Wayne Madsen on RT: Flight 253 bombing was probable false flag

Bombshell Eyewitness Account of Flight 253 Attack

Infowars

Editor’s note: Detroit attorney Kurt Haskell dropped bombshell revelations concerning his eyewitness experience of the Flight 253 attack and how the FBI detained a second man after dogs detected a bomb in his luggage on The Alex Jones Show today. The FBI has not only ignored Haskell’s story, but they have launched a cover-up by refusing to even acknowledge the existence of another man who filmed the entire flight, including the aborted attack, as well as the well-dressed man who aided the bomber to board the plane even though he had no passport and was on a terror watch list.

Kurt Haskell.

Watch this space for more stories on this astounding news that the corporate media has completely failed to cover.

Kurt Nimmo
Infowars.com
December 29, 2009

Detroit attorney Kurt Haskell appeared on the Alex Jones Show today and detailed his experience at the Amsterdam airport and on flight 253. Mr. Haskell provided information not covered by the corporate media.

In addition to a detailed retelling of the story he gave the corporate media, Mr. Haskell addressed the unprofessional and lackadaisical behavior of the FBI and airport security after the plane landed at the Detroit Metro airport in Romulus, Michigan. He characterized their behavior as a “complete embarrassment. They actually put us in more jeopardy than we were already in.”

Passengers were told to remain seated in the aircraft for 20 minutes after landing despite the fact security did not know at that point if there was an explosive on the plane or if the fire started by the suspect Umar Farouk Abdul Mutallab while on descent to the airport had spread under the floor in the cabin or to the fuel tanks in the wings.

After being allowed to disembark from the plane by officials, passengers were detained in customs with their carry-on luggage for six hours while they waited to be interrogated by the FBI, according to Haskell.

At this point a bomb-sniffing dog pointed at carry-on luggage in the possession of a man Haskell described as Indian around 30 years old. Officials led the man away to an interrogation room. Haskell said he was concerned because the bomb-sniffing dog had flagged the man, indicating he may have had explosives in his carry-on luggage. The Indian man was subsequently led away in handcuffs.

Following this incident the FBI moved the passengers to another location. “You’re being moved,” the FBI told them, “it is not safe here. I’m sure you all saw what happened and can read between the lines and why you’re being moved.”

Haskell said the corporate media refuses to cover this aspect of his story. He has repeated it to “countless” news agencies and they uniformly have not included it to his knowledge.

Mr. Haskell questioned why officials have not released the Amsterdam airport security video that will undoubtedly reveal crucial information about the “sharp-dressed man” who escorted a disheveled Mutallab to the boarding area. Haskell described the suspected terrorist as appearing to be a “poor black teenager.”

The well-dressed Indian man did all the talking. He insisted Mutallab be boarded on the plane without a passport and when an airport employee refused to do so Mutallab and the Indian man went to talk with a supervisor. The Indian man tried to pass off Mutallab as a Sudanese refugee and have him boarded despite the fact doing so would be in violation of regulations concerning refugees. In general, documentation must be provided by an embassy in order for refugees to board international flights.

Mr. Haskell did not see Mutallab again until the botched terror bombing inside the plane on the approach to Detroit. He did not know how Mutallab finally boarded the aircraft.

The FBI was not pleased with Kurt Haskell when they conducted a follow-up interview earlier today in Michigan. They showed him close-up photographs of various people, including Mutallab. “They kind of tried to trick me,” Haskell explained. The agents tried to pass off two photos of Mutallab as different people. Kurt asked the agents if they were attempting to impeach his story and smear him.

The Indian man was not included in the photographs.

Haskell asked them why he was not shown a full body shot of the suspect. Haskell was eight rows back from the suspect. The FBI agents did not answer and were displeased with the question. He also asked the FBI agents if it would be more appropriate to bring the surveillance video from the Amsterdam airport instead of still photos. “I don’t think they liked that comment from me,” Haskell added. The FBI said they did not have the videotape. They also made a point to tell Haskell they were asking the questions and not him.

The agents showed Haskell a photograph of the man flagged by the bomb-sniffing dog and taken into custody in customs. “Isn’t this the man who had the bomb in his carry-on bag that you arrested in customs who you refuse to admit exists?” Haskell asked the agents. “They really didn’t like that comment from me and had no comment back to me but I said it sure looks like the man you refuse to admit exists.”

Kurt Haskell was circumspect and careful not to speculate during the interview with Alex Jones. He indicated he is only interested in the facts and does not want to endanger his version of events by speculating on motives.

Corporate media interviews with the Haskells.

GSM Encryption Has Been Cracked

December 30th, 2009
Cryptogon

The analog mobile phone systems from the 1980s sent conversations flying around, totally in the clear. Anyone with decent scanner used to be able to listen to the calls. Now, with a bit of open source software and some inexpensive hardware, in a way, it’s back to the future.

