Frederick Douglass

"Power concedes nothing without a demand. It never did, and it never will. Find out just what people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them..." Frederick Douglass

Saturday, October 30, 2010

The Gang-bankers Have Struck Again

Just when we thought we were safe, Wall Street has struck again.

Our friends in high finance have found a new way of profiting from the depression they have so ably stitched together: They are forming new Limited Liability Company ( LLC ) hedge funds to buy up property tax debt from state and county governments. Many of these funds are owned by the very same banks which received tax-payer money as part of the Toxic Asset Relief Program ( TARP ), or by their subsidiaries, or by the same people who own the banks. These hedge funds then tack on exorbitant fees and demand payment from the delinquent home-owners. When the debtors cannot pay, the funds seize their homes.

Most of these families have miraculously managed to make their mortgage payments, but have not had enough left over for the tax man. Budget-shrunk regional governments, unable to collect revenue from properties in default, have resorted to making sweetheart deals with these cash-rich hedge funds. In some cases, they have given these investors the power to garnish wages. In such circumstances, it is the hedge funds who decide what their fees will be and hence how much money they will extract from debtors. To my knowledge, this is the first time in American history that businesses have been given direct access to workers' paychecks.

Perhaps the most scandalous example of such a fund is Fortress Investment Group, headed by former Fannie Mae chief, Daniel Mudd, son of former newscaster Roger Mudd.

Fannie Mae got its start as a government agency as part of FDR's New Deal. It's function was to be an aftermarket mortgage buyer. When banks had lent all they could under existing law, Fannie Mae would buy the loans from the banks at a discount which would enable the original lender to make more loans. It worked quite well, so well in fact, that it was privatized in the 70s under Bush family protege, Richard Nixon.

As the boss at FM, Mudd made the decision to buy these dubious sub-prime mortgages. It was the presence of these uncollectable loans on their books which brought Fannie to the edge and forced it into Federal receivership. Now the man responsible for this disaster has targeted those fortunate few who succeeded in keeping up to date on their mortgages but are in arrears in their tax payments. The real estate carnage wasn't sufficient for our tormentors on Wall Street, not enough blood was spilled. Laden with out TARP money, they are now hunting down those who survived the original ambush to steal their property from them as well.

And they are now hunting you down. Hyperinflation is coming, if we don't have a cost-of-living allowance, we may soon be unable to pay our bills. I wonder what fees they will charge us...

Don't let this happen. Don't vote for a contract without a COLA.

The Grand Delusion

Talking to drivers I keep hearing the same thing: "I can live without a COLA raise so long as I don't have to take a pay cut. I just don't want to lose what I have."

Losing your COLA is losing what you have. It's death by a thousand little cuts.

If banks retain the money which flows into them, as is happening now, that creates a depression. If they release it in the form of loans, they create inflation. [1] They can only do one or the other. Inevitably, the banks must lend and will. And when this occurs, the buying power of your paycheck will decline proportionally. As it does, you will be forced to cut back on your spending, you will have to make sacrifices. Eventually, if you don't have a COLA, you will be forced to make painful concessions.

To keep what you have, you must keep your COLA. Losing it means losing what you have, it means moving backwards.

And anyone suggesting otherwise is a dirty little liar.

[1] For a brief description of how this occurs, please scroll down the blog to "What Everybody Should Understand..." For a more detailed explanation, click the "Money as Debt" link in the audio/video section on the column on the right.

Friday, October 29, 2010

A Look Behind the Scenes at Quantitative Easing

Nobody has covered the Greenspan Depression any better than Mike Whitney. He too thinks the recent "easing" policy [1] has more to do with China and globalization than fear of deflation.

[1] For explanation please scroll down the blog to "Quantitative Easing, and..."

Tuesday, October 26, 2010

I Hope You Like the Taste of Cat Food.

The first step on the descent into shoplifting pet food in your old age is losing your cost-of-living allowance.

Saturday, October 23, 2010

Quantitative Easing, and What it Means for Wage-earners

The Fed recently announced a change in monetary policy. Citing the danger of deflation which high unemployment ( about ten percent ) and low inflation ( about one percent ) can create, Chair Paul Bernanke said he would pursue a course of "quantitative easing."

What it is that the Chair wishes to remedy is the illiquidity caused by the "credit crunch." Currently, there is a shortage of money in the economy which has caused the recession and is preventing a recovery. Hoarding enormous sums and identifying the effect of their monetary contraction policy as its cause, the big banks claim that the economy is so bad that it is too risky to make loans. They wont budge.

"Quantitative easing" is bankspeak for debasing the currency. Typically when the Fed wants to increase the amount of money in circulation it lowers interest rates. Since low rates make borrowing affordable, more loans requests are made and money flies out of the banks and into the economy. This is not a possibility now as interest rates have been near zero for several years. With low rates not furnishing the desired surge of funds, the Fed plans to create new money and spend it directly into the economy. It will do this by purchasing bonds.

This extra money in circulation will, Bernanke hopes, cause inflation to rise to two percent. [1] Deflation, the drop in prices which occurs when consumers have little money to spend, will thus be averted.

Good news, eh? The Fed comes a-charging to our rescue? Not quite. The first thing one needs to understand is that the Fed's stated motive for its new policy is rubbish. It's the same old anodyne propaganda we always get from the bankers who own our economy. It's designed to pacify, to make us believe that this redirection of policy is undertaken for our benefit. It isn't. Bernanke does not work for us, he works for the private interests which own the Fed. He doesn't care about us. If he did, he wouldn't hold the position he does. His job is to maintain and, if possible, increase his patrons' wealth and power. When policy changes, it is in response to their concerns, not ours.

