The End of Economic Growth?

Perpetual or infinite growth is the economic paradigm in most of the world. Nowhere is this more evident than on Wall St., where companies are expected to consistently grow their revenues and profits year after year, even quarter after quarter.

In fact, a company can show growth, but if that growth is deemed inadequate — meaning it misses estimates — the company will be punished by Wall St.

Perpetual growth isn't just expected, it is mandated. But while infinite growth has long been taken for granted, it seems that we are now living in a time where it will no longer be the norm.

As a nation's population grows, its economy also has to grow in order to support all of the new workers entering the workforce. The US economy, for example, needs to grow at least 2.5 percent annually just to keep up with its population growth. But that kind of growth is becoming harder to rely on. As I reported previously, the US economy has been slowing for many years.

This trend has gotten the attention of some respected economists who have some sobering warnings for us.

The IMF projects that global growth “will slip below 2% in 2013.” Yet, through much of history, that sort of growth would be cause for celebration.

In August of 2012, economist Richard Gordon published a disturbing research study, titled, “Is U.S. Economic Growth Over?” In it, he notes that for the five centuries leading to the 18th century, the per capita growth rate was only 0.2 percent annually.

Then, during the Industrial Revolution, the U.S. growth rate shot up to 2.5 percent through 1930. A string of innovations, such as the steam engine, railroads and electricity drove that growth. But “it’s been downhill since 1950,” says Grodon, with growth averaging 2.1 percent.

On this trajectory, Gordon warns, the American economy will be back where it started by 2100, at annual growth of just 0.2 percent.

Given that the current economic, political and social systems are predicated on infinite economic expansion, the mere suggestion of this is unacceptable to our national leaders. It doesn't fit within the framework of how we view ourselves as a great nation, and publicly accepting this certainly won't help any politician win an election. That's because many Americans will similarly refuse to accept this, even when it proves to be true.

Some truths are just too hard and too bitter.

Gordon found that prior to 1750 there was little or no economic growth (as measured by increases in gross domestic product per capita).

It took approximately five centuries (from 1300 to 1800) for the standard of living to double in terms of income per capita. Between 1800 and 1900, it doubled again. The 20th Century saw rapid improvements in living standards, which increased by between five or six times. Living standards doubled between 1929 and 1957 (28 years) and again between 1957 and 1988 (31 years).

Gordon argues that the rapid advancement of living standards achieved since 1750 was driven by three distinct phases of the Industrial Revolution: 1.) steam engines; 2.) electricity, internal combustion engines, modern communication, entertainment, petroleum and chemical and 3.) computing.

However, these means to growth have either reached, or will soon reach, their limits. And Gordon isn't the only one who recognizes this. The slowdown is not only underway, it may be picking up a head of steam that will soon make annual growth of even 1 percent hard to come by.

Historically, from 1948 through 2013, the United States annual GDP growth rate averaged 3.21 percent.

Yet, over the last two decades, as with many other developed nations, its growth rates have been decreasing. In the 1950’s and 60’s the average growth rate was above 4 percent. In the 70’s and 80’s it dropped to around 3 percent. And in the last ten years, the average rate has been below 2 percent.

Famed investment strategist Jeremy Grantham, founder and chief investment strategist for the $100 billion asset management firm GMO — one of the largest such firms in the world — provided a recent warning to his clients: America’s long-term 3.4 percent annual GDP growth is a thing of the past.

In a recent Quarterly Letter “On Road to Zero Growth,” Grantham issued the following stark forecast:

“Going forward, GDP growth (conventionally measured) for the U.S. is likely to be about only 1.4% a year, and adjusted growth about 0.9%,” writes Grantham.

"Capitalism’s greatest weakness is its absolute inability to process the finiteness of resources and the mathematical impossibility of maintaining rapid growth in physical output,” Grantham states.

"Investors should be wary of a Fed whose policy is premised on the idea that 3% growth for the U.S. is normal," says Grantham.

The “bottom line for U.S. real growth,” he says, “is 0.9% a year through 2030, decreasing to 0.4% from 2030 to 2050.”

The problem comes down to the rapid depletion of our natural resources. Once we dig up and utilize our resources, there's no getting them back. Most of our key resources are finite and non-renewable. Yet, they have been, and will continue to be, vital to our economic growth.

Many economists and political leaders have ignored this problem because their focus is solely on the short term. Most projections are done on an annual, or even quarterly, basis. That shortsightedness isn't helpful in identifying longer term problems or crises.

Unfortunately, the rising cost of resources is often read as a boost to GDP. For example, drilling a deeper, more complicated well that requires more steel, more energy and more manpower is reflected as a boost to GDP. However, utilizing more resources and manpower to extract resources isn't really adding to GDP. It's misleading.

The reality is that the rising cost of resources is hindering real economic growth all over the world.

"I’ve been obsessing about the shift in resource prices that started 10 years ago, which is reducing the growth rate of every [country]," says Grantham. "We calculated the percentage of global GDP that was going to resources, and it declined beautifully, forever, until 2002, when it hit some very low number like 9 percent. The price of pretty well everything has doubled and tripled since then. This has taken a bite of three points out of global GDP."

This is a major shift since typical commodity prices dropped by about 70 percent during the 20th Century, according to Grantham. It was easy to get rich and grow an economy in that environment. However, that is no longer the case. The entire 100-year decline in commodity prices was reversed from 2002 to 2008. That's right; in just six short years, a century of resource declines were completely reversed.

The era of cheap resources is over, and that is a game-changer. The world is bigger today and there are more people than ever before competing for the same limited resources. The developing economies of China and India, alone, are home to more than a third of the earth's population.

For example, oil was $25 per barrel in 2000. It is now trading at roughly $100 per barrel. This has raised the price of everything else in the US and global economies. The extraction of all other resources is wholly reliant on oil, which makes them more expensive as oil becomes more expensive. In fact, resource prices have been rising faster than the global growth rate.

Under the perpetual-growth paradigm, oil — the most critical of commodities — is a requisite. But given that oil is a finite resource, that is an inherent limitation to growth.

In 2012, the Worldwatch Institute published a report titled, “Planet’s Tug-of-War Between Carrying Capacity and Rising Demand: Can We Keep This Up?”