Keep in mind, however, that this has always been “cracked” for law enforcement and intelligence agencies. The encryption only kept GSM calls private from teenagers and the dudes with long beards who wear dirty black T-shirts and sit in their vans with their radio equipment and antennas. HA. This could bring on a new golden age for the scanheads.

Start counting the hours or days until “interesting” phone conversations start appearing in the internets.

Via: Daily Tech:

For 21 years, the same encryption algorithm, A5/1, has been employed to protect the privacy of calls under the Global Systems for Mobile communications (GSM) standard. With the GSM standard encompassing 80 percent of calls worldwide (AT&T and T-Mobile use it within the U.S.) — far more than the leading rival standard CDMA — this could certainly be considered a pretty good run. However, someone has finally deciphered and published a complete analysis of the standard’s encryption techniques in an effort to expose their weaknesses and prompt improvement.

Karsten Nohl, a 28-year-old German native, reportedly cracked the code and has published his findings to the computer and electronics hacking community. Mr. Nohl, who cites a strong interest in protecting the privacy of citizens against snooping from any party, says that his work showcases the outdated algorithms’ flaws.

At the Chaos Communication Congress, a four-day conference of computer hackers that runs through Wednesday in Berlin, he revealed his accomplishments. He describes, “This shows that existing GSM security is inadequate. We are trying to push operators to adopt better security measures for mobile phone calls.”

The GSM Association, the London-based group that developed the standard and represents wireless companies, was quick to blast the publication calling Mr. Nohl’s actions illegal and counterintuitive to the desire to protect the privacy of mobile phone calls. However, they insist that the publication in no way threatens the standard’s security.

Claire Cranton, an association spokeswoman, confirmed that Mr. Nohl was the first to break the code, commenting, “[Security threats from the publication of this standard are] theoretically possible but practically unlikely. What he is doing would be illegal in Britain and the United States. To do this while supposedly being concerned about privacy is beyond me.”

Mr. Nohl attended college in the U.S. and received a PhD in computer engineering from the University of Virginia. Via a similar publication, he managed to convince the DECT Forum, a separate standards group based in Bern, to upgrade its own security algorithm, improving the protection to the standard’s 800 million customers in the process.

And while the trade group is only on yellow alert, some security experts disagree with the group’s threat analysis, as well, saying the threat could be far more serious. One expert suggested that calls may soon need to be scanned for malicious activity, much as an antivirus scanner works on a computer.

Stan Schatt, a vice president for health care and security at the technology market researcher ABI Research in New York, opines, “Organizations must now take this threat seriously and assume that within six months their organizations will be at risk unless they have adequate measures in place to secure their mobile phone calls.”

The process of cracking the algorithm involved the help of 24 members of the Chaos Computer Club in Berlin, who helped generate the random combinations needed to try and reproduce the standard’s code book, so to speak. The vast log of binary combinations forms the basis of the A5/1 encryption — and how to undo it. And it’s now on torrents worldwide.

Despite that, Mr. Nohl insists that his actions aren’t illegal. He says he took great precautions to make sure his work was kept purely academic, in the public domain, and that it was not used to crack any actual digital telephone calls. He states, “We are not recommending people use this information to break the law. What we are doing is trying to goad the world’s wireless operators to use better security.”

A5/1 is a 64-bit security algorithm. Despite this particular algorithm’s run, 64-bit encryption is considered weaker by today’s standards. Today 128-bit algorithms are considered to be strong enough to protect most data. The GSM Association has devised a 128-bit successor to A5/1, dubbed A5/3, but it has failed to push the standard out across much of the industry.

The Association claims that there’s little danger of calls being intercepted as hackers would have to pick one call stream out of thousands at a cell phone tower. They say that this would take prohibitively expensive sophisticated equipment and software. Security experts disagree with this assessment — including Mr. Nohl who pointed out that there was a wealth of open source software and cheap equipment to accomplish exactly those sort of objectives.

Simon Bransfield-Garth, the chief executive of Cellcrypt, a company based in London that sells software, agrees, saying that the publications opens call interception to “any reasonable well-funded criminal organization”. He adds, “This will reduce the time to break a GSM call from weeks to hours. We expect as this further develops it will be reduced to minutes.”

Why is that a big deal? Over 3.5 billion people use GSM worldwide, including 299 million in North America.

U.S Soldiers Are Waking Up!

Evidence Indicates Staged Attack on Detroit Flight

CNN Airs Eyewitness Testimony that ‘Well-Dressed’ Indian accomplice helped Abdulmutallab board without passport and that man on plane filmed entire flight and bombing attempt

Aaron Dykes
Infowars
December 29, 2009

Evidence is emerging that clearly indicates Abdulmutallab was more than just a Nigerian extremist carrying out his anger through an ill-conceived plot to ignite a powdery explosive substance on-board a flight to the United States. Eyewitness testimony pointing to a man helping the accused terrorist board without a passport, along with an unusual cameraman documenting the attempted attack on board the plane raise more than red flags– they point towards an intelligence operation, run as a drill, meant to conjure up public support for a number of fronts in the continuing ‘War on Terror.’

