The war on the middle class

“Behind every great fortune lies a great crime.”
- Balzac

Capitalism hasn't failed. What has failed is the economic system in place today.
No amount of government taxes, trade barriers, or regulation caused it to fail.
No investigative reporter, or congressional oversight committee, or regulatory watchdog, exposed the massive fraud and corruption in the financial system today. All of the safeguards put in place to protect the public, and the current system from itself, failed.
The global financial crisis came to light because what amounts to a falling out amongst thieves. They simply stopped trusting the ability of each other to pay their debts. Once lending stopped, credit creation froze, and the Ponzi-scheme that parallels our financial system broke down.

This so-called "Great Recession" isn't cyclical, it's secular and the problems are systemic. We didn't get here by accident. Choices were made by very wealthy and powerful people, thus those choices can be reversed.
It's important to understand that we aren't fighting Adam Smith's Invisible Hand. We are fighting against the Money Trust.

"We must break the Money Trust or the Money Trust will break us."
- Louis D. Brandeis, 1913

The first thing that one must acknowledge is that we have just witnessed one of the most massive transfers of wealth, from the poor to the rich, in mankind's history. This enormous theft now threatens the very existence of the middle class in America. David DeGraw does an excellent job of adding it all up. Here are a few highlights:

50 million Americans now live in poverty
Half of all American children will need foodstamps at some point in their lives
Hunger rates are now at all-time highs
50 million citizens are now without health care
1.4 million filed for bankruptcy last year, 60% of them because of medical bills
13 million are expected to lose their homes before the crisis is over
Meanwhile, we incarcerate more people in the world than any other nation, and a new prison opens somewhere in America every week.

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These are merely the highlights.
Make no mistake - this trend was in place even before the financial crisis struck. In 1972 the CPI adjusted wages for the average worker was $738.48 per week. In January 2008 that figure was $598.18.
Simply put, the average American worker has been getting poorer for a long time. What's more, the past decade was the worst in 70 years, and we are looking at a permanent underclass of former workers.

The trend isn't limited to America. In 1970, 434 million people were suffering from malnutrition. That number is now 854 million. In 1820, the gap between the richest and poorest country was 3 to 1. Today it is 80 to 1.

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On the other side of the coin, the wealthy have never had it better:

The richest 1% have seen their after-tax income triple since 1980 as a percentage of the nation's total income, while the bottom 90% have seen their share drop 20%
This trend accelerated since 2002.
The top 1% owns 70% of all financial assets, an all-time high
The average CEO makes 500 times the compensation that the average worker does. In 1970 it was only 25 to 1.
The top 400 richest have more wealth than 155 million Americans, and that gap is increasing

The list goes on and on...

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“The war against working people should be understood to be a real war…. Specifically in the U.S., which happens to have a highly class-conscious business class…. And they have long seen themselves as fighting a bitter class war, except they don’t want anybody else to know about it.”
— Noam Chomsky

So what? Why should you care if our nation has less and less equality?
It's not a matter of class envy. Going all the way back to Aristotle, a strong middle class has been the most important part of a stable and just society. According to Seymour Lipset, and many other economists, a strong middle class is necessary for a stable democracy.
To put it another way, the decline of the working class in this country is a threat to our Constitutional form of government.

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What does that mean? If you want a glimpse of the near future of America, look no further than Samson, Alabama.
Last March, Michael McLendon, a disgruntled worker from Pilgrim's Pride, a chicken processing company, went on a killing rampage that left 11 people dead. While a horrible tragedy in itself, the event was marked by something more unusual - federal Army troops from nearby Fort Rucker were brought into Samson and other surrounding areas to patrol the streets. This fact was largely ignored by the major media.

