February 25th, 2013

Waking Dreams End Unpleasantly


This article was written by Brandon Smith and originally published at Alt-Market.com

Whenever I endeavor to explain America’s current economic situation to a person who likely receives most of his information from skewed mainstream news sources, I try to use two comparisons; the Great Depression, and Weimar Germany, because what we are experiencing is actually a combination of elements from both events.  Some people, unfortunately, have little understanding of the Weimar hyperinflationary crisis, but at the very least, the imagery of the Great Depression is present in the minds of most Americans, if only through television and film.

When the depression is mentioned, they begin to grasp the gravity of our fiscal disaster, or at least what I am trying to convey.  However, those slow on the draw almost always sneer at the validity of the threat.  After all, during the Great Depression, there were bank runs, endless soup kitchen lines, roving masses of dirty homeless drifters looking for employment, shanty towns, and desperation everywhere.  We’ve all seen the old stock black and white photos, and the America of today looks nothing similar…

We have shopping malls and imported fineries.  We have sports cars and HDTV and video games and iPads and Disneyland and pharmaceuticals in every color of the rainbow!  We have tract homes and gated communities and condos and beach houses and summer vacations and first-class flights and texting and nightclubs and lattes and credit cards!  When we turn on cable news, what do we see?  Progress!  Glorious progress!  All is in “recovery”.  All is as it was yesterday.  All is well…

For the average unaware citizen, as long as the commercials and the fast food continue, there is nothing to be concerned about.  What they have overlooked is that in this country we have had for at least the past decade the illusion of prosperity, and nothing more.  Our modern citizenry looks back at the Great Depression and sees a deteriorating exterior that matched the true state of the interior crisis.  They look at today, and see a fresh, glimmering, glossy exterior that cleverly hides the rotting financial sinew underneath.

They do not grasp how today’s implosion could be worse than that of any crisis yet seen in our history while still maintaining a visual facade of working order.

In recent articles I discussed the black magic of the stock market, and summarized a position I have held for a very long time:

That the Federal Reserve has been injecting a very large percentage of its QE, or fiat stimulus, into the Dow in order to keep the market propped and seemingly prosperous.  That this has been done by fueling international banks with capital and then allowing the institutions to flood stocks with purchase orders as well as direct interventions by the Fed itself.

What seemed obvious to those of us in independent economic analysis has been called “conspiracy theory” for the past few years.  Finally, the cat has been let out of the bag by former Fed Chairman Alan Greenspan (the same man who admitted that the Federal Reserve is an independent entity that answers to no one, not even Congress, ending decades of misinformation).  In the following interview, Greenspan states quite nonchalantly that “only the stock market matters”, meaning, that the market is no longer a reflector of legitimate economic health or decrepitude, rather, it has become a primary psychological driver.  For Greenspan and the Fed, fundamental indicators like true supply and demand are of no importance.  The market must be kept inflated at all costs, because its success, no matter how artificial, is the only thing keeping our system from breaking apart:


Richard Fisher of the Dallas Federal Reserve, clearly in response to Greenspan’s comments, openly admitted in a recent interview that the central bank has “artificially sustained markets”:


This is, of course, dangerously backwards.  Strong data and legitimate profits are supposed to drive market psychology, which in turn is supposed to increase stock performance.  Instead, the market is being manipulated in order to maintain a false sense of economic optimism and keep ignorant investors and consumers spending in the hopes that tomorrow will bring better tidings!

Interestingly, the latest minutes from the Fed indicate a “push for tapering” on bond market purchases, and a diminishment of QE, which is currently pumping over $85 billion per month into our fiscal structure.  Part of this effort has been led by Fisher, who owns over $1 million in personal gold holdings (meaning it is doubtful the banker believes that the Fed will actually stop printing, or that the dollar is going to hold its value for much longer).  I believe this is a bit of theater designed to remind the country how addicted to fiat we now are, as well as set the stage for the government alone (instead of the government in collusion with central bankers) to be blamed as the scapegoat for an inevitable collapse.

