Chapter Three:
Old Glory

I hope by now you’re beginning to see a pattern develop. In all the examples I’ve shown you so far (and there are plenty more), the pattern is the same:

  1. A sovereign state starts out with good money (i.e., money that is gold or silver, or backed fully by gold and silver).
  1. As it develops economically and socially, it begins to take on more and more economic burdens, adding layer upon layer of public works and social programs.
  1. As its economic affluence grows so does its political influence, and it increases expenditures to fund a massive military.
  1. Eventually it puts its military to use, and expenditures explode.
  1. To fund the war, the costliest of mankind’s endeavors, it steals the wealth of its people by replacing their money with currency that can be created in unlimited quantities. It does this either at the outbreak of the war (as in the case of World War I), during the war or wars (as in the cases of Athens and Rome), or as a perceived solution to the economic ravages of previous wars (as in the case of John Law’s France).
  1. Finally, the wealth transfer caused by expansion of the currency supply is felt by the population as severe consumer price inflation, triggering a loss of faith in the currency.
  1. An en masse movement out of the currency into precious metals and other tangible assets takes place, the currency collapses, and massive wealth is transferred to those who had enough foresight to accumulate gold and silver early on.

But surely something like this can’t happen to the United States, you might say. We are, after all, the greatest country in the history of the world. Beyond that we aren’t an empire. We don’t conquer nations; we spread democracy.

We may not be an empire in the traditional sense of the word, but when it comes to economic issues, we operate like one in many ways. This is why I believe that not only will the United States decline and see its dollar crash; it’s already on its way. Let’s take a trip down memory lane and see how the United States got to this point in history.
 
Dread the Fed, the Golden Rule is dead

The beginning of the end for the United States economy started with the inception of the Federal Reserve. The Fed, as it’s called, is a private bank, separate from the U.S. government, with the power to dictate our country’s fiscal policy. Since the Fed’s formation, the U.S. dollar has become nothing but currency.

From roughly 1871 to 1914, when World War I began, most of the developed world operated under what is referred to as the classical gold standard, meaning most of the world’s currencies were pegged to gold. This meant that they were also pegged to each other. Businesspeople could make plans and projections far into the future, ship goods, start businesses, and invest in foreign lands, and they always knew exactly what the exchange rate would be.

On average over the period when the developed world was on the classical gold standard, there was no inflation… none, zero zip, nada. Sure, there were a few booms and busts, inflations and deflations. But from the beginning of the classical gold standard to the end, it averaged out as a zero sum game. The reason? Gold: the great equalizer.

Here’s why: When countries experienced economic booms, they imported more goods. The imported goods were paid for with gold, so gold flowed out. As gold flowed out of the countries, their currency supplies contracted (that is monetary deflation). This caused these economies to slow down and the demand for imports to fall. As the economy slowed, prices fell, making these countries’ goods more attractive to foreign buyers. And as exports rose to meet foreign demand, gold flowed back into that country. Then the process started all over again, the value of currency—based on gold—always moving up and down, in a narrow range, maintaining the equilibrium.

During the classical gold standard our currency was real, verifiable money, meaning that there was actual gold and silver in the Treasury backing it up. The currency was just a receipt for the money. Then, in stepped the Fed, one of the most notorious and misunderstood institutions in the history of the United States.

The difficulty with the Fed is that there’s a lot of information out there, which is one reason why it’s so controversial. There are two very polarized camps when it comes to the Fed. On one end you have the government, which trusts it to regulate the U.S. economy. On the other end, you have the conspiracy theorists, who believe, in no uncertain terms, that the Fed will eventually bring about the collapse of the U.S. economy.

Well, I’m here to tell you these “crackpots” are not as crazy as they may seem. For one thing, the Federal Reserve is not a government agency. It is a privately owned bank that has stockholders to whom it pays dividends. It has the power to actually create currency from nothing, and it is shielded from audits and congressional oversight. As former senator and presidential contender Barry Goldwater pointed out, “The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States.”
 
Not so humble beginnings

Famed Austrian School economist Murray N. Rothbard, the vice president of the Ludwig von Mises Institute, distinguished professor of economics, and author of twenty-six books, opens his book The Case Against the Fed with the following:

By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities.

The Federal Reserve, however, is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation’s monetary system, is accountable to nobody.

Here’s how it all got started. You might call this the not so humble beginning.

In 1907 there was a banking and stock market panic in the U.S., aptly called the Panic of 1907. It was widely believed that the big New York banks known as the Money Trust had been causing crashes, and then capitalizing on them by buying up stocks from rattled investors and selling them for tremendous profit just days or weeks later. The Panic of 1907 was a particularly devastating one for the U.S. economy, and there was an outcry by the general public for the government to do something.

In 1908 Congress created the National Monetary Commission to research the situation, and to recommend banking reforms that would prevent such panics, as well as to investigate the Money Trust. Senator Nelson Aldrich was appointed chairman, and immediately set out for Europe, spending two years and $300,000 (that’s $6 million adjusted for inflation) to consult with the private central bankers of England, France, and Germany.

Upon his return, Senator Aldrich decided to take some time off and organized a duck hunt with some friends. The friends he invited on vacation with him were the who’s who of U.S. economic power, the very New York bankers he was supposed to be investigating: Paul Warburg (Kuhn, Loeb & Company), Abraham Pete Andrew (assistant secretary of the treasury), Frank Vanderlip (president of the Rockefeller-lead National City Bank of New York), Henry P. Davison (senior partner at J. P. Morgan), Charles D. Norton (president of the Morgan-led First National Bank of New York), and Benjamin Strong (head of J. P. Morgan Bankers Trust, and to become the first Federal Reserve head).

It is estimated that these men represented one quarter of the world’s wealth. The retreat took place on a little island off the coast of Georgia called Jekyll Island. But there wasn’t much duck hunting; instead Aldrich and his distinguished guests spent nine days around a table hatching a plan that eventually created the Federal Reserve.

Here is what some of the attendees had to say about that meeting:

Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily hieing hundreds of miles South, embarking on a mysterious launch, sneaking on to an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance.

I am not romancing. I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written.

B. C. Forbes, Forbes magazine, 1916

The results of the conference were entirely confidential. Even the fact there had been a meeting was not permitted to become public. Though eighteen years have since gone by, I do not feel free to give a description of this most interesting conference concerning which Senator Aldrich pledged all participants to secrecy.

Paul Warburg, The Federal Reserve System: Its Origin and Growth

There was an occasion, near the close of 1910, when I was as secretive, indeed, as furtive, as any conspirator. I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System. We were told to leave our last names behind us… We were instructed to come one at a time and as unobtrusively as possible to the railroad terminal on the New Jersey littoral of the Hudson, where Senator Aldrich’s private car would be in readiness… The servants and train crew may have known the identities of one or two of us, but they did not know all, and it was the names of all printed together that would have made our mysterious journey significant in Washington, in Wall Street, even in London. Discovery, we knew, simply must not happen, or else all our time and effort would be wasted. If it were to be exposed publicly that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress.

Frank Vanderlip, in The Saturday Evening Post, February 9, 1935

Secrecy was so important to the attendees of this summit because Aldrich, as the chairman of the National Monetary Commission, was charged with investigating banking practices and recommending reforms after the Panic of 1907, not to conspire with the bankers on a remote island. So the bankers who were under investigation for needed reforms got together with the chairman of the congressional investigating committee (the guy that was supposed to investigate the suspects) at a secret meeting on an isolated island and concocted a bill, the Aldrich Plan, for a private central bank that they (the suspects) would own. When the bill was presented to Congress, the debates raged.

In one debate, Congressman Charles Lindbergh was quoted as saying, “Our financial system is a false one and a huge burden on the people. I have alleged that there is a Money Trust. The Aldrich Plan is a scheme plainly in the interest of the Trust. Why does the Money Trust press so hard for the Aldrich Plan now, before the people know what the Money Trust has been doing?”

But the Aldrich Plan never came to a vote in Congress, because it was a Republican-backed bill and the Republicans lost control of the House in 1910, and the Senate in 1912.

Not accepting defeat, the bankers essentially took the Aldrich Plan and changed a few details. In 1913 a nearly identical bill, called the Federal Reserve Act, was presented to Congress.

Again the debates raged. Many saw this bill for what it was: a prettied-up version of the Aldrich Plan. But on December 22, 1913, Congress gave up its right to coin money and regulate the value thereof, which was given it by the Constitution, and passed that right to a private corporation, the Federal Reserve.

