Archive for February, 2012

“If enough bondholders do not accept the bond swap offer, Greece would be deemed to be in outright payment default”

~ Standard & Poor’s Rating Agency

Anyone out there shocked to find that no Greek bailout has taken place yet?  Anyone flabbergasted that zero dollars have flowed into Greek coffers?  Well, if you are, you haven’t done your homework.  After all, several sources, including our friends at ZeroHedge and The Slog, as well as this very site, have stated in recent weeks that no “deal” is done until money flows from the ECB to Greece.  Thus far, nothing of the sort has taken place.  And while several people were laughing at us last week when the European leadership notified the world that a deal had been agreed to, and yesterday when the Bundestag agreed to send German tax dollars to Greece, this morning we wake up to read that Greece is on the verge of default as noted by the Standard & Poor’s rating agency, one of the three organizations who are paid by the issuers of bonds to rate a debtor’s creditworthiness.  In other words, people paid by Greece to rate Greece’s credit say they are incredibly close to defaulting on their debt.  Enjoy this statement, as reported by Tyler at ZeroHedge this morning:

Greece Ratings Lowered To ‘SD’ (Selective Default)

Rating Action

On Feb. 27, 2012, Standard & Poor’s Ratings Services lowered its ‘CC’  long-term and ‘C’ short-term sovereign credit ratings on the Hellenic Republic  (Greece) to ‘SD’ (selective default).

Our recovery rating of ‘4’ on Greece’s foreign-currency issue ratings is  unchanged. Our country transfer and convertibility (T&C) assessment for  Greece, as for all other eurozone members, remains ‘AAA’.


We lowered our sovereign credit ratings on Greece to ‘SD’ following the Greek government’s retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on Feb. 23, 2012. The effect of a CAC is to bind all bondholders of a particular series to amended bond payment terms in the event that a predefined quorum of creditors has agreed to do so. In our opinion, Greece’s retroactive insertion of CACs materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring. Under our criteria, either condition is grounds for us to lower our sovereign credit rating on Greece to ‘SD’ and our ratings on the affected debt issues to ‘D’.

What does all this jargon mean?  Simple.  Because Greece has retroactively and unilaterally created new conditions for when and how they will pay back their creditors to their own advantage, making it easier for Greece to force a larger “haircut” onto its lenders, (ZeroHedge and others have done a good job of covering this, and perhaps we can revisit this topic in another post) S&P is stating that it is within its right by its own definition to find Greece is in a state of default.  After all, what is a default but a failure to repay a loan based on the original conditions of said loan?  In essence, S&P is stating that Greece is already in default.  The term “selective” seems to be applied here to indicate that the default is of Greece’s own making, which may be used as a way to avoid triggering Credit Default Swaps.  This is absolutely another conversation for another time.

Let it suffice to say today that we are in uncharted territory here.  The Slog has treated this topic today with the article “When Will Enough Be Enough for the Credit Agencies?” and ZeroHedge has their article here.  As it turns out, March 23 is closer now than it was last time we covered Greece, no money has made its way to the Bailout Fund, and with news like this being circulated in the U.S., what are the odds that Europeans (read Germans) are going to want to chase a nation already in technical default with their own taxes?

He who laughs last laughs best, but will any of us be laughing when Greece goes under?  Three more weeks until we find out…

~ DS


Today is a busy day at the Smith homestead, so this might be a brief piece, but will cover an important topic we will definitely be hearing more about in the weeks and months ahead.  We can’t go too far down this rabbit hole without touching on precious metals, primarily gold and silver.  Some of you probably know a ton about this–even more than me.  Others may have no idea about the wealth-preserving nature of these metals.  It is this second group that I’m hoping to reach with this post.  Enjoy…

