Monthly Archives: September 2011

The Second Reformation – Part III

The Coming Storm

There have actually been a several reformations throughout history. The term reformation means to reform or remake. When institutions that form the core of a society fail, or are torn down, new institutions rise up and replace them. The old institutions are reformed into new institutions. This is radically different from what we see on a daily basis as things change slowly over a longer period. Reformations are usually abrupt and significant. The Protestant Reformation saw a large number of people break from the Roman Catholic Church and is usually the first thing that comes to mind when discussing the Reformation. That Reformation resulted in the first protestant church following Martin Luther; we know them today as the Lutherans.

It is fitting that the final part in this series is written on the eve of the financial collapse that I have been predicting and which may lead to the next Reformation. So, fasten your seat belt, open your mind to new possibilities and prepare to step outside your comfort zone.

The Federal Reserve is currently using monetarist thinking by investing in long-term bonds to bring down interest rates hoping to increase borrowing and spending, and thus save the economy from a double dip recession. The problem however is not liquidity of funds for borrowing. The problem is that the people who would be consumers of goods are not buying because they still have too much debt. They have no equity in their homes and cannot take on any more debt. In fact, this move by the Fed will have the negative effect of reducing many people’s investment income from bonds, and therefore have a negative impact on goods consumption, especially from our seniors.

The storm causing this second tsunami in the economy is focused in the European continent, with their banks nearing collapse. The world has not yet recovered from the last storm. Therefore, it is less prepared to weather this one. The world’s banks might topple like a row of dominoes. If all the world’s banks fail, were talking total economic collapse. No one will be safe. We may be in for some very tough times for a while until the world can heal its wounds. What comes of that healing process may take many forms, and only one thing is a sure bet…it will be different, it will be reformed. If the world must go through a reformation, then we should want the new institutions that rise from the ashes to correct the flaws that led to this failure. We should learn from our mistakes when planning a new future. However, that is often easier to say than do.

The Dreaded Finger

Americans love to play the blame game. After the collapse, there will be no shortage of finger-pointing at the cause of the failure. All too often, this will result in simply pointing at the obvious, and failing to uncover the root cause. Fingers will be pointed at the liberals saying excessive regulation led to the failure, if only we had let them run free and get government out-of-the-way. Fingers will also be pointed at the conservatives saying there was too little government regulation, and that what we need is more rules, more government. Both sides of that argument will be wrong.

Banks will not fail because there was too much or too little government regulation. The banks will fail because human nature took over. A flaw in the design permitted human greed to rule over logic and drive the industry to poison the very water from which it drinks. Banks are corporations and therefore must ultimately answer to its shareholders. However, banks serve a vital role in a capitalist system as the controller of all capital that flows through the system. This gives the banks an enormous amount of power. So much power in fact, that they have been calling most of the shots on all sides of the political spectrum. We live in an illusion of Democracy. In fact, in America, what has evolved over the years is a Neo-Fascist Plutocracy run by the banks and a few very large corporations. Elections and politicians are permitted to exist simply to appease the populace by thinking they still have some modicum of control over their life.

The banks are not in this alone. The health care industry has been on a runaway spending spree for half a century and will crumble shortly after the banks go down. Famine, strife and anarchy will put a huge demand on health care, and there will be no way to pay for it. In 1960, the government spent about 1% of GDP on health care. By 2011 that had risen to 7%, a 700% increase in cost relative to the growth of the economy. Almost all health care providers are now corporations, which means they ultimately have to answer to their shareholders and provide a profit. The drive to be profitable is wrought with conflicts of interest with the people who go to them for medical help. They are motivated to turn a profit all costs. Their concern for a patients wellbeing culminates in a desire to avoid lawsuits, and stops there.

This is exacerbated by the fact there is also a health insurance industry, born ironically because of the high cost of health care. The health insurance industry is the primary payer of provider services, giving them a lot of leverage. Health insurers answer to shareholders also, giving them an obvious conflicting interest with the people who buy insurance. They are motivated to turn a profit by minimizing the cost of delivering health care. On the surface this sounds like a good thing, however the dynamic of the two industries trying to outdo each other and jockey for more profit has resulted in gross waste and inefficiencies. If the banking industry remained as healthy as a horse, the healthcare industry would still implode eventually  because its design is flawed resulting in an out of control cost system. However, these two industries are now large enough and powerful enough that true reform cannot take place. It is going to take something on the scale of a reformation to reshape these industries and design out these flaws.

