Dow Jones Bloodbath Mirroring 1929 Rout
Bottom should be around 27 per cent below “bailout bounce” according to analyst
Paul Joseph Watson
Prison Planet
Thursday, October 16, 2008
A comparison of the current Wall Street crash with the events of 1929 shows that the Dow has at least another 27 per cent drop below the bailout bounce before it bottoms out, despite another rout yesterday after which the Dow had lost over 700 points.
“In 1929 we saw a two day rally of almost 19 per cent followed by a decline of 6 per cent and finally from the recovery high we lost 27 per cent,” Edward Loef from Theodoor Gilissen Bankiers told CNBC this morning.
That two day spike has been replicated by events at the start of this week before the Dow crashed again yesterday and is set to suffer again today.
A comparison of the two charts indicates that the Dow has not bottomed out, as many traders are claiming.
At least one more significant plunge is anticipated.
“If you look at the Dow Jones index in this context we’ve seen also a two day rally which managed to recover almost 24 per cent from its Friday low and yesterday we saw renewed selling pressure so I think when history is our guide you should expect another decline until we have a bottom of 27 per cent below the recent bailout bounce, which I expect will be by the end of next week because the new lows in 1929 was in duration 7 days since the bounce we saw then and now,” said Loef.
Loef’s predictions have proven accurate in the past. On September 18th he predicted that the Dow would sink to 8,0000 within a month at a time when it was around 11,000. The Dow has just another 500 or so points to fall before Loef is proven accurate in his forecast.
U.S. stocks dropped the most since the 1987 crash yesterday after a report confirmed the economy had suffered its biggest drop in retail sales in three years.
Thursday, October 16, 2008
Tuesday, October 14, 2008
Capitalism Without Capital?
Capitalism Without Capital? October 14, 2008 By Dr. Ron Paul
It has been long understood that our federal government is going deeper into debt, consistently raising the debt ceiling and demonstrating no fiscal restraint. In recent years, debt ceiling increases have been placed in “must pass” legislation as a means to guarantee that Republicans as well as Democrats would vote for them when Congress was under Republican control.
We also know our nation’s “negative savings rate” reflects the habits of private citizens, showing those habits to be not tremendously different than the habits of the public sector. Yet, the signs of decline are becoming ever more apparent. So apparent, in fact, that it seems unlikely that bailouts or other gimmicks will have even short term success. More inflation, and creating moral hazard by bailing out egregious offenders, is a recipe for disaster. These activities can seem to provide some short term relief, but it seems we are now at a significant crisis point, where monetary policy gimmicks don’t provide the band-aids they did in the past.
Not only is our nation on the verge of bankruptcy, but so are its people and private institutions. We are now repeatedly hearing about businesses “needing to access the credit market to make payroll.” This is an unmistakable sign of more dire consequences ahead for the economy. If businesses must borrow just to make payroll, this is evidence of a severe undercapitalization that cannot be sustained, even for the short run.
Couple these facts with items such as the explosion of the “pay day loan” industry and the unmasking of the false sense of economic well-being is nearly complete. These pay day loan companies use preferred access to easy credit to inject cash into the hands of the working poor. They are nearly always set up in lower-income neighborhoods. These people, who are struggling to buy food and pay rent, get addicted to the credit drug. Their standard of living is only further depressed by the interest payments on these loans that make them profitable to their providers. Thus, the recipients are left even less capable of paying for items such as food and housing in the long run, without using this credit again and again.
These people are often the very ones being paid by businesses who “borrow to make payroll.” This is the dark underbelly of the fiat money, borrow and spend economy this nation has been building. As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism”. However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.
It has been long understood that our federal government is going deeper into debt, consistently raising the debt ceiling and demonstrating no fiscal restraint. In recent years, debt ceiling increases have been placed in “must pass” legislation as a means to guarantee that Republicans as well as Democrats would vote for them when Congress was under Republican control.
We also know our nation’s “negative savings rate” reflects the habits of private citizens, showing those habits to be not tremendously different than the habits of the public sector. Yet, the signs of decline are becoming ever more apparent. So apparent, in fact, that it seems unlikely that bailouts or other gimmicks will have even short term success. More inflation, and creating moral hazard by bailing out egregious offenders, is a recipe for disaster. These activities can seem to provide some short term relief, but it seems we are now at a significant crisis point, where monetary policy gimmicks don’t provide the band-aids they did in the past.
Not only is our nation on the verge of bankruptcy, but so are its people and private institutions. We are now repeatedly hearing about businesses “needing to access the credit market to make payroll.” This is an unmistakable sign of more dire consequences ahead for the economy. If businesses must borrow just to make payroll, this is evidence of a severe undercapitalization that cannot be sustained, even for the short run.
Couple these facts with items such as the explosion of the “pay day loan” industry and the unmasking of the false sense of economic well-being is nearly complete. These pay day loan companies use preferred access to easy credit to inject cash into the hands of the working poor. They are nearly always set up in lower-income neighborhoods. These people, who are struggling to buy food and pay rent, get addicted to the credit drug. Their standard of living is only further depressed by the interest payments on these loans that make them profitable to their providers. Thus, the recipients are left even less capable of paying for items such as food and housing in the long run, without using this credit again and again.
These people are often the very ones being paid by businesses who “borrow to make payroll.” This is the dark underbelly of the fiat money, borrow and spend economy this nation has been building. As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism”. However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.
Monday, October 13, 2008
Blatant Banker Manipulation Of Gold Prices
Blatant Banker Manipulation Of Gold Prices
One ounce bullion still being sold $200-300 above spot value, proving official spot price is divorced from reality
Paul Joseph Watson
Monday, October 13, 2008
Despite the dramatic fall in gold prices from Friday’s high of around $930 an ounce to today’s current low of $830, sales of actual physical gold continues to trade for anything up to $300 over spot price, proving again that official COMEX gold future numbers are completely divorced from reality and banker manipulation is rife.
Panic buying of physical gold has gripped Europe as consumers fear their savings accounts are no longer safe in light of numerous bank failures, prompting dealers to run dry on gold bullion which in turn is driving up premiums.
Since buyers are finding it near impossible to get gold bullion from recognized dealers, many are turning to Ebay where auctions for one ounce Krugerrands and Maple Leafs are fetching anything up to £150 ($260) over spot price.
Over the weekend, when gold was around £500 an ounce, a Krugerrand went for £645.75. A one ounce bullion bar, with nearly 3 days of the auction still to run, has already attracted a bid of £670 - a whopping $336 above current spot price, despite the fact that bars are usually subject to lower premiums than gold coins.
Respected bullion dealers who charge lower premiums because they are able to buy gold in bulk are still slapping customers with $150+ premiums - and judging by the continued dearth of one ounce coins such as the American Eagle and the Austrian Philharmonica - people are perfectly willing to pay the exorbitant premiums.
The true value of gold is what people are prepared to pay to obtain it, and judging by that criteria, the actual value of gold is currently around $1,100 an ounce based on a conservative estimate.
The official spot price of gold is currently around $830, but this merely represents a rush by investors to sell their paper contracts in search of liquidity and as a means of jumping back on the stocks and shares bandwagon.
As Alex Wallenwein at The Market Oracle points out, “Gold is gold, paper is paper, and “Comex gold” is nothing but paper masquerading as gold while simultaneously pretending to be the price-setting medium for actual gold in the world. Now, finally, Comex-gold is in the process of being unmasked.”
“Real investors in real gold are enjoying their shopping spree – except that the spree turned into a treasure hunt as the shelves and display cases of gold dealers look more and more like the supermarket shelves in the old Soviet Union - bare.”
“With this split, this disconnect, between Comex illusion and gold reality, one thing or the other will have to give, and it won’t be physical gold that gives.”
