Almost Daily Rant

So You Want Wal-Mart to Run the Government Huh?

It looks like this one has been flying around for a long time, but I just received an email that joked that Wal-Mart execs be given a shot at running the government given the financial failures of Social Security to Freddie/Fannie and so on. I know this is just tongue and cheek, but when you argue that "government" is this dumb, lumbering, inefficient, beastly and wasteful creature, you miss the chance to make the larger point about corporatism.

Wal-Mart is exactly what happens when government is fused at the hip with the biggest corporations, something Hayek warned us about decades ago in Road to Serfdom.

So Wal-Mart should run the government huh? Silly rabbit, they and others like them effectively do! But they are smart enough business people not to take the actual reigns and to not have you and me, the milk cows, pay for all these so called “failures” that make their business so successful.

This all reminds me of the expression, works as spec'ed.

Where would those "free market" cowboys in Bentonville be when you take away:

1.) Trillions in Medicare to keep their pharmacies pushing pills

2.) An executive decision to weaponize food in the early 70’s which lead to a decade’s long glut of corn-based processed goodies they can sell less than real value

3.) Cheap labor in Asia due to years of government oppression by regimes with favorite nation status

4.) Trillions in Defense budget and petrodollar warfare to subsidize their global warehouse on wheels 

5.) Billions of tax payer subsidized under-employment benefits for workers who turned to government programs for health care

6.) A revolving door from board room to lobbyists to executive government agencies which shape policies in their favor

7.) Federal government subsidized housing market (in cohoots with the Fed cartel's policy of ZIRP) causing overbuild out into the exurbs which gave them plenty of new corners to build on

I bet you can easily think of more.

Chart of the Day 4Nov10

As the arsonists at the Fed launch the next round of currency destruction with QE2 igniting all tradable asset markets, Bernanke has the audacity to recite the “modest inflation of 1-2%" nonsense.

I don’t have to tell you savvy readers that the government core inflation figures are meaningless. Sure, prices are stable if you don’t eat, use fuel or require any commodity that comes out of the ground. The reality of cost of living increases is best shown in the chart below courtesy of the folks at Casey Research. 2% huh?

 

The Latest Chapter of the Global Corporate Takeover

Even if you subscribe to the “accidental” view of history (i.e. stuff just happens with some black swans along the way), you cannot deny the decades long push towards a carefully managed consolidation of global economic and political power. In Marshall’s latest article, he describes the evolution in plain sight of the G20 as power centralizes, as it always does, under the opportunity of crisis.

In May of 2010, Dominique Strauss-Kahn, Managing Director of the IMF, stated that, “crisis is an opportunity,” and called for “a new global currency issued by a global central bank, with robust governance and institutional features,” and that the “global central bank could also serve as a lender of last resort.” However, he stated, “I fear we are still very far from that level of global collaboration.”[1] Well, perhaps not so far as it might seem.

       
The notion of global governance has taken an evolutionary path to the present day, with the principle global political and economic actors and institutions incrementally constructing the apparatus of a global government. In the modern world, global governance is an inter-lapping, intersecting, and intertwined web of international organizations, think tanks, multinational corporations, nations, NGOs, philanthropic foundations, military alliances, intelligence agencies, banks and interest groups. Globalization – a term which was popularized in the late 1980s to refer to the global spread of multinational corporations – has laid the principle ideological and institutional foundations for this process. Global social, economic and political integration do not occur at an equal pace; rather, economic integration and governance on a global level has and will continue to be ahead of the other sectors of human social interaction, in both the pace and degree of integration. In short, global economic governance will set the pace for social and political global governance to follow. (Read Full Article)

Another Look at Inflation

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose. -John Maynard Keynes

 

As we enter another economic inflection point, the global currency crisis and murmuring of massive inflation is getting more ink in the mainstream. Everybody knows that every debtor nation’s central bank is working overtime to default through devaluation of the currency. When you’re on the hook for tens of trillions in bond repayments, entitlements and interest with no real hope of making good,  then of course your goal is to pay those obligations in the future with much cheaper money. At the same time, you rob from creditors and savers starved by artificially low interest rates with pushing them to plunge their eroding funds into the (P&DCM 500) Pump-and-Dump Casino Markets thinking it is better to buy expensive companies at low yields than bankrupted government promises. Of course the negative impacts of inflation fly in the face of the constant central bank mantra to inflate at all costs.

Now that “everybody” knows we’re doing to dive head first into massive inflation, you still have a full set of deflationary forces at work including a foreclosure/contracts/MERS freeze threatening 10’s of Trillions in debt instruments, China, loss of incomes, the Internet, unemployment and a massive government debt bubble due to governments and central banks assuming mountains of private debt since 2008. But this is all window dressing for the ultimate con:

That the currency itself is debt and that any talk of paying down the debt is foolish because from the onset of issuing an interest-bearing debt-based currency, you ensure that there will never be enough currency in existence to repay the principle plus interest.

Since the financial collapse, Charles Smith has made some good arguments on why 10's of trillions in asset deflation can defeat the most aggressive central bank policies, but makes some critical distinctions between inflation and currency devaluation in his Hyperinflation Is a Political Process essay. These points are worth emphasizing.

He brings up the key difference between purely fiat and credit-based currency systems, a point that often gets lost in the constant printing press banter where the implications of debt as currency get lost sometimes. So yes, we need to be careful to distinguish between "too much money chasing too few goods" and the amount of credit in the system, since credit can be a case of pushing on a string if no one borrows in a fractional reserve system. In other words, you can’t force people to take loans, BUT you can continue to destroy the currency.

The end result for most folks is that each Federal Reserve Note (FRN) gets you less of what you need because commodities act like a sink for a credit source that refuses to expand, at the same time that each FRN gets harder to come by for loss of income as a result of the deflationary effect of no "money" expansion.

While I couldn’t agree more than we need to end the Fed, against what promises to be a chaotic political backdrop on the ashes of God only knows what type of social and economic turmoil we'll be facing several more years down the road,we need to make sure the new devil we create isn’t worse than the old devil from Jekyll Island that we’ve known since 1913. If you end the Fed, but don’t end the fractional reserve debt-based currency system, you have accomplished nothing. Inevitably, the result would be that power would only be nominally transferred to another Keynesian Creature under the thumb of the same financial elite IMF/BIS establishment promising to bring an order from chaos.

When you talk of a true national central bank, as the expression goes, you must be careful what you wish for. A true central bank is a lesser of two evils because you can’t have sovereignty without control of the money supply. As it stands, we have financial tyranny of the oligarchs (“give me control of a nation’s money and I care not who makes the laws”) and what Alexis de Tocqueville referred to as tyranny of the majority through politicians pressured for entitlements, bread and circus. In theory, a central bank helps with the first matter, but not the second. It is still politically convenient to print money instead of tax.

The only certainty is that any instrument of government financial power will be compromised by the financial elite and abused by politicos in the same ways they always have been, so new powers must be limited. If and when we do End the Fed, Congressional monetary control should remain limited, the Legal Tender laws should be repelled freeing up private parties to except other forms of payment, 100% reserve requirements be required, Federal Reserve Notes should be relegated to a government script (e.g. tax payments) and legitimate Constitutional definition for Dollar be re-established.

Death of Contracts in a Banana Republic

One of the requirements for a functional society is each person has the assumption that another person will in general do what he agrees he will do, forming the basis of contract law. Ideally, a written contract would be nothing more than a formality after two parties make a verbal agreement, but in a litigious society like our own, the written contract rules. Once enough people lose confidence in that basic assumption, the ground beneath society gives way and you have a banana republic.

That said the current contract and foreclosure debacle are causing many to do just that in the US. As more former middle class reach the conclusion that the game is rigged, their belief in the system fades, and many such as the middle class couple in this Zerohedge article reach the point of saying ‘f-it’.

What’s really important is that law-abiding middle-class citizens are deciding that playing by the rules is nothing but a sucker’s game. 

Just like the poker player who’s been fleeced by all the other players, and gets one mean attitude once he finally wakes up to the con?

When the backbone of a country starts thinking that laws and rules are not worth following, it’s just a hop, skip and a jump to anarchy.
 
TV has given us the illusion that anarchy is people rioting in the streets, smashing car windows and looting every store in sight. But there’s also the polite, quiet, far deadlier anarchy of the core citizenry—the upright citizenry—throwing in the towel and deciding it’s just not worth it anymore.
 
If a big enough proportion of the populace—not even a majority, just a largish chunk—decides that it’s just not worth following the rules anymore, then that society’s days are numbered: Not even a police-state with an armed Marine at every corner with Shoot-to-Kill orders can stop such middle-class anarchy. 

Brian and Ilsa are such anarchists—grey-haired, well-dressed, golf-loving, well-to-do, exceedingly polite anarchists: But anarchists nevertheless. They are not important, or powerful, or influential: They are average—that’s why they’re so deadly: Their numbers are millions. And they are slowly, painfully coming to the conclusion that it’s just not worth it anymore.

The implications on the housing market are huge as clear title forming the basis of property ownership comes into question as described in this Whiskey and Gunpowder article.

Well, if borrowers challenge foreclosure proceedings, and if banks (as they have already begun to do) halt foreclosure proceedings nationwide, the process of establishing a market-clearing price in the U.S. house market is frozen. Buyers can’t buy and sellers can’t sell if the ownership of the underlying collateral — the house itself — is in doubt. What sane person would enter a market like this with prices effectively having completely broken down?

CHS sums the larger context in a mortgage market that is for all intents and purposes already completely owned by the government. In a banana republic, government outwardly becomes nothing more than a legitimized crime syndicate that loots the public on behalf of the cronies behind it.

Either there is due process of law or you have a kleptocracy/"banana republic" oligarchy. At present, that is the decision we face as a nation. If the banking Elites and their partners in the Central State (Fed and Treasury) are allowed to "win" and gut the property laws of the states, then the U.S.A. will be revealed as a kleptocracy/"banana republic" oligarchy.

If state laws are upheld, then the "too big to fail" banks are insolvent and they will fail. Then the question of kleptocracy arises once again: will the banks be allowed to fail as per Classic Capitalism, that is, their owners and managers will have to absorb the losses of that bankruptcy/failure, or will the Central State use its powers to collect taxes and cover the private losses of the Bank/Financial Power Elites? Privatizing profits and socializing losses has been the entire game plan since the global house of cards collapsed in 2008.

It's decision time, citizens. Either the banks/Central State "win" and we are a kleptocracy/ "banana republic," or they lose and the U.S. mortgage/ banking sector implodes and is either formally socialized (i.e. owned lock, stock and barrel by the Central State) or rebuilt from scratch without big banks, Federal guarantees and the Fed's incestuous interventions. ("We create the credit that enables the mortgage, you issue the mortgage, and then we buy the mortgage.")

There is no "fix" or half-measure that can patch this over now.

Calling out Keynesian Claptrap

Believing it important to also read the people you disagree with, not an article goes by where I don’t cringe at the opinions of Paul Krugman, as leading voice of the NYT Keynesian economic establishment.

In his September 28 New York Times blog post, Paul Krugman announced that “economics is not a morality play.” That turn of phrase is his way of defending the idea that in unusual times, such as the sort of deep recession we are in, we can get strange relationships between economic cause and effect. The result is that actions which we might find highly distasteful can have positive effects. Thus we cannot afford to be overly concerned with morality if the goal is to get out of the recession (Read Full Article)

Never, Never, Never, Ever

Let a crisis go to waste, in the words of Rahm Emanuel. As a follow up to yesterday's article about the void of leadership how fitting it is that Obama is proclaiming it is time to thrust forth the climate legislation. For the five people out there that still believe this self-serving nonsense is about the environment, please for the love of your highest good follow the money.

 

Whether it is through FAT, VAT or Carbon Taxes, rest assure the bankrupted governments of the world, acting as agents of the financiers and multinationals that back them and certainly not your representatives, will do absolutely anything they can to ensure their existence by extorting whatever wealth still remains from the other 95% of the population. You could see this coming a mile away knowing that it was only a matter of time before O would take advantage of the highly emotional situation enfolding in the Gulf to railroad the agenda.

 

Fleecing the Flock

From the first time you issue a currency that represents interest-bearing debt, and not an actual store of value, you guarantee that there will always be more money owed to the issuing bank than money in circulation. The game works as long as new fools can be found to pay the interest of old, but eventually no more can be found and the Ponzi scheme falls in on itself. This simple truth is why the debt can never be repaid and the financial system is assured to eventually collapse. The only other certainty is that the financiers will use the government's monopoly of force to completely fleece the flock all the way down.

With that in mind, Gerald Celente describes how the game is rigged, how the deck is stacked and what to expect as the global bankers revolt intensifies.

 

25 Questions for the Delusional

You could easily extend the list to 50 or 100, but for the zombies among us who like a cargo cult believe the economy is recovering, here are 25 questions to ask from the theeconomiccollapseblog. I chalk some of it up to apathy as a self-defense mechanism, but apathy is going to claim a lot of victims if things continue to move sideways at the current pace.

Denial and anger also play their roles, and have been crystal clear in the opening act of the ecological catastrophe in the Gulf that will at a minimum have the the environmental, social and economic fallout equivalent to several nucs going off in the southeast. Have you considered what a massive evacuation from the Gulf of Mexico region might look like? The dynamic is one of a junkie who gets upset with the pusher after an overdose, and not one of responsible adults and stewards.

#1) In what universe is an economy with 39.68 million Americans on food stamps considered to be a healthy, recovering economy?  In fact, the U.S. Department of Agriculture forecasts that enrollment in the food stamp program will exceed 43 million Americans in 2011.  Is a rapidly increasing number of Americans on food stamps a good sign or a bad sign for the economy?

#2) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March.  This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005.  So can you please explain again how the U.S. real estate market is getting better?

#3) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period.  That was a record highand up from 9.1 percent a year ago.  Do you think that is an indication that the U.S. housing market is recovering?

#4) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United Statesthan all individual Americans put together? (Read Full Article)

Robb on the Decline of the West

I follow John Robb's website because of his big picture perspective on self-organizing groups and resilient communities. His recent post, The Decline of the West, summarizes what I've been calling the Latin Americanization of the industrial West, including the US, and the factors that will lead to the US joining the ranks of other hollow states. Which of the 3 basic individual choices that he presents at the end of the article do you choose?

Most analysts (at least the ones that are worth reading) contend that the sovereign default crisis (Greece, Portugal, Spain, etc.) in the EU is about the collapse of a system that created monetary union without a political union.  It isn't.  That's actually a narrow, parochial view.  Instead, the current sovereign debt crisis is about something much more interesting:  it's another battle in a war for dominance between "our" integrated, impersonal global economic system and traditional nation-states.  At issue is whether a nation-state serves the interests of the governed or it serves the interests of a global economic system.

Who's winning?  The global economic system, of course.  The 2008 financial crisis, the first real battle of this war (as opposed to the early losses in skirmishes in Russia, Argentina, the Balkans, etc.), generated a very decisive outcome.  It was a resounding defeat for nation-states.*   The current crisis in the EU will almost certainly end with the same results.

When this war ends, and it won't be long, the global economic and financial system will be the victor.  Once that occurs, the nation-states of the West will join those of the global south as hollow states: mere shells of states that serve only to enforce the interests of the global economic system.  These new states, more market-states than nation-states, will offer citizens a mere vestige of the public goods they offered historically.  Incomes will fall to developing world levels (made easy to due highly portable productivity), and wealth will stratify.  Regulatory protections will be weak.  Civil service pensions will be erased and corruption will reign.  The once dominant militaries of the West will be reduced to a small fraction of their current size, and their focus will be on the maintenance of internal control rather than on external threats.  The clear and unambiguous message to every citizen of the West will be:  

You are on your own.  You are in direct competition with everyone else in the world, and your success or failure is something you alone control.  

For those that think that this will bring about a surge of peaceful economic vigor, you will be wrong.  It will fragment society and lead to perpetual stagnation/depression, endemic violence/corruption, and squalor.  For absent any moral basis (a social compact), stability, or (widely shared) prosperity: new sources of order will emerge to fill the gap left by the hollowing out of the nation-state.  These new sources of order will be first seen in the rise of the criminal entrepreneur, whether they be the besuited corporate gangster or the gang tattooed thug.  For in the world of hollow states (without a morality that limits behavior) and limitless connectivity to the global economic system, these criminal entrepreneurs quickly become dominant, violently coercing or corrupting everyone in the path to their enrichment. 

As this occurs, you have a choice.  

1. You can stand alone and do nothing.  Thereby suffering the predations of this new criminal class.  
2. You can join them and prey on your former compatriots, enriching yourself in the process.  
3. Or finally, you can build something new.  Resilient communities and independent economic networks based on freedom, prosperity, and a new moral compact.

*  An ambush that yielded:  excessive debt, endless deficits, state guarantees (against financial system failure), and moral ambiguity/corruption.

  

Infighting

Catherine Austin Fitts had an insightful take on the offering up, at least nominally, of Goldman Sachs. Interesting dynamics to say the least, as some of the Big Boys are learning there simply aren't enough seats at the Big Boy's table to go around.

I'm still not convinced that we're seeing anything more than show trials to for Washington critters to appease the American people, as if to say "we're not bought and paid-for, really" especially at a time when the "Reform" bill is oozing its way through committee. If you're reading this, then I don't have to tell you that the bill would be more appropriately called the Fed Enabling Act as it will increase the powers of the privately-owned Federal Reserve whose stakeholders own the banks they claim to regulate. When oh when will the larger part of the American public catch on to the pattern of being sold that a solution to any crisis is to grant more power to the Mafiosos who caused the crisis?

Meanwhile, no one outside the fringe cares to discuss the even larger market manipulation by JPM.

By Catherine Austin Fitts

It makes sense to pause in the outpouring of news about Goldman Sachs to ponder what has happened and the nature of the game that is afoot.

Goldman is the visible target in a game of economic warfare. Who is on the other side is not clear. For want of a better term, let’s call the other party “Mr. Global.”

Mr. Global has arranged for Goldman to be “swarmed” - attacked or threatened with attack by multiple parties, including government agencies, the media and private players, including competitors. Presumably, Mr. Global has serious private and governmental intelligence capabilities and resources. However, Goldman Sachs does too.

We watched the Chairman and CEO Lloyd Blankfein yesterday confirm intestimonyon the record that reform was needed, which included passing the financial services reform bill put forward in the Senate by Senator Dodd.  We can presume that Mr. Global has made it clear to Goldman that unless they get on board with promoting the bill that things will not go well for them. (Read Full Article)

A Primer on Corporatism

What poses as free market capitalism when private interests collude with governments is more aptly called corporatism. Both Marxism and Neoliberal capitalism are essentially state-controlled economies that tend towards vertical integration and monopolies. I shake my head every time I see an “Obama Socialist” poster, because Obama is as much a corporatist as Bush. While their outward appearance on social policies differ, both serve the Global Plantation owners in a similar way. The article below, We Are All Fascists Now, describes how corporatist policies play out in the healthcare and food industries.

“Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power” – Benito Mussolini

Ron Paul’s latest article at LewRockwell.comgets even more specific in it’s definition:

Socialism is a system where the government directly owns and manages businesses. Corporatism is a system where businesses are nominally in private hands, but are in fact controlled by the government. In a corporatist state, government officials often act in collusion with their favored business interests to design polices that give those interests a monopoly position, to the detriment of both competitors and consumers.

Paul’s article goes into detail about how Conservatives and opponents to ObamaCare are actually doing their cause harm by calling ObamaCare “socialist” or opposing Obama’s agenda on the grounds that it is based on “socialism.”

When he is a called a socialist, the President and his defenders can easily deflect that charge by pointing out that the historical meaning of socialism is government ownership of industry; under the President’s policies, industry remains in nominally private hands.

The key word here is nominally, which is why Paul is advocating that Obama’s agenda be correctly called Corporatist...(Read Full Article)

Engdahl's Gods of Money Interview

In a 40 minute interview, William Engdahl discusses the end of the new American century and gives brief summary of the power structure that has enabled it for 70 years.

 

http://www.corbettreport.com/mp3/2010-01-21%20William%20Engdahl.mp3

It is critical to separate nationalist sentiments (i.e. So what is wrong with American century?)  from the actual corporatist goals that originated in 1939 War and Peace Studies, financed by the Rockefeller Foundation. The think tank made a calculation that the British Empire was over and to hedge their bets by backing both logical heirs: Germany and the US based on Mackinder’s Heartland strategy.

 

Learning from mistakes of the French and British Empires, the think tank knew not to make the mistake of calling the American Empire an empire. Instead, they united under a banner of “extending freedom, free enterprise and democracy” and set up financial policies of plunder defined by Wall Street during the Bretton Woods System: The World Bank, IMF and a global economy based on the USD. The goal as seen played out in Africa, Latin America though the 80’s, Asian Tiger Economies in the 90’s and former Soviet states after the Soviet Union devolved is to break the economies and make them dependent on the IMF.

Now that China is industrialized and beginning to have her own ideas, the system has run out of new blood to exploit so it is beginning to feed on itself as is playing out in the economic plunder of the remaining productive elements of Western economies. And so the snake begins to feed on its tail.

 

While many believe this is the logical end game for how the end of the Dollar system dovetails into a global currency and more centralized power by the IMF, Engdahl believes fractures in high-level power structures due to differing agendas of the BRIC countries make this less likely.

Thoughts on Housing

I’ll spare you yet another graph of expected mortgage defaults that shows the big wave of option adjustable resets won't peak until late 2011. You've all seen the graphs and the figures so I'll dive right in.

 

It is mindboggling the percent of the housing market that the Federal government is propping up on the backs of the people it is not representing and of course siphoning off a big chunk to their cronies through the un-holiest of alliances: The Federal Reserve, the Treasury and FDIC.

Take the entire $10T mortgage market and figure the government backs 50% with the Fannie/Freddie zombie, the Fed has bought $1T of garbage mortgage backed securities trading "junk for dollars" and is backing most of the FHA loans. So about 70% of the entire mortgage market is propped up by the government right now. How long can this go on?

The other thing to think about - the Fed has increased the reserves of commercial banks by 40x since late 2008 to over $1T total. With the magic of fractional reserve banking and 10% reserve requirements, that $1T could mushroom into $10T in credit.

People ask, so why aren't banks loaning money and why aren't things inflating with an unprecedented amount of "quantitative easing" or more honestly-put, running the Federal Reserve Note printing presses day and night?  

 

The deflation monster is eating the inflation monster through lost asset values as soon as the Fed can create it, but the Fed is also "bribing" the banks by paying interest on their reserves as a way of holding back the wave of credit which would wash over the economy like an inflationary firestorm. The Fed is only paying banks 0.25%, but banks figure better to get something than lose money on bad investments and profit from longer term "safe" bonds which give them over 3%.

 

But what happens when interest rates rise as they must since the world has lost its appetite for US and all sovereign debt and the only real buyers are thinly-veiled purchases by central banks? The banks will be tempted to lend and the Fed will have to raise the amount it is paying the banks, which of course we're ultimately paying for, like a dam holds back a building force of water. The political and monetary planners want inflation and my uneducated guess is that they will probably get it later and more intense than they bargained for. As a rule of thumb it takes 18 months for inflation to take hold after a major "stimulus", but Japan showed us you can continue to stimulate money down the drain for decades.

So the powers that be might actually get housing prices to rise in dollar terms but this would probably prove to be a Pyrrhic victory as home prices still fall in relative compared to food, fuel and real wages. The talking heads will be celebrating rising home prices with people shivering and hungry in $2M dollar shanty shacks. In spite of what the monetary planners say, the government can't create real wealth - they can only steal it from one to give to another through taxes and more importantly inflation.

 

 

Greer: Business as Usual is Quietly Coming to an End

John Michael Greer, author of “The Long Descent”, describes the beginning of the endgame of attempting to paper over an economic collapse. (Read Full Article)

Forget the survivalist fantasy of violent hordes pouring out of the inner cities to ravage everything in their path; today’s slum residents are instead becoming the Okies of the Great Recession. In the process, part of business as usual in the United States is coming to an end...

If I read the signs correctly, America has finally reached the point where its economy is so deep into overshoot that catabolic collapse is beginning in earnest. If so, a great many of the things most of us in this country have treated as permanent fixtures are likely to go away over the years immediately before us, as the United States transforms itself into a Third World country. The changes involved won’t be sudden, and it seems unlikely that most of them will get much play in the domestic mass media; a decade from now, let’s say, when half the American workforce has no steady work, decaying suburbs have mutated into squalid shantytowns, and domestic insurgencies flare across the south and the mountain West, those who still have access to cable television will no doubt be able to watch talking heads explain how we’re all better off than we were in 2000...

Those of my readers who haven’t already been beggared by the unraveling of what’s left of the economy, and have some hope of keeping a roof over their heads for the foreseeable future, might be well advised to stock their pantries, clear their debts, and get to know their neighbors, if they haven’t taken these sensible steps already. Those of my readers who haven’t taken the time already to learn a practical skill or two, well enough that others might be willing to pay or barter for the results, had better get a move on. Those of my readers who want to see some part of the heritage of the present saved for the future, finally, may want to do something practical about that, and soon. I may be wrong – and to be frank, I hope that I’m wrong – but it looks increasingly to me as though we’re in for a very rough time in the very near future.  (Read Full Article)

 

More Trends for 2010

In his Trends Research Institute report, Gerald Celente lays out the top 10 trends for 2010. Look for the next wave of the financial collapse once unprecedented government measures to prop up and obfuscate economic realities give way. No surprise there. You'd expect the government to continue to wage holy War on Economy to attempt to keep the strings from unraveling off the yarn ball through the November elections, but that is hugely wishful thinking.

Case in point: The government disguises real job loss through the birth-death model, which mistakenly assumes newly created companies creates an equal number of jobs as companies going under during a given period. As Bloomberg illustrates, a record 824K more jobs were lost last year than stated in the unemployment reports due to the birth death model and this figure does not account for phantom jobs created after April 2009. The next figures won't be reconciled until February, 2011. In the meantime, for more realistic figures, see John Williams at Shawdowstats.

Celente covers protectionism (notice China is now playing the role of the created enemy), neo-survivalism, the coolness of thrift, microbrands, the continued erosion of Big Media and Cable networks (good riddance) and downsizing of Americans and the American way of life that goes with it. Nothing too far reaching, but he should have added 2010 will be the year of sovereign defaults, with Greece, Spain and Portugal the most likely next cases, as well as desperate downsizing of people and services at the local and state governmental levels, choking from a lack of tax revenue.

How the bankruptcy of the US plays out will have to be seen. As long as other countries need a pretend trade surplus, they will take dollars and the US will continue to erode the currency as any debtor nation with the abusive privilege of printing a reserve currency. Ironically, other countries will attempt to devalue their currencies with respect to the USD as the race to the intrinsic value of zero continues. Eventually, you can't fake insolvency or print real wealth, so this game may come to an end much quicker than anyone thinks.

In November of 2007, we predicted the "Panic of ’08." There was a panic. In November of 2008, we forecast the "Collapse of ’09." In March ‘09, the global equity markets collapsed. But before they could crash all the way to the ground, a scaffold of emergency props was erected. An unparalleled array of government cash infusions, rescue packages, bailouts and incentives papered over the crisis.

Today, even as government spokesmen and the major media proclaim that the world is emerging from its near-cataclysmic recession, we predict the "Crash of 2010." The rising equity markets, on which claims of recovery are based, are worlds away from the hard reality of the streets....(Read full article)

The Temptation of Scientific Planning

 

“The control of the production of wealth is the control of human life itself.”

 –Hilaire Belloc

 

I’m seeing a number of articles claiming that science can somehow “solve” the economic crisis. If you're not scared by the idea of "science saving economics", check out Hayek's "Road to Serfdom". A “little planning” is a very slippery slope.

 

Scientists should know that you can't expect to change an outcome from bad to good by tinkering with parameters on any fatally-flawed system.

 

The fatal flaw and big elephant no one brings up is that for 40 years we’ve had a world of currencies and money substitutes unattached to anything of real value in real world dependent on dirt, fresh water, fuel and ore. Currencies are issued by state-sponsored private banking syndicates, which by the nature of central banks were designed to be too big to fail.

 

As much as I like Nassim Taleb, his black swans, and views on mispricing risk because of too much faith in flawed economic models, he doesn’t address a crucial point with his purely accidental view of history: If I as the state issue you a charter to essentially counterfeit money and require everyone to use your script for all debts public and private, then you, as a major market participant won’t misprice risk if you have no real risk of failing when the only rule of the game is that the productive class is responsible for your mistakes. Too big to fail was a guiding principle in forming banking cartels that control the economy, issue the currency and exploit the State’s monopoly use of force through taxes, war and oppression of its citizens. That said, not only was the economic collapse predictable, it was unavoidable.

 

In such a system, a partnership between the elite class and State that exploits the non-elite class is inevitable. Planners love to bring up the subject of regulation, but fail to mention who regulates? The problem with Marxism and Neoliberal capitalism, which are both state-run economies at the core, is that both lead to exploitation of non-elites by the elite class because of an overconcentration of power by or through the State. Neoliberals revolve in and out between the public and private realms and Marxists in control of production are targeted by the elite class for special favors.

 

A specific example of exploitation that contributed to the collapse, is a non-market mechanism of holding interest rates too low which robs the non-elite classes of the hidden inflation tax when their real wages don’t keep pace with real inflation forcing them to speculate in markets where they are at a huge information disadvantage to the elite class in order to attempt to preserve their wealth.

 

Without sound money, talk of ideologies, modeling and regulation is pointless.

 

Boyd Loops

The central theme as we enter 2010 is our collective failure to form a cohesive and integrated understanding of what is really happening at a broader social, political and economic level. 2009 was the year that a general loss faith in the status quo accelerated beyond the traditional corridors into the mainstream: A wide swath across all segments of society beyond the greens proclaiming Gaia’s redemption on her abusing masters, or the Biblical focus on the culmination to ultimate clash between good and evil or the Marxists declaring the coming fall of the capitalistic Babel.

 

 

It was also a year marked a year of massive confusion in linking cause and effect, if the bantering of left-right bickering were any indicator. More importantly, with increased awareness that the status quo is broken and perhaps terminally ill, there is massive individual stress on how to best position ourselves in the coming years, aside from arrogant mystical claims by hucksters that they have all the answers...for a fee of course.

 

 

Confronted with infinite direct and indirect impacts of the broader trends, our response to each conforms to the theory of one of the most influential U.S. military strategists, John Boyd. Any confrontation can be deconstructed into a series of Boyd Loops: Observation, Orientation, Decision and Action. The Boyd loop applies in war, business, politics and everyday life:

 

 

· Someone confronts you on the street with a knife – what do you do?

· Your business is floundering in a world that has less to spend – what do you do?

· You’re Napoleon, you’ve just captured Moscow, but at great cost – what do you do?

· You lose your job and find your soft skills have been outsourced and undervalued– what do you do?

· You manage your company’s finances and see interest rates rising, the EU disintegrating, the coming China real estate collapse and a massive loss of faith in the financial system – what do you do?

 

 

As in war, the situation is fluid. Big Media presents you with disinformation at every angle, so cutting through the fog of war is difficult as the alternative viewpoints fragment into thousands of points of light. How do you reconstruct the narrative and take the best action for your individual circumstance?

 

 

In chaotic social and economic situations, most get crushed, but a small minority capitalizes beyond what would be possible in static conditions. The Soviet collapse two decades ago led to once-in-a lifetime arbitrage opportunities preyed upon by the oligarchs, organized crime rings and people in exploitable situations. While many suffered, somewhere a humble purchasing agent became rich buying materials and products at state-suppressed prices and resold them on the black markets of Eastern Europe.

 

2010 will continue to separate people and organizations that are able to quickly form an integrated understanding of what is really happening around them even as the “common sense” rules of the status quo fail them, apply the Boyd loop in infinitum and respond better and quicker than their opponents in war, politics, business and life.

Kunstler Forecast for 2010

If you've read Kunster's forecasts in years past, then you know he's been a bit premature at times on calling certain aspects of the Long Emergency and even jokes about his repeated DOW 4000 predictions, but that aside, he usually paints a pretty accurate forecast of things to come.  

There are always disagreements in a society, differences of opinion, and contested ideas, but I don't remember any period in my own longish life, even the Vietnam uproar, when the collective sense of purpose, intent, and self-confidence was so muddled in this country, so detached from reality. Obviously, in saying this I'm assuming that I have some reliable notion of what's real.  I admit the possibility that I'm as mistaken as anyone else.  But for the purpose of this exercise I'll ask you to regard me as a reliable narrator. Forecasting is a nasty job, usually thankless, often disappointing - but somebody's got to do it. There are so many variables in motion, and so much of that motion is driven by randomness, and the best one can do in forecasting amounts to offering up some guesses for whatever they are worth.

I begin by restating my central theme of recent months: that we're doing a poor job of constructing a coherent consensus about what is happening to us and what we are going to do about it. 

There is a great clamor for "solutions" out there. I've noticed that what's being clamored for is a set of rescue remedies - miracles even - that will allow us to keep living exactly the way we're accustomed to in the USA, with all the trappings of comfort and convenience now taken as entitlements.  I don't believe that this will be remotely possible, so I avoid the term "solutions" entirely and suggest that we speak instead of "intelligent responses" to our changing circumstances. This implies that our well-being depends on our own behavior and the choices that we make, not on the lucky arrival of just-in-time miracles.  It is an active stance, not a passive one. What will we do? (Read Full Article)

Enron Style Environmental Shell Game

Through all of the controversy surrounding Climategate and climate change, one simple point that doesn't often get discussed, is the relationship between emissions and the inevitability of their decline due to peak extraction of fossil fuels.

Cutting emissions by half by 2040, or whatever the goal du jour may be, seems less a goal, than an inevitable predicament when you'll have have half the oil, natural gas and coal that you do today to burn. Yes, that is a gross over-simplification that doesn’t take into account infinite feedback loops, but the attempt to create a marketplace to trade paper and place an artificial value on a pollution right during an era of mass forced deindustrialization due to the natural laws of peak extraction, always seemed to me a greater con job that the great John Law could have ever conjured.

Many aspects of environmental collapse, are realities, but the Climate-ista agenda is not about the environment. It is about control, money and increased global government.

As for how the shell game actually works...

The UN and other agencies calling for a waron global warming say the price tag will be trillions.

But - according to top experts on climate and cap and trade - the regulatory framework being rammed through in America and internationally won't actually reduce carbon to any meaningful degree. See this, this, thisand this.

Now, the Independent notesthat the Copenhagen framework uses Enron-style accounting tricks to give the impression of cutting carbon, without really doing so: (Read Full Article)

Dmitry Orlov on the Next Decade

Dmitry Orlov, author of Reinventing Collapse: The Soviet Example and American Prospects, has a take on what live will be like in the U.S. the next decade.

The decade will be marked by many instances of autophagy, in business, government, and in the higher echelons of society, as players at all levels find that they are unable to control their appetites or alter their behavior in any meaningful way, even in the face of radically altered circumstances, and are thus compelled to consume themselves into oblivion, as so many disemboweled yet still ravenous sharks endlessly gorging themselves on their own billowing entrails.

Governments will find that they are unable to restrain themselves from printing ever more money in an endless wave of uncontrolled emission. At the same time, rising taxes, commodity prices, and costs of all kinds, coupled with a rising overall level of uncertainty and disruption, will curtail economic activity to a point where little of that money will still circulate. Inflationists and deflationists will endlessly debate whether this should be called inflation or deflation, unconsciously emulating the big-endians and little-endians of Jonathan Swifts Gulliver's Travels, who endlessly debated the proper end from which to eat a soft-boiled egg. The citizenry, their nest egg boiled down to the size of a dried pea, will not be particularly vexed by the question of exactly how they should try to eat it, and will regard the question as academic, if not idiotic.

Distressed municipalities throughout the country will resort to charging exorbitant fees for such things as dog licenses. Many will experiment with imprisoning those unable to pay these fees in state and county jails, only to release them again as the jails continuously overflow and resources run low. The citizenry will come to regard jails as conveniently combining the features of a soup kitchen and a homeless shelter. Some towns will abandon the idea of having a fire department and decide that it is more cost-effective to just let house fires run their course, to save on demolitions. In an effort to plug up ever larger holes in their budgets, states will raise taxes, driving ever more economic activity underground. In particular, state liquor tax revenues will drop for the first time in many decades as more and more Americans find that they can no longer afford beer and switch to cheap and plentiful Afghan heroin and other illegal but very affordable drugs. Marijuana smoke will edge out car exhaust as America's most prevalent smell.

