Alternative View
By Lance Crossley

In George Orwell’s 1984, the ruling party’s three slogans were “War is Peace; Freedom is Slavery; Ignorance is Strength.” If you need any evidence that an Orwellian world is already upon us, you need to look no further that the awarding of the Nobel Peace Prize to US President Barack Obama – a bizarre and scandalous episode that drips with irony.
In the 108-year history of the Nobel awards, it has never gone to a leader so early in his tenure. So why Obama? One Nobel committee chairman defended the selection by saying, “Alfred Nobel wrote th…

Alternative View
By Lance Crossley

My wife always makes fun of me after reading my columns because, as she says, “they are always such downers”. I can’t really argue with her on that one. But in my defence, I really am trying to call it as I see it. Anyway, she’s going to love this one. So without further ado, allow me to make my predictions for 2010.
My 2010 predictions can be summed up in one word: “insolvency”. To be insolvent is to be unable to pay one’s debt obligations. In my view, this trend will only get stronger on the individual, institutional, and state level.
…

Alternative View
By Lance Crossley

Here in Canada, we seem to think we are immune to a housing bubble, so it was interesting to see the Globe and Mail – usually a real estate cheerleader – at least question the logic of why we continue to experience a booming housing sector amid the greatest economic crisis since the Great Depression.
In an Oct. 30 article, the Globe wrote, “Canadians are in the midst of a mortgage binge, taking out home loans at a pace that’s nearly eight per cent faster than a year ago…housing prices don’t usually survive recessions.” While the article correctly points to the Bank of Canada’s record low interest rates as a primary culprit for the buying spree, nowhere in the article does it mention the other major culprit: the Canada Mortgage and Housing Corporation.

Too big to fail?
The CMHC provides insurance to the banks for the entire amount of any mortgage when the purchaser has less than a 20 per cent down payment. This is another way of saying that they insure virtually all mortgages, since the average down payment of Canadians who buy a home is only about six percent. With this CMHC guarantee, the banks have no risk when they issue mortgages. If the homeowner defaults, it is the taxpayer who is on the hook. We don’t have a name for “sub-prime” here in Canada because we don’t need one – the CMHC makes almost everyone a worthy borrower.
Some are starting to call the CMHC the northern version of Fannie Mae and Freddie Mac. By the end of 2009, the CMHC says it plans to insure a staggering $813 billion worth of mortgages and mortgage-backed securities. That is well over half of Canada’s entire GDP. If there is a northern version of “too big to fail”, the CMHC is it.

An untold story
The National Post’s Diane Francis, the only mainstream journalist I know to call out the CMHC, warns that “Ottawa’s smugness about its superior regulatory regime and Canadian banking conservatism” is an accident waiting to happen.
“It’s a mortgage slush fund which distorts the market,” Francis writes. “It allows banks to lend recklessly without consequences and pushes up the price of housing for everyone.”

Worse than America
One of the most astute observers of this quiet Canadian housing bubble is blogger Jonathan Tonge (www.americacanada.blogspot.com). Here s what he has to say:
“Even at the zenith of the US housing bubble, prices peaked around $230,000 US while incomes were around $47,000 US. In Canada, incomes are $44,000 and prices are now at $326,613. If I have evidenced to you at this point how risky our lending has been, how are we so different than America? One might even say that we are much worse.”
The voices that recognize we are indeed in a housing bubble are few and far between. It won’t be long before the rest of the public catches on.

Alternative View
By Lance Crossley

I have said this before, but future generations will write about our time as a turning point in history. One major event that is attracting too little attention is the decline of the American dollar. To understand the importance of this we must first understand the dollar’s privileged status as the world reserve currency.
Gold used to be the anchor that gave paper money value; paper currency was freely convertible into a fixed quantity of gold. But since President Richard Nixon abandoned the gold standard in the early 1970s, the international money system is entirely based on fiat currency.
To fill the void gold left behind, the American dollar – due to its economic and military might – stepped into the role of world reserve currency. That meant other countries would stock up American dollars as “proof of value” for their own currencies. It also meant international transactions for commodities such as oil were all settled in American dollars.
This is starting to change, and quite rapidly.