Numerous fund managers and top investors like Jim Rogers are now predicting that global central banks’ insistence on printing their way out of economic turmoil is setting the stage for a hyperinflationary holocaust, a knock-on effect of which will be gold’s acceleration towards $2,000.
But as many have pointed out, gold price manipulation is rife as central banks desperately attempt to stem the flight from paper currencies into gold, a process that anecdotal evidence strongly suggests is happening across Europe at an alarming pace.
One ounce bullion still being sold $200-300 above spot value, proving official spot price is divorced from reality
Paul Joseph Watson
Monday, October 13, 2008
Despite the dramatic fall in gold prices from Friday’s high of around $930 an ounce to today’s current low of $830, sales of actual physical gold continues to trade for anything up to $300 over spot price, proving again that official COMEX gold future numbers are completely divorced from reality and banker manipulation is rife.
Panic buying of physical gold has gripped Europe as consumers fear their savings accounts are no longer safe in light of numerous bank failures, prompting dealers to run dry on gold bullion which in turn is driving up premiums.
Since buyers are finding it near impossible to get gold bullion from recognized dealers, many are turning to Ebay where auctions for one ounce Krugerrands and Maple Leafs are fetching anything up to £150 ($260) over spot price.
Over the weekend, when gold was around £500 an ounce, a Krugerrand went for £645.75. A one ounce bullion bar, with nearly 3 days of the auction still to run, has already attracted a bid of £670 - a whopping $336 above current spot price, despite the fact that bars are usually subject to lower premiums than gold coins.
Respected bullion dealers who charge lower premiums because they are able to buy gold in bulk are still slapping customers with $150+ premiums - and judging by the continued dearth of one ounce coins such as the American Eagle and the Austrian Philharmonica - people are perfectly willing to pay the exorbitant premiums.
The true value of gold is what people are prepared to pay to obtain it, and judging by that criteria, the actual value of gold is currently around $1,100 an ounce based on a conservative estimate.
The official spot price of gold is currently around $830, but this merely represents a rush by investors to sell their paper contracts in search of liquidity and as a means of jumping back on the stocks and shares bandwagon.
As Alex Wallenwein at The Market Oracle points out, “Gold is gold, paper is paper, and “Comex gold” is nothing but paper masquerading as gold while simultaneously pretending to be the price-setting medium for actual gold in the world. Now, finally, Comex-gold is in the process of being unmasked.”
“Real investors in real gold are enjoying their shopping spree – except that the spree turned into a treasure hunt as the shelves and display cases of gold dealers look more and more like the supermarket shelves in the old Soviet Union - bare.”
“With this split, this disconnect, between Comex illusion and gold reality, one thing or the other will have to give, and it won’t be physical gold that gives.”
Numerous fund managers and top investors like Jim Rogers are now predicting that global central banks’ insistence on printing their way out of economic turmoil is setting the stage for a hyperinflationary holocaust, a knock-on effect of which will be gold’s acceleration towards $2,000.
But as many have pointed out, gold price manipulation is rife as central banks desperately attempt to stem the flight from paper currencies into gold, a process that anecdotal evidence strongly suggests is happening across Europe at an alarming pace.
Sunday, October 12, 2008
Reserving the right to destroy the dollar (Must Read)
Asia Times
Oct 11, 2008
Reserving the right to destroy the dollar
By The Mogambo Guru
I woke up on the floor where I had collapsed in a dead faint, my heart having gone into spasms of fibrillation at finding out Total Fed Credit went up by another staggering $253.6 billion last week! A quarter of a trillion dollars in One Freaking Week (OFW)!
Stunned to incoherence, I was fortunate to have gold adviser Ed Bugos at Agora Financial take over for me, who says, "The news that should be driving gold prices to the moon is out! The Federal Reserve has just expanded its balance sheet more in one month than it has in almost all of its first 86 years of existence. This number is unprecedented. It is difficult to predict gold's short-term response to this shock, but the market cannot ignore the
fundamental effect of this crackup for long. With interventions like this, we should get a few more $100-up days soon enough."
This TFC, in case you were wondering, is the magical stuff from which credit in the banks instantly appears, at the literal push of a button at the literal whim of the Federal Reserve, as the Fed makes all the money that the government wants to spend.
And this credit in the banks is the miracle stuff from which money will be multiplied by the banks a hundred times over, a thousand times over, a million times over, all of it used to make new loans, all courtesy of the fraud known as fractional-reserve banking, which means that the Fed has, in the last two weeks alone, created over half a freaking trillion dollars' worth of new credit, which is turned into unknown Umpteen Freaking Gazillions (UFG) of dollars when the banks get finished multiplying it through insane degrees of fractional-reserve banking!
And it is not just American banks, either! The Federal Reserve, on behalf of the people of the United States, is giving hundreds of billions of dollars to foreign central banks to bail them out, too!
And then those selfsame foreign central banks used this money to buy $43 billion of US government and agency debt last week! Gaaaahhh! My head is spinning! This is insane!
The Federal Reserve, in case you did not realize it, is not federal, in that it is a private bank owned by shadowy, nasty, greedy people hiding behind corporate shells, and it has no real reserves, but can create money anytime it likes, like last week, as the Fed created some money and then used the money to buy government bonds for itself! Hahaha! The Fed's stash of government bonds rose last week by $8.27 billion!
To show you that the Federal Reserve should instead be called the Government Slush Fund (GSF), the government borrowed most of this new money, as we realize when we see that Treasury Gross Public Debt went up by an eye-popping $336 billion last week, reaching the staggering total of $10.124 trillion!
In fact, in the last 12 months, the national debt went up by $1.062 trillion! Gaah! We're freaking doomed! Not only is the federal budget a mind-blowing $3 trillion in the $14 trillion American economy, but Congress is now spending an average of $88 billion per month (every damned month!) more than the government's revenues, which is 30% more than what they budgeted! Insane, incompetent morons!
And all of this money created by the Federal Reserve - all those stupefying trillions and trillions of new dollars and credit - increases the money supply, which will increase prices in a persistent, grinding inflation, getting worse and worse, which will destroy America as it has destroyed every other idiotic country that tried such a stupid, stupid thing.
Sure enough, John Williams of shadowstats.com writes, "In last night's (October 2) H.6 Money Stock Measures, seasonally-adjusted M2 - the currently official broad money measure - reportedly exploded in the week-ended September 22nd by $165.5 billion to $7,900.0 billion, an annualized growth rate of 200%. M1 rose at an annualized 800%, up $60.9 billion to $1,272.2 billion."
But there is no reason for crying, because soon enough we will be happily convening vengeful kangaroo courts in which to convict Alan Greenspan and the other hateful, low-IQ lowlife morons who caused all of this, and it is better, in the meantime, that we should make some Big Wonderful Money (BWM) on it.
And right now I gotta think that the Big Glorious Money (BGM) is going to be made in silver, mostly because Ted Butler, in the Market Update from investmentrarities.com, writes that "silver has never been a better investment at precisely the same time its price performance has never been more extreme", by which he concludes from the latest Commitment of Traders report that the commercial traders at the COMEX "have built up a record or near-record net long position in both gold and silver futures" and that they have also "established a record long position in call options for the first time in history."
Suddenly, being a really stupid guy, I was instantly lost, and I realized with horror that his seemingly cryptic remarks about futures and options meant that I was being asked to do some thinking to make any sense of it, and I was going to complain like the little crybaby that I am that I don't like to think, and that, like most people, I just want things handed to me.
Apparently, Mr Butler could see the sudden blank look of incomprehension and total befuddlement on my face, and, taking pity on me and fellow mental midgets everywhere, offers that he figures it means that these commercial traders are "positioned for an upside move in gold and silver" and "they are positioned for it to occur soon."
