Monday, March 30, 2009

Something MORE Wicked This Way Comes

"At the end of the day, upon what rock does the world financial system rest? Ah...that’s the weakness of it...there ain’t no rock. Look at the foundation of the world’s money system and all you find is mush..."
-Bill Bonner, The Daily Reckoning

Once again I will refrain from commenting on today's "price" of Gold, and market action. It is a joke! Gold should be far north of $1000. It is a complete waste of time and energy discussing the "current CRIMEX price" of Gold. It is, quite frankly, irrelevant. The real price of Gold is the price being paid by investors for actual bullion. The large premiums asked for, and received, to take physical Gold from the market are warranted and more "representative" of the REAL price of Gold.

What goes on in the Precious Metals markets each and every day in New York is a government sanctioned crime. It is amusing to believe that this country was once looked up to for its Free Markets, it's insistence to uphold the truth, and it's commitment to justice. Yeah well, we wouldn't be in this Global Financial Crisis if any of those beliefs were still true...

Today's Truth Follows:

What Asia and the world need from America now
What the American governing and legal establishment must do, before too much time goes by, is to come completely clean not only with the American people but with Asia, especially, which has poured so much of its wealth into the US China and Japan are its biggest financial investors.

Everyone needs to know what really happened and who should be held accountable for the raw criminality behind the scenes.

The US needs to come clean by devising a wide-ranging - but fair -- criminal investigation of hedge-fund leaders and managers, derivatives sales groups and their allies, and of course any and all Ponzi-schemers that have defrauded people of their life savings. We don't need a visceral witch-hunt; we require fair and honest accounting.

What's at stake is not so much an eventual honest return on investments (which, in many instances, may be impossible, as many funds have vaporized down the rat-holes of criminal enterprises), but the credibility of the United States of America. And this is something that, when healthy, is priceless, and when destroyed, is worthless.

America, which has often and loudly described itself as a "nation of laws, not men *or women*," now needs to demonstrate for the world what that phrase represents. Criminal conspirators like members of the Mafia know what the lash of our law can mean.

Now, white-collar criminals who operated out of Wall Street corporate suites or off-shore in sunny foreign lands need to be brought into the stationhouse of American justice, read their rights, and be permitted one cell-phone call to their lawyer, before their fancy cell-phone is impounded, pending trial, along with all other illegal fruits of criminal profit.

We recall that when Chinese exporters were caught peddling toxic pet-food and eggs and so on, the uproar from the West was angry and overwhelming.

This is as it should be. The anger in Asia may be more muted (because, as a broad generality, Asians tend to be more polite). But the fury, however muffled, is palpable. What's more, judging from recent events in the US - such as more bonuses for AIG executives - this fury is unlikely to wane soon and may even attain new, bereaved heights.

The anger is stoked not only because of money lost but memories still fresh. One unforgettable example: American Treasury officials lecturing Asia about the need for national and corporate transparency. Who can forget, during the Clinton years, then- Treasury Secretary Robert Rubin and his sanctimonious, holier-than-thou very public sermons to the Japanese about what they were doing wrong?

Another example: the thunderous editorial condemnations on the editorial pages of the Pravda of US capitalism - the Wall Street Journal - of central government intervention when markets are in crisis. Who's crying now? Remember the wholesale Western opprobrium that met Hong Kong authorities in 1998 when they sought to firm up their speculation-battered equity and future markets by buying up troubled H.K. stocks? But what is Washington doing today? Right, exactly that!

It is against that past backdrop of a kind of "abstinence" lecture series by US officials, in particular, that people want a measure of honest moral reckoning now.

Pirates of the Comex[MUST READ]
By: Adrian Douglas
In September of 2008 the CFTC launched an investigation of the COMEX silver market on concerns that it is manipulated. This is being spearheaded by the Enforcement Division. They also undertook to investigate the gold market too. This is the third publicly announced investigation into manipulation of the silver market. The two prior investigations failed to uncover any evidence of manipulation of the silver market. The current investigation has been running for 6 months and according to Commissioner Bart Chilton it is making progress, whatever that might mean. The apparent lack of urgency and an investigation moving at the speed of molasses means that every day mining companies struggle for survival and investors struggle to remain invested, and traders and investors in precious metals are robbed by the Pirates of the COMEX. It is an outrage.

For those of us who observe these markets in real time the signs of manipulation are obvious. If you drive a car everyday you will notice even the slightest vibration or change in engine noise that will alert you that something is not right. To apply the same analogy at the COMEX, somebody has stolen the wheels but after 6 months of looking it doesn’t appear that the expert mechanics have spotted the cause of the excessive vibration!

...from July to November 2008 three US Banks went from having approximately no net short at all to having 67% of the total commercial net short position! The correlation with price is evident. It further appears that they drove the price up from the end of 2007 only to hammer it down in July of 2008. The indisputable conclusion is that these three banks dominated the market to the extent they represented two thirds of the entire net short position of the commercials and as such they controlled the price of gold which is illegal. Furthermore, the amount of contracts that were sold short to achieve this represented 10% of the annual global gold mine production! Could there be any clearer sign of manipulation?

It is a sterile discussion to contemplate whether these banks had this amount of gold or silver to sell. It is irrelevant! Commodity Law does not allow anyone to manipulate the direction of markets even if they have the means to do so…this is exactly why the law exists because otherwise the people with lots of money or lots of gold and silver would always be able to defraud all the small investors. But this is exactly what goes on every day on the COMEX right under the noses of the regulators.

Who are these Pirates of the COMEX? The names of the banks whose positions appear in the CFTC report are not made public. But we can find out who they are. There is another report which issued by the treasury which is the “Bank Derivatives Activities Report” compiled by the Office of the Comptroller of the Currency. In this report they list the top five banks by name who own the most OTC derivatives in the categories of gold derivatives and precious metals derivatives. The report does not spell out what is meant by “Precious Metals” but it excludes gold so we can be fairly sure it is mainly derivatives based on silver, although there are probably some platinum and palladium contracts also.

When the derivative positions of the banks are examined it becomes clear that JPMorganChase and HSBC together dominate the market. It can be seen that with the exception of Q2 and Q3 of 2007 these two banks hold 85-100% of the banking sector derivatives for precious metals which I suspect is mainly silver.

Good grief! The notional value of these derivative holding with maturity of less than 1 year were averaging 10.8 B$ in 2007 and leaped to an average of 15.8B$ in the first three quarters of 2008. All the silver mined in the world each year is only worth 8.8B$ at $13/oz.

So we see two banks holding an outrageously dominant market share position in these instruments of an outrageously large nominal dollar value in 2007 which then jumps to a nominal value that is 40% more outrageously large in the first three quarters of 2008!

Now as the credit markets started to show signs of serious trouble at the end of 2007 and early 2008 one would imagine that customers of JPM and HSBC would want to buy “call” type derivative contracts such that they would be bets that precious metals were going to go higher.

What we have observed is that two unknown banks fraudulently manipulated the COMEX silver market in 2008 with an outrageous 99% ownership of the entire Commercial Net Short position which resulted in the price of silver crashing from $20/oz down to less than $9/oz. That is a real coincidence that two banks on the hook for the equivalent of 140% of all the silver mined in one year in notional value of derivatives should suddenly get lucky that the silver price plummeted such that all those unlucky derivatives customers didn’t get to cash in their calls! Coincidences like this don’t happen. From Q3 to Q4 2008 JPM and HSBC managed to reduce their derivatives in precious metals by 6.6B$ or 43%. This provides a very good reason why two banks in the middle of 2008 suddenly decided they were going to break commodity law by gaining a concentration that represented 100% of the commercial net short of the COMEX market. The most likely reason is these two banks who have manipulated the COMEX market so blatantly are the same two banks who own a monstrous oversized and unregulated derivative position which needed to be reduced.

