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Tithing is about putting God first in your life. Put God first in your life, and you can count on God doing his part.
— John-Roger, DSS

Saturday, August 29, 2009

Are there any adults in the room?

In past posts I have explored the idea of "getting ready." There is the game the world plays. It is a difficult game to win because inherent within it is the compromising of values and dishonesty, and we are certainly seeing more and more of that everyday.

And what is it to win at the world's game anyway? The world is run by a negative power that is a master at the game.

So we must play a different game and follow another master, hence this blog outlining the spiritual principles of abundance and prosperity which require one essential step--connecting to the divine. Not through words but through action. It is a winnable game because it is not a worldly game. It is a game of consciousness.

If I would name the game I would call it, "Can You Let Go?"

The below is one of the best articles on the economy I have read in a long time. It is non-technical and clear and free of invective. PLease take the time to read it. I have reproduced it in full. It is by John Maudlin.

An Uncomfortable Choice

As our family grew, we limited the choices our seven kids could make; but as they grew into teenagers, they were given more leeway. Not all of their choices were good. How many times did Dad say, "What were you thinking?" and get a mute reply or a mumbled "I don't know."

Yet how else do you teach them that bad choices have bad consequences? You can lecture, you can be a role model; but in the end you have to let them make their own choices. And a lot of them make a lot of bad choices. After having raised six, with one more teenage son at home, I have come to the conclusion that you just breathe a sigh of relief if they grow up and have avoided fatal, life-altering choices. I am lucky. So far. Knock on a lot of wood.

I have watched good kids from good families make bad choices, and kids with no seeming chance make good choices. But one thing I have observed. Very few teenagers make the hard choice without some outside encouragement or help in understanding the known consequences, from some source. They nearly always opt for the choice that involves the most fun and/or the least immediate pain, and then learn later that they now have to make yet another choice as a consequence of the original one. And thus they grow up. So quickly.

But it's not just teenagers. I am completely capable of making very bad choices as I approach the end of my sixth decade of human experiences and observations. In fact, I have made some rather distressing choices over time. Even in areas where I think I have some expertise I can make appallingly bad choices. Or maybe particularly in those areas, because I have delusions of actually knowing something. In my experience, it takes an expert with a powerful computer to truly foul things up.

Of course, sometimes I get it right. Even I learn, with enough pain. And sometimes I just get lucky. (Although, as my less-than-sainted Dad repeatedly intoned, "The harder I work the luckier I get.")

Each morning is a new day, but it is a new day impacted by all the choices of the previous days and years. Tiffani and I have literally interviewed in depth well over a hundred millionaires, and talked anecdotally with hundreds over the years. I am struck by how their lives, and those of their families, come down to a few choices. Sometimes good choices and sometimes lucky choices. Often, difficult ones. But very few were the easy choice.
What Were We Thinking?

As a culture, the current mix of generations, especially in the US, has made some choices. Choices which, in hindsight, leave the adult in us asking, "What were we thinking?"

In a way, we were like teenagers. We made the easy choice, not thinking of the consequences. We never absorbed the lessons of the Depression from our grandparents. We quickly forgot the sobering malaise of the '70s as the bull market of the '80s and '90s gave us the illusion of wealth and an easy future. Even the crash of Black Friday seemed a mere bump on the path to success, passing so quickly. And as interest rates came down and money became easier, our propensity to acquire things took over.

And then something really bad happened. Our homes started to rise in value and we learned through new methods of financial engineering that we could borrow against what seemed like their ever-rising value, to finance consumption today.

We became Blimpie from the Popeye cartoons of our youth: "I will gladly repay you Tuesday for a hamburger today."

Not for us the lay-away programs of our parents, patiently paying something each week or month until the desired object could be taken home. Come to think of it, I am not sure if my kids (15 through 32) have ever even heard of a lay-away program, not with credit cards so easy to obtain. Next family brunch, I will explain this quaint concept.

(Interestingly, I heard about a revival of the concept on CNBC radio, coming back from dropping Trey off at school this morning. Everything old is new again.)