The real significance of this is that, as a result of long experience, he deems these commercial traders (other than the eight largest traders) as being "nearly-always-correct"! Whee!
And that means that I, being "nearly-always-incorrect" about everything, will soon be right for a change! How nice! Hey! This investing stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
Republished with permission from The Daily Reckoning. Copyright 2008, The Daily Reckoning.
Oct 11, 2008
Reserving the right to destroy the dollar
By The Mogambo Guru
I woke up on the floor where I had collapsed in a dead faint, my heart having gone into spasms of fibrillation at finding out Total Fed Credit went up by another staggering $253.6 billion last week! A quarter of a trillion dollars in One Freaking Week (OFW)!
Stunned to incoherence, I was fortunate to have gold adviser Ed Bugos at Agora Financial take over for me, who says, "The news that should be driving gold prices to the moon is out! The Federal Reserve has just expanded its balance sheet more in one month than it has in almost all of its first 86 years of existence. This number is unprecedented. It is difficult to predict gold's short-term response to this shock, but the market cannot ignore the
fundamental effect of this crackup for long. With interventions like this, we should get a few more $100-up days soon enough."
This TFC, in case you were wondering, is the magical stuff from which credit in the banks instantly appears, at the literal push of a button at the literal whim of the Federal Reserve, as the Fed makes all the money that the government wants to spend.
And this credit in the banks is the miracle stuff from which money will be multiplied by the banks a hundred times over, a thousand times over, a million times over, all of it used to make new loans, all courtesy of the fraud known as fractional-reserve banking, which means that the Fed has, in the last two weeks alone, created over half a freaking trillion dollars' worth of new credit, which is turned into unknown Umpteen Freaking Gazillions (UFG) of dollars when the banks get finished multiplying it through insane degrees of fractional-reserve banking!
And it is not just American banks, either! The Federal Reserve, on behalf of the people of the United States, is giving hundreds of billions of dollars to foreign central banks to bail them out, too!
And then those selfsame foreign central banks used this money to buy $43 billion of US government and agency debt last week! Gaaaahhh! My head is spinning! This is insane!
The Federal Reserve, in case you did not realize it, is not federal, in that it is a private bank owned by shadowy, nasty, greedy people hiding behind corporate shells, and it has no real reserves, but can create money anytime it likes, like last week, as the Fed created some money and then used the money to buy government bonds for itself! Hahaha! The Fed's stash of government bonds rose last week by $8.27 billion!
To show you that the Federal Reserve should instead be called the Government Slush Fund (GSF), the government borrowed most of this new money, as we realize when we see that Treasury Gross Public Debt went up by an eye-popping $336 billion last week, reaching the staggering total of $10.124 trillion!
In fact, in the last 12 months, the national debt went up by $1.062 trillion! Gaah! We're freaking doomed! Not only is the federal budget a mind-blowing $3 trillion in the $14 trillion American economy, but Congress is now spending an average of $88 billion per month (every damned month!) more than the government's revenues, which is 30% more than what they budgeted! Insane, incompetent morons!
And all of this money created by the Federal Reserve - all those stupefying trillions and trillions of new dollars and credit - increases the money supply, which will increase prices in a persistent, grinding inflation, getting worse and worse, which will destroy America as it has destroyed every other idiotic country that tried such a stupid, stupid thing.
Sure enough, John Williams of shadowstats.com writes, "In last night's (October 2) H.6 Money Stock Measures, seasonally-adjusted M2 - the currently official broad money measure - reportedly exploded in the week-ended September 22nd by $165.5 billion to $7,900.0 billion, an annualized growth rate of 200%. M1 rose at an annualized 800%, up $60.9 billion to $1,272.2 billion."
But there is no reason for crying, because soon enough we will be happily convening vengeful kangaroo courts in which to convict Alan Greenspan and the other hateful, low-IQ lowlife morons who caused all of this, and it is better, in the meantime, that we should make some Big Wonderful Money (BWM) on it.
And right now I gotta think that the Big Glorious Money (BGM) is going to be made in silver, mostly because Ted Butler, in the Market Update from investmentrarities.com, writes that "silver has never been a better investment at precisely the same time its price performance has never been more extreme", by which he concludes from the latest Commitment of Traders report that the commercial traders at the COMEX "have built up a record or near-record net long position in both gold and silver futures" and that they have also "established a record long position in call options for the first time in history."
Suddenly, being a really stupid guy, I was instantly lost, and I realized with horror that his seemingly cryptic remarks about futures and options meant that I was being asked to do some thinking to make any sense of it, and I was going to complain like the little crybaby that I am that I don't like to think, and that, like most people, I just want things handed to me.
Apparently, Mr Butler could see the sudden blank look of incomprehension and total befuddlement on my face, and, taking pity on me and fellow mental midgets everywhere, offers that he figures it means that these commercial traders are "positioned for an upside move in gold and silver" and "they are positioned for it to occur soon."
The real significance of this is that, as a result of long experience, he deems these commercial traders (other than the eight largest traders) as being "nearly-always-correct"! Whee!
And that means that I, being "nearly-always-incorrect" about everything, will soon be right for a change! How nice! Hey! This investing stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
Republished with permission from The Daily Reckoning. Copyright 2008, The Daily Reckoning.
Who is Behind the Financial Meltdown?
Who is Behind the Financial Meltdown?
Michel Chossudovsky
Global Research
Sunday, Oct 12, 2008
The market is heavily manipulated. The driving force behind the meltdown is speculative trade. The system of “private regulation” serves the interests of the speculators.
While most individual investors loose when the market falls, the institutional speculator makes money when there is a financial collapse.
In fact, triggering market collapse can be a very profitable undertaking.
There are indications that the Security Exchange Commission (SEC) regulators have created an environment which supports speculative transactions.
There are several instruments including futures, options, index funds, derivative securities, etc. used to make money when the stock market crumbles.
The more it falls, the greater the gains.
Those who make it fall are also speculating on its decline.
With foreknowledge and inside information, a collapse in market values constitutes a lucrative and money-spinning opportunity, for a select category of powerful speculators who have the ability to manipulate the market in the appropriate direction at the appropriate time.
Short Selling
One important instrument used by speculators to make money out of a financial meltdown is “short selling”.
“Short selling” consists in selling large amounts of stocks which you do not possess and then buying them in the spot market once the price has collapsed, with a view to completing the transaction and cashing in on the profits.
The role of short selling in bringing down companies is well documented. The collapse of Lehman, Merrill Lynch and Bear Stearns was in part due to short selling.
Short selling has also been used extensively in currency markets. It was one of the main instruments used by speculators during the 1997 Asian Crisis to bring down the Thai baht, the Korean won and Indonesian rupiah.
Speculation in major currency markets also characterizes the ongoing financial crisis. There have been major swings in currency values with the Canadian dollar, for instance, loosing 10% of its value in the course of a few trading days.
Temporary Ban on Short Selling
Following the stock market meltdown on Black Monday September 15, the Security Exchange Commission (SEC) introduced a temporary ban on short selling. In a bitter irony, the SEC listed a number of companies which were “protected by regulators from short sellers”. The SEC September 18 ban on short selling pertained largely to banks, insurance companies and other financial services companies.
The effect of being on a “protected list” was to no avail. It was tantamount to putting those listed companies on a “hit list”. If the SEC had implemented a complete and permanent ban on short selling coupled with a freeze on all forms of speculative trade, including index funds and options, this would have contributed to reducing market volatility and dampening the meltdown.
The ban on short selling was applied with a view to establishing the protected list. It expired on Wednesday October 8 at midnight.
The following morning, Thursday 9th of October, when the market opened up, those companies on the “protected list” became “unprotected” and were the first target of the speculative onslaught, leading to a dramatic collapse on of the Dow Jones on Thursday 9th and Friday 10th.