The Independent, a British newspaper, reported on October 6 that Gulf Arabs were secretly meeting with China, Russia, Japan, and France to end dollar dealings for oil and replace it with a “basket of currencies” which would include the euro, gold, and the Chinese yuan. To give you an idea of the significance of this, one of the reasons America invaded Iraq so swiftly was because Iraq started to sell oil in euros instead of dollars – something America saw as a clear threat to the dollar’s status.
But this time, we aren’t talking about a rogue country. The ones staging a mutiny against the dollar are some of the most powerful countries in the world. (These countries have since denied the secret meeting, but at least one other reporter has confirmed with senior sources that this meeting did in fact happen. It is also worth noting that these countries have openly, and on the record, questioned the dollar’s reserve status numerous times over the last several months).
Another bad omen for the dollar is that it is now becoming the currency choice for the carry trade. The currency carry trade is a strategy of very wealth investors who borrow one currency and cash it in at a profit in another currency.
When the Asian crisis hit in the 90s, Japan set interest rates at zero percent. Carry traders borrowed Japanese Yen for free, converted it to dollars, and then bought U.S. government bonds that had interest rates of 4-5 percent. There’s your profit.
Now America is becoming the weak currency by which carry traders prey upon to cash in at a profit elsewhere.
Meanwhile, the U.S. will continue to recklessly print money in order to keep its economy on life support. The more money it prints, the more it devalues its currency. When the currency is devalued enough, countries like China will stop buying American debt. That will result in more money printing and, very possibly, hyperinflation.

Alternative View
By Lance Crossley

In his weekly radio and Internet address this past weekend, U.S. President Barack Obama lashed out against critics making “phony claims” about his health care reform bill. He urged “an honest debate, not one dominated by willful misrepresentations and outright distortions”.
To be sure, the debate on health reform south of the border has been hotly debated. Angry crowds have jammed into town hall meetings across the country. At some of these meetings, the confrontations have even turned physical. Some people call the reform bill socialist, others call it fascist. The problem is that there has been a lot of emotion but not a lot of context.
One of the central features of the bill is the idea of saving dollars through the targeted cost-cutting of Medicare, a government health insurance plan available for Americans 65 and over. These cost-cutting proposals were inspired by some controversial studies at the Dartmouth Institute for Health Policy and Clinical Practice. The studies wowed people in the Obama circle by showing how government could cut Medicare spending by hundreds of billions without affecting quality of healthcare delivery.
How did they arrive at these conclusions? The studies found that when it came to end-of-life care, some regions spent more than others on Medicare. The “great discovery” was that the ones that spent more had no major difference in patient outcome than the lesser spending regions. To make a long story short, the Dartmouth Institute championed these lower spending regions as models that should be emulated by the rest of the country. The higher-spending regions, according the studies, have no justification for spending more because other regions get the same results with less. Therefore, there should be essentially the same budget ceiling applied to all care across the country.
Sounds reasonable, right? But hold on a second. One glaring omission in this study is that it fails to take into account data such as the economic status of the patients. For example, the least expensive medicare facility in America is the Mayo Clinic in Rochester, Minnesota. The most expensive facility is found at the New York University Medical Center. Huge socio-economic differences between these two areas were simply ignored in the Dartmouth studies, even though it is well known that economic conditions have a huge impact on health. For example, lower-income people are more vulnerable to chronic diseases, which are extremely costly to treat. The study also didn’t take into account the amount of family support a patient has, which is important because those with more help at home can have more home-care rather than rely on expensive overnight stays at the hospital.
If this cost-cutting proposal is passed in the reform bill, the poorest are the most likely to suffer. While President Obama laments his critics, one wonders whether he has been critical enough of the ones advising him.