 
The Fed and the death of the dollar—fractional reserve banking

Since the Fed opened for business in 1914, the currency of the United States (the U.S. dollar) has been borrowed into existence from a private bank (the Fed). The reason I say “borrowed” into existence is because every single dollar the Fed has ever created is owed back to that bank, with interest. The Fed creates all currency, not the U.S. government, and lends it out to the U.S. government and private institutions—with interest. Now you may be asking yourself, “If we pay back all the currency that was borrowed into existence, but we still owe the interest, where do we get the currency to pay the interest?” Answer: We have to borrow it into existence. This is one reason why the national debt keeps expanding. It can never be paid off. It is mathematically impossible.

But even more disconcerting is the way the Federal Reserve creates currency:

  1. It makes loans to the government or banking system by writing a bad check.
  1. It buys something with a bad check.

In the Fed’s own words, published in a 1977 paper called Putting It Simply, “When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money” Of course, as you know by now, I would beg to differ. They are creating currency, not money.

And once those newly created dollars are deposited in the banks, the banks get to employ the miracle of fractional reserve banking.

Here is fractional reserve banking in a nutshell. All banks have a reserve requirement, meaning they must keep a certain amount of currency on hand for withdrawals and such. If the reserve requirement set by the Fed is 10 percent the bank must keep 10 percent of the currency deposited on hand just in case someone wants to make a withdrawal; however, they are allowed to loan out the other 90 percent of those deposits.

Here’s the kicker. They don’t actually loan out the currency that’s in the accounts. Instead they create new fiat dollars out of nothing and then loan them out, which means they too are “borrowed” into existence. In other words, when you deposit $1,000, the bank can create 900 brand-new credit dollars with nothing but a book entry, and then loan them out with interest.

Then, if those brand-new loaned dollars are deposited in a checking account, the bank is allowed to create another 90 percent of the value of those deposits, and then another 90 percent of that. Then the process is repeated, and round and round it goes.

Coincidentally, the same year that the Federal Reserve Act was passed, there was also an amendment added to the Constitution: the Sixteenth, which created the dreaded income tax.

Before 1913 there was no income tax. The entire government was paid for by tariffs (duties on imports) and excise tax (taxes on things like alcohol, cigarettes, and gas). These taxes, and only these taxes, generated enough income for the government to operate. However, because it didn’t generate enough income to pay the interest due to the Federal Reserve, the income tax was created.

To review:

  • Since 1914, we’ve borrowed every dollar into existence.
  • We pay interest on every dollar in existence.
  • That interest is paid to a private bank, the Federal Reserve.
  • The world’s largest banks, not the government, own the Federal Reserve.
  • The United States can’t pay off its debt… it can only borrow more to pay the interest.
  • Our government created income tax so we can pay this interest.

Welcome to the rabbit hole. Welcome to your new context.

Trump cucks—Our turn!

In my previous post I wrote: “Crossing the river from liberalism to the other side involves several stepping stones: Donald Trump’s Alt Light, the Alt-Right (not yet a direct approach to the Jewish question), white nationalism (or southern nationalism), neonazism… and reaching the other side, National Socialism.”

Yesterday, after being questioned in the edifice of the execrable Jew York Times at NY, Donald Trump condemned Richard Spencer’s sieg heil Alt-Right meeting.

In my view, this represents a huge opportunity for those of us who have already crossed the river. As long as Trump disavows the Alt-Right we can remove our masks of Alt Lite, Alt-Right and even white nationalism. How to do it? After Trump swears on the Bible the next January the time has come for us to march—in full Nazi uniform.

American Nazi party members, (aka German American Bund) march while carrying Nazi and American flags during a Bund outing from nearby Camp Sigfried.

American Nazi party members, (aka German American Bund) march while carrying Nazi and American flags during a Bund outing from nearby Camp Sigfried.

Imagine the media hysteria that we would be able to generate by going to the Federal Reserve with pickets telling that the Jewish Janet Yellen’s monetary policies will lead, this decade, to the fall of the dollar.

My dream is to even burn Yellen in effigy with a Star of David patched to her effigy in one of these marches. Although we will carry banners saying truths like that the Allies committed a greater genocide than that attributed to Hitler, the emphasis of our speeches in front of the Fed will be the policy of Yellen and her predecessor, the also Jewish Ben Bernanke. Both have taken the dollar to the edge of a precipice from where it will fall under the watch of Trump.

To carry out this idea I would have to travel to the United States to speak personally with Andrew Anglin to see if, through the very popular The Daily Stormer, he is willing to call for volunteers for the march. We would need funds not only to transport our boys and pay their buses and hotels, but to make the uniforms.

It does not matter that the media, and even the white nationalist forums, call us clowns. Forget also what President Trump will think a few blocks from our flashy and “fashy” marches and protests. Just imagine what the average Joe who had seen us ridiculed in the Jew media will say after the collapse of the dollar actually occurs: “The Nazis were right!” They will really pronounce these words, especially after blacks chimp out in America’s big cities.

And so it begins…

Remember, remember that Hitler became so popular precisely because the Deutsche Mark had crashed.

Please make this post go viral. It is time to leave the confinement in our houses. True, we need plenty of funds to revive the political actions of George Lincoln Rockwell. But where there is a will there is a way!

Ron Paul:

Economy will soon have “day of reckoning
when you’ll see the very, very big crash”

 

ron-paul-timeAs the stock market surged close to all-time highs and the Federal Reserve hinted it wouldn’t raise interest rates, former Rep. Ron Paul (R-Texas) reiterated his fears that the US economy is not sustainable, predicting a huge crash in the near future.

“I look at the markets as being unstable, which means some days they go up a lot and some days they go down rapidly, but they don’t advance very far when you look at real growth,” Paul said on CNBC’s Futures Now on Thursday. “The [Federal Reserve] won’t allow this market to drop. This is why I’ve always leaned toward the assumption that the Fed is never going to raise interest rates deliberately. I think the market will raise interest rates.”

On Wednesday, the Fed released a statement that indicated it would not raise interest rates at this time, leading stocks to surge on Thursday. The Nasdaq topped its intraday high from March 2000, while the S&P 500 closed less than 1 percent off its all-time high.

Paul blamed the Chairman of the Federal Reserve for causing economic instability, noting that their every word can be interpreted by the market actors in radical and unexpected ways, leading to “havoc.” Market-determined interest rates, he suggested, would lead to more stability and better results for the economy.

“And we live in a chaotic world that’s totally unreal—people don’t depend on savings for their capital, they depend on the Fed. And the Fed says the slightest thing about, ‘Oh, maybe we shouldn’t print so much money til next week’, you know, all kinds of things can happen,” he added. “Eventually the value of money, the purchasing power of money will require that interest rates go up. But that is the game they’re playing, they fool a lot of people and as long as people believe the majority of the players still believe this, they’ll still be involved and they’re gonna make a lot of money.”

One of the things that Paul is adamant will happen is that the stock market will crash, bringing with it the entire USand possibly worldeconomy with it.

“It could be tomorrow, it could be a month, it could be a couple years because it all depends on a psychological acceptance of the system,” he said. “I don’t think there’s any way to know what the time is but, you know, after 35 years of a gigantic bull market in bonds, believe me, they cannot reverse history. You cannot print money forever and deceive the markets forever.”

“Eventually, the markets will rule, and that’s only a question of when that will happen. And, of course, I run a little bit scared because I think there will be a day of reckoning,” Paul added.

Paul blames the “fallacy of economic planning through monetary policy” for the instability in the economy.

“You cannot have it, it’s artificial, it has nothing to do with freedom and free markets and capitalism and sound money, but it’s all artificial, it’s all political and that is why we are so vulnerable,” he said. “So we’re all on the verge—the country, the world is on the verge of looking more like Detroit and Greece than anything else. But [in] time that will happen—it’s probably not going to happen tomorrow or next month, but it will happen because this is unsustainable.”

Paul said he thinks the market correction is “going to be a lot more than anybody anticipates.”

“What I’m looking at is the ‘big one’, where all the malinvestment, all the mistakes made, all the pyramiding, all the unworthy debt that has been created, sovereign debt—our sovereign debt is really not payable… there’s no way the debt is going to paid—so the debt has to be liquidated, and that will come, but the big question is when will it come,” he said.

In the stock market crash of 1929, which marked the beginning of the Great Depression, the Dow Jones Industrial Average lost 11 percent of its value in one day.

“But as far as corrections go, I think 10 percent is puny. I think it’s going to be much greater and it will probably go a lot lower than people say it should… you know, markets overshoot,” Paul added.

