Saturday, August 28, 2010

A Banking System We Can Trust

by Laurence J Kotlikoff and Edward Leamer

Forbes (April 23 2009)

Turn all financial firms into mutual funds.

Before throwing more money at Wall Street, let's understand what our financial system was supposed to deliver, what it did deliver and what price it charged.

The system was supposed to channel our hard-earned savings into the best real investments: new homes, offices, factories, equipment and research. And it was supposed to correctly price our assets.

It did neither. Instead, Wall Street morphed into a vast gambling enterprise, generating massive trades of existing securities without, in fact, raising the investment rate or growing the economy.

During the dot-com bubble, Wall Street funded all manner of silly businesses, and during the housing bubble, it put millions of people in homes they couldn't afford. This "expertise", which cost one-tenth of our output, was delivered by the best and brightest, with half of Harvard's graduating classes becoming high-class croupiers.

As for pricing assets, the stock market's been on a five-decade roller coaster, notwithstanding a relatively stable real economy. The market rose dramatically from 1950 through the mid-1960s. It then spent the next decade and a half falling through the floor. Then it rose like crazy in the late 1990s, crashed, soared and crashed again.

We need a financial sector but not one like this. Nor do we need Wall Street hitting us up for its gambling debts. What we need is Limited Purpose Banking (LPB), which would transform all financial corporations, including insurance companies and hedge funds, into mutual funds. They would, henceforth, be called banks.

Under this system, banks would never fail for a simple reason. They'd never hold any financial assets and they'd never borrow except to finance their mutual fund operations. Instead, they'd be limited to their legitimate purpose - financial intermediation. Under LPB, people, not companies, bear risk as their mutual funds do well or poorly.

A new Federal Financial Authority (FFA) - would rate, verify, supervise custody, disclose and clear all securities purchased, held and sold by LPB mutual funds. Private rating companies could stay in business, but no one would need to trust them ever again.

Banks would initiate personal and business loans (including mortgages), send them to the FFA for processing and then sell them to mutual funds, including their own. Loans would activate when sold, so no bank would ever have an open position.

All mutual funds would break the buck with one exception: cash mutual funds. These funds would strictly hold cash and be valued at $1 per share. Owners of these funds would write checks against their balances and never have to worry about a bank run. Fractional reserve banking and the FDIC would be history.

LPB would include insurance mutual funds. These funds would pay off based on the losses experienced by contributors. If losses are larger than expected, less is paid out per loss. Hence, LPB prevents insurance companies from insuring the uninsurable, for example, claiming they'll pay the same life insurance claims even if there's a plague.

All risk allocation arrangements can be run through mutual funds, including credit default swaps. Take a bank that markets the GE-Defaults-On-Its-Bonds-In-2010 fund. Under this closed-end fund, shareholders specify in advance if they want to get paid off if GE does default on its bonds in 2010 or paid off if GE doesn't default. All money put into the fund, less the mutual fund's fee, would be held in one-year Treasuries and paid out at the end of the year to the winning shareholders in proportion to their holdings.

Hence, Limited Purpose Banking can accommodate credit default swaps (CDS) as well as any other risk product. But what Limited Purpose Banking won't do is leave any bank exposed to CDS risk since people, not banks, would own the CDS mutual funds.

If such mutual funds sound revolutionary, they're not. Funds of this kind have been around for centuries. They go by the name "tontines", or systems of "pari-mutuel betting".

Limited Purpose Banking would enhance liquidity, since all funds would trade in the market even if their underlying assets are illiquid. It would permit the extension of as much credit as the public - which is the ultimate source of credit - wishes to provide by buying mutual funds that purchase household and business loans. And it would force banks to charge fees and pay their employees based on their mutual fund performances as determined by the market.

What LPB will eliminate is insider rating, free-riding on FDIC insurance, self-custody arrangements, no-doc loans, institutionalized gambling, me-now compensation plans, financial malfeasance and the possibility of future financial collapse. In other words, it would be a system we can trust.


Laurence J Kotlikoff and Edward Leamer are professors of economics at Boston University and UCLA.

Bill Totten

Friday, August 27, 2010


Three digital myths

by Christian Christensen

Le Monde diplomatique (August 09 2010)

The release of the Afghan War Diaries on Wikileaks, with stories published in The Guardian, the New York Times and Der Spiegel by agreement with Wikileaks, has made news around the world. Le Monde Diplomatique, in conjunction with Owni and, have also made the documents available online via a dedicated website. The security implications of the leaked material will be discussed for years to come. Meanwhile the release of over 90,000 documents has generated debate on the rising power of digital journalism and social media. Many of the discussions are rooted in what I call internet or digital myths - myths which are rooted in romantic, deterministic notions of technology.

Myth 1: The power of social media

Media experts and commentators are commonly asked what the Wikileaks case tells us about the power of social media in contemporary society, particularly in the coverage of war. There is nothing wrong with this question, but it does illustrate a troubling tendency to place all forms of social media (blogs, Twitter, Facebook, YouTube, Wikileaks) under the same huge umbrella. The myth is that social media are homogenous by virtue of their technologies. But Wikileaks is nothing like Twitter or YouTube. What separates it from other forms of social media is the review process that submitted material must go through in order to be posted to the site. This might seem like a detail, but it strikes at the heart of "techo-utopian" notions of an "open commons" where anyone and everyone can post (almost) anything for all to read, hear and see.

The real power of Wikileaks is not so much the technology (it helps, but there are millions of websites out there) but the trust readers have in the authenticity of what they are reading; they believe that those working at Wikileaks stand behind the veracity of the material. There are literally hundreds of videos on YouTube from Iraq and Afghanistan showing coalition forces engaged in questionable, and in some cases obviously illegal, acts of aggression. Yet none of these clips have had anything like the impact of the single video posted to Wikileaks showing scores of civilians (and two Reuters journalists) gunned down by high-powered aircraft artillery in a Baghdad suburb. Why? Because while complete openness might be attractive in theory, information is only as valuable as its reliability, and Wikileaks has an organisational review structure in place that Twitter, Facebook, YouTube and most blogs (for obvious reasons) do not. All social media are not created equal, and so their power is far from equal.

Myth 2: The nation-state is dying

If the Wikileaks case has taught us anything, it is that the nation-state is most certainly not in decay. A great deal of discourse surrounding the internet, and social media in particular, revolves around the premise that we now live in a borderless digital society.

The notion of the nation-state in decline has had a great deal of currency within certain spheres of academia for a number of years, but the events of the past few weeks should give us pause. Those in charge of Wikileaks clearly understand the vital role of the nation-state, particularly when it comes to law. Despite New York University media scholar Jay Rosen's claim that it is "the world's first stateless news organisation", Wikileaks is very much territorially bound.

Wikileaks is semi-officially based in Sweden and has all the protection offered to whistleblowers and guarantees regarding anonymity of sources under Swedish law (although some doubt has been cast on whether or not Swedish law actually offers protection to Wikileaks). As the New Yorker reported in June 2010, Wikileaks is hosted on a Swedish ISP called PRQ. Material submitted to Wikileaks first goes through PRQ, and then to servers located in Belgium. Why Belgium, you may ask? Because Belgium has the second strongest laws for the protection of sources. And Wikileaks founder Julian Assange chose Iceland as the location for decrypting the aerial video footage of the killings in Baghdad. Iceland recently passed the Icelandic Modern Media Initiative, devised to make the country a global haven for whistleblowers, investigative journalism and freedom of speech.

Beyond Wikileaks, we have other reminders of the importance of states and laws in the fluid digital world: the recent decisions by the United Arab Emirates and Saudi Arabia to instigate bans on the messenger function on BlackBerry handsets, or the seemingly never-ending legal ban on YouTube Turkey. While it's true that the Wikileaks structure is set up to bypass the laws of certain countries (enabled by digital technology), it also makes use of other countries' laws. Wikileaks isn't lawless - it's just moving the entire game to places where the rules are different.