Deflation is a threat to corporate profits, this is one of the reasons for the "easing." At least some of the bonds the Fed will buy will be issued by banks, no doubt the same banking houses which also own the Fed. More money for them. A rise in inflation devalues the currency, this will make it easier for U.S. exporters, currently losing the globalization war, to sell their goods in the international marketplace as the value of the currency of prospective buyers will rise as the dollar descends. The real target of this devaluation is China. It pegs its currency at a fraction to ours, meaning that it maintains its money at a fixed ratio to ours. When ours goes up, they raise theirs proportionally so that the ratio is preserved. They devalue proportionally when the dollar falls. This keeps Chinese exports cheaper than ours and they've been winning the international trade competition as a result. This has cut into the profits of the banking houses ( and their other business interests ) and is, I believe, the principal motive for the new quantitative easing policy. The Chinese central bank will reduce its currency in response, but the less the overall value of each is, the less the difference matters. And there is a limit to how far they can devalue their currency before it causes civil unrest, already a combustible problem in China. It is no accident that China will be the nation most adversely affected by Bernanke's new policy.

You will be adversely affected as well. With the U.S. and China weakening their respective currencies in order to garner a larger share of the globalization booty for their wealthiest corporate tycoons, the buying power of your paycheck will decline. Bernanke has made everybody who earns American dollars a little bit poorer. This will not matter to you if you own a bank or other business which will benefit from a weaker dollar. But if you work in a bank or for any other public or private employer, and you do not receive a yearly cost-of-living allowance ( COLA ), you just got a pay cut.

And if you think that two percent inflation is not enough to worry about, then please scroll down the blog and read "change We Can Believe in."

Two percent inflation is just the beginning. It's going to get worse, much worse. Once the banks begin to release the sequestered trillions of tax-payer TARP money from their vaults, we will encounter a glut of money entering the marketplace the likes of which we have never experienced before. In those countries where the banks have begun to lend, inflation is running about five percent. It will happen here too, it's not a question of whether but when. Five percent inflation will bankrupt most wage-earners in a matter of a few years.

If you do not have a COLA, get one. Insist! If you do have one, you must to retain it.


Wednesday, October 20, 2010

Those Were the Days, Mis Amigos.

Worker-run transit? Yes! It really happened.

During the revolution, most of Spain came under self-management. Nowhere was the anarchist spirit stronger than in Catalan where workers ran the Barcelona transit system. Unfortunately, it only lasted three years. Franco and the Fascists, with help from the Stalinists who viewed anarchists as "uncontrollable elements," won the war and quickly brought an end to this experiment in democracy.

I recommend you read:

Tuesday, October 19, 2010

Change We Can Believe in

The White House has recently announced that, like last year, there will be no cost-of-living adjustment for Social Security recipients. This may not seem too noteworthy, but if it continues it will be a catastrophe for seniors and those approaching their "golden" years. This will be particularly true for those workers who do not have, or will lose, their cost-of-living allowances.

I'll use myself as an example. I'm a fifty-year-old Metro bus driver. If I lose my COLA this year, as it appears I will, and I do not get it back before I retire, which is all but certain, the actual purchasing power of my paycheck will be reduced severely by the time I reach sixty-five. ( This is assuming that Social Security will exist then, which is by no means clear. )

Say we use a conservative estimate of two percent inflation annually. After five years my paycheck will have only about ninety percent of its present buying power. After ten, it will drop about eight more percentage points. By the time I retire, my paycheck will be worth only about seventy-four percent of its current value. Consequently, that first Social Security check will reflect this onerous depreciation. And if I live to the average age of seventy-three, and there continues to be no cost-of-living adjustment for Social Security recipients, the value of my income will continue to plummet. For some this will inevitably mean eating cat food, cutting medications in half, and even homelessness for less fortunate, even for those who worked all their lives.

And this is assuming a modest two percent rate of inflation. With the government borrowing money to bailout banks and thus creating trillions of new dollars, there has never been a greater chance of hyperinflation. I believe it is next to impossible for inflation to run at or under two percent over the next ten years.

If you do not have a COLA, get it. If you have one, don't lose it.

An Open Letter to ATU587 President Paul Bachtel

[ Editor's note: In the original i wrote that twenty-four trillion dollars were more than existed. This is not correct. I meant to say it was larger than our Federal budget. ]

Dear Paul;

As you know, there is an international effort, led by the world's largest financial institutions, to deprive workers, particularly public-sector employees, of our cost-of-living allowances (COLA). This aggressive campaign has now reached us here in King County with Metro and its media allies insisting we surrender this indispensable, hard-won protection. I write to implore you not to wither under this pressure, and to resist this impossible demand.

The cost of living goes up when prices go up. Prices go up when there is more money in circulation than there are corresponding goods and services to be purchased. This glut of money is a direct result of bank loans. When banks hoard money, as they are now, the supply of money shrinks. When they lend, it expands and creates higher prices. The firewall which insulates us against inflation is our COLA.

In 2008, Congress appointed Neil Barofsky the Special Inspector General for the Toxic Asset Relief Program (TARP), the bank bailout bill signed into law by President George W. Bush. The General subsequently reported that if all the provisions of the Program were fully funded, the actual cost would be twenty-four trillion dollars. This sum is several times greater than our Federal budget. Just about all of this money, he insisted, would have to be borrowed.

Thus far, the big banks have not released our money but have used it to make acquisitions of other financial institutions. However, when they do start lending, we are going to experience currency inflation the likes of which we have never seen before. In fact, we have never had this much money sitting on the sidelines waiting to enter the economy in our history. Even if one is foolish enough to believe that the banks will act responsibly this time around, they may not be competent to control the forces they will unleash when this unprecedented sum of new money enters the marketplace. The danger of hyperinflation has never been greater.