Both Greenspan and Fisher in their latest interviews subtly introduce the meme that government indecision and “partisan bickering” are the ultimate culprits behind the continuing dysfunction of the economy.  Both parties do indeed play a role in the crisis, but not in the manner that central bankers assert.  The government’s greatest crime was allowing the private Federal Reserve to operate with impunity and create the mortgage and derivatives bubble in the first place, while aiding it in policies of inflation and manipulation.  The government is a danger to our fiscal system not because of “indecision”, but because it takes its marching orders from the Federal Reserve and colludes in now openly admitted market manipulation.

Will the Fed cut off the flow of stimulus?  Possibly.

It is important to note that talk of a QE reduction has surfaced right as the Federal Government is set to make a decision on spending cuts and the raising of the national debt ceiling.  The first cuts, now called the “sequester” (a nicer word for “austerity”), will be administered in early March, and will apparently affect everything from school teaching positions to employment at the Department of Defense.  The White House claims that such cuts will damage the U.S. “recovery” and send the nation hurtling back into recession.

Obama is, in a sense, correct.  However, I would point out that the federal cuts alone will not be the catalyst for collapse.  The Federal Reserve’s move to reduce QE in conjunction with cuts would be the true trigger of fiscal calamity…a controlled calamity with a purpose…

America’s financial and social systems only function today because of one thing – government spending.  The government is “officially” indebted in the amount of $16 trillion.  Unofficially, the number is closer to $120 trillion.  These massive liabilities have been accrued mainly through entitlement programs and state welfare.  Foreign investment in U.S. Treasury bonds does not produce anywhere near the capital needed to maintain such programs, which is why the Federal Reserve is now the world largest holder of U.S. debt (surpassing even China).  Without the Fed’s endless printing and bond buying schemes, the government cannot continue entitlement programs, and, it cannot feed money to dependent states.  These programs are the only thing keeping the illusion of a normal economy alive.

To give you a sense of what I mean (keep in mind that real numbers are likely much worse than reported statistics)…

Despite talk of recovery, U.S. poverty levels have hit all time highs.  Over 50 million Americans are below the official poverty line:


In 2009, food stamp enrollment stood at around 32 million Americans.  Today that number has grown to around 48 million; a 50% increase in only 5 years:


The number of citizens on federal disability is at record highs, climbing to almost 9 million people, and has expanded every month for the past 192 months:


Requests for emergency food assistance are on the rise in most cities across the country, and homeless numbers continue to climb:


Now ask yourself this:  How many people in this country rely on government money for most if not all of their survival needs?

Without government funding, and without the fiat printing press at the Federal Reserve to feed that funding, the veil of financial recovery fades away, not just in the stock market, but everywhere.  All the poverty that has remained hidden for the past five years will suddenly be visible on our streets and doorsteps.  Welfare programs to individuals and to states ARE the modern day soup lines.  When they go, those reliant on them have nowhere to turn.

Already, homeless shelters in numerous states are suffering from funding shortfalls and many are closing their doors:





Food Banks are stricken with heavy demand and a dwindling supply.  Interestingly, government cuts to food bank spending are being blamed on high food prices due to the latest “drought”.  No mention of inflation caused by dollar devaluation, of course:


The lesson here is that no one, not even the government, has the ability to “spend their way out of debt”.  And no one, including central bankers, has the ability to cure economic collapse by printing money out of thin air.  But the bankers already know this…

The Fed is discussing QE reductions in the face of a “burgeoning recovery”, but they know as well as you and I that the fundamentals show no economic improvement whatsoever.  Why else would they manipulate the stock market with fiat stimulus?  Why else would they manipulate bond markets with fiat stimulus?  Why else would they keep interest rates at near zero and throw essentially free money at international banks?  Because this is their only means of hiding the reality they know to be true.

Why would they suddenly decide to reduce QE when they KNOW that the result will be the fast moving exposure of true instability with the U.S.?

