The Global system of Networked central banks with the 1694 Bank of England in the city of London is 314 years old. The first compounding interest commercial bank as you see them in operation today appeared in Spain 1400...
They are key to the Banking system...The First Central Bank as you see them today appeared in Venice 1172 but they are dependant upon the compounding interest commercial banking monetary system to sustain the domestic monetary system...
May 14, 1607, the Virginia Company explorers landed on Jamestown Island, to establish the Virginia English colony and from that point to the year 2000 the money supply of the USA went from zero to 25 Trillion dollars.
The first banknote issuing compounding interest commercial bank showed up in 1681 in what was to become the Massachusetts colony in 1692 and is now the Commonwealth of Massachusetts or as it's generally known the State of Massachusetts in the USA.
The USA has been a part of the 314 year old City of London Global economic system during its entire existence.
The Venice Global merchant banker system imploded in 1345 [and was followed by the conveniently timed 'Black Death' that wiped out most of Europe]...The system that existed prior to the current one that is 314 years old and about to implode.
The required amount of inflation to prevent but in reality postpone the inevitable implosion of the compounding interest commercial banking monetary system for as long as possible is...
Not too much and not too little but always greater than previous. The FED is an inflation fighter. Too much inflation and the system inflates to maximum potential rapidly and implodes...Too Little inflation causes the system to stop inflating which is maximum potential and it implodes...
Greater than previous is the problem.
Once the required amount of inflation to prevent but in reality postpone the inevitable implosion of the compounding interest commercial banking monetary system is infinite...It implodes.
The only way to satisfy the greater than previous inflation requirement is with Greater than infinite inflation. There is no such thing as greater than infinite inflation.
At maximum potential inflation the system implodes.
Currently consumers are requesting 11 Billion dollars a day or 1 Trillion every 90 days to be manufactured by the compounding interest commercial banks.
Another translation of Banker talk.
"If all the bank loans [Manufactured money] were paid up, no one would have a bank deposit, and there would not be a dollar of currency or coin [not exactly] in circulation. This is a staggering thought. We are completely dependent, on the [compounding interest] Commercial Banks. Someone has to borrow [Request the manufacture of] every dollar, we have in circulation, cash or credit. If the Banks create [At the request of the consumer] ample synthetic [All money is fiat] money, we are prosperous; if not, we starve. We are, absolutely, without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity, of our hopeless position, is almost incredible, but there it is. It is the most, important subject, intelligent persons can investigate and reflect upon. It is so important that our present civilization may [Not may...Inevitably will] collapse [Implode], unless it becomes widely understood, and the defects remedied very soon." [the remedy will cause the premature implosion]
--ROBERT H. HEMPHILL (Credit Manager of Federal Reserve Bank, Atlanta, Georgia 1938)
The next acceleration is 5 Trillion in 6 months. Then 3 months then 45 days then 23 days then 12 days then 6 days then 3 days then 36 hours then 18 hours then 9 hours then 4 hours then 2 hours then 1 hour then 30 minutes then 15 minutes...etc.
How about 1 Quadrillion (1000 Trillion) every Nanosecond (Billionth of a second)
Or the USA along with the global system (Civilization) implodes to oblivion.
When one gets a complete grasp of the picture, the tragic absurdity, of our hopeless position, is almost incredible, but there it is.
And ever since the 2002 telling of the magic printing press lie by Ben Bernanke I've had to put up with idiots.
Don't worry children...The deflationary dragon is not going to get you...we have a magic weapon that can slay the dragon for all eternity.
And all the scared children fell for it. It's the biggest lie that has ever come out of the FED in the history of the FED. But the most accepted lie...
Inflation comes before deflation.
Oil supports the dollar...so $100 oil causes the demand for dollars to spike.
But at that price the shock leaves lower economic zones starved and buckles the top economic zones.
Inflation needs to be sustained...as soon as the price spike shock runs out of momentum inflation collapses into deflation.
War is cover for the implosion and the beginning of the liquidation process. The fall generally occurs in September October. The fall...when everyone notices that summer does not last forever. It's a psychological shock point that can be capitalized on.
You were f***ed decades ago...American ingenuity...(ignorance) got you this far and now you are beginning to become unable to sustain American ingenuity (ignorance) any longer.
You all thought life was a game...and game over is almost here.
Bush is not going to pay...All the contempt for humanity you all have been exporting for decades is coming home to roost...Full force.
You all have no Idea what is about to hit you all.
I tremble for my country when I reflect that God is just; that his justice cannot sleep forever.
--Thomas Jefferson
And the real knee slapper is that you all think you are the victims.
You all are in for a rude awakening from the daydream into the nightmare.
First posted by me Mar 21, 2003...
"Condition for Victory in Iraq… What has to happen…
The Iraqi army has to turn on Saddam arrest him and hand him over to the American forces…
Then pledge allegiance to the US and repress the Iraqi people and other various factions into submission and disarm them of their small arms, smuggled heavy arms and improvised munitions…
Then US troops can enter Baghdad and oversee the imposition of democracy… and a new Iraqi Constitution written by the US that states that you will have complete freedom except you mention oil then you are in big trouble…
And if this scenario goes off like clockwork 500 thousand to 1 million people at most would die in the aftermath…
All this has to start to take place in the next few days…
How will the US suffer defeat?
(real)Shock and Awe, news blackout, and then urban combat in a rubble pile…
And if this scenario goes off like clockwork 6-7 million people at most would die in the aftermath and Baghdad would be an unrepairable nuclear waste dump…
So far we are headed for a tactical defeat...
------------------------------------------------
“Asked whether he favored any policy changes in Iraq (Due to resistance), Sen. Trent Lott (R-Miss.) responded Oct, 2003:
“Honestly, it’s a little tougher than I thought it was going to be,”... “If we have to, we just mow the whole place down"
Yup, just kill them all and let GOD sort them out.
I have a functional ability to think. You all have a functional ability to react to stimulus like Pavlovs dogs. That is the difference between me and you all.
It's why the USA is swirling the bowl. Screaming We have not yet begun to fight.
It's a pathetic Gong show...Total barf bag material.
Fight?
I don't have to do anything except watch the whole mess swirl the bowl.
In the end you will be blaming everyone and everything else except the person in the mirror."
The plan going in was doomed from square one. It just looked like a looting and pillage operation to me. That's all it was.
The talk of Liberation and democracy...etc?
Absurd.
Only Downs Syndrome sufferers could have thought the invasion of Iraq was somehow the product of benevolence.
It has nothing to do with controlled media really...They accurately reported the obvious lies that the authorities were telling the population...
Go turn on the TV right now and get some more.
It's all due to the ignorance of the general population of the USA. You all don't have a clue what is right, wrong, truth, or lies. Whatever causes you to feel good is good and whatever causes you to feel bad is bad.
The USA is going down in flames that were, I'm sorry to say, self-inflicted. You all voted to commit mass suicide.
None of you know how the system operates so it's impossible to take over ultimately.
Those that do know let the bottom flip out and exhaust themselves trying to obtain what they never will or attempt to get back what they never had...
Once that futile struggle burns itself out and the dust settles...
Those that know take over again...That has been the MO since forever.
It was always an evil system. All that an absolute capitalist system can do is take more power than it gives until maximum potential power is reached then it implodes...poof.
Terror has been a legitimate political agenda that is as old as civilization. Need something to herd all you peasants when conventional methods of manipulation become ineffective.
By consent or conquest the employees of the enterprise will perform as required.
But people or assets that transform into unfundable liabilities generally don't like to be liquidated...
You know?
Wiped off the face of the ledger every now and then.
It hurts your feelings.
You all think this is a game?
Posted by Cheryl-Lynné Rose Henderson at 4:49 AM 16 comments
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Anonymous Coward User ID: 424439 4/28/2008 8:09 AM
Re: Watch, Its happening ,the global economic change.
Bailing out banks is not capitalism - that is corporate socialism. Free-market capitalism is an oxymoron. True free markets dont exist. The capitalist model eventually means that all profits be consolidated within a small group of people who will try to build barriers to entry to maintain a monopoly/oligopoly.
Quoting: Anonymous Coward 424400
I think people on this thread are waking up to the fact that all the labels we've used for the past century - socialism, communism, corporatism, fascism, voodoo economics and the modern sacred cow called "the free market" are but different facets of the same thing.
It seems to me these are all just ways of hoovering up capital and concentrating it in the hands of a very small elite. To be sure there are more "wealthy" people around in the West than ever before but most are merely corporate functionaries. They pale in comparison to the corporate owners who are, quite simply, a class apart. What they desire is not "money" but "control".
Why did Wall St back the Communist Revolution in Russia and then bankroll Hitler? Why were a whole generation of Third World revolutionaries funded by American interests... and then a generation of Latin American dictators educated at the School of the Americas? Why was the modern "free market" prototyped by Chicago economists in Pinochet's Chile?
They want us to lay down our lives in defense of our chosen political/economic system whilst they orchestrate the whole show! Isn't this the core of conspiracy theory: to realise that all the ideals we're taught to respect are merely labels?
It's not conspiracy if you see through the illusion!
Anonymous Coward User ID: 402217 5/2/2008 1:01 AM
Re: Watch, Its happening ,the global economic change.
Numbers Racket
Why the economy is worse than we know
KEVIN PHILLIPS
Harper's Magazine v.316, n.1896 1may2008
Mindfully.org note:
This article is from the original. It is not complete. To obtain the complete article, please go to Harper's Magazine.
Kevin Phillips's new book, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, was published last month by Viking.
If Washington's harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.
The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy's overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being "anchored" as food and energy costs begin to soar.
The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3–4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?
Let me stipulate: the deception arose gradually, at no stage stemming from any concerted or cynical scheme. There was no grand conspiracy, just accumulating opportunisms. As we will see, the political blame for the slow, piecemeal distortion is bipartisan—both Democratic and Republican administrations had a hand in the abetting of political dishonesty, reckless debt, and a casino-like financial sector. To see how, we must revisit forty years of economic and statistical dissembling.
Two Views of Consumer Inflation
Sources: John Williams, ShadowStats.com
U.S. Bureau of Labor
A SHORT HISTORY OF "POLLYANNA CREEP"
The story starts after the inauguration of John F. Kennedy in 1961, when high jobless numbers marred the image of Camelot-on-the-Potomac and the new administration appointed a committee to weigh changes. The result, implemented a few years later, was that out-of-work Americans who had stopped looking for jobs—even if this was because none could he found—were labeled "discouraged workers" and excluded from the ranks of the unemployed, where many, if not most, of them had been previously classified. Lyndon Johnson, for his part, was widely rumored to have personally scrutinized and sometimes tweaked Gross National Product numbers before their release; and by the 1969 fiscal year, Johnson had orchestrated a "unified budget" that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in the former to mask the emerging deficit in the latter.
Richard Nixon, besides continuing the unified budget, developed his own taste for statistical improvement. He proposed albeit unsuccessfully—that the Labor Department, which prepared both seasonally adjusted and non-adjusted unemployment numbers, should just publish whichever number was lower. In a more consequential move, he asked his second Federal Reserve chairman, Arthur Burns, to develop what became an ultimately famous division between "core" inflation and headline inflation. It the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of "volatility," categories that happened to he troublesome: at that time, food and energy. Core inflation could he spotlighted when the headline number was embarrassing, as it was in 1973 and 1974. (The economic commentator Barry Ritholtz has joked that core inflation is better called "inflation ex-inflation"—i.e., inflation after the inflation has been excluded.)
I n 1983, under the Reagan Administration, inflation was further finagled when the Bureau of Labor Statistics decided that housing, too, was overstating the Consumer Price Index; the BLS substituted an entirely different "Owner Equivalent Rent" measurement, based on what a homeowner might get for renting his or her house. This methodology, controversial at the time but still in place today, simply sidestepped what was happening in the real world of homeowner costs. Because low inflation encourages low interest rates, which in turn make it much easier to borrow money, the BLS's decision no doubt encouraged, during the late 1980s, the large and often speculative expansion in private debt—much of which involved real estate, and some of which went spectacularly bad between 1989 and 1992 in the savings-and-loan, real estate, and junk-bond scandals. Also, on the unemployment front, as Austan Goolsbee pointed out in his New York Times op-ed, the Reagan Administration further trimmed the number by reclassifying members of the military as "employed" instead of outside the labor force.
The distortional inclinations of the next president, George H.W. Bush, came into focus in 1990, when Michael Boskin, the chairman of his Council of Economic Advisers, proposed to reorient U.S. economic statistics principally to reduce the measured rate of inflation. His stated grand ambition was to move the calculus away from old industrial-era methodologies toward the emerging services economy and the expanding retail and financial sectors. Skeptics, however, countered that the underlying goal, driven by worry over federal budget deficits, was to reduce the inflation rate in order to reduce federal payments—from interest on the national debt to cost-of-living outlays for government employees, retirees, and Social Security recipients.
It was left to the Clinton Administration to implement these convoluted CPI measurements, which were reiterated in 1996 through a commission headed by Boskin and promoted by Federal Reserve Chairman Alan Greenspan. The Clintonites also extended the Pollyanna Creep of the nation's employment figures. Although expunged from the ranks of the unemployed, discouraged workers had nevertheless been counted in the larger workforce. But in 1994, the Bureau of Labor Statistics redefined the workforce to include only that small percentage of the discouraged who had been seeking work for less than a year. The longer-term discouraged—some 4 million U.S. adults—fell out of the main monthly tally. Some now call them the "hidden unemployed." For its last four years, the Clinton Administration also thinned the monthly household economic sampling by one sixth, from 60,000 to 50,000, and a disproportionate number of the dropped households were in the inner cities; the reduced sample (and a new adjustment formula) is believed to have reduced black unemployment estimates and eased worsening poverty figures.
Despite the present Bush Administration's overall penchant for manipulating data (e.g., Iraq, climate change), it has yet to match its predecessor in economic revisions. In 2002, the administration did, however, for two months fail to publish the Mass Layoff Statistics report, because of its embarrassing nature after the 2001 recession had supposedly ended; it introduced, that same year, an "experimental" new CPI calculation (the C-CPI-U), which shaved another 0.3 percent off the official CPI; and since 2006 it has stopped publishing the M-3 money supply numbers, which captured rising inflationary impetus from bank credit activity. In 2005, Bush proposed, but Congress shunned, a new, narrower historical wage basis for calculating future retiree Social Security benefits.
By late last year, the Gallup Poll reported that public faith in the federal government had sunk below even post-Watergate levels. Whether statistical deceit played any direct role is unclear, but it does seem that citizens have got the right general idea. After forty years of manipulation, more than a few measurements of the U.S. economy have been distorted beyond recognition.
What Does "Unemployment" Mean?
Including workers who are
part-time for "economic reasons"
Including other "marginally
attached" workers
Including "discouraged" workers
The official "unemployment rate"
source: US Bureau of Labor Statistics
AMERICA'S "OPACITY" CRISIS
Transparency is the hallmark of democracy, but we now find ourselves with economic statistics every bit as opaque—and as vulnerable to double-dealing—as a subprime CDO. Of the "big three" statistics, let us start with unemployment. Most of the people tired of looking for work, as mentioned above, are no longer counted in the workforce, though they do still show up in one of the auxiliary unemployment numbers. The BLS has six different regular jobless measurements—U-1, U-2, U-3 (the one routinely cited), U-4, U-5, and U-6. In January 2008, the U-4 to U-6 series produced unemployment numbers ranging from 5.2 percent to 9.0 percent, all above the "official" number. The series nearest to real-world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the "marginally attached," a new catchall meaning those not looking for a job but who say they want one. Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been "bought off the unemployment rolls" by government programs such as Social Security disability, whose recipients are classified as outside the labor force.
Second is the Gross Domestic Product, which in itself represents something of a fudge: federal economists used the Gross National Product until 1991, when rising U.S. international debt costs made the narrower GDP assessment more palatable. The GDP has been subject to many further fiddles, the most manipulatable of which are the adjustments made for the presumed starting up and ending of businesses (the "birth/death of businesses" equation) and the amounts that the Bureau of Economic Analysis "imputes" to nationwide personal income data (known as phantom income boosters, or imputations; for example, the imputed income from living in one's own home, or the benefit one receives from a free checking account, or the value of employer-paid health-and-life-insurance premiums). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP. John Williams, the economic statistician, is briskly contemptuous of GDP numbers over the past quarter century. "Upward growth biases built into GDP modeling since the early 1980s have rendered this important series nearly worthless," he wrote in 2004. "[T]he recessions of 1990/1991 and 2001 were much longer and deeper than currently reported [and] lesser downturns in 1986 and 1995 were missed completely."
Nothing, however, can match the tortured evolution of the third key number, the somewhat misnamed Consumer Price Index. Government economists themselves admit that the revisions during the Clinton years worked to reduce the current inflation figures by more than a percentage point, but the overall distortion has been considerably more severe. Just the 1983 manipulation, which substituted "owner equivalent rent" for home-ownership costs, served to understate or reduce inflation during the recent housing boom by 3 to 4 percentage points. Moreover, since the 1990s, the CPI has been subjected to three other adjustments, all downward and all dubious: product substitution (if flank steak gets too expensive, people are assumed to shift to hamburger, but nobody is assumed to move up to filet mignon), geometric weighting (goods and services in which costs are rising most rapidly get a lower weighting for a presumed reduction in consumption), and, most bizarrely, hedonic adjustment, an unusual computation by which additional quality is attributed to a product or service.
The hedonic adjustment, in particular, is as hard to estimate as it is to take seriously. (That it was launched during the tenure of the Oval Office's preeminent hedonist, William Jefferson Clinton, only adds to the absurdity.) No small part of the condemnation must lie in the timing. If quality improvements are to be counted, that count should have begun in the 1950s and 1960s, when such products and services as air-conditioning, air travel, and automatic transmissions—and these are just the A's!—improved consumer satisfaction to a comparable or greater degree than have more recent innovations. That the change was made only in the late Nineties shrieks of politics and opportunism, not integrity of measurement. Most of the time, hedonic adjustment is used to reduce the effective cost of goods, which in turn reduces the stated rate of inflation. Reversing the theory, however, the declining quality of goods or services should adjust effective prices and thereby add to inflation, but that side of the equation generally goes missing. "All in all," Williams points out, "if you were to peel back changes that were made in the CPI going back to the Carter years, you'd see that the CPI would now be 3.5 percent to 4 percent higher"—meaning that, because of lost CPI increases, Social Security checks would be 70 percent greater than they currently are.
