How America Was Packaged and Sold

I never reblog, this is a first. I kinda like this one too much though.

The Story of How America Was Packaged and Sold
By Porter Stansberry
Friday, October 25, 2013
A building – One Chase Plaza – was sold last Thursday in New York for $750 million.

Not surprisingly, the building was bought by a Chinese asset-management firm, Fosun.

Today’s essay is about this deal… and the massive economic forces that lie behind it. The story of One Chase Plaza is the story of how America was sold to its bankers. It’s the story of how inflation plundered our wages. It’s the story of how credit, rather than savings, came to dominate our economy and transform our way of life.

It’s the story of how America was packaged and sold to our foreign creditors – mostly the Chinese…

Since 1996, the Chinese have made 51 major acquisitions in America, including deals to own or control iconic U.S. assets like computer giant IBM, carmaker GM, meat producer Smithfield Foods, U.S. power company AES Corp., major airplane lessor International Lease Finance Corp., investment bank Morgan Stanley, and private-equity firm Blackstone Group. They’ve also bought trophy real estate around the U.S., like the GM Tower.

These deals didn’t happen by accident. They happened because the U.S. continues to consume far more than it produces. We finance this consumption with debt that’s owned in large measure by foreign creditors. Take the U.S. Treasury debt, for example. At nearly $17 trillion, this is the world’s largest pile of obligations. If you exclude Treasury obligations held by the U.S. government and the Federal Reserve, 54% of the remaining obligations are held by foreign creditors. And these foreign debts continue to grow rapidly – at about $500 billion annually.

Debt service on these obligations allows our foreign creditors to continually buy America’s best assets. Today, foreign creditors directly own and control U.S. assets worth more than $25 trillion. That’s roughly a third of all the wealth in America. And that’s far more than what Americans own overseas: Americans only own about $20 trillion of foreign assets.

Every year that goes by, our foreign rivals will earn more on their American assets than we’re able to earn on our foreign investments. They will grow wealthier and wealthier… while we become poorer and poorer in comparison.

As Warren Buffett famously said about this situation 10 years ago: “We have entered the world of negative compounding – goodbye pleasure, hello pain.”

How did this happen? Why is it continuing? And why is it almost certain to lead to an enormous currency crisis? The story starts with One Chase Plaza…

In 1957, America was the most powerful country in the world. We controlled roughly 75% of all of the world’s economic activity, and we owned the three most important corporations in the world: General Motors, Exxon (Standard Oil), and Chase Bank (the Rockefeller Bank). Our country’s products – like the ’57 Chevy – were the finest available in the world. We dominated every foreign competitor in manufacturing, energy, banking, and just about every other industry, too.

At the time, you might recall, our dollar was literally as good as gold: By international agreement, our foreign creditors could exchange their dollars for gold for $35 per ounce at the Federal Reserve Bank of New York. This firm limit on the value of the dollar protected the middle class in America, guaranteeing that every wage-earner in the economy would share in gains from increased productivity. As productivity increased, the dollar bought more goods and services. As a result, real after-tax income increased. What was good for GM actually was good for America, too.

The firm value of the U.S. dollar also protected America from the temptation of credit. By linking the dollar to gold, expansion of credit required an increase in gold reserves. Under these rules, the supply of additional gold bullion (through new production or trade) limited the banks’ ability to create new credit.

This made credit expensive (in real terms) and encouraged savings. Those savings then powered stable investment into our economy. Thus, the U.S. government debt actually declined in 1957, falling by $2.2 billion. Surely, no sane person in 1957 imagined that would be the last time the total debt of the U.S. government would ever again decline on an annual basis.

In 1957, work also began on the first modern skyscraper in lower Manhattan. Commissioned by legendary banker David Rockefeller, One Chase Plaza featured space-age materials (anodized aluminum panels) and soared 60 stories high. Covered in glass, it reflected light, unlike the older sandstone buildings around it that absorbed light. The building would serve as a glowing new headquarters for Chase Bank. It was a towering statement proclaiming the bank’s growing influence around the world.

Even today, One Chase Plaza is a signature piece of New York real estate. It remains the 15th-tallest building in Manhattan. Surrounded by Pine, Liberty, and Nassau streets, it offers tenants a direct connection to the Nos. 2 and 3 subway trains. It is even thought of as a key part of the infrastructure of the United States – housing the largest privately owned bullion vault, five stories underground.