There is yet a third leg in our system that is fundamentally flawed. That third leg, not surprisingly is our form of government. The current form our democratic republic has taken in no way resembles what the original architects of our nation had in mind. Have you ever wondered in amazement that Politian’s rarely do what the public wants? The only way a politician can be elected is by out spending the competition. It has become a media circus where the best fundraiser wins the race. Raising funds however means making promises to those giving the money. Therefore, every politician ultimately answers to his or her contributors, not the American public. If that is not a dictionary definition for a conflict of interest, I do not know what is.

After the collapse, we will survive to rise from the ashes and begin the reformation. There will be numerous recommendations for change in how we govern ourselves. Some may call for a return to Socialism or Communism, while others may call for an extreme form of Fascism, perhaps even Anarchy. We need not adopt any of those extremes. I will explain in a moment, how I think we simply need to make a few changes to our Capitalist institutions to save Capitalism, and then reform our corrupted neo-fascist republic into a truer more equitable global democracy.

Reform Government

Defense spending alone will be just shy of a trillion dollars in 2011. Imagine what we could do if we did not need to spend that money. But, but, you say: we have to defend ourselves from those who want to do us harm. Most, if not all of those people hate Americans because of our imperialist expansion and corporate protectionism imposed on foreign countries. Repressive dictators that the U.S. propped up in order to secure access to Middle Eastern oil has resulted in a deep hatred for America. When ever you hear them say protecting U.S. interests, they really mean that our government and your tax dollars are going to war for a Corporation. Our enemies then use religion as a recruiting tool, but it was our Neo-Fascist/Corporatist intervention in so many countries that created the conditions permitting the rise of Islamic extremists in the first place. The solution is radical, yet simple. It could only come about as a recovery from a global melt down followed by Reformation. Without a global Reformation, the power elite would never permit all the changes I am recommending.

People around the world are becoming tierd of a corupt capitalist system which is robbing them of democracy:


updated 9/28/2011 5:24:35 AM ET
MADRID — Hundreds of thousands of disillusioned Indians cheer a rural activist on a hunger strike. Israel reels before the largest street demonstrations in its history. Enraged young people in Spain and Greece take over public squares across their countries.
Their complaints range from corruption to lack of affordable housing and joblessness, common grievances the world over. But from South Asia to the heartland of Europe and now even to Wall Street, these protesters share something else: wariness, even contempt, toward traditional politicians and the democratic political process they preside over.

Read the entire article here.

We must form a global constitution, guaranteeing every person on Earth protection and equal rights under a common constitution, as well as access to a fair judicial system, and equal representation in a democratic government. Representation should be at the local, regional and global level. Most laws that affect our daily lives should be maintained at the local and then the regional level, with only a minimum of laws enforcing the constitution at the global level. The closer a law is to the person who it has jurisdiction over, the more the people will feel in control of their destiny. People should be able to maintain most of their local culture that brings so much diversity and beauty to the world. With the world united under a common constitution, there will be no need for large army’s to fight one another. No nations to wage war.

All that energy could be instead used to build up the under developed parts of the world and repair the infrastructure in the developed world which will bring prosperity to all. Repurposing a vast military industrial complex to peaceful output will create hundreds of millions of jobs. There will be employment for anyone who wants it.

Those who would be representatives for the people would not be permitted to raise funds to run a campaign as they do today. Each candidate will have equal and unbiased access funded through taxes to present to the people their credentials. Cost will be kept to the minimum needed for the people to choose the best candidate that represents their desires. The electoral process should be run more like a job interview with every citizen being a hiring manager and getting one vote. No candidate should be permitted an unfair advantage over another. This is the only way the people can make an objective decision for a person who will honestly represent THEIR interest, not the hidden agenda of some corporate sponsor.

There should be one global currency. Only the global government should have the power to create currency and set interest rates to control economic growth and inflation. As we will discuss in a moment, this will drastically alter the role banks play in global finance.

Trade should be free between all regions of the world. However, during a period of transition there may be great turmoil while people crawl out from the ashes to begin rebuilding. During this transitional period, the government may facilitate the flow of some goods, namely food and healthcare, to prevent further suffering and starvation. Once this transition period is over, the government should maintain a minimum of involvement in commerce, except to ensure the safety and health of the people of Earth, as well as the health of the Earth itself.