Furthermore, when discussing price pressure, government officials invariably bring up "core" inflation, which excludes precisely the two categories—food and energy—now verging on another 1970s-style price surge. This year we have already seen major U.S. food and grocery companies, among them Kellogg and Kraft, report sharp declines in earnings caused by rising grain and dairy prices. Central banks from Europe to Japan worry that the biggest inflation jumps in ten to fifteen years could get in the way of reducing interest rates to cope with weakening economies. Even the U.S. Labor Department acknowledged that in January, the price of imported goods had increased 13.7 percent compared with a year earlier, the biggest surge since record-keeping began in 1982. From Maine to Australia, from Alaska to the Middle East, a hydra-headed inflation is on the loose, unleashed by the many years of rapid growth in the supply of money from the world's central banks (not least the U.S. Federal Reserve), as well as by massive public and private debt creation.
THE U.S. ECONOMY EX-DISTORTION
The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional "Pollyanna Creep," what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally.
Undermeasurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy. Moreover, the rising cost of pensions, benefits, borrowing, and interest payments—all indexed or related to inflation—could join with the cost of financial bailouts to overwhelm the federal budget. As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering.
Arguably, the unraveling has already begun. As Robert Hardaway, a professor at the University of Denver, pointed out last September, the subprime lending crisis "can be directly traced back to the [1983] BLS decision to exclude the price of housing from the CPI. . .With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectations of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates." Were mainstream interest rates to jump into the 7 to 9 percent range—which could happen if inflation were to spur new concern—both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope.
The credit markets are fearful, and the financial markets are nervous. If gloom continues, our humbugged nation may truly regret losing sight of history, risk, and common sense.
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IMAGINE the Reserve Bank of Australia, concerned that its friends in the city of Sydney (but perhaps Melbourne) who, having wallowed in wealth all their adult lives, were no longer gainfully employable and their wildly extravagant lifestyles were in danger, and, having the powers to intervene in the market, decided to do just that on their behalf.
Imagine them offering to enter the market and buy shares that would prop up the foolish gambles of the bankers, gambles they had encouraged them, until recently, to take by providing them with cheap money.
On top of that, they told this group they would provide hundreds of billions of dollars in credits to these same profiteers on the grounds they were so big and important to the economy they were indeed too big to fail.
Then, imagine, despite pouring untold taxpayers money into stocks and allowing their cronies access to vast sums, the system continued to fail. So they announced they would need greater power and with it more secrecy.
For its growing band of critics has, perhaps unwittingly and in the interest of public good, this has become the principal function of the US Federal Reserve.
If this was to happen in Australia the International Monetary Fund would be hammering at the door of the Reserve Bank. But Australia does not have a President's Working Group on Financial Markets, commonly known as the Plunge Protection Team, that allows the US Government to prop up the markets by buying shares. But to imagine the IMF investigating the US financial system is unthinkable, or was. But, at the weekend, Der Spiegel reported that the IMF would conduct a full investigation into virtually every aspect of it.
Der Spiegel wrote that the IMF had "informed" Federal Reserve chairman Ben Bernanke of plans that would have been unheard of in the past: a general examination of the US financial system. The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program is to be carried out in the US.
This, Der Spiegel wrote, "is nothing less than an X-ray of the entire US financial system", adding that "no Fed chief in US history has been forced to submit to the kind of humiliation that Ben Bernanke is facing".
The fact that the IMF is knocking on the very doors of its parents and waving legal papers about who lost the house, the car and the kids will, if the past is anything to go by, be buried in the US by pom-pom waving on CNBC telling all what a great time it is to buy.
But the news that the US Fed has now lost its last vestige of credibility did not end with the German report.
The Telegraph from London weighed in, following the Royal Bank of Scotland's statement last week (also lost on the US public) that it was time to head for the crags, and reported Barclays Capital's closely watched Global Outlook analysis that said US headline inflation would hit 5.5% by August and the Fed would have to raise interest rates six times by the end of next year to prevent a wage spiral.
If the Fed hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it," the report found. "They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility."
Der Spiegel reports that the IMF is threatening to seriously study the accounts of America, something President George Bush is determined to prevent at least while he is in the White House, informing the IMF that it can begin its investigation but cannot complete it until he leaves office.
But the reckoning will come and it will shine a light in places where light has been desperately wanted for all too long.
"As part of the assessment," Der Spiegel said, "the Fed, the Securities and Exchange Commission, the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team. They will be required to answer the questions they are asked during interviews. Their databases will be subjected to so-called stress tests — worst-case scenarios designed to simulate the broader effects of failures of other major financial institutions or a continuing decline of the dollar."
Under its by-laws, the IMF is charged with the supervision of the international monetary system. About two-thirds of IMF members — but never the US — have already endured this painful procedure.
Australian banks have been buffeted by the storms generated in the US, but strict standards enforced by a Reserve Bank that is independent of private banking interests has prevented such excesses, as vouched by their performance as compared with the broker-trader banks and the retail banks of the US. Shares in once-massive banks and brokerage firms have been stripped by as much as 70%, 80% and even almost 100%. We are taking a trim while US banks are getting a full haircut and shave.
Part of the problem is the US media, which has for so long pretended that all is or soon will be well, a bottom is near, a recovery awaits in the second half of the financial year that will sweep away all problems, sown over decades, in a new expansion, a cycle that is ordained to come. The latest fantasy is that with the quarter's end, new profit figures will invigorate the bull, which will seed fertility.
The next President will be handed at least two wars gone horrible wrong and, by then, an economy in similar shape. The bull will have to be a particularly fertile beast.
Der Spiegel reports: "When the final report on the risks of the US financial system is released in 2010 — and it is likely to cause a stir internationally — only one of the people in positions of responsibility today will still be in office: Ben Bernanke."
While Der Spiegel claims that IMF intervention (my expression) is a humiliation for the US, the real significance may be that this is another blow to American exceptionism.
While the examination is far reaching, and deeply intrusive, Canada, Britain, Italy, indeed two-thirds of IMF members, have participated in the program. The new President will soon discover the age of US exceptionism is over.
Meanwhile the US markets have entered bear territory, the economy has done likewise and we are at the beginning of a long and tortuous process before rebuilding can even commence.
David Hirst is a journalist, documentary maker, financial consultant and investor. His column, Planet Wall Street, is syndicated by News Bites, a Melbourne-based sharemarket and business news publisher. [link to freewordofgod.yuku.com]
FU&FW
June 30th, 2008
The Moulin Rouge Housing Bubble: 3 Fascinating Stories. Who Moved my Compensation Package? Free Spouse and Granite Countertop with Home Purchase. You Mean You Still Had Those Horrible Loans?
“One should always play fairly when one has the winning cards.” -Oscar Wilde
Take a deep breath. The first half of the year has officially come to an end. Talk about a brutal time for the markets. The housing market is still in a deep slump and oil jumped from $99.62 a barrel in January to the current $140 price tag. A stunning 40% jump in crude in 6 months. At this rate, we’ll be nearing $200 come New Year’s Eve. With this high price tag, U.S. automakers have been struggling to keep their fuel inefficient cars on the road and airlines struggle to remain viable. On top of that, the American consumer is facing evaporating equity, higher food costs, a worsening housing market, and a massively declining dollar. But there is some good news. CEOs that engineered a large part of the credit garbage and mortgages that went along with it are making out just fine!
Americans are reeling from the Great American Garbage Mortgage Experiment (GAG-ME), the one that included loans where you had the ability to pick your own payment and some that allowed you to cash out every year as if your house was an ATM. The engineers of these products are doing just fine while some of their companies are quickly going into penny stock territory quickly following many that signed onto these loans.
As people become more desperate, you are starting to see some of the weirdest parts of human nature emerge. Money problems have a way of doing this to folks. That is why one of the stories we’ll highlight today is simply stunning. A realtor in Florida is trying to sell her home and trying to get married, all in one shot. This isn’t the way your mom and pop met, you can rest assured.
We are also going to discuss Wachovia’s press release in which they are waiving the pre-payment fee associated with their Pick-A-Payment loan and also their discontinuation of pay option products including negative amortization loans. You mean those where the family is ecstatic on TV since they get the option of picking their payment as if they were ordering off the McDonald’s dollar menu? One of the many reasons why the $500 billion Pay Option ARM disaster is going to be one of the major stories of the second half.
Someone is Still Making Money and it Ain’t You!
Most Americans are feeling the bitter sting of this economic prosperity. I call this prosperity because we can’t officially call it a recession. Yeah, home prices are down 15% on a national level and in California, the median price is now down 35% but all is well. In fact, those stimulus checks boosted spending a bit! Yet this is tantamount to giving a heroine addict a “little taste for old time sake” before hitting rehab. And by the way that “stimulus” was pulled out of thin air since we are running bigger deficits so it wasn’t like we went to WaMu and withdrew some money. Speaking of WaMu, some people are getting big pay for those Pay Option ARMs:
According to the AFL-CIO
Chairman and CEO, Kerry Killinger
Salary: $1,000,000
Vested Stock Awards: $669,104*
Vested Option Awards: $3,183,914*
All Others: $397,752
SEC Total: $5,250,770
There is another calculation from the AFL-CIO’s own estimates:
*Grant Date Fair Value of Stock and Option Awards: $12,967,131
AFL-CIO Total: $14,364,883
Not bad for running a company that has nearly half of their loans in option-adjustable mortgages with the bulk being in imploding California!
“(wiki-invest) In early 2006, the Home Loans Group was strategically focused on building its non-traditional mortgage origination and investment; in particular, the Home Loans portfolio consisted of 46% option-adjustable rate mortgages (option-ARMs) and 11% subprime mortgages.”
But this post has come to an end:
“(ABC news June 19, 2008) Mounting losses caused the thrift this year to slash its dividend and raise $7 billion of capital that diluted existing shareholders. The thrift this month stripped Chief Executive Kerry Killinger of his role as chairman, after a majority of shareholders voted to name an independent director as chairman.
Washington Mutual has said it may still need to charge off $12 billion to $19 billion of its $187 billion one-family residential home loan portfolio within four years.”
The current market cap of WaMu is $5.21 billion and they have a $187 billion home loan portfolio? Talk about maximum leverage! Those loss estimates are extremely optimistic given the banana republic nature of California and that fact that we probably won’t see a state budget until August or September.
Who else is making tons of money while you aren’t? That loveable Angelo Mozilo from Countrywide is racking in the dough. Now there is nothing wrong with making money but making money from toxic destructive products that have put our nation’s financial security at risk is. Have these products really improved the lives of Americans or added value to the health of our economy? Let us look at the compensation here:
Chairmen and CEO Countrywide (2006 Compensation), AFL-CIO
Salary: $2,866,667
Vested Stock Awards: $1,103,745
Vested Option Awards: $23,047,104
Non-equity Incentive Plan Compensation: $20,461,473
Changes in Pension Value and Non-Qualified Deferred Compensation Earnings: $10,961
All Others: $286,257
SEC Total: $48,133,155
Good job Bank of America is helping out this poor company. I mean how did people ever live without interest only, pay option arm, 2/28, 3/27, and other exotic mortgages? Whenever you feel bad about the economy which was caused by this hyper easy credit and housing speculation, you can look at these compensation packages and you’ll certainly feel better. But if you are having problems selling your home may I suggest holy matrimony?
I Do…After you Sign That Mortgage Contract.
In one of the more interesting cases of deal making, a divorced realtor in Florida is offering her home for sale…she’s included:
woman.jpg
*Click to watch video and new definition of “housewife”
I love how the media is playing this up as “woman selling home, hand in marriage on EBay” as if this was a case of finding “true” love. Now I don’t want to be the anti-Romeo here but give me a freaking break! Next we are going to see ads like:
“Great deal on slightly used Hummer. Free massage and gas card with purchase.”
Bwahahaha! This is as much about finding love as the Moulin Rouge is about visiting a confessional. I have an uneasy feeling with this one. I’ve gotten a few e-mails from readers showing me some “realtors” on Myspace with provocative photos. Now let us not kid ourselves and pretend that sex does not sell. Sex does sell. My issue with this story is the romanticism the media is trying to spin on this. Do you folks really believe this is a love story or a desperate ploy to avoid financial ruin? Also, has marriage become so baseless that all it takes is an eBay ad to commit to someone? In addition, I’m sure most of you are financially savvy and realize that the number one reason for divorce is financial issues. Now using your logic, why would you get involved with a realtor that is now in a major negative equity position? Look at her reasoning:
“(team sugar) I figured, let’s combine the ad because I’m looking for love and I’m looking to sell the house,” said Trabosh.
“Marry a Princess Lost in America,” Trabosh wrote in the ads posted on eBay and Craigslist last week. She describes a life of romance and travel and a home with vaulted ceilings, upgraded tile and a soaking tub in a gated community with a pool and tennis courts.
Trabosh, a licensed real estate agent who hasn’t practiced in years, knew she would struggle to sell the home in the troubled real estate market, but insists her fairy-tale ad isn’t just a sales gimmick.
“I’m struggling … I don’t want to lose my house, and I want to find somebody,” Trabosh said. “So I came up with this dream plan because I’ve always dreamt about being a fairy-tale princess.”
And Santa Clause is going to give all of us gold bricks because we’ve been good boys and girls. Seriously folks, what are your thoughts with this?
Pick a Nose Loans Just Got Tastier
The most toxic loans as I have referenced many times on this site, are the Pay Option ARM mortgages. These are the most toxic since they give people the ability to pay from a menu of options. You can pay the fully 30-year fixed amount, an interest only amount, or the ever popular negative amortization amount. By the way, many reports estimate that 80 percent of people elected to pay the absolute minimum.
Most people by now should know that these loans should be avoided at all costs. So Wachovia announcing that they are eliminating their Pick-A-Payment loans is as shocking as someone telling us water is wet:
“(Yahoo!) Effectively immediately, Wachovia is waiving all prepayment fees associated with its Pick-A-Pay mortgage to allow customers complete flexibility in their home financing decisions. This includes all Pick-A-Pay mortgages on 1-4 unit residences.
Additionally, for all new loan originations, Wachovia is discontinuing offering products that include payment options resulting in negative amortization.
Wachovia continues to be actively engaged in assisting customers through a number of programs to provide mortgage relief to help them avoid foreclosure. Over the past 12 months, Wachovia has worked with approximately 18,000 homeowners to help them stay in their homes and make payments that are more manageable under their current circumstances.”
Too bad a large amount of these loans are in California. Who in their freaking right mind would refinance a home that is underwater in this state? The only one nutty enough to do such a thing is the government and that is why they are trying to pass that absurd bailout plan. After all, the median price is now down 35% and shows no signs of letting up! I’ve already talked about how $1 trillion in write-downs are estimated to come down the pipe-line and we’ve only seen $391 billion so far.
Needless to say, another mortgage lender suspected of easy lending, IndyMac is now riding in the penny stock range hitting an all time low of .62 cents. Sure is a far cry from that $48 a few years ago:
indy.jpg
Be safe with your money and stay away from the charlatans and credit addicts that are trying to suck in those who responsibly stayed out of this smoke and mirrors bubble. You thought the first half way insane? Just wait until the next few months with the upcoming election, acceleration in foreclosures, state craptastic budgets, and further write-downs. And some still believe there will be a second half recovery. Now that is the true fairy-tale.
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3 comments »
Comment by Scott
MyAvatars 0.2
July 1st, 2008 at 5:19 am
If anyone has any doubts that the excrement is not about to blow through the turbine of our financial system consider that Indymac “Bank” now offers an annual dividend that EXCEEDS its share price. For 62 cents a share Indymac offers you a $1 dividend! Want to retire on $100,000/year but only have $62,000 in savings. Indymac stock offers you this once in a lifetime opportunity.
Other financial institutions lacking the know how and strength of Indymac can, nonetheless, offer you solid returns on your money. In a world of 2-3% interest
rates on your deposits you need only convert your low earning deposits into the shares of the same bank to earn much more. Wachovia offers dividends paying 9.2% and Bank America a rich 10.4%.
These are not some exotic convertible debentures or preferred share invesment opportunity available only to mega investors and hedge funds. These are the yields on common stock available to anyone with an account at Schwab, Scott Trade or TD Ameritrade. Its only a ‘click’ away.
These are professionally run banking institutions not some mom and pop mortgage brokerage or pay day loan company. Solid, venerable institutions chartered and regulated by the United States government so how risky could such investments be?
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Comment by John
MyAvatars 0.2
July 1st, 2008 at 6:00 am
“I’m struggling … I don’t want to lose my house, and I want to find somebody,” Trabosh said. “So I came up with this dream plan because I’ve always dreamt about being a fairy-tale princess.”
This is why I hate living in the states and why I am moving back overseas soon. This child like stupidity that people have in this country. She always dreamt of being a fairly tale princess? She is a 42 year old used up divorcee. Here is my dream, I dreamt that after years of frugal living, saving, prudent investing and hard work I would actually be able to enjoy the fruits of my labor. Instead it seems it will be taxed and inflated away to bail out fools like this. Amerika, what a country.
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Comment by mary
MyAvatars 0.2
July 1st, 2008 at 6:02 am
So if you trade a house as well as access to your chocha it’s not considered prostitution and you get on MSNBC? What a country… [link to freewordofgod.yuku.com]
For those who understand, don't expect the worst to really hit home, till after the olympics, in the mean time watch and pray(many reasons why), also up-front empires don't generally go off peacefully into their sunsets(there is a one major recent exception to that), they kick and scream and try to drag all nearby down with them(consciously and unconsciously) if they have any capacity to do so.
Still it is also not wise to not take into consideration the machinations behind the scene/s, the pushing and shoving and worse, to become ubermeister, this is occurring at many levels, many spheres. [link to freewordofgod.yuku.com]
This is what can happen, because it did before, same country too.
FU&FW
"On April 5, 1933, under Presidential Executive Order 6102, the United States Government seized all the gold owned by its citizens. The government also seized everyone's bank safe deposit box and then declared that those boxes could not be opened except in the presence of a representative of the United States Government. Although this action made the government, its officials, and the surviving bankers richer it did nothing to help relieve the suffering of ordinary people. The Depression continued to get worse for approximately 12 more years."
I would like to thank John Gault, Paladin, Omega and many others for their contributions, and for those who want to read what they have to say, use advanced search here to locate them and their threads here at GLP, and google for their www stuff. [link to freewordofgod.yuku.com]
Anonymous Coward User ID: 458378 7/6/2008 12:37 AM
Re: Watch, Its happening ,the global economic change.
Can one of you, who seem to be really 'knowing' in these financial things, tell me why there is this financial problem?
There really is no money anyway!.....So, all of these things are numbers only. Why can't they just make the numbers fit?
I feel really silly asking this question, but at the bottom of it lies the feeling that they could do just that, if they wanted to.
Only, it wouldn't create more riches (that don't exist) for them.????
Quoting: Alzaya
How is money created?
What is a fractional reserve system?
Try these vids for starters:
Money As Debt (1 of 5)
Money As Debt (2 of 5)
Money As Debt (3 of 5)
Money As Debt (4 of 5)
Money As Debt (5 of 5)
After watching these videos, it becomes apparent how a fiat money system is ultimately unsustainable.