As a banking system, we made choices. We created all sorts of readily available credit, and packaged it in convenient, irresistible AAA-rated securities and sold them to a gullible world. We created liar loans, no-money-down loans, and no-documentation loans and expected them to act the same way that mortgages had in the past. What were the rating agencies thinking? Where were the adults supervising the sand box?

(Oh, wait a minute. That's the same group of regulators who now want more power and money.)

It is not as if all this was done in some back alley by seedy-looking characters. This was done on TV and in books and advertisements. I remember the first time I saw an ad telling me to call this number to borrow up to 125% of the value of my home, and wondering how this could be a good idea.

Turns out it can be a great idea for the salesmen, if they can package those loans into securities and sell them to foreigners, with everyone making large commissions on the way. The choice was to make a lot of money with no downside consequences to yourself. What teenager could say no?

Greenspan keeping rates low aided and abetted that process. Starting two wars and pushing through a massive health-care package, along with no spending control from the Republican Party, ran up the fiscal deficits.

Allowing credit default swaps to trade without an exchange or regulations. A culture that viscerally believed that the McMansions they were buying were an investment and not really debt. Yes, we were adolescents at the party to end all parties.

Not to mention an investment industry that tells their clients that stocks earn 8% a year real returns (the report I mentioned at the beginning goes into detail about this). Even as stocks have gone nowhere for ten years, we largely believe (or at least hope) that the latest trend is just the beginning of the next bull market.

It was not that there were no warnings. There were many, including from your humble analyst, who wrote about the coming train wreck that we are now trying to clean up. But those warnings were ignored.

Actually, ignored is a nice way to put it. Derision. Scorn. Laughter. And worse, dismissal as a non-serious perpetual perma-bear. My corner of the investment-writing world takes a very thick skin.

The good times had lasted so long, how could the trend not be correct? It is human nature to believe the current trend, especially a favorable one that helps us, will continue forever.

And just like a teenager who doesn't think about the consequences of the current fun, we paid no attention. We hadn't experienced the hard lessons of our elders, who learned them in the depths of the Depression. This time it was different. We were smarter and wouldn't make those mistakes. Didn't we have the research of Bernanke and others, telling us what to avoid?

In millions of different ways, we all partied on. It wasn't exclusively a liberal or a conservative, a rich or apoor, a male or a female addiction. We all borrowed and spent. We did it as individuals, and we did it as cities and states and countries.

We ran up unfunded pension deficits at many local and state funds, to the tune of several trillion dollars and rising. We have a massive, tens of trillions of dollars, bill coming due for Social Security and Medicare, starting in the next 5-7 years, that makes the current crisis pale in comparison. We now seemingly want to add to this by passing even more spending programs that will only make the hole deeper.

Frugality is the New Normal

I could go on and on, but I think you get the point. The time for good choices was a decade ago. It would have been more difficult at the time, so that is not what we did. And now we wake up and are faced with a set of choices, none of them good.

Reality is staring back in the mirror at the American consumer, and especially the Boomer generation. The psyche of the American consumer has been permanently seared. We are watching savings beginning to rise and consumer spending patterns change for the first time in generations. Even as the authorities try to prod consumers back into old habits, they are not responding. Borrowing and credit are actually falling. Banks, for whatever reason, now want borrowers to actually be able to pay them back. Go figure.

Frugality is the new normal. We are resetting the underpinnings of a consumer-driven society to a new level. It will require a major overhaul of our economy. The normal drivers of growth - consumer spending, business investment, and exports - are all weak, and it is only because of massive government spending that the second quarter was not as bad as the two previous quarters and that the coming quarter will be positive.

But what then? How long can we continue with 10%-plus GDP deficits? We have an economy that is in a Statistical Recovery, fueled by government largesse. In the real world, we are watching unemployment rise, and it is likely to do so through the middle of next year. Deflation is in the air. Capacity utilization is near all-time lows. Housing numbers are only bouncing because of the government program of large tax credits for first-time home buyers and lower home prices. It will be years before construction is significant.

