Friday, May 17, 2013

Class of 2013 Facing Considerable Challenges Ahead

This spring, millions of college students across the country are celebrating the annual rite of commencement. They will leave behind their textbooks, classrooms and weekend beer bashes to begin seeking full-time employment.

Yet, even as they are graduating into the adult world, many of them will end up unemployed and living back at home with their parents. As of 2011, 45 percent of recent college graduates were living with family instead of on their own. And a full 61 percent more college-educated 18-34-year-olds were living with their families in 2011 than in 2001.

Last year, the number of 18- to 30-year-olds living with their parents grew to 20.7 million, a 3.9 percent gain from 2010.

The struggle to find work is driving this so-called "Boomerang Generation" back home with their parents instead of striking out on their own to begin an independent adulthood.

As of this time last year, 53 percent of recent college grads (those under age 25) were unemployed or under-employed (working in jobs that don't require a bachelor's degree), according to the Associated Press (AP).

It's clear that not much has changed in the past year and the class of 2013 will be facing similarly stark prospects as they compete with other recent graduating classes for full-time employment.

As the AP notes, recent graduates are now more likely to work as "waiters, waitresses, bartenders and food-service helpers than as engineers, physicists, chemists and mathematicians combined."

The fact that so many young college graduates can only find employment in such low-paying jobs is particularly troubling since student loan debt has reached $1 trillion dollars, eclipsing credit card debt for the first time in American history. It is the new American credit bubble. Yet, the problem appears poised to worsen.

Last fall, a record 21.6 million students were expected to attend American colleges and universities, constituting an increase of about 6.2 million since fall 2000, according to the National Center for Education Statistics (NCES).

Record college enrollments have been driven in part by both increases in the traditional college age population and rising enrollment rates. Between 2000 and 2010, the 18- to 24-year-old population rose from approximately 27.3 million to approximately 30.7 million. Meanwhile, the percentage of 18- to 24-year-olds enrolled in college also was higher in 2010 (41.2 percent) than in 2000 (35.5 percent).

Unfortunately, all those millions of students are piling up a whole lot of debt.

According to the Federal Reserve Bank of New York, student debt has grown dramatically over the last decade — some 43 percent of Americans under the age of 25 had student debt in 2012, with the average debt burden now $20,326. By contrast, back in 2003, just 25 percent of younger Americans had debt, and the average burden was $10,649.

For the 2010–11 academic year, the average annual price for undergraduate tuition, fees, room, and board was $13,564 at public institutions (including $5,076 for in-state tuition) and $32,026 at private, not-for-profit and for-profit institutions.

College tuition and fees have surged 1,120 percent since records began in 1978 — four times faster than the increase in the consumer price index.

Cumbersome tuition debt has put young graduates at a significant disadvantage when they are attempting to begin their adult lives. Large student loan debts delay their ability to create families, buy a first home, or start businesses.

Recent college grads are confronted by the double-whammy of huge tuition debts (which many of them will carry for at least a decade) and the prospects of low-paying jobs — assuming they can find one at all. Servicing student loan debt with a low-wage job is the sort of thing that drives young graduates back home to live with their parents and it is limiting household formation.

The household growth rate was cut by two-thirds between 2007 and 2010 compared to the previous 10 years, according to the Cleveland Federal Reserve Bank. The downturn was directly related to poor economic conditions and it occurred despite the fact that the population was steadily increasing each year. This has negatively affected the housing market, as lower household formation rates reduce housing demand.

Americans under age 30 face a startling unemployment rate of approximately 12%, and many of them have college degrees. Meanwhile, the unemployment rate for Americans ages 16–24 stands at 16.2 percent, more than double the national rate of unemployment.

However, young people who can't find jobs aren't the only ones facing a struggle. Those fortunate enough to be employed are suffering from falling wages.

Between 2000 and 2011, the real (inflation-adjusted) wages of young college graduates declined by 5.4 percent. For those with only a high school diploma, the wage decline was even worse over that period, falling 11.1 percent.

According to the Economic Policy Institute, young college grads were earning an average of $16.60 an hour in 2012, while young high school grads were making an average of $9.48 an hour.

Many of those fortunate enough to be employed are working at jobs well below their education level that don't require a college degree. It's no wonder that many young people have begun to question the value of a college education.

According to government projections released in March of 2012, only three of the 30 occupations with the largest projected number of job openings by 2020 will require a bachelor's degree or higher to fill the position — teachers, college professors and accountants. Most job openings are in professions such as retail sales, fast food and truck driving — jobs that aren't easily replaced by computers.