There are two reasons that I would make such a move if I were them…

First, they have done this song and dance before; allowing markets to dive in the face of a prospective end to stimulus, and then jumping in to save the day with even larger fiat injections.  The Fed’s decision to spread the rumor of QE cuts just before the government is to decide on austerity measures and the debt ceiling is no accident.  The combination of Fed cuts and government cuts may be a deliberate effort to create a shock event that leads to the next stage of U.S. implosion.  Government cuts and “party conflict” (fake party conflict) will provide cover for the real cause of destabilization; the Fed’s shut down of the fiat life support machine.  The masses blame the lack of government “compromise”, and the Fed moves back in later with even more overwhelming QE measures, slowing the crisis slightly.

Second, the Fed and the globalists at the seat of our government may very well be preparing the populace for a default scenario.  Central banks around the world have been purchasing record amounts of gold, and establishing bilateral trade agreements that remove the dollar as the world reserve currency.  They are undoubtedly getting ready for extreme devaluation in the U.S. dollar.

If QE is cut, or restricted to the point where debt obligations cannot be maintained, then this is exactly what will happen.  Again, government indecision and partisan debate will be blamed for the disaster while the Fed remains the “innocent bystander” who “tried to warn us all of what would happen…”

The propaganda message sent to the public is:

Government decentralization is going to destroy you.  Politics must be centralized and streamlined and checks and balances must be removed if you are to survive.  Politicians are unqualified to handle economic policy because they care too much about the opinions of citizens, who are too stupid to understand economic policy.  All fiscal decisions should be handled by the banking elite without interference so that they can remain “objective”.  The American economy is in need of a complete overhaul, and the American people need to hand over their economic sovereignty if they wish to continue any semblance of a comfortable living standard.

In the end, the madness of debt spending is going to annihilate this country anyway.  Fiat printing and infinite QE will eventually result in the dumping of our currency as the world reserve, causing devaluation and hyperstagflation.  Stimulus and the monetization of government liabilities are crippling us.  The problem is, this nation is irrevocably dependent on such measures.  Cuts will result in almost similar catastrophe, but on a faster time frame and perhaps a slightly shorter duration (depending on who runs the show in the aftermath).  I’ve been saying it since 2008 – there is no easy way out of this situation.  There is no silver bullet solution.  There will be struggle, and there will be consequence.  It is unavoidable.  All we have to decide now is how we will respond when the inevitable disaster comes.

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6 Responses to “Waking Dreams End Unpleasantly”

  1. 1
    Austrian Economics is Color Blind Says:

    Good catch on the “drought”/inflation thing.

    Hey Brandon, check out this admission by Paul Krugman:

    Running Out of Bubbles

    In July 2001, Paul McCulley, an economist at Pimco, the giant bond fund, predicted that the Federal Reserve would simply replace one bubble with another. “There is room,” he wrote, “for the Fed to create a bubble in housing prices, if necessary, to sustain American hedonism. And I think the Fed has the will to do so, even though political correctness would demand that Mr. Greenspan deny any such thing.”

    As Mr. McCulley predicted, interest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt. All of this created jobs to make up for those lost when the stock bubble burst.

    Now the question is what can replace the housing bubble.

    And the job losses would have been much worse if the stock bubble hadn’t been quickly replaced with a housing bubble.

    So what happens if the housing bubble bursts? It will be the same thing all over again, unless the Fed can find something to take its place. And it’s hard to imagine what that might be. After all, the Fed’s ability to manage the economy mainly comes from its ability to create booms and busts in the housing market. If housing enters a post-bubble slump, what’s left?

    Mr. Roach believes that the Fed’s apparent success after 2001 was an illusion, that it simply piled up trouble for the future. I hope he’s wrong. But the Fed does seem to be running out of bubbles.

    He admitted that the Fed creates booms and busts, but unfortunately he doesn’t understand (or won’t admit) that the boom is where the damage is caused and that the crash is actually the necessary – and inevitable – correction; The boom cannot be maintained indefinitely.