The short answer is no. The planet’s “shrinking resources” cannot satisfy the exploding population’s “growing demand for food and energy,” stated the report's authors.

Back during the Great Depression the world had 3 billion people. Twelve years ago it had doubled to 6 billion. Now it’s 7 billion, with the United Nations predicting 10 billion by 2050.

Yes, by 2050, another 3 billion people will be added to the planet. This means that the world’s farmers, ranchers, and fishers must find a way to produce more food in the next 37 years than they have in all of human history. That will prove daunting since farmland is decreasing instead of increasing.

In 1960 there were 1.1 acres of arable farmland per capita globally, according to data from the United Nations. By 2000 that had fallen to 0.6 acre. Yet, during that time, the global population doubled from 3 billion to more than 6 billion. In other words, productive farm land and the human population are moving in the wrong directions.

"Even if we could produce enough food globally to feed everyone satisfactorily, the continued steady rise in the cost of inputs will mean increasing numbers will not be able to afford the food we produce,” says Grantham.

The world is facing an impending shortage of phosphorous, which is primarily used to make fertilizer. Plants remove phosphorous from the soil, so using fertilizer replenishes what is lost.

The trouble is, some scientists now believe that "peak phosphorous" will occur in 30 years, leading to a global shortage. What's particularly troubling is that there is no synthetic alternative to phosphorous.

"At current rates, reserves will be depleted in the next 50 to 100 years," warned a 2008 article in the Sunday Times.

"It`s an element. You can`t make it," Grantham cautions. "You can`t substitute for it and no living thing -- humans, animals, vegetables, everything needs phosphorous to grow. You can`t grow anything without it and we are mining it in what we call big AG, big agriculture. It`s a finite resource. Now that should make you pretty scared."

In the absence of phosphorous, there is no means to feed the current global population of 7 billion, much less than 9-10 billion humans set to inhabit this planet by mid-century.

"You can`t substitute for very few things in this world. You can`t substitute for water, not really for soil, not potassium and not phosphorus," says Grantham.

Moreover, mining phosphorous requires enormous amounts of energy, which will only add to future costs.

All of this will act as a drag on future economic growth.

Many people take economic growth for granted and expect it to continue indefinitely. But, as Gordon and Grantham have noted, in historical terms, economic growth is a relatively recent phenomenon.

Governments cannot simply conjure economic growth at will. If that were the case, there would be no business cycle. The economy would never slowdown. It would just continually grow instead of being plagued by regular recessions.

Massive government deficits are not leading to rapid growth and neither is the relentless money-printing of central banks. The days of financially engineered growth are over.

The reality is that growth is driven by an ever-increasing amount of debt. By 2008, $4 to $5 of debt was required to create $1 of growth. Fiat currencies are being continually devalued and we have finally reached the limits of the debt super cycle.

As finance expert and author Satyajit Das puts it, "If government deficit spending, low interest rates and policies to supply unlimited amounts of cash to the financial system were universal economic cures, then Japan’s economic problems would have been solved many years ago."

As Europe is painfully learning, reducing debt simultaneously reduces demand and locks an economy into a negative spiral of ever lower growth.

"We have been living in an unsustainable world of Ponzi-like prosperity where the wealth was based on either borrowing from or pushing problems into the future," says Das.

Going forward, economic growth will be much lower than that which we, our parents and grandparents became accustomed to.

Grantham warns that from the late 1900s until the early 1980s “the trend for U.S. GDP growth was up 3.4% a year for a full hundred years,” powering the American Dream. But after 1980, under Reaganomics and the new conservative capitalism, “the trend began to slip,” warns Grantham.

In other words, trickle down economics never worked out as promised.

Quite remarkably, after a century of high-growth prosperity, our GDP growth dropped “by over 1.5% from its peak in the 1960s and nearly 1% from the average of the last 30 years.”

Looking ahead at long-term macro-trends, “The U.S. GDP growth rate that we have become accustomed to for over a hundred years” is “not going back to the glory days of the U.S. GDP growth.”

Despite all the optimistic projections from in-house economists at Wall Street banks that are breathlessly reported in the mainstream media, “It is gone forever.”

Living in denial will only make the ultimate reality more bitter and more challenging. We're wasting precious time acting as if the last 100 years were an indicator of the next 100 years, when it clearly was not.

Our alleged leadership is ignoring our accelerating GDP decline. Grantham puts it this way: “Most business people (and the Fed) assume that economic growth will recover to its old rates.”

"Clearly, Bernanke seems to believe [growth] will go back to 3 percent — the good old days," Grantham laments.

But looking ahead to 2050, Grantham warns, “GDP growth (conventionally measured) for the U.S. is likely to be about only 1.4% a year, and adjusted growth about 0.9%.”

The evidence is clear: the American economy is in a long-term decline. That's a bitter pill.

Unless we shift to a model of sustainability driven by less consumption, more conservation. efficiency and renewables, we will continue running headlong into an eventual collapse.

History is littered with collapsed civilizations that lived beyond their means and exhausted their natural resources.

We may be no different.

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.

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.

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.

Fracking and Tar Sands Will Not Resolve Peak Oil

All of the oil in the world was created from carbon-based fossils over a period of millions of years, and all of it sits in the upper regions of the earth's crust. Like cream that rises to the top of milk, all of the best, purest oil — known as light-sweet crude — also sits at the top. That makes it the easiest, and cheapest, crude to extract.

Due to its higher quality, light-sweet crude is the most sought after grade of oil in the world. It is used to make gasoline because it contains a minute percentage of sulfur.

Petroleum containing higher levels of sulfur is known as sour crude. The impurities need to be removed before this lower quality crude can be refined into petrol, thereby increasing the cost of processing. This results in a higher-priced gasoline than that made from sweet crude oil. As a result, sour crude is typically processed into heavy crude oil, such as diesel and fuel oil, rather than gasoline to reduce processing cost.

A major problem faced by the oil markets today is that there is very little refining capacity available to process these heavy sour grades. Additionally, light-sweet crude is being depleted at a much faster rate than its heavier, sour cousin. The increase in the spread between light sweet and heavy sour crudes indicates that there is a serious supply problem for light-sweet crude.