In the first three quarters of 2008 the notional value of the gold derivatives held by these two banks leaped to an average of 85 B$. As with silver it is highly likely that the increase in business would have been dominated by “call” type contracts as the world’s financial system started to go into meltdown. Interestingly we earlier noted that in mid 2008 three US banks had increased their net short position in gold on the COMEX from almost zero to 67% of the commercial net short position and to do so they sold short the equivalent of 10% of the world’s annual gold production in short contracts. Is this another coincidence? I would strongly suspect that positions acquired by the three banks were mainly driven by the positions of only two of them and those two banks are highly likely to be JPMorganChase and HSBC. From Q3 to Q4 2008 JPM and HSBC managed to reduce their derivatives in gold by 22.4B$ or 18%. The combined reduction in gold and precious metals derivatives notional value of 29B$ achieved in a 3 month period is enough to buy 54% of all the gold and silver mined in the world in one year!

These are not the only examples of manipulation of the COMEX gold and silver markets, it happens with other commercials on a daily basis, but this Pirate attack instigated in July of 2008 has them in clear view of everyone, sailing past disgruntled and downtrodden precious metals investors with their Jolly Roger flag flying for all to see….well, for all to see except for the Enforcement Division of the CFTC because apparently after 6 months no one over there has spotted them.

As another amazing coincidence JPMorganChase is the custodian of the silver that is supposedly purchased on behalf of SLV Exchange Traded Fund investors, and HSBC is the custodian of the gold that is supposedly purchased on behalf of GLD Exchange Traded Fund investors. Yet these two banks are seen recklessly gambling more gold and silver paper promises in an unregulated market than they could ever get their hands on. Those are truly bizarre credentials to be in charge of the safe keeping of other people’s precious metals!

Is there any gold inside Fort Knox, the world's most secure vault?
For several prominent investors and at least one senior US congressman it is not the security of the facility in Kentucky that is a cause of concern: it is the matter of how much gold remains stored there - and who owns it.

They are worried that no independent auditors appear to have had access to the reported $137 billion (£96 billion) stockpile of brick-shaped gold bars in Fort Knox since the era of President Eisenhower. After the risky trading activities at supposedly safe institutions such as AIG they want to be reassured that the gold reserves are still the exclusive property of the US and have not been used to fund risky transactions.

In other words, they want to be certain that the bullion has not been rendered as valueless as if a real-life Goldfinger had stolen it.

“It has been several decades since the gold in Fort Knox was independently audited or properly accounted for,” said Ron Paul, the Texas Congressman and former Republican presidential candidate, in an e-mail interview with The Times. “The American people deserve to know the truth.”

Mr Paul has so far attracted 21 co-sponsors for a Bill to conduct an independent audit of the Federal Reserve System - including its claims to Fort Knox gold - but an organisation named the Gold Anti-Trust Action Committee (GATA) is taking a different approach.

It has hired the Virginia law firm William J.Olson, PC, to test President Obama's promise to bring “an unprecedented level of openness” to the Government and next month it will file several Freedom of Information requests for a full disclosure of US gold ownership and trading activities.

“We're taking the President at his word,” said Chris Powell, of GATA. “If you go online you can find out how to build a nuclear weapon but you won't find any detailed records on central gold reserves.”

Geithner’s ‘Dirty Little Secret’[must read]
By: F. William Engdahl
The ‘dirty little secret’ which Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks which are the source of the toxic poison that is causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality. The heart of the present problem and the reason ordinary loan losses as in prior bank crises are not the problem, is a variety of exotic financial derivatives, most especially so-called Credit Default Swaps.

In 2000 the Clinton Administration then-Treasury Secretary was a man named Larry Summers. Summers had just been promoted from No. 2 under Wall Street Goldman Sachs banker Robert Rubin to be No. 1 when Rubin left Washington to take up the post of Vice Chairman of Citigroup. As I describe in detail in my new book, Power of Money: The Rise and Fall of the American Century, to be released this summer, Summers convinced President Bill Clinton to sign several Republican bills into law which opened the floodgates for banks to abuse their powers. The fact that the Wall Street big banks spent some $5 billion in lobbying for these changes after 1998 was likely not lost on Clinton.

One significant law was the repeal of the 1933 Depression-era Glass-Steagall Act that prohibited mergers of commercial banks, insurance companies and brokerage firms like Merrill Lynch or Goldman Sachs. A second law backed by Treasury Secretary Summers in 2000 was an obscure but deadly important Commodity Futures Modernization Act of 2000. That law prevented the responsible US Government regulatory agency, Commodity Futures Trading Corporation (CFTC), from having any oversight over the trading of financial derivatives. The new CFMA law stipulated that so-called Over-the-Counter (OTC) derivatives like Credit Default Swaps, such as those involved in the AIG insurance disaster, (which investor Warren Buffett once called ‘weapons of mass financial destruction’), be free from Government regulation.

At the time Summers was busy opening the floodgates of financial abuse for the Wall Street Money Trust, his assistant was none other than Tim Geithner, the man who today is US Treasury Secretary. Today, Geithner’s old boss, Larry Summers, is President Obama’s chief economic adviser, as head of the White House Economic Council. To have Geithner and Summers responsible for cleaning up the financial mess is tantamount to putting the proverbial fox in to guard the henhouse.

What Geithner does not want the public to understand, his ‘dirty little secret’ is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet’ or Over-The-Counter derivatives issuance.

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Just to underscore the magnitude, trillion is written 1,000,000,000,000. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.

The Government bailouts of AIG to over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.’ In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers’ coup d’etat. It definitely is not healthy.

“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.”
-Ben Bernanke, said in 2006

The Quiet Coup[MUST READ]
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Alarming News: Bank Losses Spreading!
by Martin D. Weiss, Ph.D.
Until the third quarter of last year, the banks' losses in derivatives were almost entirely confined to credit default swaps — bets on failing companies and sinking investments.

But credit default swaps are actually a much smaller sector, representing only 7.8 percent of the total derivatives market.

Now, with these new losses in interest rate derivatives, the disease has begun to infect a sector that encompasses a whopping 82 percent of the derivatives market.2

Thus, considering their far larger volume, any threat to interest rate derivatives could be far more serious than anything we've seen so far.

The large banks are exposed to the danger that buyers will vanish, markets will suddenly become illiquid, and they'll be unable to unload their positions without accepting wipe-out losses. Has this ever happened? Unfortunately, yes. In fact, it's the primary reason they lost a record $3.4 billion in the last three months of 2008.

The large banks are exposed to the danger that, with exploding federal deficits and new fears of inflation, interest rates will suddenly surge, delivering a whole new round of even bigger losses in the months ahead.

Worst of all, the five biggest banks are exposed to breathtaking default risk — the danger that their trading partners could fail to make good on their gambling debts, transforming even the best winning trades into some of the worst losers.

Specifically, at year-end 2008,

-Bank of America's total credit exposure to derivatives was 179 percent of its risk-based capital;

-Citibank's was 278 percent;

-JPMorgan Chase's, 382 percent; and

-HSBC America's, 550 percent.

What’s excessive? The banking regulators won’t tell us. But as a rule, exposure of more than 25 percent in any one major risk area is too much, in my view.

And if you think these four banks are overexposed, wait till you see the super-high roller that the OCC has just added to its quarterly reports: Goldman Sachs.

According to the OCC, Goldman Sachs’ total credit exposure at year-end was 1,056 percent, or over ten times more than its capital.

Global Meltdown Part 3
By James West
This is the point at which the global economy falls the rest of the way off of the cliff. The false hope raised by the illusion of decisive action on the part of the Obama administration is giving way to Democratic party in-fighting and an increasing public perception that Obama and Geithner are out of their league.

A number of events on the macro economic and political fronts threaten to converge simultaneously to force another major contraction in global markets.

They are:

-Auto industry’s impending contraction as a result of imminent bankruptcies and mergers;

-Hold-up of stimulus money in the U.S. Congress as squabbling and criticism over the proposed budget and regulatory reforms bog down progress;

-Increasing public outrage over the role hedge funds have played in forcing Bear Stearns and Lehman Brothers into bankruptcy, and the apparent collusion between hedge funds and the Securities Exchange Commission is undermining confidence in both the Obama administration and the S.E.C.

-China’s growing agitation for an alternative to the U.S. Dollar as default foreign reserve currency will continue to put downward pressure on the U.S. Dollar and help undermine treasury auctions;

-Disastrous corporate earnings (7th straight quarter of declines, this time upwards of 35 percent), bankruptcies, and layoffs continue to destroy economic health at the street level;

-The upcoming G20 meeting in London, England will likely result in the failure of all nations to agree on anything on a unified basis, which will trigger major market declines in the weeks to follow.