One of the things we learned in a previous post discussing the nature of money creation (please see “How The Federal Reserve Creates $$ Out of Thin Air”), and one thing we know from Chris Martenson and his Crash Course video series, is that the process by which any government or central bank can create money is relatively simple.  In fact, it doesn’t even take an act of Congress any more…  Through a process the Federal Reserve likes to call “Quantitative Easing,” or QE, the Fed essentially creates more Dollars electronically (they don’t physically print more money these days–that’s so Weimar Republic!) by buying financial assets from banks on paper and paying the banks in Dollars as part of this quid pro quo.  Usually, the swap involves the Fed buying long-term maturity paper of some kind in exchange for cash.  This only makes sense when the Fed’s interest rate (the price it charges for banks to borrow money) is near zero, which it is right now.  In any event, the Federal Reserve has already employed this technique multiple times, and with predictable outcomes.  For a time the economy is stimulated, but eventually prices rise and inflation ensues.  The Fed knows this happens, and understands that really all they’re doing is making things worse in the long run, but they almost certainly see themselves as having no choice.  Its a choice, using a poor medical analogy, between taking years off the end of the patient’s life or having them die right there on the operating table at that moment.  Hence, Quantitative Easing.

The only problem with QE is that it leads to your Dollars being worth less.  The simplest way to explain this is to say that if there were twice as many Dollars in the world, each Dollar would be half as scarce, or half as precious.  People, therefore, have to work half as hard to get ahold of one Dollar, making every Dollar half as valuable.  This is a major oversimplification, but it will do for now.  In any event, therein lies the major issue with fiat currency, as we discussed in previous posts: when your money has no actual intrinsic value–when your money is linen and fiber–its value is subject to an increase in the supply, which, as we stated above, is very simple to achieve.  That is precisely why the Federal Reserve and the U.S. Government use such currency as their tender.  It is easily manipulated.

Where do the precious metals come in?  Gold and silver are the two main precious metals that people deal in, although platinum is also somewhat common.  These metals are also a form of currency.  They, in fact, better meet the traditional definition of a currency than the USD: a true currency must have intrinsic value, must be scarce enough to maintain its value, and must be easily transferable as part of a currency transaction.  So, depending on what form you hold your precious metals in, the “easily transferable” part might be difficult.  I’d personally feel awkward trying to buy a mansion with a 100 kilo brick of gold bullion.  Of course, these metals come in all sizes and denominations.  In any event, the first two criteria are met by PMs head on.  There is almost always more demand for gold and silver than there is production, and this kind of production can’t happen at a printing press or a bank of computers.  The intrinsic value of gold or silver is really a discussion for a philosophy class, but silver itself has significant industrial uses and is, I would argue, intrinsically valuable for its uses as a part of manufacturing.

These metals are Kryptonite to the Fed’s QE plans.  Think about it this way:  If you buy an ounce of gold today for $1700, and tomorrow the Federal Reserve created–out of thin air–another $1 trillion in currency, and massive inflation ensued as it usually does, and the price of gold rose as a result of this inflation to $2000 an ounce, you just made money.  Of course, you must be careful (DON’T MAKE ANY PURCHASES OF ANY PRECIOUS METALS ON MY ADVICE–I AM FAR FROM AN EXPERT ON PRECIOUS METALS–I SPEAK FROM MY HEART AND SPEAK THE TRUTH AS BEST AS I CAN, BUT I AM NOT A FINANCIAL ADVISOR) because today there are paper precious metal exchange mechanisms called ETFs, which trade the “paper” value of gold or silver like stocks or mutual funds, and the price is subject to wild fluctuations in the short term.  To be clear, the wealth-preserving properties I am discussing relative to precious metals only apply to actual physical gold and silver, not gold or silver funds that you buy on E-Trade.  So, your $1700 today might become $1400 tomorrow.  But, over time, as more Dollars are printed, the physical asset you bought in the past is worth more and more Dollars, in theory. Its something that most people use, not as a way to get rich–although some people who figured this out 30 years ago are swimming in it now–but as a way to preserve your wealth in an era when savings accounts yield something like 0.25% and stocks against inflation often lose money.  Hell, governments are now charging investors to loan them money in some countries.  With PMs, you have a means of protecting and preserving your assets if and when (hyper)inflation ramps up.

That’s enough for today.  We’ll get WAY more into this topic in future posts, but for now, knock yourselves out doing research on this stuff.  There are dozens and dozens of websites out there that talk PMs, but I would start at TF Metals Report or Silver Doctors.  In the meantime, enjoy your Monday.  Silver and gold are already doing battle this morning, and if this is the first week you ever get into following this stuff, you picked a wild one–should be fun.