And when the markets overshoot, Paul said, the result will be far worse than when the economy crashed in 2008, leading to the Great Recession. Because this time, the US won’t be able to bail the economy out.

“I don’t think it’s just going to be a correction. I think what will happen is the efforts made in ‘08 and ‘09 to correct all these mistakes will resume itself. That was just a notion of what the markets wanna do, but because they could bail out the big guys—the banks and big corporations—they were able to tide it over and restore confidence, so to speak,” Paul said. “But eventually though, the restoration of confidence in the system that doesn’t deserve confidence will be resumed. They will lose the confidence, and that is when you’ll see the very, very big crash.”

Published in: on June 19, 2015 at 10:35 pm  Comments (5)  
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What is national socialism

Source: Metapedia

tio-adolf-venadito

National Socialism is the opposite of international finance capitalism, i.e. the opposite of globalization. Under National Socialism, engineers would not lose their jobs to outsourcing, and great industrial cities would not be disintegrating and turning back to farmland. There would be no such thing as Goldman Sachs, or the Federal Reserve, or big box stores full of merchandise from China. If China were National Socialist too, the Chinese economy would not depend on exports. Instead of a globalized economy, there would be independent national economies. Countries would generate capital internally instead of depending on foreign investment. International trade would still exist (you could still drive a Honda if that’s what you want), but it would be a fraction of what it is now. The financial system would be simple and straightforward; there would be no such thing as “derivatives”. The economy would be based on industry and education, not on finance, insurance, real estate, casinos, and prisons.

There would be no dumbing-down policy in the schools or anywhere else.

There would be no TSA pat-downs. No such thing happened in the Reich, nor could it happen. An obscenity like that would be inconceivable. When you go through security at an American airport, the Zionists literally have you by the balls. Under National Socialism, the Zionists would not be running things, with all that that implies for both foreign and domestic policy.
Instead of dying, the oceans would be flourishing. On land, desertification would be reversed. The “cancer industry” would not exist. The environmental and psychological causes of cancer would be addressed, and cancer would be rare. There would be no need to argue about how to pay for health care, because most people would normally stay healthy without “health care” as we know it today.

Students would not have to go into debt to get an education.
Under National Socialism, cities would not be full of drunks and homeless people. There would be no such thing as multiculturalism, political correctness, or affirmative action. Schools would not teach kids to listen to hip-hop. First world countries would not turn themselves into third world countries. Just the opposite: National Socialism represents the gentrification of the world.

I did not know most of this until recently.

Like most people, I grew up believing that National Socialism was a Very Bad Thing. I thought it was all about war and exterminating people. If that were true, then of course it would be a Very Bad Thing. But in fact that is not what National Socialism is about.

When I was in the 9th grade, my world history teacher gave me an extra credit assignment. She asked me to read The Rise and Fall of the Third Reich by William Shirer, and write a report on it. That was a pretty stiff assignment for a 9th grader. I read the book all the way through and wrote a report, but the report was not very good. She gave me an A, but in my own mind I knew I did not deserve an A. Some of what I wrote was cribbed from Encyclopedia Britannica. My teacher expected a little too much from her star student. At that age I was not quite ready to read a book of that length and density, hold it all in my mind at once, and write a paper about it. I guess that’s where this page is coming from. Fifty years later, I am still working on that assignment. Anyway I believed everything in the book. And why not? It never occurred to me that my teacher might be misinformed, or that mainstream historians such as William Shirer might be lying. I accepted what they told me.

Since then I have discovered that what happened in Germany in the Hitler era was very different from what they tell us. On this page I am going to present some of the facts that my world history teacher should have taught me. This is what every high school student should know about National Socialism.

The question “what is National Socialism” can be approached in two ways: (1) what was Hitler’s original idea? and (2) what happened in the Third Reich?

Published in: on December 26, 2014 at 9:21 pm  Comments (18)  
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The death of the dollar

I [Koos Jansen] had the privilege to meet with Jim Rickards, while he was in The Netherlands for one day, to do an interview about his new book The Death of Money. Accompanied by friend (and author of the book The Big Reset) Willem Middelkoop we met at the hotel were Jim was staying and for one and a half hours we fired questions at him. Below you can read the highlights of the conversation:

 

March 12, 2014

Koos Jansen: Do you think there will be a collapse in the worldwide monetary system, including chaos, social unrest and bank failures because all policy makers will do too little too late?

Jim Rickards: My new book, The Death of Money, is about the demise of the dollar. A world wide monetary collapse and the collapse of the dollar are the same thing. The dollar is the keystone of the system today, if the world loses confidence in the dollar the whole system collapses. Could there be disruptions, social unrest and other problems before the monetary system collapses? I think we’re seeing them already, in the Ukraine, in the Crimea and the Chinese navy sending vessels to these islands they are in disputes with near Japan. US monetary policy was also a contributing factor to protests in the Arab Spring’s early stages. We’re seeing signs happening already and that will continue.

I do expect that policy makers will continue to pursue the wrong policies, they won’t make the structural adjustments that are needed; unemployment remains high, growth remains weak and deflation continues to have us in its grip. These are all things that will lead to social instability, income and wealth inequality and we could see a lot of stresses before the collapse of the monetary system.

Central banks and governments have made it clear that the big banks can’t fail. That’s what they stated, all these too big to fail banks will not be allowed to fail. Now what are the consequences once they’ve said that? It invites reckless, parasitic and exploitative behaviour on behalf of the bankers. This allows them to grow too large which destabilizes the system. I don’t think we’ll see big bank failures along the way, but big banks will fail as part of the collapse. It’s the policy of too big to fail that leads to the dysfunction of the system that will lead to the collapse.

Jim-R-interview

Koos Jansen: Will the coming collapse of the monetary system be more severe than any prior one?

Jim Rickards: The point I’m making in the book is that the international monetary system has collapsed three times in the last one hundred year. In 1914, 1939 and 1971. So it does happen, it’s not that unusual. When it happens is not the end of the world. What it means is that the major trading powers, the financial powers, come together and reset the system. There is actually a name for this, it’s “the rules of the game”. That’s not a phrase I made up, it goes back one hundred years. So the major powers will rewrite the rules of the game, but here’s the problem. The last crisis we had the Fed reliquify the world. There were tens of trillions of dollars in swap lines with the ECB, they guaranteed all the bank deposits in the US and they guaranteed all the money market funds in the US. It did prevent things from getting worse, but the problem is the Fed raised their own balance from $800 billion to $4 trillion after the liquidity crisis. We had a liquidity crisis in late 2008, but we haven’t had one in the last five years. So now what happens if we have a liquidity crisis tomorrow? They’ve got no more dry powder; they can’t go to $12 trillion.

The next crisis will be bigger than the last one, and it will be bigger than the Fed because they already trashed their own balance sheet. Then the only balance sheet left is the IMF’s.

Koos Jansen: How will the power be distributed in Asia after the monetary reset?

Jim Rickards: It will be based on gold.

Willem Middelkoop: I know wealthy Americans taking measures like getting a second passport and moving their money offshore. Do you see this happening in your surroundings?

Jim Rickards: Yes, I see it all the time. There are billionaires who build vaults in their own houses because they don’t trust Brinks.

Willem Middelkoop: What does that tell you?

Jim Rickards: It tells me that they see what I see, in some ways, but not willing to talk about it. They’re ready for the collapse but want to milk the system in the meantime.

 

_____________________

For Rickards’ CV see here. The whole interview can be read here.

Published in: on May 9, 2014 at 11:36 am  Comments (16)  
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Currency crash course, 4

“As I have said many times before, the economic crisis of 2008 was only a speed bump on the way to the main event. I believe that before the end of this decade there will be an economic crisis so historic that it will eclipse the crash of 29 and the subsequent great depression. I also believe it is both unavoidable and inevitable, because it is merely the free market releasing the stored up energy from decades of economic manipulation. Yes… bad things are going to happen, but it could be the best thing that ever happened to you.”

—Mike Maloney

Note: Economics is not my forte and therefore I cannot discuss the complex issues of these new series with skeptical commenters. I would recommend those who completely reject what Maloney says to go to his own site, subscribe if necessary (it’s free), and discuss it there.

Published in: on December 2, 2013 at 10:04 pm  Comments (1)  
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Our crystal ball

Further to my previous post.

As der Schwerter has just translated to German an article by Edward S. May (“Baron Bodissey”) that explains beautifully why it is almost certain that economic Armageddon is around the corner.