The reason why the troops were manning traffic stops in the small Alabama town, in clear violation of the Posse Comitatus Act, was because the local sheriff asked for support from the military. The reason he couldn't handle the situation? Budget cuts in police enforcement.
What has this got to do with Michael McLendon and Pilgrim's Pride? In 2006, the giant chicken processor teamed up with Wall Street and borrowed hundreds of billions of dollars to acquire a rival company. To pay for the buyout, and the executive bonuses that came with it, it cut the wages of its workers. Soon after it found it couldn't pay for the debt and declared bankruptcy. This led to massive layoffs and devastation of the tax base of the community.

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Note the inverted relationship between marginal tax rates and wealth inequality in the charts above

So who put together the deal that bankrupted Pilgrim's Pride? Lehman Brothers and Merrill Lynch. The Merrill banker who made the deal was recently hired by JP Morgan Chase. JP Morgan was behind the financial derivatives that has bankrupted Jefferson County, Alabama over a sewer project.
Because of the financial disaster regarding the sewer project, sewer charges were raised to more than double the national average. Poor, working residents are being forced to chose between water and heat. Cuts in the sheriff's office are so severe that plans are being made to call in the National Guard for any breakout in civil order.

If this sounds suspiciously like the scenario of a 3rd world nation in Latin America, it only means that you are paying attention.

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Junk Economics

“For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupefied by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realize that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance.”
— George Orwell

Last November, Andy Haldane, the Head of the Bank of England, said that the state and the banking system was locked in a "doom loop", and that massive reforms were necessary to break out of it.
Since then there has been very little reforms on either side of the Atlantic.

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The biggest obstacles to reforms are a) the false belief that we have a free market, and b) the false belief that there are no other alternatives. These perceptions have been carefully shaped by the Federal Reserve, and other central banks, over several decades.

First of all, the Federal Reserve virtually controls the field of economics today.

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.
...
"The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong."

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it."
- Upton Sinclair

As Barry Ritholtz has pointed out, the field of economics today has become a joke.

Indeed, the arrogance of economics is that it is the polar opposite of Science. It begins with a few basic assumptions, many of which are obviously untrue; some are demonstrably false.
No, Mankind is not a rational, profit maximizing actor. No, markets are not perfectly, or even nearly, efficient. No, prices do not reflect the sum total of all that is known about a given market, sector or stock. Those of you who pretend otherwise are fools who deserve to have your 401ks cut in half. That is called just desserts. The problem is that your foolishness helped cut nearly everyone else’s 401ks in half. That is called criminal incompetence.
Starting from a false premise that fails to understand the most basic behaviors of the Human animal, economics proceeds to build an edifice of cards on a foundation of sand.

It's hard to believe that a field of study could have drifted so far off course into obvious delusions...unless it was done intentionally. The fact that the wealthy elites have gained so much power and wealth from both the booms and busts of this unstable system is all the motive that you would need.

"The last duty of a central banker is to tell the public the truth."
- former Federal Reserve Vice Chairman, Alan Blinder

Albert Edwards, the chief strategist at Societe Generale, has flat out accused the Federal Reserve and Bank of England in complicity in robbing the middle classes of America and Britain.

while governments preside over economic policies which make the very rich even richer, national consumption needs to be boosted in some way to avoid underconsumption ending in outright deflation. In addition, the middle classes also need to be thrown a sop to disguise the fact they are not benefiting at all from economic growth. This is where central banks have played their pernicious part...
Now you might argue central banks had no alternative in the face of under-consumption. Or you might conclude there was a deliberate, unspoken collusion among policymakers to rob the middle classes of their rightful share of income growth by throwing them illusionary spending power based on asset price inflation. We will never know.
But it is clear in my mind that ordinary working people would not have tolerated these extreme redistributive policies had not the UK and US central banks played their supporting role.

To over-simplify things, the Federal Reserve has only one tool at its disposal: the printing press. The Fed cheapens money to stimulate the economy, but this encourages speculation, which leads to bubbles.