Myth 3: Journalism is dead (or almost)

Reports of the death of journalism have been greatly exaggerated (to borrow from Mark Twain). The Wikileaks case speaks to the power of technology to make us re-think what we mean by "journalism" in the early 21st century. But it also consolidates the place of mainstream journalism within contemporary culture. Wikileaks decided to release the Afghan documents to The Guardian, the New York Times and Der Spiegel weeks before they were released online - mainstream media outlets, not "alternative" (presumably sympathetic) publications such as The Nation, Z Magazine or IndyMedia. The reason is surely that these three news outlets are top international news agenda-setters. Few outlets (leaving aside broadcasters such as the BBC or CNN) have so much clout as the New York Times and the Guardian - and being published in English helps exposure. The Wikileaks people were savvy enough to realise that any release of the documents online without prior contact with select news outlets would lead to a chaotic rush of unfocused articles the world over.

As it was, attention turned straight to the three newspapers in question, in which a large number of the documents had already been analysed and summarised. And the role of Wikileaks was not lost in an information maelstrom. In the death of journalism thesis (as in that of the death of the nation-state), change is mistaken for elimination. The release of the Afghan Diaries shows that mainstream journalism still holds a good deal of power, but the nature of that power has shifted (compared to twenty or thirty years ago). An example is Executive Editor Bill Keller's recounting of the contact between New York Times editorial staff and the White House following the release of the documents:

The administration, while strongly condemning WikiLeaks for making these documents public, did not suggest that The Times should not write about them. On the contrary, in our discussions prior to the publication of our articles, White House officials, while challenging some of the conclusions we drew from the material, thanked us for handling the documents with care, and asked us to urge WikiLeaks to withhold information that could cost lives. We did pass along that message.

This is an astonishing admission by the executive editor of the US's most respected newspaper. For two reasons. The description of the encounter with the White House shows pride in the White House's praise, at odds with traditional notions of the press as the watchdogs over those in power. Second, the New York Times's role as intermediary between the US government and Wikileaks illustrates an interesting new power dynamic within news and information in the US.

At the heart of the death of journalism myth (and that of the role of social media) is the presumption of a causal relationship between access to information and democratic change. The idea that mere access to raw information de facto leads to change (radical or otherwise) is as romantic as the notion that mere access to technology can do the same. Information, just as technology, is only useful if the knowledge and skills required to activate such information are present. Wikileaks chose its three newspapers not because they necessarily represented ideological kindred spirits for Julian Assange and his colleagues, but because they were professionally, organisationally and economically prepared for the job of decoding and distributing the material provided.

In a digital world that is constantly being redefined as non-hierarchical, borderless and fluid, Wikileaks has reminded us that structure, boundaries, laws and reputation still matter.


Christian Christensen ( is associate professor of Media and Communication Studies in the Department of Informatics and Media at Uppsala University in Sweden. His work focuses on political, economic and cultural aspects of global media.

Bill Totten

Why the Wars Can't be Won

by Professor John Kozy

Global Research (August 20 2010)

Edmund Burke's statement, "Those who don't know history are destined to repeat it" is frequently cited, but in truth, even history's obvious lessons are unrecognized by many who know history very well.

There was a time when every school child could recite the Gettysburg Address from memory, especially its famous peroration: "we here highly resolve that these dead shall not have died in vain, that this nation shall have a new birth of freedom, and that government of the people, by the people, for the people shall not perish from the earth". But that resolution has largely gone unfulfilled. So exactly what did the Civil War accomplish?

Most certainly, it preserved the union territorially and abolished slavery - two noteworthy things. But the slaves who were freed, rather than being benefited by their freedom, were left in the lurch, and the prejudicial attitudes of Confederate whites were most likely hardened; they certainly were not softened. So although the war united the nation territorially, it failed to unite its peoples, and that division is still evident today.

After the 2004 Presidential election, The Dallas Morning News ran a feature about this division titled Beyond the Red and Blue. Using the red states that went to President Bush and the blue states that went to Senator Kerry, it pointed out how red and blue states ranked in various categories.

People in red states are less healthy than those in blue states.

People in red states earn less than those in blue states.

People in red states are less educated than those in blue states.

More people in red states live in mobile homes than those in blue states.

The red states have higher birth rates among teens than the blue states.

More people are killed by guns in the red states than in the blue states.

And the Dallas Morning News missed a number of other inferior attributes of the red states.

The red states have higher rates of poverty, both generally and among the elderly, higher rates of crime, both general and violent, have higher rates of infant mortality and divorce, and have fewer physicians per unit of population than do the blue states.

These statistics do not paint a pretty picture. And since the red states are commonly referred to as the conservative heartland, one would think that the people who live in these states would vote against conservative candidates merely on the basis of their own rational, self interests. But they don't.

There's an obvious clash here, for the red states are the home of that group that calls itself "moral America". But how can a moral viewpoint countenance poverty, crime, and infant mortality? What kind of morality is it that doesn't care for the welfare of people? Just what moral maxim guides the lives of these people? Certainly not the Golden Rule, the Decalogue, or the Second Commandment of Christ. From what I have been able to gather, moral America needs a new moral code. The one it has is, to use a word the members of this group dislike, relative.

So what motivates the conservative nature of the people in the red states? Let's look at some history.

For a century after the Civil War, the south voted Democratic, but not because the people shared any values in common with the rest of the nation's Democrats. (Southerners even distinguished themselves from other Democrats by calling themselves "Dixiecrats.") These people were Democrats merely because the political party of the war and reconstruction was Republican. And when, in the mid-twentieth century, the Democratic Party championed an end to racial discrimination, these life-long Democrats quickly became Republicans, because the Republican party had in the intervening years become reactionary.

What motivates these people even today, though most likely they don't recognize it, is an unwillingness to accept the results of the Civil War and change the attitudes held before it. When a society inculcates beliefs over a long period of time, those beliefs cannot be changed by a forceful imposition of others. The beliefs once practiced overtly continue to be held covertly. Force is never an effective instrument of conversion. Martyrdom is preferable to surrender, and even promises of a better future are ineffective.

So what did the Civil War really accomplish? It united a nation without uniting its people. The United States of America became one nation indivisible made up of two disunited peoples; it became a nation divided, and the division has spread.

Therein lies a lesson all nations should have learned. By the force of arms, you can compel outward conformity to political institutions and their laws, but you cannot change the antagonistic attitudes of people, that can remain unchanged for decades and longer waiting for opportunities to reassert themselves.

Any astute reader can apply this lesson to the present day's activities in the Middle East. Neither force nor promises of a future better than the past can win the hearts and minds of people. And soldiers who die in an attempt to change another people's values always die in vain.

All wars, even when carried on by the strongest of nations against weak opponents, are chancy, and their costs, in every respect, are always much more than anticipated, even putting aside the physical destruction and the lives lost.

Nations that have started wars with the psychological certainty of winning rarely have, and when they have, the results were rarely lasting or those sought. As Gandhi once observed, "Victory attained by violence is tantamount to a defeat, for it is momentary".

The Crusaders, fighting under the banner of Christ, could not make Palestine a part of Christendom. France, under Napoleon, conquered most of Europe but lost it all and Napoleon ended up a broken man. Prussian militarism prevailed in the Franco-Prussian War, but in less than a century Germany had lost all. The Austrians in 1914 could not only not subdue the Serbs, the empire and its monarchial form of government were lost. The Germans and Japanese after 1939 and astounding initial successes were reduced to ruin.

But even the winners are losers.

Americans won the Mexican War and acquired the southwestern United States, but that conquest brought with it unfathomable and persistent problems - racial prejudice, discrimination, and an irresolvable problem of immigration and border insecurity. Americans likewise won the falsely justified Spanish American war and acquired a number of colonial states but were unable to hold most of them. The allies won the Second World War, but France and England lost the colonies they were fighting to preserve, and these two powers, which were great before the war, were reduced to minor status (although both still refuse to admit it). Israel has won five wars against various Arab states since 1948, but its welfare and security have not been enhanced, and Arab hatred and intransigence has grown more common.

People need to realize that after a war, things are never the same as they were before, and that even the winners rarely get what they fight for. War is a fool's errand in pursuit of ephemera.