None of this is good for the economy or the future of our country.

According to the Census, the number of Americans under the age of 25 with at least a bachelor's degree has grown 38 percent since 2000. Yet, not nearly enough jobs have been created to accommodate them, which has resulted in the falling wages young college graduates have endured over the past decade, as well as the perennial employment problems we're now confronting.

When a college grad is unemployed for a long stretch, or working in a low-wage job that doesn't require a college degree, it hurts future employment prospects. Trying to explain long employment gaps on one's resume to a potential employer can be difficult. Worst of all, it can have long lasting economic consequences, restricting income for the rest of one's working life.

According to a new analysis by the Center for American Progress, the nation's stubborn unemployment problem will cost young Americans a staggering $21.4 billion in earnings over the next decade.

Sadly, the joy and ebullience associated with graduation may be short-lived for many of this year's college graduates, as it was for each of the classes that graduated into an uncertain world since the Great Recession scarred this nation.

This year's class will enter adulthood burdened by high student loan debts, poor job prospects and low wages. That will keep many of them from forming their own households and participating in the broader economy in the way that previous generations of college grads did.

Instead, many in the class of 2013 will be returning to their parents' houses in what will feel like their high school years all over again. Many will surely question why they bothered incurring so much school debt in recent years, debt that will undoubtedly hinder them for many years to come.

Worst of all, their job prospects may not be all that better than their peers who didn't go to college, which will make servicing hefty school loans all the more challenging.

Saturday, May 11, 2013

The Regrettable History of the Federal Reserve

The Federal Reserve is the country's most powerful financial institution. Yet, most Americans have little, if any, knowledge about what the Federal Reserve System is, or what it does.

The Fed, as it is commonly referred to, was conceived in secrecy in 1910 by a group of powerful bankers. The group then used their power, wealth and influence to get the Federal Reserve System codified into law by Congress three years later.

On December 22, 1913 the Federal Reserve Act, the bill creating the Federal Reserve System, was passed by Congress. It was then signed into law by President Wilson the very next day. At that moment, a banking cartel was empowered by law and given the exclusive franchise to create our nation's money supply.

What may surprise many people is that the Federal Reserve isn't federal at all. It is not part of the federal government. Rather, it is a private corporation with stockholders. It should be of little surprise that the Fed's seat of power is New York, home of the giant Wall St. banks that have run it from the beginning.

In 1910, a group of New York bankers, along with some key Washington politicians, met in secret on Jekyll Island off the coast of Georgia to hammer out the terms for what would become America's central bank.

Senator Nelson Aldrich, the Republican whip in the Senate, was among the group. Aldrich was the father-in-law of John D. Rockefeller, Jr. and later became the grandfather of Nelson Rockefeller, our former vice-president.

Aldrich was joined by Assistant Secretary of the Treasury Abraham Andrew, who later became a Congressman.

And there were the five powerful and influential bankers in attendance.

Frank Vanderlip was there. He was the President of the National City Bank of New York, which was the largest of all the banks in America, representing the financial interests of William Rockefeller and the international investment firm of Kuhn, Loeb & Company.

Henry Davison was there, the senior partner of the J. P. Morgan Company. Charles Norton was also there; he was the President of the First National Bank of New York which was another one of the giants. Benjamin Strong was at the meeting; he was the head of J. P. Morgan's Banker's Trust Company. Three years later, Strong would become the first head of the Federal Reserve System.

Finally, there was Paul Warburg, who was probably the most important person at the meeting because of his knowledge of banking as it was practiced in Europe.

Warburg, one of the wealthiest men in the world, was born in Germany and eventually became a naturalized American citizen. He was a partner in Kuhn, Loeb & Company and was a representative of the Rothschild banking dynasty in England and France. His brother, Max Warburg, with whom he maintained a very close working relationship throughout his entire career, was the head of the Warburg banking consortium in Germany and the Netherlands.

These seven men sat around a table on Jekyll Island and created the Federal Reserve System, which has now been in existence for 100 years. Represented at the meeting were the Morgans, the Rockefellers, the Rothschilds and the Warburgs. Though they were all competitors, they formed an alliance on on Jekyll Island — a banking cartel.

To be clear, a cartel is a coalition or cooperative arrangement between parties intended to promote a mutual interest. The purpose is to reduce or eliminate competition between themselves to maintain high prices, enhance profit margins, and secure their market share.

Why did they meet in secrecy? Writing in the Saturday Evening Post on February 9, 1935, banker Frank Vanderlip gave this reasoning:

"If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress."