Peace out girl scout.

~ DS

“America is now the only global superpower, and Eurasia is the globe’s central arena. Hence, what happens to the distribution of power on the Eurasian continent will be of decisive importance to America’s global primacy and to America’s historical legacy.” ~ Zbigniew Brzezinski, The Grand Chessboard

Dr. Brzezinski, probably best known today for being the father of Mika Brzezinski of MSNBC’s Morning Joe, is also considered the father or American grand imperial strategy in Central Asia.  In his text, The Grand Chessboard, the good doctor explains the advantages of a post-Cold War, post-Soviet Union Central Asian landmass dominated by the world’s last hegemonic power, the United States of America.

The rationale behind this need to dominate Central Asia is clear.  It was clear in 1998 (when the work was published) that with the Balkanization of Europe and Asia through the disintegration of the Soviet Union, the continued consolidation of power in Europe under the auspices of the European Union, and the continued development of China’s economic and military power, that the 21st Century was not going to be dominated by a bipolar arrangement, where two super powers aligned against each other and all the minor actors in the world chose a side.  The 21st Century was shaping up to be a multi-polar demonstration, where the United States would be competing with multiple centers of power for the only thing that really matters: resources.  Yes, power matters, money matters, military strength matters, but only to the extent that those things increase your ability to access and harvest resources.  Brzezinski explains how, geostrategically, Central Asia is important because it was sort of the crux of two of the world’s three largest power centers, and was axial to the world’s primary resources, including oil.  North America, for example, was already dominated by the United States.  Ditto for South America.  No one’s sweating Antarctica or Australia.  Europe, Asia, and Africa were where the game would play out.  According to Dr. Brzezinski’s thinking, not only would controlling Central Asia give a nation access to the resources they would need to maintain power, but would also position that nation strategically to prevent the rise of any rival (he labeled these nations “Eurasian challengers”) that could compete for the same resources on any kind of global scale.

Where does that leave us today?  I think its safe to say that our interventions in the Middle East and Central Asia have increased since Dr. Brzezinski penned his book.  And I think the title of his work–The Grand Chessboard–helps us understand that there is far more going on in U.S. foreign policy than the public in this country realizes, certainly more than the government or mainstream media care to explain.  After all, Dr. Brzezinski is playing chess in his tale.  He is not playing checkers.  Chess is a game of immense strategy, where victory is plotted dozens of moves ahead and players often make short-term decisions that don’t seem advantageous, only to reveal much later how their sacrifices put them in a position to win.  Its a game, incidentally, from which this blog–American Endgametakes its name.  And if we make the mistake of believing that the United States government–or any of the other actors around the world–is playing checkers, we will miss the point of what is happening.

Consider the two wars we’ve fought in Iraq.  Both conflicts were different in cause.  We can see how the invasion of a foreign state is different than the application of a preemptive doctrine.  However, the two wars worked together in a fascinating way.  The ultimate accomplishment of the first Gulf War was the containment of a former ally nation (Saddam Hussein’s Iraq) which no longer served U.S. interests and a legitimate excuse to inject U.S. troops in the Middle East.  Recall that the United States stayed in the region after the war, complete with air bases and everything.  The second war was clearly crafted to finish the coup against Iraq and–when combined with the war in Afghanistan–went a long way toward meeting Dr. Brzezinski’s dual goal of accessing resources and preventing the rise of rival powers.  After all, containing Iran and having access to the oil-based resources of the Caspian Sea are both long-term interests of the United States.  The current escalation of hostilities with Iran represents the U.S.’ metaphorical attempt to capture the opponent’s queen.  Iran represents the most powerful non-aligned nation in the region, and therefore the only real threat in the Middle East to U.S. hegemony in the area.