Winston Churchill remarked that “we shape our buildings; thereafter they shape us.” Just 10 years after the completion of Rockefeller’s global banking trophy at One Chase Plaza (construction was completed in 1961)… the link between the dollar and gold would be permanently broken.

Richard Nixon closed the gold-exchange window in 1971. America reneged on its debts to foreign creditors. Even more important, banks no longer had to back up their loans with reserves linked to gold. Now, all public and private credit would be backed by “Federal Reserve notes” – so-called “fiat,” or paper, money.

As a result, banks no longer faced any physical limit to how much credit they could extend. And the U.S. dollar no longer had any firm value. Nothing guaranteed the real value of wages. Nothing linked increases in productivity to increases in wages. Nothing protected the middle class from the rising tide of inflation… or the soaring power of the banks.

You can see how the change is destroying the middle class. Today, gains in productivity benefit our creditors… not our wage earners. Take a look at this chart, based on one originally published by the Economic Policy Institute think tank. Based on Bureau of Labor Statistics figures, the chart shows the cumulative growth in hourly productivity for the total economy compared with cumulative growth in inflation-adjusted hourly compensation…

These changes transformed our economy and the nature of capitalism itself. No longer would our economy be driven by investments fueled by savings. Instead, our economy is funded by debt.

Debt of every kind has soared. Measured in inflation-adjusted dollars, America’s total debt has increased from $5 trillion in 1957 to more than $60 trillion today – a 12-fold increase. Meanwhile, our gross domestic product has only increased from $2.5 trillion to $16 trillion, a six-fold increase. As a nation, we’ve mistaken credit-fueled booms for true prosperity.

But there is a major difference, of course. Credit must be repaid. While real prosperity leads to greater abundances, increasing debt produces greater burdens. The cost of servicing our debts has become so large that our creditors now routinely buy our country’s best assets using the debt-service payments we send abroad. Ironically… the “butcher’s bill” of servicing our debts now includes the iconic building that launched America’s credit bubble.

On August 16, the New York Times broke the story that One Chase Plaza was for sale. JPMorgan Chase & Co., the successor entity to David Rockefeller’s bank, was shopping the building through CBRE, the international commercial realty firm. Speculation at the time was that the building might be converted into condominiums and fetch $1 billion. Last Thursday, news broke that Fosun bought the building for $750 million.

And so… America has become just a little bit poorer. Our ability to generate wealth has been marginally decreased. One of Manhattan’s most valuable buildings has been sold. The rents will now be sent overseas to China. The real earning power of our currency has declined just a bit.

For now, the changes seem small and have such a minor impact that hardly anyone notices. But the compounding nature of this shift in wealth is incredibly powerful and very, very hard to stop. Over time… real wages will continue to fall. Over time… our ability to service our debts without additional inflation will erode. (That’s why the Fed can’t stop its bond-buying program of quantitative easing.)

One day, no one knows when, the world will simply decide that we’re not creditworthy anymore. We will have burned too much of the family furniture trying to keep our house warm.

On that day, you won’t want to be holding U.S. dollars or Treasury bonds… or be dependent on the U.S. government. When that day comes, people will look back on the sale of One Chase Plaza and realize… it was one of the last, most obvious warnings, that something had gone badly wrong with America.

Regards,

Porter Stansberry

Advertisements

3 thoughts on “How America Was Packaged and Sold

    • If You mean Fukushima, by removing each rod, one at a time by hand and perfectly. Any error of the most minute kind sets of a chain reaction. Some estimate about the size of 10,000 Hiroshimas. Two years, nothing done so far. If you mean how do we stop Simon Cowel and the rest of the corporate conservatives that drummed all meaningful lyrics out of rock and roll,well that’s a lot harder to accomplish.

      • But this is my newer post, and since you are terrified about the USA being sold off in order to protect that last few months of solvency before going completely bankrupt,geesh Samantha,we’re cooked already on that note. Our $17 Trillion debt will rise geometrically since our debt problem is out of control now. We can’t even afford to the the INTEREST on our debt. UNC-Duke economists club estimate that 26% of the money we borrow we borrow in order to PAY THE INTEREST on money we owe. It’s flat out absurd.

        It started between 1980 and 1988 when, in order to avert financial problems, Ronald Reagan and the federal reserve combined to TRIPLE the national debt. YES TRIPLE IT,in 8 short years,form $1 trillion to $3 trillion dollars. A LOT of this happened due to defense spending and wars. But the defense spending boondoggle and wars have continued unabated. Once 1989 happened,and the Berlin Wall came down, and the big huge Iron Curtain was no longer a viable threat, the USA went into the business of creating the “enemy of the week.” none more confusing than William Jefferson Clinton, who made five decisions that put the democrats squarely into the republicans mindset.