CNN interviewed key flight witnesses during their Dec. 28 program who raised these very points, making clear that the full story is still emerging and that wider-connections to intelligence handlers is evident.

THE SHARP-DRESSED MAN

Kurt Haskell and his wife, who were witnesses on board Northwest Airlines Flight 253 saw Umar Farouk Abdulmutallab receiving assistance from a well-dressed, wealthy-looking Indian man at the boarding gate in Amsterdam. Haskell told CNN that the accused bomber appeared strikingly ‘poor’ next to the well-dressed man. According to Haskell, that man did the talking for him, explaining to the flight personnel at the gate that Abdulmutallab needed to board without a passport, claiming that he was a Sudanese refugee. Haskell told CNN:

“Laurie and I were sitting near the boarding gate, sitting on the floor, there weren’t any seats to sit in. And I saw two men. They caught my eye because they seemed to be an odd pair. One was what I would describe as a poor-looking black teenager around 16 or 17, and the other man, age 50-ish, wealthy looking Indian man. And I was just wondering why they were together– kinda strange. And I watched them approach what I would call the ticket agent, the final person that checks your boarding pass before you get on the plane. And I could hear the entire conversation. The only person that spoke was the Indian man, and what he said was: ‘This man needs to board the plane, but he doesn’t have a passport.’ And the ticket agent responded, ‘Well, if he doesn’t have a passport, he can’t get on the plane.’ To which the Indian man responded back, ‘He’s from Sudan. We do this all the time.’ And the ticket agent said, ‘Well, then you’ll have to go and talk to my manager.’ And she directed them down a hallway. And that was the last time I saw the Indian man, and the black man I didn’t see again until he tried to blow up our plane hours later.”

The gate attendee referred the odd-couple to the manager. Haskell said that was the last he saw of the wealthy man, but later recognized Abdulmutallab after the incident occurred on the plane. That’s when he says he put two and two together about the unusual connection.

His wife, Laurie, said she found it ‘odd’ that authorities have not yet followed up on their witness account, as they were the only ones known to have witnessed Abdulmutallab with the ‘Indian’ man prior to boarding the flight.

THE CAMERAMAN

If he had help getting on the flight with no passport after having been reported to U.S. authorities by his own father, what is the true explanation for the man seen filming the entire flight? Another witness on board the flight, Richelle Keepman, said she noticed the mysterious cameraman at the beginning of the flight, believing the man might have been simply excited about a first flight, or etc. Later when the ‘bombing’ incident took place, she says the cameraman was the only one standing up, and intently filming the entire incident.

ADDULMUTALLAB AND THE WIDER WAR ON TERROR

Put this together with new focus on Yemen ‘in the fight against Al Qaeda’, including calls from Sen. Lieberman to pre-emptively attack, the media’s immediate hype of the event, and the ready-made Body Scanners and other ‘enhanced’ Airport security, it is clear that this is a contrived incident intentionally unleashed to goad renewed support for ever-expanding terrorism-related warfare in Iraq, Afghanistan, Pakistan, Sudan and now Yemen.

Just like after 9/11, airport travelers are again prepared to accept greater violations of their liberties and privacy for supposed security. Yet patsies and watchlist-subjects alike have repeatedly been allowed to bypass security clearance and been proven to have ties to the intelligence community.

The latest accused ‘terrorist’ Abdulmutallab was very likely the fall-guy in a pattern-drill– handled by wealthy, mismatched associates, allowed to board without required credentials, and videotaped by a cameraman with an unknown connection. Was Abdulmutallab involved with these figures through a drill which ended with an intentionally-failed bombing meant to incite great fear of terrorism?

PREVIOUSLY-STAGED TERROR

This would fit closely with other elements of CIA-concocted “terrorism.” Many of the 9/11 hijackers and other known extremists were revealed to have participated in ‘dry run’ drills, shared addresses with intelligence handlers or lived on military bases, were allowed to pass through the border despite being on one or more watchlists, and were given VISAS/Passports through execptions and/or special clearance.

Similarly, David Headly, named in the Mumbai attack, has been exposed as a CIA-double agent.

FBI/CIA provocateurs and exaggerated accounts of extremists groups have continued to emerge from the phony stories given to the public in the cases of many would-be plots, such as in Toronto, the ‘plot’ to bomb the Sears Tower, the Transatlantic liquid bomb plot, alleged plans to ‘blow up a Jewish temple and shoot down military planes’ in New York and more.

We see a similar pattern here, the emerging evidence strongly suggests. How long will we allow deliberately-provoked terror incidents to frighten us to death, invade our privacy, erode our liberties, restrict our travel and perpetuate an ever-expanding string of wars?