At the end of World War Two, American leaders wrongly assumed that America's superpower status gave it the means to impose its view of what the world should be like on others everywhere. Then came Korea and the assumption proved false. Despite all of the destruction and death inflicted on the North Koreans, their attitudes went unchanged. The lesson went unlearned. It went unlearned again in Viet Nam, after which Henry Kissinger is reported to have naively said, "I could not believe that a primitive people had no breaking point". The Vietnamese never broke. Now again Americans are foolishly assuming that the peoples of the Middle East will change their attitudes if enough force is imposed for a long enough time and enough promises of a better future are made. History belies this assumption.

Unfortunately, history teaches its lessons to only those willing to learn, and the American oligarchy shows no signs of having such willingness.

So let's start singing bye-bye, Miss American Pie

Warring is nothing but a bad way to die!


John Kozy is a retired professor of philosophy and logic who writes on social, political, and economic issues. After serving in the US Army during the Korean War, he spent twenty years as a university professor and another twenty years working as a writer. He has published a textbook in formal logic commercially, in academic journals and a small number of commercial magazines, and has written a number of guest editorials for newspapers. His on-line pieces can be found on and he can be emailed from that site's homepage.

Bill Totten

Thursday, August 26, 2010

A Modest Proposal

Limited Purpose Banking

Dallas Morning News (March 15 2009)

by Scott Burns and Laurence J Kotlikoff

In case you hadn't noticed, the foxes are still guarding the banking henhouse. The only change: President Obama is reducing how many hens the foxes can kill while on guard duty.

The foxes, of course, are the financial wizards whose leadership almost entirely wiped out the capital of the banking system.

The old system relied on trusting people who lied and cheated. They are still running the show. They will lie and cheat again. We will be called upon to pay the bill, again.

We need a new financial system. We need limited-purpose banking. It should be transparent, trustworthy and unsinkable. The key is to limit banks to their legitimate purpose. Not gambling, but financial intermediation, connecting savers to investors and lenders to borrowers.

Is this possible? Yes, it already exists in the only part of old system still above water - the mutual fund industry. Mutual fund companies like Fidelity, Vanguard, and TIAA-CREF stuck to their knitting. They didn't leverage themselves thirty-to-one and promise things they could never deliver. These companies didn't gamble with their own fortunes or the nation's future. Instead, they bought mortgages, stock, real estate, and other securities. They packaged these assets in mutual funds. And they sold the mutual funds to the public.

The public, not the mutual fund companies, held the securities and took the risk. In so doing, the fund companies ensured their solvency and prevented runs on their funds. They avoided the double jeopardy of conventional banking - financial shipwrecks that drown both the ships and the public. The one revealing exception was money market funds. There the mutual fund companies promised something they couldn't deliver - that their money market funds would never lose money.

Mutual fund companies also have other safeguards. They use third-party custodians to hold the securities purchased by their mutual funds. This precludes a Bernie Madoff or an Allen Stanford from selling claims to securities they neither owned nor purchased. Mutual fund companies divulge their investments. Whether the assets in their mutual funds are toxic or nutritional, the mutual fund companies say what they hold.

The two things mutual funds can't guarantee are the prices of the securities they purchase or the quality of the securities themselves. This can be improved (but not guaranteed) by compelling disclosure.

The compulsion must come from Uncle Sam. Sam needs to do what we proposed a year ago - set up a Federal Financial Authority (FFA) to verify, fully disclose, and rate securities, as well as audit the Fortune 500 companies. As we've seen, our private, insider-rating agencies are not to be trusted. Neither is insider-accounting.

The FFA should also appoint and pay independent directors to the Fortune 500 companies to determine compensation for top management. This is the only way to stop top management from bribing their directors to let them steal from shareholders. The FFA would also supervise all custodial arrangements.

With an FFA in place, here's how the new mutual fund-based banking system would work. Banks (our shorthand for all financial companies) would initiate mortgage, commercial, auto, credit card, and other loans. They would send them to the FFA for rating, package them in mutual funds, and sell them to the public.

Banks would not hold their loans. They would never be exposed to default risk. They'd provide no guarantee on their money market funds. Banks would also sell equity and real estate mutual funds. There would still be risk, but it wouldn't be in the financial institutions that put our money to work.

Finally, banks would accept checking account deposits. To ensure they have zero exposure to a bank run, the banks would be required to hold 100 percent reserves (in cash and short-term Treasuries) against these deposits. Incidentally, this aspect of the plan - moving from the current 10 percent to 100 percent reserve requirements - is called Narrow Banking. It was proposed by Irving Fisher, Frank Knight, and other leading economists during the 1930s. It was also advocated by Nobel Laureate Milton Friedman.

By requiring banks to stick to their fundamental purpose - financial intermediation - and to proscribe their taking risk of any kind, we will never again have either bank runs or the specter of major financial companies going under.


Find more on Limited Purpose Banking at

Bill Totten

Forty Bizarre Statistics

That Reveal the Horrifying Truth about the Collapse of the US Economy (July 20 2010)

Most Americans still appear to be operating under the delusion that the "recession" will soon pass and that things will get back to "normal" very soon. Unfortunately, that is not anywhere close to the truth. What we are now witnessing are the early stages of the complete and total breakdown of the US economic system. The US government, state governments, local governments, businesses and American consumers have collectively piled up debt that is equivalent to approximately 360 percent of GDP. At no point during the Great Depression (or at any other time during our history) did we ever come close to such a figure. We have piled up the biggest mountain of debt that the world has ever seen, and now that gigantic debt bubble is beginning to pop. As this house of cards comes crashing down, the economic pain is going to become almost unimaginable.

Already, things are really, really, really bad out there. Unemployment is at shockingly high levels. Foreclosures and personal bankruptcies continue to set new all-time records. Businesses are being shut down at a staggering rate, more than forty million Americans are on food stamps, and the US government continues to pile up debt at blinding speed.

There is no use sugar-coating it.

The US economy is collapsing.

The following are forty bizarre statistics that reveal the truth about the collapse of the US economy ...

1 - According to one shocking new survey, 28% of US households have at least one member that is looking for a full-time job {1}.

2 - A recent Pew Research survey found that 55 percent of the US labor force has experienced either unemployment, a pay decrease, a reduction in hours or an involuntary move to part-time work since the recession began {2}.

3 - There are 9.2 million Americans that are unemployed but that are not receiving an unemployment insurance check {3}.

4 - In America today, the average time needed to find a job has risen to a record 35.2 weeks {4}.

5 - According to one analysis, the United States has lost 10.5 million jobs since 2007 {5}.

6 - China's trade surplus (much of it with the United States) climbed 140 percent in June compared to a year earlier {6}.

7 - This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour {7}.

8 - According to a poll taken in 2009, 61 percent of Americans "always or usually" live paycheck to paycheck. That was up significantly from 49 percent in 2008 and 43 percent in 2007 {8}.

9 - According to a recent poll conducted by Bloomberg, 71% of Americans say that it still feels like the economy is in a recession {9}.

10 - Banks repossessed 269,962 US homes during the second quarter of 2010, which was a new all-time record {10}.

11 - Banks repossessed an average of 4,000 South Florida properties a month in the first half of 2010, up 83 percent from the first half of 2009 {11}.

12 - According to RealtyTrac, a total of 1.65 million US properties received foreclosure filings during the first half of 2010 {12}.

13 - The Mortgage Bankers Association recently announced that demand for loans to purchase US homes has sunk to a thirteen-year low {13}.

14 - Only the top five percent of US households have earned enough additional income to match the rise in housing costs since 1975 {14}.

15 - 1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008 {15}.

16 - Back in 1950 each retiree's Social Security benefit was paid for by sixteen workers. Today, each retiree's Social Security benefit is paid for by approximately 3.3 workers. By 2025 it is projected that there will be approximately two workers for each retiree {16}.

17 - According to a new poll, six of ten non-retirees believe that Social Security won't be able to pay them benefits when they stop working {17}.

18 - 43 percent of Americans have less than $10,000 saved for retirement {18}.

19 - According to one survey, 36 percent of Americans say that they don't contribute anything to retirement savings {19}.

20 - According to one recent survey, 24% of American workers say that they have postponed their planned retirement age in the past year {20}.