Several countries around the world will be forced to declare sovereign default and join the swelling ranks of defunct nations. There will be a mad shuffle to find safe havens for hot money, but none will be found. Investors around the world will finally be forced to realize that the best way to avoid losses is to not have any money to start with. Despite their best efforts to diversify their holdings, investors will find that they are all long paper, be it stocks, bonds, deeds, promissory notes, or incomprehensible derivative contracts. They will also find that, in the new business climate, none of these instruments make particularly formidable weapons: as the friendly game of rock-paper-scissors turns hostile, they will discover that rocks stave in skulls, that scissors puncture vital organs, but that the paper, even when wielded expertly, just causes paper cuts. Those formerly well-heeled persons who tend to believe that "possession is nine-tenths of the law" will find many extralegal exorcists eager to liberate their demons. In particular, organized crime rings will start using data mining software to identify lightly guarded cabins and compounds in Montana and other remote locations that are well-stocked with canned food, weapons and gold and silver bullion, and start harvesting them by softening the target with mortars, rockets and aerial bombardment, then sending in commando teams with grenades and machine guns. Once the harvest is in, they will expatriate the proceeds using the diplomatic pouches of defunct nations held in their sway.

While the bullion is expatriated, the Pentagon will attempt to repatriate troops from Iraq, Afghanistan and the numerous US military bases around the world, soon finding that they lack the wherewithal to do so, stranding the troops wherever they are, and forcing them to resupply themselves. Military families will be invited to donate food, uniforms, clean underwear and toiletries for their loved ones overseas. American weaponry will flood the black market, driving down prices. Some servicemen will decide that returning to the US is a bad idea in any case, and go native, marrying local women and adopting local religions, customs and garb. Although national leaders will continue to prattle on about national security whenever there is a microphone pointed at them, their own personal security will become their overarching concern. Officials at all levels will attempt to assemble ever larger retinues of bodyguards and security consultants. Members of Congress will become ever more reticent and will avoid encountering their constituents as much as possible, preferring to hide in Washington's hermetically sealed high-rises, walled compounds and gated communities. Meanwhile, outside the official security perimeter, a new neighborliness will take root, as squatting becomes known as "settling in," trespassing as "beating a new path," and fences, walls and locks are everywhere replaced by watchful eyes, attentive ears and helping hands.

Cap and Trade - Cui Bono?

Top 10 List of Things to Worry About in a Bad Economy

Early this week, I listed a few leading indicators to keep watch for as economic and societal conditions continue to worsen. As a follow-up, I linked to an article by Linda Brady Traynhamat over a Whiskey and Gunpowder on the top ten things to worry about surviving in a bad economy, or at least in the opening chapters.

Things are on pace to become very 3rd world like in the US and things that "can't happen here" due to widely-held convictions of entitlement due to decades of American exceptionalism and post WWII prosperity, seem more and more likely to become the new normals.

I staked out my position on the Doom & Gloom side back in 1992 when I was shocked by the problem I discuss first. What should you be concerned about? Start with the basics: what do you think you might have to survive? No point in making plans if you aren’t worried about something. Here are the top ten contenders:

1. At the current rate of taxation, even if nothing deteriorates, how much money does your wife need to live on after you are gone? The classic rule is “80% of your highest income plus a paid for house.” Right. If you make $100,000/year, you need to accumulate through savings or insurance $1.6M in capital at 5% interest. Problems: inheritance taxes are due to cut back in, and Uncle definitely wants a chunk of $1.6. Worse, the interest will be taxed as income and she isn’t going to find 5% interest. Let us suppose that she has $1000/mo in Social Security—a little over the average, but you’ve got a good job. A loving government will take roughly 10% of that away from her immediately too pay for Medicare and has already announced a 20% increase in fees over the next three years…with no increase in COLA, or the “Cost Of Living Allowance.” According to the Feds there is no inflation, hence her costs will not rise. We would love to know where those who make such pronouncements buy groceries, gasoline, socks, and tires. Supposing naively that she pays no income tax, if she puts the $250,000 in insurance you may have arranged for her in a CD at 1.5%, at the end of the first year she will have $3,750 in interest plus the theoretical $11,100 in Social Insecurity, for a total income of $14,850. Social Security probably won’t cover the house note you almost certainly have, and houses aren’t selling well. Her alternatives are to find a job or live on what she has for three years and hope she can find husband. That is certainly neither a safe nor a dignified plan, although it may make more sense than buying lottery tickets. The worst part is, that’s the best I can foresee for her.

2. The Greater Depression arrives, as it almost certainly will. It doesn’t matter whether you’re married or single, how safe is your job? 26,000,000 of the things have disappeared already in this century, and unless you are among the 40% of the populace which works for some governmental entity or a CEO you night want to do a little worrying. Japan is on the twenthieth year of their last depression, with a brand new government devoted to the project of becoming an economic block with India, and a few sprats such as Hong Kong, Taiwan, hunks of Indonesia, and so forth. Yup, our little island nation friend is going to grow up, leave the nest, and devote itself to destroying the dollar. What they plan to do with the two trillion or so they hold I have no idea, but if they knock the dollar out as the reserve currency they have some notions. The ironic part is that those dollars have little value at present and are under pressure from all sides, from Bernanke and Geithner’s government-sanctioned counterfeiting and money-laundering (swooshing the new cash around through Treasuries and the market, for example), to cheerful plots in the Middle East and BRIC. It’s coming, get ready for it.

3. The stock market takes a 40% thud at the year’s end, the bond market crashes, the ARM supply has 80% set to re-arm, commercial real estate looks like a yeast vat it bubbles so freely, and a lot more banks are set to fail. Some may even be “set up” to fail. These government-made disasters are pretty much set in stone and will coincide with your other choices (Read Full article).

Audit the Fed Under Attack

The Real Role of Bailouts

Professor Chossudovsky describes the role of the mother-of-all-bailouts in the on-going global economic strip mining operation. In the latest chapter of economic shock doctrine played out many times in 3^rd world countries, government extorts funds from the public to deliver funds to private interests under the guise of “for the public good” and banner of "too big to fail", who in turn buy up assets on the cheap and then sell rights to use those assets back to the government and in turn the public.

In this playbook, government helps banks finance their own debt and uses public money to help a private oligarchy swallow up huge sections of the economy at fire sale prices.

Tipping Point?

Peter Bernholz is an expert on national hyperinflations and has studied all the major cases of hyperinflation since 1980. Bernholz concluded that the tipping point occurs when a government’s deficit exceeds 40% of its expenditures.

"There have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz (Professor Emeritus of Economics in the Center for Economics and Business (WWZ) at the University of Basel, Switzerland) has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz analyzes the 12 largest episodes of hyperinflations – all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government’s deficit exceed 40% of its expenditures."

The 2009 US deficit will be about 42% this year.

For now the Fed and parent banks are holding down the bond market which still prices deflation. No secret there when you can steal from the taxpayers through the veil of monetary inflation and have an infinite window to borrow at 0% then turn around and get 3% from monetizing the debt. Meanwhile it is no mystery how the BigBoys at Goldman can turn record profits at the expense of everyone else. How long this game can continue only the wind knows.

Preparing Americans for Hyperinflation

Ron Paul's "End the Fed"

Chris Martenson on the Great Shell Game

Chris Martenson describes the elaborate check kiting shell game played by foreign central banks and the Federal Reserve to disguise the fact that the Fed is printing money to buy US Treasuries. Full Article

Have you ever seen a sidewalk magician run the shell game, where a pea under a shell is magically shuffled around - now you see it under this shell, now you see it under that shell, now it disappears completely - or does it?  The more it moves around, the more confused you get.  If you can only figure out which shell the pea is hidden under, you win!   But where is the pea?  The point of the game, from the perspective of the street hustler, is to use complexity of motion to confuse the mark.

These are the three critical points to remember as you read further:

1. The US government has record amounts of Treasuries to sell.
2. Foreign central banks, which have a big pile of agency bonds in their custody account, would like to help but want to keep things somewhat under the radar to avoid scaring the debt markets.
3. The Federal Reserve does not want to be seen directly buying US government debt at auctions (and in fact is not permitted to, but many rules have been 'bent' worse during this crisis), because that could upset the whole illusion that there is unlimited demand for US government paper, but it also desperately wants to avoid a failed auction.

For various reasons, the Federal Reserve cannot just up and start buying all the Treasury paper that becomes available in record amounts, week after week, month after month. 

Instead, it uses this three-step shell game to hide what it is doing under a layer of complexity:

Shell #1:  Foreign central banks sell agency debt out of the custody account.

Shell #2:  The Federal Reserve buys those agency bonds with money created out of thin air.

Shell #3:  Foreign central banks use that very same money to buy Treasuries at the next government auction.

 

Shuffle, shuffle, shuffle, shuffle, shuffle, SHUFFLE, shuffle! Confused yet?

Don't be.  If we remove the extraneous motion from this strange act, we find that the Federal Reserve is effectively buying government debt at auction.  This is exactly, precisely what Zimbabwe did, but with one more step involved, introducing just enough complexity to keep the entire game mostly, but not completely, hidden from sight.  They can scramble the shells all they want, but the pea is still there somewhere - the pea being the fact that the Fed is creating money to fund the purchase of US debt.

The Fed's Parent-Child Relationship

Just as a parent tells a child that the child cannot be told for the child’s safety, the privately-owned Federal Reserve continues to tell its tired tale that transparency is dangerous to the public good.

The logic follows that the global financial system can only be kept from plunging into a black hole as long as the public maintains its part of the deal: Quiet acceptance of deception and outright lies. 

And so the guns come out blazing. The Clearing House Association, another name for all the banks that were bailed out over the past year with the generous contributions from all of you, dear taxpayers, are now threatening with another instance of complete systemic collapse if Bloomberg's lawsuit is allowed to proceed unchallenged, let alone if any of the "Audit The Fed" measures are actually implemented.

As a reminder, The Clearing House Association consists of ABN Amro, Bank Of America, The Bank Of New York, Deutsche Bank, HSBC, JP Morgan Chase, US Bank and Wells Fargo.

In a declaration filed in the Bloomberg Case (08-CV-9595, Southern District of New York), the banks demonstrate no shame in attempting to perpetuate the status quo with regard to the Federal Reserve and demand that the wool over the eyes of the general population remain firmly planted in perpetuity. (Continued...) 

Mike Whitney "It's a Planned Demolition"

"Recovery" loosely translated means continued destruction of the working, middle and small business classes, debt serfdom and using financial weapons of mass destruction to ensure the casinos can continue to pillage and plunder at the expense of everyone else. 

It's a Planned Demolition - There is No Recession By MIKE WHITNEY

Credit is not flowing. In fact, credit is contracting. When credit contracts in a consumer-driven economy, bad things happen. Business investment drops, unemployment soars, earnings plunge, and GDP shrinks. The Fed has spent more than a trillion dollars trying to get consumers to start borrowing again, but without success. The country's credit engines are slowing to a crawl.

Fed chairman Ben Bernanke has increased excess reserves in the banking system by $800 billion, but lending is still slow. The banks are hoarding capital in order to deal with the losses from toxic assets, non performing loans, and a $3.5 trillion commercial real estate bubble that's following housing into the toilet. That's why the rate of bank failures is accelerating. 2010 will be even worse; the list is growing. It's a bloodbath.

The standards for conventional loans have gotten tougher while the pool of qualified credit-worthy borrowers has shrunk. That means less credit flowing into the system. The shadow banking system has been hobbled by the freeze in securitization and only provides a trifling portion of the credit needed to grow the economy. Bernanke's initiatives haven't made a bit of difference.  Credit continues to shrivel.

The S&P 500 is up 50 per cent from its March lows. The financials, retail, materials and industrials are leading the pack. It's a "Green Shoots" bear market rally fueled by the Fed's Quantitative Easing (QE) which is forcing liquidity into the financial system and lifting equities. The same thing happened during the Great Depression. Stocks surged after 1929. Then the prevailing trend took hold and dragged the Dow down 89 per cent from its earlier highs. The S&P's March lows will be tested before the recession is over. Systemwide deleveraging is ongoing. The economy is resetting at a lower rate of activity.

No one is fooled by the fireworks on Wall Street. Consumer confidence is still falling. Everyone knows things are bad. Everyone knows the mainstream press is lying. The restaurants and malls are empty, the homeless shelters are bulging, and even the big-box stores have stopped hiring. The only "green shoots" are on Wall Street where everyone gets a handout from Uncle Sugar. 

Bernanke has pulled out all the stops. He's lowered interest rates to zero, backstopped the entire financial system with $13 trillion, propped up insolvent financial institutions and monetized $1 trillion in mortgage-backed securities and US sovereign debt. Nothing has worked. Wages are falling, banks are cutting lines of credit, retirement savings have been slashed in half, and home equity losses continue to mount. Living standards can no longer be bandaged together with VISA or Diners Club cards. Household spending has to fit within one's salary. That's why retail, travel, home improvement, luxury items and hotels are all down double-digits. The money has dried up (continue reading...)

Corrilito

An anonymous correspondent wrote an excellent article that compares the events that lead to horrific inflation in Argentina with the current financial sitution. Notice how massive inflation ultimately works to the benefit of the biggest stakeholders.

Here's what happened in Argentina: the political leaders are dysfunctional and infighting, paying out to their home provinces, uncaring of the enormous debt and with no reason to care so long as foreign money could be borrowed. Meanwhile the economy began to rest more and more on bubbles and speculation funded by this foreign borrowing. When the balloon went up, the insiders saw which way it was headed and got their money offshore, something like Cheney and Halliburton did the other year. Then as things devolved, ever-increasing capital controls were put in place, just like now with the US investigating “off-shore havens” and profits one might have made overseas using the premise of money laundering to chain the firedoors shut one by one.

Finally, they enforced the official “corrilito”, and soon after had an extended Bank Holiday for the 5 months it took to devalue the Peso by 73%--far faster than anyone not forewarned could adjust and react. Once every exit was chained tight, they firebombed the casino, trapping everyone inside. Even if you had thousands in stocks, bonds, and savings accounts, with the market frozen and the monthly bank withdrawal limit set at $300/mo, the little people could not pay rent or even eat, becoming “Cartoneros” garbage-picking architects and engineers, wandering the streets with their children at midnight as the nation devolved into a chaos that did not topple the ruling class.

Once all the assets in the country had been discounted a minimum of 73%, the insiders then repatriated their money and bought their neighbor's fortunes for pennies on the dollar, finding cheap, hungry, competitive labor, ready to compete with even 3^rd world wages. The prudent, hard-working, and savers (the wrong people) were wiped out, and the money was transferred to the speculators and insiders (the right people). Massive capital like land and factories can not be expatriated, but are always worth their USE value and did not fall as much, or even rose afterwards as with falling debt ratios and low wages these working assets became competitive again. It's not so much a “collapse” as a redistribution, from the middle class and the working to the capital class and the connected. ...And the genius is, they could blame it all on foreigners, “incompetent” leaders, and careless, debt-happy citizens themselves.

Now I'm no genius here, but couldn't the United States do the very same thing?

What you need to do is--and bear with me here--send your best Wall St. salesmen and diplomats to China and sell them a bill of goods about how they can “modernize” with our help. The Cold War is over. Capitalism reins. You know us Wall St. types! It's all about the dollar! Have the radio scream the President sold out and sign them up to the WTO as you suck Asia into massive overcapacity and a deep, unbreakable reliance on the US and G-8 as customers while paving over the national independence of their life-giving water and farmland. Then, once they've tasted freedom and affluence, once they're unable to support themselves independently, you pull the plug not on them but YOURSELF. Implode your own middle class as above. Kill the bond markets, cause a run on your own currency, and default on the debts you owe them. Hey, it's the only thing you could do, right? Americans are just stupid, right? Wall Street is just greedy. It's all an accident, an act of God really. No one's to blame. It's classic Judo.

In a single stroke you:

a) lose the burden of external debt

b) by devaluation lose your internal debt

c) make the nation competitive as a manufacturing power.

d) scare the people back into compliance, even exultation with their low wages.

e) with the renewal of manufacturing, re-cast the power that your military rests on

f) during a time of Peak Oil, radically reduce unnecessary consumption while insuring strategic (military) supply.

g) by doing that, suck in the oil powers of Russia, Iran, and Venezuela enough to knock them off-base, first with high prices, then low prices.

h) club China into submission to the G-8 money powers again

and best of all:

i) enrich insiders beyond their wildest dreams, insuring their dominance for a generation to come.

All the right people win, all the wrong people lose.

Bernanke on the Ropes

The Audit the Federal Reserve House bill HR 1207 has 282 cosponsors and Senate counterpart S.604 has 20 cosponsors, but Barney Frank has manged to keep the House bill bottled up in committee.

Meanwhile, Bernanke continues to squirm hoping Americans will continue to ignore the man behind the curtain and not ask the 2 most inconvenient questions: So where does our money come from? And where does it go?

Bernanke video: He stutters; he stammers; he is in visible panic mode over Ron Paul's bill to audit the Federal Reserve. Watch it. You'll love it! Then send it to your friends.

Usually, when Ben Bernanke is interviewed, he has the demeanor of a college professor in the presence of freshman students. Of course, as a full professor, he did not have to teach freshmen. That is for untenured assistant professors to do. Stammering and stuttering are therefore a real departure for him. There is a reason for this.

For the first time since 1914, there is a public debate in Congress over the Federal Reserve's power. Never before has a majority of the House of Representatives called for what should always have existed: Congressional scrutiny over the FED's money. Bernanke says that Ron Paul's bill to audit the Federal Reserve is a bill to audit Federal Reserve policy. Yet the bill says nothing about auditing policy. So, what is he talking about?

Bernanke says that Congress can have access to an audit at any time. Sure it can – an audit vetted and sanitized by the FED, where no one knows which banks got what bailout money. This is an audit in the way a CIA audit is an audit. The main differences are these: (1) the CIA legally operates only outside the borders of the United States; (2) the CIA can assassinate any uncooperative Congressman who insists on a full audit. The FED does not have the second power, but it is not limited by the first restriction.

What has Bernanke panicked is this: the Federal Reserve has bailed out the biggest banks and has let almost 100 little ones die. This is crony capitalism at its most notorious (cont...)

Ron Paul on IMF Bailouts

Here's the latest from Ron Paul on the war supplemental appropriations bill and IMF bailouts which punishes those it pretends to help through cut throat Keynesian policies.

John Maynard Keynes famously said, "in the long run we're all dead."

Perhaps he didn't realize how quickly his economic legacy would help that cause.   

Last week Congress passed the war supplemental appropriations bill. In an affront to all those who thought they voted for a peace candidate, the current president will be sending another $106 billion we don't have to continue the bloodshed in Afghanistan and Iraq, without a hint of a plan to bring our troops home.

Many of my colleagues who voted with me as I opposed every war supplemental request under the previous administration seem to have changed their tune. I maintain that a vote to fund the war is a vote in favor of the war. Congress exercises its constitutional prerogatives through the power of the purse, and as long as Congress continues to enable these dangerous interventions abroad, there is no end in sight, that is until we face total economic collapse.