Below “Chump Change,” the complete 2009 article by May that originally appeared at Gates of Vienna. Presently the situation in the US is far more compromised thanks to the ongoing (suicidal) efforts of chairman Ben Bernanke:




When I was seven years old I took up coin collecting as a hobby. Back in those days there were still a lot of interesting coins in circulation: the buffalo nickel, the Mercury dime, the Liberty Walking half dollar, and—if you were patient and went through enough rolls of coins—the occasional Indian head penny or “V” nickel.

The most exciting coin of all, however, was the silver dollar. The 1921 “Peace” dollar would do, but the Morgan dollar was preferable—it had a serious-looking 19th century design, and was the very same dollar that filled those heavy payroll bags heisted by stagecoach robbers in Westerns. It was a nice hefty piece of real American history, and it could fill the palm of a small boy’s hand.

Up until my tenth birthday my allowance was fifty cents a week, which I received in the form of a biweekly dollar bill. During my silver dollar craze I would take that bill down to the bank and ask for a silver dollar in exchange for it. The tellers all knew me, and would oblige me by picking through their selection of silver dollars until they found a date I didn’t have.

I was able to indulge myself in this manner because most of the dollar bills in circulation back then were still silver certificates.

The bank had no choice: under its charter, it was required by law to “pay the bearer on demand” a dollar in official United States silver coinage for every silver certificate presented to it.

No one has the same option today. Today all the paper money in circulation consists of Federal Reserve notes, which are not redeemable for anything in particular. You can go to the bank and exchange your dollar bill for four quarters, but those are no longer the shiny silver discs that rang so delightfully on the marble counter at the teller’s window. Nowadays the dimes, quarters, and half dollars are all “Johnson slugs”, the ugly nickel-copper sandwiches that were introduced in 1964 when silver coinage was abolished and the silver certificates were withdrawn from circulation. 1968 was the last year in which the law required that any paper dollar be redeemable in silver.

The abolition of silver coinage was the culmination of an extended process that took most of a century to complete: the disconnection of American paper currency from any fixed standard of value as represented by precious metals.

By the time the Johnson slugs appeared, the abolition of the silver coinage was an absolute necessity. The price of silver had been allowed to float, and because of inflation the silver in a dollar coin was worth more than $1.25. Entrepreneurs could make a tidy profit buying up silver dollars in bulk, melting them down, and selling them as bullion to silver traders. The old coins had to go, which meant that the silver certificates had to go, too.

From then on the federal government was not required to give you anything for your dollar bill. If you had one, you could go out and buy something that other people were willing to give you in exchange for your piece of paper. But the Treasury was obliged to provide nothing of value in return for that piece of paper except the “full faith and credit of the United States government”, which was worth a lot more in 1964 than it is today.

In the 19th century, the United States adhered first to a “bi-metallic” standard—both silver and gold coinage—and then the gold standard. Under the pressure of the Great Depression, FDR initiated a gradual slide away from gold and into a silver standard for the paper currency, although the Treasury and the Federal Reserve adhered to the gold standard until 1971.

Since then the official currency of the United States has been anchored by nothing more than global confidence in the soundness of the dollar. As long as everybody believed in the same fantasy, then the system could operate. The dollars were printed, credit was extended, the financial markets functioned, and business enterprises were profitable. People went to work and got paid and bought stuff.

They also borrowed money and took out mortgages, which brings us to the mess we’re in today.

Today’s system of commercial and consumer credit is made possible by the practice of fractional reserve banking. Until the late 18th or early 19th century, banks did not lend out their cash reserves of depositors’ money. The advent of fractional reserve banking made it legal for a bank to lend out a portion of its deposits, and required it to keep only a fraction of those deposits—in modern times, typically 20%—as an actual cash reserve.

This means that when Joe Consumer deposits $1000 into his bank account, the bank can lend up to $800 of it and keep $200 of the deposit as a fractional reserve, maintaining the loan on its books as an asset. At this point the initial $1000 in cash has morphed into $1800 in cash assets and credit—in effect, $800 worth of money has been created.

When the borrower deposits the $800 into another bank, that bank in turn can loan out $640. And so the process continues, forming a geometric progression of assets which cannot exceed $5000 (500% of the original deposit), $4000 of that in loans listed as assets on the books of the respective banks.

This practice seems bizarre and imprudent at first glance, but it was absolutely essential during the expansion of our industrial economies. Industrialization created wealth where none existed before, but without a way to extend the money supply to match the added wealth, the capitalization of industry would have lagged, and growth would have been much slower. Fractional reserve lending allowed credit to be extended to industrial entrepreneurs, and as long as loans were made prudently and repaid on time, and banks retained their depositors’ confidence, the system functioned well.

Maintaining a gold or silver standard imposed a natural limit on the inflation of the money supply via fractional reserve banking. As long as banks met their capitalization requirements and observed the rules for fractional reserves, the money supply could never expand past the implied mathematical limit.

During times of economic contraction the system sometimes foundered. Then there would be a run on the banks, and some banks would fail. Although the system always righted itself eventually, businesses were ruined and individuals impoverished in the process, so that the political pressure for a system of government controls was irresistible.

Right: At a distance looks like the White House but it is the “Fed” headquarters (Eccles Building)

Thus was the Federal Reserve born in 1913. The Fed is a consortium of private banks linked closely to the government, and functions more or less as a central bank would in many countries. Its job is to control the money supply by setting interest rates for government lending. By stabilizing swings in the money supply, the Fed’s mission is to prevent bank runs. It’s not always successful: witness the recent run on Washington Mutual and its subsequent collapse—the largest bank failure in history.

The current gargantuan federal government, so far beyond the size and scope of what the Founding Fathers originally envisaged, owes its origins to the Civil War and Abraham Lincoln. Using military means, Lincoln demonstrated that the government in Washington was the absolute master of the several States.

But the bloated bureaucracy didn’t really take off until Woodrow Wilson invoked his presidential authority during World War I to create federal powers and functions which had never existed before, and which just happened to fit into his Progressive framework.

Not all of these powers were scrapped after 1918, and Franklin Delano Roosevelt took everything a step further when he created the New Deal to fight the Great Depression—once again, an excuse for massive Progressive intervention—and then World War II.

By 1945 the federal government was simply “too big to fail”, and all the layers of emergency powers that had accreted over the previous thirty years became permanent bureaucratic institutions. Once initiated, a new federal program was virtually never abandoned. No cabinet office has ever been abolished—new ones can be created, but they cannot be destroyed; they may only persist and grow.

Decade after decade the government has continued to expand, adding agency upon agency and bureau upon bureau. It has sprawled out across the District of Columbia into satellite fiefdoms in Maryland and Northern Virginia and created nests of regional offices across the rest of the nation. Whenever a congressman or senator perceives an important “constituent need”, a new federal function is created and funded, and becomes a permanent fixture in the Washington ecosystem.

Needless to say, all of this is very expensive. For the first thirty years or so of the federal explosion, increased taxes were sufficient to fund the pet projects and Progressive fantasies of the federal mandarins. But then the post-war boom leveled off, even as the Great Society was mandating a thicker layer of lard on top of the government pudding.

Increased taxation was not good enough. Unfortunately for the feds, raising taxes much further had become politically impossible, yet the internal logic of government expansion required that more money be found.

That’s where the Johnson slugs came in.

The uncoupling of the money supply from any reserve of precious metals did not automatically doom the country to inflation, indebtedness, profligacy, and ruin.

If the individual functionaries within the system did their jobs properly—if they acted with probity, prudence, fiduciary integrity, honesty, and in the interests of the people they purportedly served—the fractional reserve system could have continued indefinitely.

But there are too many perverse incentives built into a banking system that is not pegged to any external reserve of actual tangible value. By adding new rules, augmenting existing procedures, and tinkering with the arcana of accounting terminology, new wealth could be created where it didn’t exist before. The Treasury could keep issuing bonds, and as long as the price of milk and shoes didn’t rise too much, why then, everything must be fine, mustn’t it?

But it wasn’t fine. Decade after decade of deficit financing created the infamous national debt, which kept growing and growing. But, once again, as long as productivity increased and the economy kept on expanding, inflation could be kept at bay. The national debt, huge as it was, might theoretically be paid off—someday.

Unfortunately, during the last two decades or so, productivity hasn’t really been as high as it seemed. Our national wealth is now denominated at least partially in assets that are over-valued, with real estate as a notable example. Those California house prices—a million dollars for a tiny bungalow on a postage-stamp lot—might have looked good on the asset side of a balance sheet, but they weren’t real money.