Simply put, the planet is not creating any more pre-historic animals and, as such, it is not creating any more light-sweet crude. This is a challenge for a world that is so utterly dependent on crude oil, particularly the light-sweet variety.

Despite the wishful thinking of the masses, oil is a finite commodity — though this is a most unfortunate and difficult reality.

As the U.S. Geological Survey bluntly stated, "The simple inescapable fact is that the world's supply of petroleum is finite and nonrenewable."

Consequently, oil continues to trade at $90-$100 per barrel. This is a primary reason that our economic recovery is, and will continue to be, so sluggish. Why is the high cost of oil a problem?

High oil prices also raise the cost of food. Oil is used in numerous ways throughout the processes of growing and transporting food. But it's not just food that's affected; the shipping cost of all goods is higher, as are the costs of all materials made from oil, such as asphalt and chemical products.

So the high cost of oil is being felt throughout the economy. Simply put, oil affects everything.

Though we have seen significant swings in the price of oil over the past decade, the overarching trend has been toward higher prices.

Inflation-adjusted oil prices reached an all-time low in 1998, even lower than the price in 1946. Then, just ten years later, oil prices were at an all time high — above the 1979-1980 prices — in real, inflation-adjusted terms (although not quite on an annual basis).

By 2012, annual oil prices were higher than at any other time except 1980, during the second oil crisis.

This is having a huge impact on the U.S. economy.

Despite doubling their worldwide investment in oil production from $300 billion to $600 billion, oil companies have been pumping nearly the same amount of oil out of the ground since 2005, according to economic analyst Chris Martenson.

“If you want to have economic growth you’re going to need growth in oil consumption,” says Martenson. “Oil is the lifeblood of any economy.”

Fast-growing economies, like China, Brazil and India, now demand more oil than the U.S., Japan and Europe combined.

Let's look at this problem a little more closely.

The combined crude oil production of the five main international oil companies (Exxon, BP, Shell, Chevron and Total) hit a historic high in 2004. Since then, it has fallen by 25.8%, despite large increases in investments. That can rightly be described as stunning.

In 2005, global crude oil production reached 73 million barrels per day. To increase production beyond that, the world had to double spending on oil production. By 2012, spending had reached $600 billion, yet the price of oil has tripled. For all that additional expenditure, the oil industry has only raised production 3 percent since 2005, to 75 million barrels per day.

That's a horrible return on investment.

The world can no longer increase its production of “easy” oil; many of the older fields are stagnant or declining.

Of the world’s four super-giant oil fields, three are officially in decline: Mexico’s Cantarell, Russia’s Samotlor, and Kuwait’s Burgan. The fourth is also in decline. Though Saudi Arabia officially denies these claims, we know through Wiki-Leaks that this is indeed the case.

In fact, the pace of decline in mature oil fields is accelerating. Mature OPEC fields are now declining at 5 to 6 percent per year, and non-OPEC fields are declining at 8 to 9 percent per year.

As a result, the world is spending a lot of money to eke out additional production from hard, expensive sources like Alberta’s tar sands or tight oil in North Dakota. However, unconventional oil can’t compensate for that decline rate for very long. Even all the growth in U.S. tight oil from fracking, which has produced about 1 million barrels per day, hasn’t been enough to overcome declines elsewhere outside of OPEC.

We’re relying on low-quality oil resources to compensate for the decline in cheap, high-quality oil. One of the implications of Peak Oil is that as production starts to falter, we need much higher prices in order to sustain production. And that’s exactly what’s happened since 2005.

Despite optimistic media reports, fracking for shale oil is highly energy-intensive and is a net energy loser. Net energy is what's left over after new energy resources are found and extracted. The inescapable fact is that conventional oil is used to extract shale oil.

Though North American shale oil is said to be abundant and is expected to lower prices, petroleum costs reached a new annual record in 2012. The reality of shale oil doesn't live up to all the hype.

This is how ShaleBubble.org describes the hype surrounding fracking:

"We’re being told that — thanks to technological advances like hydraulic fracturing and horizontal drilling — the US is undergoing an energy revolution, leading us in a few short years to become once again the world’s biggest oil producer and an exporter of natural gas.

The reality is that the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble, and by unsustainably low natural gas prices. Geological and economic constraints — not to mention the very serious environmental and health impacts of drilling — mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes.

Shale plays suffer from the law of diminishing returns. Wells experience severe rates of depletion, belying industry claims that wells will be in operation for 30-40 years. For example, the average depletion rate of wells in the Bakken Formation (the largest tight oil play in the US) is 69% in the first year and 94% over the first five years.

This steep rate of depletion requires a frenetic pace of drilling, just to offset declines. Roughly 7,200 new shale gas wells need to be drilled each year at a cost of over $42 billion simply to maintain current levels of production. And as the most productive well locations are drilled first, it’s likely that drilling rates and costs will only increase as time goes on.

William Engdahl, an award-winning geopolitical analyst and strategic risk consultant, provides an equally sobering perspective on the shale energy mania:

Some say America’s shale energy revolution will provide gas for a century and create millions of new jobs. The only problem with this picture? It’s built on myths, lies and Wall Street hype.

The costs and economics of shale gas in the US are actually negative.

Shale Gas, unlike conventional gas, depletes dramatically faster owing to its specific geological location.

The Wall Street bankers backing the shale boom have grossly inflated the volumes of recoverable shale gas reserves and hence its expected duration. Independent conservative estimates are that recoverable shale gas is about half what the industry claims on its financial statements.

Real well extraction data are now available that show shale gas wells decline at an exponential rate, and will run out far faster than being hyped.

The problem with tar sands is much the same. The cost to produce a unit of energy from tar sands is much higher than traditional oil. The net energy returned from tar sands is terrible. It is the most expensive oil because it is the lowest quality oil and is the most difficult to extract and refine.

If any of this is surprising, even shocking, to you, it's likely because the mainstream media has been hyping fracking, shale oil and tar sands as the panaceas to our nation's insatiable energy demand. Yet, these "remedies" are not actual solutions; they are merely empty promises.

Middle East oil producers and exporters are acutely aware of the problem that is Peak Oil, and they are no longer publicly denying it.