        1) NAFTA: This trade agreement, as even Ross Perot knew,cause millions of American jobs to move to cheaper labor in mexico while doing nothing to replace those jobs with jobs that paid the same amount. We were told the manufacturing jobs would be made up for by the service industry. Problem: The Service industry looks for people with at least a bachelor’s degree,andtheUSA only has 25% of its population holding a bachelor’s degree. Reagan and Bush I had already stripped a ton of vocational school money,so when the jobs left that paid $20 an hour,folks scrambled ot make $8.00.

        2)After shipping many jobs to Mexico,the problem got worse via GATT 2. GATT 2, which created the World Trade Organization and put trade concerns OVER all sovereign laws of ANY country, then paved the way for American jobs to be moved to China, Vietnam, Argentina (The FTAA came later), Indonesia, The Philippines,k etc. All manufacturing companies were given INCENTIVES to move jobs overseas via TAX CUTS for those who abandoned American workers.

        3) After shafting the workers (is this a Democratic party?) Clinton then pushed through the Welfare Reform Act of 1995, thus beginning the cutting of aid to families with dependent children. This terrible 1-2-3- punch left many scrambling for jobs and working two or three jobs to be able to live in decent neighborhoods. Of course,indecent neighborhoods were growing rapidly, as was the jail population which DOUBLED from 1 to 2 million under Clinton.

        4) The Banking Reform Act of 1995. This whopper of a Boo-Boo allowed banks to lend out $30 for every $1 they had in deposit. The previous law allowed $12 to be lent out for every $1 in deposit. OH #$12 was TOO MUCH believe me. but 30!? By Golly with such lending freedom there were NO LONGER viable candidates to lend money to,so the bankers invented Sub PRime Loans,and bundled those loans into the billions of dollars worth and sold the bad loans to each other round and round like a game of musical bankruptcy chairs until WHAM,J P Morgan, Lehman Brothers, CitiBank and famously AIG al ended up holding the “bag” while Goldman Sachs,who was also in neck-deep got bailed out FIRST because Hank Paulson was the Treasury Secretary then, DONTCHA KNOW!! His friends got bailed out and his enemies (Lehman Brothers qualified as such) sunk. AIG had done for Europe what Europe would not do for itself. When European banker whined that US banks got to lend so much and they wqere stuck with rules that said $10 for ever $1 was the limit, the EURO-CHIEFS said, OK if you can find someone to insure those extra loans above $10 for every $1 you have, we will let you do it. Enter AIG,exit common sense. SO the Trillion or so tax dollars that bailed out AIG was sent (via GOldman Sach,surprised?) to EUROPE to COVER its meltdown, as AIG promised it would. YUP US taxpayers bailed out the richest European bankers VIA AIG. Theensuing enlargement of American debt may have occurred under Obama due to this, but it started under Clinton and was exacerbated by George W. Bush, whose penchant for WAR kept the US debt growing at a 100s-of-millions-of-dollars per day clip, on war funding alone,forget trying to service the interest on our loans.

        5) Clinton himself,though never held accountable,continued the sanctions on Iraq, bombed Iraq, and spent money bombing Belgrade too. Nearly 35,000 people died when we bombed Belgrade in order to get Milsovic to stop. Hmmmm. Clinton was Bombing innocent Islamic folks in Iraq, while also stopping the genocide of Islamic folks in the Former Yugoslav republics. This added up to eve less of a safety net for American workers who were starting to lose jobs,and who now have witnessed 10s of millions of jobs shipped overseas… including SERVICE jobs to India. This gives corporations added profits on one hand, but not ENOUGH profits to make up for the rapidly declining dollar on the other.

        Add to that global environmental destruction,70% bee population decline, J.P Morgan controlling the price of oil though not an oil company and a whole laundry list of other problems created by the fascists at the top, and WOW, we could be in for a massive downturn, wouldn’t you say Samantha? The best way to combat this is to prepare to grow your own food, live in a town where people still understand the value of community sharing and coming together to help those in need,and being lucky enough to be able to prepare and do all this buy purchasing the land you will need NOW before the dollar loses more value. If you worried about all the labor required to run a farm, fear not. If there is an economic meltdown,LOTS of people wil be willing to work in trade for food and shelter. Sincerely, Doug

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s