Alternative View
By Lance Crossley

On July 23, Bank of Canada governor Mark Carney announced that the recession was coming to an end. On July 29, President Obama said things have gotten better: the United States had prevented a depression and this was the beginning of the end of the recession. On August 3, a Bank of Montreal economist said the U.S. recession will end in the third quarter. And on August 5, the front page of The Toronto Star declared “Economy on the Rebound”. Leaders, experts, and media have announced in unison that all is well with our economy.
What a steaming pile of horse doo-doo.
The facts tell a very different story. Everything hinges on the United States’ ability to generate growth but there just isn’t any credible evidence that will happen. Now that the housing bubble has burst, the next shoe to drop is the commercial real estate market. Banks have postponed this day of reckoning by extending commercial loans instead of foreclosing, but how long this can go on is anybody’s guess.
Unemployment is officially at almost 10 percent now. Unofficially, some reputable analysts have it at almost twice that figure because of the skewed methods the government uses in its calculations. Either way, unemployment benefits are running out for many Americans, with the New York Times reporting as many as 1.5 million jobless will see their benefits end by Christmas.
State tax revenues have experienced their biggest fall since records began 45 years ago. Virtually every state is insolvent, most notably California, which has had to make draconian cuts to avoid bankruptcy.
Railroad carloads, which carry goods and are an accepted reflection of economic vitality, are down 22.5 percent since 2006. Retail sales are slumping. Consumer spending is tightening despite government efforts to stimulate credit. Even the Bank for International Settlements, which acts as a global central bank, has warned that the fiscal stimulus packages are only a band-aid and will be followed by an “extended period of economic stagnation.”
Most ominously, countries like China and Russia are starting to show signs they will no longer support America’s debt by buying its government bonds and treasury bills. If this happens, the dollar will plummet and American standard of living will drastically fall, as everything they import will becoming significantly more expensive.
So why all the optimism about emerging “green shoots” in the economy? Their hope is largely based on the rise of stock markets, which have rebounded greatly since bottoming out in March. But this climb can be attributed to Federal Reserve Chairman Ben Bernanke, who has expanded the monetary base by $1 trillion with fresh money. This new money has not been directed into productive purposes; rather it has been channelled straight into tradable assets. As a July 16 Wall Street Journal article pointed out: “In other words, Ben Bernanke has been the market.”
Where is it all headed? I wouldn’t be at all surprised to see another stock market crash as early as this fall, following the end of the American fiscal year when the final numbers come through and investors can see the bigger picture. Even if that day is postponed, the economy’s cheerleaders won’t be able to hide the reality forever.

Alternative View
By Lance Crossley

(The last in a four-part monetary system series)

It is astonishing to see how little the idea of monetary reform is up for political debate. Nevertheless, there is a small but growing chorus of voices offering an alternative vision to our money system. Here are a few of the more realistic proposals I have encountered. While none is a panacea, each is capable of improving the current system.

Return Bank of Canada to its former glory
Canada’s central bank was created in 1935 and nationalized three years later. It is supposed to be owned by the public in the interest of the common good. In effect, however, it has become a vehicle of Bay Street bankers. It wasn’t always that way. From WW2 until the early 1970s, money creation was shared by the private banking system and the government (through the Bank of Canada). The central bank would lend government money with what amounted to an interest-free loan. This paid for massive undertakings like the war and costly infrastructure projects like airports and the Trans-Canada Highway. This “government created money” would eventually find its way into the private banks, which would then use the cash as its reserve base to lend to businesses and individuals. In the words of Paul Hellyer, a former Trudeau cabinet minister: “It was the system that gave Canada the best 25 years of the 20th century.”