And I think the unethical OTC derivatives market meltdown is at the center of our fiat money inflationary problems. The real estate and coming credit card meltdowns are just further symptoms of the failed system.
The next question is: Is this by design? Are TPTB knowingly and willfully crashing global markets on purpose? Are they purposefully raping the markets and then, to add insult to injury, are they now securing taxpayer bailouts to rape taxpayers even further? Are they preparing for a global reboot of the worldwide financial systems?
Will they use this global crash as an excuse to force the world into accepting a single global market, complete with a single global central bank, and a single global currency? Perhaps in the modern countries it'll be a digital-only currency that they can manipulate at will?
How easy would control be if they could simply and remotely turn off your new Real ID Citizenship/Digicash Smart Card? "Oh look, you can no longer get into a gov't building or fly or drive through a toll booth or get into a bar or buy or sell anything." How quaint.
So I was relieved that Bill Bonner here at The Daily Reckoning stepped up to take over for me, and he further explained that pegging against a basket of currencies, or anything else that is pegged to the dollar, is a loser because "The dollar has fallen against other major currencies. Against the euro, for example, it is worth barely half what it was at its high, which was reached shortly after the euro was launched 10 years ago. Against gold, it is worth only about a third of what it was worth 10 years ago. And against oil … the loss has been even greater - it's down about 80%." [link to freewordofgod.yuku.com]
IndyMac Seized by U.S. Regulators; Schumer Blamed for Failure
By Ari Levy and David Mildenberg
July 12 (Bloomberg) -- IndyMac Bancorp Inc. became the second- biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the California mortgage lender short on cash.
The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank FSB, starting next week, the Office of Thrift Supervision said in an e-mail yesterday. The regulator blamed U.S. Senator Charles Schumer for creating a ``liquidity crisis'' after a letter on June 26, in which he expressed concern that the bank may fail.
The Pasadena, California-based lender specialized in so-called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes. The demise adds to the crisis caused by the subprime collapse and may mean regulators will have to raise more money to support the federal deposit insurance program that repays customers when a bank fails.
``IndyMac is the vanguard, the precursor of more stuff coming,'' said Christopher Whalen, managing director of Institutional Risk Analytics, a market research company in Torrance, California. ``It's not surprising to see IndyMac resolved. What you have to ask is what's coming next. It's going to be a wave of medium to bigger-than-medium institutions.''
IndyMac's home state, where Countrywide Financial Corp. was also located before it was bought last week, has been among the hardest hit by foreclosures. California ranked second among U.S. states, with one foreclosure filing for every 192 households in June, 2.6 times the national average.
IndyMac's Losses
The lender racked up almost $900 million in losses as home prices tumbled and foreclosures climbed to a record. IndyMac becomes the largest OTS-regulated savings and loan to fail, according to the FDIC.
Mortgages serviced by IndyMac will be turned over to the FDIC and the regulator will be reaching out to customers immediately, Chairman Sheila Bair said on a conference call yesterday. Customers will have access to funds this weekend via automated teller machines and electronically and by phone starting next week.
The FDIC intends to sell IndyMac within 90 days, preferably as a single entity, Bair said. If that doesn't work, the lender will be sold off in pieces, she said.
After peaking at $50.11 on May 8, 2006, IndyMac shares lost 87 percent of their value in 2007 and another 95 percent this year. The stock fell 3 cents to 28 cents yesterday.
Schumer's Comments
IndyMac came under fire last month from Schumer, the Democrat from New York, who said lax lending standards and deposits purchased from third parties left it on the brink of failure. During the 11 business days after Schumer explained his concerns in a June 26 letter, depositors withdrew more than $1.3 billion, the OTS said.
``This institution failed due to a liquidity crisis,'' OTS Director John Reich said in the statement. ``Although this institution was already in distress, I am troubled by any interference in the regulatory process.''
Schumer blamed IndyMac's own actions and regulatory failures for the bank's seizure.
``If OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today,'' Schumer, a New York Democrat, said in an e-mail yesterday. ``Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.''
The failure will cost the federal deposit insurance program about $4 billion to $8 billion, the FDIC said. Some $1 billion of uninsured deposits are held by about 10,000 customers, the FDIC said. Those depositors will get an ``advance dividend'' equal to half the uninsured amount, according to the statement.
Firing Workers
The FDIC insures $100,000 per depositor per insured bank, according to the agency's Web site. Customers may qualify for more coverage depending on the type of accounts they own, and some retirement accounts have a $250,000 limit.
IndyMac announced on July 7 that it was firing half its employees. The lender agreed to sell most of its retail mortgage branches to Prospect Mortgage, giving the Northbrook, Illinois based-company more than 60 branch offices with 750 employees. IndyMac also has a retail bank network with 33 branches and $18 billion in deposits, mostly insured by the FDIC.
The company was started in 1985 by Countrywide founders Angelo Mozilo and David Loeb under the name Countrywide Mortgage Investments. In 1999, it converted into a bank from a real estate investment trust. That year, Michael Perry replaced Mozilo as chief executive officer.
Under Perry's leadership, profit more than doubled from $118 million in 2000 to $343 million in 2006 amid the housing boom. The stock more than tripled over that stretch.
Perry will not be continuing with the new FDIC-controlled institution, while other executives will be retained, Bair said. The FDIC's John Bovenzi will assume the CEO role.
To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net [link to freewordofgod.yuku.com]
Surprising how little talk there has been around here about Fannie Mae and Freddie Mac, whose shares this morning are down to about $10 and $6, respectively.
The WSJ's editors put it in perpective yesterday:
Investors are saying that a Bear Stearns-like run on the companies is a real possibility, and they're right.... What Americans need to know is how damaging such a failure would be. This wouldn't merely be a matter of the Federal Reserve guaranteeing $29 billion in dodgy mortgage paper, a la Bear Stearns. Fannie and Freddie are among the largest financial companies in the world. Their liabilities – mortgage-backed securities (MBSs) and other debt – add up to some $5 trillion.
To put that in perspective, consider that total U.S. federal debt is about $9.5 trillion, compared to a total U.S. GDP of $14 trillion. About $5.3 trillion of that debt is held by the public (in the form of Treasury bonds and the like), while $4.2 trillion is intragovernment debt such as Social Security IOUs. This is the liability side of America's federal balance sheet, and its condition influences how much the government can borrow and at what rates.
The liabilities of Fan and Fred are currently not on this U.S. balance sheet. But one danger is a run on the debt of either company, putting pressure on the Treasury and Federal Reserve to publicly guarantee that debt to prevent a systemic financial collapse. In an instant, what has long been an implicit taxpayer guarantee for both companies would be made explicit – committing American taxpayers to honoring as much as $5 trillion in new liabilities. U.S. debt held by the public would more than double, and the national balance sheet would look very ugly.
The companies have a stronger liquidity position than Bear, but investors are saying the chance of a collapse is greater than our politicians want to admit. With its share price decline this week, Fannie Mae's market capitalization is down to $15 billion. Yet at the end of the first quarter, the company had $42.7 billion in capital. Investors are saying that as a business Fannie is worth only slightly more than one-third of its capital cushion. Fannie's debt is also priced at the highest spreads over Treasurys since 2000 – another sign of eroding confidence.
Freddie's market discount from its capital cushion is even worse. Its shares fell nearly 24% yesterday [ME: that was Wednesday, they are down even further since] – to a market cap of some $6.8 billion. Yet its capital, at the end of the first quarter, was $38.3 billion. The message from markets is that both companies are in danger of exhausting their capital and becoming insolvent if home prices keep falling and mortgage losses mount.
ME: It's remarkable that even as this public/private debacle is unfolding, we have candidates arguing that the solution to this and that problem is even more government intrusiveness into what used to be private activity. It's also remarkable how under the radar-screen this looming disaster still is. I wonder if that would be the case if most of those principally presiding over it had been Republicans. Without even mentioning former Carter and Clinton administration big-wig Harold Raines (who took "early retirement" from Fannie while its immense accounting irregularities were under investigation), the Journal continues:
Why is there so little Washington or Wall Street alarm about this? Because the politicians and financiers are part of the consensus that has long promoted the growth of Fannie and Freddie. Congress created the companies to spur home ownership and, in return, got an endless stream of campaign contributions and election support. Beltway elites like James Johnson and Jamie Gorelick made tens of millions working there. Wall Street marketed their MBSs to buyers around the world, pitching them as virtually as safe as Treasurys (due to the implicit taxpayer guarantee) but with a higher return. Everybody made a bundle.
The assumption was that the taxpayer guarantee would never have to be honored, just as everyone before the savings and loan debacle thought deposit insurance would rarely have to be paid. But these political bills always come due.
The double irony amid the current credit crunch is that our politicians have been promoting Fannie and Freddie as mortgage saviors even as their risk of insolvency has grown. Chuck Schumer, Chris Dodd and many others have encouraged the duo to take on even greater mortgage risk as the housing slump has unfolded. They're the arsonists posing as firemen while putting more dry tinder around the blaze.
__________________
July 11, 2008
U.S. Weighs Takeover of Two Mortgage Giants
By STEPHEN LABATON and STEVEN R. WEISMAN
New York Times
WASHINGTON — Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.
The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt. (At one time we estimated the money market funds exposure to Fan and Fred at about 8%. It most surely is much lower now just because of their price collapse. But just how secure are those 1.00 NAVs? - Jesse)
Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers. (Social Services for banks are our highest priority - Jesse)
The government officials said that the administration had also considered calling for legislation that would offer an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies. But that is a far less attractive option, they said, because it would effectively double the size of the public debt.
The officials also said that such a step would be ineffective because the markets already widely accept that the government stands behind the companies. (But not with an overly wide stance - Jesse)
The officials involved in the discussions stressed that no action by the administration was imminent, and that Fannie and Freddie are not considered to be in a crisis situation. (When will they be in a crisis, when their stocks go to zero? When the Republicans leave office in disgrace? - Jesse) But in recent days, enough concern has built among senior government officials over the health of the giant mortgage finance companies for them to hold a series of meetings and conference calls to discuss contingency plans.
A conservatorship or other rescue operation would be the second time in four months that the Bush administration has stepped in to engineer a rescue to prevent the financial system from collapsing. Last March, it forced the sale of Bear Stearns to JPMorgan Chase to avert a bankruptcy of that venerable investment house. (Maybe the banks could consider private savings plans instead of relying on the government? - Jesse)
Officials have also been concerned that the difficulties of the two companies, if not fixed, could damage economies worldwide. The securities of Fannie and Freddie are held by numerous overseas financial institutions, central banks and investors.
Under a 1992 law, Fannie or Freddie could be put into conservatorship if their top regulator found that either one is “critically undercapitalized.” A conservator would have sweeping powers to overhaul them, but would not have the authority to close them.
The markets showed fresh signs on Thursday of being nervous about the future of the companies. Their stock prices continued a weeklong slide, hitting their lowest level in 17 years. The debt markets, meanwhile, pushed up the two companies’ cost of borrowing — their lifeblood for buying mortgages.
The companies are by far the biggest providers of financing for domestic home loans. If they are unable to borrow, they will not be able to buy mortgages from commercial lenders. In turn, that would make it more expensive and difficult, if not impossible, for home buyers to obtain credit, freezing the United States housing market. Even healthy banks are reluctant to tie up scarce capital by offering mortgages to low-risk home buyers without Fannie and Freddie taking the loans off their books.
Together the two companies touch more than half of the nation’s $12 trillion in mortgages by either owning them or backing them. They hold more than $1.5 trillion of the mortgages as securities. Others are sold to investors in the form of mortgage-backed bonds.
In recent weeks, the companies have spiraled downward, undermined by declining confidence in their future and shaken by sharp declines in their assets as the housing markets have continued to slide and foreclosures have risen.
In the last week alone, Freddie has lost 45 percent of its value, and Fannie is off 30 percent. Expectations of default at the companies have also risen; it costs three times as much today to buy insurance on a two-year Fannie bond as it did three years ago.
Analysts expect the companies to announce a new round of write-downs and possibly be forced to raise capital by issuing additional shares, which would dilute their value for current shareholders.
Despite repeated assurances from regulators about the financial soundness of the two institutions, financial markets have concluded that by some measures they are deeply troubled.
Freddie, for instance, is technically insolvent under fair value accounting rules, in which the company puts a market value on assets as if it had to sell them now.
Although Treasury Secretary Henry M. Paulson Jr. and Ben S. Bernanke, the chairman of the Federal Reserve, passed up invitations by lawmakers on Thursday to seek legislation to deal with the crisis, officials said that the administration had been privately considering a government takeover should the markets continue to turn against the companies.
At a hearing of the House Financial Services Committee on Thursday, both Mr. Paulson and Mr. Bernanke were guarded, carefully trying not to say anything that could further erode confidence in Fannie and Freddie. They both said that the regulator of Fannie and Freddie had found that they were, in the words of Mr. Paulson, “adequately capitalized,” meaning that they had sufficient cash and other assets to withstand the turbulence in the markets.
“Fannie Mae and Freddie Mac are also working through this challenging period,” Mr. Paulson said.
Neither official would address a question posed by Representative Dennis Moore, Democrat of Kansas, who asked whether the failure of either institution would pose a risk to the financial system.
“In today’s world I don’t think it is helpful to speculate about any financial institution and systemic risk,” Mr. Paulson said. “I’m dealing with the here and now, and the important role that they’re playing and other financial institutions are playing.”
Mr. Bernanke said that Fannie and Freddie “are well-capitalized in the regulatory sense” but added that they, and other major financial institutions, needed to raise their capital levels further.
Despite repeated denials by officials in the Bush and prior administrations, financial markets have long assumed the government would stand behind Fannie Mae and Freddie Mac in times of difficulty, both because they are integral to the housing and financial markets and because the companies have a line of credit to the Treasury.
But Congress set that credit more than 38 years ago, long before the companies rose to such size and prominence, and its limit, $2.25 billion for each, has become a tiny fraction of the companies’ overall debt.
Some analysts have begun to propose that the Fed also permit the two companies to borrow from it, as Wall Street investment banks began doing after the rescue of Bear Stearns. But there is no indication that the Fed is contemplating such a move....
Charles Duhigg and Jenny Anderson contributed reporting from New York; Michael Cooper from Livonia, Mich.; and David M. Herszenhorn from Washington. [link to freewordofgod.yuku.com]
nonmaterial structure User ID: 376724 7/12/2008 8:11 AM
Re: Watch, Its happening ,the global economic change.
Worst of global financial crisis over-IMF 11th July 2008:
The worst of the global financial crisis is over, but the world economy remains stuck "between the ice of recession and the fire of inflation", IMF Managing Director Dominique Strauss-Kahn said on Friday.
"No one can say that the world economy is at a good temperature," Strauss-Kahn told a conference in Ukraine's Black Sea resort of Yalta. "We are just between the ice of recession and the fire of inflation."
He described the world response to the crisis as "adequate" though he said its economic consequences of "are still in front of us".
Quote:
The place I worked for just had a president of one of its divisions leave. The man was a complete failure. No product came in at schedule or expected cost. He instituted stupid money wasting policies that could be found in any of the CEO worshipping books around. He walked away with over $40 million for his 5 year stint as a lowly division president - $30 million from stock options.
All the stock growth was just from being in the right place at the right time. Now that we can’t grow the top line, because our primary products have completely penetrated the market, we are talking about moving production overseas. There is nothing wrong with our workforce, nor are they greedy and lazy. We just can’t get the stock price up and too may bonuses are dependent on it.
There you have it. All the mergers, all the demands for wage and pension cuts, all the hiring of illegals and refugees and cheap labor this or that, all the breaking of unions, all of this is just to get the stock price up so executives can fatten their wallets on the bonuses. It's doesn't have anything to do with international competition or any of that. [link to freewordofgod.yuku.com]
Communism was a public relations gift to the bankers. By diverting the dialogue to "controlled versus free markets" it obscured the bankers' real intent - to insert debt into every aspect of free markets. The bankers' overwhelming success however would destroy both the bankers and the free markets on which they preyed.
Parasitoidism is the relationship between a host and parasite where the host is ultimately killed by the parasite. This is what is happening to the US. Once the most powerful and productive economy in the world, the US, indebted by bankers and government spending beyond its ability to repay, is headed towards sovereign bankruptcy.
The recent request by US Treasury Secretary - and more importantly former Chairman and CEO of investment bank Goldman Sachs - Henry Paulson to bail out Fannie Mae and Freddy Mac with US taxpayer dollars is but another indication of this destructive and parasitic relationship between bankers, government and the economy.
That a private banker from a large Wall Street investment bank is also Secretary of the US Treasury is no coincidence. It is also no coincidence that once again, public monies from the US Treasury are being used to rescue private bankers and to indemnify their losses.
THE FOX IS IN THE HENHOUSE - GOLDMAN'S SACHING OF AMERICA
Receiving taxpayer dollars from the US Treasury for their private benefit is not new to Goldman Sachs. In 1990s, when the Mexican government defaulted on its bonds, investors at Goldman Sachs stood to lose billions of dollars. They didn't.
Buried deep in the subsequent $40 billion US bailout of Mexico was a $4 billion payment to Goldman Sachs, gratis of the US Treasury indemnifying Goldman Sachs against any losses on their investment in Mexican bonds.
The fact that current US Treasury Secretary and former Goldman Sachs CEO Henry Paulson also recently used US funds to underwrite JP Morgan Chase's private buyout of investment bank Bear Stearns and is now proposing to do the same with Fannie Mae and Freddie Mac is to be expected. For investment bankers, using public money to privately profit is business as usual.
They're ruining what has been one of the greatest economies in the world, [Bernanke and Paulson] are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this. Jim Rogers, Chairman of Rogers Holdings, July 14, 2008
THE TUMESCENCE OF CREDIT - THE DETUMESENCE OF DEBT
It often happens that only in retrospect does the truth become apparent - at least to most. Seduced by the vain hope of eternal profits, investors blindly followed Alan Greenspan's prognostications when he was appointed chairman of the Federal Reserve in 1987; in the beginning, it appeared that Greenspan was right. Now, two decades later Greenspan's errors are apparent.
A former director at investment bank JP Morgan, Greenspan clearly understood the role of credit in today's economy. What he didn't understand were its limitations. Greenspan's reputation as a maestro of the markets was built on his continual feeding of cheap credit into the US economy thereby bolstering asset prices and the profits of investors.
Greenspan's reputation at the time was well deserved, much as BALCO the illegal steroid provider deserves credit for Barry Bond's astonishing achievements in baseball late in his career. Credit has the same affect on markets as does steroids on athletic performance. That is why both are so popular.
Greenspan's continual feeding of credit into America's economy fueled the greatest expansion of capital markets in history. This directly led to America's fatal misperception of credit as the cause of its wealth. It is now beginning to dawn on America that credit, in actuality, is the cause of its problems.