21 - The Conference Board's Consumer Confidence Index declined sharply to 52.9 in June. Most economists had expected that the figure for June would be somewhere around 62 {21}.

22 - Retail sales in the US fell in June for a second month in a row {22}.

23 - Vacancies and lease rates at US shopping centers continued to get worse during the second quarter of 2010 {23}.

24 - Consumer credit in the United States has contracted during fifteen of the past sixteen months {24}.

25 - During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the sixteenth consecutive quarter {25}.

26 - Things are now so bad in California that in the region around the state capital, Sacramento, there is now one closed business for every six that are still open {26}.

27 - The state of Illinois now ranks eighth in the world in possible bond-holder default. The state of California is ninth {27}.

28 - More than 25 percent of Americans now have a credit score below 599, which means that they are a very bad credit risk {28}.

29 - On Friday, US regulators closed down three banks in Florida, two in South Carolina and one in Michigan, bringing to 96 the number of US banks to be shut down so far in 2010 {29}.

30 - The FDIC's deposit insurance fund now has negative 20.7 billion dollars in it, which represents a slight improvement from the end of 2009 {30}.

31 - The US federal budget deficit has topped $1 trillion with three months still to go in the current budget year {31}.

32 - According to a US Treasury Department report to Congress, the US national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015 {32}.

33 - The M3 money supply plunged at a 9.6 percent annual rate during the first quarter of 2010 {33}.

34 - According to a new poll of Americans between the ages of 44 and 75, 61% said that running out money was their biggest fear. The remaining 39% thought death was scarier {34}.

35 - One study found that as of 2007, the bottom eighty percent of American households held about seven percent of the liquid financial assets {35}.

36 - The bottom forty percent of all income earners in the United States now collectively own less than one percent of the nation's wealth {36}.

37 - The number of Americans with incomes below the official poverty line rose by about fifteen percent between 2000 and 2006, and by 2008 over thirty million US workers were earning less than $10 per hour {37}.

38 - According to one recent study, approximately 21 percent of all children in the United States are living below the poverty line in 2010 - the highest rate in twenty years {38}.

39 - For the first time in US history, more than forty million Americans are on food stamps, and the US Department of Agriculture projects that number will go up to 43 million Americans in 2011 {39}.

40 - A new Rasmussen Reports national telephone survey has found that just 23% of American voters nationwide believe the federal government today has the consent of the governed {40}.










































Bill Totten

Wednesday, August 25, 2010

Putting an End to Financial Crises

Limited Purpose Banking

by Christophe Chamley and Laurence J Kotlikoff

The Financial Times (January 27 2009)

T'was the year the country stood still. Not a car, truck, or bus rode the roads. No one drove to work, no one drove to shop, no one drove to visit. No one drove anywhere.

The reason was simple. No one could buy gas. Gas stations had gone broke.

Their owners had tired of netting pennies on the gallon. They wanted to surge their earnings. The big money, they learned from a Harvard MBA, was in securitising their services. So they started selling GODs - gas options for drivers.

Each GOD gave the driver the option to fill her tank for $3 per gallon. Drivers bought GODs religiously. And with gas selling for $2 a gallon, station owners didn't worry.

Then the unthinkable happened. Gas prices sky-rocketed to $6 a gallon, and drivers began invoking their GODs. Each GOD could save $3 per gallon per tank, and if you didn't need gas, you held up a sign - "Gods for Cash!"

Station owners began cursing the GODs. They now had to buy gas at $6 a gallon and sell it for $3.

In short order, the owners went bust. They closed their stations and started looking for jobs in financial services. GODs became worthless, and the economy ground to a halt.

The economic moral is simple. If you want markets to function, don't let critical market makers - those who connect suppliers and demanders (for example, refineries and motorists) of essential products - gamble with their businesses.

Apply the moral to banks and the regulatory prescription is clear. Don't let banks take risky positions. Make banks stick to their two critical functions - mediating the payments system and connecting lenders to borrowers.

To safeguard the payment system, banks must hold 100 per cent reserves against their deposits either in cash or short-term US treasuries. With 100 per cent reserves, banks runs will be history.

This is not true of the current system, notwithstanding Federal Deposit Insurance Corporation insurance.

The FDIC's potential liability exceeds $4 trillion; its assets are less than $50 billion. A run on the banks would require massive money creation and engender greater economic panic.

To ensure their second function - the uninterrupted connection of suppliers of and demanders for funds - banks should be limited to (a) packaging conforming mortgages and conforming business loans (commercial paper) within mutual funds and (b) marketing these mutual funds to the public. The model here is Fidelity, not Lehman Brothers.

Yes, this proposed banking system is not your father's Oldsmobile. But Jimmy Stewart is not your banker. Some overpaid chief executive thousands of miles away is deciding whether to foreclose your home and shutter your business. The clerk running your branch isn't applying personal knowledge in deciding to lend you money or call your loan. He's plugging your credit rating, collateral, and loan amounts in a computer and conveying the answer.

With the government ready to absorb losses, banks are talking outrageous risks knowing that Uncle Sam will cover them if things go south. Raising the trivially low capital requirements of banks, as Paul Volker's Group of Thirty Commission just proposed, won't change this behaviour.

What will change this behaviour is to not let it happen. Banks should be allowed to initiate only conforming, that is, government-approved, AAA-rated mortgages and business loans. These would be long-term, fixed-rate loans with twenty per cent down and payments below 25 per cent of income.

The government, via the Federal Financial Authority, would use tax records to verify loan payment-to-income ratios. It would also spot check collateral. Once approved, the banks would bundle and sell "their" loans within mutual funds.

Again, traditional bank runs wouldn't arise. And today's bank runs, which entail lenders and equity investors avoiding risky banks, wouldn't either. Why? Because banks would bear zero risk. Mutual fund owners would bear risk, but not the banks. And these lenders would know they were buying government-approved AAA-rated loans, not Bear Stearns' CDOs.

This limited purpose banking is a modern version of narrow banking proposed by Frank Knight, Henry Simons, and Irving Fisher. Banks would hold deposits, cash checks, wire money, originate loans, and market mutual funds, including money market funds with no guarantee of par value redemption.

With limited purpose banking, financial crises would largely disappear. Banks would never fail, never stop originating loans, never expose the public to massive liabilities, and never see their stock values evaporate. Banks would be stable, boring economic cogs - like gas stations.

The Fed would also gain full control of the money supply. To expand the money supply, the Fed would continue buying treasuries from the public and supplying cash. But banks wouldn't be multiplying and contracting M1 (cash plus demand deposits) based on their ever changing decisions about lending deposited funds.

Milton Friedman, who also advocated narrow banking, blamed the Depression on the Fed's failure to offset the M1 money multiplier's collapse. In the past year the M1 multiplier has contracted by over forty per cent, forcing the Fed to double base money. If the multiplier shoots back up, we could see the money supply and prices explode.

What about investment banks, brokerage firms, hedge funds, and insurance companies? What's their right financial order?

Again, regulate to purpose. Investment banks take companies public and assist in mergers and acquisitions. They shouldn't be permitted to invest in their clients' companies. Brokerage firms are here to help us buy and sell assets, not to gamble on spreads. Hedge funds are here to help limit risk exposure. They aren't here to insure these risks themselves. Finally, insurance companies are here to diversify risk, not write insurance against aggregate shocks.

The FFA and "less is more" limited purpose banking won't prevent asset markets from occasionally going nuts. But the functioning of financial markets will no longer be in question. Nor will con artists, parading as "financial engineers", ever again be free to wreak havoc on the nation's finances and its citizenry.


Christophe Chamley is a member of Boston University and the Paris School of Economics.

Laurence J Kotlikoff is professor of economics at Boston University

Bill Totten

What I Did On Summer Vacation

by James Howard Kunstler

Comment on current events by the author of
The Long Emergency
(2005) (August 23 2010)

Oh what a mighty spewage of vinyl weighs heavy on this land!

A dark mood spread through the body politic like a septic infection last week in response to bad numbers in employment, housing, and commerce, not to mention unease about the now complete takeover of the stock market by robot traders. But I left it all behind to trip across New England from the Vermont border to Maine and back, and many a strange thing did I see ...