COMMENTARY: BODY-SCANNERS AND THE SECURITY-SWINDLE

Benjamin Franklin long ago warned us that “If we restrict liberty to attain security, we will lose both.” And that those willing to make that bargain deserve neither their liberty nor security.

This adage, frequently used by Benjamin Franklin in a body of work, with many variations in the freedom vs. security theme. On the most basic level, government is established only for the common security of its people. Thus, it is no surprise that government tends to test the line between the government and the governed on grounds of “security.”

It is no coincidence that Franklin and fellow compatriots like Thomas Paine laid down principled reasons for an individuals’ rights in respect to government.

Today’s advances in technology do not diminish the principled reasons for keeping government’s power in check with the people’s essential, as per Franklin– freedom. The ‘War on Terror’ is a shining example of Franklin’s principle gone awry. You cannot fight against an existential, shadowy “enemy”, on a fishing expedition for evidence, avoiding certainties and “evidence”, and employing such unprincipled tactics as torture, rendition, widespread wire-tapping– going against the very spirit of the law established by the Constitution, while hoping to maintain that opposing spirit in the nation.

There is a limit to “security”– in other words, there are limits to what government, set up to protect the rights of the governed, can do in the line of duty. The People have Constitutionally protected rights to privacy, probable cause before inspection or search, security in personal belongings and property, due process and other related safeguards against the tendencies of government ( 4th and 5th amendments), and a government must avoid violating these rights. But even this is not the point.

The people, for reasons of “security” and stripped and searched in every increasing contraptions of detection– losing privacy, dignity and basic freedom of travel. All the while, the rare, real perpetrator, identified as a terrorist, never goes through the database checks, security screening or passenger tracking schemes set-up by Homeland Security. The people do. Mothers with breastmilk. Business men with laptops. Shoes, belts, nail clippers, tooth paste, underwear, but not terrorists.

They evidently are whisked through by contacts who may or may not work directly for the FBI, CIA or etc. Databases make exceptions for its most-important targets while people with commonly-confused names are kept from flying or subject to secondary screening. Any ordinary person without proper documentation is subject, at the least, to alternate verification and likely quite a few intense questions. For this would-be bomber, it is apparently the matter of a handshake with the manager, and a high-level contact to vouch as sponsor.

It’s a bait and switch. It’s not security, Constitutionally-sound or not. It’s a scheme to tightly-control the travel of ordinary Americans while co-opting that fear to generate support for various overseas operations. It is textbook problem-reaction-solution.

The Body-Scanners, next in line of the wratched-up security measures being put forward by TSA, along with newly hailed restrictions, such as banning blankets, electronics and on-board bathroom use during the final 60 minutes of flight, are heavy-handed measures set up by Homeland Security and waiting for the right excuse to put them into place.

Though the Body Scanners have already been phased in throughout the U.S., only with this latest incident is it been publicly introduced. It directly mirrors the TSA’s shoe fetish, which was sold on the lie of the preposterous shoebombing-attempt purported by Richard Reid.

The heroic, but also practical actions of the passengers in thwarting this attack is a sane reminder in the fog of the ‘War on Terror’ that people can actually fend for themselves in many situations, particularly in the face of danger. Though real, big scale dangers do exist for governments clearly play a role, we cannot shriek in the face of danger, handing over to government all that we hold in the balance. There are ways of detecting crimes, preventing attacks and ’saving lives, for the children’ that don’t involve a dragnet combing over the whole of the population.

The game is surely rigged if the criminal it was meant to catch walks right through the proverbial back-door, which was held open for him by the archetypal inside man. The trading of liberty for so-called security does not balance favorably, but transfers power duly held by the people to the government, the more dangerous by the loosened-chains of the Constitution.

Supporting links and further info:
http://www.prisonplanet.com/man-videotaped-underwear-bomber-on-flight-253.html
http://www.prisonplanet.com/bomber-had-no-passport-helped-to-board-plane-by-sharp-dressed-man.html
http://www.cnn.com/2009/CRIME/12/28/terror.suspect.father/index.html
http://www.prisonplanet.com/terrorist-or-cia-agent-maybe-both.html
http://www.prisonplanet.com/articles/june2006/080606militaryconnections.htm
http://www.prisonplanet.com/new-york-terror-plot-another-government-provocateured-set-up.html
http://www.prisonplanet.com/cia-and-mi6-links-to-rauf-and-liquid-bomb-plot.html
http://www.prisonplanet.com/articles/june2006/230606searstower.htm

Tax activist and political prisoner Sherry Jackson being denied critical medical care

12160.org/RTR

The feds seem intent upon murdering Sherry Jackson. See her own report below, and you’ll understand. She details how the feds denied her medical care in prison and right now she is in the process of dying.