Credit is but debt in disguise and the American economy is now collapsing under the weight of that debt - the bankers' effluence, extraordinary and compounding levels of public, private and business debt that in only decades has completely drained America of its once immense productivity and wealth.
FANNIE MAE AND FREDDIE MAC - WHO'S NEXT
US mortgage giants Fannie Mae and Freddie Mac own or guarantee $5.2 trillion of US mortgages or nearly half of US mortgage debt. As of March 31st, however, the combined capital of the two insurers was only $81 billion, 1.6% of the total owned or guaranteed.
With US housing prices continuing to fall, it was evident, contrary to government assurances, that Fannie Mae and Freddie Mac did not have the requisite capital needed to meet future obligations. The sudden decline in the value of their shares forced US authorities to come to their rescue; but, it will not be the last time the US will be forced to act in such a manner.
The systemic distress set in motion by last August's credit contraction is still continuing and the recent collapse of Bear Stearns and now Fannie Mae and Freddie Mac are witness to that fact. We are only one year into the contraction and although the liquidity provided by central banks has gone beyond all previous levels, financial institutions are continuing to falter and collapse.
It is possible that the FDIC, the insurer of America's savings deposits, may be next. The capital of Fannie Mae and Freddie Mac equaled 1.6% of the sums they guaranteed. Prior to last week, the FDIC had only 1.2% of the funds necessary to cover the accounts they insure.
It is now estimated the bank failure of IndyMac last week cost the FDIC 10% of its capital, leaving the FDIC with even less than its previous 1.2% to cover additional bank defaults. As it is, $1 billion approximately 5% of IndyMac's deposits were not covered by the FDIC and it is estimated 37% or $7.07 trillion of US deposits are also similarly exposed to bank failures.
As financial institutions continue to fail, bank failures will increase. As usual, government regulators at the FDIC maintain there is no problem. Believe them and you might soon have problems of your own.
PARASITE HOST COLLAPSE
When central banking was introduced in England in 1694 and in the US in 1913, it could not have been foreseen that the spread of credit based money would lead to such levels of indebtedness that systemic collapse would be a possibility, let alone occur.
Only time would make that fact apparent and it now appears that sufficient time has passed. The economist Hyman Minsky described the three sequential steps of debt in capital markets in his Financial Instability Hypothesis.
Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on 'income account' on their liabilities, even as they cannot repay the principal out of income cash flows. Such units need to 'roll over' their liabilities - issue new debt to meet commitments on maturing debt. For Ponzi units, the cash flows from operations are not sufficient to fill either the repayment of principal or the interest on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stocks lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes.
It can be shown that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation-amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.
In particular, over a protracted period of good times, capitalist economies tend to move to a financial structure in which there is a large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make positions by selling out positions. This is likely to lead to a collapse of asset values.
As the US is now increasingly meeting its debt obligations by rolling over present debt and/or by borrowing, it is now according to Minsky's model, clearly in the Ponzi finance mode which can precede a collapse of asset values.
According to Minsky, capital markets over time become increasingly unstable. Asset values in real estate are now collapsing, equities will be next, bonds will follow. Almost one hundred years after the Federal Reserve introduced debt-based money to America in 1913, both host and parasite are now approaching the same end, parcus nex, sic economic death.
Not only is the host, the US economy, in imminent danger, so too are the parasites, the banks. Bridgewater Associates, the giant US hedge fund, has warned its clients that current bank losses may reach $1.6 trillion, four times previous estimates.
The implications are discussed by financial journalist Ambrose Evans-Pritchard in The Telegraph.co.uk, July 8, 2008 "Bank losses from credit crisis may run to $1,600bn, warns Bridgewater"
We are at the end of an era. Capitalism, itself, is a misnomer. It should instead be called creditism or referred to by its subsequent state, debtism, for capital de facto is credit, not money. This does not mean credit is not important. Credit is an integral part of functioning economies but its use should be constrained within gold and silver based monetary systems in order to prevent its abuse.
But in its present form where credit-based money (fiat money) completely replaced gold and silver based currencies (savings-based money), central bank originated credit has led to today's unsustainable levels of debt.
Trillions of dollars of that debt are now beginning to default and, as a consequence, credit is being withdrawn by banks, the intermediaries of credit in today's system. It will soon begin to appear that money is becoming scarce. But that's an illusion. The money was never there in the first place. It was only credit.
Real money, gold and silver currencies, were the first victims of central banking in the US. The latest victims are those who are about to be affected by the collapse of the US and global economy. Central banking and its spawn, credit and debt, are now everywhere and, unfortunately, so are the consequences.
GOLD, SILVER & FIAT MONEY
The truth about money has been pushed out of public discussion by the powerful forces closest to the spigots of credit and the trough of government largesse. Now, because the edifice of paper money is crumbling, the truth about money and gold and silver is finally being discussed - at least on the internet.
Gold and silver are money because gold and silver have intrinsic value and function as storehouses of value as well as mediums of exchange. Fiat money, paper money, has no intrinsic value. What fiat money does possess is the ability to masquerade as money.
This ability, however, is temporary for governments and bankers cannot resist the considerable temptation that paper money presents to them - for governments, to spend what they do not have and for bankers, to extend credit and debt beyond the limits gold and silver would otherwise present.
Money is a most interesting topic and because of its current abuse, we are only now once again beginning to understand the monetary roles of gold and silver. Recently, at Session IV of Gold Standard University Live, in Hungary, I was fortunate to hear Professor Antal Fekete expound on the historic role of gold in monetary systems.
It is self-evident that gold and silver possess monetary qualities that fiat monies do not. What are less well-known are the virtues that such metals bring to economies that understand their correct usage and role.
It is a world quite unlike ours, a world where producers and savers, not speculators, are protected and rewarded, where the value of bonds are constant, where interest rates are stable because of market forces, not subject to the whims of politicians and bankers. Such were the considerable thoughts and insights Professor Fekete provided on these critical matters.
On our return from Hungary, Martha and I again stopped at the Bank of England on Threadneedle Street in London, the fountainhead of central bank credit-based money. Over the Christmas holidays, I had worn my bespoke pin-striped suit made of fine English gabardine complete with vest and gold chain when I had my photo taken. This time, however, due to the accelerating decline in the fortunes of central bankers everywhere, I decided a more casual attire would be more appropriate.
Regarding fiat money, I cannot more highly recommend Ralph T. Foster's Fiat Paper Money - The History And Evolution of our Currency, a well researched and fascinating account of fiat currencies throughout history.
Once read, you will never again believe that governments and bankers can resist the temptation to gain by the debasement of currencies. Our present circumstances are a case in point. [$28.50 by Ralph T. Foster, tfdf@pacbell.net (510) 845-3015].
Money is a most important matter and we should seek to understand its history for our future depends upon it.
Last October Earlesville, Maryland resident and former 7th grade teacher and nutrition consultant Kathleen Casey-Kirschling, touted for decades as "Baby-Boomer Zero" or "First Boomer," filed for Social Security benefits. Sixty-one year old Casey-Kirschling was born in Philadelphia, Pennsylvania at midnight, Jan. 1, 1946—the first official baby boomer. Her filing for benefits was a momentous occasion for her and a frighteningly symbolic event for the nation. Casey-Kirschling's filing is believed by many in government to be the financial straw that will ultimately break the camel's back. She represents the first of the World War II war babies to begin drawing from dollars that have not existed since Lyndon Johnson's Great Society. The Democratic leadership which controlled both Houses of Congress for 80 of the last 100 years spent the money that, by law, had to be invested in high yield securities since this money did not belong to the US government. The money belonged to the American people who, by law, were obligated to invest it for their old age.
After she filed for her Social Security benefits, Kathleen Casey-Kirschling completed the day at a special luncheon at the National Press Club in Washington, DC where she told reporters she was looking forward to collecting her benefits. "I'm thrilled," Casey-Kirschling said, "to think that after all these years that I'm getting paid back the money that I put in." Any senior level politicians in attendance were probably squirming in their seats as they smiled politely for the cameras, wondering deep in the dungeons of their minds where thoughts they don't ever want to voice are chained, most of them wondered just how many baby boomers it would take before Baby Boomer Armageddon occurred. Casey-Kirschling was the first of 3.2 million baby boomers who will reach 62 this year—which amounts to 365 an hour. Statistically, about 49% of men and 53% of women will take early retirement and reduced benefits.
The Social Security Trust Fund was created in 1937. Funds collected through payroll deduction could not be placed in the general treasury as "tax revenue." Social Security deposits are assigned to the US Treasury where, by law, they must be invested in marketable Treasury securities. In 2007, the US government received Social Security deposits to the Trust of $1,069 billion. During the year of 2007, the Social Security Administration paid out $879 billion, leaving a net surplus of $190 billion. There's only one problem with the government's rhetoric. Uncle Sam is paying current benefits from current revenue. That's a Ponzi scheme. And Uncle Sam knows that when the flood of baby boomers creates the human tsunami that President George W. Bush has been warning the American people about, the floodgates will open and what is left of the US economy will be swept out to sea.
Why is there no money? Not because too many people filed for earned benefits. It is because the money in the Social Security Trust Fund was used to finance handouts to the Welfare Generation from 1964 to 1994. In 30 years the Democrats, who used generational welfare to chain minorities to the feeding trough of the State and to the voting booth where they were forced to vote Democratic to keep their welfare checks coming, stole your retirement funds and replaced them with worthless IOUs.
The government, in turn, argues that far from issuing "worthless IOUs," the "investments" held by the trust funds are backed by the "full faith and credit" of the US government. The bureaucrats insist the federal government has always repaid the Social Security Trust Fund—with interest. And, that's the problem. The Social Security Trust Fund became a "passbook" savings account for the government rather than an investment in which the "people" purchased high yeild securities. Instead of earning the types of returns you would expect from high yield securities, the government paid the American people 4.656% simple interest on their money.
Only, today, the Social Security Trust Fund reserve is almost virtually nonexistent. What should still be a cash reserve in the trillions of dollars is almost an empty vault filled with worthless IOUs that Uncle Sam can't repay. The trust fund is a virtual reality illusion. The government says it exists, so in the virtual reality world of politics, it exists. However, the virtual reality trust fund exists only in the virtual reality ledger sheets kept by the federal comptroller of pipe dreams and mirages.
Because of government smoke and mirrors, three out of five middle-class retirees will run completely out of money if they try to maintain their pre-retirement lifestyles when they accept their gold watch and collect their first Social Security check. A new study by the accounting firm of Ernst & Young, released on July 14 shows that Americans, who expect to live independent of their children when they retire, are going to be faced with some tough choices —ten or more years before they retire. Those tough choices will almost completely eliminate their discretionary income in order to have a post-retirement life that is not an economic nightmare. The choice they face is one that leaves them with a greatly reduced amount of discretionary income for the last decade before they retire, or destitute and dependent on their children after they retire.
The Ernst & Young study indicates that middle-income Americans must find some way to trim their standards-of-living by approximately 25% so they can put that money into 401Ks or some other form of high yield securities. In addition, retirees will have to cut their spending by at least 37% to make sure they don't outlive their money. About 77 million baby-boomers are expected to retire within the next five to seven years. What that means is not only will there be 77 million high-income middle class workers suddenly removed from the US tax roll, but there will be 77 million new retirees expecting monthly checks from Uncle Sam with 77 million fewer taxpayers paying the withholding taxes that currently "cover" the SSI and DI checks that go out every month to the current Social Security and disability insurance recipients.
Tom Neubig, national director for quantitative economics and statistics at Ernst & Young noted that most people believe they will be able to "...maintain roughly the same standard of living after retirement. Our study suggests they are going to have to make some changes. People are going to have to adapt in a number of ways that they weren't anticipating or hoping for."
Married couples with joint household incomes of $75,000 per year, whose supplemental retirement incomes come only from passbook savings or CDs and not from 401K investments, have a 31% change of running out of money before they die if they try to maintain the same lifestyle they enjoyed before retirement. Those who are obligated to depend solely on Social Security have a 90% chance of becoming destitute in their old age. Sadly, many Americans who worked for some of the nation's premiere corporations that moved their operations to the human capital-rich third world, were forced to cash in their retirement plans to keep them afloat financially as they sought new employment, or used their retirement nest eggs to finance startup ventures because new jobs were not to be found without relocating somewhere else.
Government statisticians have calculated that by 2030 the cost of the federal government's Ponzi scheme—Social Security—will outpace the contributions from its unwilling participants and, from that point, the shortfall will have to be drawn from what is left of the Social Security Trust Fund—which will be completely bankrupt in 2041. This will happen largely because of the legalization of abortion in 1973 and the removal of over 65 million consumer taxpayers through the saline baths and scalpels of the abortionists. Abortion was also the culprit that made the exodus of the factories of Corporate America to the third world inevitable since the United States and the industrial nations of Europe, with 0.5 to 0.7 population replenishment rates, were no longer producing enough "homegrown" consumers to support the consumer industry.
Medicare is in the same boat as Social Security. Only, Medicare is already paying out more than it takes in. Advocates of reducing Social Security benefits or, once again, raising the "premium," or advancing the age when recipients will be eligible to receive benefits, with partial benefits available at age 67 and full benefits at either 70 or 72 years of age insist that Social Security will begin negative payments in 2017 not 2030. To keep Social Security solvent until 2041 requires a 16% increase in payroll taxes and a parallel 13% cut in benefits. To keep Medicare solvent past 2017 requires a 122% increase in premiums and/or a 51% decrease in hospital stays.
Every year that nothing is done makes the problem worse. In 2005 President George W. Bush tried to bully the Republican-controlled Congress into beginning to fix Social Security by creating private investment accounts and removing a portion of their Social Security "contributions" from the greedy hands of politicians in order to protect their benefits. Bush and the GOP was blocked from carrying out the plan by House and Senate Democrats who said privatizing any part of Social Security would drain needed money from the Trust Fund. Clearly the liberals know just how fragile the program is, and what happens to the US economy when the house of cards falls.
Today, more and more congressmen and Senators on both sides of the aisle realize the prognosis is so bad that its just a matter of time before this nation will not be able to afford the cure because the problems in the Social Security system, Medicare and Medicare's prescription drug coverage plan are compounding themselves. Congressmen Jim Cooper [D-TN] and Frank Wolf [R-VA] argue in unison that its no longer a partisan issue. It's not red or blue. "It's as foolish as a food fight on the Titanic."
While the Democrats still believe that Social Security, Medicare and Prescription Medicare can be patched with rate hikes, anyone who has examined the problem with both eyes open knows that's no longer possible. The only thing that's going to solve this problem is replacing the taxpayers going on Social Security with new taxpayers entering the taxable work force. Which is precisely what Bush-43 tried to do in 2005-06 by offering amnesty to illegal aliens. (Conservative alarmists flooded cyberspace with emails suggesting Bush-43 was going to provide illegals with amnesty, grant them citizenship and then provide them with an immediate windfall—Social Security benefits. Nothing could be farther from the truth. The SSI benefits for the "new citizens," like the rest of us, comes at the end of our life's travels, after we have paid into the system for at least 40 quarters (10 years).
When Bush-43 advocated amnesty to draw the illegal aliens who are working in the shadows of the underground economy into the light of day, he drew fire not only from his political adversaries but from many of the transnational corporations which not only supported both of his runs for the White House, but other Republican candidates as well, since legalizing illegal aliens and getting them into the Social Security system puts them under the protection of federal employment laws. That means employers must pay these new citizens incomes that more closely approximate what US citizens earn in that job environment. (However, having two or three people bidding for the same job will lower the wage structure, but not as much as when the employer was able to hire the illegal under-the-table for a fraction of the wage paid to US workers.)
Working under the table, illegals earn enough money to feed and house themselves while those dollars which should have gone to Washington, DC (and that State's capital) in the form of taxes, were wire transferred back to Mexico, or some other Central American country, to provide for the sustenance of the illegal's family back home. In 2007, trackable "remittances" from illegals to their families in Central America totaled approximately $66.5 billion. Since Ronald Reagan's first amnesty bill passed in 1986, illegals have remitted $1,965.6 billion to family members in Mexico. Keep in mind, that wasn't their total earnings since 1986. It was that portion of their illegal incomes sent back to Mexico. Assuming each of the illegals sends 20% of their income home, we can assume since 1986, the illegals who are taking US jobs under the table earned some $147.4 trillion dollars at the expense of the US worker.
Are you beginning to see the big picture? Or rather, the real picture. It's ugly. We are faced with what can only be called "Baby Boomer Armageddon" because if the problem isn't fixed quickly, the United States is facing an economic Armageddon from which it will not survive. The solution—the only solution other than letting the liberals tax us into oblivion—is so repugnant to most of us that we are almost prepared to become destitute oversleves to keep it from happening.
No national politician in the United States other than President George W. Bush has had the guts to tell the American people that the Social Security system is broken beyond repair. Bush's problem is that he presented the problem and the solution in a split screen narrative. But the American people weren't watching correctly. They saw the problem followed by a viable solution as two problems. The problem: (Social Security is bankrupt). The solution: (adding from 20 to 25 million new taxpayers to the tax rolls immediately will buoy the economy and give us time to find a permanent solution,)
The problem is, the politicians we continue to elect have a real problem with the truth. They just flat out won't utter it. And, more than anything else, partisanship aside, it's time for the truth. Congress screwed up. They spent most of the Social Security Trust Fund to finance the Welfare Society. The high-interest securities that were supposed to dramatically increase the yield of the dollars invested didn't happen. What funds still existed in the Treasury brought in a feeble return of 4.656% interest. Subtract from the roster of taxpayers 77 million baby boomers who are now beginning to retire, and who will begin to withdraw money from the US Treasury at an alarming rate rather than depositing it in the form of payroll taxes. Also subtract 65-plus million humans from our society whom the environmentalists decided were a detriment to nature. We legalized abortion in 1973 and killed the future taxpayers whose contributions today would have kept the system solvent as the baby boomers hung up their work spurs.
Had Bush told the truth—the whole truth—about what happens to the economy when the incomes of 77 million baby boomers becomes 77 million new monthly Social Security recipients (with no new workers to replace them), and then make it clear that every American still in the work force can expect to see their taxload tripled because there will be a lot less of you supporting those baby boomers as they prepare to enjoy their golden years on your dime because Congress spent all the dollars.
Redirect me to North Carolina couple faces 300 years
Redirect me to VA still using war veterans as guinea pigs
FU&FW
[link to www.321gold.com]
...I said it three years ago, I said it two years ago, I said it a year ago, I said it six months ago, and I'll say it again today. The Achilles Heel of the United States is the dollar. The reserve status of the US dollar is absolutely critical to the health of the US. If the dollar begins to lose its reserve status, the US economy will be in shambles.