Dr. Robert L. Hirsch, a Senior Energy Advisor at MISI, recently attended a Peak Oil conference in the Middle East and had this to say about the experience:

The fact that a major Middle East oil exporter would hold such a conference on what has long been a verboten subject was quite remarkable and a dramatic change from decades of Peak Oil denial.

The going-in assumption was that “peak oil” will occur in the near future. The timing of the impending onset of world oil decline was not an issue at the conference, rather the main focus was what the GCC countries should do soon to ensure a prosperous, long-term future.

Among the findings at the conference:

• Shale oil in the U.S. is so much foolishness and does not invalidate Peak Oil. We definitely must worry about peak oil.

• High oil prices will impact the world even before the onset of Peak Oil.

Chris Nelder, SmartPlanet's energy columnist, describes the issue this way:

Peak oil was never about “running out.” That’s a strawman argument. The word “peak” in peak oil simply refers to the maximum production rate of oil. While oil producers constantly trumpet new discoveries and rising reserves, they tend to avoid talking about production rates.

Reserves are meaningless if they don’t amount to an increasing rate of production. If you had a billion dollars to your name, but could only withdraw $1,000 a year, would you be worried about running out of money or paying your bills?

The benchmark price of Brent crude shot from $31 a barrel at the beginning of 2004 to $111 a barrel at the end of 2012. It was a very powerful indicator.

This tripling of oil prices resulted in a mere 5.4 percent increase in supply; world production in November 2012 was just 3.9 million barrels per day over the January 2004 level, according to the Energy Information Administration.

A total of $2.4 trillion in capital expenditures from 1995 to 2004 produced 12.3 million barrels per day of additional oil production. However, from 2005 to 2010, the same amount of spending produced a decline of 0.2 million barrels per day. Why?

Because “each marginal barrel will be more expensive and will require more equipment and services to extract,” said John Westwood, the chairman of energy consulting firm Douglas-Westwood.

According to a March 4, 2013 article in the Oil & Gas Journal, the supermajors have been spending about $100 billion dollars a year, collectively, on exploration and production since 2008. That spending resulted in a 25.8 percent decline in oil production since 2004. Leaving out the Russian oil assets of Tymen Oil Company (TNK), which BP acquired in 2003 and subsequently sold to pay for the damages of the Deepwater Horizon disaster, the supermajors’ production actually has been declining since 1999.

Chris Nelder went on to say the following:

The underlying problem, of course, is that production from the world’s old (and cheap) oil fields is continuously declining at over 5 percent per year — another dirty little fact that the oil majors studiously avoid discussing. Thus, global oil production is a treadmill, where you have to run just to stay in place.

The industry plans to respond to this stubborn reality by drilling like there's no tomorrow.

In a leaked powerpoint document from the Society of Petroleum Engineers, the SPE says the gas and oil industry will drill more wells in the next decade than they have in the last 100 years. That is a telling indicator about both supply and demand. It could also be fairly described as frightening.

With a clear memory of oil reaching a high of $145 per barrel in July of 2008, some people may view current prices as a relative bargain. Yet, prices are still historically high.

"A person might think from looking at news reports that our oil problems are gone, but oil prices are still high," writes Gail Tverberg on OurFiniteWorld.com, citing Ten Reasons Why High Oil Prices are a Problem.

"In fact, the new 'tight oil' sources of oil which are supposed to grow in supply are still expensive to extract. If we expect to have more tight oil and more oil from other unconventional sources, we need to expect to continue to have high oil prices. The new oil may help supply somewhat, but the high cost of extraction is not likely to go away."

Her piece is an excellent read and is highly recommended.

The "drill baby drill" crowd mistakenly believes that the solution to our nation's oil problem lies far to the north, in Alaska's frozen Arctic tundra.

It is estimated that 10.5 billion barrels of oil lie beneath the coastal tundra of northeastern Alaska, the Arctic National Wildlife Refuge (ANWR).

At present, the U.S. uses about 7.3 billion barrels of oil a year. Do the math: that's less than a year and half's supply.

Yet, not all of the oil under the earth is recoverable.

In 2010, the U.S. Geological survey estimated that there are 896 million barrels of technically recoverable crude oil in ANWR. However, these are classified as prospective resources, not proved. In comparison, the estimated volume of undiscovered, technically recoverable oil in the rest of the United States is about 120 billion barrels.

The total production from ANWR would be between 0.4 and 1.2 percent of total world oil consumption in 2030. Consequently, ANWR oil production is not projected to have a meaningful impact on world oil prices.

No matter how hard anyone tries to spin it, the problem will always be that oil is a finite, non-renewable resource. As such, supply will increasingly lag demand and prices will continue to rise, affecting every aspect of the U.S. and global economies.

The U.S., a nation that got used to the notion of unlimited abundance throughout the 20th Century, will have to resign itself to higher prices for everything. It's all tied to oil. The best solutions are conservation, efficiency and renewable energy. Smaller, lighter cars will help, as will electric vehicles.

But higher oil prices are here to stay and oil will become increasingly more expensive in the coming years. There are no magic bullets and no universal cures.

It's a matter of realigning our priorities, conserving what oil we have at present, and continually adapting to a new, more challenging, normal.

The Federal Reserve: Making Money From Nothing

At its core, money is a medium of exchange, a unit of account and a store of value. A currency with a commonly recognized value can be used to buy the goods and services we want and need. Like all other things, the value of money is determined by its quantity and availability.

For centuries, people used gold as money. In order to buy something, they had to carry around pieces of the heavy, yellow metal. But that was impractical, especially if someone needed to make a large purchase requiring a significant amount of gold. So people decided to leave their gold in a bank and instead use pieces of paper that would represent their gold. That paper could then be taken to a bank and exchanged for gold.

Gold is a form of commodity money, a currency thats value is based on the value of an underlying commodity. Gold is durable, portable, easily stored, highly recognizable and difficult to counterfeit, which made it an ideal commodity money throughout the world over many centuries.

But, beginning in 1933, the U.S. government decided that we could no longer exchange our dollar bills for gold. From that point forward, dollar bills have merely represented the concept of money.

However, until 1971, U.S. currency was still backed by gold. Foreign governments were able to take their U.S. currency and exchange it for gold with the U.S. Federal Reserve. That changed when President Nixon effectively took the U.S. off the gold standard by ending the convertibility of the dollar to gold in August of 1971.