Ideally, most regions should strive to become self-sufficient in order to minimize the need to import goods from other regions. There may still be regions that lack natural resources or the environmental conditions to become self-sufficient. In addition, other regions may produce an abundance that they cannot consume. If a region is permitted to maintain a negative trade imbalance for an extended period, the drain of capital out of that region will eventually lead to its people becoming impoverished. In such extreme cases, the world government may consider altering the borders of a region or even the merging of two regions so that the result is a self-sufficient region. Such a move may seem extreme, but is preferable to the alternative that would be an artificial wealth transfer akin to welfare to support the deficient region.

Reform Financial Institutions

The world’s financial institutions put profits before people, and that is going to be the catalyst for the financial disaster the world will soon go through. We must remove the temptation to do harm in the name of profits if we are to have a healthy financial system that supports a robust capitalist economy. At the same time, we need to ensure that banks do what is in the best interest of the people they serve. That cannot be done if a bank is located half way round the world from customers that they will never see in person. The best solution is that each regional government owns the bank in their region. Banks will have a reserve limit of 100%, meaning that they can only loan money that they have in deposit. They cannot create currency out of thin air as banks are permitted to do today. All interest earned from bank loans and fees collected go to the regional government replacing or at least minimizing the need for a regional tax. Loans can only be made to people and businesses in the banks region. Regions money stays in that region except for inter-regional trade. multiregional corporations should be discouraged or prohibited to prevent them from becoming too large and gaming the system.

By having the Region own the bank, the need for growing profits to satisfy shareholders is eliminated. The need for the region to collect taxes will be minimal if not eliminated altogether. Most money stays local, so it will be difficult for one organization to drain money from the local economy by simply transferring it elsewhere. Regions will have their own banks to fund capital projects, which removes the need to raise taxes to pay off bonds. Some of you may be thinking that this sounds ripe for wasteful or corrupt government spending. That is unlikely to happen because there will be an incentive to minimize waste and cost. If a region wants to be competitive and attract people and business to relocate in their region, they will need to balance the cost of providing a top-notch infrastructure while minimizing interest rates and fees for service, which create a burden on commerce. If infrastructure or services deteriorate or costs get too high it will detract from people and businesses moving there. We have therefore eliminated the need for greed that drives bad decisions, yet maintained the need to be responsible and competitive so as not to be wasteful, while keeping wealth local and decisions that impact a community local.

The global government may at their discretion issue new currency by depositing it in a regional bank. Doing so increases the money available for loans. The issuance on new currency should only be done to accommodate economic growth while keeping inflation at a minimum. The system cannot fail because there will always be enough currency in the bank to cover all loans.

A healthy Capitalist system relies on the hard work and innovation of citizens to improve their lot in life. A problem that keeps appearing in Capitalist economies from the very beginning is that if too much power accumulates in one or even a few hands, the system starts to break down and it becomes dysfunctional. If new business cannot compete and people cannot get ahead, a feeling of hopelessness and despair sinks in to the population, which carries with it a whole host of bad side effects, not the least of which is crime. The system should not impede growth unless that growth starts to impact competitiveness.

The United States saw this as a problem in the 19th and early 20th century and passed ant-trust laws to prevent companies from taking over an industry with a monopoly. Those laws have all been destroyed in the last 30 years with the result that ‘too big to fail’ as become a common phrase in American culture. No company should ever be too big to fail. Citizens should never have to bear the burden of bailing out a dysfunctional company. A fair and competitive market should always decide the winners. To accomplish this, some restriction may need to be devised to prevent a company or a person’s interest in multiple companies from exceeding some threshold whereby that person or company can manipulate an entire industry making it uncompetitive.

Reform Healthcare Institutions

As you can see from the chart above, healthcare as a percentage of GDP has grown by 700% in 50 years. That fact is the single biggest contributor to our nations deficit problem today, not social security or even defense spending. America spends three times as much as the next highest spender on healthcare. However, the quality of our healthcare is the worst among industrialized countries. We are in that race next to some East European and African countries.

Health care providers should all be converted back to non-profit organizations as they were in the 1940’s and 50’s. Universal health insurance should be provided by each region as a single payer system available to all citizens. Every region will be required to recognize anyone from outside that region for health care. Regions can then forward the cost for that healthcare to the region of origin. That way, regions whose industries rely on tourism will not be unfairly burdened by out of region people getting sick while visiting.

Regions acting without a profit goal, will nonetheless want to keep costs low while maintaining good health services in order to remain competitive. They can accomplish this by emphasizing wellness care and healthy living programs so that people stay healthy and avoid becoming a medical burden unnecessarily.

By providing free education to all citizens to any level they desire, the exorbitant costs doctors and even nurses incur before they even begin their career will drastically reduce the need to pay them as much just so they can repay student loans. Many doctors face financial hardship in their early years just for choosing that profession, and it just is not right.