From their spending habits, an economic collapse seems to be the goal of Congress and this administration. Washington spends with impunity domestically, bailing out and nationalizing everything they can get their hands on, and the foreign aid and IMF funding in this bill can rightly be called an international bailout!

As Americans struggle through the worst economic downturn since the Great Depression, this emergency supplemental appropriations bill sends $660 million to Gaza, $555 million to Israel, $310 million to Egypt, $300 million to Jordan, and $420 million to Mexico. Some $889 million will be sent to the United Nations for so-called "peacekeeping" missions. Almost one billion dollars will be sent overseas to address the global financial crisis outside our borders. Nearly $8 billion will be spent to address a "potential pandemic flu" which could result in mandatory vaccinations for no discernable reason other than to enrich the pharmaceutical companies that make the vaccine.

Perhaps most outrageous is the $108 billion loan guarantee to the International Monetary Fund. These new loan guarantees will allow that destructive organization to continue spending taxpayer money to prop up corrupt leaders and promote harmful economic policies overseas.

Not only does sending American taxpayer money to the IMF hurt citizens here, evidence shows that it even hurts those it pretends to help. Along with IMF loans comes IMF required policy changes, called Structural Adjustment Programs, which amount to forced Keynesianism. This is the very fantasy-infused economic model that has brought our own country to its knees, and IMF loans act as the Trojan Horse to inflict it on others. Perhaps most troubling is the fact that leaders in recipient nations tend to become more concerned with the wishes of international elites than the wishes and needs of their own people. Argentina and Kenya are just two examples of countries that followed IMF mandates right off a cliff. The IMF frequently recommends currency devaluation to poorer nations, which has wiped out the already impoverished over and over. There is also a long list of brutal dictators the IMF happily supported and propped up with loans that left their oppressed populace in staggering amounts of debt with no economic progress to show for it.

We are buying nothing but evil and global oppression by sending your taxdollars to the IMF. Not to mention there is no Constitutional authority to do so. Our continued presence in Iraq and Afghanistan does not make us safer at home, but in fact undermines our national security. I vehemently opposed this Supplemental Appropriations Bill and was dismayed to see it pass so easily.

Cap and Trade - Another Fraud

The Waxman-Markley American Clean Air and Security Act of 2009 (ACES), cleverly paraded as an earth-saving, energy independence bill that lowers pollution, is a draconian measure of taxation and government control.

 

The sad irony for me is that this bill will make it more difficult for the average person to transition to a lifestyle less dependent on centralized systems in order to deal with the converging crisis of our times – many of which, such as energy, food and fresh water shortages are environmental. In years to come, we face enough scarcity as it is, and the current subsidies that keep prices artificially low are unsustainable.

 

For decades government manipulation, from tax incentives to military interventions to irresponsible monetary policy has destroyed real market signals resulting in years of privatized gains and socialized costs at the expense of the average person and the environment.

 

Now we are believe that the solution is to give the EPA czar-like authority and a pollution permit allocation scheme that will continue to socialize costs through trickle down taxation.

 

Once again, in great haste the House of Representatives has scrambled to pass a bill with huge implications without having the chance to digest, analyze and summarize the 1200-page proposal, which was being revised up until the final minutes before the July 4^th break.

 

It happened with the Patriot Act, then TARP and now ACES.

 

If bills were actually good for the population, then there would be no rush to push them onto the floor. But, since an informed electorate is the worst enemy of proponents of this type of legislation, they had to act fast before Americans had a chance to absorb the huge implications under cover of a constant deluge of Michael Jackson tributes in the media.

 

I usually avoid the global warming debate because even if humans do contribute to global warming, a combination of slowing population growth in the developed world and peaking out of easily accessible oil, natural gas and coal will offset the effects. If you do want to debate the science a growing number of scientists and Americans in general dispute the impacts of manmade warming. Even if you are are an advocate of global warming, then you know that the impacts of the bill on climate in the best case are negligible.

 

The real Inconvenient Truth for those of us paying attention is that you can control, tax and subject a person to do just about anything under false hopes that doing do will save the world. 

 

For the political class, cap and trade is a wealth and power accumulation scheme. 80% of the credits go to special interests and 20% go to the Treasury, while an entirely new marketplace for flipping emission allowances, compensatory allowances and offset credits is emerging. Carbon derivatives anyone?

 

The blatant example is that Al Gore, champion of the global warming agenda, runs a carbon trading firm. He is the Chairman of Generation Investment Management, LLP and one of the principle investment areas for the firm is Carbon Markets and Climate-Related Financial Services. The political connections to other stakeholders in the Chicago Climate Exchange such as Maurice Strong are well-documented.

 

There is a wide gap between the realities of legitimate environmental concerns and a Global Warming money making and social control agenda.  

 

The $14 Trillion and Counting Swindle

The US government and Federal Reserve have spent, lent or committed just under $14 Trillion in banker bailouts as shown in the figure below from the recent FDIC report. The sucking sound you hear right now is trillions of dollars tossed into a vortex of fraud, swindle and deceit under cover of secrecy.

 

Given the momemtum of motions to audit the Federal Reserve in HR 1207 and S604, the Fed hired a lobbyist, Linda Robertson, formerly with - appropriately enough - Enron.

A lobbyist. Can you imagine a government agency - say the Department of Energy or Department of Interior - hiring a lobbyist? Isn't that what private interests do?

Yes, exactly.

And at the time when the Fed is on the defensive now that the public has the audacity to ask for some transparency into where trillions are going, the proposed financial reform act would greatly expand the Fed's powers making them, "the nation's most powerful financial overseer."

The proposal, if passed into law, would represent one of the biggest changes ever in the Fed's role. The central bank would win power to monitor risks across the financial system, and sweeping authority to examine any firm that could threaten financial stability, even if the Fed wouldn't normally supervise the institution. The nation's biggest and most interconnected firms would be subject to heightened oversight by the central bank.

President Obama said the plan would ensure "that lines of responsibility and accountability are clear" by placing authority in the Fed's hands.

I'm hard pressed to think of a more flagrant example of punishing the fox by letting it guard the henhouse, than a case where the Fed, owned by the banks, will supervise the banks...and "any firm that could threaten financial stability".

 

Rogue Waves

The latest Global European Anticipation Bulletin (GEAB) describes how high unemployment, corporate bankruptcies and the dollar crisis are converging this summer like a three sisters rogue wave. 

One specific kind of rogue wave is called the “three sisters”, i.e. a group of three rogue waves all the more dangerous in that, even if a ship had time to react properly to the first two waves, there is no way she could be in the right position to brave the third one. According to LEAP/E2020, it is a similar phenomenon that the world is about to encounter this summer; and no country (ship) is in a favourable position to face them, even if some countries are more at risk than others, as explained in this GEAB (N°36).

One of the bigger questions is how quickly the dollar reserve unwinding will unfold. Brazil, Russia, India and China want so badly to wean themselves from the dollar seeking non-dollar currency swaps and reserve holdings in IMF SDRs, but know they must do so in such a way not to create a run on the bank that quickly destroys the value of their dollar holdings. At this point, large dollar holders are held hostage by their reserves and they must escape without drawing too much attention from the guards, in fear of starting a panic rush to dump the dollar by other countries.  

As anticipated by LEAP/E2020 as early as October 2008, on the eve of summer 2009, the question of the US and UK capacity to finance their unbridled public deficits has become the central question of international debates, thus paving the way for these two countries to default on their debt by the end of this summer.

At this stage of the global systemic crisis’ process of development, contrary to the dominant political and media stance today, the LEAP/E2020 team does not foresee any economic upsurge after summer 2009 (nor in the following 12 months) (1). On the contrary, because the origins of the crisis remain unaddressed, we estimate that the summer 2009 will be marked by the converging of three very destructive « rogue waves » (2), illustrating the aggravation of the crisis and entailing major upheaval by September/October 2009. As always since this crisis started, each region of the world will be affected neither at the same moment, nor in the same way (3). However, according to our researchers, all of them will be concerned by a significant deterioration in their situation by the end of summer 2009 (4).

This evolution is likely to catch large numbers of economic and financial players on the wrong foot who decided to believe in today’s mainstream media operation of “euphorisation”.

In this special « Summer 2009 » edition, our team describes in detail these three converging « rogue waves » and their impact, and gives a number of strategic recommendations (currencies, gold, real estate, bonds, stocks, currencies) to avoid being swept away in this deadly summer.

LEAP/E2020 believes that, instead of « green shoots » (those which international media, experts and the politicians who listen to them (5) kept perceiving in every statistical chart (6) in the past two months), what will appear on the horizon is a group of three destructive waves of the social and economic fabric expected to converge in the course of summer 2009, illustrating the aggravation of the crisis and entailing major changes by the end of summer 2009… more specifically, debt default events in the US and UK, both countries at the centre of the global system in crisis. These waves appear as follows:

1. Wave of massive unemployment: Three different dates of impact according to the countries in America, Europe, Asia, the Middle East and Africa
2. Wave of serial corporate bankruptcies: companies, banks, housing, states, counties, towns
3. Wave of terminal crisis for the US Dollar, US T-Bond and GBP, and the return of inflation

 

In fact, these three waves do not appear in quick succession like the « sisters rogue waves ». They are even more dangerous because they are simultaneous, asynchronous and non-parallel. Hence their impact on the global system accentuates the risks because they hit at various angles, at different speeds and with varying strength. The only certain thing at this stage is that the international system has never been so weak and powerless to face such a situation. The IMF and global governance institutions’ reforms announced by the London G20 are at a standstill (7). The G8 becomes more like a moribund club whose utility is increasingly questioned (8). US leadership is the shadow of what it used to be, mostly concerned by desperately trying to find purchasers for its T-Bonds (9). The global monetary system is in a process of disintegration, with the Russians and Chinese in particular accelerating their positioning in the post-Dollar era. Companies foresee no improvement in the business climate and speed up the pace of layoffs. A growing number of states falter under the weight of their accumulated debt created to “rescue banks” and are about to be faced with a welter of failings by the end of this summer (10). And, last but not least, the banks, once they have squeezed money out of naive savers thanks to the market upsurge orchestrated in the past few weeks, will be have to admit that they are still insolvent by the end of summer 2009.

In the United States and United Kingdom in particular, the colossal public financial effort made in 2008 and at the beginning of 2009 for the sole benefit of large banks became so unpopular that it was impossible to consider injecting more public money into banks in spring 2009, despite the fact that they were still insolvent (11). It then became necessary to invent a “fairy tale” to convince the average saver to inject his/her own money into the financial system. By means of the « green shoots » story, overpriced stock indices based on no real economic grounds and promises of « anticipated public funding repayment », the conditioning was achieved. Hence, while big investors from oil-producing and Asian countries (12) withdrew capital from these banks, large numbers of small individual investors returned, full of hope. Once these small investors discover that public funding repayment is only a drop in the ocean of public aid granted to these banks (to help them dispose of their toxic assets) and that, after three or four months at best (as analyzed in this GEAB N°36), these banks are again on the verge of collapse, they will realize, powerless, that their share is worth nothing once again.

Not your Grandfather’s Depression

Charles Hugh Smith explains point-by-point why the economic situation before us will be longer, deeper and more destructive than the Great Depression.

 

I realize the causes, similarities and differences aren't news to most of you, but I still found this to be a good hit list in the face of all the recent “green shoots” propaganda.

But the present is far more fragile and vulnerable than the U.S. economy of 1929, for the following reasons. In 1955 Galbraith could not possibly have foreseen or anticipated these current conditions:

1. A Federal government which since the "Reagan Revolution" of 1981 (e.g. don't tax and spend, just borrow and spend) has borrowed during so-called good times on a scale once reserved for rare Keynesian stimulus to combat serious recession. Thus we find ourselves at unprecedented levels of debt (comparable in terms of GDP to the entire cost of World War II) and our current Depression has barely begun.

2. A corrupt-to-the-core corporate structure riddled with bogus accounting, reliance on financial trickery for profits and misdirected/worthless regulatory oversight.

3. A banking sector of such debauchery and fraud that the excesses of the 1920s are reduced to the pranks of slighty-naughty choirboys and girls.

4. A Federal system of entitlements (Medicare, Medicaid and Social Security) which has grown far faster than the underlying economy for decades and now threatens the very solvency of the government itself, so stupendous are the future obligations.

5. A global military hegemony which costs more than all the other militaries and intelligence operations of the entire world put together. The U.S. military consumes more oil than the nation of Sweden (9 million residents).

6. An industrial, transportation and energy infrastructure that, rather than being rebuilt during the past 26 years of debt-based "prosperity," has crumbled in a long decline. Rather than invest in electrical power grids and energy-efficient transport systems, the U.S. squandered the trillions of borrowed dollars on toys, gewgaws, electronics made elsewhere, malls and commercial towers with only transient value and millions of bloated, inefficient poorly constructed homes no one needed or could afford: "assets" which were not productive at all, "assets" which are now capital traps on a scale heretofore unimaginable

7. A paucity of U.S. savings (and thus of domestic capital) with only one historical parallel: the depths of the Great Depression when unemployment was 25%.

8. A huge reliance on financial leverage, debt, borrowing and trickery for corporate profits; the U.S. exports soybeans, increasingly worthless dollars and "financial innovations" which are now exploding in economies from Ireland to India with the destructive force of superweapons. In exchange for this dubious paper, we have accepted actual tangible goods from the rest of the world.

They are now slowly waking up to the fact they've been conned on a scale few can grasp.

9. Globalization has reworked the global supply chain in an astonishingly brief period of time. As a result, the arbitrage of currencies (foreign exchange a.k.a. forex), wages, governance (less is more profitable) and environmental regulations (zero is the most profitable) have all placed advanced post-industrial economies like the U.S. at great structural disadvantages.

10. The U.S. claims to be competitive but much of this competitiveness is highly selective and thus illusory. Everything in the U.S.--labor, goods, buildings and taxes--is high-cost, overregulated (except for finance, banking and governance) and vulnerable to unpredictable lawsuits and officially sanctioned looting. Other than recent immigrants, non-U.S. employers find the workforce is often surly, unappreciative, narcissistic, entitlement-obsessed, unhealthy, poorly educated, unmotivated and more inclined to get-rich-quick schemes than actual enterprise or productivity.

The middle management labors under impossible demands to enrich stockholders next quarter and heavy turnover insures few stay in any job long enough to learn it effectively. Team cooperation is a doublespeak fraud imposed by "facilitators," creating a phony work environment where employees and managers alike pretend to care. This bogus environment breeds a looting, game-the-system mentality in which everyone is grabbing for all they can before retirement, restructuring, reassignment, resignation or getting fired.

A "quarterly profits are God" mentality reduces the workforce (even the good workers) to units of input which are pared back or hired without regard to morale or loyalty. This managerial and cultural pathology makes a mockery of worker loyalty and breeds the very qualities of distrust and "I got mine" attitude which undermines both productivity and workplace happiness.

11. Last but certainly not least, the U.S. economy is highly dependent on cheap, abundant fossil fuels--the very fuels which are in the global depletion phase, happy stories about unlimited natural gas and tar sands to the contrary.

For all these reasons, we can anticipate the Depression currently unfolding will be deeper, longer and more destructive than the Great Depression.

Let's recount the chain of events which partly parallel the Great Depression and partly diverge in meaningfully more destructive ways from that previous era:

1. The postwar income convergence (i.e the rise of the great middle class, the reduction of poverty and the relative reduction of the Plutocracy's share of national income) reverses in the early 1970s as the "true prosperity" of the postwar era ends and is replaced by income flowing increasingly to the top as stagflation, globalization and the decline of dollar gut the purchasing power of the middle class.

2. The rising productivity of the 50s and 60s slips to the flatline through the 70s and early 80s, only picking up again as computer software and hardware revolutionize the back office, sales, manufacturing, just-in-time shipping/production, etc.

3. Concurrent with this gradual return to productivity is the rise of finance as the key profit-center of corporate America. As income skews ever more heavily to the top 1%/5%, then capital (productive assets) become ever more heavily concentrated in the hands of the financial Plutocracy. The top 1% now owns some 2/3 of the nation's entire productive wealth.

4. As profits rise (from rising productivity) then the profits flow not to wages (which remain flat to down 1975-2009 for all but the top 10% professional class) but to those who own the capital.

5. As the middle class experiences a decline in their income and purchasing power (for reasons cited above: declining dollar, rising income disparity, and wages falling due to global wage arbitrage) then they turn more and more to borrowing and ever greater debt to fund what they have been brainwashed by the media to believe is "the American dream" of imported luxury goods, bloated homes, vacuous cruises, etc.

The only other mechanism available to the middle class to increase household income is for Mom/Aunt/Grandmom to enter the workforce, which she does in the tens of millions, with sociological consequences which are still unfolding.

6. This advert/media-driven desire to borrow to fund the "good life" is hugely profitable to the money-center banks, which expand rapidly into mortgage securization, derivatives and consumer credit to the point that they come to dominate corporate profits.

7. The financial Plutocracy, observing that actually producing goods is not very profitable unless you can fix prices as per ADM (Archer Daniels Midlands) or gain government subsidies and tax giveaways (oil lease depreciation, etc.) sinks its capital into the FIRE economy (finance, insurance and real estate), eschewing real-world investments as comparatively unprofitable.

Though rarely noted, this is a longstanding trait of capitalism stretching back to 1400-era Venice. When trade became less profitable than mainland farmimg, the Venetian Elite stopped funding trading and bought farms on the mainland. As a side effect, Venice ceased to be a military and trading power. But the Elite remained immensely wealthy.

8. As the tech bubble expands, middle-class investors see the Plutocracy (those with enough capital to qualify as angel investors and vulture, oops, I mean venture capital) reaping huge gains, and they enter the dot-com stock bubble buildup with a vengeance.

9. In a happy accident, the Soviet Empire collapses just as productivity begins its computer-fueled rise in the U.S. In a so-called Unipolar World in which U.S. military, political and financial influence is unrivaled, non-U.S. investors seek the relative safety and high returns (based on appreciation of the dollar) of U.S. financial instruments.

10. The dot-com bubble implodes in a speculative meltdown (dot-bomb), and retail investors (a.k.a. the middle class 401K investors) are devastated. The ephemeral wealth they once possessed, however briefly, fuels their speculative desire to get into the next get-rich-quick game, which just so happens to be "something everyone understands:" real estate and housing.

11. Having exhausted the dot-com play, Elite capital is seeking a new high-profit home. The miracles of derivatives (CDOs, credit default swaps, etc.) and securitized debt (mortgage tranches, etc.) open up vast new opportunities for leverage, off-balance sheet shenanigans and outright fraud/debauchery of credit. As chip wafer plants disappear from Silicon Valley (too dirty, too costly, etc.) then they're replaced with paper: mortgage-backed securities.