Since that time, our money has been fiat money, meaning its value has been declared by the government to be legal tender. In essence, it must be accepted as a form of payment within the boundaries of this country, for "all debts, public and private."

Fiat money has value because the government says it does.

Not only is there no longer any gold backing our money, there aren't even bills for most of the money that exists. Most money is simply an idea. Banks don't even have all the money that's allegedly in the accounts of their depositors.

Most money isn't physical; it is merely created electronically. Think about what happens when you pay your mortgage, rent, utility bills, car payment or monthly insurance. No cash — no physical money — ever changes hands.

M2, the broadest measure of our money supply, had increased to $9.61 trillion in October 2011, the latest month for which data is available. However, as of December 2010, only $915.7 billion (about 10%) consisted of physical coins and paper money.

The other 90% is just numbers in bank databases, on computer screens.

The truth is, our money is created out of nothing. It is merely loaned into existence.

Every six weeks, the Federal Reserve's Open Market Committee convenes in Washington D.C. to discuss the health and performance of the economy. By controlling the amount of money in our economy, the Fed can influence interest rates. More money usually results in lower rates, while less money typically has the opposite effect.

More money (or lower rates) generally makes it easier for businesses and individuals to get loans. This allows businesses to expand or new businesses to start up. That ultimately translates into more jobs and a stronger economy.

But, more money can also result in inflation. For example, if there's a hundred dollars in an economy and you create a hundred more, every dollar is suddenly worth half as much. That's inflation.

Money must correlate to the amount goods and services produced in an economy, particularly the things that people want. If there is too much money chasing too few goods and services, money loses value. It's not so much that prices are going up. Rather, the purchasing power of money is going down.

That is why simply printing new money will not create wealth for a country. Money must be in balance with the supply of goods and services in the economy for it to maintain its value, or purchasing power. If the Fed issues too much money, its value will go down, as is the case with anything that has a higher supply than demand.

Over the thirty-year period from 1981 to 2009, the U.S. dollar lost over half its value. This is because the Federal Reserve has intentionally targeted a low, stable rate of inflation.

On January 25th, 2012, Fed Chairman Ben Bernanke announced a 2 percent target inflation rate. Bernanke had previously stated that central banks seek an inflation rate between 1 and 3 percent per year.

Between 1987 and 1997, the rate of inflation was approximately 3.5 percent and between 1997 and 2007 it was approximately 2 percent.

Yet, even at an annual inflation rate of 2 percent per year, the dollar would lose 20 percent of its value in just one decade.

But that doesn't deter the Federal Reserve.

The Fed injects billion of dollars into the economy via the banking system. It does this by purchasing government bonds from the banks. Big banks typically have billions of dollars in Treasury bonds just sitting around on their books because these bonds have long been viewed as the safest, surest investment.

But having billions of dollars just sitting around on their books doesn't suit the banks. At least the bonds they sell to the Fed earn interest. So, the banks are inclined to loan out this new money to make even more money. After all, that's what banks do. And that's how all of this new money enters the economy.

But a large supply of new money doesn't create demand. To create demand, the banks need to lower their lending rate to encourage businesses and individuals to borrow. The hope is that an increased level of borrowing will create an economic expansion. But, as we've recently seen, that doesn't always work as planned.

When the financial crisis was in full swing in the fall of 2008 and the economy appeared poised to crater, the Fed ramped up its money printing to unprecedented levels.

Since that time, the Fed has done things it had never done before. And it's done them on a scale that has dwarfed anything ever attempted before in its history.

NPR's Planet Money put it this way:

The sheer amount of new money that the Fed created was unprecedented. From the time we went off the gold standard of 1933 until 2008, the Fed had created a net total of $800 billion. In the months after the financial crisis, that number nearly tripled to almost $2.4 trillion.

[The Fed was] spending more newly created money in just 15 months than [it] had created in its entire history up until 2008.

However, getting all these trillions of dollars into the economy required more than just buying Treasuries. The Fed decided to buy home mortgages as well, in the form of mortgage backed securities. The intention was to prop us the plummeting housing market.

The danger of this extraordinary and historic Fed intervention is that it will result in debilitating inflation, resulting in the dollar losing significantly more of its purchasing power.

At some point, the Fed will have to find a way to get all those trillions of dollars out of the economy before serious inflation takes hold. Instead of buying bonds, the Fed will begin selling them, which it will attempt to do in an orderly fashion without flooding the market and driving down their value. Again, think supply and demand.

The Fed is able to create trillions of dollars out of thin air on its own authority. Congress doesn't debate it or vote on it. The president doesn't approve it. There's no public input. The Fed is independent and is able to act of its own accord.

Though the Federal Reserve is subject to Congressional oversight, its chairman is appointed by the president, and its name includes the word "federal," it is not actually part the federal government.

It's important to understand that the Federal Reserve isn't federal at all. It is an independent institution comprised by 12 regional banks, all owned by big private banks. Yes, the Fed is privately owned and actually has stockholders.

As the long-time Chairman of the House Banking and Currency Committee Charles McFadden said on June 10, 1932: “Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies.”

Consider that when you're evaluating or scrutinizing any decision made by the Fed.

We should never forget that the Fed started the financial crisis that tanked the economy. By keeping interest rates too low for too long, the Fed inflated the housing bubble. And it now appears that it has initiated a bond bubble and a stock market bubble as well, which is an odd occurrence.

Money usually shifts between bonds and equities, typically favoring one or the other, given the particular economic circumstances or appetite for risk. But, right now, there is so much money flooding into the financial system that it is flowing freely to both the bond and equities markets.

At this point, it's pretty clear that the Fed is again blowing yet more massive bubbles that could once again tank the U.S. economy — except that next time will likely be even worse since the economy is still on such weak legs.

The Fed cannot print this economy back to health. At this point, that should be clear. To the contrary, this massive monetary expansion could have some horrible consequences.

As history repeatedly shows, printing money is the road to ruin. It devalues money and causes a loss of confidence. If everyone stops believing in their currency, it has disastrous results. The whole monetary system is built on trust. Once that trust is gone, the value of money goes away with it.