A free higher education will also help ensure that we have people with the other skills required to compete in the modern world.

Another issue that will drastically reduce medical costs is tort reform. A doctor who is competent should not live under the fear that the slightest mistake will result in an expensive lawsuit and possibly a loss of their medical license. They need to be accountable, sure, but our current system goes excessively far. Doctors should feel free to document when an honest mistake is made so that other doctors can learn from that mistake. How else are they to improve? Tort reform will reduce the cost of malpractice insurance that is major contributor to rising healthcare costs.

The Second Reformation: Looking Forward

So, did you get out of you comfort zone, just a little bit? Did fears of the illuminati, or the New World Order conspiracy creep into your thoughts as you read my recommendation for a global government. Trust me when I say, that if the conspiracy theory is true, they would never in a million years adopt this plan. The reason is that I deconstruct their power base. The corrupt politicians and mega wealthy bankers will have no pulpit from which they can bully citizens. We will have a true democracy, something even the United States does not have today. Both banking and healthcare should be the twin backbones of every society. However, they are actually doing great harm instead, all in the name of profits. Those industries should be reformed into instruments for good and promoters of a healthy Capitalist global society. Finally, we would have an end to all wars and needless killing. Vast regions of the world that are suffering today under the harshest of conditions could be lifted up and made healthy again. The relief of so much suffering in the world alone makes this a noble cause.

If you agree with the ideas put forth here, then please help by passing the word. The more people who read this, the better our chances will be when it comes time for the reformation and the world is searching for answers. If you find flaw with these ideas please let me know. Perhaps things would have turned out different for the world if only Carl Marx had asked for a little critical feedback before publishing his Communist Manifesto.


The Second Reformation – Part II

In part I we beat up on banks because they failed the very people who put their trust in them. As it turns out, there is another industry able to do even greater harm than the banks; and it is equally difficult to understand why. I am speaking of course about the health care industry, both health providers and health insurance companies.

The Health of a Society

The health care system in the United State is a competitive one, made up mostly of for profit health care providers and insurance companies. On the surface competition may sound like a good thing. Competition means that doctors should compete for patients by providing the best care at the lowest market price. However, this is far from what happens in the American system. A number of factors over the decades have led to a system out of control and headed for a cliff just as the financial markets have been for decades. Only when the medical establishment crashes, the result could be much direr; our very lives could be stake.

A full examination of the health care industry would take several thick books, so a summary will have to suffice here. Throughout the 1900’s and the first decade of the new millennium the health industry has meandered down a winding path in ill-conceived attempts to improve itself. There was a time in our history when health care was non-profit and non-corporate, and cost so little that except in the worst cases, the need for insurance was negligible.

When you become ill, you go see a doctor. Almost all Doctors now are forced to work for a large health care corporation. As we have seen earlier in the financial industry, corporations care only about making their stockholders happy with increased profit. This fact sets the stage for our first conflict of interest, but it gets worse, much worse.

Most medical care is now provided through insurance. Insurance companies are also for profit corporations.  An insurance company maximizes its profit by paying out less in health care costs than they collect in premiums. On the surface, it would seem logical that insurance companies would force the health provider establishment to keep costs down. However, the reality of the dynamic that arises from the interaction between these two related industries has taken some weird twists that have crippled the system.

The merging of health providers into large corporations has turned medical care into a commodity. There are plenty of sick people to go around, such that doctors rarely have to ‘build’ a medical practice any more. They go to work for a corporation with patients already lined up at the door. In the 60’s, 70’s and 80’s health care costs rose as new technologies made ever more elaborate, and expensive, options available. Hospital corporations figured they could make more of money by performing elaborate and expensive tests. No one complained if excessive tests and procedures were done as long as in the end, the patient survived and insurance paid the bill. Insurance companies were determined to put a halt to this abuse. In another move that on the surface made sense at the time, insurance companies started limiting how much they would pay for a specific ailment, not the treatment. A form of payment known as Capitation. Therefore, a diagnosis would yield a fixed payment to the health provider, regardless of a cost of actual treatment. Some insurance companies are no health providers also as they have merged, and they actually pay the doctor per patient like a salary, then deduct from that the cost of whatever treatment the doctor recommends. This of course puts the doctor in an untenable position.