12. Sniffing gold in them thar exurban hills, the under-capitalized and over-indebted U.S. working class and middle class reach for the chalice of easy-money gold: leveraged real estate.

13. With the Federal financial regulatory agencies in a Republican/Democrat-enforced somnambulance, the coast is clear for brigands, shysters, fraudsters, con artists, liars, cheats, and assorted riff-raff in the realtor, mortgage and appraisal businesses, who all feed the ravenous maw of the money-center banks' apparently limitless appetite for real estate assets to securitize and leverage in exotic and highly profitable ways.

14. For a wonderful five years circa 2001-2006, the game is afoot and no-down-payment Jill and $100 million bonus Jack are immensely enriched. Meanwhile, the underlying real economy is becoming ever more imbalanced and ever more fragile as real production and real productivity plummet as everyone rushes to the speculative riches of exurban McMansions and malls.

15. This last best speculative leveraged bubble pops, gutting a Wall Street which had grown utterly dependent on leverage, debt, gamed/fraudulent accounting and bubbles for its rising profits.

16. Doubly devastated by the implosion of housing and their stock investments (mostly in retirement funds), the middle class faces the terrible consequences of its 26-year stupor of ever-rising debt and leverage. Alas, the Emperor's clothes are revealed as remarkably transparent.

17. Just as in the Great Depression, to its great surprise, the Elite has also suffered catastrophic losses and declines in capital and income.

18. Having borrowed and squandered trillions of dollars since 1981 on unaffordable entitlements, military misadventures and assorted worthless bridges-to-nowhere pork spending, the Federal government (The Fed and the Treasury) finds that its ability to borrow its way out of its current debt hole somewhat annoyingly limited. The rest of the world has finally caught on to the con, and Chinese university students are openly mocking Treasury Secretary Geithner's Orwellian claim of "we support a strong dollar." The miracle is that he was not pelted with tomatoes and tarred and feathered for making such absurd statements.

19. With the global media concentrated in a scant few corporate hands (less than 10), this pulling away of the curtain is deleted/excised from media coverage in a ruthless campaign of pure "green shoots" propaganda.

20. As the wheels fall off the U.S. economy and the bubbles cannot be re-inflated, fruitless attempts at holding back the tide with incantations (stop, tide, I am Obama/Geithner/Bernanke!) and loopy sand castles (the bottom is in, buy now! Green shoots are sprouting everywhere except in the real economy!) abound. Unresponsive to propaganda, the real world grinds down into a global Depression without visible end.

Reality vs. Recovery

With a growing number of jesters in the king’s court claiming the worst is behind us and the economy is recovering, let’s take a look at some of the figures.

 

•   Real unemployment in the US is about 20%. Everyone knows that the Official U3 numbers put out by the government are hugely understated. U6 is over 16% and the SGS Alternate Unemployment rate published by ShadowStats.com is over 20%.

•   Where will the good jobs come from when the US manufacturing base has been gutted by globalization, wage arbitrage and tax laws which have all but required US firms to take their business offshore?

 

  

 

Figure Courtesy of ShadowStats.com

• Remember the old subprime resets charts from 2 years ago? They’ve been updated to show that Option Adjustable mortgage resets won’t peak until 2011 so this alone makes any housing recovery in the near future wishful thinking.

•   Government balance sheets are bending and it is only a matter of time before they break.

•   The 2009 Federal Government deficit is $1.9T. The U.S. will have to borrow 50 cents for every dollar it spends.

•   The US, Europe and Britain will have to sell $8.3T in debt in 2009-10.

•   US income tax revenue is down 44% this year at a time when government spending is soaring.

•   China’s exports are down 41% and global exports are down 30%. Where will the money come from to fund the budget deficits?

 

•   Savings surplus to buy Treasuries doesn’t exist and the Fed and other central banks will have no other choice than to continue to monetize the debt by printing the money from thin air.

•   Meanwhile, long-term interest rates are climbing  – specifically on the 10-year Treasury bond. The Fed can manipulate short-term rates, but the long term bond market has hard-hitting impacts making the debt much more expensive to service.

•   Rose-colored glasses types say this is because there is less demand for “safe” Treasury bonds because market conditions are improving. Ah – yeah.

•   Or it could be the world is expecting massive inflation because of all the funny money demanding more return for funding all the foolishness. Why do you think Chinese students were laughing at Geithner when he told them with a straight face the US was going to be financially responsible and the dollar was safe?

   Increased debt monetization by the Fed continues to erode confidence in the Dollar's reserve status. True there are no healthy currencies in the world, but that won't stop countries from weaning from their dollar dependency. Remember, the dollar system is the primary source of US strength along with its military which can only be funded by the former. No other country can run up huge trade deficits with other countries and pay the debts by printing currency.

•   China is leading the slow dollar dumping charge. They have already signed agreements with Brazil, their largest trading partner, to trade in other currencies. China and the US are in a financial shotgun wedding and to suddenly call it quits would be bad for both, but that won’t stop China from continuing the backdoor dollar dump over time.

•   The Keynesians who run the show and have for decades huckstered the general population into believing deficit spending cures all will continue push more debt into an insolvent system until it breaks.

 

 

Incestuous Pool

In the article below, Bob Chapman describes the revolving door between the chosen financial houses, the Fed and Treasury Department.

The Secrets of the Federal Reserve: The Federal Reserve Act was legislated in 1913 to end recessions, panics and depression. Over that almost 100-year period they have been eminently no more successful then their predecessors. The Fed is a private corporation, which guides US monetary policy. Its staff is from Wall Street, banking, and transnational conglomerates and occasionally from academia. Of the 12 Federal Reserve banks the New York bank is the most powerful. The staffing of the Fed at the least is incestuous, because the member banks take part in the staffing, as they filter to the Fed what actions they should take. That is done by the FOMC, The Federal Open Market Committee. As a further example the recent stress test done by the Fed was done on many of their owners. Sadly the public is unaware of this and even business majors and those with business masters degrees do not know that the Fed is privately owned or what they actually do. For those of you who would like to get a better understanding read G. Edward Griffith’s, “Creature from Jekyll Island” and the secrets of the Federal Reserve” by Eustace Mullins.

Recently we discovered that $101.4 billion was originally secretly funneled through AIG to AIG counterparties - parties that were owed these sums by AIG, which had not collateralized derivative contracts. That is like writing insurance and having no collateral reserves set aside for losing events. The Federal Reserve in their wisdom paid off AIG’s debt with what eventually will be taxpayer debt. This is wrong and it should not have been done secretly. When demanded by a Federal Judge to reveal to whom these monies were paid and under what circumstances, the Fed said it would harm their reputations and it was a “state secret.”

The biggest gun in the Fed arsenal is the New York Fed. The recently appointed Secretary of the Treasury Timothy Geithner was the NY Fed’s previous governor. Mr. Geithner had worked in government previously and was in part responsible for the Asian financial disaster in 1997-1998. He is also a Goldman Sachs alumnus. He is part of a never-ending exchange of the denizens of Wall Street and banking being appointed to government positions. In fact Wall Street and banking have been running our government for a long time. Many say for too long.

This kind of relationship makes government a tool of major financial interests and it breeds corruption, as we just witnessed in the case of Stephen Friedman, formerly of Goldman Sachs, and until he resigned last week, for having purchased some Goldman Sachs stock, was Chairman of the NY federal Reserve, the position Mr. Geithner had held before him. This raises the fundamental question of appointment and corruption. Never mind the other issues the Fed is involved in. this is America’s most powerful financial institution and it is run by corrupt and perhaps incompetent people. The NY fed has a very special position, because it is actively running markets every day via the 21 dealers it uses to manipulate and uses these markets. This is part of the program never spoken of that exists to assist the “Working Group on Financial Markets, which manipulates markets 24/7, under an Executive Order signed in August 1988 by then President Ronald Reagan. This was executed to protect against market failures such that had taken place the previous October. The order was for emergencies. The Treasury, the Fed, Wall Street and banking have distorted its original intent. The Fed also sets interest rates and regulates the issuance of money and credit. Thus the Fed holds a pivotal role in our financial well-being. They also are to insure the soundness and stability of the banking system. If our banking system breaks down it is the fault of the Fed. When that happens it should not be the province of the Fed to commit trillions of dollars of taxpayer money to bail out its own owners.

You can get an idea of the incestuous nature of the Fed and Wall Street in looking at the select committee that not that long ago picked Timothy Geithner to head the NY Fed. Hank Greenberg defrocked former Chairman of AIG, who for some reason was never criminally prosecuted in the scandal; John Whitehead a former Chairman of Goldman Sachs; Peter Peterson, a former Chairman of Lehman Bros.; and Walter Shipley, a former Chairman of Chase Manhattan, now with JP Morgan Chase. We wonder why the media never questions these kinds of connections all of which are tied together by the Council on Foreign Relations.

Then there is the composition of the NY Fed board on which six board members are public representatives. We do not see any common business people on this board. They are all very wealthy New Yorkers, who are all connected to one another. There have been occasionally members of labor and academia, but they can only be considered tokens. It is very definitely an insiders club.

This means the Fed’s real consideration is the maximizing of profits for banking, Wall Street, insurance and real estate. This goal of almost 100 years has made these individuals and their families’ mega-rich. Competent or incompetent they always win. They have information and intelligence no one else has and you can be sure their inner circle has the same privileged information. As usual they are essentially unregulated, which gives the Fed an additional advantage. The lack of banking oversight of recent years has brought our entire financial system into insolvency. We do not know how you could call it anything else when most major banks, brokerage houses, some insurance companies and other lenders are simply broke. The Fed, and particularly the NY Fed, has been complicit in banks and brokerage houses using leverage of more than 50 times assets. In some cases such as JP Morgan Chase the figures are much higher. In fractional banking 8 to 10 times is considered appropriate. This is the biggest bailout of poorly managed corrupt banks in history. This failure is far greater than the failure of the Lombard System in Venice in 1348, the year of the great bubonic plague that swept Europe and killed 50% of its inhabitants. These elitists have brought the world economy to its knees. It is ironic, but true to insider dealing, that not one CEO or senior executive has been fired, as trillions of dollars have been lost.

That said this is the perfect segway to bring to your attention a bill calling for the Comptroller General of the US to audit the private Federal Reserve. At last report 124 members of the House have joined Rep. Ron Paul’s bill HR 1207, as co-sponsors, to his Federal Reserve Transparency Act of 2009. Both the Fed’s Board of Governors and the Federal Reserve Banks would be required to report to Congress before the end of 2010. This could be the most important bill in modern American history and could lead to our financial and economic recovery. When the Congress sees what the Fed has done they might just abolish it, which is really the solution. As Rep. Paul says, “Congress should reassert its constitutional authority over monetary policy.” The Constitution gives Congress, not the private Federal Reserve, “the Authority to coin money and regulate the value of the currency.” “The Fed has presided over the near-complete destruction of the US dollar,” says Rep. Paul. “Since 1913 the dollar has lost over 95% of its purchasing power, aided and abetted by the Federal Reserve’s loose money policy.” “How long will we as a Congress stand idly by while hard-working Americans see their savings eaten away by inflation?” Only big-spending politicians and politically favored bankers benefit from inflation,” he said. “Since its inception, the Fed has always operated in the shadows, without sufficient scrutiny or oversight of its operations.”

The Fed can enter into agreements with foreign central banks and foreign governments, and the GAO’s prohibited from auditing or even seeing these agreements. There are no enforcement powers over the Fed. The Fed’s funding facilities including the Dealer Credit Facility, Term Securities Lending Facility, and the Term Asset-Backed Securities Lending Facility should be subject to congressional oversight.

Every problem we have had in our economy from the Fed’s conception and passage can be directly traced to Federal Reserve policy.

Legislation should be passed to abolish the Fed and that the OMB, the Office of Management and Budget liquidate Fed assets to insure a quick transfer of their functions to the Treasury.

HR 1207 is now in the House Committee of Financial Reserves and has been there for 3 months.

This could be the most important legislation ever submitted due to the financial conditions in America at this time.

In the Senate, Sen. Bernard Sanders (I-VT) has submitted a similar bill, which has been in the Senate Banking, Housing, and Urban Affairs Committee for 2 months.

As Rep. Paul says, “auditing the Fed is only the first step towards exposing this antiquated insider-run creature to the powerful forces of free-market competition. Once there are viable alternatives to the monopolistic fiat dollar, the Federal Reserve will have to become honest and transparent if it wants to remain in business.

Contact everyone in Congress and let him or her know how you feel about this issue as soon as possible.

As Joseph Schummpeter argues that monetary measures do not allow policymakers to eliminate economic depression, only to delay it under penalty of more severity in the future. In a market economy, economic depressions are painful but unavoidably recurring. Counter cyclical monetary measures to provide more money and credit to keep ill-timed investment on a high level in a depression are not creative destruction, but positive destruction, and such measures will ultimately be detrimental to the general welfare. This is what we’ve been preaching for some time.

Unemployment is a natural extension for stabilizing production and consumption, and its solution cannot be implemented by holding up asset prices in a depressed market economy. Unemployment is usually reduced by deficit-financing and high wages. Today that is not easy with a $2 trillion deficit, rising interest rates, monetization and the insane creation of money and credit. Plus, how can you maintain wages, or raise them, with an army of illegal aliens working for next to nothing and offshoring and outsourcing still going at full tilt? Monetarist measures cannot hold up asset prices with today’s problems, which are the worst since the early 1870s.

Looking back Herbert Hoover was wrong in starting off the Socialist-Fascist era that began the 1930’s Great Depression. Franklin Delano Roosevelt carried out that program and it was a failure. America was saved by war at a terrible price. Andrew Mellon was right in advocating that government must keep its hands off and let the slump liquidate itself. Purge the rottenness out of the system. Mr. Mellon said liquidate labor, stocks, farmers and real estate. No more high living, people will work harder and lead a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.

The economics of monetarism are nothing more than a formula promulgated to save the financial sector and not the country, by using an elitist trickle down theory, which as recent as the 1980s had been proven unworkable. Bail out the rich on Wall Street, the bankers and insurance companies and let the poor and working poor fend for themselves. This is class economics and this is what turns the masses toward socialism. Bankers, who caused the problem, are bailed out by the masses, and the public is left to drown on their own. We are told the bankers and Wall Street must be saved or we’ll have no economy. We call this the myth of saving the criminals.

Under a Federal Reserve System the Fed has in private hands unlimited state power to create money and credit backed by the full faith and credit of the American people, which denies those people the rights of sovereignty.

Via the Fed and via Executive Order and the “Working Group on Financial Markets” we allow the Fed and the Treasury to manipulate our markets. Thus our financial elite grow richer and richer, and worse yet even professionals do not know what is going on, never mind the public. The creation of money and credit is effected in such a way that the financial sector is protected and the burden of loss of purchasing power is cast upon American workers. The capitalists do business as usual. Such pursuits have often ended in revolution. The fruits of low wages in America, a result of free trade, globalization, offshoring and outsourcing, have taken their toll. The result is more than two years of recession and now more than three months of depression. The working poor cannot afford to buy what they produce and they cannot pay the debt cast upon them by Wall Street and the banking establishment. There are no free markets. The markets are what these people want them to be. Today they feed their own debt bubble hoping, hope against hope they can bail out the system again.

These miscreatants, in what is called a shadow banking system securitized mortgages and other debt by fraud via a corrupt rating system worldwide monetizing their liabilities and buried thousands of professionals worldwide. This unpayable debt, now lost, along with derivatives present problems that are really just beginning to be addressed. All this is done with little transparency in order for these institutions, guided by the Fed, to dump their financial risks.

There you have it. A manmade disaster created by the Federal Reserve, banking and Wall Street, and these are the same corrupt group who our government has chosen to rectify the problem. Their answer is to take the funds from the public to cover their losses, be it by inflation or taxes. The answer is get rid of the Fed and purge the system once and for all.

How Governments Manipulate Markets

Blatant government manipulation is another reason that securities markets often appear to be disconnected from the realities of the economy. Catherine Fitts explains how the game is rigged.

Wall Street's mantra is that markets move randomly and reflect the collective wisdom of investors. The truth is quite opposite. The government's visible hand and insiders control markets and manipulate them up or down for profit - all of them, including stocks, bonds, commodities and currencies.

It's financial fraud or what former high-level Wall Street insider and former Assistant HUD Secretary Catherine Austin Fitts calls "pump and dump," defined as "artificially inflating the price of a stock or other security through promotion, in order to sell at the inflated price," then profit more on the downside by short-selling. "This practice is illegal under securities law, yet it is particularly common," and in today's volatile markets likely ongoing daily.

Why? Because the profits are enormous, in good and bad times, and when carried to extremes like now, Fitts calls it "pump(ing) and dump(ing) of the entire American economy," duping the public, fleecing trillions from them, and it's more than just "a process designed to wipe out the middle class. This is genocide (by other means) - a much more subtle and lethal version than ever before perpetrated by the scoundrels of our history texts."

Fitts explains that much more than market manipulation goes on. She describes a "financial coup d'etat, including fraudulent housing (and other bubbles), pump and dump schemes, naked short selling, precious metals price suppression, and active intervention in the markets by the government and central bank" along with insiders. It's a government-business partnership for enormous profits through "legislation, contracts, regulation (or lack of it), financing, (and) subsidies." More still overall by rigging the game for the powerful, while at the same time harming the public so cleverly that few understand what's happening.

Market Rigging Mechanisms - The Plunge Protection Team

On March 18, 1989, Ronald Reagan's Executive Order 12631 created the Working Group on Financial Markets (WGFM) commonly known as the Plunge Protection Team (PPT). It consisted of the following officials or their designees:

• the President;
• the Treasury Secretary as chairman;
• the Fed chairman;
• the SEC chairman; and
• the Commodity Futures Trading Commission chairman.

Under Sec. 2, its "Purposes and Functions" were stated as follows:

(2) "Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:

1. the major issues raised by the numerous studies on the events (pertaining to the) October 19, 1987 (market crash and consider) recommendations that have the potential to achieve the goals noted above; and

2. ....governmental (and other) actions under existing laws and regulations....that are appropriate to carry out these recommendations."

In August 2005, Canada-based Sprott Asset Management (SAM) principals John Embry and Andrew Hepburn headlined their report on the US government's "surreptitious" market interventions: "Move Over, Adam Smith - The Visible Hand of Uncle Sam" to prevent "destabilizing stock market declines. Comprising key government agencies, stock exchanges and large Wall Street firms," this group "is significant because the government has never admitted to private-sector membership in the Working Group," nor is it hinting that manipulation works both ways - to stop or create panic.