We will be faced with a choice this fall and early next year. If you take away the government spending, the potential for falling back into a recession is quite high, given the underlying weakness in the economy. A few hundred billion for increased and extended unemployment benefits will not be enough to stem the tide. There will be a groundswell for yet another stimulus package. Another 10% of GDP deficit is quite likely for next year.

As I (and Woody Brock) have made very clear in these e-letters, deficits that are higher than nominal GDP cannot continue without dire consequences. Good friend Richard Russell writes today:

"The US national debt is now over $11 trillion dollars. The interest on our national debt is now $340 billion. This is about at 3.04% rate of interest. In ten years the Obama administration admits that they will add $9 trillion to the national debt. That would take it to $20 trillion. Let's say that by some miracle the interest on the national debt in 10 years will still be 3.09%. That would mean that the interest on the national debt would be $618 billion a year or over one billion a day. No nation can hold up in the face of those kinds of expenses. Either the dollar would collapse or interest rates would go through the roof."

That would be at least 30% of the national budget. How would your household do, paying that much as interest? How can you operate when interest payments are 30% or more of the budget? Do you borrow to pay the interest? And the Obama administration openly admits to deficits of over a trillion a year for the next ten years, under very rosy growth assumptions. Anyone outside of Washington and rosy-eyed economists think we will grow 4% next year? I am not seeing many hands go up.

And Then We Face the Real Problem

If we do not maintain high deficits, it is likely we fall back into recession. Yet if we do not control spending, we risk running up a debt that becomes very difficult to finance by conventional means. Monetizing the debt can only work for a few trillion here or there. At some point, the bond market will simply fall apart. And it could happen quickly. Think back to how fast things fell apart in the summer of 2007. When perception of the potential for inflation changes, it changes things fast.

The problem is that we are now in a very deflationary world. Deleveraging, too much capacity, high and rising unemployment, falling real incomes, and more are all the classic pieces of the formula for deflation.

Let's look at what my friend Nouriel Roubini recently wrote. I think he hit the nail on the head:

"A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.

"Yet the alternative - the early withdrawal of the stimulus drug that governments have been dispensing so freely - is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment - a time when unemployment is rising, and private demand is still contracting - could be catastrophic, turning recovery into renewed recession."

There are no good choices. Nouriel, optimist that he is (note sarcasm), suggests that there is a possibility that the government can manage expectations by showing a clear path to fiscal responsibility that can be believed. And thus the bond markets do not force rates higher, thereby thwarting recovery.

And technically he is right. If there were adults supervising the party, it might be possible. But there are not. The teenagers are in control. Instead of fiscal discipline, we are hearing increased demands for more spending. Please note that the very rosy future-deficit assumptions assume the end of the Bush tax cuts at the close of 2010. But raising taxes back to the level of 2000 does not make the projected future budget deficits go away.

I mean, seriously, does anyone think Pelosi or Reid are going to lead us to fiscal constraint? Obama talks a good game, but he has not offered a serious deficit-reduction proposal, other than further tax increases. And by serious, I mean we need cuts on the order of several hundred billion dollars. The Republicans lost their way and their power (deservedly, in my opinion). Just as at the high school prom, the very few adults are being ignored.

It is the proverbial rock and the hard place. Cut the stimulus too soon and we slide back into a deeper recession. Let the budget spin out of control for a few years and we will see inflation return, with higher rates and a recession. Raise taxes by 1.5-2% of GDP in 2010 and we are shoved back into recession.

There are no good choices. If we do the right thing and cut the deficit, it means very hard choices. Can we keep our commitments to two wars and our massive defense budget? Medicare and Social Security reform are not painless. Education? Research? The "stimulus"? But cutting the deficit by hundreds of billions while raising taxes by even more than is already in the works, is not the formula for sustainable recovery.

Have we grown up? Are there adults in the room? Sadly, I don't think there are enough. We are still a nation of teenagers. We will do whatever we can to avoid the pain today. We will kick the can down the road, hoping for a miracle. Will we grow up? Yes, but the lessons learned will be hard.