There is a problem, though.  The United States isn’t playing chess against Iran.  The United States is playing against China and our old friends, the Russians. AE plans to delve into this topic more deeply in the coming days and weeks, but for today, understand this one thing: the United States, when it comes to resources, is in a fight for its life.  As I said before, don’t miss the point of what’s going on here.  The United States isn’t trying to control the world’s oil supply just so secret cabals of oil execs can get rich.  We’re doing it so our nation can survive the 21st Century.  We’re doing it because Russia and China have decided that this period of American dominance needs to come to an end.  Currently these two nations are actively engaged in undermining American hegemony in the most effective way possible: by attacking the U.S. Dollar.

I’ll give you a preview of where we go from here with this topic: How are we able to maintain a $1.3 trillion deficit year after year?  Yes, we borrow money.  Which nations have a large enough economy to support our spending habit?  Yes, China comes to mind.  Wouldn’t we be in trouble if China stopped buying our debt?  People have been saying that forever.  Well, is it happening?  Yes, it finally is.  Those who research the topic will find China is slowly positioning itself to divulge itself of U.S. Treasury bonds.  The fact that Russia and China are signing bilateral currency agreements–through which the use of the USD as a reserve currency is abandoned–should be particularly concerning to all of us.  Ultimately, we will find that there is more going on here than meets the eye, and those who believe we are sitting in the catbird seat might not see the checkmate coming until the game is already over.

Cheery Sunday.

~ DS

“There are few problems which have greater potential to quickly unsettle the North American public and strain essential services than suddenly being denied access to fuel.” ~ Rick Munroe

Imagine, if you can, that there is a resource everyone likes to use.  They like to use it for convenience: it lets them go places, have neat things, eat the foods they want no matter what time of year it is…  And imagine this item was in total abundance, as if the world might never run out of it.  Imagine how fast people would use this resource…  Probably as fast as they possibly could, right?  And imagine it was really easy to access it, and that in certain parts of the world you could simply drill a hole in the ground and this resource would flow right to you.  Life would be fantastic!

Now imagine, if you can, that this resource begins to become scarce.  Imagine that the world could not discover any new supplies of this resource, nor could they produce it any faster.  Imagine this was because the “easy” supplies had already been used, and now the more difficult to reach supplies were economically disadvantageous to access…  What would happen to the supply of this resource?  It would dwindle.  And what would happen to all the items that were made from it?  They would rise in price.  And what would happen if the resource became so scarce that not everyone could have it?  How would people react?  Would they adapt and move on with their lives?  Would they go to war to protect their resource?  Would there be civil unrest when people couldn’t afford the resource or have the things they wanted?

While those questions may seem difficult to answer in the abstract, we are currently being treated to a real-life experiment along these very lines.  That is because such a resource exists today in the form of oil, and we are watching the world decide what to do about the reality that less oil is available for more of us every day.  The concept of “peak oil”–that the world is now beyond the peak of oil discovery and production–is one that few of us have been treated to, but is probably the most important economic and geopolitical problem facing us in 2012.

Once again, we will turn to Chris Martenson and his Crash Course video series.  This is where the concept was explained to me, and if you want to get it, no one explains it better.  This is Chapter 17a (yes, there a lot of chapters) on Peak Oil:

If you weren’t able to watch the whole 18 minutes at once, I understand.  Please come back to it–this is a really powerful concept.

For those of you who want the down-and-dirty version, here goes:

  1.  Global oil discoveries peaked about 40 years ago.  Since then, no major new high-energy oil or oil-based sources have been discovered (I know, I know, tar sands–those are in the low-energy-return category).
  2. Global oil production peaked within the last few years.  We now produce less oil every year than the year before for the first time since oil was discovered in the 1850s.
  3. Global oil demand continues to climb every year.  Countries like China and India are witnessing massive oil demand as their middle classes grow and the desire for gasoline powered vehicles and creature comforts like electronics, CDs, etc., increases.  Also, energy demand for electrified homes and heat is continuing to climb.
  4. Nations who were recently exporters of oil are also seeing increased domestic demand for oil, and are quickly becoming net importers of energy.  This concept is REALLY important.  For example, Mexico, the U.S.’ third largest oil supplier, is about to begin importing oil to meet its own energy demands.  When that happens, the United States will lose its third-largest oil supplier and then begin competing with Mexico for the dwindling global oil supply.
  5. The sources of oil and oil-based energy we continue to use (including tar sands) cost more to produce and offer less energy per unit.  In other words, we have already extracted and used the cheap, high-energy stuff.  We are now using the expensive, low-energy stuff.
  6. All this to say that between lower supply, higher demand, more nations competing for less oil, and higher production cost per energy unit produced, the cost of oil-based energy (and every other form of energy when you consider that less oil means greater demand for every other way we make energy, including solar, wind, water, LNG, coal, etc.) is going to continue to climb, probably exponentially.