The Fed is Blowing Yet Another Stock Market Bubble

If the stock market's record run-up in the face of our continued economic weakness has left you bewildered, you're not crazy. Though the economy continues to struggle, Wall St. is thriving.

Since the second quarter of 2006, there have been only two quarters in which GDP was at least 4%. And over the last ten years, the average U.S. economic growth rate has been below 2 percent.

Inflation-adjusted wages fell 0.4% in 2012, following a 0.5% decline in 2011. Simply put, wages aren't keeping up with inflation. This is hurting demand and, ultimately, the greater economy.

Yet, despite all of this, the stock market is booming.

In the strange world of Wall St., the stock market thrives even as the economy remains anemic. Go figure.

The Dow Jones recently soared above 14,000, setting an all time high in the process. Yet, the Dow is simply an average of thirty large, publicly traded companies. Thirty companies in a sea of thousands do not accurately represent the vast U.S. economy.

The S&P 500 index recently began trading above 1,500 for the first time since December 12, 2007, just months before the implosion of big Wall St. banks sent the major averages crashing to decade lows.

Despite continual weakness in the economy and consumer spending (which accounts for about 70 percent of GDP), the stock market is booming. How can this be?

You can thank the Federal Reserve, which is pumping $85 billion per month of thin-air money into the markets. Quite simply, this bull market is being fueled by all the funny money being spun out of the Fed's printing press. Hundreds of billions in new money has been flowing into the stock market, which is pushing the averages to new highs.

This stock market run-up is nothing more than an illusion of economic well-being created by the Fed. It is entirely lacking in fundamentals.

The Fed is engaged in an aggressive bond-buying policy, in which it has been purchasing $85 billion in Treasuries and mortgage bonds each month in an attempt to lower long-term interest rates and spur the economy.

Before this year even began, the Fed had already expanded its balance sheet by nearly $3 trillion buying these assets in recent years.

Yet, the central bank is not finished. There are still hundreds of billions of these purchases to come and that money will continue to flow into equities, likely pushing the markets even higher.

At the current pace of $85 billion per month, the Fed's bond purchases will result in another trillion-plus dollars of freshly created money flowing into the financial and equities markets over the course of 2013. Such massive injections of liquidity into the economy have been, and will continue to be, quite favorable for equities.

This is why the market has been steadily increasing, despite the numerous factors arrayed against it — weak earnings, political tensions in Washington and a European recession. While this may seem incomprehensible, it is the result of massive sums of money flowing into the financial markets from quantitative easing. Wall St. has to send that money somewhere, and Treasury yields are at record lows.

Considering the historically low rates of return for Treasuries — which don't even keep up with inflation — it's easy to understand why all that money is instead flowing into the equities markets.

The biggest banks are getting enormous sums of money through the Federal Reserve as virtually zero interest. They are then able to invest hundreds of billions of essentially free money in the stock market and collect massive returns. This results in pure profit, which is one hell of a business model.

Though it's been widely reported that U.S. corporations are sitting on a record $2 trillion in cash, it may actually be as much as $5 trillion. Companies have been using some of that cash to buy up and reduce the total number of shares outstanding. Coupled with the roughly $2.8 billion in Fed money flowing into the financial markets every single day, there is an extraordinary amount of money chasing fewer shares.

So, the current stock market averages are quite misleading. They are simply a reflection of our continually irrational, bubble economics. Most critically, the vast majority of Americans are not benefiting from this stock market boom, which has seen the Dow jump 119 percent since bottoming in March 2009.

Unfortunately, the gains from this surging stock market have been flowing mainly to richer Americans. Roughly 80 percent of stocks are held by the richest 10 percent of households.

Quite predictably, middle-class Americans, having lost faith in the markets, sold their stocks over the past few years and have not benefitted from the rebound. During 2012, Americans dumped $204 billion in stocks, according to a report from the Federal Reserve.

Retail investors have been leaving the stock markets in droves for the past few years. In each of the last three years, individual investors have withdrawn more than $150 billion from U.S. stock mutual funds and ETFs. This means that millions of individual investors have missed the current market boom.

The truth is, the stock market is not an accurate measure of the health and strength of the economy. In reality, Wall St. is a pretty poor measure of the economy’s condition since it is simply a bet on the future performances of a select group of companies listed on a few stock exchanges.

Furthermore, as previously noted, the majority of Americans don’t have any direct investments in the stock market.

According to the June 2012 Fed survey, just 15.1% of American families had any stock holdings in 2010, down from a peak of 21.3% in the 2001 survey. And just 8.7% of families had direct ownership of pooled investment funds (mostly mutual funds) in 2010.

Clearly, the ballooning stock market is not a reflection of the financial well-being of the vast majority of Americans. Most of them aren't even investors. The markets are simply Wall Street's betting games.

Undoubtedly, the 2008 financial crash scared million of individual (or retail) investors out of the markets. However, even six years prior to the crash, more than four out of five U.S. households had no individual stock holdings.

In its 2002 study, the Mutual Fund Industry group, Investment Company Institute, found that only 21 million households (less than 20%) owned individual stocks outside an employee sponsored retirement plan. Employees in such plans are typically invested in mutual funds that give them no voting control.

So, Wall St. is not a true reflection of how the average American worker, or the average family, is faring.

Many U.S. corporations have been making money by cutting costs and laying off workers, not by increasing revenues. This increase in efficiency and productivity has resulted in corporate profits reaching all-time highs (as it turns out, workers who fear losing their jobs work longer and harder). And that's been putting even more downward pressure on jobs and wages, resulting in weaker economic growth and lingering recessionary effects.

So what's been good for U.S. corporations hasn't been good for American workers or their families.

And then there's the whole issue of Wall Street's manipulation and control of the equities markets.

By some estimates, "high frequency trading" is responsible for close to 70% of all volume in US markets. Computers can track hot stocks and immediately buy up all available shares. Since volume moves markets, massive purchases of millions of shares push prices higher, allowing computer algorithms to quickly sell those shares at higher prices. Millions of shares can also be dumped in just milli-seconds. That pushes share prices lower, allowing the computers to quickly swoop in and repurchase the shares at a lower price.

The radical, erratic movements of the stock market over many years can accurately be described as schizophrenic.

The markets are totally manipulated and, unfortunately, there will be a lot of losers because of this.