That value was conjured out of thin air by cynical or short-sighted people who gamed the system to their own advantage—quite legally, in most cases. But the wealth thus generated was illusory, and could disappear as easily it was created—which it is even now in the process of doing.

The final stroke which broke the banking system—and caused it to collapse years or decades earlier than it would have otherwise—was meddling by the federal government for political reasons.

Meddling was irresistible. And, without a gold standard to enforce fiscal restraint, it was inevitable. Money could always be created out of nothing, so the federal government created it and ordered its agencies to force the private sector to do certain things with it, things that might otherwise be considered foolish or imprudent.

In the case of the subprime mortgage fiasco—the most visible and notorious example—the federal government created government-protected lending institutions and through them forced banks to loan money to homebuyers who would not otherwise have qualified for the loans, and who could not reasonably be expected to pay them back.

Beginning in the 1970s, and continuing until the whole house of cards collapsed last year, the government used Fannie Mae and Freddie Mac—two quasi-government lending institutions which were not bound by normal market constraints—to pump untold billions of dollars into the housing market. Mortgages were issued to people who were poor, or had vaginas, or spoke English badly, or had sufficient melanin in their skin—because they deserved them. Never mind whether they could afford them: it was unfair for them not to own houses, and so the mortgages were issued, backed by the full faith and credit of the United States government.

The rules kept being eased, the system got more corrupt, more and more money flowed through more and more hands, creating an ever-increasing supply of perverse incentives for bureaucrats and businesses to lie, to manipulate the rules, and to line their own pockets.

In the process the demand for real estate increased, driving the price of housing far beyond what it would otherwise be, thus creating the real estate “boom”—which was actually a bubble, and which has now officially popped.

During this period baroque new rules emerged to facilitate the issuing of additional debt. Exotic new financial derivatives were designed. Accounting rules for valuing assets were loosened. Bond-rating agencies were corrupted by their dependence on the institutions whose debt they rated. The securitization of debt removed the traded derivatives ever farther from anything of tangible value. Debt instruments were used as collateral on new debt, which was in turn used as collateral on yet more debt, until the money supply became so attenuated and rarefied that it had almost no connection with anything real. The entire elaborate financial structure of the country’s banking system was spun out of the purest speculative gossamer.

And at every level of the process somebody took a cut, so everyone worked very hard to increase the size of the pie.

In order to issue all those worthless mortgages, the ultimate guarantor—Uncle Sam—had to create the money by borrowing it himself. T-bills were issued, and buyers snapped them up.

Many of the customers for US Treasury paper were foreign governments, especially in Asia. The Chinese accumulated a large surplus of dollars, and recycled them by buying up more dollar-denominated debt. As long as China kept producing cheap products and exporting them to us, the process could continue. Our manufacturing capacity was diminished, and our money flowed out of the country to buy Chinese goods. But they kept loaning it back to us so that we could continue to fund the federal behemoth and its profligate habits.

The entire system depends on confidence in the dollar—as long as foreign countries continue to believe that real value lies behind the dollar, and that the American economy is strong enough to withstand this level of debt, they will continue to loan money to us, and pump liquidity into the system.

But confidence in the dollar won’t last. It can’t, because all those dollars in circulation, held in reserves in central banks all over the world, are not backed up by enough collateral. The last estimate I read—which was over a month ago, and real estate prices have presumably dropped even further since then—placed the number of dollars in circulation and held in reserves all over the world as thirteen times the amount of tangible assets in the U.S. financial institutions that back them up. That is, if all the holders of dollars across the globe decided to exchange them at the same time, the currency would have to be inflated at least 1,300% to redeem them.

With the addition of the recent stimulus package, American debt now exceeds the entire collective wealth of every man, woman, and child in the United States.

And this debt is almost entirely collateralized by confidence in the dollar. There’s nothing else backing up our currency.

The national debt is even more alarming if our unfunded liabilities are taken into consideration. One of the ways that successive presidential administrations kept deficits to a theoretically manageable level was by putting the Social Security Trust Fund “off-budget”—i.e., outside of its fiscal calculations. The “Trust Fund”, of course, is a joke—there’s nothing in it but IOUs. The FICA money that is withheld from your paycheck and contributed by your employer disappears instantly into the insatiable maw of federal spending, leaving only a promise that your retirement fund will be available for you when you are ready to collect it. Your future Social Security, like all things federal, depends solely on the “full faith and credit of the United States Government”, a commodity whose value is dropping precipitously.

One recent estimate puts the unfunded liability of Social Security and Medicare—the money which the system will be statutorily required to provide for today’s citizens at some point in the future—at more than $100 trillion. And that’s just for the two biggest federal entitlements—add to them federal pensions, veterans’ benefits, and state, local, and private pensions, and the amount of unfunded liability is unimaginably huge.

All those hundreds of trillions of dollars are mandated by law and must someday be paid out. Yet the money is not there now—where will it come from?

And “someday” is drawing rapidly closer. Much of the unfunded liability will begin to come into play in the next few years as my generation, the Boomers, begins to retire and claim all its benefits. That’s why political leaders of both parties are so keen to get Pedro and Ahmed into the country—they’re looking for somebody, anybody, who will go to work and pay the FICA and income tax necessary to support the Beautiful People as they shuffle off into assisted living.

But it’s not going to work. Even if all the immigrants were skilled and ready to work, even if mass immigration were not doomed to destroy the culture and civil society that holds this entire Potemkin village together, even if the multicultural dream could be fully realized—even if everything else were ideal, the system would not be able to handle the load. The conclusion is inescapable: the persistence of our current political arrangements is fiscally and actuarially impossible.

This is the broad context in which the current financial crisis has emerged.

The system is going to fail. Failure is unavoidable. The big questions are:

1. How soon will it fail?

2. What form will that failure take?

3. How much civil unrest, violence, deprivation, and destruction will accompany the changeover to whatever new system emerges?

The broad outlines of what is to come are already visible. The banking systems of the West are heading for insolvency, and no amount of bailout money is going to save all the major banks. Bailing them out will only serve to delay the catastrophe and make it worse when it finally arrives. Real value to match the newly-created bailout money does not exist, and at some point the market will mark everything down to its true worth, destroying roughly 90% of the system’s wealth in the process.

One of the first symptoms of the collapse will be a run on the dollar. When confidence finally erodes past a certain point, speculators will start to unload their dollars en masse, and the U.S. government will have to choose between inflating the currency or defaulting on its obligations.

The United States is at the epicenter of the banking crisis, but the European currencies are feeling the pinch first. With the Austrian banks facing the default of Eastern European debt, the euro may be in trouble, and sterling is also widely rumored to be near collapse. The dollar is maintaining its value relative to these currencies (and the yen), but all of them are in the same boat. It won’t be long before investors start unloading their reserves of currency and taking refuge in gold, silver, platinum, and other non-perishable commodities whose value is expected to outlast whatever unpleasantness lies ahead.

After that the major Western nations will experience an unprecedented fiscal and monetary crisis. Mass insolvency, bank failure, an inability to meet entitlement payments, and the suspension of normal commercial activity will be the result.

The modern global economy depends on mass consumption by the wealthy Western democracies of goods produced by the Third World and purchased by savings borrowed from the Third World. This part of the system is already in retreat—consumption in the West has dropped dramatically, Chinese exports have collapsed, and the Chinese are signaling their unwillingness to loan us more money unless we can guarantee that we won’t inflate our currency to pay off our debts. What sane person would believe such a guarantee, even if the Treasury were so foolish as to offer it? The inflation is coming, and the current system will grind to a halt.

We are, in a word, screwed.

All of this will not just happen. None of the unfortunate consequences will occur in a vacuum, and there will be reactions and counter-reactions on the part of governments and the public, which will make the system chaotic and unpredictable.

Governments will continue to intervene to “fix” the market, and by doing so will generally make the problems worse. Riots, civil wars, insurrection, and revolution will be likely if the maintenance dose of government cash is withdrawn from recipients in the major welfare states. Many other negative consequences are probable, but no one knows when, where, and how much.

Even the wisest and most skilled political leadership would find it difficult to intervene in a way that would mitigate the worst effects. At some point the market will have to realistically revalue the system’s assets, and the results will be painful. The consequences can only be postponed, and thus made more severe; they cannot be avoided.

Unfortunately, wise and skilled political leadership is in short supply all across the West. Our social democracies—with their welfare systems and ideologically uniform media—do not reward risk-takers and visionaries. Cynical time-servers, technocrats, obedient functionaries, and corrupt fixers tend to rise to the top. This is the cohort who will be leading the charge with broom-handle and dustbin lid during the coming debacle.