The moral is: Cheap money creates bubbles; and bubbles move wealth from workers to rich motherporkers. It's as simple as that. That's why the wealth gap is wider now than anytime since the Gilded Age.

Lately, the Federal Reserve has become much more open about its collusion with the financial elite. For examples, the Fed's efforts to cover up its role in the bailout of AIG, and its role involving the bankruptcy of Lehman Brothers.

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The Big Picture

"A corporation cannot be ethical; its only responsibility is to turn a profit!"
— Milton Friedman

One of the things missing from the economic discussion today is the lack of the perspective.

Wall Street has financialized the public domain to inaugurate a neo-feudal tollbooth economy while privatizing the government itself, headed by the Treasury and Federal Reserve. Left untouched is the story how industrial capitalism has succumbed to an insatiable and unsustainable finance capitalism, whose newest “final stage” seems to be a zero-sum game of casino capitalism based on derivative swaps and kindred hedge fund gambling innovations.

The failure of today's economists extend beyond the fact that they failed to anticipate the recession (as late as January 2008, most economists were predicting we would avoid a recession). Their real failure is that they don't even understand why the recession happened, despite the fact that the man on the street can grasp the idea once he is aware of the facts. It's that sort of failure that cannot be forgiven.

My favorite contemporary economist with a historical perspective is Michael Hudson. His view of economists today is not complimentary.

the "intellectual engineering" that has turned the economics discipline into a public relations exercise for the rentier classes criticized by the classical economists: landlords, bankers and monopolists. It was largely to counter criticisms of their unearned income and wealth, after all, that the post-classical reaction aimed to limit the conceptual "toolbox" of economists to become so unrealistic, narrow-minded and self-serving to the status quo. It has ended up as an intellectual ploy to distract attention away from the financial and property dynamics that are polarizing our world between debtors and creditors, property owners and renters, while steering politics from democracy to oligarchy.

Economics today is not just a science without a purpose. Economics, as the professions now exists, is to science what Fox News is to the news media. Just like the purpose of Fox News is to misinform the public, the purpose of economics today is a PR con to justify inefficient and immoral policies that defend the status quo and keep mankind from advancing.

Manufacturing and industry, the great drivers of the American middle class for over 100 years, didn't die by accident. There was a deliberate decision made in the late 1970's to favor finance over industry.
We have arrived at this point because choices were made. One of those choices made by economists was to turn their backs on the moral values of classical economics. This was reflected by political ideology in a certain segment of society.

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For instance, I noticed Glen Beck had this to say at the CPAC.

He then read disapprovingly the Theodore Roosevelt quote that "we grudge no man a fortune in civil life if it is honorably obtained and well used...so long as the gaining represents benefit to the community."
"Is this what the Republican Party stands for?" Beck demanded. He was answered with boos and cries of "no!"

It may seem ironic that a group well versed on religion, and supporting laws regulating practices that they consider immoral, would never consider extending their morality to the accumulation of great wealth and power. Their outrage appears limited to immoral acts that don't actually effect them.
Why should honor and benefit to a person's community be excluded from the discussion of economics and moral behavior in general? Also, isn't this strange concept of separating honor and morality from economics at least part of the reason why we are in this situation?

"We're moving to an oligopolistic situation."
- Kenneth Guenther, Independent Community Bankers of America, 1999

It should be noted that the field of economics wasn't always like this. In fact, its original purpose was enhancing the human condition.

What have been lost are the Progressive Era’s two great reforms. First, minimizing the economy’s free lunch of unearned income (e.g., monopolistic privilege and privatization of the public domain in contrast to one’s own labor and enterprise) by taxing absentee property rent and asset-price (“capital”) gains, keeping natural monopolies in the public domain, and anti-trust regulation. The aim of progressive economic justice was to prevent exploitation – e.g., charging more than the technologically necessary costs of production and reasonable profits warranted.
A second Progressive Era aim was to steer the financial sector so as to fund capital formation...Today’s bank credit has become decoupled from capital formation, taking the form mainly of mortgage credit (80%), and loans secured by corporate stock (for mergers, acquisitions and corporate raids) as well as for speculation. The effect is to spur asset-price inflation on credit, in ways that benefit the few at the expense of the economy at large.