Elsewhere, where national economies were even in worse shape than our own, the banks have begun to release a trickle of money. In France, Greece, and South Africa, inflation has risen to between five and eight percent. If it is true that here in the U.S. the average working-class person's regular expenses exhaust 80 percent of his/her income, then an annual five percent decrease in the real buying of our paychecks would soon be a disaster. Within a few years some of us will be forced to sell our houses, or take kids out of college, or not be able to retire at age 65, or not be able to provide care for aging loved-ones.

It will take a miracle for us not reach or exceed five percent inflation. Giving up our COLA, particularly in light of this onrushing tsunami, is unthinkable. It is the worst of all possible outcomes. There are lots of solutions to this budget crisis, please let Metro know that this is not one of them. Speaking for myself, I do not care if I ever get another raise. I do not ask to advance, only not to be beaten back into a ruinous retreat. I only wish to keep the buying power of my income where it is, so I can keep what little I have. Many drivers feel this way.

And please do not allow Metro to lead you by the nose into agreeing to a contract which is back-loaded with bells and whistles. It is the COLA which they are after and which they must never get. We have already fallen into the their trap by our making recovery times the locus of our counter campaign. No doubt they will offer to return these to what they were in exchange for the COLA. No doubt this offer will be accompanied by the promise of the reinstatement of the allowance when the crisis is over. Do not be their fool. There is an old Italian proverb which goes "He who lives by hope, dies in despair." Once we have relinquished the family jewels we will never get them back. It will be the beginning of a long descent into poverty and misery for us. Please, do not let this happen.

Now are the times which try people's souls. Stand firm! Let Metro know that elimination of the COLA is not now, and will never be, an option. Please, do not disappoint us.

What Everybody Should Understand About Inflation.

Why is the International Monetary Fund, the World Bank, the Federal Reserve, the U.S. Treasurer, and the rest of the international banking establishment so keen to have workers, particularly public sector employees, give up their cost-of-living allowance? From Dublin to Seoul, from Berlin to Johannesburg, from Athens to Seattle, the gauntlet has been thrown down -- they want your COLA. Nothing less will do.

On September 29th, millions of working people worldwide took to the streets in protest of the austerity measures imposed by their governments. Enormous sums were lent to these nations by the respective national banks, each a private institution owned by the bankers. In exchange for their assistance, the banks insisted upon certain economic policy reforms: raising retirement ages; privatizing public pensions, utilities, and infrastructure; pay cuts and the elimination of COLA for public employees, just to name a few. Tragically, this resulted in violent clashes between protesters and civil authorities in Greece, South Korea, France, and, most lethally, South Africa.

The long gone apartheid regime knew it was through when one by one white labor unions, disgusted by the government's oppressive tactics, began to join in solidarity with black unions in demanding an end to white rule. It is the ugliest of ironies that once again black and white workers are linking hands but this time in protest of the black government and the ruling party, the once great African National Congress.

Inflation is running at about eight percent in S.A. and is threatening to go higher. Mining and auto workers demanded a COLA, public sector employees did the same. When their employers balked, millions went on strike.

Public and private employers asked that workers halt their strikes until after the World Cup when, with all the extra revenue that would provide, perhaps the strikes would not be necessary. The workers agreed.

After the Cup, negotiations recommenced with employers refusing to grant a COLA. Eventually, after months of on-again off-again mining, auto worker, and public employee strikes, private employees gave in and accepted an eight percent raise each year for the duration of their respective contracts. However, public employees, led by the teacher's unions, held out for a COLA and not raises based on the current rate of inflation. The government issued an ultimatum but the unions didn't break. As the deadline approached and the workers were still holding their ground, the government acted. Union leaders were targeted for violence or arrested, strikers were rounded up by the police, demonstrators were dispersed with tear gas and, in a few disastrous cases, with bullets. The unions were broken, and dozens were dead or missing. If inflation continues there at eight percent, teachers will be starving in a few years.

So why is it that the governments of South Africa, Greece, or France are willing to kill their own citizens rather than maintain their employees at rate of pay equal to inflation? Banks need to inflate currency in order to survive and prosper, and governments are the largest borrowers.

Over the centuries bankers have gained control of national currencies. Inevitably some catastrophe -- losing a war, a natural disaster, famine, etc -- would bankrupt a country's treasury and it would be forced to borrow. Bankers' demands grew in proportion to the desperation of borrowers until, finally, they enticed national leaders to surrender control of monetary policy in exchange for a guarantee of future loans. Eventually, governments were told by their bankers, truthfully or not, that their loan requests exceeded what could be supplied. However, the bankers insisted, that the funds could be provided if the banks were allowed to inflate the money supply. As it stands today, just about every country has a national bank which determines who gets credit and how much, and what that money will cost. The practice of creating money as debt and thus perpetually inflating the currency has made bankers rich beyond their wildest dreams.

In order to avert disputes about the specific history of any one particular country, allow me to use a hypothetical to demonstrate exactly how inflation is created and what effect it has on all of us.

Let's say we lived on an island on another planet, call it Tin Island [ TI ] as we have large deposits of that mineral. Say there's only one other land mass, another island, on our wet planet. We engage in trade with the people of tropical Copper Island, we send them tin, apples and wheat and they provide us with copper, coconuts, and rice in agreed quantities. No money is exchanged and each civilization lives contentedly in the iron age.

Let's also say that on our island each citizen has precisely 100,000 bits of gold to use as currency, but TI's gold mines are exhausted. There's not another gram of the stuff on the island. No matter though, there's plenty for everybody. Nobody is rich or poor on our island, but everybody has enough to use as a medium of exchange and nobody goes without.

Now let's say a tsunami strikes the west coast of TI. Fishermen's boats are damaged, roads and power lines need to be rebuilt etc. Both the government and private citizens need money. Now let's say that some people on the other side of the island, unaffected by the tragedy, decide to form a bank and lend their savings to the fishermen and the government. They charge a small interest rate to cover their expenses and against the possibility that another calamity might befall the island and the borrowers might not be able to pay.