Apparently, the bankers knew the public would be shocked to learn that the Federal Reserve is not, in fact, federal. It is a system of 12 private banks and its name was chosen by the bankers that created it to persuade the public that it is part of the government. But it is not. In fact, the Federal Reserve has private shareholders.

The board of directors and chairman of the Federal Reserve System are appointed by the US President. So the Fed is a hybrid; it is a private corporation that has been empowered by the government to determine monetary policy. But once the president chooses the directors and the chairman, he has no further control. The Fed was designed to be autonomous. It has authority over itself. It can set interest rates and create money out of nothing, according to its own discretion.

Aside from the fact that the Federal Reserve isn't federal, it also has no reserves. The Fed simply creates money out of thin air and then loans it out at interest — at a rate dictated by the Fed. Setting interest rates and regulating the money supply are both functions of monetary policy, which is solely determined by the Fed.

The Fed routinely increases the money supply in an effort to spur a low, stable rate of inflation. As a general rule, the Fed seeks an inflation rate of 2 percent annually. However, at that rate, the dollar would lose 20 percent of its value in the span of a decade.

The Fed claims that inflation spurs economic growth and prosperity. However, inflation devalues the purchasing power of money, which hurts everyone. Inflation is detrimental to savers, to people who work for a living, and to those on fixed incomes, such a seniors.

Since money continually loses value, inflation compels people to spend money rather than save it. The Fed would argue that this stimulates the economy. At times when the rate of inflation is higher than interest rates (such as now), people and corporations are encouraged to take on more debt and spend money before its purchasing power erodes further. But this just encourages debt bubbles, malinvestment and imprudent spending.

Then, when the economy subsequently crashes, the Fed prints even more money as a means of solving the problem it created in the first place by printing too much money.

Even when a corporation has enough of its own capital to pay for a new project, instead of borrowing from a bank, the Fed's extraordinarily low interest rates can compel the corporation to borrow. Cheap money can be very enticing. Banks don't like private capital formation; they want to lend money. It's their business after all.

When it comes to lending, there's no better customer than the government itself.

That's the reason a group of ultra-powerful bankers persuaded Congress to codify their scheme into law; they were able to form a banking cartel that is empowered by the government. US law protects the banking cartel and Congress uses it for its own interests; namely, to fund deficit spending.

As history repeatedly shows, one sure-fire way to promote deficit spending is through warfare. Central banking got its start in Europe, where powerful bankers first persuaded the continent's kings to grant them legal sanction for their activities. The European central banks quickly became the primary funders for the continent's frequent and widespread wars.

Warfare provides a need for immense borrowing and therefore provides banking corporations with huge profits in the form of interest income. It's said that bankers are on both sides of every war. That way, they never lose.

The government primarily raises money for its budget through taxes. But year after year, decade after decade, Congress spends more than it receives. So, it turns to the bond market to raise the difference and meet its desired spending level.

Individuals, financial institutions and foreign governments lend money to the US government by purchasing Treasury bonds, notes and bills. But when there aren't enough buyers, the Federal Reserve simply creates money out of thin air so that it can buy government debt. This is called "monetizing the debt."

Through this means, the government can access any amount of money without having to justify raising taxes, the sort of thing that rarely wins elections.

The Fed also buys government bonds from the banks with its freshly created money. The banks then loan this conjured money to businesses and individuals and collect interest on it. It's a pretty sweet deal.

The problem is that all of this freshly created money flowing into the economy dilutes and devalues all of the existing money in our wallets, purses and bank accounts. This is the process of inflation, which is reflected as rising prices. But prices aren't really rising; the value of our money is falling.

When money is simply created out of thin air, it leads to continually diminished purchasing power for everyone. Prices keep going up because the value of money keeps going down. The Fed has created trillions of dollars in just the last few years.

Here's some food for thought: a dollar in 1913 buys about nine cents worth of goods today. That's what the Fed has done to our money.

The ones who gain from this process are the banks that collect interest on the Fed's funny money. The Big Banks are also in a position to gain because they have full purchasing power the instant this fresh money is created. As soon as they spend it, or loan it to businesses and individuals — in other words, as soon as this money enters the economy — it becomes diluted.

Inflation can be thought of as a tax. Little by little, you surrender your money. And since there are no write-offs, exemptions or deductions, inflation falls most heavily on the poor, those on fixed incomes and retirees.

When trillions of dollars are being created by the Fed (as is the case today), all that money must be channeled into the economy. To create demand for all this new money, the Fed lowers interest rates, encouraging businesses and individuals to borrow. All new money is loaned into existence. That's how the Big Banks are in a position to gain; they collect interest on money created out of nothing.