"Current mythology holds that (equity) prices rise and fall on the basis of market forces alone. Such sentiments appear to be seriously mistaken....And as official rhetoric continues to toe the free market line, manipulation has become increasingly apparent....with the active participation of selected investment banks and brokerage houses" - the Wall Street giants.

In 2004, Texas Hedge Report principals Steven McIntyre and Todd Stein said "Almost every floor trader on the NYSE, NYMEX, CBOT and CME will admit to having seen the PPT in action in one form or another over the years" - violating the traditional notion that markets move randomly and reflect popular sentiment.

Worse still, according to SAM principals Embry and Hepburn, "the government's unwillingness to disclose its activities has rendered it very difficult to have a debate on the merits of such a policy," if there are any.

Further, "virtually no one ever mentions government intervention publicly....Our primary concern is that what apparently started as a stopgap measure may have morphed into a serious moral hazard situation."

Worst of all, if government and Wall Street collude to pump and dump markets, individuals and small investment firms can get trampled, and that's exactly what happened in late 2008 and early 2009, with much more to come as the greatest economic crisis since the Great Depression plays out over many more months.

That said, the PPT might more aptly be called the PPDT - The Plunge Protection/Destruction Team, depending on which way it moves markets at any time. Investors beware.

Manipulating markets is commonplace and as old as investing. Only the tools are more sophisticated and amounts involved greater. In her book, "Morgan: American Financier," Jean Strouse explained his role in the Panic of 1907, the result of stock market and real estate speculation that caused a market crash, bank runs, and hysteria. To restore confidence, JP Morgan and the Treasury Secretary organized a group of financiers to transfer funds to troubled banks and buy stocks. At the time, rumors were rampant that they orchestrated the panic for speculative profits and their main goals:

• the 1908 National Monetary Commission to stabilize financial markets as a precursor to the Federal Reserve; and
• the 1910 Jekyll Island meeting where powerful financial figures met in secret for nine days and created the private banking cartel Federal Reserve System, later congressionally established on December 23, 1913 and signed into law by Woodrow Wilson.

Morgan died early that year but profited hugely from the 1907 Panic. It let him expand his steel empire by buying the Tennessee Coal and Iron Company for about $45 million, an asset thought to be worth around $700 million. Today, similar schemes are more than ever common in the wake of the global economic crisis creating opportunities to buy assets cheap by bankers flush with bailout cash. Aided by PPT market rigging, it's simpler than ever.

Wharton Professor Itay Goldstein and Said Business School and Lincoln College, Oxford University Professor Alexander Guembel discussed price manipulation in their paper titled "Manipulation and the Allocational Role of Prices." They showed how traders effect prices on the downside through "bear raids," and concluded:

"We basically describe a theory of how bear raid manipulation works....What we show here is that by selling (a stock or more effectively short-selling it), you have a real effect on the firm. The connection with real value is the new thing....This is the crucial element," but they claim the process only works on the downside, not driving shares up.

In fact, high-volume program trading, analyst recommendations, positive or negative media reports, and other devices do it both ways.

Also key is that a company's stock price and true worth can be highly divergent. In other words, healthy or sick firms may be way-over or under-valued depending on market and economic conditions and how manipulative traders wish to price them, short or longer term.

The idea that equity prices reflect true value or that markets move randomly (up or down) is rubbish. They never have and more than ever don't now.

The Exchange Stabilization Fund (ESF)

The 1934 Gold Reserve Act created the US Treasury's ESF. Section 7 of the 1944 Bretton Woods Agreements made its operations permanent. As originally established, the Treasury ran the Fund outside of congressional oversight "to keep sharp swings in the dollar's exchange rate from (disrupting) financial markets" through manipulation. Its operations now include stabilizing foreign currencies, extending credit lines to foreign governments, and last September to guaranteeing money market funds against losses for up to $50 billion.

In 1995, the Clinton administration used the fund to provide Mexico a $20 billion credit line to stabilize the peso at a time of economic crisis, and earlier administrations extended loans or credit lines to China, Brazil, Ecuador, Iceland and Liberia. The Treasury's web site also states that:

"By law, the Secretary has considerable discretion in the use of ESF resources. The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s....the Secretary (per) approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities."

In other words, ESF is a slush fund for whatever purposes the Treasury wishes, including ones it may not wish to disclose, such as manipulating markets, directing funds to the IMF and providing them with strings to borrowers as the Treasury's site explains:

"....Treasury has often linked the availability of ESF financing to a borrower's use of the credit facilities of the IMF, both to support the IMF's role and to strengthen assurances that there will be timely repayment of ESF financing."

The Counterparty Risk Management Policy Group (CRMPG)

Established in 1999 in the wake of the Long Term Capital Management (LTCM) crisis, it manipulates markets to benefit giant Wall Street firms and high-level insiders. According to one account, it was to curb future crises by:

• letting giant financial institutions collude through large-scale program trading to move markets up or down as they wish;
• bailing out its members in financial trouble; and
• manipulating markets short or longer-term with government approval at the expense of small investors none the wiser and often getting trampled.

In August 2008, CRMPG III issued a report titled "Containing Systemic Risk: The Road to Reform." It was deceptive on its face in stating that CRMPG "was designed to focus its primary attention on the steps that must be taken by the private sector to reduce the frequency and/or severity of future financial shocks while recognizing that such future shocks are inevitable, in part because it is literally impossible to anticipate the specific timing and triggers of such events."

In fact, the "private sector" creates "financial shocks" to open markets, remove competition, and consolidate for greater power by buying damaged assets cheap. Financial history has numerous examples of preying on the weak, crushing competition, socializing risks, privatizing profits, redistributing wealth upward to a financial oligarchy, creating "tollbooth economies" in debt bondage according to Michael Hudson, and overall getting a "free lunch" at the public's expense.

CRMPG explains financial excesses and crises this way:

"At the end of the day, (their) root cause....on both the upside and the downside of the cycle is collective human behavior: unbridled optimism on the upside and fear on the downside, all in a setting in which it is literally impossible to anticipate when optimism gives rise to fear or fear gives rise to optimism...."

"What is needed, therefore, is a form of private initiative that will complement official oversight in encouraging industry-wide practices that will help mitigate systemic risk. The recommendations of the Report have been framed with that objective in mind."

In other words, let foxes guard the henhouse to keep inventing new ways to extract gains (a "free lunch") in increasingly larger amounts - "in the interest of helping to contain systemic risk factors and promote greater stability."

Or as Orwell might have said: instability is stability, creating systemic risk is containing it, sloping playing fields are level ones, extracting the greatest profit is sharing it, and what benefits the few helps everyone.

Michel Chossudovsky explains that: "triggering market collapse(s) can be a very profitable undertaking. (Evidence suggests) that the Security and Exchange Commission (SEC) regulators have created an environment which supports speculative transactions (through) futures, options, index funds, derivative securities (and short-selling), etc. (that) make money when the stock market crumbles....foreknowledge and inside information (create golden profit opportunities for) powerful speculators" able to move markets up or down with the public none the wiser.

As a result, concentrated wealth and "financial power resulting from market manipulation is unprecedented" with small investors' savings, IRAs, pensions, 401ks, and futures being decimated from it.

Deconstructing So-Called "Green Shoots"

Daily the corporate media trumpet them to lull the unwary into believing the global economic crisis is ebbing and recovery is on the way. Not according to longtime market analyst Bob Chapman who calls green shoots "Poison Ivy" and economist Nouriel Roubini saying they're "yellow weeds" at a time there's lots more pain ahead.

For many months and in a recent commentary he refers to "the worst financial crisis, economic crisis and recession since the Great Depression....the consensus is now becoming optimistic again and says that we are going to go from minus 6 percent growth to positive growth in the second half of the year....my views are much more bearish....The problems of the financial system are severe. Many banks are still insolvent."

We're "piling public debt on top of private debt to socialize the losses; and at some point the back of (the) government('s) balance sheet is going to break, and if that happens, it's going to be a disaster." Short of that, he, Chapman, and others see the risks going forward as daunting. As for the recent stock market rise, they both call it a "sucker's rally" that will reverse as the US economy keeps contracting and the financial system suffers unexpected or manipulated shocks.

Highly respected market analyst Louise Yamada agrees. As Randall Forsyth reported in the May 25 issue of Barron's Up and Down Wall Street column:

"It is almost uncanny the degree to which 2002-08 has tracked 1932-38, 'Yamada writes in her latest note to clients.' " Her "Alternate Hypothesis" compares this structural bear market to 1929-42:

· "the dot-com collapse parallels the Great Crash and its aftermath," followed by the 2003-07 recovery, similar to 1933-37;

· then the late 2008 - early March 2009 collapse tracks a similar 1937-38 trajectory, after which a strong rally followed much like today;

· then in November 1938, the market dropped 22% followed by a 26% rise and a series of further ups and downs - down 28%, up 23%, down 16%, up 13%, and a final 29% decline ending in 1942;

· from the 1938 high ("analogous to where we are now," she says), stock prices fell 41% to a final bottom.

Are we at one today as market touts claim? No according to Yamada - top-ranked among her peers in 2001, 2002, 2003 and 2004 when she worked at Citigroup's Smith Barney division. Since 2005, she's headed her own independent research company.

She says structural bear markets typically last 13 - 16 years so this one has a long way to go before "complet(ing) the repair process." She calls the current rebound "a bungee jump," very typical of bear markets. Numerous ones occurred during the Great Depression, 8 alone from 1929 - 1932, some deceptively strong.

Expect market manipulators today to produce similar price action going forward - to enrich themselves while trampling on the unwary, well-advised to protect their dollars from becoming quarters or dimes.

Four Centuries of Tyranny

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."
-President James Madison

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."
-Napoleon Bonaparte, 1815

"Whosoever controls the volume of money in any country is absolute master of all industry and commerce... And when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."
-President James Garfield 1881

A monetary system where currency is produced from thin air by private banks, lent to governments at interest and paid by the population in the form of taxes has been deeply institutionalized for centuries. This scheme did not begin with the Federal Reserve which is for all intents and purposes a 20^th century extension of the Bank of England. The nominal torch of empire passed from Britain to the US, but the banking power base remained the same.

Nothing has been more convenient for politicians and social planners, more profitable for financiers and exploitable by warmongers than the ability to enslave future generations with debt incurred by the last. History and current events also show that a nation’s sovereignty runs counter to the interests of moneyed interests since a nation can only be sovereign if it issues its own currency.

Nothing is more precious to the global banking interests than maintaining a system of private profiteering from public debt. This basic fundamental truth is both obvious yet elusive in the consensus trance that permeates our society.

Consider the timeline of Anglo-American banking that outlines centuries of political manipulation and control:

• Medieval goldsmiths store private owners gold for a cost, realize few ever redeem their holdings so they begin to make loans in excess of the amount held paving the way for fractional reserve banking.
• The Thirty Years War and English Civil Wars left England devastated financially lead to the rise of the Bank of England who would lend the government much needed funds and burden the public taxpayer with loans created from thin air.
Britain ran up huge debts while the Colonies prospered up until the Currency Act of 1764 which made Colonial Script – non-debt based tender - illegal, required the Colonies to pay taxes to Britain in gold and silver and resulted in a depression. 
• Robert Morris’ failed Bank of North America gave way to the First Bank of the United States in 1791 bankrolled by Amshall Rothschild. After massive debt and inflation resulted, the bank’s charter was not renewed and the War of 1812 ensued.
• Napoleon may have been a lot of things, but to his credit he understood the banking scam. In 1803, choosing not to take bank loans, he opted to sell land west of the Mississippi to Jefferson in the Louisiana Purchase.
• In 1815, acting under advanced knowledge of Napoleon’s loss to the British and other European troops, Nathan Rothschild manipulated the British bond market and made a fortune.
• Rothschild backed the Second Bank of the United States in 1816 leading up to the clash with Andrew Jackson who ordered the withdrawal of deposits from the bank in 1832. Jackson said, "If the American people only understood the rank injustice of our money and banking system - there would be a revolution before morning..."
• In 1861, President Lincoln refused extremely high interest loans by the banks, which were European and which didn’t want a unified and strong United States, and issued government bills. By 1863 in order to finished funding the Civil War effort, he signed the National Banking Act which held that the money supply would be created out of debt by bankers buying US government bonds and issuing them from reserves for bank notes. Lincoln had plans for a Constitutional monetary system, but obviously didn’t have the chance to see it through. We still live under the paradox that repaying the debt means destroying the currency.
• The banker-backed Contraction Act passed in 1866, squeezed about 7/8ths of the money out of circulation resulting in a depression.
J.P. Morgan “saves the day” during the crash of 1907 and is authorized to create the funds out of thin air to prop up troubled banks. Sound familiar?

• The Federal Reserve Act of 1913 passes with 3 Senate members on the floor prior to Christmas break.

In the 1966 book entitled Tragedy and Hope, president Clinton's mentor Carroll Quigley writes about the early 20^th century plans by the banking elite:

"The powers of financial capitalism had [a] far-reaching [plan], nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.

This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences.

The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations.

Each central bank... Sought to dominate its government by its ability to control treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."
Carroll Quigley, Professor, Georgetown University

• WWII results in massive U.S. and European debt load which of course is bad for everyone but banks.

• In 1944 the US approved its full participation in the IMF and the World Bank and in 1945 participation in the United Nations. The IMF issues pseudo money called Special Drawing Rights (SDR’s), which again are created out of thin air, to make loans to countries at interest. Oftentimes in a form of corporate imperialism, loans are taken by corrupt leaders for development efforts that provide no benefit to the people, who put their people and resources up for collateral in the form of taxes and concessions. Essentially, SDR’s are a global banking means of indebting and enslaving.  

I’m not affiliated with the publisher of the 3-part summary on the history of money, but they provide a pretty good write-up that expands on the points above in under 10 pages.

If you read this, you'll have a better understanding of the monetary system than most.

History of Money Part 1

History of Money Part 2

History of Money Part 3

 

 

The Trinket Dilemma

A good friend of mine said he was buckling down more these days like everyone else and decided to put off a purchase of some trinkets. But frugality is a tough balancing act with speed-warbling inflation and deflation with the looming risk of snowballing hyperinflation when “full faith and credit” doesn’t buy you much...So...

Should I buy the trinkets I need tomorrow today because I fear the money I have today will buy me much fewer trinkets tomorrow; or should I put off buying the trinkets until tomorrow because tomorrow's income is uncertain and I may need to use today’s income to buy something else, though I still risk the money I'm saving will buy me much less of anything if I wait?
 
Then the question, is the carrying cost of the trinkets – the ongoing taxes, maintenance and upkeep costs - higher than lost purchasing power should I delay the purchase? And will the other inputs I need to use the trinkets be much higher in the future due to inflation that I can’t afford to use the trinkets and they become stranded assets?

But even if I think I can delay the purchase from an inflationary standpoint, can I be sure I will have access to the trinket in the future - will there be a run on the Bank of Trinkets or will economic conditions be such that the supply chain from Trinketstan will break?

Pink Floyd was spot on with the line, "Money it's a gas..." but maybe not in the way they intended.

Bill Bonner talks about the ongoing counterfeiting operation in this weekend’s Daily Reckoning:

Illusions pile up… They’re sure to come down sooner or later

Like snow at high altitudes, the central banks’ new money is piling up. As reported last week, all the world’s major central banks have turned on their snow machines. The US Federal Reserve has been authorized to “print” $1.75 trillion worth of new money in order to buy Treasury bonds. The Bank of England has its own program – worth 75 billion pounds, so far. Even Switzerland has been printing money – so much that its money supply, as measured by M2, is growing at 30% per year. And two weeks ago, the European Central Bank announced that it too would begin creating money in order to buy corporate bonds.

“Quantitative Easing” it is called. As a refresher for readers with real lives and better things to do, QE is how central banks describe what is essentially an act of counterfeiting. They buy bonds with money created – electronically – specifically for that purpose. Abracadabra – “money” comes into being.

The feds aim to provide liquidity for the cities and farms. But so far, only a trickle is coming down. Instead, chilly weather in the upper reaches of the financial sector holds it frozen in place. Hundreds of billions comes down from central banks, but there it stays…waiting for spring.

Today, here on the back page, we ask ourselves a simple question: what will happen to it?

The feds’ counterfeit money does such a good imitation of the real thing, you can’t tell them apart. But the problem with all money is that it is as fickle and unreliable as a bad girlfriend. One minute she goes along with the flow. The next minute she turns silly and bubbly. And then, she gives you the cold shoulder.

According to theory, an increase in the supply of something leads directly to a decrease in the price of it… That is, if other things remain constant. Despite the credit crunch, the banking freeze-up, and the economic recession, the money supply in the US as measured by M1 is actually rising at 14% per year. Yet consumer prices are not keeping pace. The latest report shows them actually going down slightly over the last 60 days.

Turns out, causing inflation is not as easy as it looked; controlling it probably will be even harder. It’s not enough to manage the quantity of money; you also need to be able to control its behavior. Money can be a solid, a liquid, or a gas depending upon the temperature of the economy. At normal temperatures, money runs freely, watering the economy. And when things really get hot, it vaporizes, creating gaseous bubbles such as those of the late Bubble Period. But when the temperature falls, money shivers in wallets and bank accounts – reluctant to go out into the cold. Economists refer to the ‘velocity of money” to describe the magnifying effects of motion. When the same dollar bill appears in three different places in the same day, it is as if the money supply had been multiplied three-fold. In a freeze, on the other hand, it comes to a dead stop.

When the thaw will come, we don’t know. But the authorities are ready for it. When consumer prices begin to rise, they’ll stop adding to the money supply. Then, they’ll withdraw liquidity, as need be, to keep it under control.

They know that runaway inflation would cause problems – the collapse of the dollar…and the US Treasury bond market, for example. So, at the first signs of inflation, they will move quickly to remove excess liquidity from the system. How? Their emergency plan is simple enough. Now, they are buying bonds. When their inflation targets are met, they will begin selling them.

We thought the Bubble Epoch was the peak in claptrap and illusions. But we were only in the foothills. The feds now pretend to bail out the economy by giving money to companies that pretend to be concerned, run by people who pretend to know what they are doing. And when they run short of money, they create more of it, pretend it is real…and pretend they can tell it what to do.

What is likely is that money will have a mind of its own. First, the markets will react…and the authorities will not. They will remember their own critiques of Japanese and Roosevelt-era monetary policy. In both cases, they believe central banks removed the punch bowl too early – before the party really got rolling. In both cases, the recovery was cut off.