This move by the health insurance companies had two major effects. The actual cost of treatment was now detached from the cost of providing health care and more easily hidden. There was a drive by corporate health providers to maximize profits by getting as many patients through the door as possible, diagnose early to get the fee they want, then rush the patient out the door with a minimum of actual expense. The fee for diagnoses would have to be averaged over many patients with different levels of care. Doctors who tried to work outside this system, stay independent and charge just for actual services rendered might only receive a partial payment from the insurance company. The result being, that even though they have insurance, the patient had to pick up the difference. Doctors simply could not compete with the corporate machine, and any doctors that were holding out on ethical grounds were forced to join the corporate medical system. The entire medical system is full of quick fixes that had unintended consequences because it is designed from the bottom up not to provide medical care in the best interest of a patient, it is designed to run like any other corporation and make a profit for their shareholders.

When there is a flaw in the design…redesign

When there is a fundamental flaw in the design of something, the last thing you want to do is create a short-term work around to mask the flaw. Eventually a case will appear when the work around fails and the original flaw is able to exacerbate that failure and make things even worse. If you design an aircraft that is too heavy to get off the ground, the best fix is not to simply get bigger engines. The best fix is usually to go back to the drawing board and design a lighter aircraft. You cannot fix a bad design with more bad design.

Our banking and health systems are poorly designed and rapidly failing because of the same fundamental flaw. They both are designed to serve their shareholders instead of the public good. The continued bad practices in the financial markets were not sustainable and eventually resulted in a sort of population crash of the system. That fundamental flaw still exists and so the next failure may be more devastating.

The same is true in health care. They are on an unsustainable trajectory of higher cost and poorer care. You would think with health care tripling in cost compared national GDP that we would have the best system money can buy. The reality however, that we spend three times as much money and we actually have the worst health care quality among the industrial nations.

Additionally, the growth of health care cost is not sustainable. Eventually the system will suffer a form of population crash like the one we saw in the financial sector. All it takes is some event like a mass illness; Avian flu perhaps could push the system to the breaking point where in all comes tumbling down. In addition, this time it might be accompanied with a real population crash.

Good Old Engineering

In part I of this series we looked at how one aspect of the system, banking, is broken. In this second part of the series we examined another industry; healthcare. One can point out a number of areas where banking and healthcare have failed the system, but if all you do is look at the direct cause of the failure, you never really understand how to prevent it from happening again. You end up applying Band-Aid’s to a chronic problem at best, or you get unintended consequences that are worse than the original problem.

Looking only at the points of failure is like examining a crashed jetliner, discovering the failure was a crack in the frame somewhere and then saying simply a crack caused it to crash, so we will give everyone a parachute. If you do not look at what led to a crack appearing in the first place, you never revise the design, and perform the engineering required to prevent the crack from appearing again.

One of the cracks that appeared in the banking system was the fact that banks and investment firms were now in bed together and colluded to create ultra-risky investments while hiding the true risk of the underlying mortgages inside. A huge crack in the health system comes from the fact that two sectors, providers and insurers, compete increase their own profits and against each other with patients stuck in the middle taking most of the fire.

Regulation by the government can place a Band-Aid over the crack, but the underlying cause of the crack is still there. More regulation will likely just result in more unintended consequences, more inefficiency, and higher cost.

What this means is, that while one crack is patched others may start to appear. What is needed to fix this problem is not a patch over the crack, but a change in the design.

The Profit Motive

Why would the banks do what they did that led to the crisis in housing? Why would hospitals, staffed with caring and empathic doctors and nurses, work a system that is so ineffectual and unfair? Why would health insurance companies not just permit but also actually create so much pain and suffering in the world?

The answer is simple. They are corporations, and as such, they have shareholders who have invested in them. The humanity and compassion that is felt by the individual is nonexistent in corporations. Shareholders invest for one reason, to make money. The more money you make, the more investors will push your stock price up, and everyone gets rich. Banks, as the holders and creators of money, have a fiduciary responsibility to the people and society, to cause no harm. Health providers have a moral duty and take an oath to do no harm. However, they answer to their shareholders who demand more and more profit that has the potential to cause a great deal of harm. There is a conflict of interest between doing no harm to the people who put their trust in these institutions, and the investors whose demand for more profit drives all decisions. We live in a world where our financial health and physical health are in the hands of a board of directors who we will never meet, and who will never know the names of their victims.


In summary, we have seen how a basic flaw in the design of our banking and health industry leads to conflicts of interest with the good of society. We have discussed and probably witnessed firsthand the pain and suffering these kinds of conflicts of interest cause. However, no examination of bad design can be complete without offering some suggestions for design changes. That will be the topic of part III in this series.