In an inflationary environment, everyone is encouraged to borrow and spend as quickly as possible before money loses more buying power. Borrowers can then pay off their loans with depreciated money, which seems like a winning proposition. But the underlying reality is that their money has been steadily, continually losing value. There's no good way to spin that.

All of this monetary manipulation, or stimulation, leads to a business cycle in which booms are inevitably followed by busts. In those downturns, servicing all the debt undertaken during the booms becomes difficult to impossible. The housing bust is a perfect example of this.

During these busts, or crashes, people end up losing assets to the banks that lent them money created out of nothing in the first place. It's an incredible racket.

At this point, you may be asking, Don't banks make loans with deposited money? Yes, but there isn't nearly enough savings in the US to support our borrowing. For decades, we've borrowed more than we've saved. But the Fed doesn't worry about that anyway. When Fed officials make up their minds to create more money and inject it into the economy, the amount of existing savings hardly enters their calculations.

The group of bankers that created the Fed — along with their political backers who enabled them — used economic stability as their reasoning for creating the Federal Reserve System.

The reality is that, far from creating economic stability, the Fed has a long history of creating instability. The Fed is the reason for our boom and bust cycles, our economic expansions and contractions, our continual recessions. Nor has the Fed prevented bank failures, which was one of the reasons given for its creation. The FDIC closed 465 failed banks from 2008 to 2012 alone.

Since its inception in 1913, the Federal Reserve System has presided over the crashes of 1921 and 1929, the Great Depression of 1929-1939 and recessions in 1945, 1949, 1953, 1958, 1960-'61, 1969-'70, 1973-'75, 1980, 1981-'82, 1990-'91, 2001 and 2007-'09. That's a total of 12 recessions from 1945 to 2009.

The country still hasn't fully recovered from the Great Recession, which ended, officially at least, in June 2009.

During these crashes, the banks invariably get into trouble when borrowers are unable to service their loans. In these instances, the Big Banks turn to the government for a bailout. The small, local and regional banks are allowed to go belly up, or are bought out by their competitors. But the Big Banks are deemed "too big to fail" and are bailed out at taxpayer expense.

The thinking is that these Big Banks are systemically linked and therefore critical to the nation's economy. We're told that chaos would ensue of the natural process of capitalism (survival of the fittest) were to play itself out. So, instead we have a socialized system in which the taxpayers are forced to pick up the tab for the Big Banks' egregious behavior. We've witnessed this on a grand scale since the Wall St. crash in 2008.

Profits are privatized; losses are socialized.

The Fed's policies aren't just bad for America; they're detrimental to the world. Since the dollar is the world's reserve currency (meaning that it is used to settle trade accounts around the globe), trillions of dollars are held overseas by foreigners and their governments. The Fed also trades currencies with other nations, sending even more dollars overseas.

So, when the Fed inflates our currency and devalues the dollar, people around the world — even in the poorest of nations — suffer for it. But since so many of the dollars already in existence are overseas, this saves Americans from the worst effects of inflation. All of the US currency outside the country doesn't dilute the money supply as much as it would if all our money stayed here at home.

If, or when, that money starts returning to the US in large sums — buying American real estate, products and/or services — the inflationary effects will be enormous.

Ultimately, there is nothing good that comes of the Federal Reserve and its actions. There is no labor involved in the creation of money. It's as easy a few simple keystrokes on a Federal Reserve computer. The Big Banks are getting this fresh money at virtually zero interest and then loaning it to the public. They are profiting from invented, or conjured, money.

The Big Banks use their gains, in turn, to acquire power, politicians, media outlets and the like. In essence, they are buying influence — if not outright control — of our country.

Our nation derives no value from the Fed. To the contrary, it is undermining this country in a myriad of ways.

Sunday, May 05, 2013

U.S. Homeland Security Spending Tops $791 Billion Since 9/11

FRONTLINE recently aired a revealing documentary called "Top Secret America" about the expansion of the US security, defense and intelligence apparatus since the 9/11 attacks. Hundreds of billions of dollars have been spent, with very questionable results. In exchange, Americans have surrendered many of their privacy rights.

In the aftermath of Sept. 11th, 2001, the US government initiated the largest covert action program since the height of the Cold War; some in the CIA say it was the biggest ever. And the entire program has been shrouded in secrecy.

The National Security Agency (NSA) created a global electronic dragnet capable of reaching into America’s communication networks, capturing 1.7 billion intercepts every day. The amount of information coming in from all over the world is overwhelming, so the NSA turned to private contractors to help them wage their covert war.