Sherry was one of the stars of Aaron Russo’s America: Freedom to Fascism. She was the former IRS agent who cried out, “SHOW ME THE LAW!”. Right now she deserves the support of the entire Freedom Movement. We can give it to her by calling her Congressional Representative imploring him to intercede to save her life. For her service to the Cause of Liberty, WE SHOULD DO NO LESS!!

Sherry’s Representative is Hank Johnson, representing the 4th Congressional District of Georgia.

FIRST:

Call and fax him at each office and demand immediate medical attention for Sherry:

Washington, DC Office
1133 Longworth HOB
Washington, D.C. 20515
Phone: (202) 225-1605
Fax: (202) 226-0691

Lithonia Office
5700 Hillandale Dr., Suite 110
Lithonia, GA 30058
Phone: (770) 987-2291
Fax: (770) 987-8721

Tucker Office
3469 Lawrenceville Highway, Suite 205
Tucker, GA 30084
Phone: (770) 939-2016
Fax: (770) 939-3753

SECOND:

Slam his Facebook page with comments demanding immediate medical Care for Sherry:
http://www.facebook.com/pages/Congressman-Hank-Johnson/115356957005

THIRD:

Forward, post, and blog this email EVERYWHERE!!!

SHERRY’S LETTER:

From: “Colin L. Jackson”
Date: November 30, 2009 12:34:03 PM PST
Subject: Sherry Peel Jackson

Hi Friends and Family,

Please, pray for my wife, Sherry Peel Jackson. She’s still having challenges while she’s incarcerated. Thank you, in advance, for your prayers and encouragemenet. Here’s a letter from Sherry to our Congressman, concerning her current situation.

God bless you.
In Christ, Colin

Dear Congressman Johnson

I am Sherry Peel Jackson, your former CPA. I am writing you because I am concerned about my health and my life. Prior to becoming a political prisoner I was the picture of health. In late June, 2009 I started experiencing a rapid heart beat on an irregular basis.

Since this had happened infrequently in the past I did not think much of it. However, in Mid July it started happening on a regular basis and I became concerned. I went to the medical staff twice in Mid July only to be given a one-minute EKG test and powerful meds without proper diagnosis. I did not take them because I had not been seen by a specialist. One week later, on July 21 at 12:45am I left the dorm in flip flops to go tell the officers that I was having a heart attack. The officers on duty called the ambulance and the ambulance checked my heart on their portable EKG machine. It was beating at 150 beats per minute. They took me to Leesberg (spelling) hospital where I remained until Friday, July 24th at 11:30pm. During the hospital stay it was determined that my heart was healthy but my thyroid was producing too much hormone, thus speeding up my heart.

This is called hyperthyroidism or Graves disease. I was given two medications by the hospital – Methimazole, which is an anti-thyroid agent used to reduce the amount of thyroid hormone produced by the body and Metoprolol, which is a beta blocker used to slow the heart.

The hospital doctor told me that in four weeks (approximately August 21) the prison medical unit was to do blood tests to determine how the thyroid medication was affecting my body.

The blood test was taken in late August and I was told that I would be placed on the appointment schedule to come over and review the results. I was never called. I went over in early September and inquired of Dr. DeLeon as to how to get blood test results. He told me to put in a request to staff, so I did that on September 15th. It simply asked to see the results of the tests.

Sometime after September 23rd I received a response in writing, from Ms. Marich, that stated that I could either make a sick call (come over early in the morning wait in line and fill out forms) or come to Open House to see the results. Open house is held only on Thursdays from 3:00pm to 3:30pm. I went to Open House Thursday September 30th and was told by Ms. Marich that she could not find the results! I watched her look through and around several piles of folders in her office but at no time did she look on a computer for them. She told me to check back later. On Wednesday October 28th I passed out around 4pm and was taken to medical and cleared.

On Friday October 30th my lips started turning black as if I had been a lifelong smoker. By Sunday November 1st my lips were fully black.

My boss, the Chaplain, called medical and a male nurse was sent over from the medium security men’s prison on this complex (there are two maximum security, one medium security and one low security men’s prisons on this complex with the women’s camp). He took my blood pressure and oxygen and said there was nothing else he could do. He told me to go to sick call Monday morning, which I did.

I showed Mr. Coucho my lips and told him that something was wrong with my blood, I could tell. (I am leaving out gross details here).

He said I would be put on the schedule. However, the very next day, Tuesday morning, November 3rd, I found blood in my stool and rushed over to medical because I am smart enough to know that this is a major problem. I was chewed out for coming over to medical without a staff member telling me to come. I told Charlie, the female nurse and Mr. Coucho the PA that I was in the hospital in July, never got the blood work results and something was terribly wrong.

I am 46 years old and I know my body! I finally convinced them that I was not playing and was not stupid, so they ‘treated’ me with a packet for a stool sample test. Mr. Coucho looked on the computer for the blood test results from August and found them there!

The blood test showed a problem with the thyroid way back then!

He said I would be put on the schedule for new blood work later that week because these results were too old. He had a short conversation with Dr. DeLeon in Spanish and then said the thyroid count was off.

