By Catherine Austin Fitts
On June 2, 2015, the Wall Street Journal published its daily report on global central banks, Grand Central. The report was entitled, A Letter to Stingy American Consumers.
You may want to read the Journal piece here (it is very short) before reading my reply:
http:/s.wsj.com/economics/2015/06/02/grand-central-a-letter-to-stingy-american-consumers/
Dear Wall Street Journal Central Bank Team,
Americans’ higher saving rates reflect our higher risk levels, of which you and the Central Bank may not be fully aware. Many of these risk issues do not appear in the “official” statistics and may not be evident to those living in large cities flush with bailout cash and government credit and contracts.
I thought it might be helpful if I described some of them to you.
Cost of Capital
WSJ: The Federal Reserve is counting on you too. Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates.
While the central bank has been making it possible for US and European financial institutions to borrow at next to nothing, most American consumers are paying 12-30% on credit cards and 4-8% on mortgages, making our cost of debt capital significantly higher. In addition, our risk of carrying debt is higher: if we get into trouble (due to job losses or illness) we will not be bailed out.
But we will be asked to pay for those who do get bailed out.
The American consumer’s cost of equity capital is also much higher. Small businesses in the US are not permitted to access liquid equity capital or to start local currencies – these franchises are protected fiercely by the central bank and Wall Street. New crowdfunding regulations have been held up for years on the pretext that the federal government is protecting us from fraud. Which is odd, as we can walk into any corner store and spend our life savings on lottery tickets that fund government budgets or find a local dealer and purchase narcotics at low prices.
Housing
US housing markets have been pumped and dumped. Regardless of whether American families lost their homes or were able to keep them, the costs have been extraordinary. Now the Obama Administration is keen to pump the housing market again coming into the 2016 election.
Deflation
In previous years, although Americans were concerned about rising prices, it made sense to buy now rather than defer purchases. If we needed a piece of furniture, it was likely to cost more tomorrow than today. But with the current economy turning to deflation and commodity prices dropping – many of us in the heartland depend on commodities businesses for our income – deferring purchases makes a lot more sense.
Globalization and New Technology
Incomes have been significantly reduced by the decision to compete US labor directly against labor in the emerging markets.
We now face a new round of outsourcing of white collar jobs as well as the impact of robotics and the federal re-engineering of health care and education which is estimated to reduce labor in the trillions of dollars. One Silicon Valley firm reported that it has built a robot which can cook and package a hamburger. The firm estimated that this robot would save the fast food industry $16 billion a year. However, it will lose our economies $16 billion in income multiplied by the circulation in our local economy.
Sounds like we need to save up for potential costs of our “unfortunate worker dislocation.”
The Re-Engineering of Health Care and Education (via Common Core):
The Obama Administration has moved forward aggressively with federal mandates in US health care and education in a manner which will allow the re-engineering of these functions into corporate businesses with a significant reduction in labor. Such changes mandate that we will pay for things we don’t want and which will be absurdly expensive.
This means that many of us will be required to 1) pay for the mandated systems and 2) use our time and money to provide for these services separately while our incomes are re-engineered away. In the meantime, corporate health care supported by mandated payments has lead the stock market up.
We have long been concerned about the federal government funneling contracts and purchases to corporations in order to prop up the stock market. But, mandating that we buy things from corporations is a clear signal that market economics really no longer apply.
We are in a new phase of consumer “extraction.”
Debasement
We are experiencing debasement across the board – from the food supply to the media. As a result, our confidence in US institutions is dropping. According to a recent AP survey:
Americans’ confidence in the Supreme Court, the executive branch, and Congress has been declining over the last decade and each are at or near record lows in 2014, according to an analysis of the General Social Survey conducted by the AP-NORC Center and GSS. Fewer Americans report having a great deal of confidence in the Supreme Court (23 percent) and Congress (5 percent) than at any other time in the last 40 years, and confidence in the executive branch is also near an all-time low (11 percent).
Confidence in the media remains at an all-time low with 7 percent of adults saying they have a great deal of confidence in the press and 10 percent reporting a great deal of confidence in television.
And there is no hope on the horizon for an improvement in leadership. No less than the editors of The Economist recently wrote:
When the candidates for the Republican presidential nomination line up on stage for their first debate in August, there may be three contenders whose fathers also ran for president. Whoever wins may face the wife of a former president next year. It is odd that a country founded on the principle of hostility to inherited status should be so tolerant of dynasties. Because America never had kings or lords, it sometimes seems less inclined to worry about signs that its elite is calcifying.
…Loosening the link between birth and success would make America richer—far too much talent is currently wasted. It might also make the nation more cohesive. If Americans suspect that the game is rigged, they may be tempted to vote for demagogues of the right or left—especially if the grown-up alternative is another Clinton or yet another Bush.
We have always had faith in the intelligence of markets and the competition for ideas and leadership provided through the election process. However:
- Markets are now rigged
- Elections are now rigged
- We have no privacy: information systems are predatory mechanisms which serve government and corporations
And so our risk rises.
There is a reason why the Obama Administration lost its push for gun control: the American people understand that our individual safety and the safety of our children depends on gun ownership.
You bet it’s time to save more and to keep more of it under the mattress.
On behalf of the American consumer,
Catherine Austin Fitts
Publisher, Solari Report
Former Assistant Secretary of Housing – FHA Commissioner, Bush I
Former managing director, member of the board, Dillon Read & Co. Inc.