The current economic system is sick. It's been poisoned with self-serving ideology from top to bottom. It's needs radical and systemic reforms, not tinkering within the current system (like those proposed so far).
This will not happen within the current political and economic system because the wealthy elite do not want it to happen.

However, the system was constructed by choices that were made. It can be changed in the same way the progressives changed it a century ago, but it requires a mass movement. It requires people to understand that their enemies aren't working people from other cities, nations, races, religions, or anyone who collects a paycheck. Their enemies are those of the powerful and wealthy elite who rigged the current system.

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Meta: 

Comments

What do you mean

I have asked you to show me how money spent on the wealthy is a tax burden while money spent on the poor is not and since you have repeatedly dodged that question

Any question you asked I responded; and yes, I asked questions in return. Go back and read my responses.

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From the CBO Report You Used as Evidence

Showing $200 billion has already been provided by the stimulus to shore up state budgets directly. ALREADY - past tense.

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Providing Aid to States for Purposes Other Than Infrastructure.

Many states have experienced a high degree of fiscal stress and are expected to have large budget gaps in the next few years. Eighteen states have budget gaps larger than 20 percent of general fund expenditures. Those budget gaps have occurred despite more than $200 billion provided to state governments by ARRA for purposes other than infrastructure. CBO analyzed a policy to further assist states by providing funding to state governments for a variety of purposes. Even if funding was intended for a specific activity, such as education or health care, CBO anticipates that the availability of those additional funds would both increase net state spending for that activity and affect other aspects of state budgets.

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I was responding to your "according to who"

You questioned "bang for the buck". I provided two sources that showed tax cuts don't provide best "bang for buck".

What is your point? That the money went to "public sector unions".

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You Said the Money Wasn't Going to State Budgets, Short Memory

You said:

As for state budget cuts

this doesn't look like status quo: at least 44 states Have Already Imposed Cuts That Hurt Vulnerable Residents

Now, if you have information to the contrary I certainly will read it.

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And your own facts show the majority of the money spent last year went to maintain healthcare (I don't have state healthcare) and education (public unions). Those are specifically mentioned in that paragraph as mandated spending in the $200 billion already spent on state budgets.

I'm sure you disagree but those are facts from your source so live with it. Thats where the bulk of the money that has been spent so far has gone according to the CBO.

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If you want to continue fine

Your original bullshit claim was that all $780 billion stimulus was going to public sector leeches. I showed were you were wrong. Then you said states were maintaining the status quo and not cutting. Again, I provided you a link that said that 44 states provided cuts.

So the fact that YOU don't have state healthcare - I guess nobody else should either - is that your reasoning? Let me ask a rhetorical question - are you on medicare?

Ignoring, the public sector leeches comment, do you think its a good idea when unemployment is as high as 20% in some states to be laying off even more people - even if they are in public sector unions?

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Do the Math

33% of the stimulus money has been spent according to the WSJ and according to your CBO information $200 billion has been spent on state budgets outside of transportation with mandates for education and healthcare spending.

Now you claimed that the majority has been spent on tax cuts.

Again my comment about not having state healthcare IS NOT saying that there should be no public healthcare.

You are desperate to paint a neat little picture of anyone who dares disagree with you view of the world it seems.

Here I'll use a calculator.

$780 million.

33% of that equals $257.4 million (WSJ).

http://online.wsj.com/article/SB1000142405274870480420457506977216789783...

CBO states $200 million spent on state budgets outside of transportation projects (short term union jobs) which means
you were right my bullshit claim about all of it being spent on public unions was wrong. Thats only 77%.

That doesn't do much for your claims and charts and graphs though does it?