This was November 3rd. I administered the stool tests and returned them to Nurse Charlie on Friday November 6th.

Today is November 26th, Thanksgiving. I have not received the results of the stool test. I have not been given any new blood test.

My neck is swelling up like a blow fish and I am having trouble talking. I have been feeling very ill for the last two weeks.
Congressman, I don’t want them to kill me in here. As you well know, I am being punished for exposing government fraud. However, millions of people don’t file tax returns and I was just used as an example by the DOJ for their new program called the Tax Defiers Initiative.

I have a wonderful husband and two beautiful children. I have already spent 21 months in prison for a non crime, and I refuse to come out dead or maimed for life. I have not caused these people any problems. This is no threat but just for your information.
I also wrote the warden today. Things can’t go on this way as I languish in here for someone’s political gain. God doesn’t like ugly and He is the ultimate judge and vindicator.

Sherry Peel Jackson 59085-019
FCI COLEMAN MEDIUM
FEDERAL CORRECTIONAL INSTITUTION
P.O. BOX 1032
COLEMAN, FL 33521

Please do not pass up this email. Take action with us today and all this week as we call for immediate and proper medical care for Sherry.

Do not let another voice go down.

In Freedom,

Gary Franchi
RestoreTheRepublic!

Fractional reserve, banks, and foreclosures

RevolutionNot.com

I’ve been thinking a lot recently about the banking system in the USA and how banks create money out of thin air (if they have the reserves).

Under the fractional reserve system, banks are allowed to create money through a multiple of their reserves. When they create the money, it becomes the reserves for the next bank and so on and so forth. The reason why this is corrupt is because the banks don’t create value. They only create money. They only create money through loans, meaning they own the real value until you pay them back with their fake, newly minted, money

As this crisis continues they have stopped lending…. This has an important side effect. When a bank lends, they create new money. This is the only way a bank will lend because it’s virtually risk free for them. They now see money creation as too risky.

The problem we are running into now is that the banks aren’t creating new money, ahem, they aren’t lending. This can be seen here in the recreated M3:

Recreated M3

As banks continue to go bankrupt, their creation of new money dwindles. The effects of which can be seen in the decreasing M3 over the last few months.

This is why the banks continue to get preferential treatment over average citizens. They create the money. New money is ESSENTIAL to the functioning of our economy.

The reason is quite simple actually. When the bank system loans new money, they don’t lend out the interest payment. Meaning, a new loan must be taken out by the economy in general to pay the interest of that person (or company). Thus, new money is essential to keeping the race going.

Without new money, more and more people won’t be able to pay back their loans. We are already seeing this happen with the never ending “foreclosure crisis.”

Until new money is being created by the banks then there is less and less money to be able to pay the banks their interest.

What’s really cool about this is that the government has been doing EVERYTHING they can to buoy the balance sheets of banks and they still aren’t creating new money. In fact, the banks don’t want government money because they can’t give themselves billions in bonuses.

The decreasing M3 is due to people paying off their loans. This has an amazing effect of causing less money to be in the system. In essence, if all loans were paid off, there would be no money anywhere.

So in the mean time, more foreclosures will occur both in residential and now commercial real estate. The banks will continue to be in bad shape regardless of how much they legally or illegally manipulate their books. This will cause no new money to be issued thus making the problems worse.

All those people talking about a “recovery” have no idea what’s really going on. A company’s balance sheet may look good but until the banks start issuing new money, the public will stay in a world of hurt. Foreclosures will remain high and jobless numbers will keep being massaged downwards.

So what are we to do? Well, the government has been trying to fund projects to inject money into the system. The problem here is that the government is getting the money… from the banks! Our government must pay back the interest on that… meaning…. you, me, our children, grandchildren, and, well, generations will be paying back that money.

If the government actual did the constitutional thing, and took the money creation powers back from the banks and reinstalled it with Congress, we may actually have a chance to make it. As it is, I am very pessimistic about the economy due to the fraudulent ponzi scheme run by the Federal Reserve.

Last note, the Federal Reserve has a mission to have a stable currency and try to maintain high employment. They have failed on both account horribly. They have debased the dollar by 95% over the last century, and unemployment is now 20%+ using actual numbers and not the fudged ones produced by the government. A stable currency would mean 0% inflation/deflation over 100 years. A target of 2% inflation per year is NOT stable. It’s exponential growth.

Debt is Not Money

“Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs.”

–Thomas Jefferson letter to Thomas Cooper, 1814.

Are we standing at the edge of a Great Inflation (like Weimar Germany), a second Republican Great Depression, or a return to the middle class prosperity of the Roosevelt/Eisenhower New Deal era? Until Americans understand the difference between “money” and “debt,” odds are its going to be one of the first two, at least over the next few years.

