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16 Sou t h B ay B u S i n e S S in S i d e r M ag a z i n e 1 S t i S S u e 2 0 0 9

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When it comes to economic downturns, some peo-ple believe what goes down must come up again.A scientist applying this logic to physics would

say they got it backwards. Any economist with a grasp on

reality would have to agree. We can count on gravity to pullthings down. But up requires a deliberate eort rom some-where. This is as true with economics as it is with physics.Getting some more up in the economy is what these un-

precedented government interventions are all about. Theproblem is government and nancial leaders are upping ina reckless and dangerous manner.The deliberate eort in this case is accomplished by ex-

panding debt disguised as targeted bailouts to stop theeconomic reeall experts knew was inevitable or a verylong time. As it turns out, something incredibly complexis governed by a very simple bottom line: An economicsystem isnt sustainable when downward pressures caused

by mounting debt grow exponentially in relationship toupward momentum created by genuine economic growth.But central bankers with the complicity o our governmentwould have you believe otherwise.Economic experts call this phenomenon the business

cycle. This is not a normal process within a sustainableeconomic system. Its more like a cycle o seizures in a ter-minally ill patient. Experts espousing the status quo point tohistorical data that suggests no matter how bad a short-termeconomic trend gets, the long-term cycle continues togo up. And because we have been through many o thesecycles over the decades, most people take it as a given

that the long-term trend will always be that way. In act, wehave staked our destiny on this misguided notion and arejust beginning to pay the price or our ignorance.

The myth o the endless business cycle requires somesleight-o-hand deception on the part o nancial wizardsor the illusion to appear real. And those o us earul olosing what we have spent decades building are eager tobelieve these illusions because they make us eel saer. Yetillusions are what they are and reality has no conscience.The dark side o this deception must be conronted at somepoint.

And this alludes to whats dierent about this economicdownturn. There have been several in my lietime. Im notold enough to have experienced The Great Depression. ButI do remember Carter administration malaise ollowed by

convulsions in the eighties during the Reagan Revolution.Then the early nineties got so bad, many o us would preerto orget the rst ve years o that decade. And just whenthings were looking good again, we were hit by dot comdoldrums in 2000 ollowed by an astoundingly short reces-sion ater 9/11. Short only because ormer Federal ReserveChairman Alan Greenspan solved it by bottoming out lend-ing rates, thereby creating a magnicent money bubble.Looking back, I cant help but notice the downturns tendedto get worse and the booms that ollowed were usuallymore majestic than any beore. This was especially so withthe stock market, gold and real estateall known indica-tors that money bubbles compounded by lopsided interna-

tional trade were disguising the act our currency was andcontinues to get dramatically weaker in real terms.Whats more, during this time central bankers have grown

increasingly interventionist in their eorts to control theeconomy, while Wall Street has become increasingly cre-ative in what it calls an asset worth selling to investorsaround the world. This is largely because no one wants toexperience another Great Depression.And no Federal Reserve chairman, treasury secretary or

political leader wants to see a large scale economic catas-trophe happen on their watch. So as the problems becomemore insurmountable, the economic policy becomes more

radical and increasingly desperate as the situation gets outo control. So now we have a downturn so dangerous, it hasorced everyone to ocus on the long-term eects o theiractions. It has also orced domestic nancial experts andpolitical leaders to remove their blinders and learn aboutthe global causes and eects that spurred, and continues todrive, this nancial crisis. The end result is people callingthemselves conservative proposing interventions in theeconomy as extreme as any Lenin or Trotsky might haveproposed. I nd that surreal to say the least.

Modern Economic Logic:

What Goes Down Must Come UpBy David Whitehead

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The Global Chickens are Coming Home to RoostSince the mid-nineties, we have been indoctrinated to be-

lieve globalization will improve our lives. Just beore theoutsourcing revolution started in the early seventies, AlvinTofer described this phenomenon in his classic uturisticbook Future Shock as the transition to super-industrialized

man. But ew at the time questioned how a de-industri-alized society could call itsel super-industrialized. Andeven ewer questioned how nations could protect their ownwealth and avoid the enslavement o debt i they didnt con-trol their vital domestic resources and produce their ownessential goods. This is the conundrum now beore us.Tofers book was released in 1970, not long beore trade

decits were made legal in the United States. Since then, adollar with no bullion backing whatsoever has been vola-tile, consumer infation has been somewhat steady withoccasional dramatic spikes, and real estate has soared incomparison to salaries and consumer prices. Foreign in-

vestment o various orms has driven the economy, and theongoing trend has been or public and private sector debtto mount. We are leveraging our position as the worldsreserve currency to keep things going. But that requiresglobal cooperation, which is waning ast.In mid-December 2008, on the heels o the Bank o Eng-

land lowering its key lending rate to two percentsome-thing it hasnt done since the institution was establishedin 1694the Federal Reserve lowered its own key lendingrate to a range o 0.0 to 0.25 percent. Stock markets thendipped on the belie the central bank was running out otricks to stimulate the economy. The market then rallied as2008 transitioned into 2009. However, the Dow lost an as-

tounding 34 percent o its value or the year, the third worstdecline in its 112-year history and a raction o a percentworse than 1930! Finally in the second week o January, theBank o England broke its record again by lowering the rateanother hal percent to 1.5 percent.Domestic job losses went into reeall in December, with

540,000 people suddenly nding themselves out o workand unemployment spiking to 7.2 percent, the highest in16 years. In contrast, unemployment was only 4.9 percenta year prior. In 2008 approximately 2.6 million people losttheir jobs, the most since 1945.These statistics are mind boggling. Predicting this as re-

cently as a year ago would have been considered reaction-ary in mainstream circles. Thats why it is a good time toexpand your inormation sources because or years, cred-ible experts have been preaching rom the sidelines aboutthese kinds o oreboding events.Perhaps this will be the nal bubble o a 40-year debt cy-

cle that will bring this decades long cycle o cycles to anend. I there is a recovery in 2009 based on these extraor-dinary bailouts, which as o this writing seem to be havinga somewhat positive eect on the stock market, many o uswill breathe a sigh o relie. But another alse recovery sim-ply puts o the inevitable. And i and when the last possible

bubble bursts with devastating eect, then what?