Then, while they are hesitating, money will turn on them. Inflation rates will rise further. The velocity of money will pick up. And investors – including foreign governments – will become eager sellers of government debt. Suddenly, it will be too late. In order to remove the monetary inflation they previously added, central banks will have to sell bonds instead of buying them, trying to re-absorb money from the economy. The extra cash would then disappear back into the central banks. But in order to bring inflation under control, the biggest bond buyers in the world must turn into the world’s biggest sellers. Bond prices, already falling as investors feared the worst, will collapse immediately. An avalanche of dollars will fall upon the world markets – as dollar holders all over the world become desperate to get rid of them.

We don’t know what day it will happen. But we have a good idea as to what time of day central bankers will realize that they are doomed. About 4 AM is our guess. That is the moment when Ben Bernanke and other central bankers begin to feel like members of the Donner Party. That is, likeimbeciles.

Audit and Abolish the Fed

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

 

“All the perplexities, confusions, and distress in America, arise, not from defects in their Constitution or Confederation, not from a want of honor or virtue, so much as downright ignorance of the nature of coin, credit and circulation.”

 

-Thomas Jefferson

 

I am happy to see that HR 1207, Federal Reserve Transparency Act of 2009 now has 165 co-sponsors. Is your Representative on the list?  

 

There’s nothing like a massive loss of faith in the financial system to motivate more people to stop and ask the question, “So where does our money come from”? The history of the Federal Reserve is a web of obfuscation and double speak which on the surface, without closer inspection, resembles legitimacy.

 

The party line is that the Federal Reserve is "within" the Federal government, but its essence is a private organization that, to borrow a line, "is no more Federal than Federal Express."

 

I can't be clearer here: The Federal Reserve is not a national central bank under direct control of the U.S. government and its people. Yes, central banks are needed to implement a country's fiscal policies, ensure the national banking system maintains sufficient assets to remain solvent and stable and performs currency transactions with other central banks. But the Federal Reserve is not a national central bank. The Federal Reserve is privately owned and can therefore only be expected to operate in the best interest of the banks that hold ownership positions and who benefit through reckless monetary policies which are harmful to the public.

 

Alan Greenspan, ex-Federal Reserve Chairman, made it clear in this video that the Fed is an independent agency and no agency of government which can overrule actions that it takes. Bill Bonner and Addison Wiggin describe the origins of the Reserve System in their book, "Empire of Debt,"

 

“They met at Jekyll Island off the coast of Georgia, in seclusion and secrecy, to discuss formation of a centralized monetary agency. Senator Nelson Aldrich met with executives of what is today known as Citibank; Morgan Bank; and Kuhn, Loeb Investment House. The so-called Aldrich Plan recommended the formation of 15 regional banks controlled by a national board. The banks would be allowed to make emergency loans to members and create a flexible currency, serving as the monetary arm of the federal government. Although the original plan was defeated in the House, the formula modeled what is now known as the Federal Reserve System. The legislation, variously called the Currency Bill and the Owens- Glass Act, emerged as the Federal Reserve Act of 1913. It created a dozen regional Reserve Banks to be coordinated by a chairman who would be appointed by the president. While the Constitution grants Congress the right to print money, under the Federal Reserve Act of 1913, Congress approved a plan to delegate this right to the Fed, which is not part of Congress. The U.S. dollar is not issued by the U.S. Treasury but by a privately owned organization, which also influences bank interest rates, the amount of money in currency in circulation, and even the levels of inflation in the United States.

 

 

When leaving office, Woodrow Wilson apologized to the American public for being seduced by bankers understanding the tragic course he set his country on.

 

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men."

 

 

Back to Greenspan’s comments. Didn’t he garble something at the end that seemed to imply some sort of oversight? According to Section 714 of title 31, United States Code, the Comptroller General can audit the agency, but only if the Fed consents in writing. Imagine if the IRS used those terms with taxpayers – we can audit you, but not unless you write a letter granting us permission. How many letters of acceptance do you suppose the IRS would get?

 

Even with this full proof restriction, the Comptroller General cannot  audit:

 

Transactions for or with a foreign central bank, government or a foreign country, or nonprivate international financing organization;

 

Deliberations, decisions or actions on monetary policy matters, including discounty window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;

 

Transactions made under the direction of the Federal Open Market Committee, or

 

A part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses 1-3 of this subsection.

 

So no, there is no auditing and no oversight of the Federal Reserve by the people’s representatives regardless of what you are being told.

 

HR 1207 would simply require an audit and strike these ridiculous and far-reaching exclusions of an already unconstitutional and illegitimate banking cartel.

HR 1207 IH

111th CONGRESS

1st Session

H. R. 1207

To amend title 31, United States Code, to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States and the manner in which such audits are reported, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

February 26, 2009

Mr. PAUL (for himself, Mr. KAGEN, Mrs. BACHMANN, Mr. BARTLETT, Mr. JONES, Mr. REHBERG, Mr. POSEY, Mr. BROUN of Georgia, Mr. POE of Texas, Mr. BURTON of Indiana, Mr. ABERCROMBIE, and Ms. WOOLSEY) introduced the following bill; which was referred to the Committee on Financial Services

---

A BILL

To amend title 31, United States Code, to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States and the manner in which such audits are reported, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Federal Reserve Transparency Act of 2009’.

SEC. 2. AUDIT REFORM AND TRANSPARENCY FOR THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

(a) In General- Subsection (b) of section 714 of title 31, United States Code, is amended by striking all after ‘shall audit an agency’ and inserting a period.

(b) Audit- Section 714 of title 31, United States Code, is amended by adding at the end the following new subsection:

‘(e) Audit and Report of the Federal Reserve System-

‘(1) IN GENERAL- The audit of the Board of Governors of the Federal Reserve System and the Federal reserve banks under subsection (b) shall be completed before the end of 2010.

‘(2) REPORT-

‘(A) REQUIRED- A report on the audit referred to in paragraph (1) shall be submitted by the Comptroller General to the Congress before the end of the 90-day period beginning on the date on which such audit is completed and made available to the Speaker of the House, the majority and minority leaders of the House of Representatives, the majority and minority leaders of the Senate, the Chairman and Ranking Member of the committee and each subcommittee of jurisdiction in the House of Representatives and the Senate, and any other Member of Congress who requests it.

‘(B) CONTENTS- The report under subparagraph (A) shall include a detailed description of the findings and conclusion of the Comptroller General with respect to the audit that is the subject of the report, together with such recommendations for legislative or administrative action as the Comptroller General may determine to be appropriate.’.

 

 

So who owns the Fed?

 

The Federal Reserve Banks of each region are owned by the member banks of the Federal Reserve Region and create ownership by issuing stock to the member banks, which are private banks.

 

The charts and text below from Staff Report, Committee on Banking, Currency and Housing, House of Representatives, 94th Congress, 2nd Session, August 1976 illustrate the stockholders list of the 12 regional Federal Reserve Banks. The ownership list is a who's who of financial corporate stakeholders.

 

This is a matter of Congressional record, not conspiracy theories.

 

Until we change the monetary system, nothing changes.

 

Federal Reserve Directors: A Study of Corporate and Banking Influence

Published 1976

Chart 1 reveals the linear connection between the Rothschilds and the Bank of England, and the London banking houses which ultimately control the Federal Reserve Banks through their stockholdings of bank stock and their subsidiary firms in New York. The two principal Rothschild representatives in New York, J. P. Morgan Co., and Kuhn,Loeb & Co. were the firms which set up the Jekyll Island Conference at which the Federal Reserve Act was drafted, who directed the subsequent successful campaign to have the plan enacted into law by Congress, and who purchased the controlling amounts of stock in the Federal Reserve Bank of New York in 1914. These firms had their principal officers appointed to the Federal Reserve Board of Governors and the Federal Advisory Council in 1914. In 1914 a few families (blood or business related) owning controlling stock in existing banks (such as in New York City) caused those banks to purchase controlling shares in the Federal Reserve regional banks. Examination of the charts and text in the House Banking Committee Staff Report of August, 1976 and the current stockholders list of the 12 regional Federal Reserve Banks show this same family control.

							    N.M. Rothschild , London - Bank of England

								 ______________________________________

							    |									 |

							    |						   J. Henry Schroder	 

	    						|							 Banking | Corp.

							    |									 |

						  Brown, Shipley - Morgan Grenfell - Lazard - |

						   & Company	    & Company	   Brothers  |

							    |			   |			  |	  |

		    --------------------|	    -------|			  |	  |

		    |				   |	    |	  |			  |	  |

 Alex Brown - Brown Bros. - Lord Mantagu - Morgan et Cie -- Lazard ---| 

 & Son	  |  Harriman	   Norman	 |    Paris		  Bros	 |

		    |				   |	    /	  |		    N.Y.	 |

		    |				   |	   |	   |			  |	  |

		    |		    Governor, Bank | J.P. Morgan Co -- Lazard ---| 

			|		    of England    /  N.Y. Morgan	   Freres    |   

			|		    1924-1938    /   Guaranty Co.	  Paris	 |

		    |					    /    Morgan Stanley Co.  |	  / 

			|					   /		   |			  \Schroder Bank   

			|					  /		    |			  Hamburg/Berlin

		    |					 /      Drexel & Company		 /  

			|				    /	   Philadelphia		    / 

			|				   /							   /

		    |				  /						   Lord Airlie

		    |	  		   /							   /

		    |			    /	 M. M. Warburg	   Chmn J. Henry Schroder

		    |			    |	  Hamburg ---------  marr. Virginia F. Ryan

		    |			    |		 |			   grand-daughter of Otto

		    |			    |		 |			    Kahn of Kuhn Loeb Co.

		    |			    |		 |					    

			|			    |		 |					    

Lehman Brothers N.Y -------------- Kuhn Loeb Co. N. Y.						 

			|			    |	 --------------------------					 

   µ

		    |			    |	   |					  |					 

		   8

		    |    			|	   |					  |

Lehman Brothers - Mont. Alabama   Solomon Loeb		   Abraham Kuhn

		    |			    |	 __|______________________|_________

Lehman-Stern, New Orleans   Jacob Schiff/Theresa Loeb  Nina Loeb/Paul Warburg

-------------------------    |	   |					  |

			 |			   | Mortimer Schiff	    James Paul Warburg

_____________|_______________/	   |

|		    |		  |   |	    |

Mayer Lehman |	 Emmanuel Lehman    \

|		    |		  |			  \

Herbert Lehman	 Irving Lehman	    \

|		    |		  |			    \

Arthur Lehman \    Phillip Lehman	 John Schiff/Edith Brevoort Baker

			  /		 |			 Present Chairman Lehman Bros

			 /  Robert Owen Lehman    Kuhn Loeb - Granddaughter of

		    /		   |			 George F. Baker

		   |		   /			   |

		   |		  /			    |

		   |		 /		   Lehman Bros Kuhn Loeb (1980)

		   |	    /				  |

		   |	   /			 Thomas Fortune Ryan

		   |	  |				    |

		   |	  |				    |

	  Federal Reserve Bank Of New York |

		   ||||||||				    |

  ______National City Bank N. Y.	   |

  |	    |						   |

  |   National Bank of Commerce N.Y ---|

  |	    |						    \

  |   Hanover National Bank N.Y.		 \

  |	    |		    				  \

  |   Chase National Bank N.Y.			 \

  |									    |

  |									    |

Shareholders - National City Bank - N.Y.   | 

-----------------------------------------  |  

  |	 								   /

James Stillman						    /

Elsie m. William Rockefeller			 /

Isabel m.  Percy Rockefeller		    / 

William Rockefeller		  Shareholders - National Bank of Commerce N. Y.   

J. P. Morgan				 -----------------------------------------------

M.T. Pyne				    Equitable Life - J.P. Morgan

Percy Pyne				   Mutual Life - J.P. Morgan

J.W. Sterling			    H.P. Davison - J. P. Morgan

NY Trust/NY Edison 		  Mary W. Harriman

Shearman & Sterling		  A.D. Jiullard - North British Merc. Insurance

|						    Jacob Schiff

|						    Thomas F. Ryan

|						    Paul Warburg

|						    Levi P. Morton - Guaranty Trust - J. P. Morgan

|

|

Shareholders - First National Bank of N.Y.

-------------------------------------------

J.P. Morgan

George F. Baker

George F. Baker Jr.

Edith Brevoort Baker

US Congress - 1946-64

|

|

|

|

|

Shareholders - Hanover National Bank N.Y.

------------------------------------------

James Stillman

William Rockefeller

|

|

|

|

|

Shareholders - Chase National Bank N.Y.

---------------------------------------

George F. Baker

Chart 2

Federal Reserve Directors: A Study of Corporate and Banking Influence

- Published 1983

The J. Henry Schroder Banking Company chart encompasses the entire history of the twentieth century, embracing as it does the program (Belgium Relief Commission) which provisioned Germany from 1915-1918 and dissuaded Germany from seeking peace in 1916; financing Hitler in 1933 so as to make a Second World War possible; backing the Presidential campaign of Herbert Hoover ; and even at the present time, having two of its major executives of its subsidiary firm, Bechtel Corporation serving as Secretary of Defense and Secretary of State in the Reagan Administration.

The head of the Bank of England since 1973, Sir Gordon Richardson, Governor of the Bank of England (controlled by the House of Rothschild) was chairman of J. Henry Schroder Wagg and Company of London from 1963-72, and director of J. Henry Schroder,New York and Schroder Banking Corporation,New York,as well as Lloyd's Bank of London, and Rolls Royce. He maintains a residence on Sutton Place in New York City, and as head of "The London Connection," can be said to be the single most influential banker in the world.

J. Henry Schroder

							   -----------------

									  |

									  |

									  |

						  Baron Rudolph Von Schroder

						   Hamburg - 1858 - 1934

									  |

									  |

									  |

						    Baron Bruno Von Schroder

						    Hamburg - 1867 - 1940

 F. C. Tiarks	 					|

 1874-1952						    |

	 |							    |

 marr. Emma Franziska				 |

 (Hamburg)				    Helmut B. Schroder

 J. Henry Schroder 1902			   |

 Dir. Bank of England    			 |

 Dir. Anglo-Iranian				   |

 Oil Company		 J. Henry Schroder Banking Company N.Y.

									  |

									  |

					   J. Henry Schroder Trust Company N.Y.

 									 |

									  |

									  |

				   ___________________|____________________

				  |									    |

		    Allen Dulles							  John Foster Dulles

		  Sullivan & Cromwell					    Sullivan & Cromwell

		  Director - CIA							 U. S. Secretary of State

										    		 Rockefeller Foundation

 Prentiss Gray

 ------------

Belgian Relief Comm.					 Lord Airlie

Chief Marine Transportation			  -----------

US Food Administration WW I		  Chairman; Virgina Fortune

Manati Sugar Co. American &		  Ryan daughter of Otto Kahn

British Continental Corp.		    of Kuhn,Loeb Co.

	   |								    |

	   |								    |

 M. E. Rionda							   |

 ------------		    				   |

Pres. Cuba Cane Sugar Co.				   |

Manati Sugar Co. many other				 |

sugar companies.					 _______|	   

	   |						    |

	   |						    |

 G. A. Zabriskie				    |

 ---------------				    |			    Emile Francoui

Chmn U.S. Sugar Equalization	    |			    --------------

Board 1917-18; Pres Empire		  |		    Belgian Relief Comm. Kai

Biscuit Co., Columbia Baking	    |		    Ping Coal Mines, Tientsin

Co. , Southern Baking Co.		   |		    Railroad,Congo Copper, La

								    |		    Banque Nationale de Belgique

			 Suite 2000 42 Broadway | N. Y	    			  |

		  __________________________|___________________________|_

		 |						  |						   |

		 |						  |						   |

    Edgar Richard		    Julius H. Barnes			 Herbert Hoover

    -------------		    ----------------			 --------------   

Belgium Relief Comm		 Belgium Relief Comm	   Chmn Belgium Relief Com

Amer Relief Comm		    Pres Grain Corp.		   U.S. Food Admin

U.S. Food Admin			 U.S. Food Admin		   Sec of Commerce 1924-28

1918-24, Hazeltine Corp.    1917-18, C.B Pitney	   Kaiping Coal Mines

   |					    Bowes Corp, Manati	    Congo Copper, President

   |		  			  Sugar Corp.				  U.S. 1928-32

   |

   |

   |

John Lowery Simpson

-------------------					  

Sacramento,Calif Belgium Relief					   |

Comm. U. S. Food Administration			 Baron Kurt Von Schroder

Prentiss Gray Co. J. Henry Schroder		 -----------------------

Trust, Schroder-Rockefeller, Chmn		 Schroder Banking Corp. J.H. Stein

Fin Comm, Bechtel International		   Bankhaus (Hitler's personal bank

Co. Bechtel Co. (Casper Weinberger  	  account) served on board of all

Sec of Defense, George P. Schultz		 German subsidiaries of ITT . Bank

Sec of State (Reagan Admin).			  for International Settlements,

		    |							 SS Senior Group Leader,Himmler's

		    |							 Circle of Friends (Nazi Fund),

		    |							 Deutsche Reichsbank,president

		    |

		    |

Schroder-Rockefeller & Co. , N.Y.

---------------------------------

Avery Rockefeller, J. Henry Schroder

Banking Corp., Bechtel Co., Bechtel

International Co. , Canadian Bechtel

Company.		  |

				  |

				  |

				  |

		 Gordon Richardson

		 -----------------

Governor, Bank of England

1973-PRESENT C.B. of J. Henry Schroder N.Y.

Schroder Banking Co., New York, Lloyds Bank

Rolls Royce

Chart 3

Federal Reserve Directors: A Study of Corporate and Banking Influence

- Published 1976

The David Rockefeller chart shows the link between the Federal Reserve Bank of New York,Standard Oil of Indiana,General Motors and Allied Chemical Corportion (Eugene Meyer family) and Equitable Life (J. P. Morgan).