So what?  This is problematic on two levels.  The first level is very obvious.  More of my paycheck going to heat my home and get to work, not to mention buy my groceries (which are shipped by truck) and clothes (ditto), is going to push America’s fragile economy to the brink of Depression (in my opinion, we’re already there, but that’s another post).  What good is a payroll tax cut of 2% when energy costs go up 20%?  The second level is far more disturbing.  Consider the massive, exponential growth of every yardstick by which we measure human development: industrial output, standard of living, quality of life, access to technology, access to communication, GDP, etc.  Consider that these rapid advancements have coincided–although it is not coincidental–with the availability of oil.  If you saw a timeline on a chalkboard that covered the last 200 years, and were asked to mark the board with a line signifying when you believed American society was “at its peak,” meaning at its best, its most prosperous, its most balanced and its happiest, where would you mark it?  I would venture to say that many of us, if we are mature and honest enough to handle this exercise appropriately, would look at the period of the late 1950s to early 1960s and say, “oh yeah, those were the good years.”  And I would agree with you.  If you feel that way, consider how little stood in America’s way during that time.  Sure, we were in the midst of a heightening Cold War, but domestically, the world was our oyster, and development and growth were commonplace and rampant.  And it is my assertion that this period of prosperity was due almost entirely to the abundance and availability of inexpensive, high-yield oil-based energy products.  When there is a ton of oil, and you can get it for almost nothing, any country can be great.  It is, as Chris says, the lifeblood of a developed economy.  With it, a nation can take on all comers and grow its industrial, commercial, and technological sectors with abandon.

However, without a cheap and abundant supply of oil, I am afraid our nation is headed for difficult times.  Could it really get that bad, and how bad would it be?  That is what Peak Oil is all about.  I’ve thrown the term at you, now you get to go learn more, if you choose.

In another post I hope to explore Zbigniew Brzezinski’s important work, The Grand Chessboard.  This book, written post-Cold War, explained the importance of the United States both a) maintaining control of the Middle East for resource purposes and b) not allowing a “Eurasian challenger” to grow powerful enough to threaten American global hegemony.  I think that is an area where the Peak Oil discussion becomes relevant, and I think combining Brzezinski’s work with a post-peak production would goes a long way to explain why we are about to go to war with Iran.  But that, as I like to say, is for another post.

~ DS

“A man in debt is so far a slave.” ~ Ralph Waldo Emerson

And with these blunt words, we launch into today’s AE missive on U.S. Debt.  After all, people who live in glass houses should not cast stones, and before we stare at Greece like the guy who just got mauled by the lion at the zoo, or gleefully root for a default like bombs over Baghdad, we might want to recognize that Greece and other nations (Italy, Portugal, Japan, etc.) are the canaries in the coal mine.  Until we have our own financial house in order, no one should find the current financial collapse in other nations around the world fascinating, exciting, or informative.  We should find it scary as Hell!

So, let’s take a snapshot in time right now, courtesy of the wonderful website

This website contains fascinating information, and should be viewed regularly if and when you feel the need to vomit in your mouth. We immediately see several things.  Primarily you will tend to view the amount in red under “US NATIONAL DEBT.”  It currently stands at $15.4 trillion and change (I’m rounding today FYI).  This number, for the record, is climbing.  We are spending $3.6 trillion a year and only taking in $2.3 trillion.  As usual, Americans want to have their cake and eat it too.  Typical.  Obviously, as we posted earlier in our discussion on the Federal Reserve and money creation, Congress is more than happy to oblige because its the only way they stay in power.  More on the political implications of our debt later.  For now, let’s stick to the numbers.