The 100 per cent reserve system
The modern banking system is based upon the “fractional reserve” scheme created by the goldsmiths in the 17th century. For a small fee, goldsmiths held people’s gold in safes and provided the depositor with a receipt that was good as gold in the marketplace. The goldsmiths soon noticed that only 10-20 percent of their clients would redeem their gold at any one time. This meant they could “safely” lend gold at interest many more times over the amount they actually had in the vault – as long as they held at least 10 percent reserves. This deception worked as long as people trusted there was actual gold backing their paper receipt. Mandating a 100 percent reserve requirement on banks would take away their money creating privileges and prevent runs on banks like the one we witnessed last fall in the United States.

Local currencies
Bernard Lietaer, a former Belgian central banker, argues that people and corporations are actually competing for money, not markets and resources. That is why he and a growing number of activists are promoting the idea of local currencies, which can circumvent the need for legal tender. The idea is that as long as there is an agreement between two people, paper money doesn’t matter. For example, in Ithaca, New York, community members can use time credits to shop at the farmer’s market or even pay rent. Farmers and landlords can use the pledged “hours” to get help with the harvest or building maintenance.

While all of these ideas differ in their application, they share the common belief that the money system has gotten away from us and has become detrimental to the common good. Perhaps Lietaer says it best: “We’ve forgotten that we designed it, and it’s now leading us around.”

Alternative View
By Lance Crossley

(Part three of a four-part series examining the monetary system.)

Another danger of having a money system controlled by private banking interests is something relatively new in our history: the financialization of the economy.
Before the 1970s, capital was mostly used for economically fruitful purposes, such as production. Banks still had undue influence on society because of their license to create money and charge you interest for that right, but at least the money was loaned for more or less productive purposes.
Since then, things have reversed. Most money today is directed to what economists call the “derivatives market”. Whereas traditional investing has revolved around advancing money for economically productive endeavours, the derivatives market is about betting on whether an economic endeavour will go up or down. Speculators can bet on anything from stocks, bonds, even currencies. Derivatives can also be bought and sold as a form of insurance to “hedge” one’s risky bets.
In other words, most money is flowing toward a global casino that doesn’t care if the economy succeeds or fails. In fact, a privileged few can profit greatly when it fails.
Whereas finance used to support industry and the real economy; it is now there to cannibalize it. As Ellen Brown, author of Web of Debt, explains: “Derivatives are basically just bets, which vacuum up value without producing anything.”
According to Sprott Asset Management, a respected Toronto-based brokerage firm, the total nominal value of the global derivatives market is a mind-boggling $743 trillion. As Eric Sprott, the company’s CEO points out, that is equivalent “to more than 11 years of everything the world produces. It is far and away the largest asset market the world has ever known.”
To make matters worse, the derivatives market places bets with a high proportion of borrowed money from banks (i.e. bank created money).
Borrowing money for derivatives can be hugely profitable when riding a market bubble, but devastating when the legalized pyramid scheme comes tumbling down. It is worth noting that the massive Wall Street bailouts were largely devised to cover irresponsible bets made in the derivatives market.
Noam Chomsky, the great American intellectual, recently said to me in an email: “The financializaton of the economy in the 1970s was a major event, in my judgment…more important in world affairs than the collapse of the USSR.”
If this is true, then we are truly in the midst of historic times. As of now, the Obama administration has gone to great lengths to preserve the financial economy. His economic “reforms” announced in June were basically written by the banking industry and only served to illustrate that big banks have no interest in changing their financial games. Why would they? As it stands now, they profit greatly in “good times” and have the taxpayer to cover their losses in bad times.
There is zero risk if you are a big bank these days. The same is unfortunately not true for the majority of people who reside in the real economy.

Alternative View
By Lance Crossley

(Part two of a four-part series examining the monetary system.)