Gold is now on the move. It's taking more and more dollars to buy an ounce of real money -- gold. This is the market's way of saying that it trusts the value of the dollar less and less. You may like gold as I do, but the rising trend of gold is a red flag for the health of the United States. The rising dollar price of gold is telling us that both the US economy and the dollar are in trouble.
The US is the only nation in the world that can print the currency that its own debt is denominated in. That's an unbelievable "gift." But the US has been doing too damn much printing and too much debt creating. The world recognizes this, and it's systematically moving away from dollars. Nations are now creating Sovereign Wealth Funds that buy tangibles while at the same time they're getting rid of unwanted dollars.
Right now almost everything from stocks to the Dow to homes to food is losing value relative to gold. I tell you it's ominous. And it's all the more ominous because 95% of analysts and economists don't recognize or understand what's going on. They're ignorant of the message that rising gold is sending us, and worse -- they're ignorant of the very meaning of gold.
...Some of the best writings on gold today comes from my old New York friend, Ron Rosen, who writes the Rosen Market Timing Letter. Ron is a close student (to put it mildly) of the markets, gold, gold history and gold action. Below are a few paragraphs from Ron's current report:-
"This world has been functioning for decades on faith and trust in paper money and the politicians backing it. One day, hopefully, citizens of the world will know better than to trust their politicians with anything that vaguely resembles money. The pain associated with this learning lesson is in the process of being hammered home. There may be some violent corrections on the way up to the ultimate destination for gold, silver, and their shares. However, the percentage of the price corrections should remain relatively normal. As the climb in price becomes more extensive and violent, the corrections may become shorter in time consumed. A "blowoff" is what the precious metals complex is in the process of beginning. [link to freewordofgod.yuku.com]
Anonymous Coward User ID: 469979 7/17/2008 11:59 PM
Re: Watch, Its happening ,the global economic change.
That the national embarrassments known as Fannie Mae and Freddy Mac are in the news a lot these days means that I should say something about it to show that I have been paying attention. So I will turn one jaundiced eye to the whole unsavory episode and say that these two corrupt, brain-dead mortgage behemoths have, or guarantee, over $5 trillion in mortgages, which is most of the mortgages in the country, and which is more than a third of the entire U.S. Gross Domestic Product of $13 trillion, which is the total of all the goods and services this country sells in an entire freaking year.
I say this because they have just been given permission to get even bigger! Hahaha! And they can now take on mortgages of up to around US$700,000, which I mention only because these are agencies that were created a long time ago to help low-income people get housing, but now they are issuing mortgages so large that they are about 15 times the average household income, for crying out loud! And probably 20 times as much as a poor person can afford!
Yet, against this staggering load of incestuous liabilities, and liabilities masquerading as assets that totals a third of the annual GDP output of the whole freaking country, these two greedy, corrupt, filthy pieces of debt-addled Government Sponsored Enterprise crap have only a paltry $80 billion in capital! Hahahaha!
This shows the utter madness of it all, as it means that each dollar of capital is leveraged (hold onto your hats) 62 times! When's the last time you bet on some nag to win when the odds were 62-to-1 against you?
For Fannie and Freddie, this leverage means that their total assets equal only a miniscule 1.6% of their total liabilities! So, if the value of their insane levels of mortgage liabilities decreases by a lousy 2%, all their capital would be gone, and they would be completely bankrupt! Hahaha! What insanity!
And where was the Office of Federal Housing Enterprise Oversight in all of this? Hahahaha! I'm glad you asked! Dow Jones has OFHEO Director James Lockhart saying that Fannie Mae and Freddie Mac are both "adequately capitalized, and that Fannie Mae can "ride out the storm" in the housing market over "coming months."
The article predictably did not quote The Mogambo, who said, "While the company may 'ride things out', the investors will probably lose everything, assuming that they have anything left after the 90% loss that the stocks in these two 'idiot's delight' Government Sponsored Enterprises have suffered, tanking from their recent highs."
And you know it must be really bad because one of the most obviously dangerous incompetent losers in all of Congress, Senator Christopher Dodd of Connecticut, says that Fannie and Freddie are "strong, viable institutions." Hahaha! Perfect! Hahahaha! Connecticut must be very proud of its Senator! Hahahaha!
Perhaps in a related vein, Fannie and Freddie are not the only ones using massive leverage and inadequate reserves to take big, big risks, as Jim Willie of the Hat Trick Letter notes, "US banks have only $130 billion in reserves. Best estimates call for an additional $600 billion to $900 billion in losses to be suffered, which begs the question of where the necessary funds will come from to avert bankruptcy to the bulk of the US banking system." Good question!
$130 billion in reserves? According to the Federal Reserve data, total reserves in the banks of the Fed system are only $44 billion!
But either way, this chump change is reserves against all, or most of, or more than, a trillion dollars in losses? Hahahaha! Funny one!
. User ID: 470194 7/18/2008 1:20 PM
Re: Watch, Its happening ,the global economic change.
Jim Willie CB
Jim Willie CB is the editor of the "Hat Trick Letter"
Jul 17, 2008
Use this link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
A grotesque grandiose nationalization initiative is gradually being forced upon the USEconomy, US financial system, US political system, and the hapless US citizenry. Its crucible for construction comes from the desperate situation unfolding for the banks, the mortgage holders, and homeowners. Rising costs, falling incomes, failing banks, declining home values, eroding mortgage bonds, interfered financial markets, corruption in Congress, endless war, destructive economic counsel, an unconstitutional USDollar without gold backing, these factors all contribute toward a crisis without remedy. The only possible response will be an implosion with greater state assumption of losses, responsibility for operations, and extended power. Systemic failure, credit seizures, profound job loss, severe supply disruptions, and violence in public places will force a more urgent solution. The irony is that the agents and mechanisms that produced systemic failure will next be granted almost total power as reward for their ineptitude, corruption, and connection to the power centers. Reaction to systemic failure, orders for nationalization, and other desperate measures ensure the USDollar will fall significantly, leading to gold rising toward 1500 and silver rising toward 40.
WE ARE BEGINNING THE ACUTE PHASE OF BANK AND BOND BREAKDOWN NOW, WHOSE EPICENTER HAS EXTENDED FROM WALL STREET BANKS TO FANNIE MAE. THESE GROUPS ARE THE PRIMARY CENTERS FOR CRIMINAL FRAUD, ALL TO BE BAILED OUT. A broad bank asset liquidation in several weeks will exacerbate the crisis and invite immediate action, some of which might be well orchestrated in a power grab. The solutions will all appeal to the current devices, which tend to mean greater state controls. The authorities seem totally lacking any list of alternative methods. With bailouts come controls. If truth be told, the failure is of economic policies, the scummy relationships between the USGovt, the US Federal Reserve, the Dept of Treasury, the regulatory agencies, the Wall Street bankers, several giant banks, debt rating agencies, certain private equity firms, and the media news networks. Some wonder why media networks would be so subservient, not report stories of substance. Check their advertisers, which pay the bills, and also check where they obtain much of their international information. The USGovt supplies data, interviews, video clips, and stories for reasons of efficiency, safety to correspondents, which tends to permit a gradual slant that has turned absurd over the years. Many stories just are not covered at all, like recent foreign summit conferences among banking groups, in Asia and South America.
Harken back to my first article in January. It is worth a quick review read. In "Enter 2008: The System Breaks" numerous systemic factors were listed. Many are infesting our doorsteps, fouling our economic winds, and dampening national psychology to the point that the nation had best prepare for change that will rival those ordered at the tail end of the Great Depression. This economic depression will be different. It will be called a recession. The losses incurred will be an order of magnitude larger. Instead of Wall Street bankers jumping out of windows, they will take top USGovt agency spots for wresting control. The nation is not ready to institute national infrastructure programs like the TVA back in those day. Hurricane Katrina and the Endless War amply demonstrate that priorities have shifted toward private profiteering and corruption being the primary priority for national leaders. People will not stand in bread lines, but rather break into supermarkets in search of food. Home ownership was not at any lofty figure back seven decades ago. People now will continue to lose their homes at the tune of 7000 per day due to foreclosure in the Untied States, the current tragic pace. The housing market will continue down, led by endless growth in unsold inventory. The advent will dawn on the bankers, lawmakers, and key investors that Fannie Mae is sitting on a treasure trove of income potential, IF ONLY the acidic agency can rent its foreclosed properties instead of attempt to sell them on an already depressed bloated market. The Fannie Rentals will emerge as a business segment.
NATIONALIZATION TREND
The following industries are on a clear path toward nationalization, in order of likelihood:
* Fannie Mae & Freddie Mac (mortgage finance)
.
* major banks
.
* airlines
.
* Detroit automobiles
.
* gasoline & diesel refineries
.
* some transportation systems including trucks, railroads
.
* home rental (limited to Fannie Mae properties)
.
* steel industry
Already, the Federal Deposit Insurance Corp (FDIC) will guarantee bank losses on accounts up to $100k. Another federal agency guarantees bond & brokerage accounts up to $500k. Already, the Pension Benefit Guarantee Corp will pledge to provide up to 35% of pension income for anyone whose corporate pension is lost or reneged upon. In the absence of any insight, imagination, or independent thought, the nation will resort to the state to underwrite the losses, and thus to institute measures toward remedy. Enter Big Brother with a checkbook, or better described as a credit card, no no a printing press!!! However, most solutions will simply be patchwork with restoration of order the main theme. The system will turn to the same broken apparatuses that killed the system, ensuring degradation and more need for control. Eventually martial law will fit like a glove. The result will be an ugly outcome a few years from now, marred by shortages, and eventually managed shortages, as in rationing and price controls. This fits perfectly with the next chapter of the Fascist Business Model. That would be a broader tighter state control with the collusion of bankers. The selective enforcement of law will be much worse than simply limiting short selling against financial stocks.
We have begun to see what finally has been labeled as 'Financial Triage' among the financial firms. The authorities are probably unable to price Fannie Mae bonds, heavily tied in spread contracts to USTreasurys. The USFed, Dept of Treasury, and Wall Street control agents have been forced to decide which firms must be rescued immediately, which are too big or important to fail, which can be permitted to die without unduly harming the system, and which cannot be tended to as in benign neglect. The resemblance is to the soldier battlefield. The theme that strikes very clearly is that the US Federal Reserve and its agents will continue to bail out bondholders, but let stockholders wither and die. Bonds are typically held by the elite, while stocks are usually held by commoners. The usual arguments are used when the bankers trot their easels, promotional byline notes, and weak reasoning before the dimwitted and angry legislators. They talk of systemic risk, and hordes of innocent being trampled among the public if action is not taken. The rescue initiatives are very tilted to aid the wealthy, and to deliver price inflation to all. However, one must note that the wealthy have never taken such enormous losses in modern history, as they are today. Their woes are nowhere ended. Look for Union Bank of Switzerland to fail in Europe. Look for Royal Bank of Scotland to fail in England. Look for Commerzbank to fail in Germany. Look for the Canadian Imperial Bank of Commerce to fail in Canada. Look for numerous to fail in the US, the epicenter of the big bank bust.
FIRST FACE OF MELTDOWN
I CONTEND THAT FANNIE MAE IS THE PRIMA FACIE OF THE END OF THE US FINANCIAL EMPIRE. Fannie Mae, the national US secondary mortgage supplier and vast agent to assist in controlling interest rates, is failing. Their high jinks maneuvers a few years ago to buy their own debt securities constituted self-dealing and self-propelled Ponzi methods, doomed to disaster. Denials are thin. All talk about not nationalizing the firm is confirmation of eventual nationalization. All talk about its equity not being destroyed is confirmation of an eventual zero stock price for FNM shares. All claims that Fannie Mae remains structurally sound are about as false as a claim that USGovt statistics are accurate. All denials of their insolvency serve as confirmation that they are indeed badly over-burdened by debt obligations in excess of assets. All claims that their implosion, meltdown, and failure are unlikely should be heard as clear confirmation of precisely that risk.
Removal of the short rule on upticks on the US-based stock exchanges has contributed to this mess, opening the gates of corruption. Fannie Mae might be the biggest lynchpin involved in such short practices. It has $500 billion in short-term rollover debt commitments, around $10 billion per day. It might be on the verge of illiquidity, with insolvency masked in the background. The Federal Reserve Bank of New York has been given authority to aid Fannie & Freddie directly. Its $2.25 billion credit limit is inadequate by a factor of one hundred. Fannie & Freddie own over half the entire US home loan mortgage market. What we are witnessing is Wall Street in increasingly public demonstrations of desperation trying to rig the rules to favor themselves, and reduce the risk of a total death episode, sure to inflict additional tremendous personal loss for the conmen bank executives. Still they are not even required to sidestep criminal investigations and court defense for billion dollar fraud.
The focus of attention inside the distressed US system has been on US banks and investment banks for a long time. Fannie Mae has avoided attention, well hidden within the bowels of the USGovt. The bank deposit runs, like has begun with Indymac, coincide with the renewed attention for the Fannie Mae national disaster. They are related. If Fannie & Freddie go bust, then we could see dozens of banks suffer sudden death overnight. Nothing in the insanity of the US mortgage morass epitomizes better the recklessness, risk acceptance, and criminality than Fannie Mae. It is also the object of intense, pervasive, systematic, and very deep crime syndicate activity, some linked to USGovt agencies. In my opinion, few have given serious consideration that Fannie Mae & Freddie Mac (F&F) must be bailed out, or else a large cast of ugly dangerous people will be exposed for two decades and hundreds of billion$ of fraud, theft, corruption, and crime syndicate activity. More can be said on this point, perhaps even touching past presidents. F&F cannot be liquidated with full disclosure and resolution of colossal criminal fraud.
CHANGING TRENDS
The precious metals mining stocks have vastly outperformed in the last two months time. Since June, the HUI has risen much more than the XOI, the energy stock index. Energy had its big run, and now it is the turn for gold & silver miners. Much crude oil money will flow into gold. The green circle highlights the recent rise in mining stocks over energy stocks.
Since the springtime, a pronounced negative correlation is vividly clear between the HUI and the mainstream S&P500 stock index. As the banks and most every other sector drags down the stock market, during that time the precious metal mining stocks have benefited. This rare negative alignment is ridiculously favorable for mining stocks, and very welcome news. Por fin! (finally!) The mining sector is receiving positive press, more respect, and some recognition as a viable hedge from the prevalent deep price inflation witnessed on a global basis. Wait until the bank runs come in force! The flight into gold will be profound. The green circle highlights the recent rise in mining stocks over mainstream S&P500 stocks.
THE KEY TO GOLD
In my view, that key is the bank system bailouts, including most importantly Fannie Mae. Since last August, when the bank crisis began, gold launched into record territory, only to continue soon into higher record territory. Their USGovt federal guarantee will open the door to other bailouts and nationalization movements. The most profound of the upcoming socialist actions will be the assumption of the Detroit carmakers. This event will be promoted in order to save jobs, to prevent enormous supply chain damage, even to assist in some military supply contracts. An argument will be made that its assumption under the national umbrella will offer stronger support for the steel industry. One by one, the sectors listed will see nationalization, pressed by urgent need as the system continues to break. The seminal event was the bust of subprime mortgages that led to gigantic bank losses. The bank & bond contagion, unlike what Bernanke has said, is total, absolute, and deep. In fact, USFed Chairman Bernanke has not made a single correct economic or banking forecast, par for the course on a university Economics Dept chairman. Back to the gold issue. The nationalization movement, especially its first step with a Fannie Mae and continued big bank bailout, will heighten the risk for the USDollar. Get the printing press ready. Everything is going the wrong way for these conmen control freaks!
My conjecture is that recent Wall Street stress tests revealed that the most important piece was Fannie Mae. The FDIC list of troubled banks, which incidentally did not list Indymac, might have included some investigation to reveal that 20 to 40 banks might be ready to dump a bunch of Fannie Mae bonds in order to improve their cash balance sheets. Perhaps China has been dumping some of their reported $400 billion in Fannie & Freddie bonds, and JPMorgan is under strain to buy them all up quietly, before news breaks beyond their hardened corrupted walls. Regardless, the big risk with bailouts is the USDollar breakdown. No way in Hades can the USGovt sell a new mountain of USTreasurys to finance such bailouts. No way in Shangrila can the USGovt appeal to altruistic multi-billionaires in the Arab world to foot the bill. The answer is the printing press finally, which to date has not been used too much. Oil it up! This has been boasted to be the great American advantage. Hardly!
Gone is the positive sentiment that the USFed would indeed follow though on inflation vigilance. Gone in fact are all the USFed and US banking system options. Options are gone. The euro stands as the primary beneficiary of US$ extreme duress. The Euro Central Bank has wrested leadership from the inept destructive bubble engineers in the Untied States. The euro managed to give back roughly half of its gain from the previous breakout above 149 to 159. Next it should make a move to 164, my target. This is analyzed more fully in the July Hat Trick Letter. Gold will follow the euro lead, as the gold price, the silver price, and the euro exchange rate might all march to new record highs together.
HAS ANYONE NOTICED THAT THE DOW IS UP, BANK STOCKS ARE UP BIG TODAY (THURSDAY), OIL IS DOWN, THE 10-YEAR TREASURY IS BEING SOLD OFF SOME, BUT GOLD IS UP $13 WHILE SILVER IS UP 20 CENTS !!! Gold & silver are up despite the flagship Dow rebound, despite the bank sector rebound, which is 90% short covering and vaporous.
Gold has distinctly different markets in the different continents. Gold has broken out into record territory in Japanese yen terms. This is a very significant event. The Asian continent is where the big savings are accumulated, outside the oil trade from the Middle East. Among the North Americans, Europeans, and Asians, the Japanese gold price is first to register an all-time high this summer. As Japan exits its seemingly endless period of price deflation that began back in 1990, times have changed for its citizens. Prices are rising, and investors have turned clearly to hedge that inflation. The same Cup & Handle reversal pattern is clear, evident with the euro currency. It indicates a price target of 11.50 to pursue. The yen gold price is negotiating the right side handle, where hesitation, doubt, change of hands, and debate occur. Its momentum will move gold higher in Asia. Never under-estimate the power of quiet hidden Chinese gold buying.