There are no statistical signs of an impending recession. We are not going to get an inverted yield curve this time, which made it relatively easy for me to predict recessions in 2000 and 2006. We are in a deflationary, deleveraging world. A far different world than in the past.

I see little room for us to avoid a double-dip recession. It would take the skill and speed of former Cowboys running back Tony Dorsett hitting a very small hole in the line to break us into the open. I see no running back in our national leadership with such ability. As I have outlined above, recession could be triggered again in any number of very different economic environments. It all depends on the choices we make. But the choices lead to the same consequences, at least in my opinion.

As I wrote in August 2000 and August 2006, I write again in August 2009: there is a recession in our future. I was early both of those times and I am early now, maybe two years early, though I doubt it. And as I pointed out both of those last times, the stock market drops an average of over 40% during a recession. When I was on Kudlow in October of 2006, I was given a hard time about my recession call and prediction of a bear market. I think it was John Rutherford who dismissed my bearish vision. And he was right for the next three quarters, as the market proceeded to rise another 20%. I looked foolish to many, but I maintained my views.

You have choices. You can buy and hold (buy and hope?) or you can develop a strategic alternative. The next bear market, as I wrote in 2003 and in Bull's Eye Investing, will likely be the bottom. (It takes at least three of them to really take us to the bottom.) But the next one will change perceptions for a long time. Valuations will drop. Savings will rise even more. And a generation will grow up. The adults will return. Chastened. Scarred. Shaken. But we will Muddle Through. That is what we do. Even my teenagers.

Choose wisely.

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to:

http://www.frontlinethoughts.com/learnmore

Posted by Paul Kaye at 3:58 PM
Keywords: Getting Ready, Letting Go, The Economy, Values
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Friday, July 31, 2009

An Extraordinary Story

I am always fascinated by people who live outwardly very simple lives and yet die with extraordinary amounts of money. Of course some of them are just plain crazy, but other seem to have transcended the need for materiality. This, via NPR and DailyGood.org is one such story:

July 27, 2009

Every day on NPR, listeners hear funding credits — or, in other words, very short, simple commercials.

A few weeks ago, a new one made it to air:

"Support for NPR comes from the estate of Richard Leroy Walters, whose life was enriched by NPR, and whose bequest seeks to encourage others to discover public radio."

NPR's Robert Siegel wondered who Walters was. So Siegel Googled him.

An article in the online newsletter of a Catholic mission in Phoenix revealed that Walters died two years ago at the age of 76. He left an estate worth about $4 million. Along with the money he left for NPR, Walters also left money for the mission.

But something distinguished Walters from any number of solvent, well-to-do Americans with seven-figure estates: He was homeless.

Walters was a retired engineer from AlliedSignal Corp.; an honors graduate of Purdue with a master's degree; and a Marine. Walters never married, didn't have children and was estranged from his brother. But he wasn't friendless.

Rita Belle, a registered nurse, met Walters at a senior center 13 years ago.

"He always came in with a little backpack on and a cap on," Belle tells Siegel. "And always kind of looked at me, but [was] very reserved. And I'm very outgoing and outspoken. So I said to him, 'Hey, you got a minute can we sit down to visit?' And we'd have coffee there at the senior center."

Belle and Walters became friends. Belle stayed with Walters when he was ill. She became his nurse and ultimately the executor of his estate — as well as one of the beneficiaries — despite fundamental differences between them.

"He was an atheist and I'm a very profound practicing Catholic, and I'd never met an atheist," Belle says. "And that just blew my mind that somebody could not believe in the Lord."

Belle volunteers at the mission in Phoenix, which like NPR and several other nonprofits got about $400,000 from Walters.

Belle knew him as a very well-informed man who could fix her air conditioning — someone she just assumed had a place to live. Then he told her that he had no home. She heard that he slept on the grounds of the senior center. He told her he ate at the hospital and used a telephone there or at the center.

"And I'm sure that's when he was making his trades and so on," Belle says. "He was involved in investing; we talked investments a lot." Belle says Walters even did his own income taxes.

When Walters retired, he evidently retired from the world of material comforts. He didn't have a car.