The NSA spent billions of dollars on more than 480 private companies, including CACI, Lockheed Martin, General Dynamics, Northrup Grumman and Boeing. Exactly how much money the NSA was spending in the years after 9/11 is one of the government’s most closely guarded secrets. The agency’s budget, like its work, is a state secret.

Despite the enormous spending on intelligence gathering, there have been repeated and considerable failures.

No WMDs were ever discovered in Iraq. Consequently, the 9/11 commission suggested that the US should have a director of intelligence to make sure that all the different agencies would share their information, be efficient and avoid overlaps.

Soon after, the Director of National Intelligence (DNI) was established to oversee America’s $80 billion intelligence community.

The DNI headquarters now occupies 500,000 square feet of some of the priciest real estate in the Washington area. It's the size of five Wal-Marts stacked on top of one another.

In 2009, the massive Department of Homeland Security (DHS) began construction of their new $3.4 billion headquarters. It will rival the Pentagon as the largest government complex ever built in Washington. And DHS has continued a nationwide spending spree, sending billions of dollars to state and local police. The DHS funded high-tech terrorism centers around the country. Every state has at least one. There are 74 in total.

Yet, there are questions about its effectiveness.

"You can look, if you’re objective, at all of this money and all of this effort and say, 'What would have happened if we hadn’t done that?”, asks Richard Clarke, White House Terrorism Advisor from 1998-2001. "And in almost every case, nothing would have happened. It’s true that there hasn’t been another attack. It’s not true that all of this expenditure and all these people have stopped it."

The Counterterrorism Center, alone, gets 5,000 pieces of information every day. This means that each day they are looking for the proverbial needle in a haystack.

Despite all of this information and all of the billions spent, US intelligence didn't pick up on the "underwear bomber" that tried to blow up a Detroit-bound flight from Amsterdam at Christmas of 2009. Nor did it discover the Times Square bomber five months later, or the Boston Marathon bombers in 2013.

"We’re all very glad that bin Laden has finally been caught, but it was a handful of people," says Richard Clarke. "It wasn’t this enormous, bloated, tens of thousands of people apparatus that we’ve set up. It was a small, highly-skilled, highly dedicated group of intelligence analysts. That’s who found him. Not all of these contractors, not these giant agencies and giant centers."

There are close to a million people fighting America's shadowy War on Terror. Their numbers rival the active Army.

Looking at over a decade's worth of federal budget material, the National Priorities Project has calculated the total amount the U.S. government has allocated for homeland security since 9/11 at more than $791 billion.

"Every year, three dozen entirely new federal organizations, 1,900 private companies, billions and billions of dollars of waste, 17,000 locations ─ these are gigantic edifices that are going to stay here," says Dana Priest, author of Top Secret America: The Rise of the New American Security State. "This world is growing up behind a black wall."

The question is this: has all of this massive spending, all of this snooping and all of this secrecy, made us any safer? And what have we surrendered as a society along the way?

Journalist and columnist Glenn Greenwald, a former constitutional and civil rights litigator, makes some very salient points about government secrecy:

The surveillance state destroys the notion of privacy, which is the area in which human creativity and dissent and challenges to orthodoxy all reside. The way things are supposed to work is we're supposed to know everything that the government does with rare exception. That's why they're called the public sector. And they're supposed to know almost nothing about us, which is why we're private individuals — unless there's evidence that we've committed a crime. This has been completely reversed, so that we know almost nothing about what the government does. It operates behind this impenetrable wall of secrecy, while they know everything about what it is we're doing, with whom we're speaking and communicating, what we're reading. And this imbalance, this reversal of transparency and secrecy and the way things are supposed to work, has really altered the relationship between the citizenry and the government in very profound ways...

What history shows is that when governments are able to surveil people in the dark, generally the greatest outcome is that they abuse that power and it becomes tyrannical. If you talk to anybody who came from Eastern Europe, they'll tell you that the reason we left is because society's become deadened and soulless, when citizens have no privacy. And it's a difficult concept to understand, why privacy is so crucial, but people understand it instinctively. They put locks on their bedroom doors, not for security, but for privacy. They put passwords on their email accounts, because people know that only when you can engage in behavior without being watched is that where you can explore, where you can experiment, where you can engage in creative thinking, in creative behavior. A society that loses that privacy is a society that becomes truly conformist. And I think that's the real danger...

Secrecy is the linchpin of abuse of government power. If people are able to operate in the dark, it is not likely or probable, but inevitable, that they will abuse their power. It's just human nature. And that's been understood for as long as politics has existed. That transparency is really the only guarantee that we have for checking those who exercise power.