At the first sign that the Fed plans to withdraw its monumental levels of liquidity from the markets, they will go into free fall. Just the mere rumors or grumblings of the Fed's intention to change course could trigger panic selling.

Ultimately, this will not end well. It never does. We've seen the markets implode numerous times. The Fed's bond-buying program will conclude at some point. While individual investors, pension funds, mutual funds and the overall economy stand to lose big time, Wall St. traders will be the first ones to the exits, with their profits intact.

In fact, there is evidence that this exodus is already underway.

All bubbles eventually burst, and this one will be a whopper.

When Will China's Bubble Burst?

China's rise to the status of economic powerhouse has been nothing short of breathtaking. For most of the past century, China was still an impoverished Third World nation.

However, the Asian giant has averaged a 10 percent growth rate over the past 30 years and it is now the world's fastest-growing major economy. In 2010, that spectacular growth culminated in China vaulting past Japan to become the world's second largest economy (by nominal GDP), behind the U.S.

In the process, China also became the world's biggest car market, which is remarkable considering that almost everyone there rode bicycles just 20 years ago. Car ownership rocketed from just 1 million in 1977 to 75 million in 2011.

China's emergence as the world's second biggest economy was a historic shift, one that can rightly be described as a sea change. From out of nowhere, China became a major player on the world stage. It's arrival was bold, rapid and pronounced.

To provide a sense of the magnitude of China's growth, consider this: In 2007, China's gross domestic product stood at $3.38 trillion. By 2010, it had reached $5.87 trillion. That's just amazing.

In 2010, China surpassed the US as the world's biggest energy consumer and, in the process, it also became the world's second biggest greenhouse gas polluter (also following the US). The UN reported that Chinese emissions nearly doubled from 1994 to 2002.

China's energy demand has increased exceptionally fast; just 10 years earlier, its energy consumption was half that of the US.

All of these developments were astonishing in their own right. But they were small in comparison to what is projected to soon occur.

The IMF dropped a major bombshell in 2011 when it forecast that China’s economy will surpass that of America in real terms in 2016.

Such an outcome would be a positively stunning development. But as amazing as China's emergence has been, it has not come without serious challenges.

China has considerable problems that it needs to confront. With a population of 1.3 billion people, the country outnumbers the US by a billion citizens. The need to provide energy for all of those people is transforming world energy markets and increasing the global demand for fossil fuels, including oil and coal. With 20 percent of the global population, China's enormous demand will continue to drive energy costs well into the future.

According to Fatih Birol, the chief economist at the IEA, China's surging appetite for energy will require a massive and rapid infrastructure build out. China will need to construct some 1,000 gigawatts of new power-generation capacity over the next 15 years — about equal to the current total electricity-generation capacity in the US.

That is simply amazing. The US achieved its current energy capacity over a period of many decades. Yet, China's growth has occurred at hyper-speed. This is already having enormous impacts on the planet, ecologically and environmentally.

Though the US has just five percent of the global population, it uses 25 percent of the world's oil. But America now has a huge competitor for vital energy resources, and one with very deep pockets. The irony is that America's robust appetite for Chinese exports helps to pay for China's massive purchases of foreign oil.

Yet, China's problems go far beyond its demand for energy resources, much of which come from foreign sources.

China needs to generate 15 million jobs needed annually—roughly the population of Ecuador or Cambodia—to employ new entrants into the national job market. That is a spectacular challenge.

China's incredibly rapid growth was built on manufacturing and exporting. But with the global economy slowing, the demand for Chinese goods has also slowed. In order to maintain its growth, China will eventually have to boost domestic demand and switch from its export-driven model to a consumption economy. That will be a challenge for a thrifty nation more inclined toward saving.

Moreover, one billion of China's citizens are still peasants. It has one-fifth of the world's population and it has to feed that mass of humanity. Yet, much of its landscape is an ecological wasteland and an environmental disaster area. That poses an enormous challenge.

Dust storms have been steadily worsening in China over recent decades due to heavy tree-cutting. The environmental damage in China is extensive. More than a quarter of the country's landmass has been turned into desert as a result of erosion and logging, and acid rain has damaged a quarter of Chinese soil.

According to the World Bank, China is home to 16 of the world's 20 most polluted cities. Three hundred thousand Chinese citizens die prematurely each year due to respiratory illness, and the life expectancy of a traffic cop in Beijing is approximately 40 years due to the horrid air quality.

These problems are poised to worsen as China attempts to provide energy to its continually developing economy and absolutely massive population.

So, while some are heralding the 21st Century as the 'Chinese Century', and predicting that China will supplant the US as the world's dominant power, I, for one, remain unconvinced.

Yes, the US has its own enormous challenges and finally appears to be bumping up against the limits to growth. While the US is the world's biggest debtor nation, China is the world's largest creditor nation and owns approximately 20.8% of all foreign-owned US Treasury securities.

Nonetheless, China will eventually face even greater environmental and agricultural challenges, which could derail all of those exuberant projections of its rise to global supremacy.

Yet, long before China is forced to fully confront its horrendous environmental degradation, which will make feeding 1.3 billion humans even harder than it would otherwise be, it will likely be derailed by the largest housing bubble in human history.

China has built entire cities with no one in them. Seriously.

According to Gillem Tulloch, a Hong Kong based financial analyst, China is building somewhere between 12 and 24 new cities every single year. We're not talking about developments, communities or neighborhoods — but entire cities. This means that 1-2 new cities are being constructed each and every month in China.

Think about that for a moment. It's hard to comprehend.

These are known as "ghost cities" and their skylines are adorned with massive apartment buildings that sit empty. The emerging Chinese middle class is buying up multiple properties — in addition to their primary residences — with the belief that real estate is the best investment. Banks offer paltry interest rates and the stock market is too volatile. Property prices, on the other hand, have always gone up and they've always beaten inflation.

Sound familiar?

Real estate has been an enormous driver of growth in recent years, accounting for as much as 20 or 30 percent of the entire economy, according to some estimates. And it's not just apartments and houses; it's shopping malls and towering office buildings. But far too many of them sit empty.

The idea seems to be, "If you build it, they will come."

But there's a big problem with that assumption: Though China has a rapidly growing middle class, one billion of its citizens still live as peasants.