"He just gave up all of the material things that we think we have to have," Belle says. "You know, I don't know how we gauge happiness. What's happy for you might not be happy for me. I never heard him complain."

Evidently, among his few possessions was a radio. Hence those announcements listeners hear now and again on NPR stations.

Posted by Paul Kaye at 1:52 PM
Keywords: Abundance, Letting Go, Security
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Friday, July 24, 2009

Happiness

Thanks to Nancy for pointing out this great article by Pico Iyer on the Dalai Lama.

My favorite part:

Think in terms of enemies, he suggests, and the only loser is yourself.

Concentrate on external wealth, he said at Town Hall, and at some point you realize it has limits — and you’re still feeling discontented. Take his word as law, he constantly implies, and you’re doing him — as well as yourself — a disservice, as you do when assuming that any physician is infallible, or can protect his patients from death in the end.

None of these are Buddhist laws as such — though in his case they arise from Buddhist teaching — any more than the law of universal gravitation is Christian, just because it happened to be formulated by Isaac Newton (who said, “God created everything by number, weight and measure”). I’ve been spending time for 18 years in a Benedictine monastery, and the monks I know there have likewise found out how to be delighted by the smallest birthday cake. Happiness is not pleasure, they know, and unhappiness, as the Buddhists say, is not the same as suffering. Suffering — in the sense of old age, sickness and death — is the law of life; unhappiness is just the position we choose — or can not choose — to bring to it.

Posted by Paul Kaye at 5:39 PM
Keywords: Happiness, Letting Go
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Monday, June 29, 2009

The Madoff Lesson

From The Curious Capitalist:

If Madoff's clients had only put 5% or 10% of their assets in his Ponzi scheme, it just wouldn't have been that big a deal. Instead we have for months been hearing story after story about individuals and families and even foundations that put all their money with the guy. These weren't the kind of folks who spend much time reading Harry Markowitz or Burton Malkiel—instead, they didn't want to have to think about their investments at all. They wanted to leave their money with somebody they trusted, and get on with their lives. Which is a pretty reasonable desire. But, it turns out, a dangerous one.

Posted by Paul Kaye at 10:02 PM
Keywords: Basics, Letting Go, Security, Trust
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Wednesday, June 24, 2009

Echolocation

I had heard of dolphins using echolocation but I was truly blown away when I first heard of echolocation being used by blind people to negotiate their way through life. This fascinating article explains the process. Truly a miracle--one of life's wonders.

Excerpt:

I am 6 years old and it's my first day at school. The bell rings for recess and all my classmates run gleefully away. But unlike them I cannot see. At least, not with my eyes. Instead, I click my tongue, listening for echoes from the wall to my left. I walk with my hands slightly outstretched to keep me from running into chairs that may have been left askew. I hear kids laughing and shouting through the open door, and by clicking I also hear the presence of the sides of the doorway in front of me. I go through it to the playground for the first time.

Echoes can be used to perceive three characteristics of objects: where they are, their general size and shape and, to some extent, what they are like - solid versus sparse, sound-reflective versus sound-absorbent. This allows the brain to create an image of the environment.

For example, I perceive a parked car as a large object that starts out low at one end, rises in the middle and drops off again. The difference in the height and slope pitch at either end helps me identify the front from the back end; typically, the front will be lower, with a more gradual slope up to the roof.

Distinguishing between types of vehicles is also possible. A pickup truck, for instance, is usually taller, with a hollow sound reflecting from its bed. An SUV is usually taller and sounds blockier.

A tree has narrow and solid characteristics at the bottom - the trunk - broadening and becoming more sparse towards the top. More specific characteristics, such as the size, leafiness or height of the branches, can also be determined.

Passive sonar that relies on incidental noises such as footsteps produces relatively vague images. Active sonar, in which a noise such as a tongue click is produced specifically to generate echoes, is much more precise. My colleagues and I use the term FlashSonar for active sonar, because for us each click is similar to the brief glimpse of the surroundings sighted people get when a camera flash goes off in the dark.