Investors should get out of equities and bonds and into precious metals or cash (not U.S.!) exclusively.

Sunday, March 29, 2009

Something Wicked This Way Comes

Obama's Toxic-Asset Plan: End-Run Around Congress?
The Obama administration's complex plan to deal with toxic assets may have answered Wall Street's questions about shoring up the balance sheets of financial firms but it is raising other serious ones about the government's approach to funding and oversight.

The plan, known as the Public-Private Investment Program for Legacy Assets, is the latest initiative on the part of the executive branch to rely on loans and guarantees, as opposed to budgeted funding, and also asks the same government entities running the programs, to essentially oversee them.

"They've been extending their authority for the last year," says Washington-based economist Dean Baker, co-director of the Center for Economic and Policy Research. "This is really a stretch."

In particular, the PPIP will use a small, amount of money from the second round of the TARP ($75 billion to $100 billion) money approved by Congress and use the Federal Reserve's emergency lending powers to leverage that by as much as a 6-to-1 debt-to-equity ratio.

"This is an end-run around Democracy," Rep. Brad Sherman (D-Calif.) told "No one even imagined we would see trillions of dollars shifted from Washington to Wall Street that no member of Congress ever voted for."

Sherman is referring to the PPIP and other recent Fed lending programs, including the recently launched Term Asset Lending Facility.

Though the Fed's authorized to use its balance sheet for such lending activity under "unusual and exigent circumstances", according to section 13.3 of the Federal Reserve Act, lawmakers and analysts alike have become increasingly concerned about the consequences.

One of the program's two main components-the Legacy Loans Program-calls on the FDIC, which operates the government insurance fund that insures bank deposits, to "provide a guarantee for debt fund asset purchases."

Both members of Congress and former regulators call this worrisome.

"I do not like the use of the FDIC funds for this purpose; it is a deposit insurance fund, not a loan guarantee fund," says former FDIC Chairman William Isaac.

The FDIC's insurance fund is already under-funded and its resources are expected to be further taxed as the pace of bank failures picks up amid the deepening recession."I'm somewhat fearful of the FDIC being called upon to backstop this effort at a time its insurance fund is pressed to its limits," Rep. Jeb Hensarling (D-Texas) told CNBC.

"I think you're jeopardizing the FDIC," Rep. Mike Capuano (D-Mass.) snapped at Geithner during the House hearing.

Though the funding structure of the PPIP has raised the most alarms thus far, oversight issues may not be far behind.

The FDIC will participate in the funding of the program and also "provide oversight for the formation, funding and operations" of these funds.

More broadly, the Obama administration appears to have given the Fed, Treasury and FDIC potentially conflicting roles in executing the PPIP.

"It's a real trade off between complexity and transparency," says Baker, the economist. "Its not clear who's watching."

Save the Big Banks, Trash the Dollar [must read]
By: Gary North, Mises on Money
Unless American businesses reverse the present slide of profits, there will be no economic recovery.

Until there is economic recovery, the stock market will not be able to sustain its recent upward move, which has come only because the Federal Reserve last week promised to create $1.2 trillion in fiat money, and the Treasury has now promised to offer half a trillion dollars' worth of leveraged grants if investors buy the banks' toxic assets. If this isn't enough money, it will later offer another half trillion.

How will the plan work? The banks will get off the hook 100%. This is the central fact. The FDIC will guarantee the packages of loans sold by banks. That means Congress will guarantee it. A bill introduced by Senate Banking Committee Chairman Christopher Dodd seeks a $500 billion line of credit from Congress. The FDIC will get what it asks in a crisis.

The FDIC will allow highly leveraged guarantees of up to 6 to 1. That takes most of the risk out of the deal for investors. Taxpayers will foot the bill if there are losses. Then these packages of loans will be auctioned off to investors. The investors can borrow up to 50% of their investment money from the Treasury. You think I'm exaggerating? Here is the official press release.

The "new economics" of the Bernanke era (since September 2008) is based on one gigantic bailout after another, either by the Federal Reserve or the Treasury. It also rests on a perpetual bailout offered by the People's Bank of China. The PBOC is expected to create new yuans (inflationary), use these newly created yuan to buy U.S. dollars, and then use these dollars to buy U.S. Treasury debt, enabling the Treasury to fund its rapidly escalating debt at T-bill interest rates no higher than 0.25% per annum.

How realistic are these assumptions? Not very. Yet they are the foundation of the investors' recent hope of a new bull market in stocks.

The rise in the stock market has been based on short-run factors that will inevitably undermine the profitability of U.S. businesses. Businesses need a currency unit that is predictable. For long-term profitability, interest rates must reflect the underlying conditions of supply and demand: supply and demand for capital, not supply and demand for digits called money. Digits do not make workers more productive. Capital does. Capital must come from investors who forego consumption in order to lend money to businesses, or else provide capital through the purchase of shares.

The bailouts are restoring the balance sheets of the big banks by taking bad debt off these balance sheets. These debts are being transferred to taxpayers. These are trillion-dollar subsidies to the largest banks.

Investors in stocks assume that these subsidies to the narrow financial sector will solve the problems facing the banks. This assumes that all of the bad loans have been registered. This is not the case. The fact that the worst of the subprime crisis is behind us is irrelevant. The re-sets of Alt-A mortgages and option adjustable rate mortgages will continue to escalate through 2011.

There will have to be additional purchases of toxic assets by the Treasury. The FED will have to exchange additional Treasury debt assets for bad mortgages if there is not going to be a replay of the last six months. One of the reasons why the FED is trying to push down 30-year mortgage rates by buying Freddie and Fannie debt ($500 billion) is to make possible the rollovers of the Alt-A mortgages and option adjustable mortgages. The problem will be the credit worthiness of the signers of these loans. Rates are low, but only for solvent home buyers.

If the bailouts continue, as they will, at some point these large banks will stop holding money as excess reserves at the Federal Reserve at 0%. The stock market is anticipating this. What it is not anticipating is a return of fractional reserve money multiplication. What seems good to stock investors – banks returning to lending – is in fact the engine of inflation.

One Small Problem With Geithner's Plan: It Will Bankrupt The Banks
The big problem with Tim Geithner's plan to fix the banks is the same as it ever was: The gap between what banks say their assets are worth and what the market says they are worth.

When a bank says an asset is worth 60 cents and the market says it's worth 30 cents, someone has to cover that spread. The genius of Geithner's plan is that it pawns most of the cost (and most of the risk) off on the taxpayer without the taxpayer noticing.

But unless the taxpayer gets stuck with the entire spread, which is probably what Geithner is hoping, banks that sell assets will have to take massive writedowns. This will start the whole cycle of violence again.

This risk to the banks is particularly acute when dealing with whole loans that the banks currently say they have no plans to sell. These loans are often carried at 100 cents on the dollar, because loans classified as held to maturity don't have to be marked to market. Even subsidized buyers won't likely be willing to pay anywhere near 100 cents on the dollar for these loans. So, here, the writedowns could potentially be huge.

And then there's another problem:

If the banks go through the exercise of putting assets up for sale only to have the bids come in at, say, 40 cents instead of the 60 cents on the books, the banks' accountants and/or federal regulators might notice. So even if the banks recoil in horror and refuse to sell at 40 cents, someone somewhere might insist that assets now carried at 60 cents be written down to 40 cents (after all, they won't have the "temporary illiquidity discount" excuse anymore, will they?). This will blow another huge hole in the banks' balance sheets.

Given this, banks would probably be wise not to participate in Geithner's plan. Which is why the government is already talking about forcing them to...

Is the Bail Out Breeding a Bigger Crisis?[must read]
By PAUL CRAIG ROBERTS, Assistant Secretary of the Treasury in the Reagan administration
At his March 24 press conference President Obama demonstrated that he is capable of understanding issues as presented to him by his advisers and able to pass on the explanations to the press. The question is whether Obama’s advisers understand the issues.