New Hampshire's got their state motto on the license plate wrong: Live Free or Die. It ought to read Live Free and Die. Just north of Concord on I-89 there's a highway rest stop. The primary retail outlet there is ... the state liquor store! Yes, for some reason the New Hampshire government controls the sale of liquor. Puritan guilt? Creeping socialism? Who knows. Apparently some brilliant state wonk got the idea that they could maximize revenue by selling liquor to motorists. Now, granted, not everybody motoring up I-89 is an alcoholic, but surely some of them are. Maybe it's a scheme to kill off the Boston Irish - but at some risk to the citizens of The Granite State. Note: there was no coffee shop on the premises. I kid you not.

Meanwhile, New Hampshire's little wedge of seacoast has been completely coated in vinyl, as if some angry god decoupaged the darn thing after eating a bad clam roll. The world has never before seen an array of seaside cottages so uniquely hideous as the ones we passed from Seabrook to Portsmouth. The owners had managed to try every proportioning system and every color scheme known to man - except the right ones. They made your eyeballs wobble in their sockets just motoring by them on US Route 1-A - and we were not unaware, of course, that our presence on the road, along with ten thousand other pleasure-seeking tourists, only made these houses seem worse by dint of the highway's toxic proximity.

We stopped for lunch in a clam bar, naturally. The dining room was populated by a new race of humanoid behemoths, great lumbering brutes the size (and shape) of giant sloths, only dressed in the raiment of clowns, downing heaps of battered fried things, purportedly of-the-sea - except I honestly don't see how there can be anything alive left to catch out there with the industrial-strength trawlers scraping the ocean floor as if they were Zamboni machines grooming the rink at the Boston Garden. I would like to tell you that we ordered cucumber sandwiches but it would be a lie. We got the clam strips - that is, clam rolls minus the rolls. For all I know, someone in the kitchen is shredding old Michelin inner tubes for the Fry-o-later, but it's all about the cocktail sauce anyway.

There were more giant sloths wading curiously in the surf (still hungry perhaps?) as we crossed the border into Maine, where you really want to weep for your nation. Is there any way to fuck up a landscape that has not been tried there, short of all-out war (which might actually have the benefit of clearing a lot of muck away)? Maine is where the oil fields of Texas crawled off to die, and left their remains in a thousand miniature golf courses, giant plastic signs shaped like lighthouses, lobsters, schooners, whales, fisher-folk and other ghost-like entities no longer of this world, and enough asphaltic free parking to accommodate the automobile club of the hosts of hell.

The awful cavalcade prompted me to remember that it's all over for this stuff and the pattern of culture it represents. What you are seeing is the residue of an economy that no longer exists. I doubt we will build any more of it. You're just left wondering what becomes of it all now that we slouch toward oil depletion, climate change hijinks, the vanishing of capital, penury, and possibly starvation. In the years ahead there will be fewer and fewer vehicle miles recorded on these inevitably disintegrating highways - with the sharp sea air gnawing away at every I-beam and truss in the overpasses and bridges, and the government too broke to do anything about them - and the American middle class with their quaint touristic habits will join the codfish, sperm whales, and great auk in the Atlantic Ocean's extinction Hall of Fame. The Long Emergency can't come soon enough.

The long agony of motoring up the coast brought us eventually to Mount Desert Isle where Mr John D Rockefeller, Jr had the foresight to capture most of the acreage and hand it over to the National Park Service before it could be turned into another clam roll empire. The majesty of Acadia National Park is a rebuke to all the tragic hucksterism that destroyed the coastline everywhere else in New England through the miserable twentieth century. We hiked the rocky scree trails around the summit of Cadillac Mountain and the path along Otter Cliff, which smelled like Christmas and chowder, and didn't see too many people away from the motor roads. Here and there the bell of a lonely buoy sounded distantly through the creeping fog making the frantic absurdity of daily life in America seem like a mere bad memory. Then we had to leave.

We took a different route home, more northerly, across a rural Maine region largely un-molested by the toils of tourism, but stunningly poor. Some of it looked like Arkansas - not the part where WalMart lives, either. At long intervals we passed through mill towns where the mills are now silent and the only visible business was the tattoo trade. Even there in the New England backwaters, the toxic superhero-thug culture of Hollywood rules and the idle grandsons of mill-workers glowered in death-metal regalia at passing strangers as if they were auditioning for parts in the next Road Warrior movie. Not a few of them seemed to have lopsided heads. Does crystal meth do that?

Everywhere along the route, shovel-ready highway improvement projects from the late stimulus crusade were now underway, and you wondered exactly what kind of future they were intended to serve - or was it all a kind of weird national potlatch ceremony in which we were literally throwing away our wealth to memorialize what seemed normal the day before yesterday and never will be again.

Compared to the ominous vastness of Maine, northern New Hampshire was a blur. Somewhere in the White Mountains, punch-drunk with motoring fatigue, we stopped at the only available venue for coffee in one little burg, a McDonalds as chance would have it, apparently staffed by client-workers supplied by the ARC - and I'm not trying to be funny mentioning that. You wondered how much such an agency was creaming off their minimum wage salaries. This is what it's come to now in the Home of the Brave: corporate wickedness knows no bottom.

The last weird display we encountered was the mystery of highway cones in Vermont. The orange rubber cones were deployed along the center line of I-91 for scores of miles, with absolutely no sign that any project - shovel-ready or otherwise - was underway, leading us to suspect that the project of cone deployment for its own sake was a kind of rogue stimulus program. Just cones, cones, and more cones, as baffling as crop circles. No heavy equipment, no men in hard hats. Just mile after mile of cones. Whatever it signified, it was at least equally unproductive as high frequency trading - the other half of what's left of the US economy. Home again and suddenly fall is in the air. Or is it the distant sound of falling knives?

A sequel to my 2008 novel of post-oil America, World Made By Hand, will be published in September 2010 by The Atlantic Monthly Press. The title is The Witch of Hebron.

Mr Kunstler's biography is at see

Bill Totten

Tuesday, August 24, 2010

Four Deformations of the Apocalypse

by David Stockman

New York Times (July 31 2010)

IF there were such a thing as Chapter Eleven for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation's public debt - if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 - will soon reach $18 trillion. That's a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation's wealthiest taxpayers be spared even a three-percentage-point rate increase.

More fundamentally, Mr McConnell's stand puts the lie to the Republican pretense that its new monetarist and supply-side doctrines are rooted in its traditional financial philosophy. Republicans used to believe that prosperity depended upon the regular balancing of accounts - in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance - vulgar Keynesianism robed in the ideological vestments of the prosperous classes.

This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy. More specifically, the new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one.

The first of these started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world. Now, since we have lived beyond our means as a nation for nearly forty years, our cumulative current-account deficit - the combined shortfall on our trade in goods, services and income - has reached nearly $8 trillion. That's borrowed prosperity on an epic scale.

It is also an outcome that Milton Friedman said could never happen when, in 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold or other fixed monetary reserves. Just let the free market set currency exchange rates, he said, and trade deficits will self-correct.

It may be true that governments, because they intervene in foreign exchange markets, have never completely allowed their currencies to float freely. But that does not absolve Friedman's $8 trillion error. Once relieved of the discipline of defending a fixed value for their currencies, politicians the world over were free to cheapen their money and disregard their neighbors.

In fact, since chronic current-account deficits result from a nation spending more than it earns, stringent domestic belt-tightening is the only cure. When the dollar was tied to fixed exchange rates, politicians were willing to administer the needed castor oil, because the alternative was to make up for the trade shortfall by paying out reserves, and this would cause immediate economic pain - from high interest rates, for example. But now there is no discipline, only global monetary chaos as foreign central banks run their own printing presses at ever faster speeds to sop up the tidal wave of dollars coming from the Federal Reserve.

The second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just forty percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be forty times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts.

In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment. The Reagan administration's hastily prepared fiscal blueprint, however, was no match for the primordial forces - the welfare state and the warfare state - that drive the federal spending machine.