INSTITUTIONAL CRIME & DISHONESTY
My claim has been for four years that the US financial system in its entirety represents institutionalized dishonesty, the latest example of a US-style Fascist Business Model, made easier by control and ownership of the world reserve currency, unbacked by gold. Anyone who denies it cannot be observing the developments too numerous to count. Listen to Bud Farrell (click here or here) at the Financial Sense Newshour, interviewed by Jim Puplava. Farrell shares his insider experience on vast pervasive naked shorting of stocks, which he claims is just the tip of the iceberg. The broadcast is a follow-up of a Bloomberg research piece several months ago, and is entitled "The Crime of the Century." Unsound money invites pervasive corruption from those close to the printing press, a principle that traces back to Ludwig Von Mises from his fiat money teachings. My maintained list of crimes of the century is long, starting with the Greenspan monetary drug dealer actions to create the failed bank condition (while taking a second Swiss paycheck), the Clinton-Rubin raid of the US Treasury gold supply (near zero cost leasing), the ongoing suppression of key prices (gold & silver in the futures market), the price capping of long-term USTBond yields (in futures market and credit derivatives managed by JPMorgan), the continued Enron accounting in the hidden banking system (see off balance sheet charade in defiance of BIS & G7), then the export of fraudulent US-based mortgage bonds worldwide (Wall Street handiwork). Let's not forget the purchase of FDA approval of certain lethal drugs, such as is rumored for Nutra-Sweet. Then there is the entire story of gold heist, bond obliteration, insurance fraud, interruption of Pentagon fraud investigation, rumored to have motivated certain events in a big financial center NorthEast city about seven years. Few seem to realize that a raft of 30-year USTreasury Bonds dated before autumn 1971 were to come due in late 2001, all redeemable in gold.
The recent action to prosecute naked short stock selling is more blatant corruption on its face. The US regulators are trying to halt short selling of 19 financial stocks, led by Fannie Mae, Freddie Mac, Lehman, Goldman Sachs, Citigroup, JPMorgan, Merrill Lynch, and Morgan Stanley. Near collapse of their stock prices is wrongly blamed largely on short sellers. Regulators do not care about non-financial stocks right now, curiously. They seem to deny that banks are insolvent, calling the diverse troubled bank cases isolated. The villains are trying to fend off panic in the bank stocks. They want to stop false rumors, when Goldman Sachs is guilty of similar tactics. GSax is under investigation for doing exactly that in London before the Bear Stearns death. Regulators want to extend the tight requirements on short selling between July 21 and July 29, through the month of August. Removal of the short rule on upticks has contributed to this mess, opening the gates of corruption. Fannie Mae might be the biggest lynchpin involved as an object of stock shorts. It has $500 billion in short-term rollover debt commitments, around $10 billion per day. The Federal Reserve Bank of New York has been given authority to aid Fannie & Freddie directly. Its $2.25 billion credit limit is inadequate. Fannie & Freddie own half the entire US home loan mortgage market. What we are witnessing is Wall Street in increasingly public demonstrations of desperation trying to rig the rules to favor themselves, and reduce the risk of a total death episode, and tremendous personal loss for the conmen bank executives. Their efforts have earned some criticism.
After the stress working through the entire system becomes even more acute, a big factor will favor gold & silver. The ability for the Powers to control USTreasury long-term yields, to control the USDollar, to bring the crude oil price to heel, to manage the interest rate swaps and other overgrown credit derivatives, that control will diminish. They will be forced, just like under the triage tents, to decide what they must let go. The agents to control prices, rig those prices, and distort those markets will be under huge strain themselves. They might be burdened by the mundane task of survival. My full expectation is that gold & silver will be released from control, by expedience. It will be too costly and unprofitable to attempt control anymore. JPMorgan will continue to manage its 'Garbage Can' free from the nuisance of accounting disclosure. But they too will become too distracted by the credit derivative mess that they contributed in building.
its coming down , and in due time even silver and gold wont be of any help either, but that will be well after the mark is implemented physically(already exits spiritually and metaphorically).
GEAB N°26 is available! LEAP/E2020 Summer 2008 Alert – July-December 2008: The world plunges into the heart of the global systemic crisis
- Public announcement GEAB N°26 (Summer 2008 Special Edition - 31 pages!) -
GEAB N°26 is available! LEAP/E2020 Summer 2008 Alert – July-December 2008: The world plunges into the heart of the global systemic crisis
On the occasion of this 26th – Summer 2008 Special – edition of the Global Europe Anticipation Bulletin, the LEAP/E2020 team has decided to launch an alert on the July-December 2008 period. Indeed, our team is now convinced that this period will consist for the whole world in a major plunge into the heart of the phase of impact of the global systemic crisis. The upcoming six months are in fact the core of the unfolding crisis. The troubles met in the past six months were mere harbingers.
US consumer confidence index (1978-05/2008) – Source: Briefing.com / Conference Board
US consumer confidence index (1978-05/2008) – Source: Briefing.com / Conference Board
In the next semester indeed, all the components of the crisis (financial, monetary, economic, strategic, social, political… ones) will converge at the height of their intensity (1). Avoiding to repeat a description of the various sequences already anticipated in the previous editions of the GEAB, our researchers have decided to describe the trends that will be at work in the world's main regions in the next six months. Therefore they analyse eight fundamental processes that will mark the next semester and affect decisively the years 2009-2010, i.e.:
1. A Dollar in distress (EUR 1 = USD 1.75 at the end of 2008): Panic-fear of a US currency and economy collapse eats into the American collective psyche
2. Global financial system: An impossible requirement – placing Washington under international trusteeship – provokes the system's break
3. European Union: The periphery sinks into the recession, the Eurozone only slows down
4. Asia: The « double whammy » inflation/export-collapse
5. Latin America: Difficulties increase but growth remains steady in most parts of the region, Mexico and Argentina in crisis
6. Arab world: Pro-Western regimes go adrift / 60 percent risk of socio-political explosion on Egypt-Morocco axis
7. Iran: 70 percent probability of an attack by October 2008 confirmed
8. Banks/Speculative bubbles: When bubbles collide
In parallel, LEAP/E2020 presents five strategic advices for the intention of central banks, governments and regulatory authorities, aimed at reducing and channelling the very bad consequences of the phase of impact of the crisis.
As to private investors, LEAP/E2020 develops in this 26th issue of the GEAB, a series of 8 operational advices for them to avoid committing fatal mistakes in the course of the next semester.
For this public announcement, LEAP/E2020 chose to present its anticipation on the upcoming break of the global financial system.
Global financial system: An impossible requirement – placing Washington under international trusteeship – provokes the system's break
Who owns the US debt? – Source: Fincher
Who owns the US debt? – Source: Fincher
Washington's decision to raise the bids for the return to a « strong Dollar », by compelling Ben Bernanke to intervene, bears the seeds of an acceleration of the global financial system's breaking process (2).
Ben Bernanke is indeed the last wall before the largest US currency and asset owners become fully aware of the fact that Washington no longer has the means of its monetary policy. What used to be a deliberate policy of currency drop (when it was decided to stop publishing M3 in March 2006, as announced by LEAP/E2020) in order to reduce the country's trade deficits and the real value (for themselves) of the their debt (labelled in Dollar), turned against its perpetrators entailing a major outflow (capital outflow, steadiness of trade deficits, soaring inflation...). The « Bernanke » card is the last « psychological » card Washington can play. The fact of using it proves that US leaders have reached the last limits of what they can do to hold back their partners into the system founded after 1945 and based on the US economy and currency (3).
In a few weeks time (after the next G8- and other organisations-meetings have taken place), when it will be confirmed that there is no way to stabilise the US currency (not to mention the eccentric idea of pushing it up) because the US economy is sinking always deeper into the recession and because the world is already filled with US Dollars no one knows what to do with, then the global financial system will burst out in various sub-systems trying to survive as much as they can before a new global financial equilibrium is found (4). As he is embarking on this road to nowhere, consciously or not, voluntarily or not, Ben Bernanke is signing the end of the current financial system. The return to a “strong Dollar” is a bit like the « liberation of Iraq » : wishful thinking turning into a nightmare.
The inverted pyramid of global liquidity - Sources: Bank of International Settlements / Independent Strategy
The inverted pyramid of global liquidity - Sources: Bank of International Settlements / Independent Strategy
As a matter of fact, if Washington really intended to stabilise the Dollar or, more ambitiously, to push it up against the other currencies, there would only be one way (5), in two parts: raising significantly the Fed's interest rates, and lowering drastically the pace of money printing. But if the government decided to implement this type of policy, the US economy (both real and financial) stops dead a few weeks after : the real estate market falls to zero by lack of affordable credit and as a result of soaring interests on Adjustable Rate Mortgage loans, consumption becomes negative (i.e. shrinks back each month), corporate failures multiply exponentially, Wall Street collapses under the burden of innumerable debts and succumbs to the instantaneous implosion of the CDS market due to counterparties default...
Such a series of events, sure to happen if Washington implements a voluntary policy of dollar-rescue, is probably unacceptable by the US authorities. Therefore, apart from talking – and further self-discrediting – they cannot do anything. The method used in the past decades is no longer available: no one will accept to buy large amounts of Dollars in order to rescue the US currency if some voluntary policy (like the one described previously) is not implemented by Washington. As they will not do it, the rest of the world will draw its own conclusions: everyman for himself, knowing that from mid-August onward, as Beijing is relieved from the constraint of the Olympic Games, a large number of “tough” options (6), put on the back burner until the Games, will resurface (7).
----------
Notes:
(1) For a more detailed calendar of these trends, see GEAB N°18.
(2) The Bank of International Settlements is beginning to worry about a risk of global Great Depression. Source: Banking Times, 06/09/2008
(3) Source: Euro Pacific Capital, 05/23/2008
(4) On this subject, read in GEAB N°26 our advice to central banks, governments and regulatory authorities.
(5) We will disregard the other option consisting in bombing the ECB, the Bank of China and the Bank of Japan.
(6) Source: ContreInfo, 04/21/2008
(7) As Russia is becoming the largest oil-producer - before Saudi Arabia - in the world, the balance of power on the oil market is also changing a lot. Source: Times of India, 06/12/2008
Lundi 16 Juin 2008
In the same category:
Five western countries will be particularly affected by the collapse of the capital-based pension system - 07/08/2008
Traffic Info LEAP/E2020 - May 2008 - 12/05/2008
From now on the GlobalEurope Anticipation Bulletin is also available in Spanish! - 14/03/2008
Special offer! Each new subscriber gets Special Edition 'GEAB/SUBPRIME CRISIS: Causes, development, consequences and strategic advice'... because an in-depth understanding is required to secure oneself - 12/08/2007
GEAB Archives Offer (1) - Six archive issues of your choice for 50 euros - 22/01/2007
French prospectivist, Pierre Gonod, analyses LEAP's work of anticipation - 30/08/2006
[link to www.leap2020.eu]
GEAB N°26 - Contents
Published June 16, 2008 - Summer 2008 Edition (31 pages!)
LEAP/E2020 Summer 2008 Alert – July-December 2008: The world plunges into the heart of the global systemic crisis
The upcoming six months are in fact the core of the unfolding crisis… (page 2)
Read public announcement
Global overview: Eight trends mark the coming semester
1. A Dollar in distress (EUR 1 = USD 1.75 at the end of 2008): Panic-fear of a US currency and economy collapse eats into the American collective psyche
Bernanke, Paulson and Bush bark but the USD will not deviate one iota from EUR 1 = USD 1.75 at the end of 2008, according to the forecasts of LEAP/E2020… (page 3)
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2. Global financial system: An impossible requirement – placing Washington under international trusteeship – provokes the system's break
Washington's decision to raise the bids for the return to a « strong Dollar » bears the seeds of an acceleration of the global financial system's breaking process… (page 9)
Read public announcement
3. European Union: The periphery sinks into the recession, the Eurozone only slows down
As regards the European Union, the situation will be contrasted, as anticipated many times by LEAP/2020… (page 11)
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4. Asia: The « double whammy » inflation/export-collapse
Economies based on cheap costs and exports, hit by inflation and recession (US) or economic slowdown (EU) in two major export markets, these are the characteristics of the situation for Asian countries in the coming six months… (page 12)
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5. Latin America: Difficulties increase but growth remains steady in most parts of the region, Mexico and Argentina in crisis
The Very great US Depression will have very specific direct consequences on all countries of the area, namely in Central America and the North of South-America.… (page 13)
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6. Arab world: Pro-Western regimes go adrift / 60 percent risk of socio-political explosion on Egypt-Morocco axis
According to LEAP/E2020, the global systemic crisis contributes to weaken Arab states' pro-Western regimes … (page 14)
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7. Iran: 70 percent probability of an attack by October 2008 confirmed
The nomination of Barak Obama as the Democrat opponent to John McCain props up the risk
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8. Banks/Speculative bubbles: When bubbles collide
World banks, American and British in particular, will be trapped between 4 bubbles, in fact now four bombs… (page 16)
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The decisive six months to avoid a global recession: Five strategic advices for central banks, governments and other regulatory authorities
Two measures must be implemented urgently as early as this summer 2008, two measures must be launched in the second semester of 2008 and a general stampede in case the two first measures are not implemented by the end of summer 2008… (page 18)
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Eight crucial advices to avoid committing fatal mistakes during the plunge into the heart of the phase of impact of the crisis
Five categories of assets must be avoided by any means and three positive recommendations (page 26)
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The GlobalEurometre - Results & Analyses
94 percent of the Europeans estimate that national political parties are not able to represent their collective European interest… (page 30)
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Full page [link to freewordofgod.yuku.com]
Sharp US money supply contraction points to Wall Street crunch ahead
By Ambrose Evans-Pritchard
Last Updated: 3:04pm BST 19/08/2008
The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months.
Data compiled by Lombard Street Research shows that the M3 ''broad money" aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959.
"Monthly data for July show that the broad money growth has almost collapsed," said Gabriel Stein, the group's leading monetary economist.
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On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms.
The growth in bank loans has turned negative to a halt since March.
# More by Ambrose Evans-Pritchard
# More on banking
"It's obviously worrying. People either can't borrow, or don't want to borrow even if they can," said Mr Stein.
Monetarists say it is the sharpness of the drop that is most disturbing, rather than the absolute level. Moves of this speed are extremely rare.
The overall debt burden in the US economy is currently at record levels, raising concerns that a recession - if it occurs - could set off a sharp downward spiral.
US Broad Money Percentage change
Household debt is now 131pc of disposable income, compared with 93pc at the top the dotcom bubble, 79pc in the property boom of the late-1980s, and 62pc at the end of the 1970s.
The M3 data measures both cash and a wide range of bank instruments. It tends to provide an early warning signal of major shifts in the economy, although the US Federal Reserve took the controversial decision to stop reporting the statistics in 2005 on the grounds that the modern financial system had rendered the data obsolete.
Monetarists insist that shifts in M3 are a lead indicator of asset prices moves, typically six months or so ahead. If so, the latest collapse points to a grim autumn for Wall Street and for the American property market. As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation.
"There are always short-term blips but over the long run M3 has repeatedly shown itself good leading indicator," said Mr Stein.
He cautioned that the three-month shifts in M3 can be highly volatile.
M3 surged after the onset of the credit crunch, but this was chiefly a distortion caused by the near total paralysis in parts of the American commercial paper market. Borrowers were forced to take out bank loans instead. The commercial paper market has yet to recover.
The University of Michigan's index of consumer sentiment has fallen to the lowest level since the 1980s recession.
The US economy is without doubt facing severe headwinds going into the autumn.
Richard Fisher, the ultra-hawkish head of the Dallas Federal Reserve, warned over the weekend that growth would be near "zero" in the second half of the year. [link to freewordofgod.yuku.com]
Decoupling as they call it will occur(is occurring) but not in a purely financial manner, it will be much more regional and political, and its real effects(particularly regional and national stabilizations), wont be seen clearly until the artificial controls,restraints and mindtwists(by MSM in particular) are cleared out of the way, by the demise of the defacto global fiat currency that was the US dollar, still this does make for dangerous power plays, potential attempts at war and justifications for war by most of the usual suspects and those they want us to believe are the real causes of conflict, and finally of the big money gamers, the banksters, oil/energy mongers , drug lords(legal and illegal), weapon deathdealers and corrupt bureocratjudicarypoliticos .
[link to www.irishtimes.com]
One in two fund managers feels world about to enter recession
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* Waste group Greenstar in talks to buy rival Panda in deal worth €65m
Traders on the floor of the Frankfurt stock exchange: German's economy shrank by 0.5 per cent in the second quarter of this year.Traders on the floor of the Frankfurt stock exchange: German's economy shrank by 0.5 per cent in the second quarter of this year.
Poll's findings come as world's biggest markets struggle with all the economic basics, writes Proinsias O'Mahony
FUND MANAGERS are bracing themselves for a global recession, according to Merrill Lynch's latest monthly survey of global fund managers, with almost half of respondents saying they expected the world economy to enter recession in the next 12 months.
The survey, which polled 193 fund managers controlling $611 billion in assets, also found that almost one-quarter believe the global economy is already in recession. Two months ago, just 16 per cent of fund managers took that view. Considering that the managers were polled in early August, it's reasonable to assume that the figure might be higher again today, considering this week's wave of gloomy economic data that indicates that four of the world's five biggest economies - the US, the euro zone, Japan and the UK - are hovering on the brink of recession.
On Thursday, it emerged that the euro zone had shrunk by 0.2 per cent in the second quarter, the first contraction in its nine-year history and the first time since 1993 that the 15 countries who use the euro have seen a fall in output.
Germany, which accounts for one-third of euro zone output, saw its economy contract by 0.5 per cent while France, the second-largest economy, fell by 0.3 per cent, significantly worse than economist predictions of mild growth.
Italy experienced a similar decline, while the enlarged European Union of 27 members contracted by 0.1 per cent. Europe has been hurt by the strong euro, tighter credit and weakening exports as global demand stalls.
Looking at Europe's four biggest economies, only Spain could record any kind of growth at all, eking out a gain of 0.1 per cent.
Despite that, Davy Stockbroker's Rossa White echoed analysts' opinions by saying that Spain was "almost certain to shrink" in the second half of 2008.
With unemployment at 10 per cent and a severe property crash in motion, "a momentous economic slowdown is now under way", according to a new report by Morgan Stanley.
The report stressed "the deterioration in Spain is just in the beginning stages", with the "bulk of the pain" likely to be suffered in 2009. Spain's property market - the "Costa del Crash" as it's now being called - could mean real trouble for the country's biggest banks, the report says, warning that an economic crisis similar to the exchange rate mechanism debacle of the early 1990s could wipe out the capital base of many exposed lenders. Last month saw the demise of €5.1 billion Martina-Fadesa, Spain's biggest builder.
Morgan Stanley points out that loans to developers make up more than 26 per cent of total lending for Sabadell, Spain's fourth-largest bank, with other major financials similarly exposed.
Recession has also been on the minds of British investors this week. Wednesday saw Bank of England governor Mervyn Kind admit that there is "bound to be a quarter or two" of economic contraction as Britain suffers a "painful adjustment". In July, the UK experienced its largest monthly increase in unemployment since December 1992. Inflation this week hit 4.4 per cent, also its highest level in 16 years.
Currency traders are betting that the country is heading for its first recession since that period, driving the pound lower against the dollar on 11 consecutive days, its longest run of losses in 37 years.