So far Congress and the Obama administration seem determined to do the worst possible things, economically speaking. Pumping more debt into the system, bailing out inefficient and unprofitable private companies, increasing pork-barrel spending and patronage, nationalizing financial institutions, rewarding corrupt and incompetent administrators, raising taxes, increasing regulation… How much more perverse can they get?

Giving bankruptcy judges the right to “adjust” interest rates on individual mortgages will serve only to distort the credit markets further and make the crash much worse when it finally arrives. Appropriating vast quantities of public funds to force a restructuring of private mortgages is senseless when the market value of the mortgaged real estate is half the face value of those loans, and dropping fast.

Barack Obama has assumed the role of King Canute in the current farce, sitting on the foreshore with his hand raised, ordering the tide to stop. A pathetic and futile gesture, but one that he and all the other leaders must inevitably make. They have no other solutions.

“Tide, I command thee: turn back!”

There are a few possible positive aspects of the current mess. As the crisis matures, supra-national institutions will fail and become irrelevant before nation-states do. Individual nations will reclaim their authority and sovereignty in an attempt to take care of their own.

Here in the United States, in the face of new unfunded mandates, trillions of dollars of federal largesse with strings attached, and volumes of new federal regulations, the several States have suddenly recalled the Tenth Amendment and are invoking their own sovereignty. This is all to the good, because for the last sixty years or so the federal government has extended its effective reach by dangling money before the states and making them dance for it. As the money disappears, the dance will come to an end. Without a bottomless cash drawer, the federal government is a pathetic weakling, and most power will eventually devolve to the states.

Another possible spinoff of the coming financial collapse is that the problem of Islam will solve itself. One of the consequences of the depression is that the demand for oil has dropped dramatically, and the price will be low for years. Not only will the sheikhs lose much of their income, but many of them are heavily leveraged and live on the margin, with their assets tied up in the Western financial markets. Like everyone else, they will see most of their wealth disappear.

And, unlike many other countries, the oil-dependent states of the Middle East have nothing else to fall back on. When the oil money disappears, that’s it. The entire population—millions of people on the Arabian peninsula and in Iran—subsists on state oil revenues, directly or indirectly.

The effects of this are already becoming evident. Hundreds of thousands of guest-workers in Saudi Arabia and the emirates are being sent home to Malaysia, Indonesia, Nepal, Bangladesh, and the Philippines. These latter countries will thus experience the unfortunate secondary effects of the collapse of oil prices. Given that most of the rest of their economy depends on the manufacture of cheap consumer goods for the West, they will be in serious trouble.

If this process is severe and goes on long enough, rioting, civil insurrection, and revolution may well give way to epidemics and actual mass starvation all across the long crescent of Islam’s bloody borders, from Marrakech to Mindanao.

All of the above is pure speculation.

I’m a rank amateur when it comes to economics and finance. Over the past three months I have read and digested a huge volume of information in an attempt to understand the catastrophe that is unfolding in slow motion around us.

I don’t know if my prognostications are correct. Unfortunately, no one else can predict what’s going to happen, either. The current situation is unprecedented. It is inherently unstable, chaotic, and unpredictable. Don’t believe anyone who says he knows what will happen next year. No one does.

Preliminary indications are that the global economy has actually been a planet-wide Ponzi scheme since at least the beginning of the Industrial Revolution. Like any other Ponzi scheme, it depended on a constant infusion of new suckers. As long as the world’s population was expanding, and the efficiency of industrial production was increasing, the fiscal bubble could continue to inflate.

But the dream is over, and the bill is coming due. The bubble has popped. The scheme is collapsing. The entire finance system will soon become like 1997 Albania writ large.

When the fever has run its course, a new system will emerge. Eventually the market will reassert itself, and production and consumption will resume.

But how much trouble and sorrow lies ahead of us is hard to predict.

Given that the economy of the United States will take the biggest hit—and has the farthest to fall—the era of American hegemony will almost certainly come to an end within the next decade. On balance this will be a salutary thing for the rest of the world. Europe will learn to deal with Russia and Iran on its own. Third World dictatorships will have to extort protection money from a different client. The Japanese will rapidly discover the value of missile defense and a strong military. All the fires that have been prevented or contained by American military power will rage unchecked until their human fuel is fully consumed.

And America will persist in some form, perhaps in several pieces, or as a loose confederation that will warm the heart of Jefferson Davis’ ghost.

Or perhaps we will continue as a single nation, much poorer and unable to project power abroad, but ruled by a despotic central government wielding a citizens’ army of multicultural block wardens to keep the citizenry in line—a continent-wide Cuba from sea to shining sea.

Or perhaps some other currently unimaginable form of government and civil society will emerge.

The only thing that’s certain is that the system cannot continue for much longer in its present form. The laws of economics—which are nothing more than a mathematical model describing what must happen—tell us that a collapse of some sort is unavoidable.

You will know changes soon.

Why not look through the crystal ball?

Our only strategy appears to be waiting for ZOG to blow itself up based on the inherent unworkability of its founding nostrums.

—Alex Linder

Very few nationalists are taking seriously Austrian economics: that the US will be facing a depression soon—in case that Romney is elected and decides to prick the government bubble—, or even a complete currency crash in case that Obama gets reelected and his Ben Shalom Bernanke allows the bubble continue to expand until it pops by itself.

While I am no promoter of a capitalism that ignores racial interests, I see Austrian economics as a reliable predictor of what’s going to happen during the next administration: either way, Americans will face economic meltdown. The subject is of such paramount importance that I find it bothersome to find the promotion of third-way economics, such as Social Credit, at several Robert Stark radio shows and essays at Counter-Currents, which recently hosted a Stark interview of Anthony Migchels (for an exchange of Austrians with Migchels see here).

Bothersome I said: because nationalists are flatly ignoring the Austrians’ main message, that Keynesian economics is (good news for us!) driving the US economy straight toward the cliff.

Why are they ignoring the most momentum issue of our times?

Most nationalists are just reactionaries. It can be no coincidence that, unlike these reactionaries that like to discuss Social Credit in ivory towers, revolutionaries like Michael O’Meara do mention the literature of collapse. O’Meara for one believes that only a catastrophic collapse of imperial America holds out a possibility that a racially-conscious vanguard of white Americans reclaim their territory.

I don’t see Austrian economics as a way to promote libertarianism (“sound money for brown people”) because, by definition, there will be no browns in the White Republic. I see it as a very hilarious way to expose the Keynesianism that is fulfilling the deconstruction of imperial America for white nationalists to takeover. Austrian economics is a reliable crystal ball to see the future. Even if nationalists fail to take full advantage of it, we all must welcome the big window of opportunity that is about to be opened—exactly what happened in Weimar Germany.

Published in: on August 30, 2012 at 6:36 pm  Comments (15)  
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Most Americans will have trouble feeding themselves

The below essay, “US, SU: Same Scenario?” is the thirteenth essay of Michael O’Meara’s book Toward the White Republic, available from Counter-Currents Publishing here.





Book review
of Dmitry Orlov’s

Reinventing Collapse: The Soviet Example and American Prospects (Gabriola Island, Canada: New Society Publishers, 2008)


Despairing of my people’s passivity, I have often thought the collapse of the United States might be the one thing to turn them against the system that seeks their destruction.

This “catastrophist” perspective is, admittedly, a strategy of desperation. For collapse (what Joseph Tainter calls a “recurrent feature of human societies”) may delegitimize the existing system and make whites more receptive to their racial/national interests, but, in a worst case scenario, it could pose problems even more threatening than those of the last 60 years.

The literature of collapse is consequently of the utmost relevance, especially now that the “American Century” seems to be nearing its inglorious end.

Of the numerous works on fallen civilizations, perhaps the most pertinent are, for obvious reasons, those related to the Soviet collapse of 1991. Hence the propitiousness of Orlov’s recently published work.

A computer engineer by training, Orlov and his Russian Jewish family emigrated to the US in the 1970s. He has since maintained ties with the land of his birth, having returned during those periods leading up to, traversing, and following the Soviet collapse. Writing from a radical ecological perspective critical of industrial civilization (which he implicitly—Hebraically?—associates with white civilization), Orlov suggests what collapse entailed in the SU and why the US is no less a candidate.

His book, though, is no work of scholarship.

“I am not,” he writes, “an expert or a scholar or an activist. I am more of an eyewitness. I watched the Soviet Union collapse and this has given me the necessary insight to describe what the American collapse will look like” (p. vii).