So our public debt stands above $15 trillion, but our “US TOTAL DEBT” clears $56 trillion!  This is insane.  It represents all the debt in the whole country: Federal, state, and local government outstanding debt, as well as personal debt (home loans, auto loans, credit cards, etc.).  I will be honest when I’m unsure of something, and I will be honest here: at publication time, our crack research team has not been able to establish whether or not the $56 trillion includes unfunded liabilities such as Social Security, Medicare, Medicaid, our public and private pensions, etc.  In my opinion, the number is too small to include all of that.  So potentially double the actual TOTAL DEBT number to include those other items.

Now I want to address the hardest part for people to get their brains around, because I can hear a lot of you know: “we owe all this money, so what?”  After all, its not like we have to pay it all back right now, right?  This is obviously a debt that gets paid back over time (we discussed earlier in the week how the Treasury takes on debt 30 years at a time–a treasury bond sold this year doesn’t come due until 2042).  This is true.  Just like we don’t pay off a 30-year mortgage in one year, this debt will be serviced over time.  The problem is that we owe so much, we will never pay it off without cutting services or raising taxes, and this is where things will get dicey.

Buried in those numbers above is our GROSS DEBT TO GDP RATIO, which stands at 102%.  This means that we owe more public debt than the value of goods and service our nation produces in a year.  This is equivalent in personal terms to owing more than you make in a year of work.  If you calculate our this ratio using total debt instead of public debt, the number is more like 367%.  This is not good.  Even though we don’t need to service all this debt in one year, the price we pay to borrow money changes with our credit risk.  For some reason, individuals, banks, corporations or countries who would lend the United States money have a hard time mentally lending money to a nation that owes more than it makes?  Would a bank lend you money if you already owned more than you earned?  Well, it might if you were as important to the global economy as the United States is, but this doesn’t make the lending warranted.  Eventually, the price to service our debt will far outreach our own domestic spending priorities, and the amount we’ll need to borrow to stay afloat will outstrip the resources of the nations and entities that lend to us.  And then we’ll get cut off.  And then we’ll be Greece: a nation that has to double or triple its taxes, hack its social safety net in half, lower the minimum wage back to $5.50, and potentially dismantle our army.  Can you imagine what our nation will look like when this happens?

But, please, don’t worry about any of this.  Go back to believing the mainstream media, who tells us every day that Whitney Houston is more important than 30-year bond yields or the destruction of the cradle of Western Civilization.  After all, we’ll all be gone in 50 years, and our kids can fend for themselves.

~ DS

“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.” 

~ Boston Federal Reserve Bank Publication

Okay, I know, a great place to start this morning–in the weeds.  But, hold onto that quote, because it will come to be very powerful later in the post.

Today we have to deal with the $8 trillion gorilla in the room: the Federal Reserve.  I’ve already been hammered for talking about this by people in LaLaLand on the Internet, so why not go back for more punishment, right?  The reality is, as I discussed with a FFRL (friend from real life–yes, I have some) just the other day, it would probably be impossible to get rid of the Federal Reserve, since it does have more power than Lord Voldemort and Word Girl put together.  However, having average citizens in the United States aware of the Fed and what exactly it is and does is a laudable goal.  Of course, I understand the average citizen probably isn’t reading this post, but hopefully that’s where you come in (spread this message far and wide, my people!).  In any event, the Federal Reserve is the single most important institution in the United States, and probably in the world, and will have the single biggest impact on global monetary policy (yes, that thing I apparently “know nothing about”) in the next 5 years.  I won’t dare project beyond that, but the next several years are certainly shaping up to be a doozy, and the Fed is going to be in on this in a MAJOR way.

Again, with American Endgame, I am trying to recreate my own learning experience for the reader.  And while I understand the whole “lead a horse to water” theory–and certainly don’t expect anyone to learn the same way I did–I want to create an opportunity for people to have a couple bread crumbs to start their own journey.  So, if we’re throwing down bread crumbs (or tiny pebbles that shine in the moonlight, because we know the bread crumbs get eaten, and then you end up in a cage in a gingerbread house being poked by a witch with a stick), then we have to go back to Chris Martenson and his Crash Course.  This series of videos is what first allowed me to wrap my brain around the really complex stuff that’s going on–I highlighted this series as an important resource here.

