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[$2.8 to 4 billion in foreign direct investment (FDI) debt is sold by the U.S. everyday just to keep the federal government operating. How much debt do you take on just to keep your life functioning? There are alternatives, but none that are simple or do the work for you. The re-localization of life on every level – from food to finances to “vacations” – is the only solution that is sustainable in any significant sense. To get to that point it is necessary to get out of debt. – MK] THE VALLEY OF THE SHADOW OF DEBT By Carolyn Baker, Ph.D. © Copyright 2006, From The Wilderness Publications, www.fromthewilderness.com. All Rights Reserved. This story may NOT be posted on any Internet web site without express written permission. Contact admin@copvcia.com. May be circulated, distributed or transmitted for non-profit purposes only. Never before have political leaders urged such large-scale indebtedness on American consumers to rally the economy. Kevin Phillips, in American Theocracy: The Peril and Politics Of Radical Religion, Oil, and Borrowed Money In The Twenty-First Century August 11th 2006, 2:03[PST] - In a recent conversation with a friend, a married mother of three, she anxiously confided that although she has never been scared about money in her entire adult life, she now, in her mid-forties, finds herself feeling terrified. “Sometimes I wonder,” she said tentatively, “if it’s our own fault or if it’s the world we now live in. I’ve never worked harder in my life, but I’ve never found myself and my family falling so far behind financially.” Readers of From The Wilderness and the writings of Catherine Austin Fitts are no doubt hearing similar anguish issuing from the mouths of friends and family, and in all likelihood, thinking similar thoughts, but they know that the frightening quagmire of debt in which millions of Americans are entrenched is not predominantly about frivolous over-consumption or latte-induced destitution. Here are some very sobering statistics1. My intention is not to bore you with them, but to offer a reality check: The credit card industry took in $43 billion in fee income from late payments, over-limit, and balance transfer fees in 2004, up from $39 billion in 2003. In 2005, however, credit card late fees alone totaled over $11 billion. Total American consumer debt reached $2.2 trillion in 2005. Total American household consumer debt averaged $11,840 in 2005. As of July 15, the war in Iraq costs over $2,600 per household in the United States2 Taking into consideration the $4 trillion “missing” from the U.S. Treasury as documented by Catherine Austin Fitts and others3 the average debt per household for missing money alone is $14,000; therefore, including missing money, the Iraq War, and general consumer debt, the sum total of household debt is, in fact, over $28,000. Average household credit card debt has increased 167% between 1990 and 2004. The average American had over seven payment cards in their wallet including credit card, retail store cards, and bank debit cards in 2004. The average interest rate paid on credit cards was approximately 14.54% in 2005. The rate of personal savings in the U.S. has dipped below 0% for the first time since the Great Depression, hitting negative .5% in 2005. 45% of American cardholders were only making minimum payments in 2004, up from 42% who did so in 2003. A typical credit card purchase is 12-18% more than if cash was used (as of 2004). 2.39 million U.S. households filed for bankruptcy in 2005, a 12% increase over 2004. 30 million Americans (40% of homeowners) refinanced their mortgages during the 3 years (prior to Q3 2005), with over half applying the proceeds to eliminate credit card debt. Seven out of ten low and middle-income households, reported using their credit cards as a financial safety net, i.e., to pay for car repairs, rent or housing repairs and medical expenses, rather than relying on savings in 2005. According to a national survey, the most significant predictor of financial stress is if households rely on using credit cards to cover non-discretionary living expenses like rent, groceries, and medical expenses. In 2004, the average college student graduated with $16,500 in student loans, up 74% since 1997. (While this figure is an average, an incredible number of graduates leave college with more than a year’s salary in debt.) In 2004, 65% of teens failed a financial literacy test according to Jump$tart Coalition. In 2004, the average debt for Americans 65 and older was $4,000, up 89% in the past decade. In 2004, the average personal wealth of a 50 year-old American was less than $40,000 including home equity. In 2004, most credit card debt of older Americans was driven by healthcare expenses and the increased cost of prescription medication. So much for the self-flagellating mantra, “I must be doing something wrong.” Kevin Phillips notes in American Theocracy that debt has literally become an industry which he calls, “the debt and credit-industrial complex.” Second only to the weapons industry in profitability, the debt industry has replaced America’s manufacturing base. Today, Phillips tells us, 44% of all corporate profits come from the financial sector, whereas only 10% come from the manufacturing sector. (Pages 280-288) I am not an economist, nor does my knowledge of finance even begin to approach that of Catherine Austin Fitts, so I refuse to venture into the territory of connecting personal debt with national debt, deficits, Treasury Bills, or a variety of other related topics. My focus in this article is on personal debt—how FTW readers can avoid it, and what they can do about it if they are in it. Understanding how and why personal debt ravages American families in unprecedented proportions is extremely useful in extricating oneself from one of the most toxic effects of the debt-shell game, namely, assuming that if one did all the right things and played impeccably by the rules, one would not be in debt. Studying the Solari website is extremely useful in connecting the