Obama’s advisers are focused on rescuing banks and the insurance company, AIG. They perceive the problems as solvency and paralyzing uncertainly or fear. Financial institutions, unsure of their own and other institutions solvency, hoard cash and refuse to lend. Credit is needed to get the economy moving, and the Federal Reserve and Treasury are doing their best to inject liquidity and to remove troubled assets from the banks’ books.

This perception of the problem and the “remedies” being applied, might be causing a greater problem for which there is no solution. Obama’s approach, and that of the previous administration, requires massive monetization of debt by the Federal Reserve and massive new debt issues by the Treasury.

The unaddressed question remains: Is the US dollar’s status as world reserve currency threatened by the debt monetization and multi-year, multi-trillion dollar issuance of new Treasuries?

The United States has become an import-dependent country. The US is dependent on imports for energy, manufactured goods including clothes and shoes, and advanced technology products. If the US dollar loses its reserve currency status, the US will not be able to pay for its imports. The ensuing crisis would dwarf the current one.

A New Monetary System for the USA [must read]
There is a lot of talk, openly and behind the scenes, about the new global monetary system proposed by the Chinese that will be taken up at the G20 meeting next week. I expect the U.S. to reject this system as it would destroy the US Dollar as the world’s reserve currency, defy the US Constitution and end our country as a free and sovereign state.

The problem now is that if the U.S. rejects the plan, the rest of the world will surely revolt and go about either dumping US Dollars or implementing this new monetary system WITHOUT the cooperation of the U.S. thus destroying the dollar anyway.


Below is a PLAN to save the people of our nation from the destruction of the global US dollar based system. It also punishes the paper money banking crowd that got us in this mess in the first place!


Many believe that the US Congress has been ready to implement this Act for years only waiting for the conditions to be right. A few years back, I laughed off this bill saying "it could never happen", but after all that has transpired in the past 18 months it is clear that we need a NEW PLAN. Now the conditions are right for NESARA.

Dollar Slams Up Against a (Great) Wall
Move over Ben Bernanke. Step aside Tim Geithner. There's a new power in international finance: Zhou Xiaochuan, governor of the People's Bank of China, the $2 trillion central bank of China. It has the tools and the financial interests to be the new power player on the global financial stage.

Zhou Xiaochuan--better learn how to spell it and pronounce it--threw down the gauntlet this week at the Obama-Geithner-Bernanke financial regime. His remarks can only be interpreted as a slap in the face of U.S. policy during the severe financial crisis that has swept the world. His prescriptions are bound to be debated in London next week at the G-20 parley and for years to come.

Boldly stated, Zhou--backed by Russia, Brazil and India--wants to break the dollar's hegemony in global finance. In a paper grandly called "Reform the International Monetary System," Zhou has called for the creation of an international currency unit that he admits will require "extraordinary political vision and courage." He suggests that we start with a blend of the dollar, pound, yen and euro--the so-called Special Drawing Rights (SDR) created by the IMF in 1969 that borrowed a concept first recommended by famed economist John Maynard Keynes.

Zhou has surprised the experts by suggesting that international financial institutions such as the International Monetary Fund should manage some nations' currency reserves. The IMF uses its funds to prop up nations in financial crisis. Expanding the SDR would give the IMF the potential to "act as a super-sovereign reserve currency" and to increase the IMF's resources, Zhou emphasized. "The scope of using the SDR should be broadened so as to enable it to fully satisfy the member countries' demand for a reserve currency," adds Zhou.

This would be a shocking change in a system where central banks maintain control over their reserves and many keep their operations entirely secret and non-transparent. Zhou makes a telling point when he insists that "the centralized management of part of the global reserve by a trustworthy international institution will be more effective in deterring speculation and stabilizing financial markets." In other words, Zhou is saying that the recent vicious meltdown might have been avoided if the world's financial system was not tied solely to the American dollar, the currency at the focal point of the global economy.

"For a country like China that prizes its sovereignty and to date hasn't even been willing to report the currency composition of its reserves to the IMF [something most other countries do], this would be a big step," says Brad Setser, a fellow of the Council on Foreign Relations and former Treasury official in the Clinton administration.

The Fault Lines Emerge
By Peter Schiff
Given the size and scope of the remedies that the Obama Administration is cajoling the world to adopt, it is likely that the unease will grow until many countries emerge in open revolt to America's plans.

President Obama and the majority of our leadership on both sides of the aisle are confident that the right mix of monetary and fiscal policy can restart the spending party that defined America for a generation. And as the bleary-eyed revelers wisely reach for a cup of black coffee or stumble into a rehab center, Obama is pouring grain alcohol into the punch bowl hoping to lure the walking zombies back onto the dance floor. Europe and Asia fully understand that Obama will ask them to lend the booze.

Washington is telling us that our problems result from a lack of consumer spending. Therefore, the solution is for government spending to pick up the slack. However, if Americans are too broke to spend, then how can our government spend for us? The only money they have is taken from us through taxation. To postpone immediate tax hikes (adding interest for good measure), Washington plans to borrow more from abroad. However, if our foreign creditors refuse to pony up, much of the money will simply be printed instead.

Printing money is merely taxation in another form. Rather than robbing citizens of their money, government robs their money of its purchasing power. Many people assume that if government provides the funds we can spend our way back to prosperity. However, it's not money we lack but production. If the government simply prints money and doles it out, we will not be able to buy more stuff; we will simply pay higher prices. The only way to buy more is to produce more. It is production that creates purchasing power, not the printing press!

Our current predicament resulted in part from our efforts to maintain consumer spending at unsustainable levels, primarily by the reckless extension of consumer credit. Pushing up consumer credit to levels not supported by market realities required government subsidies and guarantees. In addition, Wall Street pitched in with securitization and credit default swaps, which created a false sense of confidence among our creditors that high risk consumer loans could actually be repaid. However, now that all those gimmicks have blown up, the entire farce has been exposed. There is simply no way to sustain an economy based on consumer credit.

The Administration argues that more debt will restore growth which will then allow the repayment of borrowed money. First, our government has never, and will never, repay anything. Second, the assumption that additional borrowing and spending will restore growth is flawed. In fact, more consumer debt and government spending will undermine our economy and restrain growth.

Friday, March 27, 2009

The "Price" of Gold Is A Joke!

View Ben Bernanke, now turned commodity supplier. He is shoveling and humping around confetti laced with mold reinforced by a massive flow of swill, and does not even realize it! Forget the helicopter images. The palettes of $100 bills stacked neatly vastly overshadow any volume dropped from black unmarked choppers.
-c/o Jim Willie CB,

I will refrain today from commenting on the "price" of Gold...clearly it is a JOKE.

Kevin Kramer, chief operating officer at West End Financial Advisors, an asset management company in New York, said that stocks have risen too fast as ebullient traders have been quick to look past a long list of trouble spots in the economy. He contends unemployment, limited access to credit and heavy loads of debt will continue to curtail growth.

"Just because things aren't getting worse doesn't mean they're getting better," he said. "You stopped the flow of blood out of my body, but it doesn't mean I'm going to survive."

NYSE Runs Out of Gold Bars: What Happens Next?
The NYSE-Liffe futures exchange has, it seems, run out of 1 kg bars of gold. Futures markets, like NYSE-Liffe and COMEX, try hard to maintain the fiction that they will deliver physical gold, in completion of executed contracts. Indeed, to prevent fraud, U.S. law requires clearing members to keep a stockpile, of one kind or another, consisting of a minimum of 90% of metal. Up until October, 2008, it didn’t matter. Only about 1% of long buyers of paper gold futures contracts typically took delivery. Now, the situation is very different. Demand has surged and, it appears, one major futures exchange, NYSE-Liffe, and by extension, the COMEX gold warehouses it shares with its larger cousin, are unable to meet the requirements of their contracts, visa vi, delivery of 1 kg. bars.