The course of events was entirely predictable. The lifting of the ban on short selling contributed to accentuating the downfall in stock market values. The companies which were on the hit list were the first victims of the speculative onslaught.
The shares of Morgan Stanley dropped 26 percent on October 9th, upon the expiry of the short-selling ban and a further 25 percent the following day.
Financial warfare
There are indications that the downfall of Morgan Stanley was engineered by financial rivals. A day prior to the September 18th ban on short selling, Morgan Stanley was the object of rival speculative attacks:
John Mack, chief executive of Morgan Stanley, told employees in an internal memo Wednesday [September 17]: “What’s happening out there? It’s very clear to me – we’re in the midst of a market controlled by fear and rumours, and short sellers are driving our stock down.”’ (Financial Times, September 17, 2008)
Morgan Stanley was also the object of doubts expressed by the ratings agency Moody’s, which contributed to investors dumping Morgan Stanley stock.
Moody’s cited an expectation that “an expected downturn in global capital market activity will reduce Morgan Stanley’s revenue and profit potential in 2009, and perhaps beyond this period”.
In contrast JP Morgan Chase, controlled by the Rockefeller family climbed by almost 12%. JP Morgan Chase and Bank America have consolidated their control over the US banking landscape.
Regulators Serve the Interests of Speculators
The SEC was fully aware that the ban on short selling would serve to exacerbate the downfall.
Why did they carry it out? How did they justify their decision?
In a twisted logic, the SEC, which largely serves the interests of institutional speculators, contends, quoting the results of an academic research paper, that short selling contributes to reducing market instability, thereby justifying the repeal of the September 18 short selling ban.
Michel Chossudovsky
Global Research
Sunday, Oct 12, 2008
The market is heavily manipulated. The driving force behind the meltdown is speculative trade. The system of “private regulation” serves the interests of the speculators.
While most individual investors loose when the market falls, the institutional speculator makes money when there is a financial collapse.
In fact, triggering market collapse can be a very profitable undertaking.
There are indications that the Security Exchange Commission (SEC) regulators have created an environment which supports speculative transactions.
There are several instruments including futures, options, index funds, derivative securities, etc. used to make money when the stock market crumbles.
The more it falls, the greater the gains.
Those who make it fall are also speculating on its decline.
With foreknowledge and inside information, a collapse in market values constitutes a lucrative and money-spinning opportunity, for a select category of powerful speculators who have the ability to manipulate the market in the appropriate direction at the appropriate time.
Short Selling
One important instrument used by speculators to make money out of a financial meltdown is “short selling”.
“Short selling” consists in selling large amounts of stocks which you do not possess and then buying them in the spot market once the price has collapsed, with a view to completing the transaction and cashing in on the profits.
The role of short selling in bringing down companies is well documented. The collapse of Lehman, Merrill Lynch and Bear Stearns was in part due to short selling.
Short selling has also been used extensively in currency markets. It was one of the main instruments used by speculators during the 1997 Asian Crisis to bring down the Thai baht, the Korean won and Indonesian rupiah.
Speculation in major currency markets also characterizes the ongoing financial crisis. There have been major swings in currency values with the Canadian dollar, for instance, loosing 10% of its value in the course of a few trading days.
Temporary Ban on Short Selling
Following the stock market meltdown on Black Monday September 15, the Security Exchange Commission (SEC) introduced a temporary ban on short selling. In a bitter irony, the SEC listed a number of companies which were “protected by regulators from short sellers”. The SEC September 18 ban on short selling pertained largely to banks, insurance companies and other financial services companies.
The effect of being on a “protected list” was to no avail. It was tantamount to putting those listed companies on a “hit list”. If the SEC had implemented a complete and permanent ban on short selling coupled with a freeze on all forms of speculative trade, including index funds and options, this would have contributed to reducing market volatility and dampening the meltdown.
The ban on short selling was applied with a view to establishing the protected list. It expired on Wednesday October 8 at midnight.
The following morning, Thursday 9th of October, when the market opened up, those companies on the “protected list” became “unprotected” and were the first target of the speculative onslaught, leading to a dramatic collapse on of the Dow Jones on Thursday 9th and Friday 10th.
The course of events was entirely predictable. The lifting of the ban on short selling contributed to accentuating the downfall in stock market values. The companies which were on the hit list were the first victims of the speculative onslaught.
The shares of Morgan Stanley dropped 26 percent on October 9th, upon the expiry of the short-selling ban and a further 25 percent the following day.
Financial warfare
There are indications that the downfall of Morgan Stanley was engineered by financial rivals. A day prior to the September 18th ban on short selling, Morgan Stanley was the object of rival speculative attacks:
John Mack, chief executive of Morgan Stanley, told employees in an internal memo Wednesday [September 17]: “What’s happening out there? It’s very clear to me – we’re in the midst of a market controlled by fear and rumours, and short sellers are driving our stock down.”’ (Financial Times, September 17, 2008)
Morgan Stanley was also the object of doubts expressed by the ratings agency Moody’s, which contributed to investors dumping Morgan Stanley stock.
Moody’s cited an expectation that “an expected downturn in global capital market activity will reduce Morgan Stanley’s revenue and profit potential in 2009, and perhaps beyond this period”.
In contrast JP Morgan Chase, controlled by the Rockefeller family climbed by almost 12%. JP Morgan Chase and Bank America have consolidated their control over the US banking landscape.
Regulators Serve the Interests of Speculators
The SEC was fully aware that the ban on short selling would serve to exacerbate the downfall.
Why did they carry it out? How did they justify their decision?
In a twisted logic, the SEC, which largely serves the interests of institutional speculators, contends, quoting the results of an academic research paper, that short selling contributes to reducing market instability, thereby justifying the repeal of the September 18 short selling ban.
Friday, October 10, 2008
Rogers: Global Bankers Have Unleashed Inflationary Holocaust
Rogers: Global Bankers Have Unleashed Inflationary Holocaust
CNBC hosts unable to grasp basic economic principles
Paul Joseph Watson
Prison Planet
Friday, October 10, 2008
Legendary investor Jim Rogers warned during a CNBC interview this morning that global central banks are creating the environment for an inflationary holocaust by their ceaseless overprinting of currency, a measure that isn’t even successful in stabilizing the stock market.
Rogers said that the only solution to the market crisis was to let failing banks and speculators go bankrupt and stop pumping endless amounts of liquidity into the system, labeling it outrageous that responsible investors and taxpayers are being made to bail out crooks on Wall Street.
“The way to solve this problem is to let people go bankrupt,” Rogers stressed, “All of this pumping money into the system is not going to save it - see what the market is saying, it’s saying we don’t buy that, let people go bankrupt,” he added.
“Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we will start over. This is the way the world has worked for a few thousand years,” said Rogers.
Rogers warned that the reliance on governments printing money would not aid a recovery and would only lead to the problem becoming worse in the future.
“We’re setting the stage for when we come out of this of a massive inflation holocaust,” he said.
Rogers said that excesses of credit and people becoming over-leveraged meant that they would now have to take some pain.
“Never before in world history were people able to buy houses with no money down, many people bought four or five houses with no money down and no job and then they did it with cars and student loans and credit card loans, you just think we say well that’s too bad we’re gonna start over nobody loses his job….be realistic,” said Rogers.
Rogers said that the G7 leaders, who are meeting this weekend, should “go down to the bar, have a beer and leave the rest of us alone, let the people who are sound succeed and let the other people fail.”
“What I’m afraid of is they’re gonna keep doing what they’ve been doing - which the market hates, you can see the market hates it - because this is going to unleash rampant inflation around the world, rampant confusion in the currency markets and you’re gonna have currencies gyrating all over the world,” said Rogers, repeating that the central bankers were unleashing an “inflationary holocaust”.