Posted by Paul Kaye at 12:07 PM
Keywords: Abundance, Health, Letting Go, Practice
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Monday, June 22, 2009

Inspiration

Absolutely stunning shots of ice in Greenland. It will transport you to another world.

*

A must read short article on the thoughts of a 90 year-old vibrant Rabbi, 6 Reasons to Grow Old. Excerpt:

Tranquility tops his list. “You have achieved in old age what you have wanted to, if you are fortunate,” he said. The important battles have been waged, the decisions made. “You no longer have to do the pushing, the striving, the struggle.”

“You don’t rush to quick action,” Rabbi Haberman explained. “You’re more likely to stop and think.” These days he’s hardly indifferent to the world’s problems, he added, but he’s less inclined to think he can solve them, or that they’re soluble at all.

Americans are activists by nature, but “more happens to us than we cause to happen,” he has found. “You have to accept the unalterable.”

Moreover, the rabbi confessed, he’s increasingly apt to consider the possibility he’s wrong, a gift of old age (fourth on the list) he labeled “liberation from the compulsion to set everyone else straight.” He has loosened up, he told me, since his more dogmatic youth.

Each night before bed, he recites in Hebrew a passage from Psalm 31: “In God’s hand I entrust my spirit, when asleep and when awake/My body and spirit, God is with me, I shall not fear.”

“And I leave it at that,” the rabbi said.

Posted by Paul Kaye at 11:42 AM
Keywords: Attitude, Happiness, Joy, Letting Go, Practice, Values
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Saturday, April 18, 2009

A Poem

I just loved this poem from MSIAer Anne Naylor's latest post at the Huffington Post.

Autobiography in Five Chapters

1. I walk down the street.
There is deep hole in the sidewalk
I fall in.
I am lost.... I am hopeless.
It isn't my fault.
It takes forever to find a way out.

2. I walk down the same street.
There is a deep hole in the sidewalk.
I pretend I don't see it.
I fall in again.
I can't believe I'm in the same place.
But it isn't my fault.
It still takes a long time to get out.

3. I walk down the same street.
There is a deep hole in the sidewalk
I see it is there.
I still fall in ... it's a habit
My eyes are open
I know where I am
It is my fault
I get out immediately.

4. I walk down the same street.
There is a deep hole in the sidewalk
I walk around it.

5. I walk down another street.

--Portia Nelson

Posted by Paul Kaye at 8:58 PM
Keywords: Letting Go, Success
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Friday, February 20, 2009

In the Midst of the Meltdown 5

Shape clay into a vessel;
It is the space within that makes it useful.


--Lao-Tzu

*

It is within the no-thing that the Spirit lives.

The Spirit will not come into a space that is already filled.

If you are filled with anxiety, fear, depression, and disturbance, there is no space for the Spirit.

And since the Spirit cannot violate your consciousness, it must stay outside.

When you give up the negative emotions and expressions, the space that is left can be filled by the Spirit.

But you must create the space.

You have to risk letting go of the things that do not work for you in order to gain the things that will.


(From the Tao of Spirit by John-Roger, DSS)

*

We are certainly living in interesting times. Please be aware of what is going on around you. It will change the course of the planet for generations. For example, capitalism. The U.S.A. is the great bastion of capitalism. Make that "was." And all in the last month or two. We are seeing that if an inefficient auto maker fails it is bailed out by the government. If a large, corrupt financial institution over extends itself through greed and stupidity, it is bailed out by the government. If a person spends too much money on a house they could never afford and are behind on their payments, they too are now being bailed out by the government. And who is really bailing them out? The people who run their businesses efficiently, who make their house payments on time and who are honest and pay their taxes. This is the new face of capitalism, and what you are seeing, first hand, is an abysmal failure. It is a historic moment. Really. You have a front row seat on what is likely to be an ongoing great world social upheaval.

*

If you still can't get your head around what has taken place and all the terms like Credit Default Swaps and CDO's and things like that then this 11 minute video is a must see. It is about the clearest explanation I have found. Please educate yourself.


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Posted by Paul Kaye at 9:50 PM
Keywords: Letting Go, The Economy, The World
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