PUBLISHER’S PERSPECTIVE
Modern Economic Logic:
What Goes Down Must Come Up
By David Whitehead
W
hen it comes to economic downturns, some peo-
ple believe what goes down must come up again.
A scientist applying this logic to physics would
say they got it backwards. Any economist with a grasp on
reality would have to agree. We can count on gravity to pull
things down. But up requires a deliberate effort from some-
where. This is as true with economics as it is with physics.
Getting some more up in the economy is what these un-
precedented government interventions are all about. The
problem is government and financial leaders are upping in
a reckless and dangerous manner.
The deliberate effort in this case is accomplished by ex-
panding debt disguised as targeted bailouts to stop the
economic freefall experts knew was inevitable for a very
long time. As it turns out, something incredibly complex
is governed by a very simple bottom line: An economic
system isn’t sustainable when downward pressures caused
by mounting debt grow exponentially in relationship to
upward momentum created by genuine economic growth.
But central bankers with the complicity of our government
would have you believe otherwise.
Economic experts call this phenomenon “the business
cycle.” This is not a normal process within a sustainable
economic system. It’s more like a cycle of seizures in a ter-
minally ill patient. Experts espousing the status quo point to
historical data that suggests no matter how bad a short-term
economic trend gets, the long-term “cycle” continues to
go up. And because we have been through many of these
“cycles” over the decades, most people take it as a given
that the long-term trend will always be that way. In fact, we
have staked our destiny on this misguided notion and are
just beginning to pay the price for our ignorance.
The myth of the endless business cycle requires some
sleight-of-hand deception on the part of financial wizards
for the illusion to appear real. And those of us fearful of
losing what we have spent decades building are eager to
believe these illusions because they make us feel safer. Yet
illusions are what they are and reality has no conscience.
The dark side of this deception must be confronted at some
point.
16 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e
And this alludes to what’s different about this economic
downturn. There have been several in my lifetime. I’m not
old enough to have experienced The Great Depression. But
I do remember Carter administration malaise followed by
convulsions in the eighties during the Reagan Revolution.
Then the early nineties got so bad, many of us would prefer
to forget the first five years of that decade. And just when
things were looking good again, we were hit by dot com
doldrums in 2000 followed by an astoundingly short reces-
sion after 9/11. Short only because former Federal Reserve
Chairman Alan Greenspan solved it by bottoming out lend-
ing rates, thereby creating a magnificent money bubble.
Looking back, I can’t help but notice the downturns tended
to get worse and the booms that followed were usually
more majestic than any before. This was especially so with
the stock market, gold and real estate—all known indica-
tors that money bubbles compounded by lopsided interna-
tional trade were disguising the fact our currency was and
continues to get dramatically weaker in real terms.
What’s more, during this time central bankers have grown
increasingly interventionist in their efforts to control the
economy, while Wall Street has become increasingly cre-
ative in what it calls an “asset” worth selling to investors
around the world. This is largely because no one wants to
experience another Great Depression.
And no Federal Reserve chairman, treasury secretary or
political leader wants to see a large scale economic catas-
trophe happen on their watch. So as the problems become
more insurmountable, the economic policy becomes more
radical and increasingly desperate as the situation gets out
of control. So now we have a downturn so dangerous, it has
forced everyone to focus on the long-term effects of their
actions. It has also forced domestic financial experts and
political leaders to remove their blinders and learn about
the global causes and effects that spurred, and continues to
drive, this financial crisis. The end result is people calling
themselves “conservative” proposing interventions in the
economy as extreme as any Lenin or Trotsky might have
proposed. I find that surreal to say the least.
1 s t I ss u e 2 0 0 9
 The Global Chickens are Coming Home to Roost
Since the mid-nineties, we have been indoctrinated to be-
lieve globalization will improve our lives. Just before the
outsourcing revolution started in the early seventies, Alvin
Toffler described this phenomenon in his classic futuristic
book Future Shock as the transition to “super-industrialized
man.” But few at the time questioned how a de-industri-
alized society could call itself “super-industrialized.” And
even fewer questioned how nations could protect their own
wealth and avoid the enslavement of debt if they didn’t con-
trol their vital domestic resources and produce their own
essential goods. This is the conundrum now before us.
Toffler’s book was released in 1970, not long before trade
deficits were made legal in the United States. Since then, a
dollar with no bullion backing whatsoever has been vola-
tile, consumer inflation has been somewhat steady with
occasional dramatic spikes, and real estate has soared in
comparison to salaries and consumer prices. Foreign in-
vestment of various forms has driven the economy, and the
ongoing trend has been for public and private sector debt
to mount. We are leveraging our position as the world’s
reserve currency to keep things going. But that requires
global cooperation, which is waning fast.
In mid-December 2008, on the heels of the Bank of Eng-
land lowering its key lending rate to two percent—some-
thing it hasn’t done since the institution was established
in 1694—the Federal Reserve lowered its own key lending
rate to a range of 0.0 to 0.25 percent. Stock markets then
dipped on the belief the central bank was running out of
tricks to stimulate the economy. The market then rallied as
2008 transitioned into 2009. However, the Dow lost an as-
tounding 34 percent of its value for the year, the third worst
decline in its 112-year history and a fraction of a percent
worse than 1930! Finally in the second week of January, the
Bank of England broke its record again by lowering the rate
another half percent to 1.5 percent.
Domestic job losses went into freefall in December, with
The Myth of
the Endless
Business Cycle
1 s t I ss u e 2 0 0 9
540,000 people suddenly finding themselves out of work
and unemployment spiking to 7.2 percent, the highest in
16 years. In contrast, unemployment was only 4.9 percent
a year prior. In 2008 approximately 2.6 million people lost
their jobs, the most since 1945.