W. Orders Up a New Economic Order for the WorldOutgoing President George W. Bush recently held an eco-

nomic summit o world nancial leaders to begin what willundoubtedly be a long process to replace the Bretton Woodsglobal economic order established at the close o WorldWar II. This is the great nancial order best represented byits institutions, including the International Monetary Fundand the World Bank. Its policies rebuilt Europe ater thewar. The Bretton Woods institutions have been at the ore-ront o developing the globalized society melting downbeore us and have been governing international monetarypolicy or over 60 years. The Bretton Woods agreement wasoriginally based on a U.S. dollar backed by bullion to serveas the worlds reserve currency. But the dollar was takeno the bullion standard in the early seventies, becoming afiat currency with nothing tangible backing it. Not only did

The Myth of

the Endless

Business Cycle

Continued on page 18

The myth o the endless

business cycle requires

some sleight-o-hand

deception on the part o

fnancial wizards or the

illusion to appear real.

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this make it problematic to develop a prosperous domesticeconomy without incurring destructive loads o debt, it alsoreed the developing nations to lowball their currency valu-ations to maximize their export potential. This process is atthe root cause o the alse economy we have grown to rely

on and is key to the illusion o wealth we were collectivelyconned into believing was real.On the heels o the gold standards eulogy, the long pro-

cess o de-industrializing and manuacturer outsourcingstarted and then grew steadily over the decades. With do-mestic industrial output declining at an alarming rate as theworlds nation states were obliged to hold and spend dol-lars, this highly manipulated economic environment drivesthe business cycles and instability we have seen over thedecades.Although the term globalization was coined in the mid-

nineties, the modern version has roots as ar back as the

18th

Century British East India Company. The British Empirecalled these organizations government chartered compa-nies. They were more than just private sector businesses.These economic behemoths were literally authorized togovern the lands they cultivated on behal o The Crown.In act, Cecil Rhodes used this concept to raise standingarmies to subdue southern Arica in the late 19th Centuryso the West could control the gold and diamond industries.The modern contracting system the Bush administrationimplemented to rebuild Iraq has sinister similarities to itsimperial predecessors.The United States rst got into the imperial game about the

same time Rhodes was conquering Arica, originally with

the United Fruit Company in Latin America. This is the or-ganization that marketed the amous Chiquita Bananas. TheUnited Fruit Company is oten reerred to as the rst globalconglomerate and had a reputation or acting as a govern-ment unto itsel to the point o initiating coups in emerging

Latin American nations i it suited its purpose. In act, this iswhere the term Banana Republic originated.This modern global process actually allows nancial

powerhouses to collectively act as parallel governmentsin many situations, and marginalizes the infuence o allsovereign nation states in this world. In other words, this is

the process that some would argue actually rules our worldthrough raw unadulterated economic power no politicalleader has the clout to challenge.On a global scale, the nations we once called third world

leveraged their devalued currencies and cheap labor to de-velop large scale industries to produce goods or what westill call developed nations. All o these nations, includingthe United States, the United Kingdom, France and Germa-ny, have de-industrialized to some degree. But none havedone so to the extent o the United States. And no otherscould because by not being the issuer o the worlds reservecurrency, their money supplies would implode i they tried.

In act, thats exactly what happened to several Latin Ameri-can countries during the 1970s when they dove headrstinto radical ree trade beore the rest o the world becameaddicted to it. Conversely, i the United States could notrely on its status as the worlds reserve currency to keeporeign wealth at our disposal to back the dollar, we couldnot have dug in this deep in unsustainable debt. It is nowcrystal clear to say that we should not haveat least i itis our intent to deend our sovereignty as diligently as ournational security. At this point, I am not at all certain mosto my compatriots give much thought to the issue.Americans were easily aroused to ght global terrorism

because 9/11 made it clear to them why it is a threat. Butde-industrialization and the possible internationalization oour currency, whether masked by the pegging o the NorthAmerican currencies to each other or the issuance o anAmero style single currency or the continent, doesntsink in or most people as a substantial threat to the na-tion. Lets ace itSpielberg will never ll theaters makinga movie about that. But my question is this: How can anation state call itsel sovereign when it doesnt control themanuacturing o its essential goods, and at this point someo its essential services, or even its own money supply? Theact is, it cant. And i sovereignty isnt important to a nation

that calls itsel the deender o reedom in the world, I dontknow what is.There are no straightorward answers to the problems I

have just laid out. But the global economy will never re-cover in a sustainable way unless people at all levels ogovernment, industry, nance and most importantly, themedia, begin asking the right questions. I hope I have pro-voked some rom you.nDavid Whitehead is the publisher of Business Insider Maga-

zine. He can be reached at Publisher@BusinessInsider.us

Continued from page 17

. . . if the United States could not rely on its

status as the worlds reserve currency to keep

foreign wealth at our disposal to back the

dollar, we could not have dug in this deep

in unsustainable debt. It is now crystal clear

to say that we should not haveat least if

it is our intent to defend our sovereignty as

diligently as our national security.