"Straight Talk" features thinking from notable minds that the PeakProsperity.com audience has indicated it wants to learn more about. Readers submit the questions they want addressed and our guests take their best crack at answering. The comments and opinions expressed by our guests are their own.
This week's Straight Talk contributor is Catherine Austin Fitts: investment advisor and entrepreneur. She is the founder of Solari Investment Advisory Services, where she offers subscribers guidance for navigating the risks of the global financial system and the political economy. (FYI: Chris will be the guest on her weekly podcast, The Solari Report, on Feb 3). Her perspective on Wall Street and Capitol Hill are shaped by her past roles as Assistant Secretary of Housing under George H. W. Bush, and before that, as Managing Director and board member for the investment bank Dillon, Read & Co.
1. Despite (or perhaps because of) your time as Assistant Secretary of Housing under Bush Sr., you are extremely critical of the government’s financial stewardship. What, if anything, changes with administrations and how much is institutionally baked into the cake?
The federal financial model is institutional, and its ultimate governance is outside of the government.
The choice of candidates impacts the quality of the political appointees, which factions get the large portion of the benefits of controlling the flow of contracts and pork, numerous incremental policies, as well as the tone of the Administration.
However, the federal government lacks sovereignty. It lacks financial sovereignty – it is financially dependent on the banks that control its depository and slush funds, create the currency through the Federal Reserve and manage the accumulated capital of the same syndicates outside the government. It lacks information sovereignty as its data, information, and payments systems are controlled and operated by private corporations, primarily defense contractors. If we could dig out the true ownership of both banks and defense contractors, my guess is that it would look identical. Finally, the members of the Administration have no way of guaranteeing their safety and the safety of their families if they defy orders of those who have the weaponry and power to enforce their will by any means necessary.
This means that essentially there is no government as many of us think of it. It also means that the governmental mechanism is quite fractured, with many competing interests that lack an organizing mission. They simply share an organizing imperative to control and concentrate credit and cash flow and to enforce the liquidity of currency and credit that makes the system go.
Since WWII, the American economy has been “fiscalized.” By that I mean that most households, state and municipal governments, and local economies have become highly dependent on federal government credit, contracts, subsidies, and other forms of income and are heavily regulated by federal agencies. This widespread dependency on the federal financial mechanism is the basis for extraordinary central control.
In the summer of 2000, I asked a group of 100 people at a conference of spiritually committed people which of them would push a red button if it would immediately stop all narcotics trafficking in their neighborhood, city, state, and country. Out of 100 people, 99 said they would not push such a red button. When surveyed, they said they did not want their mutual funds to go down if the U.S. financial system suddenly stopped attracting an estimated $500 billion – $1 trillion a year in global money laundering. They did not want their government checks jeopardized or their taxes raised because of resulting problems financing the federal government deficit.
What this means is that there is widespread political support for the federal credit mechanism to continue to extract global subsidy through a policy of printing dollars and Treasury bonds, forcing people around the world to take them, and using them to attract and engage in trillions of financial fraud and covert capital and operations.
Between 1998 and 2002, over $4 trillion went missing from the federal government. During the Clinton, Bush, and Obama administrations, the US Treasury has consistently refused to produce audited financial statements, as required by law since 1995, or account for missing funds. This is two decades of financial operations run completely outside of the US Constitution and the law.
In short, whether from the centralized private interests that own and control the federal financial mechanism or a large population that is financially dependent on it, the fundamental economics are institutionalized.
That said, the operations involved are far-flung and complex. Numerous factions compete and collaborate, as do numerous intelligence and enforcement agencies and sections of the military. That means the model and the fundamental economics are enduring and institutional. However, what happens day to day can be quite organic and evolving.
2. You were sounding warning bells on fraud in the housing market over a decade before the collapse occurred. How far along are we at this stage in resolving the root causes of this mess? Now that the government has assumed full responsibility for Fannie & Freddie, does all this fraud get swept under the rug?
The first step to resolving the root causes are to bring transparency to the situation. What happened and why did it happen? Such transparency has not happened.
The second step is to identify what assets or equity has been stolen and to recapture and return them. That is, determine what money and property has been stolen and get it back. Such recapture has not happened.
The third step is to hold the people and institutions responsible accountable. This has not happened.
The fourth step is to determine appropriate permanent institutional reforms and integrate them. This has not happened either.
Let’s look at what has happened:
What happened and why it happened is not generally understood.
Essentially no money or property has been identified or returned.
Other than Bernie Madoff, essentially no one has been indicted or convicted. Indeed, the people who engineered the housing bubble and related policies have been rewarded with numerous public and private positions as well as financial compensation. We are watching record bonuses on Wall Street.
The institutions that engineered the housing bubble and the financial crisis have been richly rewarded with $12 trillion in bailouts, expanded access to the federal credit, and government assumption for the debt and liabilities of Fannie Mae and Freddie Mac.
Financial reform legislation has generated lots of make-work and expenses for thousands of companies and financial institutions without providing any meaningful reform.
So what does this all mean? The “strong dollar policy” – including the housing and debt bubble, trillions in financial fraud, and the suppression of the gold price – was part of a intentional plan to move trillions out of North America, both overtly and covertly. I refer to this as a “financial coup d’état.”
Wall Street and Washington issued trillions in fraudulent securities, used it to gain control over trillions in assets, and then were able to engineer the taxpayers refinancing out the fraudulent paper. Think of this as a leveraged buyout of a planet.
To the victors go the spoils. That is why we are seeing the people who engineered the coup so richly rewarded.