Absent legal action, clearing members are now being allowed to hand out little slips of paper, called “warehouse depository receipts” (WDR). These are being substituted for “vault receipts” (VR). The WDRs, in contrast to the VRs, merely promise the customer that he owns a 1/3 interest in a 100 ounce bar. The customer is not allowed to take delivery, unless he can accumulate 3 WDRs, which equals 1 VR. NYSE-Liffe shares its warehouses with COMEX. The warehouse is predominantly stocked with 100 ounce bars. The COMEX ETF also stores 100 ounce bars, and clearing members can withdraw baskets of them in order to meet delivery demands. But, the COMEX ETF doesn’t store any 1 kg. bars

After a customer complaint, I contacted the head of regulatory compliance at NYSE-Liffe, and had a serious chat with him. He seemed like a nice enough fellow, but he wouldn’t admit that NYSE-Liffe had run out of 1 kilo bars. He said that the warehouse registrar has complete “discretion” to hand out paper WDRs, representing a 1/3rd interest in a 100 ounce bar, if the “circumstances warrant”. But, if the exchange has “complete discretion” to alter contracts as they see fit, what is the purpose of the advertised contract specifications? NYSE-Liffe claims that its clearing members can rely on Exchange Rule 1408. This obscure rule, however, was never communicated to customers. Nevertheless, it is now being relied upon by the exchange, in an attempt to “default” on the contracts without legal consequences. The rule says that clearing members can substitute delivery of a WDR, giving the customer a 1/3rd interest in a 100 ounce bar, instead of a physical 1 kg bar of gold. There is only one problem. In their eagerness to sell contracts, the exchange failed to communicate that customers and failed to make it a part of the contract specifications. As a result, clearing members may be saved from claims by one against the other, but they are NOT immune to the just claims of aggrieved customers. The exchange clearly misled the public, intentionally or unintentionally, and allowed clearing members to sell huge numbers of 1 kg contracts, even though they did not have enough 1 kg. bars to fulfill the contracts.

The Vulnerable Dollar
Adding another layer to the vulnerability of the dollar are calls for a new global reserve currency. China, Russia Brazil and India have been championing this cause and it seems to be gaining some traction. Perhaps even here in the US.

On Wednesday Treasury Secretary Geithner said that he was "quite open" to the Chinese plan for a global reserve currency linked to IMF Special Drawing Rights (SDR). In saying that, Mr. Geithner essentially signaled a willingness to cede substantial US economic influence and power.

In hindsight, he confessed that he hadn't even read the Chinese plan. Of Geithner's comment and subsequent revelation, Jessica Hoversen, a foreign-exchange analyst at MF Global said, "Government policy is only as effective as the government is credible. Having a government official speak out of both sides of his mouth in five minutes erodes credibility."

Reserve diversification, out of dollars and into other currencies and gold, has been a growing trend for some time now. Events of the past several weeks are only going to accelerate that diversification and the ultimate selling of dollars.

Can the Zimbabwean School of Economics SAVE THE WORLD??...
By: Clive Maund
There are two central problems that prohibit the return to normal healthy growth of the US economy. One is that natural cyclical recessionary forces have been obstructed for so long that they have built up to disastrous proportions, especially as speculation and pyramiding via derivatives have ballooned the excesses to astronomic proportions, and as is already plainly obvious, these forces are now unstoppable. Like King Canute trying to stop the tide coming in, the response of the system to these devastating corrective forces is to try to beat them back by employing more of the excesses that created the problems in the first place. Hence the continued bailouts and the buying up of Treasuries etc. This is like a gambler on a losing streak finally going down in a blaze of glory as he throws everything he has on to the table, only to lose anyway and be shown the door. The ultimate outcome of all this will be a hyperinflationary depression - money becoming worthless and most everyone and everything broke and dysfunctional. The other central problem is that the country is essentially run as a gigantic crime syndicate - corruption at the top, across the government and throughout the banks and Wall St is now so deep rooted and endemic that there is only one way that the people can rid themselves of it. Right now, after years of soft living the population don't have the stomach to do what is necessary to rid themselves of these parasites, and it will only be when the television flickers and dies and the supermarket shelves are empty that the average American hauls his weighty posterior out of the armchair with the intention of "doing something about it" only to find himself being taken down to one of the large compounds already organized where he can meet and chat with plenty of people like himself.

With last week's announcement by the Fed and subsequent developments, the powers that be have "nailed their colors to the mast" and made it plain that they are going to manufacture as much money as they think is necessary to prevent the system from imploding - in particular to stop the Treasury market from collapsing and to keep the zombie entities at the center of the crisis limping along. What they have neglected to mention, and what you have to figure out for yourself, is that given the magnitude of debt and especially the enormity of the derivative deleveraging going on, they are going to end up creating blizzards of money to battle the monster, and that means that we are on the road to hyperinflation. Yet, despite the intent to exponentially increase the money supply to battle the deflationary juggernaut, there is no guarantee that they will succeed - on the contrary, due to its enormity, they are likely to fail, and their obstinate and misguided attempts to block the necessary cleansing forces of contraction, obstructed for so long that they have built up to disastrous proportions, will only make the inevitable collapse that much more total, and involve the destruction of Fiat currencies worldwide, and the forcible elimination of the old order that created this enormous mess by a deeply discontented populace, who will by this time be highly motivated by a lack of food, water and electricity.

The Threat of Hyper-Depression
At this stage nothing is certain, but the country is currently headed straight into a period of very rapid price hikes and a very bad recession. It would not surprise me at all if the national unemployment rate and the annualized rate of consumer price inflation both broke through into double digits by the end of 2009. Moreover, regardless of when it actually starts, I predict that things will get much worse before they get better, and that the United States will be mired in a malfunctioning economy for at least a decade, with price inflation in the double-digits (possibly higher) the entire time. We can call this condition “hyper-depression.”

As with stagflation during the 1970s, hyper-depression will blow up the prevailing “cutting edge” models of the macroeconomy. Back when he was an academic, Fed Chair Ben Bernanke was actually an expert on the Great Depression. Bernanke adheres to the (alleged) lesson taught by Milton Friedman and Anna Schwartz in their classic A Monetary History of the United States. F&S argued that Fed officials bore a large share of the blame for the Great Depression, because they did not pump in enough liquidity. The quantity of money actually declined by about a third from 1929-1933, as panicked customers withdrew cash from the banks. (In a fractional reserve banking system, when people withdraw deposits, the banks have to shrink their outstanding checking balances because of reserve requirements.)

The Fed has more than doubled its balance sheet since the financial crisis began, leading to an unprecedented jump in the monetary base.

Thus far, this enormous injection of new reserves into the banking system hasn’t caused the CPI to explode, but that is because (a) the banks are mostly sitting on the new reserves because they are all terrified, and (b) the public’s demand for cash balances has risen sharply. But using very back-of-the-envelope calculations, there is now enough slack in the system so that if banks calmed down and lent out the maximum amount of reserves, the public’s total money stock could increase by a factor of 10. There is no way that the public will simply add that new money to its checking accounts or home safes without increasing their spending. Eventually, prices quoted in U.S. dollars will start shooting upward.

All of the financial analysts are aware of this threat, but they foolishly reassure us, “Bernanke will unwind the Fed’s holdings once the economy improves.” But this commits the same mistake as the Keynesians during the 1970s: What happens when the CPI begins rising several percentage points per month, and unemployment is still in the double digits? What would Bernanke do at that point? Expecting the Fed chief to relinquish his new role of buying hundreds of billions in assets at whim, in the midst of a severe recession, would be akin to hoping that a dictator would end his declaration of “emergency” martial law in the middle of a civil war.

There are even many free market economists who are predicting that the Fed’s massive money-pumping will “fix” the economy, at least for a while, but at the cost of high price inflation. Yet these analysts don’t realize that they are buying into – what we all thought was – the discredited Phillips Curve. The 1970s proved that the Fed cannot fix structural problems with the economy by showering it with new money. Hyper-depression is simply stagflation squared.

People need to stop wondering, “When will the market find its bottom? This month? Next?” The federal government has already done an incalculable amount of damage to the American financial sector, and the insults keep growing. Think of it: Besides the unpredictable “sometimes we seize you, sometimes we take billions of bad assets off your books, sometimes we let you fail” strategy with respect to major financial institutions, the government has also done childish things such as ban short-selling of financial stocks. No one knows what the rules will be next week in these markets. Only a fool would expose new capital to the American financial sector at this point – and the politicians have the gall to wonder, “Why are the laissez-faire credit markets frozen?”