A CNBC expert then expressed his confusion at Rogers’ argument that overprinting of currency caused hyper inflation, seemingly displaying less grasp of basic economic cause and effect principles than a 5-year-old would.
Rogers again made the point, “When you print gigantic amounts of money and you flood the world with money, throughout history that has led to inflation.
CNBC hosts unable to grasp basic economic principles
Paul Joseph Watson
Prison Planet
Friday, October 10, 2008
Legendary investor Jim Rogers warned during a CNBC interview this morning that global central banks are creating the environment for an inflationary holocaust by their ceaseless overprinting of currency, a measure that isn’t even successful in stabilizing the stock market.
Rogers said that the only solution to the market crisis was to let failing banks and speculators go bankrupt and stop pumping endless amounts of liquidity into the system, labeling it outrageous that responsible investors and taxpayers are being made to bail out crooks on Wall Street.
“The way to solve this problem is to let people go bankrupt,” Rogers stressed, “All of this pumping money into the system is not going to save it - see what the market is saying, it’s saying we don’t buy that, let people go bankrupt,” he added.
“Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we will start over. This is the way the world has worked for a few thousand years,” said Rogers.
Rogers warned that the reliance on governments printing money would not aid a recovery and would only lead to the problem becoming worse in the future.
“We’re setting the stage for when we come out of this of a massive inflation holocaust,” he said.
Rogers said that excesses of credit and people becoming over-leveraged meant that they would now have to take some pain.
“Never before in world history were people able to buy houses with no money down, many people bought four or five houses with no money down and no job and then they did it with cars and student loans and credit card loans, you just think we say well that’s too bad we’re gonna start over nobody loses his job….be realistic,” said Rogers.
Rogers said that the G7 leaders, who are meeting this weekend, should “go down to the bar, have a beer and leave the rest of us alone, let the people who are sound succeed and let the other people fail.”
“What I’m afraid of is they’re gonna keep doing what they’ve been doing - which the market hates, you can see the market hates it - because this is going to unleash rampant inflation around the world, rampant confusion in the currency markets and you’re gonna have currencies gyrating all over the world,” said Rogers, repeating that the central bankers were unleashing an “inflationary holocaust”.
A CNBC expert then expressed his confusion at Rogers’ argument that overprinting of currency caused hyper inflation, seemingly displaying less grasp of basic economic cause and effect principles than a 5-year-old would.
Rogers again made the point, “When you print gigantic amounts of money and you flood the world with money, throughout history that has led to inflation.
A Possible Solution to the Economic Crisis: What is to be Done?
A Possible Solution to the Economic Crisis: What is to be Done?
PAUL CRAIG ROBERTS
COUNTER PUNCH
Friday, October 10, 2008
Readers have been pressing for a solution to the financial crisis. But first it is necessary to understand the problem. Here is the problem as I see it. If my diagnosis is correct, the solution below might be appropriate.
Let’s begin with the fact that the financial crisis is more or less worldwide. The mechanism that spread the American-made financial crisis abroad was the massive US trade deficit. Every year the countries with which the US has trade deficits end up in the aggregate with hundreds of billions of dollars.
Countries don’t put these dollars in a mattress. They invest them. They buy up US companies, real estate, and toll roads. They also purchase US financial assets. They finance the US government budget deficit by purchasing Treasury bonds and bills. They help to finance the US mortgage market by purchasing Fannie Mae and Freddie Mac bonds. They buy financial instruments, such as mortgage-backed securities and other derivatives, from US investment banks, and that is how the US financial crisis was spread abroad. If the US current account was close to balance, the contagion would have lacked a mechanism by which to spread.
One reason the US trade deficit is so large is the practice of US corporations offshoring their production of goods and services for US markets. When these products are brought into the US to be sold, they count as imports.
Thus, economists were wrong to see the trade deficit as a non-problem and to regard offshoring as a plus for the US economy.
The fact that much of the financial world is polluted with US toxic financial instruments could affect the ability of the US Treasury to borrow the money to finance the bailout of the financial institutions. Foreign central banks might need their reserves to bail out their own financial systems. As the US savings rate is approximately zero, the only alternative to foreign borrowing is the printing of money.
Financial deregulation was an important factor in the development of the crisis. The most reckless deregulation occurred in 1999, 2000, and 2004.
Subprime mortgages became a potential systemic threat when issuers ceased to bear any risk by selling the mortgages, which were then amalgamated with other mortgages and became collateral for mortgage-backed securities.
Federal Reserve chairman Alan Greenspan’s inexplicable low interest rate policy allowed the systemic threat to develop. Low interest rates push up housing prices by lowering monthly mortgage payments, thus increasing housing demand. Rising home prices created equity to justify 100 percent mortgages. Buyers leveraged themselves to the hilt and lacked the ability to make payments when they lost their jobs or when adjustable rates and interest escalator clauses pushed up monthly payments.
Wall Street analysts pushed financial institutions to increase their earnings, which they did by leveraging their assets and by insuring debt instruments instead of maintaining appropriate reserves. This spread the crisis from banks to insurance companies.
Finance chiefs around the world are dealing with the crisis by bailing out banks and by lowering interest rates. This suggests that the authorities see the problem as a solvency problem for the financial institutions and as a liquidity problem. US Treasury Secretary Paulson’s solution, for example, leaves unattended the continuing mortgage defaults and foreclosures. The fall in the US stock market predicts a serious recession, which means rising unemployment and more defaults and foreclosures.
In place of a liquidity problem, I see an over-abundance of debt instruments relative to wealth. A fractional reserve banking system based on fiat money appears to be capable of creating debt instruments faster than an economy can create real wealth. Add in credit card debt, stocks purchased on margin, and leveraged derivatives, and debt is pyramided relative to real assets.
Add in the mark-to-market rule, which forces troubled assets to be under-valued, thus threatening the solvency of institutions, and short-selling, which drives down the shares of trouble institutions, thereby depriving them of credit lines, and you have an outline of the many causes of the current crisis.
If the diagnosis is correct, the solution is multifaceted.
Instead of wasting $700 billion on a bailout of the guilty that does not address the problem, the money should be used to refinance the troubled mortgages, as was done during the Great Depression. If the mortgages were not defaulting, the income flows from the mortgage interest through to the holders of the mortgage-backed securities would be restored. Thus, the solvency problem faced by the holders of these securities would be at an end.
The financial markets must be carefully re-regulated, not over-regulated or wrongly regulated.
To shore up the credibility of the US Treasury’s own credit rating and the US dollar as world reserve currency, the US budget and trade deficits must be addressed. The US budget deficit can be eliminated by halting the Bush Regime’s gratuitous wars and by cutting the extravagant US military budget. The US spends more on military than the rest of the world combined. This is insane and unaffordable. A balanced budget is a signal to the world that the US government is serious and is taking measures to reduce its demand on the supply of world savings.
The trade deficit is more difficult to reduce as the US has stupidly permitted itself to become dependent not merely on imports of foreign energy, but also on imports of foreign manufactured goods including advanced technology products. Steps can be taken to bring home the offshored production of US goods for US markets. This would substantially reduce the trade deficit and, thus, restore credibility to the US dollar as world reserve currency. Follow-up measures would be required to insure that US imports do not greatly exceed exports.
The US will have to restore sound lending practices. It the US government itself wishes to subsidize at taxpayer expense home purchases by non-qualified buyers, that is a political decision subject to electoral ratification. But the US government must cease to force private lenders to breech the standards of prudence.
The issuance of credit cards must be brought back to prudent standards, with checks on credit history, employment, and income. Balances that grow over time must be seen as
a problem against which reserves must be provided, instead of a source of rising interest income to the credit card companies.
Fractional reserve banking must be reined in by higher reserve requirements, rising over time perhaps to 100 percent. If banks were true financial intermediaries, they would not have money creating power, and the proliferation of debt relative to wealth would be reduced.