Soon, the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending exempted from the knife most of the domestic budget - entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological tax-cutters who killed the Republicans' fiscal religion.

Through the 1984 election, the old guard earnestly tried to control the deficit, rolling back about forty percent of the original Reagan tax cuts. But when, in the following years, the Federal Reserve chairman, Paul Volcker, finally crushed inflation, enabling a solid economic rebound, the new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts.

By fiscal year 2009, the tax-cutters had reduced federal revenues to fifteen percent of gross domestic product, lower than they had been since the 1940s. Then, after rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures, George W Bush surrendered on domestic spending cuts, too - signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy.

The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. Here, Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation. As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008.

But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn't been able to obtain virtually free money from the Fed's discount window to cover their bad bets.

The fourth destructive change has been the hollowing out of the larger American economy. Having lived beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore. In the past decade, the number of high-value jobs in goods production and in service categories like trade, transportation, information technology and the professions has shrunk by twelve percent, to 68 million from 77 million. The only reason we have not experienced a severe reduction in nonfarm payrolls since 2000 is that there has been a gain in low-paying, often part-time positions in places like bars, hotels and nursing homes.

It is not surprising, then, that during the last bubble (from 2002 to 2006) the top one percent of Americans - paid mainly from the Wall Street casino - received two-thirds of the gain in national income, while the bottom ninety percent - mainly dependent on Main Street's shrinking economy - got only twelve percent. This growing wealth gap is not the market's fault. It's the decaying fruit of bad economic policy.

The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing - as suggested by last week's news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, it's a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach - balanced budgets, sound money and financial discipline - is needed more than ever.


David Stockman, a director of the Office of Management and Budget under President Ronald Reagan, is working on a book about the financial crisis.

Bill Totten

Genetically Manipulated Crops

The GMO Catastrophe in the USA - A Lesson for the World

by F William Engdahl

Global Research (August 18 2010)

Recently the unelected potentates of the EU Commission in Brussels have sought to override what has repeatedly been shown to be the overwhelming opposition of the European Union population to the spread of Genetically Modified Organisms (GMO) in EU agriculture. EU Commission President now has a Maltese accountant as health and enviromnent Commissioner to rubber stamp the adoption of GMO. The former EU Environment Commissioner from Greece was a ferocious GMO opponent. As well, the Chinese government has indicated it may approve a variety of GMO rice. Before things get too far along, they would do well to take a closer look at the world GMO test lab, the USA. There GMO crops are anything but beneficial. Just the opposite.

What is carefully kept out of the Monsanto and other agribusiness propaganda in promoting genetically manipulated crops as an alternative to conventional is the fact that in the entire world until the present, all GMO crops have been manipulated and patented for only two things - to be resistant or "tolerant" to the patented highly toxic herbicide glyphosate chemicals that Monsanto and the others force farmers to buy as condition for buying their patented GMO seeds. The second trait is GMO seeds that have been engineered genetically to resist specific insects. Contrary to public relations myths promoted by the agribusiness giants in their own self-interest, there exists not one single GMO seed that provides a greater harvest yield than conventional, nor one that requires less toxic chemical herbicides. That is for the simple reason there is no profit to be made in such.

Giant super-weeds plague

As prominent GMO opponent and biologist, Dr Mae-Wan Ho of the Institute of Science in London has noted, companies such as Monsanto build into their seeds herbicide-tolerance (HT) due to glyphosate-insensitive form of the gene coding for the enzyme targeted by the herbicide. The enzyme is derived from soil bacterium Agrobacterium tumefaciens. Insect-resistance is due to one or more toxin genes derived from the soil bacterium Bt (Bacillus thuringiensis). The United States began large scale commercial planting of GMO plants, mainly soybeans and corn and cotton around 1997. By now, GM crops have taken over between 85 percent to 91 percent of the areas planted with the three major crops, soybean, corn and cotton in the US, on nearly 171 million acres.

The ecological time-bomb that came with the GMO according to Ho, is about to explode. Over several years of constant application of patented glyphosate herbicides such as Monsanto's famous and highly [?] Roundup, new herbicide-resistant "super-weeds" have evolved, nature's response to man-made attempts to violate it. The super-weeds require significantly more not less herbicide to control.

ABC Television, a major US national network, made a recent documentary about the super-weeds under the rubric, "super weeds that can't be killed" {1}.

They interviewed farmers and scientists across Arkansas who described fields overrun with giant pigweed plants that can withstand as much glyphosate as farmers are able to spray. They interviewed one farmer who spent almost 400,000 euros in only three months in a failed attempt to kill the new super-weeds.

The new super-weeds are so robust that harvester combines are unable to harvest the fields and hand tools break trying to cut them down. At least 400,000 hectares of soybean and cotton in Arkansas alone have become invested with this new mutant biological plague. Detailed data on other agricultural regions is not available but believed similar. The pro-GMO and pro-agribusiness US Department of Agriculture has been reported lying about the true state of US crop harvest partly to hide the grim reality and to prevent an explosive revolt against GMO in the world's largest GMO market.

One variety of super-weed, palmer pigweed can grow up to 2.4 meters high, withstands severe heat and prolonged droughts, and produces thousands of seeds with a root system that drains nutrients away from crops. If left unchecked, it takes over an entire field in a year. Some farmers have been forced to abandon their land. To date palmer pigweed infestation in GMO crop regions has been identified in addition to Arkansas, also in Georgia, South Carolina, North Carolina, Tennessee, Kentucky, New Mexico, Mississippi and most recently, Alabama and Missouri.

Weed scientists at the University of Georgia estimate that just two palmer pigweed plants in every six meter length of cotton row can reduce yield by at least 23 percent. A single weed plant can produce 450,000 seeds. {2}

Roundup toxic danger being covered-up

Glyphosate is the most widely used herbicide in the US and the world at large. Patented and sold by Monsanto since the 1970s under the trade name Roundup, it is a mandatory component of buying GMO seeds from Monsanto. Just go to your local garden store and ask for it and read the label carefully.

As I detail in my book, Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (2007), GMO crops and patented seeds were developed in the 1970's with significant financial support from the pro-eugenics Rockefeller Foundation, by what were essentially chemical companies - Monsanto Chemicals, DuPont and Dow Chemicals. All three were involved in the scandal of the highly toxic Agent Orange used in Vietnam, as well as Dioxin in the 1970's, and lied to cover up the true damage to its own employees as well as to civilian and military populations exposed.

Their patented GMO seeds were seen as a clever way to force increased purchase of their agricultural chemicals such as Roundup. Farmers must sign a legal contract with Monsanto in which it stipulates that only Monsanto Roundup pesticide may be used. Farmers are thus trapped both in buying new seeds from Monsanto each harvest and buying the toxic glyphosate.

France's University of Caen, in a team led by molecular biologist, Gilles-Eric Seralini, did a study that showed Roundup contained one specific inert ingredient, polyethoxylated tallowamine, or POEA. Seralini's team demonstrated that POEA in Roundup was more deadly to human embryonic, placental and umbilical cord cells than even the glyphosate itself. Monsanto refuses to release details of the contents of its Roundup other than glyphosate, calling it "proprietary". {3}

The Seralini study found that Roundup's inert ingredients amplified the toxic effect on human cells - even at concentrations much more diluted than those used on farms and lawns! The French team studied multiple concentrations of Roundup, from the typical agricultural or lawn dose down to concentrations 100,000 times more dilute than the products sold on shelves. The researchers saw cell damage at all concentrations.

Glyphosate and Roundup are advertised as "less toxic to us than table salt" in a pamphlet from the Biotechnology Institute promoting GMO crops as 'Weed Warrior.' Thirteen years of GMO crops in the USA has increased overall pesticide use by 318 million pounds, not decreased as promised by the Four Horsemen of the GMO Apocalypse. The extra disease burden on the nation from that alone is considerable.