    Also, check this out from Tom Woods regarding the coming bank failures:

    Ask an Austrian Economist


    Peter Schiff has been very outspoken on his show on the idea that a large increase in the interest rates will lead to massive bank failures.

    I never understood, however, why interest rate increases in our situation should lead to bank failures. Why would this be so?


    Rising interest rates will collapse the capital value (i.e., the market price) of assets banks hold. If they have existing T-bonds at 3% and interest rates on newly issued T-bonds rise to 6%, the price that investors will be willing to pay for the 3% bonds collapses. When that happens, banks become insolvent.

  2. 2
    Austrian Economics is Color Blind Says:

    I highly recommend this video, by the way:

    Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.

  3. 3
    Linda Says:

    Nice article Brandon! I am still waiting to see signs that the concepts at Oathkeepers, the Austrian Economics teachings, the ideas of David Zuniga and his Indictment Engine, etc.. have reached critical mass.

    Meanwhile, I do believe that, even though all of us need to be versed in self defense and actively participating in this aspect of the movement to restore the rightful and lawful government, the counterbalancing force must also be evident, active and preparing.

    We need to be able to shelter, feed, hydrate, clothe (etc) ourselves when the SHTF. From my perspective, your bartering system needs wider coverage, since it must also be in place when the fall occurs. I am able to do most of those things myself, if I am left to my own devices. However, that may not be the case. I suspect that there will be plenty of interference by people who still don’t get what is going on, and (worst of all) may be in a position of “power”. That is truly problematic, and we need to have conversations about that amongst ourselves.
    What seems odd to me (regarding money) is that we can’t seem to wrap our heads around the idea that a warm home, warm clothes, good food that is homemade, work that we enjoy, intelligent conversation, etc these are our true wealth. We can each have these things if we help each other by doing what we are good at; in other words, if Joe is a gun guy and Bill is a COOP guy, and Sally is a gardener, and Soozie can cook like no one else, then we might have the small beginnings of a community. We each have skills that can help our community life be happier and more efficient. However, we have become so used to looking to the Gov, instead of relying on ourselves and our communities, that we are all going to have a hard time in this transition. This IS a hard time, but I believe that hard times build character, so that should be good for all of us, at the end of the day. But it is going to be a LONG day.
    On Money/ Wealth:
    I think it would be a wonderful thing to live in a world where ownership was abandoned in favor of stewardship, and wealth was defined by having enough to be comfortable, while having enough left over to share with anyone who was starting out, or struggling. I hope that, as we are building, we think about moving towards that standard, not just trying like crazy to get back to where we were. Where we were was rotten to the core. I want to get on the road and build something new.
    God Bless! Linda

  4. 4
    Austrian Economics is Color Blind Says:

    Linda @ comment #3,

    You said that you want to live in a world where ownership is abandoned in favor of stewardship. Don’t you realize that’s socialism?

    I want to ESCAPE the current stewardship-minded state of things, where the government presumes to own the land and to “grant” people “permission” to reside on it.

    Our problem is a LACK OF ownership. We are already living a lot of what you think you want.

    Brandon’s barter network, as I’ve said before, is needed – but not because it makes trade more local. It’s needed because it would allow us to escape the economic destruction that comes from the use of fiat money (or other non-commodity money).

    The use of sound money is, essentially, just barter: you’re trading something that has value apart from being the money for some other good or service. Real money starts as a barter good.

    But we should hope to escape the need for mere barter as soon as possible, because barter will suck.

    Also, this idea that we need to be more “self-sufficient”, or that we need to buy solely local, or have “sustainable communities” – or, in general, the idea that we need to think as a community, per se – is bad economic thinking. It leads to LESS wealth, not more.