dots between the macro economic domain mentioned above and the micro stratosphere of one’s own personal finances. Just this week, the Houston Chronicle reported that Americans increased their borrowing in June of this year at a much faster pace than expected, with the rise led by credit card debt.4 The June increase rate of $10.27 billion obviously surpassed the $3.7 billion increase economists had been expecting. And note that the June increase pushed total consumer credit to a record annual rate of $2.2 trillion. Also this week, the New York Times reported that gains in income are being offset by rises in property taxes nationwide, leading New Jersey Governor, Jon Corzine to comment: “It is all too clear to everyone: The property tax burden is simply overwhelming our citizens and their economic well-being.”5 Here it is difficult to avoid the macro economic connection since part of the reason property taxes are soaring is that the federal government has been bankrupted as a result of becoming a criminal enterprise6, passing the burden of financing public services and infrastructure on to the states and local communities—a scam otherwise known as Tapeworm Economics and the privatization of what are clearly obligations to “promote the general welfare” as mandated by the U.S. Constitution.7 During the past two years, we have seen books and interviews from Elizabeth Warren, a Harvard Law Professor, most notably The Two-Income Trap: Why Middle-Class Parents Are Going Broke. Throughout her work, Warren clarifies that the economic rules for families, money, and risk have been and are daily being re-written by “powerful corporate interests who see middle class families as the spoils of political influence.”8 While Warren takes on the myth of mindless over-consumption by American families as portrayed in the documentary, “Affluenza,” she appears clueless about Tapeworm Economics and tends to fault inflation alone without asking the tougher, disturbing questions. Nevertheless, her work has been validating to a number of agonizing middle- class families such as the friends with whom I began this article. The four issues Warren does target as the most cruel family budget taskmasters are: Mortgage payments, childcare, car payments, and, if they are fortunate to have it, health insurance. Between these four obligations, most middle-class, working families have very little left for paying utilities and buying food. “Today’s family has no margin of error; there’s no leeway to cut back if one earner’s hours are cut or if the other gets sick….The modern American family is walking a high wire without a net.”9 Most consumers prefer not to have credit card debt, but Warren reminds us of the all-too-familiar reality that : For those who can stay out of debt, the rules of lending may not matter. But the economic pressures on the middle class—stagnant wages, the need to pull down two salaries to support a family, and the rising costs of the basic expenses—are causing more families to turn to credit just to make ends meet. When something goes wrong—a job loss, an illness or accident, or a family break-up—the only place to turn is credit cards and mortgage refinancing. At that moment, the change in lending rules matters. The family that might manage $2,000 of debt at 9%, discovers that it cannot stay afloat when interest rates skyrocket to 29%. And the family that refinanced the home mortgage into a larger loan may be staring at foreclosure. Job losses or medical debts can put any family in a hole, but a credit industry that has rewritten the rules can keep that family from ever climbing back.10 Working class neighborhoods and strip malls are now replete with the only other alternative to credit card usage and home re-financing: payday loan offices that lend instant cash at exorbitant rates of interest—interest which may become many times the amount of the principal by the time the borrower is able to pay off the loan. Tragically, where all of this leads in far too many cases is what was, before October, 2005, the ultimate escape hatch: Bankruptcy. Warren has written extensively on the bankruptcy issue, her legal specialties being bankruptcy and contract law, and she repeatedly underscores the reality that an overwhelming majority of bankruptcies are caused by health emergencies among families and individuals who have no health insurance.11 One month before The Bankruptcy Abuse Prevention and Consumer Protection Act of 200512 went into effect, Warren assessed the law as a moral judgment written by the credit card companies and the banking industry and supported by millions in campaign contributions to legislators who voted for the law. “It reinforced,” says Warren, the stereotype of “irresponsible people consumed by appetites for goods they don’t need, who think little of cost, and who would rather file for bankruptcy than repay their lawful debts.” Qui bono? Who benefits? Not only the captains of the finance industry, but those who profit handsomely from health emergencies among the un-insured. In 2004 testimony before the House Commerce and Energy subcommittee, financial experts told legislators that, “Hospitals routinely charge uninsured people up to four times more than patients with coverage.”13 Furthermore, “medical problems contribute to about half of all bankruptcies” in the U.S.14 But what does the new bankruptcy law actually say? How specifically, does it close and seal an escape hatch for individuals and families suffocating in debt? Some of the most brutal and egregious provisions are:15 Bankruptcy filers must attend credit counseling at their own expense. This has given rise to a new industry of highly-profitable, predatory credit counseling services who promise to virtually erase one’s debts, as if by magic. Under the new laws, in many instances, debtors are restricted to monthly living allowances mandated by the IRS, regardless of individual circumstances upon the same quasi-criminal standards used to prosecute unpaid taxes. Under the new laws, in some cases, debtors are required to live under court supervision with all disposable income applied to the full payment of all debts for a period of five years or until paid in full. While bankruptcy laws vary in how they affect debtors, depending on whether one files for Chapter 7 bankruptcy or Chapter 13,16 the 2005 laws severely limit one’s financial freedom and makes declaring bankruptcy a daunting option. While The National Association of Consumer Bankruptcy Attorneys offer sound advice17 for debtors filing for bankruptcy, individuals and families drowning in debt should consider every other viable option first before declaring bankruptcy. At the October, 2005 Petrocollapse Conference in New York City, Mike Ruppert enumerated the government’s responses to Peak Oil which protect the financial elites and major corporations:18 1.Rationing 2. More Coal and Nuclear – Emphasis on Fisher-Tropsch Coal-to-Liquids Conversion. 