DAVID ROCKEFELLER

----------------------------

Chairman of the Board

Chase Manhattan Corp

	  |

	  |

______|_______________________

Chase Manhattan Corp.	    |    

Officer & Director Interlocks|---------------------

------|-----------------------			  	  |

	  |										   |

Private Investment Co. for America	   Allied Chemicals Corp.

	  |										   |

Firestone Tire & Rubber Company		  General Motors			  

	  |   										|

Orion Multinational Services Ltd.	    Rockefeller Family & Associates

	  |										   |

ASARCO. Inc							  Chrysler Corp.

	  |						  				 |

Southern Peru Copper Corp.			   Intl' Basic Economy Corp.

	  |										   |

Industrial Minerva Mexico S.A.		   R.H. Macy & Co.

	  |										   |

Continental Corp.					    Selected Risk Investments S.A.

	  |										   |

Honeywell Inc.						   Omega Fund, Inc.

	  |										   |

Northwest Airlines, Inc.	   		  Squibb Corporation

	  |										   |

Northwestern Bell Telephone Co.		  Olin Foundation  

	  |										   |

Minnesota Mining & Mfg Co (3M)		   Mutual Benefit Life Ins. Co. of NJ

	  |										   |

American Express Co.						    AT & T   

	  |										   |

Hewlett Packard						  Pacific Northwestern Bell Co.

	  |    									   |

FMC Corporation						  BeachviLime Ltd.

	  |										   |

Utah Intl' Inc.						  Eveleth Expansion Company

	  |							   			|

Exxon Corporation					    Fidelity Union Bancorporation

	  |										   |

International Nickel/Canada			  Cypress Woods Corporation

	  |										   |

Federated Capital Corporation		    Intl' Minerals & Chemical Corp.

	  |										   |

Equitable Life Assurance Soc U.S.	    Burlington Industries

	  |										   |

Federated Dept Stores				    Wachovia Corporation

	  |										   |

General Electric						 Jefferson Pilot Corporation

	  |										   |

Scott Paper Co.					  	R. J. Reynolds Industries Inc.

	  |										   |

American Petroleum Institute			 United States Steel Corp.

	  |										   |

Richardson Merril Inc.				   Metropolitan Life Insurance Co.

	  |										   |

May Department Stores Co.			    Norton-Simon Inc.

	  |										   |

Sperry Rand Corporation				  Stone-Webster Inc.

	  |   										|

San Salvador Development Company		 Standard Oil of Indiana

Chart 4
Federal Reserve Directors: A Study of Corporate and Banking Influence
- Published 1976 
This chart shows the interlocks between the Federal Reserve Bank of New York J. Henry Schroder Banking Corp., J. Henry Schroder Trust Co., Rockefeller Center, Inc., Equitable Life Assurance Society ( J.P. Morgan), and the Federal Reserve Bank of Boston. 

 Alan Pifer, President

Carnegie Corporation

of New York

----------------------

		 |

		 |

----------------------

Carnegie Corporation

Trustee Interlocks	   --------------------------

----------------------						    |

		 |									    |

Rockefeller Center, Inc				 J. Henry Schroder Trust Company

		 |									    |

The Cabot Corporation				   Paul Revere Investors, Inc.

		 |									    |

Federal Reserve Bank of Boston		  Qualpeco, Inc.

		 |

Owens Corning Fiberglas

		 |

New England Telephone Co.

		 |

Fisher Scientific Company

		 |

Mellon National Corporation

		 |

Equitable Life Assurance Society

		 |

Twentieth Century Fox Corporation

		 |

J. Henry Schroder Banking Corporation

Chart 5

Federal Reserve Directors: A Study of Corporate and Banking Influence

- Published 1976 

This chart shows the link between the Federal Reserve Bank of New York, Brown Brothers Harriman,Sun Life Assurance Co. (N.M. Rothschild and Sons), and the Rockefeller Foundation.

Maurice F. Granville

Chairman of The Board

Texaco Incorporated

----------------------

	    |

	    |

Texaco Officer & Director Interlocks  ---------------- Liggett & Myers, Inc.

------------------------------------		   |

	    |		   						   |

	    |									  |

 L  Arabian American Oil Company		    St John d'el Ray Mining Co. Ltd.

 O	  |									  |

 N  Brown Brothers Harriman & Co.		   National Steel Corporation

 D	  |									  |

 O  Brown Harriman & Intl' Banks Ltd.	   Massey-Ferguson Ltd.

 N	  |									  |

    American Express					    Mutual Life Insurance Co.

    	|									  |

 N. American Express Intl' Banking Corp.    Mass Mutual Income Investors Inc.

 M.	 |									  |

    Anaconda							    United Services Life Ins. Co.

 R	  | 									 |

 O  Rockefeller Foundation				  Fairchild Industries

 T	  |									  |

 H  Owens-Corning Fiberglas				 Blount, Inc.

 S	  |									  |

 C  National City Bank (Cleveland)		  William Wrigley Jr. Co

 H	  |									  |

 I  Sun Life Assurance Co.				  National Blvd. Bank of Chicago

 L	  |									  |

 D  General Reinsurance					 Lykes Youngstown Corporation

	    |									  |

    General Electric (NBC)				  Inmount Corporation

Tower of Babel

So how does the financial Tower of Babel we’ve amassed managed to soldier on without toppling over? Catherine Fitts, investment advisor, former Assistant Secretary for Housing-Federal Housing Commissioner, and Solari Report publisher describes the role of derivatives at a broader level and why we’re experiencing what she calls a slow burn, instead of a sudden breakdown.

The title of my presentation is:

Derivatives 101: Useful knowledge in plain English about credit default swaps, interest rate swaps, futures and other complex financial instruments that help centralize the financial system, steal money in the trillions and make the financial news incomprehensible.

I will address why these financial tools are so important to maintaining the dollar as reserve currency and continuing the “Slow Burn.”

I coined the “Slow Burn” scenario years ago to describe a politically managed economy in which financial and economic failures would not translate into system collapse. Instead, they would translate into continued transfers of resources from political outsiders to political insiders to subsidize and manage the asset values and power of various corporate and bank interests.  Countries would be drained to feed the system, or various populations, species or places. Replenished by draining others, the system would continue to move forward.

For many years, a variety of highly capable, intelligent people have tried to persuade me that the dollar is imminently going to lose its status as the global reserve currency and collapse and that the price of gold is going to shortly increase to $2,000/oz. or more.  When these events do not come to pass and time goes by—something strange happens. We never sit down and do a “lessons learned” to determine why it did not happen. No one wants to discuss it. There is no venue to ask and answer the questions:

-Why does the dollar's performance defy economic fundamentals?

-Why is it that the U.S. trade and budget deficits don't matter?

-How can $20 trillion in global bailouts not yet trigger global hyperinflation?

It turns out that understanding the Slow Burn and the amazing strength of the U.S. dollar requires several “building blocks” of knowledge that most of us have not acquired through our formal education or media:

Shadow Governance: Our world is governed on a highly centralized basis that networks into every industry (or so-called “cartels”) and every place—whether country, region or local area. This system is not new—it has evolved organically for centuries within “the central banking-warfare model.” Much of its evolution has organized around intergenerational pools of capital, the growth of which reflect the fundamentals of economic and military warfare as they determine command of intelligence, technology, populations, natural resources and trade routes.

The U.S. Federal Credit: The U.S. economy is a highly controlled political economy, with most of the economy managed through the U.S. government budget—both the Congressionally approved budget as well as secretive black budgets run with no transparency and oversight but with the benefit of governmental powers and authority. Building literacy of how this governmental financial mechanism operates both globally, throughout financial and commodities markets, and at the federal, state, and local levels requires an understanding of the financial ecosystems of places and industries.

Suppressed Technology and Knowledge: Political control depends on suppression of knowledge. We do not have ready access to the knowledge that we need to understand our history and economy. Significant health, energy, information, military, and space technology has been suppressed, from the citizens who funded its development and management.

Advanced Surveillance Technology and Weaponry: Historically, financial leadership requires some form of military dominance and enforcement – which comes down to supremacy on land, on sea, and/or in the air. What this means is that invisible weaponry, particularly that created with new advanced technology, can have a profound influence on our world while many people can not fathom that such powers exist. The U.S. has sea and air supremacy which is critical in supporting the dollar.

Control Files and Tools: Many of us have enjoyed the movie, The Matrix, yet we fail to understand how our own incentives and behavior are manipulated. While it has become easier to see the control on a broad, national scale, we are resistant to seeing and understanding how it operates at a more intimate level—in the media and entertainment we choose, within our own family, our school, our workplace, and our community. We see the torture in Guantánamo Bay. We do not see it in our community.  Indeed, to see the control mechanisms and how to navigate them often requires that we understand the areas of knowledge described above.

One of my goals for The Solari Report is to break down these different areas, help you understand them and see the threads weave through the current news of the day. The more you are armed with this knowledge, the more powerful you become. I want us to address what is holding up the dollar and why. Understanding this is critical to understanding how to best manage our time and assets.

In this week’s Solari Report, in Money & Markets, I will discuss the extraordinary success of the Obama Administration’s first 100 days in further centralizing political and financial controls and how this is shifting popular opinion, answer your latest questions in Ask Catherine and then present Derivatives 101.

What are derivatives? Who uses them and why? Why are derivatives at the heart of the current bailouts? We will cover these questions as well as how critical derivatives are to the political management of the financial system and maintenance of the Slow Burn. Understanding derivatives is part of understanding the federal credit system—and how the Anglo-American interests maintain a strong dollar and trigger and exploit the selective collapses that subsidize it. Derivatives are at the financial heart of building Empire.

Hostile Takeover

Simon Johnson, Ex-chief Economist of the IMF details how the US government has been silently hijacked by Wall Street oligarchs in an article titled “The Quiet Coup” published in The Atlantic.

Image credit: Jim Bourg/Reuters/Corbis

Through the lens of IMF standards, the financial condition of the US has reached banana republic status. Similar to other banana republics, political arrangements made in backroom deals see to it that 1.) Debt incurred by the oligarchs is privatized by the people and 2.) Profits are privatized and losses socialized. The same basic method has been used time and again to loot and plunder the 3^rd world, consolidate wealth into a handful of elites after the Soviet Union collapsed and is now being put to bad use in the U.S.

For the record, I’m not necessarily endorsing the “reform” suggested in the article. I get nervous at grand plans beyond simply letting the banks go into bankruptcy. If you take any reform suggested by the IMF at face value, then I encourage you to research the history of how IMF loans - in particular restructured IMF loans - have worked in the past for the man on the street in the indebted nation.

We have a situation where the would be reformers – both in government and quasi-government positions - are the ones in need of reform. All too often, reform in economic chaos is a shell game that simply redirects the wealth to the same set of hands in different ways, and uses socialism to dole out the remaining crumbs in bread and circus fashion.

I’ve posted some excerpts from the article, but it’s worth a full read.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.”

***

From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.

***

“Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.

These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni—including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson—not only placed people with Wall Street’s worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service.

Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008—attended by top policy makers from a handful of rich countries—at which the chair casually proclaimed, to the room’s general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker.

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

***

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:

• insistence on free movement of capital across borders;

• the repeal of Depression-era regulations separating commercial and investment banking;

• a congressional ban on the regulation of credit-default swaps;

• major increases in the amount of leverage allowed to investment banks;

• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;

• an international agreement to allow banks to measure their own riskiness;

• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation. “

***

“The response so far is perhaps best described as “policy by deal”: when a major financial institution gets into trouble, the Treasury Department and the Federal Reserve engineer a bailout over the weekend and announce on Monday that everything is fine. In March 2008, Bear Stearns was sold to JP Morgan Chase in what looked to many like a gift to JP Morgan. (Jamie Dimon, JP Morgan’s CEO, sits on the board of directors of the Federal Reserve Bank of New York, which, along with the Treasury Department, brokered the deal.) In September, we saw the sale of Merrill Lynch to Bank of America, the first bailout of AIG, and the takeover and immediate sale of Washington Mutual to JP Morgan—all of which were brokered by the government. In October, nine large banks were recapitalized on the same day behind closed doors in Washington. This, in turn, was followed by additional bailouts for Citigroup, AIG, Bank of America, Citigroup (again), and AIG (again).

Some of these deals may have been reasonable responses to the immediate situation. But it was never clear (and still isn’t) what combination of interests was being served, and how. Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple.”

***

“In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. “

Lessons from Argentina

If you want to understand the events that lead up to the economic collapse of Argentina early this decade, watch these videos. Take good note of what political corruption and plunder by global banking institutions and multinational corporations ultimately leads to: Destruction of the middle class, societal breakdown and human suffering.

What the central banking cartel does to the homeland, the IMF does in spades to the colonized.

Fernando Feral Aquirre's site is an excellent first-hand account of the everyday realities that came to be as a result.

 

Global Political Instability

The Economist Intelligence Unit (EIU) published a special report on the economic crisis titled, “Manning the Barricades – Who’s at Risk as Deepening Economic Distress Foments Social Unrest.” You'll notice on Page 16 of the report that the US is tied with France and Iceland - not the best of company considering the riots in France and the collapse of Iceland's government. The report focuses on two scenarios – one deflationary and one hyperinflationary – and how those scenarios destabilize social and geopolitical order.

Underlying vulnerability indicators are: inequality; state history; corruption;ethnic fragmentation; trust in institutions; status of minorities; history of political instability; proclivity to labour unrest; level of social provision; a country’s neighbourhood; regime type (full democracy, .flawed. democracy, hybrid or authoritarian); and the interaction of regime type with political factionalism.

 

 

The Main Risk Scenario:

Stimulus fails, leading to continued asset price deflation and sustained contraction in the leading economies and depression persisting for some years. The stubborn decline in global economic activity is punctuated by occasional rallies that are taken as signs of recovery, but these quickly fade as the underlying downward trend reasserts itself. The prominent role of governments

in propping up banks and reviving domestic demand leads to strong political pressure for protectionism, effectively putting the process of globalisation into reverse.

The Alternative Risk Scenario:

Failing confidence in the dollar leads to its collapse, and the search for alternative safe-havens proves fruitless. Economic upheaval sharply raises the risk of social unrest and violent protest. A Political Instability Index covering 165 countries, developed for this report, highlights the countries particularly vulnerable to political instability as a result of economic distress. The results of the index are displayed in map form and in a ranking table in the centre pages, along with a brief methodology.

A Lost Decade is the Best Case Scenario

A lost decade is the best case scenario when you consider the alternatives.

The "good" news, if my mind can muster any these days and purely from a how long do we have before hyperinflation standpoint, is that the world will have to monetize a lot of debt to equal 40% of the world's total wealth, measured in tens of trillions that's been lost since the (cough, cough) "recession" began - terms that even dwarf a projected $4 trillion '09-'10 deficit.

How long the dollar can tread water in a global race where central banks are competing to see who can destroy their currency the quickest is anyone's guess, but right now the dollar is the lead swimmer, which tells us how bad things really are in the rest of the world.

I know...I know...every state and city is just about bankrupt, the pensions, healthcare, and retirement systems are doomed by demographics, deleveraging, dead assets and so on...sadly tent cities are going up faster than the housing tracts a few years before...unemployment is going to pass that magic 9% mark where the credit card defaults cause more chain reactions forcing more measures to *fight* deflation...

But just like every other bubble, I'd wager on the CNBC factor: From a contrarian standpoint, the chances of either severe deflation or inflation in the near term are inversely proportional to the number of guest speakers on mainstream financial news like CNBC/Bloomberg endorsing it.

In 2005, it was clear the housing bubble was topping when you read the articles about supermodels getting into real estate. In late 2007/early 2008, when articles appeared that stores in NYC stopped accepted Euros over dollars and rappers flaunted Euros in place of Benjamins, it seemed likely the Dollar was going to rise relative to other currencies, even though the fundamentals were still terrible.

Now when your neighbor tells you he is buying US Treasury shorts as a "sure thing", the guy behind the counter at the corner store is talking hyperinflation and you see too much of Jim Rogers pimping commodities on mainstream financial news, that might mean $20/barrel oil and a strong dollar (compared to other crippled currencies) this summer...and a little more time before the Treasury Bubble reverses and commodities skyrocket. Remember, $20 dollar oil now makes $200+ oil more likely in the future because of underinvestment.

It is also interesting the number of mainstream articles appearing from "Russian Intelligence experts" claiming the US will fall apart this year or next.

We all know the doomsday scenarios, but what's at work here - really - why are these articles getting so much air time?

If I'm Russia and I've gone from superpower to failed state to resource exporting state, then this $30-40 oil business is killing me and I need to declare (indirect) dollar warfare to push the dollar down and ruble and commodities up. Nothing new there.

On the same token, when the resource countries like the Saudis don't have surplus from selling commodities because of low prices, then there are less buyers to prop up our debt especially with the state of affairs in China, and that begins to chap Uncle Sam and other concerned parties. So it seems to me, this is a mini PR effort to try and stave off a higher dollar and lower commodities in the near term - that's a place where Russian and many Western interests actually overlap.

 

The Cure is the Disease

There were a couple of good articles this week on natural money and the fallacy that government deficit spending is a cure for a Depression at the Mises site this week.

 

True wealth – beyond the health and happiness kind - is derived from producing something of value whether it’s manufacturing, mining or agriculture. No matter how much we’re conditioned that the future is about outsourcing your life, services only redistribute wealth and governments can only redistribute or consume wealth. We need to look no further than the 2^nd law of thermodynamics to arrive at this.

 

Unfortunately, fighting deflation at all costs is ingrained into most public policy maker’s noggins because debt-ridden governments and the majority of their populations depend on inflation for their existence. The current administration isn’t going to be content with managing inevitable contraction any more than his opposition would have been in his place. That would be political suicide, so yes we’re not going to be content with a lost decade and instead try to reinflate a new set of lifestyle bubbles by monetizing debt because the world has lost its appetite for Treasuries.

 

It doesn’t take a Treasury Bond market meltdown and dollar collapse for inflation to be dangerous to the good of society.

Inflation's standard definition is too narrow to provide an appreciation of the extent of its harm; it is far more than a deterioration of the currency's purchasing power. It's also much more than a "hidden tax." Government's perennial fiat inflation is a subtle WMD. Consider the following:

1. In funding wars, it allows government to ignore the fiscal resistance of its citizens.
2. It benefits the central government at the expense of secondary and tertiary governments.
3. It turns moral hazard and irresponsibility into an institution, and guarantees recurring economic crises.
4. By making credit cheap, it encourages businesses to finance their ventures through borrowing rather than equity. Because of market competition, few firms can resist the offer of low credit, making them more dependent on banks. As Pius XI noted in 1931, it puts a dictatorship in the hands of lenders who regulate the lifeblood of the entire economic system.
5. Fiat inflation drives people to invest in capital markets where few will have the expertise, time, and inclination to monitor their investments properly.
6. Under a perennially increasing price level, the average citizen finds his best strategy is personal debt, which weakens self-reliance and independence.
7. Under chronic fiat inflation, people will tend to choose their employment based on monetary returns. Money then becomes the prime or only consideration for personal happiness.
8. Perennial inflation deteriorates product quality. Industries that cannot compensate for inflation with technological innovation turn to other means, such as producing an inferior product under the same name. Lying, which is bound up with fractional-reserve banking, tends to spread like a cancer over the rest of society.
9. By fueling the exponential growth of the welfare state, fiat inflation fosters the decline of the family. Families become degraded into "small production units that share utility bills, cars, refrigerators, and especially the tax bill." The welfare state drives the family and private charities out of the "welfare market."

As Hülsmann concludes, "fiat inflation is a juggernaut of social, economic, cultural, and spiritual destruction."