Richard Dolan has referred to parts of the military industrial complex as “the breakaway civilization.” That is a good description as we now have groups that have stolen trillions and are confident in their ability to keep it.
I am reminded of a story from Ron Suskind, former Wall Street Journal reporter in his book The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O’Neill
“In the summer of 2002, after I had written an article in Esquire that the White House didn’t like about Bush’s former communications director, Karen Hughes, I had a meeting with a senior adviser to Bush. He expressed the White House’s displeasure, and then he told me something that at the time I didn’t fully comprehend – but which I now believe gets to the very heart of the Bush presidency.
“The aide said that guys like me were ‘in what we call the reality-based community,’ which he defined as people who ‘believe that solutions emerge from your judicious study of discernible reality.’ I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ‘That’s not the way the world really works anymore,’ he continued. ‘We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality – judiciously, as you will – we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.’”
3. You see us experiencing continued asset price bubbles caused by the Fed’s excessive money printing. How do you see this playing out? Is high inflation/currency devaluation avoidable?
The algebra of our current situation is clear-cut. The only way to avoid ongoing inflation and currency debasement is to reduce standards of living, engineer depopulation (whether through war or other means), and/or to introduce and integrate new or suppressed energy, transportation, and health care technology.
4. Do you still advise investors build exposure to precious metals as a defense against money printing?
5. What factors would you need to see to begin reversing that advice?
I would need to see one or more of the following. First, that the long-term bull market in tangibles was nearing a top. One indicator would be a gold-silver ratio moving below 20 towards 15. Second, I would need to believe that the efforts for those looking to create a global currency had failed or reached maturity, thus stabilizing one of the key factors that is moving the price up relative to fiat currencies. Third, I would become persuaded that nano-technology or another new technology or mining in space could shift the inventory of existing bullion in a significant manner or make counterfeiting easy. Obviously, if private ownership of precious metals by US citizens were to become illegal, that would prevent me from advising purchases. However, I think that is unlikely.
6. What advice do you have to offer the average American (e.g. NOT a deep-pocketed investor) who is concerned about our economic future and wants to preserve wealth and quality of life?
Your time and attention count. Stop listening to or associating with people or institutions that have a vested interest in centralization. Start by turning off your TV. Shift your deposits, purchases, and donations to people and companies that you can trust.
Protect your health. The food and water supply is slowly being controlled and poisoned. Taking steps to assure local sources of fresh food and water is essential for your health. So is educating yourself on steps you can take to detox your body and build your immune system. The rise of environmental and electromagnetic pollution calls for a level of effort to maintain physical energy and strength that was unthinkable a decade ago.
Lower your overhead. Use your time to build as many skills as possible that can help you do more for yourself and barter with those around you.
Invest in tangibles, including precious metals. Do now allow yourself to be drained by what I call the “slow burn.”
Finally, build your understanding and ability to engage in spiritual warfare. The financial corruption is a symptom of a much deeper and very invasive moral and cultural problem. Organize your life to serve whom and what you love.
7. You have said “we don’t have a wealth problem, we have a political problem” in this country. Can you elaborate?
The economy is being managed to ensure central control, not optimization of health and wealth, let alone excellence in our civilization and environment. This kind of centralization and control is destructive of wealth.
8. You’re optimistic on technology’s promise to create economic wealth and productivity. Where do you see the biggest opportunities?
That is a very good question. I don’t feel that I have access to the information I need to provide intelligent answers in this area. My guess would be if the kind of energy technology that Tesla claimed was possible would make both energy and communication essentially free. If he were right, that would have a profound impact on both politics and economics globally.
9. What are your thoughts on Peak Oil?
I believe our dependency on fossil fuels reflects a political choice rather than a material necessity. I also believe that much is being done covertly to keep the price of oil much higher than a market price. That said, we have a growing population and finite resources, so I am a subscriber to the “peak everything” theory.
I suspect one reason why new energy technologies have not been introduced is the fear that it would support even faster population growth that would be unsustainable for the environment.
10. How big of a risk factor do you see it to the trajectory our society is currently on?
Our current investment and cultural models are unsustainable. Change is upon us. Big change.
11. What question didn’t we ask, but should have? What’s your answer?
"To change our investment model, what changes do we need to make and how should we administer our investment capital?"
Here are several blog posts on some of my thoughts:
- Building a New Investment Strategy
- The Solari Model – Total Economic Return
- Rethinking Diversification
Thanks for the opportunity to be part of Straight Talk. It has been my pleasure!
If you have not yet seen the other articles in this series, you can find them here:
- Straight Talk with Catherine Austin Fitts: We Are Victims of A Financial Coup D'Etat – 1.30.11
- Straight Talk with Paul Kedrosky: Don't Depend on Technology To Save Us – 1.21.11
- Straight Talk with Tyler Durden: The U.S. Is Free-Falling Into Bankruptcy – 12.15.10
- Straight Talk with Charles Hugh Smith: Why The Status Quo is Unsustainable – 12.05.10
- Straight Talk with G. Edward Griffin: What's Coming Next Isn't Pretty – 11.29.10
- Straight Talk with James Howard Kunstler: The World is Going to Get Rounder and Bigger Again – 11.17.10
- Straight Talk with Steve Keen: It's All About the Debt – 11.09.10
- Straight Talk with Mike Shedlock (aka "Mish") – 10.26.10
Readers can submit their preferences for future Straight Talk participants, as well as questions to ask them, via the Straight Talk forum.