Success, the government and all the fishermen repay their loans without difficulty. However each fisherman was lent 1,000 bits but payed 1,050 to the money-lenders. As a result, the net worth of the fishermen decreased from 100,000 bits to 99,950, and the money-lenders increased proportionally. Fifty bits was removed from the economy. This is not a problem if the bankers return it by buying goods or services. However, if the bankers continue to lend, they drain money out of the economy thus creating a shortage of gold bits in circulation.

This is great for the bankers, they are becoming extremely wealthy, but there's a problem. They are killing the goose that lays the golden eggs. As they take more and more from the economy, the money supply dries up. Farmers wont bother to plant crops if he can't sell them. Fishermen wont fish. The government can't maintain roads and they become impassable. The economy comes to a grinding stop.

What's a poor rich banker to do? One solution is to introduce paper bills in lieu of gold bits and just keep printing more and more of them. Another solution is imperialism. Blame the people of CI for some offense and invade their island and take control of their resources. This will provide a flow of money which will keep enough money in circulation so that the banks can keep on raking it in.

Another potential solution is slavery. When there's no longer any financial incentive for farmers to sow their crops, force them to under the pain of death.

All of these have been done but they require the cooperation of a large segment of the population. The easiest solution for the banks is simply to perpetually inflate the currency.

Instead of using their own money to lend, they increase the amount of money in circulation by the amount being borrowed. Say there was a billion gold bits worth of paper bills in circulation ( 1,000,000,000 ) before the bank lends a thousand worth, as a result of the loan there would then be an additional 1,000 making a new total of 1,000,001,000. The bank makes the necessary clerical changes and that thousand enters circulation when you walk out the door with it.

The problem is that there is no corresponding increase in goods or services, no increase in the production of tin, wheat, or apples. Consequently, there is more currency chasing the same amount of product. This means that more money can be bid or paid and the result is that prices go up. Currency inflation causes price inflation.

Inflation has solved the bankers' money-supply problem. There's now enough circulating to keep him rich and powerful and to keep the farmer at his plow. But in doing so he has released the genie of inflation from his vaults. He too now has to pay more and more, so what benefit is it to him?

As long as the big bankers control interest rates, and hence the rate of inflation, they can regulate it in such a way as they stay ahead of the curve and the rest of us fall behind. The currency only gets inflated from loans and hence this money is debt owed to them. This "new" money is theirs, and it comes with interest to boot. The money-as-debt system enriches them directly. Even if the rate of price inflation comes to exceed the interest rates they charge, it wont matter as they collect the conjured principal as well. On paper they lend a thousand and collect about 1,050 for a profit of about fifty. But the original thousand wasn't theirs in the first place, they just made a few data changes. Whatever the bank collects on the loan is profit beyond the bank's operating costs. Money flies into the big banks.

Meanwhile, back on Main Street, inflation erodes the buying power of everybody's paychecks, it's a tax of the worst kind. You are earning the same amount but it buys less and less, you spend less. Eventually the restaurant you are no longer able to patronize needs money and has to turn to the banks. Maybe you will need a loan too. Inflation makes everybody poorer ( except the banks ) and creates demand for the loans which the banks need to keep raking huge sums from our economy without destroying it. If everyone had a COLA, and their incomes rose with the rate of inflation so that their buying power never declined, it would reduce demand for loans. You wouldn't need one nor would those businesses you patronize, nor their employees etc.

This is a disaster for the banks.

Governments are the bank's biggest customers. Keeping them big enough to need a lot of big loans, and small enough not to interfere with the bank's management of the economy, is the single most important operational task the banks have. Who needs officious regulators poking their noses in where they don't belong. It is ideal for banks if the working class stays short of cash. It creates demand for loans and keeps labor costs down which is beneficial for the banks' other businesses. Likewise, it is in the best interests of the banks to keep governments solvent, particularly those weak or corrupt enough to allow banks to control the national currency. This way they can continue to borrow and not meddle in bank affairs, and keep a new government, one that might be hostile to the banks, from coming to power. The banks don't want compliant governments to fail. In the process of keeping these afloat, the banks enrich themselves.

Thus banks insist governments privatize those institutions like utilities which might be a source of income. They insist governments keep their debt to a few percentage points of GDP, thus assuring that the government can't spend on its citizens. This explains the proscription against COLA and the raising of retirement ages etc.

Whatever vision of economic justice you might have, charity begins at home -- don't vote for a contract without a COLA provision. Call our leadership and let them know how you feel.

Monday, October 18, 2010

I'll Huff, and I'll Puff, and I'll Blooooooooooow Your House Down

I'll Huff, and I'll Puff, and I'll Blooooooooooow Your House Down,
A Response to Frank Blethen and the Seattle Times
by Dave Fryett

[ Here's the article which prompted my response: ]

Know what a naked credit default swap is? Collateralized debt obligation ( CDO )? How about liar loans? I bet you that Frank Blethen knows. He doesn't need to worry though, the human misery loosed by the wild excesses of his fellow free-marketeers on Wall Street will never darken his door. The fiercely anti-union newspaper he owns, the Seattle Times, pays him a $2,000,000 salary. His contract also provides him with a generous cost-of-living allowance ( COLA ). Times readers might find this a bit befuddling as in a recent edition his paper's lead story, "Cash-strapped Metro targets drivers' pay", he contends that Metro's drivers are overpaid and cites COLA as the source of the "problem." Apparently the editor believes in COLA for millionaires only.

The article, subtitled "Decade of cost-of-living raises pushes top scale to third nationally," is part of an international drive, launched by the owners of the world's largest banks, to get workers to give up pay and benefits, particularly cost-of-living- allowances. This, the theory goes, will enable businesses to expand and governments to balance budgets and repay loans necessitated by the recession.