Does the US have the leadership to realize the problem and to deal with it?
Not if Bush, Cheney, Paulson, Bernanke, McCain and Obama are the best leadership that America can produce.
The Great Depression lasted a decade because the authorities were unable to comprehend that the Federal Reserve had allowed the supply of money to shrink. The shrunken money supply could not employ the same number of workers at the same wages, and it could not purchase the same amount of goods and service at the same prices. Thus, prices and employment fell.
The explanation of the Great Depression was not known until the 1960s when Milton Friedman and Anna Schwartz published their Monetary History of the United States. Given the stupidity of our leadership and the stupidity of so many of our economists, we may learn what happened to us this year in 2038, three decades from now.
PAUL CRAIG ROBERTS
COUNTER PUNCH
Friday, October 10, 2008
Readers have been pressing for a solution to the financial crisis. But first it is necessary to understand the problem. Here is the problem as I see it. If my diagnosis is correct, the solution below might be appropriate.
Let’s begin with the fact that the financial crisis is more or less worldwide. The mechanism that spread the American-made financial crisis abroad was the massive US trade deficit. Every year the countries with which the US has trade deficits end up in the aggregate with hundreds of billions of dollars.
Countries don’t put these dollars in a mattress. They invest them. They buy up US companies, real estate, and toll roads. They also purchase US financial assets. They finance the US government budget deficit by purchasing Treasury bonds and bills. They help to finance the US mortgage market by purchasing Fannie Mae and Freddie Mac bonds. They buy financial instruments, such as mortgage-backed securities and other derivatives, from US investment banks, and that is how the US financial crisis was spread abroad. If the US current account was close to balance, the contagion would have lacked a mechanism by which to spread.
One reason the US trade deficit is so large is the practice of US corporations offshoring their production of goods and services for US markets. When these products are brought into the US to be sold, they count as imports.
Thus, economists were wrong to see the trade deficit as a non-problem and to regard offshoring as a plus for the US economy.
The fact that much of the financial world is polluted with US toxic financial instruments could affect the ability of the US Treasury to borrow the money to finance the bailout of the financial institutions. Foreign central banks might need their reserves to bail out their own financial systems. As the US savings rate is approximately zero, the only alternative to foreign borrowing is the printing of money.
Financial deregulation was an important factor in the development of the crisis. The most reckless deregulation occurred in 1999, 2000, and 2004.
Subprime mortgages became a potential systemic threat when issuers ceased to bear any risk by selling the mortgages, which were then amalgamated with other mortgages and became collateral for mortgage-backed securities.
Federal Reserve chairman Alan Greenspan’s inexplicable low interest rate policy allowed the systemic threat to develop. Low interest rates push up housing prices by lowering monthly mortgage payments, thus increasing housing demand. Rising home prices created equity to justify 100 percent mortgages. Buyers leveraged themselves to the hilt and lacked the ability to make payments when they lost their jobs or when adjustable rates and interest escalator clauses pushed up monthly payments.
Wall Street analysts pushed financial institutions to increase their earnings, which they did by leveraging their assets and by insuring debt instruments instead of maintaining appropriate reserves. This spread the crisis from banks to insurance companies.
Finance chiefs around the world are dealing with the crisis by bailing out banks and by lowering interest rates. This suggests that the authorities see the problem as a solvency problem for the financial institutions and as a liquidity problem. US Treasury Secretary Paulson’s solution, for example, leaves unattended the continuing mortgage defaults and foreclosures. The fall in the US stock market predicts a serious recession, which means rising unemployment and more defaults and foreclosures.
In place of a liquidity problem, I see an over-abundance of debt instruments relative to wealth. A fractional reserve banking system based on fiat money appears to be capable of creating debt instruments faster than an economy can create real wealth. Add in credit card debt, stocks purchased on margin, and leveraged derivatives, and debt is pyramided relative to real assets.
Add in the mark-to-market rule, which forces troubled assets to be under-valued, thus threatening the solvency of institutions, and short-selling, which drives down the shares of trouble institutions, thereby depriving them of credit lines, and you have an outline of the many causes of the current crisis.
If the diagnosis is correct, the solution is multifaceted.
Instead of wasting $700 billion on a bailout of the guilty that does not address the problem, the money should be used to refinance the troubled mortgages, as was done during the Great Depression. If the mortgages were not defaulting, the income flows from the mortgage interest through to the holders of the mortgage-backed securities would be restored. Thus, the solvency problem faced by the holders of these securities would be at an end.
The financial markets must be carefully re-regulated, not over-regulated or wrongly regulated.
To shore up the credibility of the US Treasury’s own credit rating and the US dollar as world reserve currency, the US budget and trade deficits must be addressed. The US budget deficit can be eliminated by halting the Bush Regime’s gratuitous wars and by cutting the extravagant US military budget. The US spends more on military than the rest of the world combined. This is insane and unaffordable. A balanced budget is a signal to the world that the US government is serious and is taking measures to reduce its demand on the supply of world savings.
The trade deficit is more difficult to reduce as the US has stupidly permitted itself to become dependent not merely on imports of foreign energy, but also on imports of foreign manufactured goods including advanced technology products. Steps can be taken to bring home the offshored production of US goods for US markets. This would substantially reduce the trade deficit and, thus, restore credibility to the US dollar as world reserve currency. Follow-up measures would be required to insure that US imports do not greatly exceed exports.
The US will have to restore sound lending practices. It the US government itself wishes to subsidize at taxpayer expense home purchases by non-qualified buyers, that is a political decision subject to electoral ratification. But the US government must cease to force private lenders to breech the standards of prudence.
The issuance of credit cards must be brought back to prudent standards, with checks on credit history, employment, and income. Balances that grow over time must be seen as
a problem against which reserves must be provided, instead of a source of rising interest income to the credit card companies.
Fractional reserve banking must be reined in by higher reserve requirements, rising over time perhaps to 100 percent. If banks were true financial intermediaries, they would not have money creating power, and the proliferation of debt relative to wealth would be reduced.
Does the US have the leadership to realize the problem and to deal with it?
Not if Bush, Cheney, Paulson, Bernanke, McCain and Obama are the best leadership that America can produce.
The Great Depression lasted a decade because the authorities were unable to comprehend that the Federal Reserve had allowed the supply of money to shrink. The shrunken money supply could not employ the same number of workers at the same wages, and it could not purchase the same amount of goods and service at the same prices. Thus, prices and employment fell.
The explanation of the Great Depression was not known until the 1960s when Milton Friedman and Anna Schwartz published their Monetary History of the United States. Given the stupidity of our leadership and the stupidity of so many of our economists, we may learn what happened to us this year in 2038, three decades from now.
Run On The System: Black Friday
Run On The System: Black Friday
MIKE WHITNEY
COUNTER PUNCH
Friday, October 10, 2008
Stock markets across the world are in a state of hysteria. The tidal wave of sell-offs, which began when Henry Paulson announced the Bush administration’s $700 billion bailout plan for the sinking banking system, has swelled into a global tsunami racing round the globe. Shares fell sharply across Europe and Asia for the fifth straight day following a 679 drop on the Dow Jones. Nearly $900 billion was wiped off the value of U.S. equities in just one trading day. The Chicago Board Options Exchange Volatility Index, the “fear index”, soared to a record 64. Credit markets remain frozen. Libor, the London interbank offered rate, nudged up slightly on Thursday night, signaling even greater resistance to lending between the banks. Until there is relief in the credit markets, stocks will continue to slide. But trust has vanished. The 50 basis points rate cut that was coordinated with foreign central banks has had no effect. The market is being driven by fear and pessimism.
White House press secretary, Dana Perino said Thursday that President Bush will address the country on Friday morning:
“He will assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system. The Treasury Department is moving quickly to use new tools to improve liquidity, which is the root cause of this problem.”