China: Partner, Adversary, Rebel
An extremely dangerous and controversial agreement might have been struck between the USGovt and Chinese Govt during a visit to Beijing by Secy State Hillary Rodham Clinton. Some call this news pure rumor, while others claim it is suppressed fact. Time will tell. The Chinese had been demanding greater assurances for continued USTreasury Bond purchase. The public is not privy to actual discussions, as US leaders continue to betray the US public with a string of secret deals dating back to IPO offering by Wall Street for giant Chinese banks. Ever since Goldman Sachs took control of the Dept Treasury in 1992, the nation has suffering a skein of betrayals on gold treasury management, suppressed USTBond yields (that skewer savers), insider trading schemes that would read like out of crime novel, and lately channeled TARP funds for Wall Street elite sequestered usage. Details and quotes appear in the Hat Trick Letter, in particular the Gold & Currency report for March out last weekend. The US Embassy in Beijing confirmed the deal to the source. Hillary closed the deal. A quid-pro-quo agreement was struck, continued USTBond purchases in return for Eminent Domain option to exercise by China for property seizure, “to physically take, inside the USA, land, buildings, factories, perhaps even entire cities.” The concepts of colonization and carpet-bagging should come to mind!

In order to maintain credit flow for the deeply insolvent USGovt, the federal authorities might have mortgaged the physical land and property of citizens and businesses in the Untied States to a foreign power. What makes the betrayal all the worse if its apparent secrecy. In my analysis last autumn, mention has been made that a great risk grows for China to embark on a COLONIZATION movement. Huge tracts of USTBonds have been accumulated by China since September. The USTBond hoard held by China would be converted into mortgage bonds, and then into actual hard asset property, including commercial buildings. Sadly, the Secy State post under Hillary has morphed into an emissary post to plead with creditors. This is NOT so much about forcible confiscation, but rather conversion to property like during any other ordinary liquidation, ordered within receivership. China has embarked on early stages in preparation to convert debt securities into hard assets like property. They are crafty and deliberate. What few seem to acknowledge is the path from mortgage bond ownership to property purchase (for a very low price) upon foreclosure is a very short path. Imagine a throng of Chinese businessmen and bankers dressed in Western suits attending foreclosure auctions holding property titles in their hands!!! A bizarre obstacle might thwart some Chinese efforts, if they discover that mortgage bonds continue imperfect or missing property titles, or worse, are forged Fannie Mae counterfeit bonds.

As you can see, the "price" of Gold is obviously a JOKE...

Tuesday, March 24, 2009

Fed Up With The Fed?

It's so simple to understand:

DOW up - Dollar down - Gold Up

DOW down - Dollar up - Gold Down

The Inflation Tsunami is coming no matter which way the DOW goes...BUY GOLD!

Below, posted in it's entirety, is the undivided truth about the US Federal Reserve. We cannot thank James Quinn enough for writing this marvelous essay:

by James Quinn, March 11, 2009

So if you think your life is complete confusion
Because your neighbors got it made
Just remember that it's a Grand illusion
And deep inside we're all the same.
We're all the same...

America spells competition, join us in our blind ambition
Get yourself a brand new motor car
Someday soon we'll stop to ponder what on Earth's this spell we're under
We made the grade and still we wonder who the hell we are

Styx – Grand Illusion

The whole world is in a state of complete confusion. Americans are coming to the realization that their lives have been a grand illusion. You thought your neighbor had it made. They were driving a Mercedes, spent $40,000 on a new kitchen with granite countertops and stainless steel appliances, sent their kids to private school, had a second home at the shore, and took exotic vacations all over the world. Now their house is in foreclosure and you are paying to bail them out. The anger and outrage in the country is at the highest level since the Vietnam War. The American public is being misled by government officials, politicians, and the Federal Reserve regarding the causes of this crisis and the solutions needed to solve our economic tribulations.

The average American does not know much about the Federal Reserve. The government and the Federal Reserve prefer to operate in the shadows. If the American public understood what their policies have done to their lives, they would be rioting in the streets. Henry Ford had a similar opinion:

"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Most Americans believe that the Federal Reserve is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States. There are Class A,B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner?

The history of National Banks in the United States has been controversial since the Founding Fathers signed the Declaration of Independence. The Constitution of the United States unequivocally states that only Congress has the authority to coin money, not an independent bank owned by unknown bankers.

The Congress shall have Power to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures
Article 1, Section 8 – US Constitution

Our most recent horrifying experience with an all powerful central bank has led to the current worldwide financial crisis. In less than one century the Federal Reserve Bank of the United States has destroyed our currency and has allowed bankers to gain unwarranted power over the country. They had the ability and opportunity to bring down the worldwide financial system.

When the average American is told that the dollar has lost 95% of its purchasing power since the inception of the Federal Reserve in 1913, they look at you with a blank stare and start wondering whether American Idol is on TV tonight. The systematic inflation purposely created by the Federal Reserve silently robs the average American of their standard of living. The CPI figures published by the US government tell the story.

The government began keeping official track of inflation in 1913, the year the Federal Reserve was created. The CPI on January 1, 1914 was 10.0. The CPI on January 1, 2009 was 211.1. This means that a man’s suit that cost $10 in 1913 would cost $211 today, a 2,111% increase in 96 years. This is a 95% loss in purchasing power of the dollar. For some further perspective here are the prices of some other common items in 1913 per the Morristown Daily Record:

Boy's shoes for school, .98/pair Women's shoes, 2.00-8.00/pair
Bread, .10/3 loaves Butter, fancy, .30/lb
Cereal, Kellogg's Corn Flakes, .09/box Eggs, Fresh Western, .27/dozen
Peanut butter, .09/jar Toilet paper, .26/6 rolls
Daily Record [Morristown NJ], .01/daily paper

Notable on the CPI chart is that in the years following the creation of the Federal Reserve, inflation ran at double digit rates to finance Woodrow Wilson’s foreign intervention into World War I. The other notable period was in the years following President Nixon’s closing of the gold window in 1971. This led to rampant inflation that wasn’t tamed until the early 1980’s by Paul Volcker, the only independent courageous Federal Reserve Chairman in its history. The figures so far in the 21st Century seem modest. This is due partly to the methodical downward manipulation of the calculation by government bureaucrats. The period from 2010 to 2020 will show a dramatic jump caused by all of the money printing and reckless spending that is occurring today. Book it Dano.

The average American might just conclude that prices always go up, so what’s the big deal about inflation. This is where the Federal Reserve and politicians have pulled the wool over your eyes. The CPI was 30.9 in 1964. Today, it is 211.1. This means that prices have risen 683% since 1964. The only problem is that your wages have not risen at the same rate, even using the government manipulated CPI. Using a true CPI figure, average weekly earnings are 64% below what they were in 1964. This explains why a family of five could live well with one parent working in 1964, but even with both parents working and using debt in prodigious amounts, the average family does not live as well today.

Don’t Know Much About History

The First Bank of the United States was created in 1791. Alexander Hamilton, the 1st Secretary of the Treasury, proposed this bank and convinced a hesitant President Washington to agree. John Adams and Thomas Jefferson were against the concept. It favored the moneyed classes of the North versus the agrarian South. The bank was given a 20 year charter and President James Madison let it expire in 1811. He then renewed the charter in 1816. The wise men who took unprecedented risks in declaring independence from England’s tyranny, feared the tyranny of bankers equally:

"All the perplexities, confusion and distress in America rise, not from defects in the Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation."

John Adams, in a letter to Thomas Jefferson, 1787

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs."

Thomas Jefferson, U.S. President -1802

[The] Bank of the United States... is one of the most deadly hostility existing, against the principles and form of our Constitution... An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile?

Thomas Jefferson, U.S. President -1803

"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".

James Madison, U.S. President

President Andrew Jackson was the first and only President in the history to pay off the National Debt. He worked tirelessly to rescind the charter of the Second Bank of the United States. His reasons for abolishing the bank were:

It concentrated the nation's financial strength in a single institution.
It exposed the government to control by foreign interests.
It served mainly to make the rich richer.
It exercised too much control over members of Congress.
It favored northeastern states over southern and western states.
President Jackson believed that only Congress should be responsible for the issuance and control of the currency. Delegating that duty to powerful New York bankers was distasteful to him.