In North America, Europe, India, Japan, Korea, China, South Africa, and elsewhere, workers are under relentless pressure to accede to the impossible demands of their employers and governments. Worldwide, millions are on strike and, tragically, not a few have fallen to police, soldiers, and hired thugs in the effort to defend their livelihoods. This war has come home to us in King County as our bus drivers are now being targeted for destruction. The voice of this hostility is the Seattle Times, and Frank Blethen.

The article is a fairly typical piece of journalistic propaganda. Its presence as the lead story speaks to just how determined the bankers are to snare ever larger portions of our national wealth. Its author, Mike Lindblom, spins quite a yarn. He's learned his craft well, no doubt he received good guidance. Lindblom does what any good journagandist would: He seeks out like-minded sources for information and statistics; withholds the fact that they are run by interested parties; presents the conclusions their analysts make of their own "studies" as fact; allows spokespeople for these advocates of union-bashing to belch demonstrably false allegations without so much as a homeopathic trace of protest on his part; counters opposing opinions aggressively; gives much more space to those on his side of the dispute than to his opponents; front-loads the article with argument supporting his thesis and buries damaging, contradictory information deep within the piece long after most will have stopped reading. Then, remembering the first rule of propaganda--assert the opposite--he presents a comparative chart which largely refutes his position and offers it triumphantly as confirmation.

While Lindblom may blurt specious claims to journalistic neutrality, the intent of the Times was made clear in an editorial in which it insists that drivers must give up their COLA. The case advanced by both has two major contentions: Drivers make much too much money, and there no longer is enough money to pay them.

The article's subtitle roars that a decade of COLA has pushed Metro driver's top pay to third highest in the nation. It is a measure of the disconnect between the super rich like Blethen and the rest of us that he believes this genial fact will outrage the people of our county and compel us to accept Wall Street's immiserating demands. The reason we drivers have been able to hold on to our hard-won victories is largely the support we have had, and continue to enjoy, from our ridership. If the paper's intent was to intimidate us by inflaming our passengers, it hasn't worked. In the weeks since that edition hit the streets, only eight passengers have mentioned the article to me, each expressed support. Blethen's mistake is in his inability to appreciate how embittered working people are with Wall Street and the remorseless concessions which they and he now seek to impose. Most people here in King County are happy that their transit operators have been able to hold their ground when so many haven't been so fortunate.

Are our drivers overpaid? First, let's look at the paper's subtitle. It does not say that our average or starting pay puts us third. Indeed they do not. The Times chose the comparison which bests supports their point of view. They didn't evaluate our wages by where Metro ranks in proficiency vis-a-vis other transit agencies, that would have been embarrassing for them. They also ignored how much our drivers are paid in relation to what is expected of Metro drivers versus other transportation services around the country, that wouldn't do either. They just picked the one thing that best supports their invidious charge that we drivers are paid too much.

It may well be true that that Seattle isn't the third most expensive city in the nation, but it's not too far from it. The cost of housing, groceries and fuel here far exceed most American cities, and are much higher than most of the cities to which the Times compares us ( like Newark, Minneapolis, and Pittsburgh ). Much is made of the fact that we make more than drivers in New York City and San Francisco. According to Lindblom's article, we make 47 and 55 cents more per hour respectively, which is a 1.6 and 1.9 percent higher wage. In real terms, that's about twenty bucks gross per week. Are we supposed to squander our COLA, the single protection we have against Wall Street's criminal negligence, for an extra fifteen dollars in our paychecks every week! Is this small sum really generating all this animosity at the Times? Or is this just another example of Blethen's oft-voiced contempt for unions?

For every city to whom we compare favorably, there are others, like Boston and San Jose, whose drivers' top pay surpasses ours in markets where the cost of living is slightly less than here in Seattle. Metro's drivers are overpaid in relation to those in this city, underpaid when contrasted with those in that. We are right in the mix, where we should be. We live in an expensive place, and our pay is commensurate. The opprobrious charge leveled by Blethen and Lindblom is simply untrue.

The article then disingenuously stresses how much driver's pay has risen in the past few years, and how many have earned more than $75,000 or $100,000 last year ( 255 and 20 respectively ). In order to reach six figures, one has to work about 67 hours per week. How is this possible? Interred in the 33rd paragraph of a 43 paragraph story, long after most newspaper readers have moved on, Lindblom glumly admits that in response to their own audit, the county concluded that it would be more cost effective to increase overtime for existing staff than to hire new people and shoulder the expense of training and extra benefits. In other words, it is a result of Metro's own policy that twenty overworked drivers earned $100,000. Metro's overall labor costs, so onerous according to the Times, actually were ameliorated. They are currently running at about twenty-five percent of the budget, which is quite good, far from "out of control" as the Times would have you believe.

Frank Blethen dedicated most of his front page and a good deal more to convince his readership that paying Metro's avaricious drivers was busting the agency's budget and, if nothing was done, would lead to severe service rollbacks. This is just not so.

Conspicuously absent from the Times' lengthy discourse on Metro's budgetary problems was any mention of the fastest-rising cost: fuel. I was unable to ascertain the figures but a supervisor in the training office told me that they have about tripled. Metro has cited fuel costs as justification for requesting fare increases, which were granted on that basis. Since fuel costs are rising ten times faster than payroll, one can only wonder as to why the Times didn't consider this ink-worthy.

The worst was yet to come. Most of the data Lindblom uses comes from the Washington Policy Center, whose motto is "improving lives through market solutions." What the author doesn't tell you is that this is Kemper Freedmen Jr.'s think tank. He's hardly a disinterested party. Freedmen is a developer with a long history of opposing transit projects ( the ones which don't net him any money anyway ). As his advocacy group's motto reveals, he's a Wall Street devotee whose free-market mantra and ruinous "solutions" are the origin of this current fiscal meltdown.

