|September 7, 2010
U.S. Government and Financial Elites
By Ron Robins, Founder & Analyst -
Investing for the Soul
The U.S. government and financial elites are in many
ways deceitful. Directly and indirectly, they promote
debt and consumption as a drug dealer promotes cocaine.
Drugged by manipulated and low interest rates, Americans
believed the messaging of the U.S. government, the
Federal Reserve and Wall Street propaganda that
affluence was forever and that all they needed was a
credit card and stocks for a heavenly life. From massive
hidden government debt and massaged statistics to Enron
style bank accounting and securities’ frauds, these
institutions deceive us.
The deceit comes in many guises. One of the greatest
deceits is the masking of huge future financial problems
associated with U.S. government debt. Professor Laurence
J. Kotlikoff, Professor of Economics at Boston
University, says the U.S., and even IMF data, reveal
that the U.S. is already bankrupt. That is due to its
unfunded Medicare, Medicaid, Social Security, defense
and other liabilities totalling $202 trillion, or over
fourteen times the annual U.S. gross domestic product
(GDP) of a little over $14 trillion.
Americans are also deceived by the reported U.S.
government budget deficits. The 2009 deficit was
advertised as $1.417 trillion. But John Williams at
shadowstats.com says the U.S government’s own figures
show that using the same accounting methods that
businesses are required to use reveals an enormous $4.3
trillion 2009 deficit. That is the real accounting
deficit and equal to about 30 per cent of U.S. GDP. To
cover it would mean an immediate doubling or more of
Professor Kotlikoff says what America urgently needs is
financial and policy ‘heart surgery,’ and not the
Band-aid solutions recently passed on healthcare and
financial reform. Otherwise, he says, hyperinflation
will eventually rule. But the U.S government and their
Wall Street cohorts continue to ignore such insightful
calls to action, thereby continuing to deceive the
public of the seriousness of the issue.
Most government statistics are somewhat deceitful too.
Every U.S government in recent times, whether it was the
administrations of Bill Clinton, the Bush’s or Barack
Obama, has allowed the U.S. Bureau of Labor Statistics (BLS)
to massage its statistics that, funnily enough, after
revisions, almost always show the U.S. economy to be
doing better than before. One wonders if it might also
have something to do with the head of the BLS always
being a political appointee.
The consumer price index (CPI), unemployment rates and
gross domestic product (GDP), undergo almost continual
‘refinement’ making comparisons with previous periods
often impossible. I wrote about these problems in my
alrroya.com column of August 3,
Unethical Statistics Lead us Astray.
Another deceit of the financial elites is the valuing
today of some bank and financial assets at virtually
whatever the banks feel they are worth. How would you
like to up the value of your home from $500,000 to
$800,000 because the software you wrote for your
computer model said it was ok to do so? Welcome to Bank
U.S. Congressional leaders and banks in April 2009
effectively forced the Financial Accounting Standards
Board (FASB)—which governs U.S. accounting reporting
standards—to adjust its rules on how some bank assets
are valued. The resulting changes to FASB’s rules gave
banks the ability to value certain assets however they
wanted to. This meant they were able to revise the
values of some assets higher. Subsequently and
miraculously, bank stocks rose and banks showed big
profits after previous huge losses.
But residential and commercial foreclosures continue to
grow and real estate asset values are either stagnant or
again falling. Hence, due to the FASB ruling and other
government actions—too many to detail here—the real
asset value of most banks is probably somewhat lower
than reported. Therefore, they are fictional and
probably deceitful. The U.S. government, financial
elites, and many astute investors know this too.
The Federal Reserve (or Fed) likes to make statements
that help guide the direction of individuals and
businesses’ economic actions. For many years, their
intent or remarks were akin to real estate sales people
saying that it is always a good time to buy. Individuals
and businesses believing in the Fed’s infallibility—and
luring them with ultra low interest rates—purchased
homes and expanded their businesses, only to later
realize that they had been led down the path to major
losses. In fact, evidence could suggest they were
sacrificial lambs in order to maintain an appearance of
economic growth that the Fed was desperate to create.
Thus, the Fed is probably guilty of deceit too.
Wall Street seems guilty of many major deceits. Even
though firms such as Goldman Sachs knew of the enormous
potential losses associated with mortgage backed
securities (MBS), they continued selling them anyway.
Furthermore, with such massive and recognized possible
fraudulent MBS and related securities involving Wall
Street and the banks, where are the prosecutions? Is
deception involved here too?
The Securities Exchange Commission (SEC) and the U.S.
Justice Department might be just a little deceitful as
well by being too close to Wall Street operators and
thus minimizing sentences to those on Wall Street found
guilty of financial crimes. Three judges implied this in
their recent remarks in cases involving Wall Street
shenanigans. (See “U.S. Judges Sound Off on Bank
Settlements,” The New York Times, August 23.)
Increasingly, Americans and people all over the world
are realizing that the U.S. government and its financial
elites have been deceitful in many ways. The deceit
includes: masking the reality and consequences of an
unsustainable government debt spiral; statistical
adjustments that make the economy look better;
accounting standards changed to make banks appear
solvent when they may not be; promoting excessive debt
as the salvation for the populace; and probably
unprecedented, unprosecuted, financial deception by some
Wall Street elites.
In the U.S. democracy does not always equal honesty and
integrity. Financial dealings are not all truthful.
Fraud seems to go unpunished and punishment does not fit
the crime. Welcome to the Land of the Free where deceit
is alive and well in the U.S. government, the Federal
Reserve and on Wall Street.