"If Congress has the right to issue paper money, it was given to them to be used ... and not to be delegated to individuals or corporations"

President Andrew Jackson, Vetoed Bank Bill of 1836

President Jackson’s honesty and anger at the bankers should resonate today, as bankers have again brought our country to its knees.

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

A President with Jackson’s strength of character would put the blame where it belongs today. He would rout out these criminal bankers, rather than give them more taxpayer money to squander. A President with a moral backbone would put an end to the disastrous 96 year experiment of the Federal Reserve. Instead our last two spineless Presidents have put Goldman Sachs bankers in charge of our national Treasury. An examination of inflation throughout the history of the United States proves that from the beginning of our nation through wars and the Industrial Revolution, the country experienced virtually no inflation as our currency was backed by gold. The creation of the Federal Reserve in 1913 and the closing of the gold window in 1971 unleashed a tsunami of inflation that continues today.

1913 – A Bad Year for America

Karl Marx published his Communist Manifesto in 1848. It included 10 planks. Two of the ten planks were as follows:

A heavy progressive or graduated income tax.

Centralization of credit in the hands of the State by means of a national bank with State capital and an exclusive monopoly.

The dates February 3, 1913 and December 24, 1913 framed a year which placed our country on a downward fiscal spiral. The United States had tinkered with an income tax during the Civil War and the 1890’s, but the Supreme Court declared it unconstitutional. Until 1913, the U.S. government was restrained from overspending because it was completely reliant on tariffs and duties to generate revenue. The Sixteenth Amendment changed the game forever.

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

When you give a Congressman a dollar, he’ll take a hundred billion. The initial tax rates of 1% to 7% were rather modest. That did not last long. The top tax rate reached 92% during the 1950s and today rates are still 500% to 1,000% higher than they were in 1913. The government is addicted to tax revenue. In 2007, they absconded $1.2 trillion in taxes from American individuals. Does anyone think that the bloated government bureaucracy spent these funds more efficiently or for a more beneficial purpose than its citizens could have?

Without $1.2 trillion in individual tax revenue, Congressmen would not be able to add 9,200 earmarks to the current $400 billion Federal spending bill every year. This is how they waste your money:

$1.8 million to research “swine odor and manure management” in Ames, Iowa.
$41.5 million to upgrade presidential libraries of Franklin D. Roosevelt, Lyndon B. Johnson, and John F. Kennedy, according to the Heritage Foundation.
$2.9 million to study how to breed and raise shrimp on “shrimp farms.” Citizens Against Government Waste (CAGW) reports that since 1985 the federal government has allocated $71 million to the study of shrimp science.
$209,000 to improve blueberry production in Georgia, according to CAGW.
$200,000 for a tattoo removal program in Mission Hills, Calif.
$5.8 million for the Edward M. Kennedy Institute for the Senate in Boston, according to the Heritage Foundation.
$6.6 million for Formosan subterranean termites, also according to Heritage.
Rothschild, J.P. Morgan & the Federal Reserve

"Those few who can understand the system (check book money and credit) will either be so interested in its profits, or so dependent on it favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."
Rothschild’s Bros. of London

The House of Rothschild had been the dominant banking family in Europe for two centuries. They were known for making fortunes during Panics and War. Some claimed that they would cause Panics in order to take advantage of those who panicked. The Panic of 1907 was the used as the reason for creating the Federal Reserve. The Federal Reserve Bank of Minneapolis attributed the causes of the Panic of 1907 to financial manipulation from the existing banking establishment.

"If Knickerbocker Trust would falter, then Congress and the public would lose faith in all trust companies and banks would stand to gain, the bankers reasoned."

In 1906, Frank Vanderlip Vice President of the Rockefeller owned National City Bank convinced many of New York's banking establishment that they needed a banker-controlled central bank that could serve the nation's financial system. Up to that time, the House of Morgan had filled that role. JP Morgan had initiated previous panics in order to initiate stronger control over the banking system. (Picture slimy Mr. Potter offering the members of the Bailey Building & Loan, 50 cents on the dollar for their shares during a bank panic in the classic movie Its A Wonderful Life). Morgan initiated the Panic of 1907 by circulating rumors that the Knickerbocker Bank and Trust Co. of America was going broke, there was a run on the banks creating a financial crisis which began to solidify support for a central banking system. During this panic Paul Warburg, a Rothschild associate, wrote an essay called "A Plan for a Modified Central Bank" which called for a Central Bank in which 50% would be owned by the government and 50% by the nation's banks.

In November 1910 a secret conference took place on Jekyll Island off the coast of Georgia. Those in attendance were: JP Morgan, Paul Warburg, John D. Rockefeller, Bernard Baruch, Senator Nelson Aldrich, Colonel House, Frank Vanderlip, Benjamin Strong, Charles Norton, Jacob Schiff, and Henry Davison. Out of this meeting of the most powerful bankers and politicians in the country came the plan for a Central Bank. This conference was unknown until 1933. In 1935, Frank Vanderlip wrote in the Saturday Evening Post: "I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System."

Behind the scenes these powerful men were formulating the plan for a Federal Reserve System. There was no outcry from the public to implement this plan. The public knew nothing of this. The Aldrich Plan was renamed the Federal Reserve Act and pushed forward by Paul Warburg and Colonel House. Warburg essentially wrote the Act and pressured Congressmen to see his way or lose the next election. Colonel House, who had socialist leanings, was the top advisor to President Wilson.

The Glass Bill (the House version of the final Federal Reserve Act) had passed the House on September 18, 1913 by 287 to 85. On December 19, 1913, the Senate passed their version by a vote of 54-34. More than forty important differences in the House and Senate versions remained to be settled, and the opponents of the bill in both houses of Congress were led to believe that many weeks would elapse before the Conference bill would be taken up. The Congressmen prepared to leave Washington for the annual Christmas recess, assured that the Conference bill would not be brought up until the following year. The creators of the bill then pulled the ultimate scam on the American public. In a single day, they ironed out all forty of the disputed passages in the bill and quickly brought it to a vote. On Monday, December 22, 1913, the bill was passed by the House 282-60 and the Senate 43-23. This meant that the single most important piece of legislation ever passed by the Senate was missing the votes of 26 Senators because it was passed during the Christmas recess. President Wilson, at the urging of Bernard Baruch, signed the bill on December 23, 1913. A few years later, President Wilson had second thoughts:

"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 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 world--no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men."

There were some brave Americans who did oppose this legislation and foresaw the devastation that it would lead to.

“Throughout my public life I have supported all measures designed to take the Government out of the banking business. This bill puts the Government into the banking business as never before in our history. The powers vested in the Federal Reserve Board seen to me highly dangerous especially where there is political control of the Board. I should be sorry to hold stock in a bank subject to such dominations. The bill as it stands seems to me to open the way to a vast inflation of the currency. I had hoped to support this bill, but I cannot vote for it cause it seems to me to contain features and to rest upon principles in the highest degree menacing to our prosperity, to stability in business, and to the general welfare of the people of the United States.”

Senator Henry Cabot Lodge – Dec 17, 1913

“From now on, depressions will be scientifically created.”

Congressman Charles A. Lindbergh Sr. - 1913

John Maynard Keynes, the current hero of the Obama administration and Paul Krugman, had this to say about the Federal Reserve in 1920.

“Should government refrain from regulation (taxation), the worthlessness of the money become apparent and the fraud can no longer be concealed. By this means government may secretly and unobserved, confiscate the wealth of the people and not one man in a million will detect the theft."

Mandate from Hell
According to the Federal Reserve’s own website, their duties fall into four general areas:

Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers

Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

The American public was told that the Federal Reserve would eliminate any future bank panics. From 1913 through 1920, inflation increased at more than 10% per year as Wilson spent vast sums during World War I and its aftermath. From the early 1920s to 1929, the monetary supply expanded at a rapid pace and the nation experienced tremendous economic growth. Benjamin Strong, one of the participants at the secret conference on Jekyll Island, was the Federal Reserve head. By the end of the 1920s, speculation and loose money had propelled asset and equity prices to unsustainable levels. The stock market crashed in 1929, and as the banks struggled with liquidity problems, the Federal Reserve cut the money supply. This was the greatest financial panic and economic collapse in American history so far - and it never could have happened without the Fed's intervention. The Fed caused the bubble with loose monetary policy. The Depression did not become Great until the Smoot Hawley Act in 1930 destroyed world trade and the raising of the top income tax rates from 25% to 63% in 1932 destroyed the incentive to earn money. Over 9,000 banks failed and a few of the old robber barons' banks managed to swoop in and grab up thousands of competitors for pennies on the dollar.