Michael Ennis is Director of WPC Center for Transportation. His media role is to oppose any transit initiative which isn't supported by the Republican Party, no matter how cost-effective, green, or widely popular with citizens. One of his five core principles for "responsible transit policy" is that funds should be spent to alleviate congestion. This means road construction, which, as luck would have it, is how our friend Kemper Freedmen makes his millions. How fortuitous for him that the "non-partisan" Center's research always seems to cleave most agreeably with his commercial interests. In fact, there appears to be not a single point of divergence. What they think about most at Tank Kemper is corporate profits. His!

Ennis' breathlessly alarmist essays often appear in the Times, [1] so it came as no surprise that it was to him that our journagandist Lindblom turned to strike the key blow. The free-market cult has never been a friend to working people, and since the budgetary crises birthed by Wall Street's immolation of our economy, they have turned up the volume. In July, the sophists at Tank Kemper fired the first shot by producing a paper which despaired that drivers' pay was out of control. As we have seen, this is absurd, but no matter, the Tank still had water left in its hose.

Ennis blamed raises and overtime for Metro's inability to deliver most of the new service it promised. As previously noted, the increase in overtime was imposed on drivers by Metro as a result of a county audit which recommended it. It mitigated labor costs, it didn't exacerbate them.

The county has produced most of the new service it presented to voters for support ( hybrids, light rail, streetcar, Rapid Ride )! What little it hasn't been able to put on route is directly attributable to Wall Street. The budgetary shortfall is the offspring of the cash and credit shortfall. Despite receiving trillions in taxpayer dollars, the big banks are refusing to issue loans and thereby return desperately needed money back into the economy. This hoarding has resulted in businesses closing, unemployment, and shortages in public budgets. Wall Street has used the head-spinning sums of our bailout money to make acquisitions instead. Great for them, a disaster for us. Blaming public bus drivers for this is as ridiculous as it is reprehensible.

Unrestrained by skill, fact, wit, or scruple, Ennis dishes up a revolting lie: "While taxpayers and transit users have not received what they were promised, one group has benefited from the two tax increases, public bus drivers."

Firstly, the monies resulting from the tax measures of 2001 and 2006 were for equipment and service, not for driver's pay. At no time did our union ask for, or receive, any of it. The non-COLA raises we have received were not tied to either of these tax initiatives, and would have been the subject of negotiation whether the voters approved the measures or not.

As for the COLA raises we have received, once again, we have the WPC's friends on Wall Street to blame for that. Increases in the cost of living are the indirect result of currency inflation. And its rate is determined by the trillion dollar private monopoly we call our Federal Reserve Bank. It is owned by the same big banks which received our bailout money and are currently cash-starving the entire Western world. Our fault? One thing we can say about our hard-working huckster Mr Ennis, he does have a sense of humor.

The worst of the Times' deceptions, however, is their central point--there isn't enough money to pay us. Nonsense! Problems like this one has been around as long as Wall Street. This economic crash stands on the shoulders of countless others. This isn't the first time we've had the big banks shut off the money tap and blow our houses down, they've done it many times. We have had to clean up their messes before.

There are lots of potential solutions to this problem. During these last two years while Metro and their allies have been berating our drivers, they have been remodeling our service bases. Clearly this is something that can wait until Wall Street's gluttony is finally sated and the banks agree to release our money back into circulation and end the recession.

Whenever our union tries to propose alternate solutions we are met with defiance. Nothing short of the nuclear option--surrendering our COLA-- is acceptable to them. Metro is not at fault here. They didn't create this nightmare, they are not hoarding our national money and credit supply. Nevertheless, they are demanding the impossible. Our COLA is the only protection we have against the merciless effects of free markets and Wall Street's shameless irresponsibility. Our governments at all levels are powerless to save us from the ravages of these unregulated financial markets. We are yet in the beginning stages of the fallout from Wall Street's craven casino gambling. The cost of living is going to rise steadily over the next few years, Without a COLA, the real buying power of our paychecks will plunge steeply. Some of us will no longer be able to pay our mortgages, keep our kids in college, or care for aging parents. It is the worst possible scenario for us but yet is precisely this precious lifeline which Metro and their allies demand we sever.

A credit default swap is when someone holds a investment of some kind, say a bond, and wishes to offset the risk of the issuer defaulting. One option is to insure it. It's very much like playing black-jack in a Las Vegas casino. You have a good hand but the dealer is showing a face card, so for a small fee you can buy insurance from the house. On Wall Street, the major firms insure financial instruments just the way the casino insured your hand.

A naked credit default swap is when a third party, neither the bond-holder nor its issuer, makes a wager on whether a given financial instrument, in our case a bond, will default. The wagerer has no skin in the game, he just has an opinion as to whether the government or corporation issuing the bond will be able to make good and pay it off. It's like betting on a football game, the wagerer may have no interest in the game, he isn't affiliated with either team, he may not even be a fan, he just has an opinion as to which side will win and places his bet accordingly.

On Wall Street, predictably, it quickly got out of hand. The big banks placed huge bets and then hedged them by buying insurance. They were able to do this due to economic deregulation implemented by free-marketeers Bill Clinton and George W. Bush.

Many of these bets were placed on mortgage-backed securities ( MBS ). These were bundles of sub-prime mortgages from the housing bubble. One didn't need to be all broke out with genius to see that these were worthless, yet the richest banking houses in the world somehow didn't see it. They placed enormous bets on them, sometimes wagering many thousands times more than the value of the underlying financial instrument. And then they insured those bets. When this house of cards collapsed, the insurance companies, laden with worthless paper themselves, were unable to pay their naked credit default policy-holders due to the enormous sums wagered. This is precisely what happened to AIG.