He accordingly spends little time sketching the big picture—the structural forces driving the collapse—and, instead, concentrates on its “micro-scale” processes and experiences. This makes his book a “personal” work, without claim to scientific authority, but nevertheless one that is very readable and informed by the all-important “human” dimension of collapse.

Despite their different methods and styles, Orlov sees the two 20th-century superpowers as “antipodes” of the same techno-economic civilization committed to social management, economic growth, material accumulation, world domination, and the realization of the Enlightenment vision of a totally rationalized world.

As such, Orlov argues that the US and the SU both sought a better life through science, approaching every human problem in terms of a technical fix. They both were militaristic, imperialistic powers who, through direct or proxy wars, made a mess of the international arena and, though Orlov doesn’t mention it, introduced reforms in the Third World that has caused it to grow out of control; they both devoted endless fanfare to celebrating their democratic, egalitarian institutions, however fraudulent; both assaulted popular beliefs and values in the name of a higher rationality, discouraged traditional social relationships, created meaningless, uncreative forms of work, exalted materialist values over others, repressed dissent, recruited corrupt, venal elites—and, most seriously, cared little or nothing about the white, or European, race, though Orlov doesn’t actually think this. It might be added, and this too isn’t in Orlov, that the US and the SU both were social experiments that favored Jews, making them, and their values, dominant.

The list of similarities goes on. But the basic point—that the US and the SU were techno-economic civilizations devoted to roughly analogous worldviews at odds with nature and the nature of ourselves—seems rather indisputable. As such, one civilizational model collapsed, and the other, for roughly similar reasons, now faces the prospect of a similar collapse.

Orlov gives no credence to the Reaganesque bombast that the United States defeated the Soviet Union in the Cold War. He argues that its collapse had little to do with ideology and even less with American influence. Instead, he attributes it to the SU’s “chronic underperforming economy, coupled with record levels of military expenditure, trade deficit and foreign debt” (p. 8). These economic problems made it increasingly difficult for “average Russians” to get by.

When Soviet reformers under Mikhail Gorbachev at last attempted to fix the centrally-planned stagnation, they couldn’t. This failure, combined with military humiliation in Afghanistan and the nuclear disaster at Chernobyl, so discredited the Soviet state that it imploded.

Given that Orlov’s book appeared before the US financial meltdown of September 2008, it looks mainly at those structural weaknesses in the US economy that most resemble those of the former SU—rather than at that institutionalized system of fraud responsible for pulling off one of the great historical swindles.

Stressing the inherent flaws in the US economy and noting that it has taken a couple of decades for the US to catch up to the SU, he suggests that the US may soon face a similar fate.

Like many ecologists, he rejects the facile conviction that modern society is exempt from the rise-and-fall cycles characteristic of pre-industrial societies or that present rates of economic and population growth can continue indefinitely.

The United States, he sees, is especially vulnerable to collapse, due to the petroleum basis of its economy. He points out that the US, with its “energy-intensive model of empire,” is more dependent on cheap oil than any other industrial economy, that its crude oil production “peaked” in 1970, and that three-quarters of its energy is now imported.

Any rise in oil prices will consequently be paid for in declining economic growth and higher food prices (agriculture being petroleum-intensive). Once the era of cheap energy comes to an end (sometime supposedly past its peak), world economies will be forced to undergo changes as significant as those that accompanied the onset of industrialization. This will lead to further decline and ultimately to collapse—which Orlov, citing the archdruid John Michael Greer, defines as that condition whereby “production fails to meet maintenance requirements for existing capital” (p. 2). That is, when the declining economic system starts “consuming” its infrastructure (cannibalizing itself, in effect) to compensate for declining incomes, it will simply hasten the inevitability of its demise.

But however central, energy is only one of the problems that Orlov, peak-oilist that he is, considers.

Because the US has outsourced most of its manufacture overseas, no longer produces the high technology on which it depends, and relies on imports for most of its basic needs, it has incurred an enormous trade imbalance, sustained by massive borrowing in foreign money markets. (For different reasons the SU acquired massive trade imbalances and debt in the 1980s.)

The problems created by America’s increased energy costs and the financialization of its economy have been compounded by a runaway military budget, a debt pyramid that grows at an exponential rate, and the decline of its overseas empire and “tribute economy.” Combined with imperial disasters in Iraq and Afghanistan, a growing international reputation for incompetence and corruption, violent changes in weather patterns (which produce killer hurricanes, like Katrina, having a system-disrupting potential), and the impending breakdown of neglected infrastructure (bridges, levees, poisoned water tables, etc.), these factors suggest that the US might eventually follow the SU into the dustbin of history.

The federal government and “the self-enriching political elites” that feed off it have, moreover, a vested interest in “perpetual growth” and imperial overreach, which means they can’t be expected to do anything constructive to stave off the impending collapse. As the economy begins to decline, tax revenues too will decline and public debt grow.

The only solution the elites have come up with to address the state’s impending fiscal crisis, thus far, is to crank up the printing presses and introduce more worthless paper into the market.

Orlov’s explanation of the Soviet failure and his prediction of an impending American collapse, given the impressionistic nature of his work, should, of course, be taken as merely suggestive, though economic contraction, declining energy availability, and increased political turmoil already loom on the horizon.

His work, moreover, is short on the specifics of collapse, he neglects any consideration of collapse as a “political process,” and he ignores important questions as to how and in what manner collapse occurred (in the SU) and will occur (in the US). It’s also not evident if an American economic collapse will mirror the suddenness of the Soviet collapse (which was historically unprecedented) or if, like more traditional cases, it will be stretched out over decades.

Qualitatively more persuasive, though, is Orlov’s claim that the Soviet Union was better situated than the United States to endure and recover from a political-economic breakdown.

In his view, Americans see their “spendthrift debtor nation” as a “land of free ice cream and perpetual sunshine” (p. 16). Never having experienced invasion, world war, famine, or bloody dictatorship, it’s hard for them to imagine a future unlike their past. More than Russians, Americans have been severed from their past and redesigned as gratification-oriented consumers whose defining character is materialist rather than ethnic, historical, or cultural. They also lack the psychology of resilience “bred” into the long-suffering Russians. Finally, they are more ideologically deluded by the system’s pretenses, just as they are more integrated into its increasingly dysfunctional institutions.

Born of a less happy, but more bona fide nation, Soviet Russians put greater emphasis on individual achievement and recognition than on economic success. Money and materialist designations didn’t play quite the same role in their lives as they do in the US, for their primary needs—work, housing, basic services—were essentially provided by their collectivized economy and the lifestyle consumption native to the American economy wasn’t an option. When the political system stopped functioning and the formal economy suffered its knockout blow, there simply wasn’t the moral and social devastation that is likely to affect Americans.

The SU was also favored in terms of food and shelter. Most Soviet housing was owned by the state. Though “drab and soulless,” it was well-built, insulated, and designed to last. Almost all housing was surrounded by public lands on which people kept kitchen gardens. Prior to the collapse, nearly 90 percent of the country’s domestic food supply came from these kitchen gardens and other individual plots, for Communism had turned Russian agriculture, once Europe’s breadbasket, into a basket case.

The Soviet regime also had a phobia of food riots and virtually every city stored large grain surpluses for emergencies. This made the Soviet-style food system almost immune to breakdown. After the collapse, most people were thus able to keep a roof over their heads and to provide themselves with food. All Soviet utilities, such as heat, running water, electricity, and garbage removal, were also public and could be counted on even after the dissolution of the central state. Above all, Russian housing was overwhelmingly urban, situated near the country’s extensive public transportation network, which continued to operate.

This will not be the case in the US, whether it undergoes a sudden Soviet-style collapse or if it should, as is more likely, experience a extended period of decline.

Most Americans, who don’t own their homes, will in either case face foreclosure, eviction, and homelessness.

They will also have trouble feeding themselves, once the shelves of their suburban supermarkets, stocked by just-in-time deliveries, are emptied.

Because the entire country is built around the auto—housing, shopping, work are virtually inaccessible without it—when the economy bottoms out and energy costs become prohibitive, this car dependency will prove catastrophic. Even in the oil-rich Soviet Union, there were gasoline shortages and severe rationing.

Without significant domestic supplies of gas and without spare parts for their foreign-built autos, suburban Americans will find themselves stranded.

Orlov suspects there will be a mass exodus from distant suburbs, as people are forced to relocate to centers whose supply and distribution networks remain operative. If this should occur, the world will shrink to areas that can be covered on foot or bike, long distance and global trade will be drastically curtailed, and the key principles of globalization will become totally untenable. More generally, “the world” will become “the local” and self-sufficiency the supreme virtue.