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I am glad we are making progress

and that graph in WSJ article is somewhat helpful - according to graph: 288 billion/787 billion = 36.5% of stimulus is for tax cuts. My point was that it was not ALL going to "public sector leeches".

And again the CBO charts and charts in my post were re: the least/best "bang for buck" - which is NOT tax cuts.

But you haven't answered my question:

Do you think its a good idea to lay-off people even if they are in a public sector union when unemployment is over 20% in some states?

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That Differs From Your CBO Link Data

The CBO report you linked to stated that $200 billion has already been spent on state budgets.

This is a separate post so one part cannot be answered and the rest ignored.

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Take WSJ article

The graph says $319 billion for Social services, administration, TRANSFER PAYMENTS. So back out of $319:

1) Transfer payments in form of social security payments: $47 billion

2) "Social spending" - such as grants to local organization for job training programs: $70 billion

319-47-70 = 202 billion - is that close enough for you. CBO and WSJ numbers are close - could be some slight difference in classification. But certainly not 100% for public sector leeches.

So, what is your answer to my question?

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First Answer My Question

Is the spending on benefit programs a burden on the middle class (aside from programs that the middle class are forced to pay into because by law they must participate in such as medicare and ss which taxpayers pay into their whole lives)?

That was the whole basis for my very first post which has been morphed into something akin to calling people lazy welfare mothers (I'm quoting Robert Oak here because I never said that).

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Here is part of my answer that you missed

I said:

To answer your last question: who is paying for programs? Assuming, I believe they same way you think that gov't programs are financed (BTW, which is quite different than what you think), sure the "burden" for paying for whatever "welfare programs" are left to those who are paying more.

Again, assuming we think the same as to how government taxes and spends, it is cost but that actual cost should be weighted against not having such programs because there are social costs for eliminating those programs.

But like I said before, more and more families are ONE job away from the poor house and food stamps, sect. 8 housing, medicaid, SCHIP. This economy is not the same economy of my father's or my grandfather's (who were both union workers - meatcutters and steel workers union).

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It Is a Cost = a Yes?

You seem intent on proving the VALUE of such spending rather than answering yes it is or no it isn't. I never said there was no value in any of these programs did I anywhere?

Back to basics again. If the middle class is footing the bill unfairly for the wealthy aren't they by default right now footing the bill for the rest? This is not an essay question, a simple yes or no.

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This is what you said but I will answer your question

So most of our tax drain comes from providing for those that do not provide for themselves.

Answer to your question: NO

First, middle class is not "footing the bill for wealthy". The issue is a matter of paying "fair share". If the EFFECTIVE TAX RATE (much different than marginal tax rate) for someone making $1,000,000 or more is - 4% and someone making $75,000 is 20% - there is a problem. This NOT a matter of middle class "footing the bill for the wealthy". It is a matter of fairness.

As for "footing the bill for the rest", do you know what your "footing" for? Like I said the biggest federal budget items are military spending, social security, medicare. Even if you cut all of the "welfare programs" that you mention we still would have a federal deficit. Yes, there is a cost to these programs and yes these is a benefit to these programs. And yes, absent a good alternative, I believe these "welfare program" benefits outweigh the costs.

When I say that our current economic system redirects income upward to top income and corporations - this means more than just the tax code. It means globalization and government policies that have worked to suppress wage growth. It means federal spending cuts to programs the assist working class families (both lower and middle income) in order to "pay for" tax cuts to wealthy.

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No Its Not a Good Idea

Its also not a good idea to show the tax paying citizenry that the focus of the bailout is government jobs.

My stimulus this past year was $400. Lets look at that versus not laying off a $75,000 a year teacher (plus benefits) and who benefits from the work to pay credit. Who is benefiting the most from the stimulus spending? Now lets take an out of work employee who is getting barely enough money to get by on unemployment versus the $75,000 a year teacher who kept their job and benefits from the work to pay credit.