All of this occurred under the nose of, and with the permission of, the Federal Reserve Bank, whose primary responsibility is to prevent economic instability.
As of this date, it is still going on. A bill to outlaw naked credit default swaps was defeated in the Senate.

CDOs? They are not at all what they sound like. They are bundled debt with no collateral securing it, much of it sub-prime mortgages, used as collateral. These highly dubious IOUs were used to buy real assets, or to raise credit. It is like going into a dealership and buying a $20,000 car and telling the dealer that your cousin owes you that sum and he'll give the money for the car next week, and then producing an IOU from your cousin confirming the debt. In real world the dealer would likely point you in the direction of the nearest exit. Not Wall Street. Thus did billions in fictive money enter the system and artificially inflate stock and bond markets. When this bubble inevitably burst, the life savings and retirement pensions of millions of Americans were lost.

Asking us to surrender our COLA is asking us to put ourselves at the mercy of the same remorseless Wall Street bunko artists and flim-flam men who created this mess in the first place. We would have to be insane to agree to this. It's like asking us to jump off the Aurora Bridge.

Retaining our COLA is not only an effective immunization against Wall Street's pandemics, it is a benefit to the people of King County. If we lose this precious protection, the buying power of our incomes will decline sharply over the next few years. That means we will have less money to contribute to the local economy. Six Wall Street banking families, most of them foreign, control over sixty percent of all the dollars extant internationally. This is recessionary. The goal for our community, any community, is to keep money circulating locally. The more broadly money is distributed, the better off we all are. Everybody should have a COLA. Everybody needs a prophylactic for protection against Wall Street's financially transmitted diseases. The solution to our economic woes is not eliminating COLA where it exists, but extending this crucial defense to everyone.

If I were to tell you plainly, dear friends, how I feel about the super rich like Blethen and Freedmen trying to rob me and my colleagues, most of whom make far less than the average here in King County, of the one guarantee that allows us to maintain the modest standard of living we have attained, I fear that it might prejudice you against me. It will suffice to say that I was not born to live in service, and I will not. I am not a commodity. My life is not a bond whose value is to be determined by Wall Street's rating firms and traded to and fro in exchange for promisory notes. I am not a collateralized debt obligation, damn it! Nor is my livelihood a source of ready income for the world's richest men when they get moneydrunk and lose too much at the Wall Street Resort and Casino. The argument that Wall Street has drunk so much from the public trough that there's nothing left for me is profoundly insulting. I will not be hectored into voting for a contract with no COLA by the likes of Blethen and Freedmen and their passel of professional liars. They are not going to blow our houses down again. It is time to say no to Wall Street, and get these shysters, once and for all, out of our lives.

[1] As I said before, he does have quite a sense of humor:
ennis says light rail will electrify i90

Sunday, October 17, 2010

Inflation, Trickle-up Economics

Here's a link to an excellent article on how inflation transfers wealth up the food chain. Cobb's view of the banks is too charitable in my view--their responding to public pressure rather than deflecting it--but he describes the process of expropriation well.

Saturday, October 16, 2010


[ Editor's note: This article was originally written for the ATU587 newspaper, News Review, which did not publish it. ]

by Dave Fryett

Let's begin with a quiz, who said this ( answer to follow ):

"Ask yourself why [governments]...pour money and effort into propaganda for their own helpless, chained, gagged slaves, who have no means of protest or defense. The answer is that even the humblest peasant or the lowest savage would rise in blind rebellion, were he to realize that he is being immolated, not to some incomprehensible noble purpose, but to plain, naked human evil."

Have you noticed all the attention our cost-of-living allowance has been getting lately? Why? If patching up budget shortfalls is the goal, then why is it that national, state, and our own county and Metro officials, are so insistent that we must surrender our COLA, the only defense against inflation we have? There are a host of alternate solutions to budget crises, but these are never mentioned by our adversaries in media or government. And when we broach these possibilities they are peremptorily dismissed, often angrily, as insufficient. It seems they have drawn a line in the sand.

So why the obstinacy? To answer this question it is necessary to understand a little about inflation and banking.

Inflation is measured ( or mismeasured, depending on whom you talk to ) by the Consumer Price Index. Although prices can move capriciously, and for a number of reasons, price inflation follows inexorably, if unpredictably, upon currency inflation. Currency inflation is a direct and inevitable result of banking practices. No bank in the U.S. could function as a bank and not inflate the currency. It's not possible.

In the U.S., currency inflation is shaped by the interest rates set by Federal Reserve Bank. It is not part of our government, but rather is a private bank owned by the international banking cartel. The Fed is part of a chain of national banks whose parent is the Bank of International Settlements ( BIS ), headquartered in Switzerland. In the nations in which they operate, they determine what interest rates will be, and hence the rate of currency inflation. The cheaper credit is, the more people borrow and the faster the supply of money grows.

The Fed has a trillion dollar monopoly on the issuance of our currency, it alone has the power to set rates. It is also the institution which, under the leadership of Alan Greenspan, permitted the creation and distribution of securitized debt like Collateralized Debt Obligations ( CDOs ), Mortgage-backed Securities ( MBSs ), and Naked Credit Default Swaps through the banking and insurance systems. As you know, it was the worthlessness of these financial instruments which caused the economic depression and led eventually to our impasse with Metro over our COLA.

Here's how banks create inflation: Firstly, one needs to understand that it is a myth that banks lend their depositors' money. In fact, banks create money out of thin air and then lend it into the economy. This does two things: It creates currency inflation, and a shortage of money, also an advantage for the banks.