Bush still believes that the problem is “liquidity” rather than “insolvency”. When liabilities vastly exceed assets, liquidity does not help. The bad banks need to be closed so the good ones can be strengthened with capital injections.
New York Times columnist Paul Krugman said, “Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson, the Treasury Secretary, was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman’s failure caused the world financial crisis, already severe, to get much, much worse.”
Lehman’s credit default swaps, (the derivatives which Warren Buffett calls “financial weapons of mass destruction”) are “unwound” on Friday. It could be a “non event” or it could trigger another sell off; it is impossible to know. If tens of billions of dollars are drained from already weakened balance sheets in counterparty deals that have turned sour, the market will react violently. Wall Street is on tenterhooks waiting for the news from Lehman.
There is general agreement among economists about what needs to be done to stabilize the financial system. The banks have to be recapitalized, all deposits have to be guaranteed (beyond the $100,000 FDIC limit) and additional stimulus has to be provided to increase consumer demand. Otherwise the United States is on the lip of another Great Depression. Too much time has been wasted on Paulson’s failed bailout for G-Sax and his friends on Wall Street. Buying the bad assets of underwater banks does not fix the problem. The banks need capital so they can resume lending and transmit credit to consumers and businesses.
Former head of the FDIC, William Isaac, summed it up like this:
“I was opposed to the bailout bill, mostly because I don’t think it will work. The banks — taking $700 billion of bad loans out of the banks doesn’t help get banks lending again. It just solves some problems in some banks. And it doesn’t have any leverage to it. If the Treasury were to put that same $700 billion and used that to invest in bank capital, the banks can loan $10 for every dollar of capital, roughly, which means that the Treasury would be creating $7 trillion of new lending capacity in the banks. And that is vastly superior to buying $700 billion of problem loans. It just — it will really give some punch to the economy. It will get banks back into the lending business….. And to do that we need to get some capital back in there.”
Isaac added: “The other major thing they really need to do… They really need to have the FDIC declare that there is a financial emergency. And when the FDIC does that, the FDIC should announce that during this period of crisis, all general creditors, all depositors, insured and uninsured, bondholders in our banking system, will be protected if a bank fails. And that, I think, will get the inter — the financial markets working again and get banks willing to loan to each other again.”
Nearly one third of all deposits ($2.5 trillion) are not insured under present FDIC guidelines. If these deposits are not insured, as Isaac says, there will continue to be a slow run on the banks which is why the credit markets are paralyzed.
Much of this week’s volatility in the market is the result of program trading (many sell orders were automatically executed when the Dow hit 9,000) and massive deleveraging in the hedge funds, the secretive $1.7 trillion industry. As credit gets tighter, the funds are unable to roll over their short-term debt and have been forced to dump their assets in an illiquid market at firesale prices. This explains the recent see-saw motion in the stock market; the huge 2 to 3 per cent intraday swings (positive/negative) This has added to the fear of smaller investors who have left the market in droves for the safety of US Treasuries or cash. That’s why the dollar has strengthened even though the Federal Reserve is printing money at a furious pace. The inflationary effects will not be apparent until the destruction of credit abates.
The biggest danger we face, in the short term, is a run on the financial system. Calm must be restored if we want to avoid another depression. Investors have already pulled a record $72 billion from stock and mutual funds, and put the money in US Treasuries and government-insured bank deposits. If the trend continues, the financial system will collapse. This is where leadership and credibility really matter. The Bush administration’s record on these issues is dismal. If the government overreacts and limits bank withdrawals or closes the stock market; the sense of desperation and panic will only grow. That increases the likelihood of rioting and violence, which is what took place in China just this week.
The falling stock market reflects the mood of the country as a whole. Confidence in the system has disappeared. The government has lost the moral authority to rule. People have lost faith in everything. Bush has created a tinder box which could explode in flames at any time. It is a dangerous situation.
The econo-blogs were abuzz all night Thursday. The prevailing feeling is that the Wall Street implosion marks the end of America’s dominance as the lone superpower. As always, economist Nouriel Roubini provided a chilling analysis of the present financial malaise:
Nouriel Roubini:
“The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system… and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.
“On the real economic side all the advanced economies…entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.
“At this point the risk of an imminent stock market crash – like the one-day collapse of 20 per cent plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown….
“When markets that are clearly way oversold that even the most radical policy actions don’t provide rallies or relief to market participants, you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway.” (Nouriel Roubini’s Global EconoMonitor)
There’s a way forward but it will take a lot of digging out and a vision of the future that doesn’t center on Wall Street.
MIKE WHITNEY
COUNTER PUNCH
Friday, October 10, 2008
Stock markets across the world are in a state of hysteria. The tidal wave of sell-offs, which began when Henry Paulson announced the Bush administration’s $700 billion bailout plan for the sinking banking system, has swelled into a global tsunami racing round the globe. Shares fell sharply across Europe and Asia for the fifth straight day following a 679 drop on the Dow Jones. Nearly $900 billion was wiped off the value of U.S. equities in just one trading day. The Chicago Board Options Exchange Volatility Index, the “fear index”, soared to a record 64. Credit markets remain frozen. Libor, the London interbank offered rate, nudged up slightly on Thursday night, signaling even greater resistance to lending between the banks. Until there is relief in the credit markets, stocks will continue to slide. But trust has vanished. The 50 basis points rate cut that was coordinated with foreign central banks has had no effect. The market is being driven by fear and pessimism.
White House press secretary, Dana Perino said Thursday that President Bush will address the country on Friday morning:
“He will assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system. The Treasury Department is moving quickly to use new tools to improve liquidity, which is the root cause of this problem.”
Bush still believes that the problem is “liquidity” rather than “insolvency”. When liabilities vastly exceed assets, liquidity does not help. The bad banks need to be closed so the good ones can be strengthened with capital injections.
New York Times columnist Paul Krugman said, “Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson, the Treasury Secretary, was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman’s failure caused the world financial crisis, already severe, to get much, much worse.”
Lehman’s credit default swaps, (the derivatives which Warren Buffett calls “financial weapons of mass destruction”) are “unwound” on Friday. It could be a “non event” or it could trigger another sell off; it is impossible to know. If tens of billions of dollars are drained from already weakened balance sheets in counterparty deals that have turned sour, the market will react violently. Wall Street is on tenterhooks waiting for the news from Lehman.
There is general agreement among economists about what needs to be done to stabilize the financial system. The banks have to be recapitalized, all deposits have to be guaranteed (beyond the $100,000 FDIC limit) and additional stimulus has to be provided to increase consumer demand. Otherwise the United States is on the lip of another Great Depression. Too much time has been wasted on Paulson’s failed bailout for G-Sax and his friends on Wall Street. Buying the bad assets of underwater banks does not fix the problem. The banks need capital so they can resume lending and transmit credit to consumers and businesses.
Former head of the FDIC, William Isaac, summed it up like this:
“I was opposed to the bailout bill, mostly because I don’t think it will work. The banks — taking $700 billion of bad loans out of the banks doesn’t help get banks lending again. It just solves some problems in some banks. And it doesn’t have any leverage to it. If the Treasury were to put that same $700 billion and used that to invest in bank capital, the banks can loan $10 for every dollar of capital, roughly, which means that the Treasury would be creating $7 trillion of new lending capacity in the banks. And that is vastly superior to buying $700 billion of problem loans. It just — it will really give some punch to the economy. It will get banks back into the lending business….. And to do that we need to get some capital back in there.”
Isaac added: “The other major thing they really need to do… They really need to have the FDIC declare that there is a financial emergency. And when the FDIC does that, the FDIC should announce that during this period of crisis, all general creditors, all depositors, insured and uninsured, bondholders in our banking system, will be protected if a bank fails. And that, I think, will get the inter — the financial markets working again and get banks willing to loan to each other again.”