Has the stimulus been distributed equitably? No.

When the bill comes due will the union teacher pay more of it back? No. Are they destitute and poor? No.

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I don't understand your reasoning but thanks for the answer

I would just add why if the private sector is not hiring then do we keep people on unemployment or cut their jobs and force them to go on unemployment because they have a government job.

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You Don't Understand That Some Are Getting More?

Why not just hire everyone at the same rate of pay and put them all to work rather than targeting only certain people and positions?

Now no one is out of work and we'll all be making plenty of money to pay the tax bill back. Seems to make sense to me based on whats being done right now.

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Who will do the hiring?

I am all for a direct jobs program and pay people a living wage based on their area of the country and that would be much more effective than paying unemployment. But is that what you mean - because that would mean the government would be the employer?

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No No Not As Opposed to Unemployment

I am saying that the government to be fair should just employ everyone.

Who needs a private sector just put everyone on the same page with the same paycheck.

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Wow, that's more radical than what I am proposing

I am suggesting that we have a job guarantee program - direct jobs program - one that will fill the gap between what private sector provides and Full Employment. This would not be a one time thing but a permanent policy.

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My Take

The current system is unsustainable and I am a lot closer to the bottom than I am the top.

When I was a kid my dad made $70 a week in the 60's. Baseball players made 20-30k a year before free agency. CEO's made a 100k or whatever but proportionally a lot less than today.

Most people had jobs and there was no welfare or food stamps etc etc. People had make busy jobs like elevator operators that do not exist today BUT they had jobs none the less and supported families. Tax rates were at 90% for the wealthy and we built the national highway system which now we can't afford to maintain. People that are on welfare their whole lives do not have a work ethic because they don't know what one is. Thats not their fault but my own observations from people I know say thats true. People want jobs not a check in the mail. Welfare and such were embraced to avoid civil unrest and such and yes I believe that drugs were or are being used as part of a control of the masses also.

I honestly do not see how we can continue long term the way we are. I'd rather see a social system in place of this rather than a move the other way.

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I have a suggestion

Just increase all the benefits, no more pay checks and we just all live off the gov dole. Just kidding but Rebel you also need to realize that if the doctor (worker) dies there won't be anyone remaining to help the patient (people on the dole). So it is a keen balancing act. Personally when 48% of my State budget goes toward welfare, my eyebrow does go up.

But seriously throwing more and more and more toward the raft, isn't going to keep the raft from sinking. It is just prolonging it.

Jobs...jobs......jobs.....jobs. The four letter word that will keep everyone happy.

Greece is the tip of the iceberg for Europe's coming fiscal problems. I would lay $100 on the table that in 5 years the Euro will be dead or mortality wounded. Worker Union unrest will be increasing to a point of war.

There is one big cat sitting and smiling while all this goes on and that is China.

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Great Article--well done!

"Wall Street has financialized the public domain to inaugurate a neo-feudal tollbooth economy while privatizing the government itself, headed by the Treasury and Federal Reserve. Left untouched is the story how industrial capitalism has succumbed to an insatiable and unsustainable finance capitalism, whose newest “final stage” seems to be a zero-sum game of casino capitalism based on derivative swaps and kindred hedge fund gambling innovations."

You know, the perspective is point on. These bastards HAVE privatized our Federal government, and the fact that we have this confused, left-wing apologist in charge of it all (kind of), but who doesn't quite understand it all (brilliant my ASS) keeps things permanently dysfunctional. It just goes to show you that even an ass has a soul. And so we have this ass soul running the country.

But that still has got to be the best single paragraph ever to describe the current status quo of our paper world. I like that you have at least touched upon the global nature of the overall financial system debauchery. What's going on in Sampson Alabama is no different than what's going in Greece (or London or Italy for that matter).

Same despicable swindlers, just bigger accounts.

-WM
http://letthemfail.us

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