3. Suspended Environmental and Drilling Restrictions 4. Protection of Critical Infrastructure 5. Strengthening and Reinforcing Domestic Military Operations – Suspension of Posse Comitatus 6. Suspension and Relaxation of Labor and Minimum Wage Laws. 7. Changing and Tightening the Bankruptcy Laws, Allowing Fewer Distressed Consumers to Discharge Debts.19 8. Allowing and Facilitating Population Reduction through Famine and Disease. 9. Strengthening and Giving More Power to FEMA. 10. Destroying Demand Through Economic Collapse and Allocating Scarce Resources – by Force if Necessary – to Protect the Interests of the Wealthiest Communities and Interests in the Country. For a holistic view of how personal debt in the U.S. connects with the macroeconomics of missing money, black budgets, stolen pensions, and the broader landscape of Tapeworm Economics, studying Catherine Austin Fitts’ articles at her website is crucial. Fitts notes that a significant portion of debt in America has been fraudulently induced. In other words: If I lend someone money when I know something that may negatively impact their ability to repay the loan and I fail to disclose that information to them, I may be engaging in "fraudulent inducement." If that is the case, it is possible that the borrower does not owe me some or all of the money back. In the 1990's the large financial institutions and the housing leadership of the federal government knew that a significant number of jobs were going to be moved abroad and that, as a result, the income of many Americans could be expected to plateau or fall. Despite this knowledge, public and private policies were adopted to encourage millions of Americans to borrow significantly more debt -- on houses, on cars, on consumer credit and on student loans -- than they could be expected to pay back. I believe there is a compelling case to be made that much of this debt -- including a significant number of mortgages and student loans issued from 1996 on -- was fraudulently induced. Further, US securities impose disclosure standards in the marketing of securities in US capital markets. One of these standards is that the issuer is not allowed to omit material information. The failure to disclose such information is a "material omission." As with the fraudulent inducement standard, it can be argued that leading US financial institutions who sold mortgage-backed and asset-backed securities during this period were guilty of material omission when they failed to disclose the likelihood that many borrowers to might not be able to meet debt service obligations given plans underway and known to the board and senior management of these institutions to move significant jobs abroad. 20 Certainly Fitts is not suggesting debtors claim “fraudulent inducement” as a realistic option for crawling out from the rubble of personal debt. Her point is that the federal government and centralized financial systems, operating as criminal enterprises, have set the American middle class up for abject financial disaster--another reason not to buy into the psychological trap of self-blame. Fitts has also provided us in her famous article, “Coming Clean”21, specific tools for avoiding the kind of financial train wreck with which millions of American families are currently attempting to cope. As the price of hydrocarbon energy, food, asphalt, taxes, healthcare, a falling dollar, unemployment, and a tanking housing market increasingly squeeze the human race in the vice of Peak Oil’s ramifications, avoidance of credit card usage is imperative. I haven’t had one for years and have survived quite well. In fact, the other day, when I paid for a purchase with little green pieces of paper with pictures of dead presidents on them, a store clerk remarked, “We don’t see much of those anymore.” I can only wonder what her employer will tell her when some of us show up with silver and gold coins to pay for our purchases because all other forms of payment have become null and void. 1 http://www.creditcards.com/statistics/statistics.php 2 http://www.zmag.org/sustainers/content/2006-07/15schechter.cfm 3 http://www.solari.com/learn/articles_missingmoney.htm 4 http://www.chron.com/disp/story.mpl/business/4100515.html 5 http://www.nytimes.com/2006/08/07/nyregion/07taxes.html?ex= 1312603200&en=12972eff05da89ce&ei=5088&partner=rssnyt&emc=rss 6 http://www.fromthewilderness.com/free/ww3/061206_godfather_government.shtml 7 http://www.solari.com 8 http://privatizationofrisk.ssrc.org/Warren/ 9 Ibid. 10 Ibid. 11 http://www.law.harvard.edu/news/2005/09/22_warren.php 12 http://bankruptcy.findlaw.com/new-bankruptcy-law/ 13 http://www.msnbc.msn.com/id/5290172/ 14 http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.63/DC1 15 4 Researched by Oakland Community College, Oakland, Michigan: 16 http://72.14.203.104/search?q=cache:Edb0ldA2ERcJ:www.oaklandcc.edu/ buslaw/handouts/bl2/Bankruptcy.pdf+Summary+of+2005+Bankruptcy+ Law&hl=en&gl=us&ct=clnk&cd=37 17 https://www.nacba.org/tips.php 18 http://www.fromthewilderness.com/free/ww3/100405_petrocollapse_speech.shtml 19 http://bankruptcy.findlaw.com/new-bankruptcy-law/ 20 Personal email from Catherine Austin Fitts, August, 2006. 21 http://www.solari.com/campaign/index.htm