Monday, April 27, 2009

Lies To The Left Of Me, Lies To The Right

Please forgive my insensitivity, but I find it profoundly pathetic that the financial media chose to blame every twist and turn in the global markets today on the flu. ONLY the United States Government could fan the fear of a "flu pandemic", and find a way to blame it for the failure of their phony economic recovery. Despicable! Even more daunting, amusing actually, was the "rush to the US Dollar" for safety from the flu.

"Here, eat two of these, and you'll feel better in the morning."

The US Dollar would be worth more to a flu victim as toilet paper...

It is completely irresponsible for the government and the media to try and use the potential for a global pandemic as a crutch, and an excuse, for their crumbling economic facade. Two of the world's biggest auto makers are on the brink of bankruptcy. Bumbling Ben Bernanke and Hanky Panky Paulson have been busted by the New York Attorney General deceiving the shareholders of Bank America and forcing it's CEO into a merger that was bad for them. Perhaps these two "current events" among many others were to blame for the markets weakness today. It was clear that following last weeks drubbing of the Dollar that the Fed had to do something "behind the curtain" to boost the Dollar as this week began. I thought this kinda magic only came from Hollywood.

Lies to the left of me, lies to the right.

"The last duty of a Central Banker is to tell the public the truth."
- Alan Blinder, Former Vice-Chairman of the Federal Reserve

The Big Lie
By Rob Kirby
Because the United States is a debtor nation, running huge fiscal budget deficits as well as massive, seemingly perpetual, current account [trade] deficits, they require massive amounts of foreign capital injections to finance these shortcomings. In recent years the amount of foreign capital REQUIRED by the United States has been conservatively running in the neighborhood of +70 billion per month.

Here’s a list of net TIC flows over the past 12 months:

Mar '08 -48.2b
Apr '08 -60.6b
May '08 -2.5b
Jun '08 +51.1b
Jul '08 -74.8b
Aug '08 -0.4b
Sep '08 +143.4b
Oct '08 +286.3b
Nov '08 +56.8b
Dec '08 +74.0b
Jan '09 -148.9b
Feb '09 -97.0b
Net aggregate capital inflows for past 12 months: +179.2b

...or a woeful average of 14.93 billion per month when simple math tells us 70+ billion per month is required.

The strength that the dollar exhibited last fall was at best a technicality - a stage illusion.

If we zero in, specifically on January and February 2009, the MASSIVE TIC OUTFLOWS are telling us that hedge fund de-leveraging has run its course. This has necessitated that the Federal Reserve resort to other means to make the U.S. Dollar look strong.

The Federal Reserve only publicly disclosed that they had opted for QUANTITATIVE EASING at their FOMC meeting mid March [Wednesday, the 18th], 2009:

Fed Opts for Quantitative Easing in the Face of Somber Economic Outlook

The main question about the outcome of today's FOMC meeting was whether there would be any shift in the Fed position on the outright purchases of longer-term government Treasuries. Today's [March 18, 2009] statement provided the answer that "Yes" it would undertake these purchases to the tune of $300 billion during the next six months…

What hubris; the Federal Reserve has apparently been printing up unaccounted for and undisclosed BIILLIONS [or Trillions, perhaps?] for who-knows-how-long? Based on the data presented above, it's evident that the Fed has been engaged in quantitative easing LONG BEFORE their public acknowledgement of the same. Despite claims to the contrary, the Fed’s actions to date have been elitist, favorable to the banks at the expense of the public and deceptive. So, perhaps it should not come as a surprise to anyone that former Fed Chairman and senior economic advisor to President Obama, Paul Volcker, speaking at a financial markets conference Friday night at Vanderbilt University in Nashville, Tennessee uttered these words,

"For better or worse, we are at a point where the Federal Reserve Act is going to be reviewed."

Ladies and gentlemen, this is a review that is long overdue.

Six Egregious Lies!
by Martin D. Weiss, Ph.D.
The truth hurts. But it also heals.

Our leaders know this. Yet they do nothing about it.

They know that without full disclosure of the truth, public confidence can never be restored, this great debt crisis can never end, and a sustainable recovery can never emerge. Yet they’re still pouring out lies, lies, and more lies. Here are just six of the most egregious …

LIE #1 The government is conducting stress tests on the nation’s 19 largest banks, assuming a worst-case scenario. — Banking regulators

The truth: The bank stress tests are based on such blatantly mild premises, the word “stress” itself is a misnomer.

LIE #2“Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized.” — Federal Reserve.

The truth: For the reasons we cited in our white paper, “Dangerous Unintended Consequences,” and based on the updated data cited in our recent press conference, six of the nation’s ten largest banks are currently at risk of failure, including JPMorgan Chase, Goldman Sachs, Citibank, Wells Fargo, Sun Trust Bank, and HSBC Bank USA. This is their current status even without assuming a worst-case future scenario.