When you take out a loan from a bank at a Fed-determined rate of interest, or use your credit card, no actual transfer of funds occurs between creditor and borrower. The bank just makes a data-entry change in its books and writes a check against it. If you borrow $1,000 at five percent interest, your bank increases clerically the sum in its account by $1,000 and gives it, abracadabra, to you. So the money you receive didn't exist before you borrowed it. The total amount of dollars in existence has now been increased by a thousand. That's currency inflation. Banks need this constant growth in the money supply in order to sustain themselves. [1]

There's a catch: An ever-increasing supply of anything, including money, diminishes its value. A dollar used to buy twenty loaves of bread when my father was a kid. Because of this inflationary banking system imposed upon us by the cartel, a dollar now won't even get you a single loaf nowadays. Currency inflation begets price inflation, and, as long as our banking system remains in the cartel's hands, it's a question of how much, not whether, prices will rise. As they do, the value, the real value, of our paychecks will decline proportionally.

There's another catch: Money is created as debt when banks lend, but only for the principal. You borrowed $1,000, you now owe the bank $1,050 ( not accounting for compounding ) which you cannot abracadabra but must win from the real economy. The net result is that there is always less money going into the system than the borrower must remove in order to pay off the loan. Hence the economy is shorted. It may not be you who borrowed the initial $1,000 who gets ruined, but somebody inevitably will as the money supply is always inadequate for everyone to pay off their loans. Bankruptcies inevitably follow and the banks are then able to "repossess" or buy other estates for pennies on the dollar. In other words, our economy is a giant Ponzi scheme. It's like a game of musical chairs in which the chairs are removed two by two and replaced one by one. In this latest induced calamity, J. P. Morgan Chase, owned by the Rothschild banking dynasty and leading member of the cartel, bought investment banking giant Bear Stearns, awash in MBSs and CDOs, for less than it cost the New York Yankees to sign Alex Rodriguez.

This is just one example among many. This is why Harry Truman said that "Our banking system is nothing less than legalized larceny." And why Al Capone once correctly observed: "Wall Street is the crookedest street in America. What a @#$&ing racket they got!"

These are the very billionaires whom your government bailed out by borrowing abracadabra money from the Fed. ( That's right. Our government borrowed from the cartel through the Fed to give that money back to the cartel's other banking houses. ) They are also the origin of the effort to bust unions and get workers to give up their COLA. This expropriation of our money ( through our government's debt ) by the cartel is the largest single transfer of wealth in history, dwarfing in sum and value the total amount of revenue gleaned from the sale of Saudi oil from its discovery until now. It is the greatest financial crime of all time.

As long as these people are at the helm of our economy, prices are going to go up, you can bet on it. If we surrender our COLA, the actual buying power of our wages will plummet vis-a-vis the rate of inflation. If we can keep our COLA, the opposite happens.

Say you buy a house, the bank waves its magic wand. goes sim sallah bim, ipso presto, abracadabra and voila, they conjure up the money and give you a mortgage. Say this payment constitutes a third of your income---the payment is $1,000/mo and you net $3,000. Well the bankers will keep inflating the currency and prices will go up accordingly over the years. As it does, because of your COLA, your income will rise proportionally. As this occurs, your payment will constitute an ever-dwindling percentage of your income. Your payment remains the same but your income keeps rising, slowly but steadily. In this scenario, inflation is actually helping you as it affords you a higher standard of living, some protection against injury or disaster etc.[2] The ever-growing difference between your fixed payments and your income may be the difference in being able to send a kid to college, or buying a boat, taking care of a sick relative, a comfortable retirement, whatever.

Now say you buy a house and don't have a COLA. The buying power of your income keeps declining, slowly, perhaps imperceptibly, but steadily. Your $1,000 payment represents an ever-burgeoning share of your real buying power, your real income. Instead of having more financial freedom over the years, the opposite occurs. It's harder and harder to make your payment. You may beat the banker's odds and emerge with your property still in your possession but at what cost? What hardships will you and your children have to bear in order to keep your house?

As you know, the assertion that Metro cannot afford to pay our COLA is a grotesque lie. Currently and recently, they have purchased a number of hybrid buses; rolled out Rapid Ride, light rail and the streetcar, which are expanding; diverted lots of revenue to Sound Transit, thus making it unavailable to Metro; performed expensive remodels of our service bases. Yet they insist that it is not they who need to sacrifice, but us drivers. Why should we suffer for their errors. Please do not vote for any contract which doesn't have a COLA provision. Write or call the union leadership and let them know how you feel about it. The consequences of losing it will not only be felt by you, but by your children and possibly your grandchildren as well.

This is one occasion when acting in self-interest is acting on behalf of every working person on the planet. The COLA is our mooring to a decent life, it's our protection from the billionaire criminals who are currently repossessing 50,000 American homes per month from hard-working people just like you and me. It's our protection from CDOs and MBSs and a still-unregulated, untaxed derivatives market. Say no to Wall Street! We are not like them, we are not trying take more than the economy can provide, we are just trying to hold on to what little we have. Every time we have a recession like this one, union membership worldwide declines, wages shrink, and the savings of blue-collar workers filter back up the food chain to the bankers. The rich get richer, and the gains for which so much innocent, working-class blood has been spilled are lost. This cycle begins with the ceding of our COLA.

We must draw a our own line in the sand. Don't let it happen again! Say no to Wall Street. Don't vote for any contract without a COLA. And don't settle for diet COLA, make sure there is no low ceiling, we deserve real sugar, not aspartame. They will probably offer a contract back-loaded with goodies if we give up the COLA. Don't fall for that! It is a mistake for which we will pay for the rest of our lives.

Whose quote is it? Marx, Lenin, Chomsky? No, Ayn Rand, diva of the militant Right; heroine to the likes of Donald Rumsfeld and Ann Coulter; mentor and friend to Alan Greenspan, architect of our current fiscal dilemma. Rand understood. So does Greenspan. Now so do you.

[1] If you are interested in just how this works, write to me at and I'll tell you.

[2] I do not mean to say that inflation is a good thing. It isn't, but if it is going to occur it is better to ride the wave than to be crushed against the sea bottom by it.