Japan, too, appears destined for recession. Its economy shrank by 0.6 per cent between April and June, equivalent to a 2.4 per cent annual decline. Rising energy and food costs have damaged Japanese consumer confidence, which last month fell to its lowest level in 26 years.
The global nature of the slowdown has surprised advocates of the decoupling thesis, the notion that European and Asian economies have broadened to the point that they would be largely insulated from American woes.
Ironically, US equities are comfortably outperforming most international indices and the euro zone, the UK and Japan now look more likely recession candidates.
The SP 500 is down by 12 per cent this year whereas the MSCI Asia Pacific Index has lost 20 per cent and the EuroStoxx 50 is off by 24 per cent. The much-vaunted Bric markets - Brazil, Russia, India and China - are well down also, with the Chinese market losing 54 per cent of its value this year. However, China remains the only one of the "big five" economies showing decent growth this year.
The slowdown in the world economy has been reflected in the tumbling price of oil. In the US, oil demand fell by an average of 800,000 barrels per day compared to the same period last year. That was the biggest volume decline in 26 years. The Baltic Dry Index, which measures the cost of shipping raw materials and is thus often used as an indicator of commodity demand, offers further testimony to the sell-off in commodities in general. It's fallen by 37 per cent since its May peak.
Despite the SP's relative out-performance, American recession worries refuse to go away. Inflation this week hit an annual rate of 5.6 per cent, its highest level since 1991. Retail sales fell by 0.1 per cent in July, the weakest figures since February and with 87 per cent of the tax rebate stimulus package now delivered, few analysts expect a pick-up in spending.
Stephen Stanley, an analyst with RBS Greenwich Capital, says that the "toxic combination" of tightening credit, a weak housing market and the fact the fiscal stimulus is "essentially done" will likely trigger the first "consumer recession" since 1990-1991.
Furthermore, the latest results from the Federal Reserve Bank of Philadelphia's quarterly survey of economists offer few crumbs of comfort. Its so-called "Anxiety Index" asks forecasters to estimate the probability of a real decline in gross domestic product (GDP). More than 46 per cent expect a negative GDP reading in the fourth quarter. Since its inception in 1968, every quarter in which the index was over 40 was later deemed to be recessionary.
US Mint Suspends
Gold Coin Sales
GATA.org
Submitted by cpowell
8-17-8
Dear Friend of GATA and Gold:
The U.S. Mint has suspended sales of American Eagle gold coins and is refusing orders from dealers, two coin and bullion dealers confirmed Thursday.
The mint's suspension of gold coin sales follows its tight rationing of sales of silver eagle coins, begun in May, when sales to the public were terminated and sales to the mint's 13 authorized dealers were tightly limited.
Word of the mint's suspension of gold coin sales came from the American Precious Metals Exchange in Edmond, Oklahoma, (< [link to apmexdealer.blogspot.com]
://apmexdealer.blogspot.com/2008/08/news-alert-us-mint-suspends-sales-of.html) and from Centennial Precious Metals in Denver, Colorado.
The suspension is overwhelming evidence that the futures contract price of gold on the commodities exchanges is substantially below the physical market price and that, indeed, the commodities exchanges are being used as GATA long has maintained -- as part of a massive scheme of manipulation of the precious metals, currency, and bond markets.
Michael Kosares, proprietor of Centennial Precious Metals and host of its Internet bulletin board, the USAGold Forum
(< [link to www.usagold.com] / [link to www.usagold.com] explained Thursday:
"The U.S. Mint buys direct from the refiners, and this suspension of gold eagle sales may be an indication that the supply line is already backing up, or that the mint expects that it will back up for the rest of the year. I wonder who would give up physical metal at these prices and under these circumstances except distressed sellers. The central banks are in a hunker-down mode as far as I can determine, and it's the mines that supply the refiners. So if the mint, which buys from the refiners, is having a difficult time locating metal, what does that tell you? I keep saying that we may get a surprising rubber-band effect later in the year when the pre-holiday/festival season kicks off in September/October. It may happen sooner. One of our indicators of approaching a bottom in gold is how many calls Centennial Precious Metals gets from our U.S.-based Indian clientele. Here's a quote from my office's report to me at the end of the day today: 'Today was a good day. ... There must have been an Indian convention where someone was handing out USAGold business cards.' That may give you a clue as to thinking in India proper and probably the rest of the Asian rim."
That is, through their agents the bullion banks the Western central banks, desperate to prop up a corrupt and totteringt financial system, have put gold so much on sale that even the U.S. Mint can't find any now. The price reported from the commodities markets is a fiction -- a scary one, perhaps, but a fiction no less.
You can strike a blow at the market riggers who are defrauding the world -- just buy a little real metal The dealers listed at the bottom right of this dispatch will be glad to help you do it.
CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.
There is a huge demand for both gold and silver right now in India and North America. North American shops are completely bare of silver. Indian shops are empty of both silver and gold. Even the Indian banks don't have any gold or silver. The big western bullion banks, based in New York and London, control both the gold and silver trade. Reports from India are that they are refusing to extend Indian bank lines of credit, forcing the small banks to deliver to clients, collect money, and pay down lines of credit, before being allowed to take delivery of another gold or silver shipment. This is very abnormal. Normally, if a banker’s bank knows that its customer-bank has firm orders, it would extend the smaller bank a bigger line of credit. Not now.
By refusing to extend lines of credit, the big bullion banks are essentially rationing a very thin supply. Most physical silver, for example, is being reserved for industrial and fabrication use, and investors are simply not able to get any, without waiting for months. Investor oriented shops are bare, and the U.S. Mint has suspended coin production. All available supply seems to be reserved for industrial users. You cannot substitute paper claims for real silver, in industrial use, because paper doesn’t have the physical properties of silver. So, it seems that all available supply is being diverted to industrial users, and, to a lesser extent, aside from the squeeze on lines of credit, also to jewelry fabricators. But, investors are left out in the cold. They can accept paper claims, or nothing. The most interesting mistake that the manipulators have made is in not supplying the U.S. Mint, which has run out of silver, proving that there is a severe shortage.
Meanwhile, by refusing to extend Indian bank lines of credit, Indian jewelry demand for both gold and silver is being stymied. India is not being allowed to drain away precious metals, in the amounts that are warranted, given the low prices and the numbers of unfilled orders that are sitting on desks in India. World bullion banks, in other words, are managing deliveries of physical gold and silver to artificially reduce the quantities delivered, under the excuse that the “Indians have run down their credit lines.”
The happiest fact of bullion bankers’ lives is that western markets are, with the exception of some fabrication and industrial demand, almost 90% paper based. The huge COMEX futures market almost never sees an ounce of real silver or gold ever change hands. It is all paper, shuffled back and forth. These paper markets are being flooded with paper based "claims" to alleged gold and silver, supposedly being held in big bank vaults in London and New York City. The market is overwhelmed with paper claims, and the big bullion banks (maybe, with the Federal Reserve providing the money?) are paying big bucks to secondary derivatives dealers to get them to lease this artificially created “gold and silver.” In a normal market, one who leases a thing of value must pay for it. But, now, derivatives dealers are being paid to lease both gold and silver. Then again, it may not be a thing of value, if it is fake…
That being said, the paper claims may have a lot of value, whether or not they are fake. Derivatives dealers can write futures contracts, options, etc., according to CFTC rules, because paper "claims" to vault-stored silver and gold can be used as the legally mandated "cover" for futures contracts. To understand the nature of paper claims, we must travel back in time, for a moment, to a class action against Morgan Stanley (MS). According to the complaint, Morgan Stanley claimed that it bought physical silver, on behalf of various clients, and was storing it, in safe-keeping, in its vault in New York. Allegedly, Morgan Stanley defrauded its clients from Feb. 19, 1986, and Jan. 10, 2007. According to the complaint, it never bought any silver, but, all the while, continued to charge clients big fees for storing the imaginary metal. Morgan Stanley is one of the biggest investment banks in the world. It is one of the major players in precious metals. Yet, according to the lawsuit, the paper claims to vaulted silver it issued to clients was nothing more than a lie. One of Morgan Stanley’s defenses, interestingly enough, was that everything it did simply followed “standard industry practices.” For more information, see here.
Apparently, it is standard Wall Street industry practice to send people monthly statements promising that the firm is storing physical precious metals in a vault, charge for the storage, but really never buy or store any real metal. Morgan Stanley eventually settled the case for many millions of dollars in damages, rather than going to trial. That tends to indicate that they were guilty, as charged. I believe, with good reason, as you shall soon see, that most of the paper claims to silver and gold, now floating about, and collapsing prices, are cousins to the Morgan Stanley silver claims.
Logic tells us that the so-called metal must be imaginary, and I will soon tell you why. Yet, for some reason, in spite of class actions like the one described above, no one demands to see it. The majority assumes that banks, like Morgan Stanley, are honest, and would not issue fake paper claims. But, if they did it before, they are probably doing it again. That could be the key to precious metal market manipulation.
If you are a huge bank, with hundreds of billions of dollars worth of short positions, and you know the price is going to explode, you can do one of two things. You can be honest, like most individual and institutional short sellers must be, and cover your short position by buying back at market prices even though you may take losses to do so. Or, you can be dishonest. The majority of banks and hedge funds don’t have the option of being dishonest, even if they want to be.
However, what if you happen to be a primary dealer of the Federal Reserve, or the ECB, or the Bank of England, or all three? If you are, then you happen to have overwhelming knowledge and control of the marketplace, because your divisions are deeply enmeshed in the global financial trading system, and your powerful computers allow you to analyze all markets in a matter of minutes or even seconds. You have an ownership stake in all the big markets like the New York Stock Exchange, Nasdaq, COMEX, NYMEX, and the London Metals Exchange.
Unlike a small or medium sized institutional investor, you are in a position to be dishonest, if you choose to be, and in a position to profit from your dishonesty. Because all orders flow, at one point or another, through your firm or one of a handful of other big wire houses, you will know where the stop-loss triggers of non-affiliated long and short sellers are. With this in hand, you are ready to manipulate any market, especially small commodity markets like gold and silver.
The first thing you need to do is issue large numbers of false paper claims to allegedly stored gold and silver in your vault. This gold and silver really doesn’t exist, but it doesn’t matter because you are a big prestigious bank, and no one questions you when you say it is in your vault. You offer these claims for “lease” to any secondary dealer willing to take you up on it. You don’t want to sell them outright, because then you might eventually be faced with a demand for the real metal, as Morgan Stanley was. You don’t actually have enough real metal to cover these claims, so, you want to make sure that the operation takes place in a limited time frame. That’s why you “lease” the claims for a term of months. If you find that small dealers are afraid to lease such claims, you encourage them by subsidizing the leases with a negative interest rate. In other words, you pay them to accept your alleged gold and silver.
This is exactly what is happening in the precious metals market, right now. Gold and, especially, silver leases are being subsidized. As of a week ago, if you are a dealer, and you lease gold or silver, from the bullion banks, incredibly enough, THEY WILL PAY YOU! At the end of this article, I have attached a chart, showing the current negative lease rates for the various metals. Dealers who lease claims to fake metal, are able to issue futures contracts and other derivatives. The fact that they hold contractual claims to metal means they will have fulfilled the “cover” requirement imposed by their federal regulator, CFTC. The CFTC has never bothered to audit a vault to see if the gold or silver is really there, so you’ve got nothing to worry about. You’re a big bank! You say it is there. Everyone believes you, just like Morgan Stanley’s customers believed them. You might even be Morgan Stanley.
At any rate, you initially issue a lot of claims to fake metal, and so many futures contracts are written, in a very short time period, that they flood the market on exchanges like COMEX and the London Metals Exchange, where almost all the transactions are on paper, and real metal rarely changes hands. Meanwhile, if you are the big bullion bank, you know what you are doing. You issue just enough subsidized precious metal paper to automatically trigger stop-loss orders. The price starts going down as the sell orders are filled. That triggers yet more stop-loss orders, and the process becomes one of dominos, falling one after another, until the price collapses. If the operation is successful, and the collapse is big enough, market confidence is destroyed, on a wide scale.
The destruction of market sentiment won’t last forever. You can’t fool all the people all of the time. But, temporarily, having been burned badly, investors refuse to buy. Buying may still be happening on the real market, as it is, in both America and India, in gold shops. True physical metal will still be in severe shortage, so the metal will disappear quickly, as the price goes down below where true market forces should be bringing it to reach equilibrium between supply and demand. But, real market buyers look to the COMEX and the London Metals Exchange, because they think they are honest exchanges, even though they may not be.
Prices on those exchanges will determine prices charged in shops, and when the price goes down deeply, there isn’t enough product to go around, because everyone buys it. In other words, supply and demand go into disequilibrium, there isn’t enough supply to meet the demand at such low price points, so delays in delivery, as well as outright shortages result. That is what is happening, right now, in the physical gold and silver market. Not only to retail investors, but, also, even to the U.S. Mint, which has suspended production of gold coins, and is rationing silver coins.
At any rate, when market confidence is damaged sufficiently, we can move in. We unwind our new short positions in the futures market, by buying back huge number of long positions at very low prices on the COMEX. We also unwind an exponentially larger number of positions inside the shadow world of "dark pools", which are little known secretive private exchanges, controlled by the big banks. It ended up costing us some money, but not a lot compared to the money we’ve avoided losing. We’ve paid subsidies on the leases, but we’ve never actually had to buy the gold or silver, because there isn’t any available, and none in our vault. This is the way that a group of big bullion banks could induce a price collapse to unwind hundreds of billions of dollars worth of potential losses, or position themselves to go long on hundreds of billions of dollars worth of potential profits.
Contrary to the pundits at CNBC, Bloomberg, etc., the price of gold really has nothing to do with the value of the dollar or the value of oil. It doesn’t matter what the dollar is worth, in relation to euros, pounds sterling or Zimbabwee money. It only matters what supply and demand factors exist for gold. Yes, the demand will fall a bit if the price goes up, for example, in euros, because the euro has depreciated. But, what really counts is not what the euro, yen or dollar price is, but, rather, whether or not there is enough demand to soak up the available supply.
Gold is priced in dollars, but, so long as people holding either dollars, euros, yen, yuan or Zimbabwean money, are willing to pay whatever price gold is selling for, in an honest market, the price should rise. Obviously, enough people are willing to pay for gold and silver, at the previous $978 and $19.50 per troy ounce price, because the U.S. Mint could not source enough metal at those price, and had to suspend coin production.
This proves that people are more than willing to fork over, in whatever currency they are using, the previous prices for gold and silver, in such quantities, that a shortage was already existing, before the price collapse, especially in the silver market. It is true that people in poorer countries like India, might have back on their consumption.
But, while they were cutting back, demand and consumption of gold in North America, including Canada and the USA, was soaring. For example, before it suspended production of bullion coins, due to shortages, the U.S. Mint’s statistics show that it was printing 2.5 times as many gold coins, and almost 4 times as many silver bullion coins, this year, compared to last year. Gold and silver bullion, in bar form, was also flying off North American retail shelves.
Bottom line: Enough people were buying, when the price was high, to exhaust the supply. Basic economics says that, in a free market, this means the price must rise.
But we don’t live in a world of free markets. Instead, we are living in an Orwellian 1984 double-speak world. Welcome to the world of Fed/PPT, where 2+2=5, blue is yellow, and black is white. All things are as they say they are, rather than as they really must be. Welcome to the world of a controlled business media, where the pundits will do anything and say everything to convince you to forget your math, and your eyesight. No, they tell you. It really isn’t so. What you’re seeing isn’t the way it is. Believe, instead, what we tell you. We can do it! We have special skills. There is a new world order. We can make 2+2=5. Just give us your money, and we’ll show you how!
But, let’s return to reality. Right now, virtually no North American precious metals dealer can give you a firm delivery date on large quantities of silver. They have no stock to sell. This means demand is robust. On Friday, as the COMEX gold price was collapsing, the U.S. Mint suspended gold bullion coin production because it cannot source enough gold bullion! That could not happen if bullion banks were selling claims to real physical metal into the marketplace. Indeed, the Mint began rationing silver bullion coins two months ago, when it started having trouble sourcing silver bullion. Word from the Perth Mint in Australia is that it is taking weeks or months to take physical delivery of gold and silver, even though investors are already supposed to own that metal. Supposedly, it is simply being kept in the Mint's vault for safe storage. But, it is getting harder to take it out of “storage”. Meanwhile, as previously stated, Indian gold and silver dealers, wholesalers and banks all have empty vaults. None of this can happen if demand is down, and supply is abundant.
We have a disconnect between reality markets and fantasy markets. The COMEX and London Metals Exchange are fantasy markets controlled by the big bullion banks. They must be engaged in market manipulation, because nothing can explain a big price collapse, in the midst of widespread shortages and robust demand. A group of big financial institutions, deeply enmeshed in the global trading system, and heavily involved in the gold and silver market, must be deliberately inducing temporary panic, for their own purposes. These malevolent characters will eventually be able to buy back their short positions at low prices, and, possibly, also, even collect a significant long position. The process is a continuing one, and hasn’t stopped yet. On Friday, for example, the subsidy for leasing gold and silver was raised to very high levels.
It is obvious what they are doing. More important, however, is why? What does it mean? Well, the PPT bank executives are generally “people in the know” about financial events, before they actually happen, sue to close relations with regulators like the Federal Reserve, and FDIC. They folks are so desperate to cover short positions, that they are willing to spend a billion or so dollars, subsidize precious metal leases, to collapse the market, and destroy investor confidence. But, why? We know that the Federal Reserve, like other central banks, sees gold as a rival to the dollar. But, that’s not enough, because they’ve never attacked precious metals with such ferocity as now, and, if the Fed were directly involved, they could probably supply real metal.
If something terrible is about to happen in the financial world, the losses that big banks would take on their precious metal short positions would put most of them into bankruptcy. Remember the words of Warren Buffett. Derivatives are the financial world’s weapons of mass destruction. Precious metals futures short positions are highly leveraged transactions that could cost hundreds of billions if the price of gold were to suddenly explode.
We can guess that the main players here are big powerful Wall Street and/or High Street investment banks who work closely with the Federal Reserve, the ECB, and the Bank of England. These people are privy to the information needed to carry out a massive manipulation as described above. No one else is. Since most of the collapse happens on the COMEX, we can assume that most of the manipulation is being done by New York based investment banks.
Wall Street’s investment banks control most of the world's gold and silver markets. They are also entrenched in the overall mesh of all financial markets. Making matters worse, because of the 1987 President’s Executive Order on Working Markets, they are authorized to work together, and in conjunction with the U.S. Treasury and the Federal Reserve, to manipulate markets without fear of criminal prosecution. They know exactly where the stop-loss orders are, and how much flooding of paper claims for gold and silver would be needed to trigger them. They are, therefore, perfectly positioned to carry out the nefarious scheme I have outlines. The ultimate aim, of course, would be to destroy investor confidence, by collapsing the price for a few weeks. This would allow them to unload their own exposure at a very low cost, while the majority of market participants are temporarily shell-shocked, and in retreat.