Consumerism will then become a thing of the past. Though the Soviet economy was notorious in its neglect of consumer goods, it nevertheless made things, with some conspicuous exceptions, to last. American goods, by contrast, are produced with artificially short replacement cycles and often in plastic, which means that once the container ships stop arriving at US ports many of the consumer items that have become essential will disappear, not to be replaced.

The greater prosperity and materialism of American life also means that things most of the world considers luxuries—cars, central heating, refrigeration, flush toilets, cell phones, packaged and processed foods, washing machines and kitchen appliances—have become necessities; their disappearance will be felt more intensely than in the Soviet system of socialized poverty.

An American collapse (or decline) is likely, then, to entail shortages of food, fuel, and countless consumer items, combined with outages of electricity, gas, and water; breakdowns in transportation systems and other infrastructure, including public health; widespread shutdowns and mass layoffs; all accompanied by confusion, despair, and perhaps violence.

Society as a whole will then be forced back to a less complex mode of operation; centralized forms of control will wane; things will suddenly become “smaller, simpler, less stratified, and less socially differentiated”; regions and communities will assume a greater centrality of tasks. Whether there will ensue a Hobbesian “war of all against all” is anyone’s guess.

As the old economy begins disintegrating, old forms of capital (cash, stocks, bonds) will progressively lose their value. Trucking and airplane fleets deprived of fuel will end up as scrap. Scientific and industrial equipment may be exported as forms of exchange, along with antiques, jewelry, and art objects. Numerous jobs—cable installers, lawyers, sales representatives, plastic surgeons, store clerks, stockbrokers—will become superfluous.

Given both the social and economic dislocation this will set off, law enforcement will probably be overwhelmed, replaced in part by private security and neighborhood defense units. Many laws will be ignored. Established authorities, no longer able to ensure the security of its citizens, will almost certainly cease commanding respect and new power structures may arise. Organized criminals, gangs, former cops, and military contractors will find new employment or self-employment. (This will be a good time to be in a Private Military Company.)

As the established market breaks down, an informal economy will likely replace it—an economy that largely revolves around the liquidation and recycling of the old economy and is based on “direct access to needed resources or the threat of force, rather than on actual ownership or legal authority” (p. 61).

As in Russia, we’ll probably see old people in open air flea markets selling off their treasured possessions, middle-class people rummaging through trash, the few remaining stores under heavy security.

All this will happen to a people not only psychologically unprepared for social upheaval, but ill-suited to the harsh realities it’ll bring. Americans, in fact, have lived so long with a radical disconnect between their “culturally acceptable beliefs” and their personal experiences that they are already afflicted with various mental diseases, evident in the tens of millions of anti-depressant and mood-altering drugs they daily consume. Collapse will send a great many of them over the edge—into new fantasized stages of denial or, perhaps, into a millennial “end times” revival.

The good news is that whites will also become increasingly unsupportive of a regime that no longer delivers the goods. Indeed, because the legitimacy of America’s managerial/ therapeutic regime is so closely linked to economic well-being, the latter’s breakdown will likely also either bring down the state or “hollow” it out. But whatever happens, the fall of the American system, based on a highly controlled system of “communications” and programmed consumption (i.e., on packaged goods and packaged lives), is going to lead not to the rapture, but to a very rude awakening.

This is worrisome to the degree that the most vulnerable to collapse, besides the “couch potatoes” spawned by our “prosthetic society,” are whites. For they are the most integrated into the existing system, they are the most deluded by the ideology of the American Dream (which holds that if you work hard and play by the rules, you will succeed), they are the most shorn of their former identities, culture, and communities (which assume a primary importance in times of crisis), and they lack any consciousness of being a people, based on a specific stock with a specific culture, and thus lack any consciousness of why they should act cohesively as a people.

However, once whites cease being sheltered in the bubbles of their cars or in their cubicle jobs, they will have no choice but to deal face-to-face with blacks, Mexicans, turbaned Sikhs, and the other exotic fauna that now cover their land. At this point, they may discover that a nation is not a “racial ragbag,” but a community based on a “consciousness of kind”—i.e., on a consciousness of being related in blood and spirit, of belonging to a people with a shared ancestry and a common culture.

The ensuing anarchy might similarly provoke conflict along ethnoracial lines, exacerbated by high gun ownership on both sides, that could conceivably lead to violent clashes and perhaps forms of ethnic cleansing.

Such conflict will have a far greater role to play here than it did in ethnically homogenous Russia, where communal relations remained civil, if not amicable (except in respect to Jews and other non-Russian minorities).

If American whites should remain unconscious of who they are as a people, they will almost certainly become victimized by the higher cohesion and consciousness of non-whites, whose ethnic identity, family ties, and cultural motivations are both more primitive and more powerful than theirs. The big question, then, is whether whites will passively succumb to black and brown predators, like sheep before the slaughter, or if, in an awakening, they’ll join with other whites to fight back. (I’m betting it won’t take long before they realize that it’s a matter of “us or them.”)

Relatedly, successful, middle-aged white men will be especially prone to nervous breakdown and depression—as the career, savings, and property they spent a lifetime pursuing suddenly go down the drain. Suicide, emotional paralysis, drink, and drugs will strike them at higher rates than other sectors of the population. Their fragility will be further compounded by the fact that their work experiences leave them totally unqualified for employment in a collapsed economy. Concentrated more in business, management, communications, law, sales, and information processing, they will find that non-white immigrants with practical skills as carpenters, mechanics, and general laborers are better situated to take advantage of the remaining job opportunities.

At the same time, as single households and nuclear families prove to be unviable, whites will find that extended families and friends are their most valuable assets.

The Russian family wasn’t much healthier than the American family, but economic conditions and housing shortages before the collapse helped keep marriages together, with three generations often sharing the same dwelling. And like most people worldwide, Russians also tended to live in the same locale all their lives. As a result, they had extended family ties and knew the people among whom they lived, both of which enhanced their survivability.

American whites lack these extended networks, and this is going to affect their adaptability in a broken world. To survive, they will have to rediscover the meaning of community and revive those organizations and activities that were once a mainstay of American civil society. In making the transition to a Third World lifestyle, whites then will either have to rediscover their own traditions or else revert to the sort of practices common to non-whites.

It took Russia only a decade to recover from its collapse and regain pre-collapse economic levels. This relatively speedy recovery was due to the individual Russian’s ability to adapt to crisis conditions and to the country’s vast oil reserves, which enabled their economy to bounce back relatively quickly, once world gas prices revived.

The US is not so well-situated. It will take longer to recover from whatever collapse brings, and it’s likely there will be no “recovery” from the decline of its techno-economic civilization (given the inevitable rise of energy costs and the unfeasibility of a globalized economy based on cheap energy). There’s also no single figure in the US governing elite capable of emulating the nationalist-minded Vladimir Putin, who prevented the oligarchs from turning post-collapse Russia into a colony of the world’s financial system.

But all’s not doom and gloom in this scenario. The crash, if and when it comes, will help whites shed their liberal illusions, perhaps lead them to discover what is most important in life, and, in the best of all possible worlds, prompt them to reestablish the racial-nationalist ties that once made them a great, enterprising people.

Of course, it would have been better if they hadn’t screwed around for 60 years, leaving it until the very last possible moment to recoup the Aryan qualities that will enable them to overcome the coming dark age, but better at 11:59 p.m. than never at all.

In this pre-collapse interlude, before the fall, nothing can be done to halt the inevitable or mitigate the immitigable. We are facing, in America’s world decline, not a solvable problem, but an unavoidable predicament that promises to rip apart the illusions that have animated American life for at least the last two generations—especially the illusion that unlimited growth and limitless consumption are possible in a world of finite resources.

We have, moreover, absolutely no control over what is about to happen: All our efforts would be like “wiggling our toes at a tsunami.” The only certainty now is that the process of decline has begun.

Worse, there are no oppositional parties, political formations, or extraparliamentary forces representing white interests to lead them, once the smoke clears. The impending crisis—this make or break time—comes thus at a relatively inopportune moment.

However, as individuals and, more importantly, as European Americans concerned with their people’s fate, they still have time—a civilization rarely collapses all at once, as Orlov and survivalists fantasize, but rather gradually, often over the stretch of decades—to turn inward to prepare themselves mentally for the looming economic breakdown and, as they do, to start turning outward to develop those “resilient communities” of friends, family, and fellow tribesmen, who, when the moment strikes, might not only help them survive—but perhaps also prompt them to start thinking about what should succeed the failed United States.