Nonetheless after introduction of Monsanto GMO seeds commercially in the USA, use of glyphosate has risen more than 1500 percent between 1994 and 2005. In the USA some 100 million pounds of glyphosate are used on lawns and farms every year, and over the last thirteen years, it has been applied to more than a billion acres. When questioned, Monsanto's technical development manager, Rick Cole, reportedly said the problems were "manageable". He advised farmers to alternate crops and use different makes of herbicides produced by Monsanto. Monsanto is encouraging farmers to mix glyphosate with its older herbicides such as 2,4-D, banned in Sweden, Denmark and Norway for links to cancer and reproductive and neurological damage. 2,4-D is a component of Agent Orange, produced by Monsanto for use in Vietnam in the 1960s.

US Farmers turn to organics

Farmers across the United States are reported to be going back to conventional non-GMO crops instead. According to a new report from the US Department of Agriculture, retail sales of organic food went up to $21.1 billion in 2008 from $3.6 billion in 1997. {4} The market is so active that organic farms have struggled at times to produce sufficient supply to keep up with the rapid growth in consumer demand, leading to periodic shortages of organic products.

The new UK Conservative-Liberal coalition government is strongly backing lifting a de facto ban on GMO in that country. UK Chief Scientific Adviser, Professor John Beddington, recently wrote an article in which he misleadingly claimed "The next decade will see the development of combinations of desirable traits and the introduction of new traits such as drought tolerance. By mid-century much more radical options involving highly polygenic traits may be feasible." He went on to promise "cloned animals with engineered innate immunity to diseases" and more. I think we can pass that one up, thank you.

A recent study by Iowa State University and the US Department of Agriculture assessing the performance of farms during the three-year transition it takes to switch from conventional to certified organic production showed notable advantages of organic farming over GMO or even conventional non-GMO crops. In an experiment lasting four years - three years transition and first year organic - the study showed that although yields dropped initially, they equalized in the third year, and by the fourth year, the organic yields were ahead of the conventional for both soybean and corn.

As well, the International Assessment of Agricultural Knowledge, Science and Technology for Development (IAASTD) has recently been published, the result of three-year deliberation by 400 participating scientists and non-government representatives from 110 countries around the world. It came to the conclusion that small scale organic agriculture is the way ahead for coping with hunger, social inequities and environmental disasters. {5} As Dr Ho argues, a fundamental shift in farming practice is needed urgently, before the agricultural catastrophe spreads further across Germany and the EU to the rest of the world. {6}


{1} Super weed can't be killed, abc news, 6 October 2009. See also, Jeff Hampton, North Carolina farmers battle herbicide-resistant weeds, The Virginian-Pilot, 19 July 2009,

{2} Clea Caulcutt, 'Superweed' explosion threatens Monsanto heartlands, Clea Caulcutt, 19 April 2009,

{3} N Benachour and G E Seralini, Glyphosate Formulations Induce Apoptosis and Necrosis in Human Umbilical, Embryonic, and Placental Cells, Chem Res Toxicol, Article DOI: 10.1021/tx800218n Publication Date (Web): December 23 2008.

{4} Carolyn Dimitri and Lydia Oberholtzer, Marketing US organic foods: recent trends from farms to consumers, USDA Economic Research Service, September 2009,

{5} International Assessment of Agricultural Knowledge, Science and Technology for Development, IAASTD, 2008,

{6} Ho MW.UK Food Standards Agency study proves organic food is better. Science in Society 44, 32-33, 2009.


William Engdahl is the author of Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (2007)

Centre for Research on Globalization (CRG)/ Centre de recherche sur la mondialisation (CRM)

Seeds of Destruction: The Hidden Agenda of Genetic Manipulation
by F William Engdahl (Global Research), 2007 ISBN 978-0-937147-2-2

Special Online and Mail Order Price US$17.00 (list price $24.95)

This skillfully researched book focuses on how a small socio-political American elite seeks to establish control over the very basis of human survival: the provision of our daily bread. "Control the food and you control the people".

This is no ordinary book about the perils of GMO. Engdahl takes the reader inside the corridors of power, into the backrooms of the science labs, behind closed doors in the corporate boardrooms.

The author cogently reveals a diabolical World of profit-driven political intrigue, government corruption and coercion, where genetic manipulation and the patenting of life forms are used to gain worldwide control over food production. If the book often reads as a crime story, that should come as no surprise. For that is what it is.

Engdahl's carefully argued critique goes far beyond the familiar controversies surrounding the practice of genetic modification as a scientific technique. The book is an eye-opener, a must-read for all those committed to the causes of social justice and World peace.

F William Engdahl is a leading analyst of the New World Order, author of the best-selling book on oil and geopolitics, A Century of War: Anglo-American Politics and the New World Order (2004), His writings have been translated into more than a dozen languages.

To Order Seeds of Destruction, click here:

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Bill Totten

Monday, August 23, 2010

Two Agricultures, Not One

by John Michael Greer

The Archdruid Report (August 18 2010)

Talking about the future after peak oil is a challenging thing. One of the things that makes it most challenging is the extent to which so many people seem unable to imagine any way of doing things that isn't business as usual in some lightly modified form. Last week's post made a passing reference to this odd blinkering of our collective imagination, in the context of current worries in the peak oil blogosphere about "peak phosphorus".

It's true, of course, that the rapid depletion of the world's reserves of rock phosphate, a key ingredient in chemical fertilizers, is a serious short term problem. Today's agricultural systems depend on chemical fertilizers, and there aren't any other abundant and highly concentrated sources of mineral phosphate available to be dumped into the intake hoppers of fertilizer factories. Still, this doesn't mean that we're all going to starve to death; it means that the way we produce food nowadays is not long for the world, and will be replaced by other ways of producing food that don't depend on mass infusions of nonrenewable resources.

Those other ways already exist, and have the benefit of well over a century of practical experience and testing. What makes it difficult for many people to notice them, or factor them into a sense of the future, is that they don't look like industrial agriculture at all. To borrow a metaphor from computer technology, they aren't plug-and-play components; they presuppose radically different relationships among land, resources, farmers, crops, and consumers; and as they expand into the space left blank by today's faltering industrial agriculture - a process already well under way - the new social forms defined by these relationships differ so starkly from existing forms of food production and distribution so greatly that many people have trouble fitting the new possibilities into their view of the future.

Of course this same pattern pervades nearly all current debates about peak oil. Consider the endless bickering over the potential of renewable energy. Most of that bickering presupposes that the only way a society can or should use energy is the way today's industrial nations currently use energy. Thus you get one side insisting that windpower, say, can provide the same sort of instantly accessible and abundant energy supply we're used to having, using some equivalent of the same distribution systems and technologies we're used to using, while the other side - generally with better evidence - insists that it can't.

What nearly always gets missed in these debates is the fact that it's quite possible to have a technologically advanced and humane society without, for example, having electricity on demand from sockets on every wall across the length and breadth of a continent, or mortgaging our future to allow individuals to zoom around in hopelessly inefficient personal vehicles on an extravagant system of highways. The sooner we start thinking about what kinds and forms of energy wind turbines are actually best suited to produce - rather than trying to force them onto the Procrustean bed of an electrical grid that was designed to exploit the very idiosyncratic kinds of energy you get from fossil fuel supplies - the sooner windpower can be put to use building an energy system for the future, rather than propping up a failing one from the past. What stands in the way of this recognition, of course, is the emotional power of today's ideology of progress, the purblind assumption that the way we do things must be the best possible way to do them.

A similar set of blinders blocks the way to a clear sense of our agricultural options in the age of peak oil. It's indicative, for example, that a recent post here on composting brought several denunciatory responses insisting that there was no way for one family to produce enough compost to fertilize a 640-acre wheat farm or the equivalent. In one sense, that sort of response is quite correct; in another, it's completely beside the point, because you wouldn't use homebrewed compost to fertilize a 640-acre wheat farm at all. Composting, especially on a home scale, is aimed at a different part of the complex land use pattern of a sustainable agricultural system.

If you hopped into a time machine and went back to visit farm country a century or so, to the days when sprawling interstate highway systems and fleets of trucks hadn't yet made distance an irrelevance over continental scales, you'd notice something about the farms of that time that you won't find in most farms today: each farm had, apart from its main acreage for corn or wheat or what have you, a kitchen garden, an orchard, a henhouse, and a bit of pasture for a cow or two. Those had a completely different economic function from that of the main acreage, and they were managed in a completely different way. Their function was to produce food for the farm family and farmhands, where the main acreage was used to produce a cash crop for sale; and they were worked intensively, while the main acreage was farmed extensively.