As noted above, they are not using real gold or silver to do this. That implies that this particular attack on gold was not authorized by the Federal Reserve. They’ve never had any real silver and have used paper claims for years to manipulate that market. But, gold has often been supplied out of the U.S. hoards at Fort Knox, West Point, or the NY Fed. I suspect all three have had their gold hoard so heavily loaned and swapped out, that there is little or no physical gold left to play with. That’s why the Federal Reserve has been pushing for the IMF gold sales. The vaults are probably already filled with IOUs from the likes of Goldman Sachs, JP Morgan, etc. Perhaps, that is why the Treasury Department lists total U.S. gold holdings as "gold and gold swaps", and refuses to disclose details how much consists of real gold and how much consists of swap IOUs (loaned out gold). But, anyway, the lack of physical gold probably implies that the Federal Reserve is not involved directly, because they probably still have enough to flood the market for a week or two.
But, it’s not cheap to manipulate markets. It will probably cost over a billion dollars to subsidize the negative lease rates. The only logical reason to spend such a huge amount of money, is if you are going to get an even bigger benefit from doing so. They must be very worried about losing far more. Once again, that implies that some VERY bad economic news is about to be released. Skeptical? How much worse can the economy get? It can get much worse! So, what’s in store? A series of huge bank failures, maybe? IndyMac collapsed two weeks ago. Are we going to see the collapse of Washington Mutual (WM)? National City Bank (NCC)? Someone else?
I don’t know. But, I do know this. The FDIC will not have enough cash to make good on its insurance pledges, if they fail. The FDIC only has $37 billion left in its trust fund, after paying off IndyMac depositors. Between its two major divisions, WaMu has total deposits of about $204 billion. National City has about $101 billion. Could FDIC turn to the Federal Reserve for a quick loan? Not a chance! The Fed has its own problems. It has already polluted its balance sheet with some $450 billion in low value and absolutely worthless mortgage paper that its client banks wanted to get rid of.
Depositors might wait months for their money, while Congress is petitioned to approve the sale of more Treasury bills. This delay would be likely to cause other depositors to make a run on other banks, creating a domino effect. Then, more banks might fail. More bank failures will require yet more dollars, and cause more delays in making depositors whole. At the very least, the sudden issuance of $300 billion new dollars would stimulate massive inflation. Under such circumstances, gold could be expected to explode to the $2 - $3,000 per troy ounce range, within a matter of a few weeks or months.
click to enlarge
Source: Kitco
Update: I just found out that Kitco, one of the biggest precious metals dealers in North America, just posted the following notice:
IMPORTANT NEW NOTICE: Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products. Please note that you can continue to place orders and prices will be guaranteed; however, cancellation fees will still be applicable regardless of the length of the delay. Consequently once inventory is received there may also be delays in processing and shipping by our vaults. (italicized emphasis added)
Sounds like a severe shortage to me, when someone will take your money, and then, even if it takes two years to deliver, and you cancel, they force you to pay a penalty!
This shows what and who, this is an attempt by paper and credit to buy more time, to get regulators to bail them out and not the masses, should be interesting to see what happens.
-- Posted 18 August, 2008 | Digg This ArticleDigg It! | Discuss This Article - Comments:
In order to understand where you may be going, it is important to understand where you have been. Nowhere is this more true than in silver. The historic price sell-off, coupled with the obvious shortages in almost all forms of retail physical silver present the lessons of a lifetime. I believe that how we learn from this lesson will determine our future financial situation, good or bad.
The drastic sell-off in silver (and gold) is further proof of an ongoing manipulation to the downside. My advice to own real silver on a fully paid for basis, has been borne out. Real pain exists among those who held silver or gold on margin. Many leveraged investors have lost their positions because they couldn’t meet margin calls. Meanwhile, no fully paid up investors sold because they had to come up with more margin money. That’s lesson number one.
The Anatomy of a Crime.
What we just witnessed in the historic sell-off in silver and gold was a crime. That’s not a crybaby complaint. There were no supply or demand developments that could account for the severity of the sell-off. The proof that this sell-off was criminal lies in public data provided in the Commitment of Traders Report (COT) and a basic understanding of how the futures market works. This has been the most extreme sell-off in the recent history of silver and gold. We are farther below the moving averages than at any point since I have been writing about silver. Price movements this severe are likely to be intentional and not accidental.
Every criminal act must have a motive and an opportunity to commit the crime. By the simple process of elimination, those responsible for this crime are the concentrated commercial shorts on the COMEX. No one else fits the profile. They had the means (through their dominant and monopolistic position), the profit motive and the skill to cause the sell-off.
I can’t identify the concentrated shorts by name, as commodity law protects their identity. But the regulators certainly know who they are and continue to choose to do nothing about them. (They also knew the identity of the SemGroup, which appears responsible for the recent run up and collapse of crude oil prices.) While I can’t identify the perpetrators by name, I can label senior management of the NYMEX/COMEX , as well as the commissioners and other high ranking employees at the CFTC as being complicit and involved in the manipulation. Incompetence can no longer be considered an explanation or excuse for them not enforcing the law. (While not the purpose of this article, I will list the e-mail addresses of the regulators at the end of this article, for those who want to make their feelings known.)
I am not writing this article in anger. I understand how many could feel angry, particularly if leveraged silver or gold positions were liquidated as a result of this sell-off. Not only does this episode confirm that these markets have been manipulated, it also strengthens my conviction that the termination of this manipulation is a certainty. The commercials know better than anyone how the markets function mechanically. This is their full-time business. They know when the markets are least liquid and when many traders are absent. Perhaps the most illiquid times, with few traders present, are in the overnight sessions. The most illiquid time is around 8 PM EST. On Thursday evening, right at that time, the price of silver suddenly plummeted by almost $1.50. It had never before fell by that amount so quickly in any overnight session.
So, how did the concentrated shorts pull that off? They waited until the most opportune time and threw in some relatively small, but aggressively placed sell orders. These sell orders caused the price to fall, touching off further sell orders from under-margined longs, which further caused prices to fall. The analogy I like to use is that it is similar to rolling a small snowball down a hill and watching it pick up size and momentum. As the sell orders began to snowball more and more, guess who was buying after prices dropped? Correct, the concentrated shorts.
How is it possible that the commercials could buy back short positions on thousands of contracts at times of steep sell-offs, without triggering a rise in price? There is only one possible and plausible explanation - through discipline and collusion. The commercials know the price levels that tech funds and other large speculators are likely to sell at on the way down. In addition, some of those large commercials do the clearing for these speculative traders. In that position, they know the finances of the large long silver traders better than anyone. The commercials know, in advance, the sell points and vulnerability levels of the longs as well as the longs themselves. So all the commercials have to do is trigger low enough prices at illiquid times in the market to manufacture an avalanche of selling. Then they sit back with low priced buy orders and wait for the desperate sellers to come to them. Previously, I have referred to the behavior of the commercials as a wolf pack. It is shocking that the regulators can permit this.
To those who claim that these are normal market games, and the commercials are market makers, let me point out that commodity law does not allow for market making. The markets are supposed to operate as an open outcry (now electronic) auction, not as a specialist system. Even assuming that the commercials operate as self-appointed market makers, what kind of legitimate market maker only caps price rises by increasing short selling. Then they create disorderly moves to the downside. That’s why all silver price rallies are contained and orderly and why we get vicious, out of control sell-offs. The commercials make markets only for their own financial benefit. Some market makers.
I promise you that I could prove this if I were privy to the trading records rather than just the CFTC and the exchange, whose mission is to look the other way. But that is impossible, so I have to prove it with public data. While the data for this Thursday-Friday sell-off won’t be available until the next COT, the last few COTs provide ample evidence to prove what I allege.
The most recent COT, for positions held as of 8/12, confirm that the commercials have been on a buying binge for the past month. In other words, they have rigged the sell-offs in silver and gold over the past month and used those sell-offs to collusively buy as many contracts as possible. The numbers are impressive. Since the COT of 7/15, the commercials have bought back and reduced their total net silver futures short position by more than 20,000 contracts (100 million ounces) In gold the commercials have bought back, as a group, more than 90,000 futures contracts, reducing their net short position by 9 million ounces. Undoubtedly, more contracts have been bought by the commercials in the current week.
In addition to this buying on the COMEX, I believe that the naked short position in shares of the silver ETF, SLV, have been bought back, either entirely or in large part over the past month. This was the plan.
However, the percentage of net buying by the concentrated shorts in COMEX silver and gold has decidedly lagged the overall pace of commercial net buying. In silver, the big 4 concentrated shorts only bought back 10%, or 2000 of the 20,000 silver contracts bought, while the raptors (the 9+ smaller commercials) bought 12,000 and the 5 thru 8 largest traders bought a bit more than the 6000 contract balance. In gold the big 4 only bought back 22%, or 20,000 of the 90,000 net contracts bought, with the raptors buying 40,000 contracts and the 5 thru 8 largest traders buying 30,000 contracts.
What this tells us, for sure, is that the concentrated short position of the big 4 in silver and gold, while somewhat reduced in total contracts over the past month, has grown more concentrated and manipulative. The big 4 in gold and silver have grown more and more isolated from the rest of the commercials and, therefore, more desperate. This fully explains the disorderly nature of the recent sell-off and will explain any further disorderliness. The very small amount of short covering by the big 4 increases the likelihood that they may be trapped in these short positions.
Remember, concentration and manipulation go hand in hand, and the more concentrated the short position becomes in silver and gold the clearer the proof of manipulation. Only those that refuse to analyze the public data and reject the very idea that silver and gold could possibly be manipulated can conclude that we are witnessing free market behavior and not a rig job. With the growing evidence of a retail investment shortage in silver, those who deny manipulation are about to look very silly.
The Retail Silver Investment Shortage
The growing and persistent retail silver investment shortage is becoming increasingly obvious. This segment makes up a small part of the total silver market on a daily basis. However, due to the large number of participants, on both the buy and sell side, the demographics elevate this segment to a more reliable barometer than daily volumes might suggest. With some 5,000 US retail dealers and perhaps 100,000 customers, there is much to learn from in this retail market.
What is happening is nothing short of astounding. For the first time in our lifetime, there is not enough silver to go around. Just about everywhere you look, dealers are sold out or low on inventories, throughout the entire supply chain. Delays in deliveries, the clearest definition of a commodity shortage, are commonplace. This is unprecedented. That this is occurring precisely at the same time of a sharp sell-off in the price of silver, should make your head spin.
I would suggest, if you have college-age children or that you borrow any basic economics textbooks they have. What you will read, is what you already know. The most basic law of supply and demand dictates that low and falling prices must be an indication of growing supplies or falling demand. You will find no suggestion that the price of anything could fall sharply with record demand, especially with the unavailability of supply. At least, not in any free market system.
Then I would suggest that you consider the only plausible explanation to silver investment shortages amid plummeting prices. That explanation is that there must be something wrong with the price of silver, not with supply or demand. After all, the actual supply or demand can’t possibly be "wrong." They are what they are. Only the price could possibly be wrong. To be exact, the price of silver is manipulated, something that I have maintained for more than two decades. The growing retail silver shortage confirms this manipulation.
I recognize that even if the true Prophet of any or all religions descended from the Heavens and certified that the price of silver (and gold) was manipulated, there would still be many who doubted it. That’s because one of the most powerful forces on the face of the earth, is the inability to admit that they may have been wrong. If that error is about something as basic as a market being free or manipulated, then the denial is likely to be more obstinate. In fact, as the evidence becomes more apparent, it’s actually quite humorous to read and listen to why the shortage doesn’t matter.
As regular readers know, the inevitability of a silver shortage (as a direct result of the long-tern manipulation) has been at the center of my message. If there is one thing upon which I have agreed with my good friend and mentor, Izzy, it is the coming shortage of silver. This has been an issue on which we have agreed for more than 20 years. But it is only recently that I have come to appreciate his true take on what shortage will mean to the price of silver. He has a perspective that few of us have, including me.
By way of review, the silver retail investment shortage emerged some six months ago, shortly after Izzy’s article extolling the advantage of buying US Silver Eagles. [link to www.investmentrarities.com] There is not the slightest doubt in my mind that his article jump started the huge demand for Silver Eagles and as a result the US Mint could not keep up with demand. They still can’t. Already, the Mint has sold more Silver Eagles in the first seven and a half months of this year than it sold in any full year in the 22 year history of the Eagle program. And we still have four and a half months. Clearly, Silver Eagle sales would have been higher were the Mint able to keep up with demand. I believe the demand for Silver Eagles subsequently generated sales for all retail silver investment products. Those not able to buy Eagles bought other forms that were available, until demand exceeded supply for other silver products.
Now many may doubt that a retired grandfather could write a single article that could launch a shortage of retail silver for the very first time in history, but I know better. I know that is exactly what happened. And the reason I know it is because I knew that was Izzy’s intent beforehand. Everything he wrote about the benefits of owning silver was the gospel truth. But, he also intended and set out to highlight just how tight silver supply had become by forcing the Mint into a position where they could not meet demand. He knew that the Mint couldn’t hide a shortage of Silver Eagles. There’s no way that someone sets out to accomplish such a specific objective and then achieves it by accident.
The reason I am recounting Izzy’s remarkable accomplishment is to give you a sense of the true meaning of his thoughts on the coming silver shortage. Even I raise my eyes when he offers his seemingly outrageous price projections, although I know better to dismiss anything he says. But there is something unique in his experience and background that gives him a perspective unlike most. In fact, it is a perspective one can achieve only through first hand experience.
Izzy has experienced the kind of shortages of basic goods only witnessed during war. He was present during communist take over in his native Romania. He has related to me how people would pay any price for a loaf of bread, a chicken, even a tool. You and I can’t conceive of such shortages because we have never experienced them first hand.
Perhaps you can mentally transport yourself to imagine such shortages, where price becomes secondary to availability,. If so, you may get a brief glimpse of Izzy’s vision and "crazy" price targets for silver in a time of true shortage. I can only do it for the shortest of times, before my imagination shuts down. If this persistent and growing retail shortage of silver develops into a true full-blown wholesale and industrial shortage (as I believe we may already be in), we will not be able to judge what price is truly crazy. Those most likely to gauge price correctly in a shortage may only be those who have been there and done that.
Lessons For Everyone
I realize I am running long here, but I ask your indulgence. This article is about the important lessons before us. Let me summarize the lessons to different segments of the silver market.
For investors, don’t let this opportunity slip by. I realize you are seeing something with your own eyes that you have never seen before, namely, shortages and low and sharply declining prices. This is contrary to everything you have learned and experienced. It is nothing short of extraordinary. You must rely on your common sense. Something has to give, either prices or supply. This can’t last for long. Continued low prices won’t increase supply. The only solution for shortage is higher prices. In the case of silver, sharply higher prices. Don’t hesitate in buying silver now.
Recently, I wrote that I thought silver was exceptionally low-risk, since it had fallen sharply. The price then went lower than I thought it would or could. But my basic premise is still intact, namely that the lower the price goes, the lower the remaining risk.
For those investors capable of switching gold owned into silver, this is a particularly opportune time to switch, as silver prices have been manipulated much lower than gold prices. Silver is cheaper, compared to gold, than it has been in a long time. That can’t last. Yes, gold looks cheap here and appears to be also tight on a retail supply basis, but the big difference is this; due to silver’s industrial consumption nature and deeply depleted world inventories, higher prices for silver will not cure a shortage for a long time.
Investors should recognize that the manipulative sell-off may have created the very springboard that will cause the price of silver to soar. This is not about some academic discussion on whether silver is manipulated or not. This is about identifying and taking advantage of a potential price explosion. It has been my long-held premise that before we took off to the upside, we were likely to get a super smash to the downside. I think this was the super smash.
For industrial consumers of silver, the lessons are even more compelling than for investors. That‘s because, investors don’t have to buy silver. They have the choice to buy or not buy. Users don’t have that choice, they must buy. Their only choice is when, how much, and at what price to buy silver. A few weeks ago, users were paying more than $19 an oz for silver. Since then, the price dropped more than $6. Users will not consume less silver just because the price declined.
If you know you must consume an item, price declines are the time to stock up. This is not complicated. If you consume a favorite type of coffee, when it goes on sale for 30% off, the reaction is to take advantage and buy more than you normally would. Likewise, some industrial consumers of silver will do the same. It’s called legitimate hedging, which is the economic justification of the futures markets.
A special note to users. For the past ten years or so, hedging has been a disaster for the producers who sold future production at too low of a price. But if there was one shining example of a good hedge, it was on the buy side by a user. I am speaking of Southwest Airlines, and their magnificent buy hedge of fuel. As a result of locking in low prices, those responsible for the fuel hedge are placed upon a pedestal at the company, and rightly so. Someday soon, there will be some great success stories about those users who locked in silver at current prices.
For mine producers of silver, the current sell-off presents unique risks and opportunities. Obviously, the low price presents danger to your shareholders. I don’t know of a primary miner that can operate at a profit at current silver prices. Producers can and should do something about it. At a minimum, producers should speak up about the sell-off and question its cause. They might threaten to withhold production. Such actions would meet with strong approval from shareholders. It would be a public relations bonanza. Shareholders don’t want to hear producers say everything is fine in the silver market, because they know otherwise.
A few years ago, a silver mining company, Silver Standard, appeared to take my public advice to buy some silver. The results were spectacular. Not only did the company and its CEO, Robert Quartermain, reap shareholder goodwill, it achieved a profit of roughly $25 million, when it sold the silver earlier this year above $20. I would suggest that this company (and others) take advantage of the sell-off and do it again. If they do, I think the results, both from a public relations and profit standpoint, will be even better.
Finally, the lessons to the regulators from this sell-off may be the most important of all. This year we have witnessed disorderly pricing in many markets. In oil and cotton, the disorderly markets were caused by speculator shorts, masquerading as commercials, who ran into trouble and had to buy back their short positions. While the concentrated shorts in silver and gold have not yet lost control, given the growing physical shortage in silver, it would appear to be only a matter of time.
In the meantime, the regulators are permitting a crime to remain in progress. This is shameful. Worse, I believe that their denial of the existence of a silver manipulation has, effectively, given a green light to the concentrated shorts to continue the manipulation. In other words, the CFTC is directly responsible for the recent silver and gold sell-off. That’s beyond shameful.
Any pretense that the concentrated short position in silver was somehow a legitimate hedge went out the window the minute that the price cracked below the cost of production and shortages started to develop. After all, who legitimately hedges to lock in a loss or hedges against nonexistent inventory?
Here are the e-mail addresses for the regulators. If you want to give someone a piece of your mind about the manipulation, this is a good place to start. While it may or may not do any good, it is the right thing to do, especially if you are disturbed by this manipulation, as you should be.
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