Money

“Money” is a convenient replacement for barter in an economy. Instead of my giving you five pounds of carrots, so you wash my car, then you trade the carrots for a new shirt, and the clothing store then trades the carrots to a trucker that brings them their inventory, we all just agree to use a ten-dollar bill. Because a nation’s money supply represents that nation’s “wealth” – the sum total of goods, services, and resources available in an economy/nation – it needs to have a fixed value relative to the number/amount of goods, services, and resources within the nation.

As an economy grows – more factories, more goods, more services – the money supply grows so one dollar always represents the same number of carrots. (And with a fractional reserve banking system like we have, that growth is created mostly by banks lending money and creating it out of thin air in the process.)

If the money supply contracts, or grows slower than the economy, then we experience deflation – the value of money increases, goods and services become less expensive (fewer dollars to buy the carrots), but because the value of money has increased it becomes harder to get. When this happens quickly, because of its economically destabilizing influence (businesses and people can’t get current money – cash – or future money – credit – because money is more valuable), it’s called a Depression.

On the other hand, if the money supply expands or grows faster than the economy, there are more dollars than there are goods and services so the number needed to buy a pound of carrots increases. This is inflation, and when it happens suddenly and on a large scale, it’s called hyperinflation.

Therefore, one of the most important jobs overseen by Congress and executed by a Central Bank (or the Treasury Department if we were to go with the system envisioned by the Founders and Framers of the Constitution) is to “regulate the value” of our money (to quote Article I, Section 8.5 of our Constitution) by making sure the number of dollars in circulation always steadily tracks the size of the overall economy. If the economy grows 2%, then that year there should be 2% more dollars put into circulation. More than that will create inflation; fewer will create deflation.

Debt

“Debt” is not money. Instead, it’s a charge against future money. But even though it’s a charge against future money, it can still be spent as if it was today’s money – except that it must be repaid with interest. And therefore debt must have some sort of a balanced relationship to the total size of the economy – albeit the future economy – for it not to be destabilizing.

In other words, if over the next twenty years (the term of a typical and healthy mortgage) the economy is expected to grow by X percent or X number of dollars, then the total amount of twenty-year debts that can be issued should be limited to X. But if it’s greater than X, then when the future arrives there won’t be enough circulating money to repay the debt, because the economy (and the money supply) won’t have grown as great as the debt repayment demand. The only two options are for debt holders to default (bankruptcies, foreclosures, etc. – Depression), or for the government to suddenly increase the supply of money (inflation).

The same is true of one-year debt (credit cards), four- or five-year debt (car loans, typically), and all other forms of debt. In aggregate, if the amount of debt is allowed to grow faster than the economy will grow over the term of the debt, when the debt is due there will be a problem, and if it’s grown hugely, a disaster.

This is what we’re experiencing right now. Over the past three decades – largely since Reagan – debt (both private and public/government) has expanded much more rapidly than the economy has grown. “Now” was “the future” when the debt was issued, but the economy hasn’t grown to the point where there are enough dollars (in reality, enough value – goods and services) to repay that debt. Thus we are experiencing a “wringing out” of that debt – bankruptcies and foreclosures – relative to the current wealth of the economy.

This is the most critical thing to see clearly – without adhering to this simple concept, a government or central bank will always either create boom/bust cycles (depressions/recessions) or inflation. Without regulating debt, a government will be taken hostage and an economy destroyed by for-profit institutions that are able to create debt without regulation (banks).

Panics

Although Thomas Jefferson and Alexander Hamilton – two opposite sides of the national bank debate – both understood this simple concept, it wasn’t brought into the realm of law until the mid-1930s with a series of strict regulations on the abilities of banks to create debt (loan money), and strong political limits on the ability of government to go into debt outside of wartime. That’s why from the founding of this nation until 1935, we experienced a “banking panic” at least once every 10 to 15 years from 1776 until 1935.

Then Roosevelt took the banks in hand, by creating a series of regulatory agencies and empowering them with strict laws. The result was that for fifty years in the United States – roughly 1937 to Black Monday of 1987 – we didn’t experience a single national “panic” or consequential bank failure. The stock market grew steadily (allowing for the blips surrounding WWII).

It was also hard to get a credit card (short term debt), buy a car (medium-term debt), or get a mortgage (long-term debt) without proving that you would be able to repay the amount in the future – in other words, that there would be future expanded-economy dollars that you could lay claim to because of your particular job and skills. Credit was regulated.

Reagan changed the rules of the game, particularly when he brought in the anti-regulation Libertarian Alan Greenspan as Chairman of the Fed. He ran up a massive federal debt – greater than that of every president from George Washington to Jimmy Carter combined – in just eight years, and began the process of loosening the power of bank regulators.

That process was finished by a Republican Congress (particularly Phil Gramm) and President Bill Clinton (with help from Rubin and Summers) and then booted out the door by George W. Bush, who borrowed even more than Reagan. Bush even used an obscure 19th century law to fight states’ attorneys general who wanted to regulate or prosecute fraud among banks and mortgage lenders in their states (see the article by Eliot Spitzer in the Washington Post just before his being outed for sleeping with a hooker).