The shift in prefixes between these two words defines a nearly total change in approach. Extensive farming, as the term suggests, involves significant acreage. It maintains soil fertility through crop rotation and fallow periods, rather than through fertilizers or soil amendments. The basic tools of the trade are a plow and something to draw it - horses or oxen, when you don't have factories to produce tractors and fossil fuels to power them - with add-ons up to and including the huge horse-drawn combines that lumbered over American fields in the 1920s. The crops that you can grow with extensive farming in temperate regions, in the absence of cheap abundant energy, are pretty much limited to grains, dry beans and dry peas, but you can produce these in very substantial amounts, and they store and ship well, so they make good cash crops even if the only way to get them to market is a wagon to the nearest river system and a canal boat from there.

Intensive gardening has to be done on a much smaller scale; among other reasons, the labor it requires is too substantial to be applied to acreage of any size. It maintains soil fertility by adding whatever soil amendments are available - compost, manure, leaf mold, a fish buried in every corn hill, you name it - and the basic tools of the trade are a hoe and somebody who knows how to use it. The crops you can grow in an intensive garden account for everything other than grains and dry legumes, from the first spring radishes to the leeks you overwinter under straw; the chickens, the cow, and the fruit from the orchard all belong to this same intensive sector and participate in its tight cycles of nutrients. In an age without fossil fuels, very little of what can be grown intensively can be transported over any distance without spoiling, so intensive growing is always done close to where the food will be eaten.

That's why every farm in the America of a century ago had its own intensive kitchen garden, orchard and livestock, and it's also why every American city a hundred years ago was ringed with market gardens, chicken farms, dairies, and the like, to keep the shelves of urban grocers filled with something other than grains and dried legumes. It's also why most American urban houses from a century ago, even the cramped little row houses that were built for factory workers, had a little plot in back that got at least a few hours of sunlight a day. That was where the kitchen garden and the hens went; they were as much a part of an ordinary urban household as the pantry.

Thus America a century ago had two separate systems of food production. You would have seen exactly the same thing in most other countries at the same time; if you left your time machine parked in some Iowa barn, hopped the train to New York, and booked passage on a tramp steamer headed around the world, you could count on finding much the same sort of double system busy at work in most of your ports of call. If you caught the train to Paris while your ship was taking on cargo in Marseilles, you would find that the market gardens around the French capitol were using the ancestor of today's deep bed intensive gardening to keep their customers supplied with produce; if you had time to kill in Kowloon while the cargo from Marseilles was unloaded, you could travel inland a bit and see another ancestor of today's organic gardening thriving on little patches of land, while the monotonous green of rice paddies spread in every direction around them.

The great transformation of American agriculture in the middle decades of the twentieth century, which was exported around the world under the banner of the "Green Revolution" a few decades later, centered on the abandonment of the intensive half of this system, and its replacement by extensive farming of all the crops that used to be grown intensively. That transformation was only possible because chemical fertilizers could (temporarily) replace the nutrients intensive gardening methods put into the soil by other means, and because petroleum-powered transport could (just as temporarily) make it possible for produce to be shipped across continents and oceans without spoiling, either in processed form or more recently in some semblance of its fresh condition.

The Green Revolution in particular was surrounded by massive propaganda campaigns about feeding the world, but I trust most people by now realize that much of its actual agenda focused on turning the rest of the world into a source of luxury crops for the industrial nations. The model they used was the one pioneered in the early twentieth century by American fruit companies in Central America, right up to and including the corporate-backed kleptocracies that contributed the phrase "banana republic" to the English language. The project was a success, in narrowly economic terms; the replacement throughout the Third World of small farms growing food for local consumption with big farms growing export crops for overseas markets duly followed, as did the mass expropriation of land that has flooded Third World cities with dispossessed farm families ever since, and the inevitable famines and public health crises as well. Recent attempts to turn what foodstuffs are still produced in the Third World into automobile fuel for the industrial nations are simply one logical outcome of the same process.

Unfortunately for the architects and beneficiaries of this system, though perhaps fortunately for a good many others, the whole project depended on huge supplies of fertilizer feedstocks and fossil fuels, neither of which have turned out to be available indefinitely. For the world's nonindustrial nations, then, the end of the industrial age thus ushers in a difficult but ultimately positive shift in which the mechanisms of foreign export, along with the wild distortions of political and economic power they produced, come apart at the seams. For the world's industrial nations, on the other hand, the end of a system that kept shoppers happily supplied with strawberries in January promises to usher in a time of food crisis in which a system of intensive local production will need to be revived in a hurry.

It's thus not accidental that the material discussed here in recent posts has focused on exactly the sort of small-scale intensive organic gardening that is well suited to fill this niche in the human ecology of the near future. For that matter, it's not accidental that much of the last half century or so of research and experimentation into organic food growing has focused on exactly this sort of intensive production; it doubtless helped that it's a lot easier to afford a backyard or two for experimental garden plots than it is to arrange for 640 acres or so to use some innovative organic farming method or other - though this has also been done, with good results. Some of my readers may be in a position, now or in the future, to try their hand at extensive farming using organic methods to produce grains and dry legumes, and a century from now maybe half the American population will be making their livings that way, but they will also have their own kitchen gardens, henhouses, and so on - and a much larger fraction of readers here and now are in the position to do the same thing.

The productive potential of intensive gardening, especially under emergency conditions, should not be underestimated. A team of researchers at pioneering organic-gardening group Ecology Action found, on the basis of extensive tests, that it's possible to feed one person year round on a spare but adequate vegetarian diet off less than 1000 square feet of intensively gardened soil. (The details are in David Duhon's book, listed in the resource section.) In the more troubled parts of the future ahead of us, some of us may have to do just that; a great many more of us will need to be able to garden in order to pad out potential irregularities in a food supply that's desperately vulnerable, over the short term, to fluctuations in the price and availability of fertilizer feedstocks and fossil fuels. The victory gardens of past wars are likely to be a useful template for the survival gardens of the deindustrial future.

A little further down the road, as the resource and energy base for conventional farming begins to run noticeably short, the shift toward a more sustainable extensive agriculture will have to follow. I don't expect to contribute much to that, as I don't have any experience with large acreages; green wizards in training who are interested in pursuing extensive organic farming thus will have to do a fair bit of their own homework. For the moment, though, intensive gardening is the more urgent of the two, and it's also the one with which I have some thirty years of hands-on experience in one form or another. The habit of abstract speculation about other people's knowledge is not as useful as some seem to think; more useful and more important just now is teaching what one knows.


There are plenty of books on small-scale organic intensive gardening available these days; everyone has their favorites. John Jeavons' How To Grow More Vegetables (2006) is among the most popular, though there are also plenty of people who swear at it rather than by it. Most of these latter seem to like Steve Solomon's Gardening When It Counts (2006), so having both of these on your shelf may be a good idea. Mel Bartholomew's Square Foot Gardening (2006) is particularly good if you've never grown an edible plant before. Two other favorites of mine, out of print but readily available on the used book market, are John Seymour's The Self-Sufficient Gardener (2008) and Duane Newcomb's The Postage Stamp Garden Book (1999).

The claim that intensive organic gardening can feed one person year round on less than 1000 square feet is documented in detail in David Duhon's book One Circle (1985), out of print and not always easy to find; my copy was purchased at a book sale where, to their lasting discredit, an organic farming and gardening organization that will go unnamed here was selling off their entire library of Seventies green wizardry books for pennies on the dollar. Another book that covers some of the same ground, and supports the same claim, is John A Freeman's Survival Gardening (1983).


John Michael Greer, The Grand Archdruid of the Ancient Order of Druids in America (AODA), has been active in the alternative spirituality movement for more than 25 years, and is the author of more than twenty books, including The Druidry Handbook (Weiser, 2006) and The Long Descent: A User's Guide to the End of the Industrial Age (New Society, 2008). He lives in Cumberland, Maryland.

Bill Totten