One of the unspoken absurdities of our money system is government debt. Under our system, the only way a government can pay for its programs and services is through taxes or borrowing. Since taxes are never enough to meet its budget requirements, government is forced to borrow money. It does this through selling government securities such as treasury bills and bonds. These are basically IOUs with the promise to pay interest on whatever they borrow. The cumulative effect of government borrowing is well known. In Canada, the single largest federal spending item is interest payments on the public debt. In 2006, it amounted to just over 15 cents of every tax dollar. That figure is going up as the Harper government projects $64 billion in deficits by 2011. In the United States, the deficit has ballooned to an astounding $1.7 trillion.
Government debt eventually reaches a point where it cripples a country. You see it in the conditions of the roads, in higher taxes, overcrowded hospitals, and child poverty – everything must be eroded in the name of servicing debt payments. Yet there is no lack of resources, labour, or knowledge to solve these problems; there is, however, a lack of money.
This raises the question: Why is the issuance of credit controlled by private banks and not the government?
In 1921, the great inventor Thomas Edison put it more succinctly:
“If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good … both are promises to pay; but one promise fattens the usurer, and the other helps the people.”
Abraham Lincoln realized this during the civil war, when bankers would only fund the war at interest rates of 24 to 36 percent. Since this would obviously bankrupt the North, he bypassed the private banking system altogether and authorized the printing of fully legal treasury notes (which is where the expression “Greenbacks” comes from). This money was not backed by reserves or gold, but by “the full faith and credit of the United States”. This interest-free money helped win the war and turn America into an economic power – the steel industry, the railroad system, and even free higher education was established under this innovative money system. Unfortunately, it was short-lived. After Lincoln was assassinated, the bankers resumed their place as the dominant money power.
These days, the distracted public unleashes their anger over their deteriorating quality of life against political parties. They blame the left for raising taxes. They blame the right for cutting back social programs. A divided public suits the bankers fine because it means nobody is questioning why they have a monopoly on the money supply. The fact is, under the weight of enormous public debts, politicians don’t have a choice but to raise taxes or slash programs.
Until we reorder the money system so that it benefits the entire public, and not just a private banking cartel, we’ll be hearing more of these tedious partisan debates for years to come.

Alternative View
By Lance Crossley

(Part one of a four-part series examining the monetary system.)

“Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile.”
- William Lyon Mackenzie King, 1935

Running for his fourth term as Prime Minister, Mackenzie King said this amid the rubble of the depression because he saw that money creation was the bitter root of a fundamentally unjust economic system. Today, you cannot find one politician in Canada connecting the economic crisis to our money system.
Most people don’t realize that private banks create virtually all of today’s money supply. For example, when you take out a mortgage of $250,000, the bank is not lending you cash sitting in its vault – it creates it on the spot by typing digits into a computer. (Editor’s note: while the United States requires reserves of 10 per cent for any loan, Canada has no such rule.) The money didn’t exist before you were approved for the loan. When you pay back the principal it becomes what they call “dead money”. It cancels out the loan and it no longer exists in the system. The bank makes its money by charging you interest. Only you have to toil in the real world by producing goods or services in order to pay the interest. Earning tangible wealth takes time. Meanwhile, the accumulating interest can easily double the cost of your initial purchase. It is a sweet deal if you’re a banker: produce nothing of tangible value but get real wealth in return.
But banks only create the principal, not the interest. This creates a chronic shortage in the money supply because businesses and workers are competing to extract interest payments from a money supply that never created it in the first place – the proverbial “rat race”. The money supply is continually being diverted into the coffers of the bankers. Bankruptcies are actually inevitable in such a system; it’s something bankers know full well. That’s why they arrange to seize your property should you default on your payments.
Usury – charging interest on money for profit – is nothing new. Throughout the ages it has been condemned by many of the world’s major religions. The only record of Jesus acting violently was when he threw the moneychangers out of the temple. Jesus was enraged and accused them of turning a house of prayer into a “den of thieves”. The backstory is that people who came to worship had to pay a temple tax, and although there were many different kinds of currency used in everyday commerce, temples would only accept a certain kind of coin called the shekel. The moneychangers soon vacuumed up most of the shekels in circulation and proceeded to lend it at interest to the faithful. Jesus saw that the moneychangers were fixing the fight, and that the system was manufacturing losers.
The moneychangers were the bankers of their time. The question today is: Who is going to challenge the moneychangers of our time?