By Ron Robins, Founder & Analyst - Investing for the Soul
The US government and financial elites are in many ways deceitful. Directly and indirectly, they promote debt and consumption as a drug dealer promotes cocaine. Drugged by manipulated and low interest rates, Americans believed the messaging of the US government, the Federal Reserve and Wall Street propaganda that affluence was forever and that all they needed was a credit card and stocks for a heavenly life. From massive hidden government debt and massaged statistics to Enron style bank accounting and securities’ frauds, these institutions deceive us.
The deceit comes in many guises. One of the greatest deceits is the masking of huge future financial problems associated with US government debt. Professor Laurence J. Kotlikoff, Professor of Economics at Boston University, says the US, and even IMF data, reveal that the US is already bankrupt. That is due to its unfunded Medicare, Medicaid, Social Security, defense and other liabilities totalling $202 trillion, or over fourteen times the annual US gross domestic product (GDP) of a little over $14 trillion.
Americans are also deceived by the reported US government budget deficits. The 2009 deficit was advertised as $1.417 trillion. But John Williams at shadowstats.com says the US government’s own figures show that using the same accounting methods that businesses are required to use reveals an enormous $4.3 trillion 2009 deficit. That is the real accounting deficit and equal to about 30 per cent of US GDP. To cover it would mean an immediate doubling or more of US taxes!
Professor Kotlikoff says what America urgently needs is financial and policy ‘heart surgery,’ and not the Band-aid solutions recently passed on healthcare and financial reform. Otherwise, he says, hyperinflation will eventually rule. But the US government and their Wall Street cohorts continue to ignore such insightful calls to action, thereby continuing to deceive the public of the seriousness of the issue.
Most government statistics are somewhat deceitful too. Every US government in recent times, whether it was the administrations of Bill Clinton, the Bush’s or Barack Obama, has allowed the US Bureau of Labor Statistics (BLS) to massage its statistics that, funnily enough, after revisions, almost always show the US economy to be doing better than before. One wonders if it might also have something to do with the head of the BLS always being a political appointee.
The consumer price index (CPI), unemployment rates and gross domestic product (GDP), undergo almost continual ‘refinement’ making comparisons with previous periods often impossible. I wrote about these problems in my alrroya.com column of August 3, “Unethical Statistics Lead us Astray.”
Another deceit of the financial elites is the valuing today of some bank and financial assets at virtually whatever the banks feel they are worth. How would you like to up the value of your home from $500,000 to $800,000 because the software you wrote for your computer model said it was ok to do so? Welcome to Bank Finance 101.
US Congressional leaders and banks in April 2009 effectively forced the Financial Accounting Standards Board (FASB)—which governs US accounting reporting standards—to adjust its rules on how some bank assets are valued. The resulting changes to FASB’s rules gave banks the ability to value certain assets however they wanted to. This meant they were able to revise the values of some assets higher. Subsequently and miraculously, bank stocks rose and banks showed big profits after previous huge losses.
But residential and commercial foreclosures continue to grow and real estate asset values are either stagnant or again falling. Hence, due to the FASB ruling and other government actions—too many to detail here—the real asset value of most banks is probably somewhat lower than reported. Therefore, they are fictional and probably deceitful. The US government, financial elites, and many astute investors know this too.
The Federal Reserve (or Fed) likes to make statements that help guide the direction of individuals and businesses’ economic actions. For many years, their intent or remarks were akin to real estate sales people saying that it is always a good time to buy. Individuals and businesses believing in the Fed’s infallibility—and luring them with ultra low interest rates—purchased homes and expanded their businesses, only to later realize that they had been led down the path to major losses. In fact, evidence could suggest they were sacrificial lambs in order to maintain an appearance of economic growth that the Fed was desperate to create. Thus, the Fed is probably guilty of deceit too.
Wall Street seems guilty of many major deceits. Even though firms such as Goldman Sachs knew of the enormous potential losses associated with mortgage backed securities (MBS), they continued selling them anyway. Furthermore, with such massive and recognized possible fraudulent MBS and related securities involving Wall Street and the banks, where are the prosecutions? Is deception involved here too?
The Securities Exchange Commission (SEC) and the US Justice Department might be just a little deceitful as well by being too close to Wall Street operators and thus minimising sentences to those on Wall Street found guilty of financial crimes. Three judges implied this in their recent remarks in cases involving Wall Street shenanigans. (See “US Judges Sound Off on Bank Settlements,” The New York Times, August 23.)
Increasingly, Americans and people all over the world are realizing that the US government and its financial elites have been deceitful in many ways. The deceit includes: masking the reality and consequences of an unsustainable government debt spiral; statistical adjustments that make the economy look better; accounting standards changed to make banks appear solvent when they may not be; promoting excessive debt as the salvation for the populace; and probably unprecedented, unprosecuted, financial deception by some Wall Street elites.
In the US democracy does not always equal honesty and integrity. Financial dealings are not all truthful. Fraud seems to go unpunished and punishment does not fit the crime. Welcome to the Land of the Free where deceit is alive and well in the US government, the Federal Reserve and on Wall Street.
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