The Federal Reserve’s primary mandates were maximum employment, stable prices and moderate long-term interest rates. Their other chief function was to supervise and regulate banks to ensure the banking system is safe. Lets assess their success regarding their mandates:

Unemployment reached 25% during the Great Depression; attained levels above 10% in 1982; and will breach 10% in the next year. Grade: Failure

Based on the chart above and the CPI data since the Federal Reserve’s inception, the dollar has lost 95% of its purchasing power. Grade: Failure

Based on the chart below interest rates have been anything but moderate since the inception of the Federal Reserve. They have consistently caused booms and busts by setting rates too low or too high. Grade: Failure

The Federal Reserve was supposed to supervise the activities of banks. Instead, under Alan Greenspan, they stepped aside and let banks take preposterous risks while giving an unspoken assurance that the Fed would clean up any messes that they caused. This total dereliction of duty gross negligence has led the greatest financial collapse in history. Grade: Failure

The Chairman of the House banking & Currency Committee Louis T. McFadden fought a lonely battle against the Federal Reserve in the early 1930s. He was swept out of office when his opponent in the next election received thousands of dollars in campaign contributions.

"Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation's debt. The depredations and iniquities of the Fed have cost enough money to pay the National debt several times over. This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Fed and through the corrupt practices of the moneyed vultures who control it.”

Louis T. McFadden – Representative from PA 1934

Mr. McFadden has a soul mate in Representative Ron Paul from Texas. Mr. Paul has been on a one man mission to abolish the Federal Reserve for over a decade. He seems to be the only person in Congress with the courage, fortitude and intellect to understand the damage that has been caused by the Federal Reserve and call for its abolition. The entrenched political class, despise Mr. Paul because his call to abolish the Federal Reserve would destroy their ill begotten wealth and power.

Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts. In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.

Ron Paul – Sept 10, 2002

Representative Paul sized up his colleagues in Congress and the Federal Reserve perfectly in 2006 when they were oblivious to the impending disaster that was about to befall the nation. He was belittled by the mainstream press and fellow Congressmen.

The coming dollar crisis is not likely to be “fixed” by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government.

Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available – and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad.

The irony is that many of the Fed’s biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed’s easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It’s the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability – and certainly no legal or moral right – to decide how much money should exist and what the cost of borrowing money should be.

Ron Paul – July 11, 2006

Before he became a tool of the political ruling elite and the bankers who truly control the country, Alan Greenspan actually understood and supported a currency backed by gold which couldn’t be manipulated by corrupt politicians. The confiscation of middle class wealth through the insidious use of inflation has proceeded unchecked for 96 years.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Alan Greenspan – 1966

Howard Beale, the news anchor in the movie Network, could have spoken the same lines today that he was speaking in 1976. He describes our current financial crisis to a tee.

I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody's out of work or scared of losing their job. The dollar buys a nickel's worth; banks are going bust; shopkeepers keep a gun under the counter; punks are running wild in the street, and there's nobody anywhere who seems to know what to do, and there's no end to it.

I want you to get mad!

I don't want you to protest. I don't want you to riot. I don't want you to write to your Congressman, because I wouldn't know what to tell you to write. I don't know what to do about the depression and the inflation and the Russians and the crime in the street.

All I know is that first, you've got to get mad.

You've gotta say, "I'm a human being, goddammit! My life has value!"

So, I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window, open it, and stick your head out and yell,

"I'm as mad as hell, and I'm not going to take this anymore!!"

Anyone who is not mad as hell at this point is not paying attention. Your tax and spend corrupted politician leaders and your banker controlled Federal Reserve have borrowed and spent your tax dollars, your children’s tax dollars, and their children’s tax dollars desperately attempting to prop up this bankrupt system. The unleashing of a never ending tsunami of printed dollars by the Federal Reserve makes every dollar worth less. They have systematically created inflation that has slowly but surely reduced your standard of living. Politicians in the pocket of lobbyists, corporate interests, and bankers have used their power to tax in order to spend trillions on worthless projects in their districts to insure re-election. The combination of taxing and printing has led to a National Debt of $11 trillion.

Bankers love debt. The more debt, the more interest they collect. Issuing credit cards and collecting 21% interest and billions in late fees seemed like a can’t miss proposition. It was until people couldn’t pay the debt back. Now the unwinding of the greatest debt bubble in history has created a 2nd Great Depression. Instead of learning from the past, the Federal Reserve has chosen to do exactly what led to the crisis. They have lowered rates to 0% and have printed money at prodigious rates. The Fed has doubled their balance sheet in the last 12 months.

They have loaned billions to the bankrupt banks that inhabit our financial system while accepting worthless pieces of paper as collateral. They have hailed back to Jekyll Island and the cloak of secrecy. They will not reveal to the public the banks they have loaned money to or the collateral that backs up those loans. The arrogance of Ben Bernanke proves that the Federal Reserve answers to bankers, and not to the American public. The books and records of the Federal Reserve are not open to scrutiny by the General Accounting Office. Ron Paul has introduced the Federal Reserve Transparency Act which would open their books to the public. No organization with as much power as the Federal Reserve should be permitted to operate in the shadows.

A recent article by David Galand from Casey Research pointed out the insidious methods by which the government extracts our money for their self serving schemes:

Accounts Receivable Tax Building Permit Tax
CDL License Tax Cigarette Tax
Corporate Income Tax Dog License Tax
Excise Tax Federal Income Tax
Federal Unemployment Tax (FUTA) Fishing License Tax
Food License Tax Fuel Permit Tax
Gasoline Tax Gross Receipts Tax
Hunting License Tax Inheritance Tax
Inventory Tax IRS Interest /IRS Penalties
Liquor Tax Luxury Taxes
Marriage License Tax Medicare Tax
Personal Property Tax Property Tax
Real Estate Tax Service Charge Tax
Social Security Tax Road Usage Tax
Sales Tax Recreational Vehicle Tax
School Tax State Income Tax
State Unemployment Tax (SUTA) Telephone Federal Excise Tax
Utility Taxes Vehicle Sales Tax
Watercraft Registration Tax Well Permit Tax
Telephone State and Local Tax Telephone Usage Charge Tax
Vehicle License Registration Tax Workers Compensation Tax.
Telephone Federal Universal Service Fee Tax
Telephone Federal, State and Local Surcharge Taxes
Telephone Minimum Usage Surcharge Tax
Telephone Recurring and Non-recurring Charges Tax

After digesting this disgusting list, do you feel under taxed?

Depression, Collapse & Revival

The future is cloudy but the direction is clear. Government will spend trillions of dollars. Congress will increase taxes on the rich and secretly raise taxes on the masses by calling them cap and trade fees. The Federal Reserve will pull out all stops to create inflation. When you owe the rest of the world $11 trillion, inflation makes the debt less burdensome. The dollar will decline versus gold. With the enormous amount of currency creation and spending by the government, the economy will eventually pull out of this depression. The acceleration will take the Federal Reserve by surprise. They will be hesitant to raise interest rates. The inflation genie will get out of the bottle and will not go back. The hyperinflation that takes hold will lead to social unrest, rioting, and a drastic reduction in the American standard of living.

There is no solution that will not be painful to everyone in the United States. The only solution that would put America back on a path of sustainable prosperity would be a gold/precious metals backed currency that would force government and its citizens to live within its means. Congress would need to vote for something that would take away its power. With our current political system, this is impossible. Money is power. This leads to only one conclusion. The existing Ponzi scheme will have to collapse before we can adopt a rational financial system for America. It may take decades, or it may happen in 2010. No one knows. If the country can be convinced to follow the wisdom of Ron Paul, we still have a chance to avoid this fate.

When the Federal government spends more each year than it collects in tax revenues, it has three choices: It can raise taxes, print money, or borrow money. While these actions may benefit politicians, all three options are bad for average Americans.

Please review online with pictures and charts.