    Consider this description of China’s Great Leap Forward, by Murray Rothbard; Note the reference to “self-sufficiency”:

    The Myth of Monolithic Communism

    The Liberalization of China

    For a long while it looked as if China would never be liberalized, that it would remain locked in the super-Stalinism of Maoism. For nearly a decade after their takeover, the Chinese Communists did retain a semi-free market system, only to extirpate it in two savage thrusts into totalitarianism: the Great Leap Forward of the late 1950s (which featured such disastrous economic experiments in self-sufficiency as a steel plant in every rural commune’s backyard), and the Great Proletarian Cultural Revolution of the late 1960s (in which the division of labor was crippled, education was stifled, economic incentives were eliminated, and compulsory communes were strengthened with a repressive apparatus extending into each urban block and rural village). Art, literature, and speech were all brutally suppressed.

    Now, I realize that the self-sufficiency was forced in that case, but what I want to convey is that because a characteristic of self-sufficiency is a general rejection of the division of labor beyond the local area, or beyond “the community”, what that means is that “self-sufficiency” is more expensive and produces a lower standard of living.

    I will not limit myself to trading withing my community. A community that is based on values is good, but a community that is based on trade is a horrible idea.

    We FIND people of like mind THROUGH trade – there’s no need to manufacture “community” simply because people are close to each other. Maybe some people don’t want to know the people around them and they regularly buy stuff from two cities over – that’s OK, because prosperity is not about community, but about individual rights.

  5. 5
    Dr Says:

    Could this be the answer?


    [Editor's note: Dr, I'd be careful about promoting this. Very careful. Thank you.]

  6. 6
    Austrian Economics is Color Blind Says:

    Dr @ comment #5,

    Some quick thoughts and some resources:

    The article to which you linked says:

    This group of people, trustees of the public wealth …

    There’s no such thing as public wealth, as Murray Rothbard explains:

    Appendix B: “Collective Goods” and “External Benefits”: Two Arguments for Government Activity

    The article says:

    All debt has been erased and corporations … have been foreclosed.

    The problem was never debt, but artificial credit expansion:

    An Introduction to Sound Money

    Like all changes that would improve the American economy and restore American liberties, sound money — money beyond the ability of governments to manipulate and multiply at will — is treated with derision and contempt by the political and media establishments. That should be clue number one of how important and worthwhile it is.

    Here are a couple of videos that can introduce you to the subject painlessly.

    And the problem was never the corporate structure, but rather the government agencies created to combat the non-problem of “wealth inequality”:

    Corporate Personhood, Limited Liability, and Double Taxation

    Corporatism Is Not the Free Market

    The Vampire Economy and the Market

    Dominick Armentano: The Case for Repealing Antitrust Laws

    Take away the government protections for business, and you take away Corporatists’ political power. However, they do have a right to use the fruits of their labor however they see fit, like everyone else.

    Also, our Founders warned about those who wanted to abolish debts:

    Federalist paper 10

    The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State.

    The article says:

    So, as informed global citizens …

    No one is a “global citizen”. It’s interesting that the author holds the same view as Obama on this:

    Obama promises to ‘remake the world’

    Billed as a speech about Transatlantic relations, it turned out to be a manifesto for the planet, with an appeal to “the burdens of global citizenship.”

    “People of Berlin, people of the world, this is our moment. This is our time,” he declared, offering himself “not as a candidate for president, but as a citizen, a proud citizen of the United States and a fellow citizen of the world.”

    The article says:

    “The system” is oligarchical in nature, in that it is geared only to profit “the few” while the rest of us work to support it.

    This system is only possible because of artificial credit expansion. If you have a printing press, and are therefore able to create purchasing power out of thin air – no matter who is doing the printing – guess where the wealth concentrates? (And in this case it actually IS a concentration rather than just wealth creation by skilled producers.)

    The article says:

    [Mass media] is used to … sell you crap by creating a “need” and then providing you with a product to fulfill it.

    No one forces us to buy this supposed “crap”. Let’s blame ourselves for being so weak-minded, if we honestly think we don’t need it:

    Defending the Undefendable (Chapter 9: The Advertiser) by Walter Block

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