Today we start with Chapter 7, which deals with Money Creation.  Watch the video, embedded below (takes 5 minutes).  The key vocab from today’s lesson is “fractional reserve lending.”  Please watch:

So, as you see, lending money is key to the current monetary system, but is a double-edged sword since any defaults really foul things up.  Now, please keep this last chapter in mind and take another 8 minutes to watch the next chapter, which discusses the Federal Reserve.  This is where the red meat is:

So, what do we take away from this?  Essentially, what really set my mind reeling–and what I immediately recognized as something that had major implications for how our nation’s currency is managed–is the fact that our currency is literally created out of thin air when our Congress runs out.  I was occasionally told by my father growing up that “money doesn’t grow on trees.”  Well, now I can emphatically tell him I disagree with his premise.  No wonder Congress can’t stop spending: they can get more money anytime they want!  As Chris puts it in the video, there are two kinds of money: one kind is “loaned into existence,” and the other is “printed out of thin air.”  This is where I start to get concerned and wonder what exactly my entire financial and monetary world is built upon…

So, where do we go from here?  The suggestion that the Federal Reserve can print more money without necessarily anything backing it–we don’t even have gold or silver backing our currency, which is a major cause of the (hyper)inflation we are all experiencing, and is probably the subject of another post–should make us all take pause.  It may take several days for you to truly appreciate the idea that your money is not worth anything and that the Federal Reserve is printing it like toilet paper, but once you make that cognitive leap, come back.  We’ll be ready to walk farther down this spooky path, closer to the gingerbread house.


“Truth is treason in the empire of lies…”  ~George Orwell

Some folks on the Web have been really enjoying AE’s informative articles.  In fact, as I predicted, many adults reacted to the last Endgame Concepts post about fiat money with caustic replies.  Apparently, what I wrote was “just more Ron Paul BS propaganda” and allegedly I “have no idea how world monetary policy works.”  That all may be true.  Here at American Endgame we are strong supporters of free speech, and believe one of the great things about the Internet is that it is and will remain free to all.  Honestly, I’m glad that I was able to get through to some people.

So, in the spirit of continuing to provide a public service that makes many Americans want to rip their hair out and berate me, I provide today’s Endgame Concepts post, which will certainly push many of you closer to the edge of mayhem–while possibly getting one or two of you to think about something in a different way.

Today’s concept: “official statistics” are deceptive, manipulated, and used to achieve political ends.

… Waiting to see if anyone is shocked by this revelation…  Not yet?  Okay, moving on then.

Statistics–collected, organized, analyzed and interpreted data–are crucially important in the organization of any major civilization.  Initially, they were important for things as rudimentary and basic as, oh, you know, survival–“how many acres of arable land do we have?” “What percentage of those acres are now productive?” “How many people do we need to feed?” “Will we have enough food?” “What is the probability of a major crop failure?” You get the picture.  Of course, statistics have taken on other, far more useful roles in modern societies: “What is Alex Rodriguez’s batting average against right-handed pitchers with two men on base in July?” (That was a joke…  I do have a sense of humor, you know).

Clearly, statistics also play a MAJOR role in our politics.  And this is an area where I think we all see the connection between statistical analysis and mass manipulation–which is, just as a head’s up, where we’re going today.  After all, we can see how statistics are injected into our minds in this 2012 GOP primary season.

This graph is fantastic.  It clearly shows the state of people’s opinions about the GOP candidates at each and every stage of the campaign season.  Here, the information is organized, and then it is left to be analyzed and interpreted.  You or I could analyze and interpret this in several ways…  We could draw dozens of conclusions from this information.  For example, we could be as bold as to say that near the end of December 2011, Newt Gingrich was the front runner.  We could peek into the future and state that based on his fairly stable performance throughout the campaign, Mitt Romney would soon retake the “lead” from Newt Gingrich, who appeared to be a statistical flash in the pan.  We could state that the five candidates near the bottom collectively had nearly as much support as the front runners, and that support would coalesce behind one of them as time went on and the others exited the contest.  In any event, its clear there’s a ton of information here.