The Fed knows this. But its headline statement above camouflages the truth with the clever use of the words “most” and “currently.”

LIE #3 Big banks made solid profits in the fourth quarter. — Citigroup and others

The truth: They used a combination of three deceptive accounting gimmicks to report bogus profits. In reality, many have suffered continuing large losses.

LIE #4 Your insurance is safe. And even if your insurance company fails, your state insurance guaranty association will back it up. — The insurance industry

The truth: Many insurers are safe; many are not.

AIG is not the only one at risk: “Systemic risk afflicts all life insurance and investment firms around the world. Thus, what happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means.”

LIE #5 The economy is showing signs of recovery. — Washington and Wall Street economists.

The truth: Economic downturn gaining momentum: “The economic downturn has gathered momentum, resulting in a deterioration in macroeconomic risks. The IMF’s baseline forecast for global economic growth for 2009 has been adjusted sharply downward to the slowest pace in at least four decades.”

Debt losses much larger: The debt crisis could cause $4.1 trillion in losses at global financial institutions, of which only $1 trillion have been written down so far.

LIE #6 Since your stocks will eventually recover, you should just hold on through thick and thin. — Most brokers

The truth: Investors lacking the foresight and the courage to sell now may never recover.

“If you bought the average stock in 1929 and held on until 1932, you wound up with about 10 cents on the dollar. And that’s if you bought the good stocks — the ones that survived. If you bought the bad stocks — in bankrupt companies — you’d be left with nothing, a big fat zero.

“Then, even if all of your companies survived, it wasn’t until 1954 — 25 years later — that you could finally recoup your original investment, provided you could stick it out that long. Unfortunately, most people couldn’t. They lost their jobs. They risked losing their house and home. So they were forced to cash in their stocks with huge losses. The idea of ‘holding on for the long term’ was a joke, an insult, or both. They didn’t have that choice. Later, when the market eventually recovered, they never got the chance to recoup their losses.”

Insane Psycho-Sociopathic Court Economists
By: Trace Mayer, J.D.
Gregory Mankiw, professor of court economics at Harvard and economic advisor to President George W. Bush, proposed negative interest rates in a recent New York Times article.

“Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent. … The idea of negative interest rates may strike some people as absurd, the concoction of some impractical theorist. Perhaps it is. But remember this: Early mathematicians thought that the idea of negative numbers was absurd. Today, these numbers are commonplace. Even children can be taught that some problems (such as 2x + 6 = 0) have no solution unless you are ready to invoke negative numbers. Maybe some economic problems require the same trick.”

Notice that Mankiw suggests that ‘the Fed were to announce that …. would no longer be legal tender.’ This talk about the Fed determining what is and is not legal tender baffles me. Perhaps Mr. Mankiw should open up a copy of the Constitution and read it.

Under Article 1 Section 8 Clause 5 Congress is given the power to ‘Coin Money, regulate the Value thereof’. Notice the Constitution does not say what money is only that it is something that is coined rather than printed. The Tenth Amendment states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The Constitution operates on the principle that if a power is not specifically delegated then it is prohibited.

In this case the Federal Government is given no authority to make anything legal tender. The Federal Reserve Act was enacted by Congress creating the Federal Reserve. Because Congress does not have the power to declare anything legal tender and because the Federal Reserve was created by Congress therefore it follows that the Federal Reserve cannot declare anything legal tender. The individual States do retain the power to declare things legal tender but are restricted under Article 1 Section 10 Clause 1 from making any ‘Thing but gold and silver Coin a Tender in Payment of Debts’. The creature cannot exceed the creator.

The trick to get out of the current economic problems is really founded in morality. Decades ago Ludwig von Mises wrote in The Theory of Money and Credit, “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments.

Ideologically it belongs in the same class with political constitutions and bills of rights.”
The solution to the current economic problems is to be found by picking up an extremely short document, the United States Constitution, and strictly applying its powers and disabilities in accordance with the Non-Aggression Axiom. Of course, doing so would drastically limit the ability of those who desire looting and killing.

If you look at every single problem we are facing today almost all are the result of a lack of respect for the rule of law and the Constitution. The solution can only be applied if society changes its idea about what the role of government ought to be. If society thinks that the role of government is to take care of individuals from cradle to grave and police the world by spending hundreds of billions of dollars on a foreign policy that cannot be managed then the greater depression will only exacerbate. Thus the true budget deficit and balance sheet deficiencies appear to be moral and not economic.

National currencies are like the common stock of nations. So long as the United States and its people continue violating these basic laws of morality and engaging in immoral policies the FRN$ will continue to decline. The price of the monetary metals, gold and silver, will increase. But if you think the United States is a rogue elephant on the world stage now just wait until she is truly panicked.