These statistics are mind boggling. Predicting this as re-
cently as a year ago would have been considered reaction-
ary in mainstream circles. That’s why it is a good time to
expand your information sources because for years, cred-
ible experts have been preaching from the sidelines about
these kinds of foreboding events.
Perhaps this will be the final bubble of a 40-year debt cy-
cle that will bring this decade’s long cycle of cycles to an
end. If there is a “recovery” in 2009 based on these extraor-
dinary bailouts, which as of this writing seem to be having
a somewhat positive effect on the stock market, many of us
will breathe a sigh of relief. But another false recovery sim-
ply puts off the inevitable. And if and when the last possible
bubble bursts with devastating effect, then what?
W. Orders Up a New Economic Order for the World
Outgoing President George W. Bush recently held an eco-
nomic summit of world financial leaders to begin what will
undoubtedly be a long process to replace the Bretton Woods
global economic order established at the close of World
War II. This is the great financial order best represented by
its institutions, including the International Monetary Fund
and the World Bank. Its policies rebuilt Europe after the
war. The Bretton Woods institutions have been at the fore-
front of developing the globalized society melting down
before us and have been governing international monetary
policy for over 60 years. The Bretton Woods agreement was
originally based on a U.S. dollar backed by bullion to serve
as the world’s reserve currency. But the dollar was taken
off the bullion standard in the early seventies, becoming a
fiat currency with nothing tangible backing it. Not only did
Continued on page 18
The myth of the endless
business cycle requires
some sleight-of-hand
deception on the part of
financial wizards for the
illusion to appear real.
S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e 1 7
PUBLISHER’S PERSPECTIVE
Continued from page 17
this make it problematic to develop a prosperous domestic
economy without incurring destructive loads of debt, it also
freed the developing nations to lowball their currency valu-
ations to maximize their export potential. This process is at
the root cause of the false economy we have grown to rely
on and is key to the illusion of wealth we were collectively
conned into believing was real.
On the heels of the gold standard’s eulogy, the long pro-
cess of de-industrializing and manufacturer outsourcing
started and then grew steadily over the decades. With do-
mestic industrial output declining at an alarming rate as the
world’s nation states were obliged to hold and spend dol-
lars, this highly manipulated economic environment drives
the business cycles and instability we have seen over the
decades.
Although the term “globalization” was coined in the mid-
nineties, the modern version has roots as far back as the
18th Century British East India Company. The British Empire
called these organizations government chartered compa-
nies. They were more than just private sector businesses.
These economic behemoths were literally authorized to
govern the lands they cultivated on behalf of The Crown.
In fact, Cecil Rhodes used this concept to raise standing
armies to subdue southern Africa in the late 19th Century
so the West could control the gold and diamond industries.
The modern contracting system the Bush administration
implemented to rebuild Iraq has sinister similarities to its
imperial predecessors.
The United States first got into the imperial game about the
same time Rhodes was conquering Africa, originally with
the United Fruit Company in Latin America. This is the or-
ganization that marketed the famous Chiquita Bananas. The
United Fruit Company is often referred to as the first global
conglomerate and had a reputation for acting as a govern-
ment unto itself to the point of initiating coups in emerging
. . . if the United States could not rely on its
status as the world’s reserve currency to keep
foreign wealth at our disposal to back the
dollar, we could not have dug in this deep
in unsustainable debt. It is now crystal clear
to say that we should not have—at least if
it is our intent to defend our sovereignty as
diligently as our national security.
18 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e
Latin American nations if it suited its purpose. In fact, this is
where the term “Banana Republic” originated.
This modern global process actually allows financial
powerhouses to collectively act as parallel governments
in many situations, and marginalizes the influence of all
sovereign nation states in this world. In other words, this is
the process that some would argue actually rules our world
through raw unadulterated economic power no political
leader has the clout to challenge.
On a global scale, the nations we once called “third world”
leveraged their devalued currencies and cheap labor to de-
velop large scale industries to produce goods for what we
still call “developed nations.” All of these nations, including
the United States, the United Kingdom, France and Germa-
ny, have de-industrialized to some degree. But none have
done so to the extent of the United States. And no others
could because by not being the issuer of the world’s reserve
currency, their money supplies would implode if they tried.
In fact, that’s exactly what happened to several Latin Ameri-
can countries during the 1970s when they dove headfirst
into radical “free trade” before the rest of the world became
addicted to it. Conversely, if the United States could not
rely on its status as the world’s reserve currency to keep
foreign wealth at our disposal to back the dollar, we could
not have dug in this deep in unsustainable debt. It is now
crystal clear to say that we should not have—at least if it
is our intent to defend our sovereignty as diligently as our
national security. At this point, I am not at all certain most
of my compatriots give much thought to the issue.
Americans were easily aroused to fight global terrorism
because 9/11 made it clear to them why it is a threat. But
de-industrialization and the possible internationalization of
our currency, whether masked by the pegging of the North
American currencies to each other or the issuance of an
“Amero” style single currency for the continent, doesn’t
sink in for most people as a substantial threat to the na-
tion. Let’s face it—Spielberg will never fill theaters making
a movie about that. But my question is this: How can a
nation state call itself sovereign when it doesn’t control the
manufacturing of its essential goods, and at this point some
of its essential services, or even its own money supply? The
fact is, it can’t. And if sovereignty isn’t important to a nation
that calls itself the defender of freedom in the world, I don’t
know what is.
There are no straightforward answers to the problems I
have just laid out. But the global economy will never re-
cover in a sustainable way unless people at all levels of
government, industry, finance and most importantly, the
media, begin asking the right questions. I hope I have pro-
voked some from you.n
David Whitehead is the publisher of Business Insider Maga-
zine. He can be reached at Publisher@BusinessInsider.us
1 s t I ss u e 2 0 0 9