However, when we see this in a magazine, or on the news, or online, the analysis is done for us by whoever published the information.  We are told what to see.  And that changes everything.  Examples of this are everywhere.  As I write, I am reminded of a recent incident on Chris Matthews’ broadcast on MSNBC, where he was discussing the favorable/unfavorable numbers for the GOP candidates left in the race.  He showed Romney at 34%, Santorum at 32%, and Gingrich at 25%.  He omitted Ron Paul’s rating, which stood at 42%, much higher than the other three.  In fact, Paul wasn’t even mentioned.  This is not designed to endorse Ron Paul, but to show the way the mainstream media manipulates statistics.

So, we know the MSM uses statistics to move public opinion.  But the government?  Isn’t that going a bit far?  Am I sitting here with a tinfoil hat on my head?  No on both counts.  Look:

This chart, from, shows unemployment measured three different ways.  The red line represents the “official” unemployment rate that runs every month on CNBC or Bloomberg.  The gray line represents the unemployment rate that the Bureau of Labor Statistics uses internally (which leaves you wondering, if its good enough for the Federal government, why don’t average Americans see this each month?).  It includes the infamous “underemployed” category (people who are forced to work part time for lack of full-time opportunities) and the “short-term discouraged” category, which includes people who have been seeking work for a period of a few months.  The blue line is what the unemployment rate would be if it was measured the same way the government measured it in 1994.  This number is calculated in a fairly simple way: essentially, divide the number of people who have jobs by the number of people who are old enough to have jobs, and here’s what you get.  About 23% of Americans are unemployed.  Not 8.3% like the President and Congress would have you believe.  Call me strange, but I struggle to understand how the government can have any credibility when it changes the definition of unemployment over time.  If we defined unemployment the same today as we did 20 years ago, unemployment would be in Great Depression territory.  And here we sit, thinking its about to drop below 8%.  We, my friends, are manipulated by official government statistics.

One more example before I get this out.  Look at inflation:

Again, the red line if “official” inflation, as defined by the U.S. Government in 2012.  The blue line is inflation today as if it were defined by the U.S. Government according to their 1990 methodology.  In other words, if the U.S. Government defined inflation the same way today as it did in 1990, inflation would be 3 times higher.  Now, of course, the government has an answer for this.  They have all kinds of fancy terms and statistical rationale for changing this.  Substitution, for example, they say, plays a factor here.  Substitution is the concept that says, “well, as the price of something goes up, people tend to substitute something less expensive, therefore inflation isn’t happening at the same high rate.”  This is foolish and makes no sense.  Inflation is the rate at which the dollar looses its value over time.  The government calculates the inflation rate by essentially taking a “basket of goods”–a gallon of milk, a stick of butter, a loaf of bread, a pound of ribeye steak, etc.–and figures its price today against the price of those goods a year ago.  That’s inflation.  By substitution logic, you would compare the price of a gallon of milk, a stick of butter, a loaf of bread, and a pound of ribeye steak a year ago to a gallon of milk, a stick of butter, a loaf of bread, and a pound of hamburger today.  Does that seem like a fair way to calculate price change?  Even fifth graders agree: this makes no sense.  And yet, that’s exactly how our government figures inflation.

Why do we care about how the government calculates inflation?  Let me point out the difference between 2% inflation at 6% inflation.  At 2% inflation, $1.00 loses 75% of its buying power during the course of my lifetime.  At 6% inflation, $1.00 loss 75% of its buying power by the time I graduate from college.  Does that difference matter?  I’ll leave that up to you.  Again, why do we care how inflation is calculated by our government?  Well, if a dollar was going to be worth a quarter in 25 years, would you want to know that, or would you rather be told the problem is three times better than it really is?

I hope you enjoyed today’s cheery lesson on how the population is manipulated by statistics by the mainstream media and the U.S. Government.  Keep in mind that unemployment remained essentially unchanged for almost all of 2011, and then miraculously dropped almost a whole percentage point in three months.  And just in time for election season…  Hmmm…