Green Eyeshades

During the “Great Stability” – that period from the 1935 onset of the New Deal and the beginning of its end with Reagan’s massive tax cuts of 1981 and 1986, leading directly to the stock market crash of 1987 and the S&L debacle – banking was, as Paul Krugman noted in a recent column, “boring.” Credit and currency were considered part of the commons, not something off which a small elite should profit. Like the utilities in the game Monopoly, banks provided a predictable but relatively low profit. Nobody got rich, but nobody lost anything, either.

Bankers were the safe and predictable guys who wore green eyeshades at work and pocket protectors in their shirts. The nation’s main products were goods and services; nobody “made money with money” in any big way.

Since the serial deregulations of the financial services sector brought on by Reagan, Bush, Clinton, and Bush, however, bankers became fabulously rich. They called themselves the “Masters of the Universe.” They came to dominate contributions to politicians, and facilitated the takeover of most major US newspapers, all the while using debt as their mail tool to make money (burdening those newspapers with such debt that many are now going out of business because they can’t repay it).

By 2005, fully 40 percent of all corporate profits in the US came from the financial services sector – a group of people who didn’t produce anything at all of value, nothing edible or usable, nothing that would survive into future generations. They invented fancy derivative “products” that they “sold” at high commission rates around the world so others could “make money with money.” In fact, they weren’t making money – they were taking money. Behavior that would have been criminal during the Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter administrations became “normal” and was even encouraged: more than half of all the graduates from many of America’s top colleges and universities went into finance so they could get in on the very lucrative scam.

They created debt. As Ellen Brown notes at www.webofdebt.com, according to the Bank of International Settlements, they created and sold at a profit over 900 trillion dollars worth of debt- and risk-based “instruments.” That’s a pretty mind-boggling number when you consider that the GDP of the United States is around 14 trillion and the GDP of the entire planet is around 65 trillion.

All of these “products” were made and sold based on the assurance that when “then” became “now” the economy would have grown fast enough for there to be enough dollars to pay it back. But the reality of a debt bubble that exceeds the world’s GDP many times over came crashing in on us in 2007 – and still hasn’t fully crested – producing the “crisis” we currently face.

Are we there yet?

Are we recovering from it all now? Will things soon be back to normal?

If by “normal” we mean like life during the “Great Stability,” the answer is: “Not a chance.” Back then we had in place tariffs and trade policies, first initiated in 1791 by Alexander Hamilton, that protected our domestic manufacturing industries. We still made things – in fact, the USA was the world’s largest exporter of manufactured goods, and the world’s largest creditor. Like today’s China, for over 100 years we’d loaned other countries money so they could buy our stuff!

On the other hand, if by “normal” we mean how things were over the past 28 “Reaganomics” years – a stagnating middle class, disintegrating manufacturing sector, and piles of money being made by bets and debts – then maybe. After just the first decade of Reaganomics, we went from being the world’s largest exporter of manufactured goods to being the world’s largest importer; we went from being the world’s largest creditor to being the world’s largest debtor.

None of that has changed. We haven’t repealed Reagan’s disastrous tax cuts, which have exploded our nation’s budget deficits. We haven’t repudiated NAFTA and the WTO and gone back to an international trade policy that puts American interests over those of transnational corporations. We have not re-regulated the banks, and have not brought back 6000-year-old laws against usury (excessive interest rates on debt).

The bankers, in fact, are fighting it tooth and nail – the financial services industry in whole has spent over $5 billion lobbying Congress over the past ten years – and their acolytes like Lawrence Summers and Tim Geithner play major and consequential roles in the Obama administration.

It appears that the plan today is not to regulate the amount of debt that banks can create, but instead to both print more money and do everything possible to reinflate the debt bubble. (Lacking a return to Hamilton’s national manufacturing and trade policy, as a nation we just continue to slip deeper and deeper into Third World status as an importer and debtor – this may be our only choice if we don’t wake up soon.)

If followed, the Summers/Geithner policy can have only one of two outcomes: inflation or another, more serious crash. It’s possible we could have both. Apparently the bankers and Summers/Geithner’s hope is that neither or both don’t happen for at least three and a half years…

Thom Hartmann (thom at thomhartmann.com) is a Project Censored Award-winning New York Times best-selling author, and host of a nationally syndicated daily progressive talk program The Thom Hartmann Show. www.thomhartmann.com His most recent books are “The Last Hours of Ancient Sunlight,” “Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights,” “We The People: A Call To Take Back America,” “What Would Jefferson Do?,” “Screwed: The Undeclared War Against the Middle Class and What We Can Do About It,” and “Cracking The Code: The Art and Science of Political Persuasion.” His newest book is Threshold: The Crisis of Western Culture.