The typical new Chinese condo is 1,100 square feet and costs between $100,000-$150,000. However, the typical two-income Chinese couple in their 30s makes approximately $7,000 or $8,000 a year. That just doesn't add up.

In some places, it's even worse. A typical apartment in Shanghai costs about 45 times the average resident's annual salary.

China is building the wrong kind of housing. It isn't creating affordable dwellings for its massive population of impoverished citizens. And desperately poor people don't shop at malls either. Most people in China live on about $2 a day.

When this enormous real estate bubble bursts, it will have massive reverberations throughout the world — not just in China.

About 50 million Chinese workers are employed as construction workers. When the bubble bursts, they'll all suddenly be out of work. That would pose a staggering social problem for the government.

Already, numerous construction projects throughout China have been abandoned. Many developers have run out of money and abruptly pulled out of existing ventures in midstream. That, in turn, is slowing the Chinese economy. Lots of loans are going sour. If this builds up a head of steam, it could cripple the economy.

How might this affect the US?

The Chinese government has spent some $2 trillion to build these 'ghost cities' as a means of maintaining its economic growth.

Imagine if the Chinese government has to use its US currency reserves to solve its own financial and economic crises. Imagine if it has to sell off its US Treasuries to fill the void?

If the Chinese bubble bursts, it would affect all US companies that sell commodities to China — particularly the variety that go into construction, such as steel, most of which goes to China at present.

I first wrote about the Chinese real estate bubble three years ago, when I questioned whether China's growth is an illusion. At that time, millionaire hedge fund manager James Chanos said the following about China: “Bubbles are best identified by credit excesses, not valuation excesses. And there’s no bigger credit excess than in China.”

Chanos, the founder and President of Kynikos Associates, has spent significant time evaluating and analyzing the Chinese economy and its property bubble. Back in 2010, Chanos warned that the bubble will likely burst and run its course in late 2010 or in 2011.

Because that hasn't occurred yet doesn't mean Chanos was wrong. He was just early. The pressures in the system have only grown considerably over the last two years, meaning that when this bubble does finally burst, it will be felt all around the world.

There's an awful lot of foreign investment money tied up in China. At the first outward signs of distress, everyone will want to escape intact. But with everyone simultaneously heading to the exits, not everyone will fit through the door.

The losses would be catastrophic.

Why the Official Unemployment Rate is so Deceiving

The government wants you to disbelieve your lying eyes and accept that our nation's unemployment problem (or, crisis) is actually improving. The jobs problem has been so awful over the past five years that the government desperately needs the illusion of good economic news, and none could be better than promoting the notion that more people are working now than last month or last year.

The problem with this story is that it's all nonsense.

It's not that the government is lying outright; it's that it is cherry-picking the data. It's telling the story in a way that makes things seem much better than they are in reality. By looking at one set of numbers while ignoring other critical ones, you end up with a very different, and more upbeat, picture.

But to do so is highly misleading.

The Federal government counts a person who is self-employed and earns $100 a year as "employed" and it also counts a person who works one hour a week as "employed."

As a result, the only meaningful metric is full-time employment.

To be counted as officially unemployed, a person must have actively looked for work some time in the past month. If you have not looked for work in the past month, for whatever reason, you are not counted as unemployed.

The government uses two different numbers to express unemployment. These are known as the U-3 and U-6 unemployment figures.

U-3 is the 'official' unemployment rate. It measures people without jobs who have actively looked for work within the past four weeks.

However, U-3 does not include so-called "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them. It also excludes so-called "marginally attached workers", or those who "would like" and are able to work, but have not looked for work recently.

On the other hand, U-6 includes all of the above, plus part-time workers who want full-time work, but cannot find such employment due to economic circumstances.

Under the U-3 definition, the official unemployment rate was 7.7% in February. By this definition, there were 12 million people who said they had looked for a job without success.

But there were also 6.8 million people who said they wanted a job but weren’t even looking, perhaps because they were so discouraged. This may be due to a lack of transportation, a lack of childcare, illness, or some other reason.

Additionally, 8 million people said they could only find part-time work, even though they preferred full-time work. In some cases, their hours have been cut back involuntarily.

If you count those discouraged workers and the involuntary part-timers as unemployed — the U-6 figure — the unemployment rate jumps to 14.3%. That's nearly twice the official figure. Big difference.

A more accurate measure of our unemployment problem is the size of the labor force. This looks at the number of people, ages 16 and older, who are either working or are actively looking for work, while excluding the disabled and those in the military, prison, or hospital.

Using that measure changes the picture considerably.

In February, the labor force shrank by 130,000, which is why the U-3 rate fell to 7.7%. Yes, if you exclude huge numbers of people, the unemployment figure looks considerably better.

The labor force participation rate actually decreased slightly to 63.5 percent in February, from 63.6 percent in January. That's a return to the low of last summer and matches the woeful rate seen back in 1981.

So, while some are celebrating the unemployment rate's drop to a four-year low, the reality is not nearly so encouraging. It's obvious that unemployment is "improving" only if you pretend that millions of American workers no longer want jobs.

If the participation rate were 66.2% — where it was when the economy fell into recession in December 2007 — the jobless rate would be 10.7%. Again, when you exclude millions of people, the unemployment rate looks a whole lot better than it really is.

The number of people reported as not in the labor force rose to 89.304 million in February from 89.008 million in January, which is a new record. It means that 28 percent of the adult population is no longer contributing to the wealth of the nation through their labor.

That's a stunning statistic.

Because more than 3 million people turn 65 each year, the number of retired people is increasing steadily. That obviously has an impact on the decreasing labor force participation rate. But it is not the sole reason for this alarming tumble. Young workers continue to enter the labor force each and every month.

The critical numbers are all heading in the wrong direction. To make pretend this isn't so is highly deceptive and unhelpful.

By ignoring all of this, the government can celebrate a falling unemployment rate while millions of Americans continue to suffer. Undoubtedly, job creation is largely a function of the private sector. Most Americans aren't pining for more government jobs just to improve the unemployment rate.

However, if the government was held accountable for the true unemployment rate and the declining labor force participation rate, perhaps it would have to work more closely with the business community to improve conditions for job creation — most especially for the small business community.