Cycle Revisited
By Howard Ruff
John Williams publishes the Shadow Government Statistics newsletter ( He is an amazing professional economist with a great grasp of the real economy.

I am now in John’s home in Oakland, California, looking past the government numbers to get his views on the world as it really is.

I trust John’s numbers because the government has been manipulating and restating these numbers for purely political purposes.

HJR: Right now, Obama is spending money – I won’t say like a drunken sailor, because a drunken sailor spends his own money – but he is throwing trillions of dollars at the economic downturn, assuming it will stimulate us out. My personal opinion is that they are only stimulating government growth, and some day the average person may get a job, but his employer will be Uncle Sam.

What is the end result of creating all this money and throwing it at the problem?

JW: It will not stimulate the economy. The cost of all this is inflation. We will see inflation levels not seen in our lifetime by as early as the end of this year. Eventually we will see liabilities of $65 trillion – more than four times U.S. GDP, more than global GDP. There will be a hyper inflation where the dollar becomes worthless, where the paper is worth more as wall paper than as currency.

HJR: They couldn’t even use the money as toilet paper because it is a bad absorber of water. So we will have hyper-inflation. How can we protect the value of our assets, assuming that people have some discretionary money? Should they buy growth stocks because they are cheap, assuming “buy low, sell high?” Or are there better alternatives?

JW: We are headed into a hyper-inflationary depression that will become a Great Depression. When hyper inflation hits, it will disrupt the normal flow of commerce and turn it into a Great Depression.

What about paper assets based on the dollar? You want to get into something like gold or silver –physical gold or silver, not paper. Perhaps get some assets outside the dollar. It’s a time to preserve your wealth and assets, not to start speculating on the stock market. There is a lot of volatility ahead. Over the long term, gold and silver are your best hedges.

How to Determine the End of the Current U.S. Dollar Rally
By J. S. Kim
Often the behavior of the U.S. dollar is very curious given its terrible fundamental outlook but when you consider that its major competitors, the British Pound Sterling and the Euro, are fundamentally as terrible currencies as the dollar, then it is easy to understand why the U.S. dollar can experience mini-rallies despite its awful fundamental outlook. However, the rallies of the USD are only curious to those that don’t understand the actions taken behind the scenes by the U.S. Federal Reserve and the U.S. Treasury to prop up the dollar.

When Wall Street giant Lehman Brothers filed for bankruptcy on September 15, 2008, in order to appease the world’s concerns about the soundness of the U.S. financial system and to specifically prop up the U.S. dollar, the U.S. Federal Reserve increased its swaps with foreign central banks nearly four times in a span of just two weeks to $233 billion.

Simply explained, the U.S. Federal Reserve engages in foreign currency swaps to increase the global supply of dollars to ensure that credit markets in foreign countries do not freeze up, as most large commercial transactions still occur in U.S. dollars and not foreign currencies. Thus the swaps not only ensure liquidity in foreign countries but also help support the U.S. dollar by ensuring that the fates of other foreign economies remain tied to the fate of the U.S. dollar.

Recently, on April 6th, the U.S. Federal Reserve again announced that they would be increasing the existing $314 billion of foreign currency swaps by another $287 billion of availability in Euros, Yen, British Pounds and Swiss Francs. The addition of $287 billion of availability brings the combined potential size of this foreign swap market to $600 billion, a figure that coincidentally matches the size of the foreign currency swaps assumed by the Federal Reserve last December, when the U.S. Dollar index plummeted below 78.

Back then, the huge accumulation of foreign currency swaps on behalf of the Federal Reserve quickly provided support to the collapsing dollar and was able to reverse its downward trend. Since it worked so well back then, the U.S. Federal Reserve is employing the same tactic to continue fueling a U.S. dollar rally now.

The only thing for certain at this point is that the long-term trend of the U.S. dollar is still downward and that the Feds are employing the help of other Central Banks to keep the U.S. dollar propped up. Yesterday, the European Central Bank [ECB] revealed the breadth of U.S. dollar manipulations when it reported that it had sold gold reserves to buy more dollar reserves in 2008. Ludicrously, in light of these revelations, the ECB also simultaneously reported that it had not intervened in currency markets since 2000. As the sale of gold and the additional purchase of U.S. dollar reserves support U.S. dollar strength, how the ECB can state that their conversion of gold reserves into dollar reserves does not qualify as currency market intervention is baffling.

Given the behind-the-scenes actions in the currency markets, we can be sure that the U.S. Dollar’s current rally has been artificially created and is not a product of free markets. However, the one characteristic common to all free-market interventions, whether executed by Central Banks or governments, is that while they can cause assets to buck the trend in the short-term, they almost always fail in the long-term.

No comments:

Post a Comment