Nearly one third of all deposits ($2.5 trillion) are not insured under present FDIC guidelines. If these deposits are not insured, as Isaac says, there will continue to be a slow run on the banks which is why the credit markets are paralyzed.
Much of this week’s volatility in the market is the result of program trading (many sell orders were automatically executed when the Dow hit 9,000) and massive deleveraging in the hedge funds, the secretive $1.7 trillion industry. As credit gets tighter, the funds are unable to roll over their short-term debt and have been forced to dump their assets in an illiquid market at firesale prices. This explains the recent see-saw motion in the stock market; the huge 2 to 3 per cent intraday swings (positive/negative) This has added to the fear of smaller investors who have left the market in droves for the safety of US Treasuries or cash. That’s why the dollar has strengthened even though the Federal Reserve is printing money at a furious pace. The inflationary effects will not be apparent until the destruction of credit abates.
The biggest danger we face, in the short term, is a run on the financial system. Calm must be restored if we want to avoid another depression. Investors have already pulled a record $72 billion from stock and mutual funds, and put the money in US Treasuries and government-insured bank deposits. If the trend continues, the financial system will collapse. This is where leadership and credibility really matter. The Bush administration’s record on these issues is dismal. If the government overreacts and limits bank withdrawals or closes the stock market; the sense of desperation and panic will only grow. That increases the likelihood of rioting and violence, which is what took place in China just this week.
The falling stock market reflects the mood of the country as a whole. Confidence in the system has disappeared. The government has lost the moral authority to rule. People have lost faith in everything. Bush has created a tinder box which could explode in flames at any time. It is a dangerous situation.
The econo-blogs were abuzz all night Thursday. The prevailing feeling is that the Wall Street implosion marks the end of America’s dominance as the lone superpower. As always, economist Nouriel Roubini provided a chilling analysis of the present financial malaise:
Nouriel Roubini:
“The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system… and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.
“On the real economic side all the advanced economies…entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.
“At this point the risk of an imminent stock market crash – like the one-day collapse of 20 per cent plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown….
“When markets that are clearly way oversold that even the most radical policy actions don’t provide rallies or relief to market participants, you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway.” (Nouriel Roubini’s Global EconoMonitor)
There’s a way forward but it will take a lot of digging out and a vision of the future that doesn’t center on Wall Street.
Thursday, October 9, 2008
Bailout Vote Constitutional? 401(K)s Bleed
BAILOUT VOTE CONSTITUTIONAL? -
401(k)s BLEED
By: Devvy Kidd
October 6, 2008
It's almost difficult to describe in mere words what happened last week in Washington, DC. That Blitzkreig is today's definition of shock and awe. When the enemy hits you at a speed you may not have time to get ready for is exactly what the money masters planned when they dropped the bail out swindle into the laps of a body of individuals (Congress), with a few exceptions like Congressman Ron Paul, R-TX, who have virtually no understanding of the subject matter. In cases like sodomite, Barney Frank, D-MA., whose male sex partner was a senior exec at Fannie Mae, Frank should be investigated by the Department of Justice along with Sen. Christopher Dodd, D-CT.
Despite the overwhelming opposition of we the people across this land, Congress passed another nightmare. If you haven't seen the breakdown, it is here. Note the the part which gives the IRS immunity from federal laws, more power to snoop into your life and make your personal income tax information as exposed as a newborn baby. You will see this wasn't just a "rescue" to recapitalize banks, it is more massive pork ridden debt slapped on our backs.
Notice on page 298 of the bill, there are provisions for the film and motion picture industry. What does this have to do with bailing out banks? How about page 300 that provides exemption from excise taxes for wooden arrows made for children? Or, how about Section 504 regarding income from Exxon Valez settlements? Here's more on the swindle: GREEN ALERT: Hidden Carbon Tax Provisions in Paulson’s Bailout 2.0. "This appears to be an attempt by global warming fanatics to lay the foundation for an economy-killing carbon tax just like the “cap-and-tax” system that is now destroying European industry. If you think the Mother of All Bailouts is bad, just wait till you see the carbon tax. Get ready to reduce your standard of living drastically."
Reading this bill was like a nightmare that wouldn't end. How many members of Congress actually read the entire 451 pages? Most likely, they just paid attention to the sections that would satisfy those who bought their favors.
Was the procedure used to bring this monstrosity up for a vote constitutional? If the original bill failed in the House, how could the unlawfully seated senate originate a bill of expenditure? Why would people ask this specific question?
U.S. Constitution, Art. 1, Sec. 7: All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.
Here's how it was done via 'Parliamentarian procedures' in the U.S. House of Representatives. In March, 2007, a bill originated in the House, H.R. 1424. This innocuous bill was originally introduced as the 'Genetic Information Nondiscrimination Act of 2008.' As time was of the essence for the banker barons to get their swindle shoved down our throats and these sell outs in Congress to "cobble" together "something," the original text was scrubbed (you'll see here at GovTrak the term "co-opted" is used) and the new bill text is slapped onto this bill number: "In October 2008, it was co-opted as the so-called "vehicle" to pass the relief bill with an amendment that rewrites the whole bill. The House's initial vehicle was H.R. 3997, but they failed to pass their amendment co-opting the bill."
Go look at the bill here. Notice the words: Purpose: In the nature of a Substitute.
This new bill using an old number fails in the House, goes to the unlawfully seated Senate, they pass it, off it goes to the House where it passed last Friday. Nice, neat, slick. But is it constitutional? The bill did originate in the House, but in my eyes, what we saw was yet more chicanery by a body of public servants who care nothing for truth, honesty, integrity or the U.S. Constitution. We know that the U.S. Treasury made up the $700 billion dollar figure; they simply wanted to "pick a big enough number." Now, we have Pelosi's gangsters in the House using back door methods to ram a bill down out throats that is so heinous, these fools simply don't realize what they've done to the American people.
401(k)s. For almost three weeks, popular financial guru's on both the tube and Internet have been telling people these bail out bills would not have any effect on their pension plans or 401(k)s. Keep investing in the stock market and don't touch those 401(k)s! While speaking to my attorney friend out in DC over the weekend, he told me a friend of his checked his 401(k) and found it had lost 47% last week. That's not the only one. Another man I know lost $35,000 of his 401(k) last week and a wonderful lady who emails me all time, Nettie, said her husband's 401(k) had lost almost $60,000 and she was very worried about his mental health. They're in their late 60s and it's too late for them to start over. My heart bleeds to read these emails.
Will these Americans get back these losses? If they leave their money in, they run the risk of the continued and devastating effects of this meltdown which is NOT going to get any better as a result of this monstrous "2008 Economic Stimulus Relief Bill." If people try to salvage what's left and withdraw their own money, the thieves at the IRS will penalize you anywhere from 20-35%. Every time I watch one of these jackals in Congress crow how much they care about "Main Street," I want to puke.
Supposedly one of the promises in this "rescue" bill was to allow Americans to withdraw their 401(k) funds without penalties. It never happened as I read those sections of the bill. Of course not. The puppet masters who own Congress and the White House don't want Americans to pull their own money out of the risky markets. They would rather you go bankrupt or lose what you worked so hard for decades to acquire to protect their game. You can read the 401(k) provisions of the bill here; it begins on page 303. This is what your public servant who voted for that bill (including Obama and McCain) did last week:
Bailout vote: Congress shrinks your 401(k)
"That loss guarantees that a huge amount of money has been wiped off the value of 401(k)s affecting retirement plans. Tens of millions of Americans will be retiring in poverty or will not be able to afford retirement at all because of the votes those 133 Republicans and 95 Democrats made on this fateful "Fools Monday"...Speaker of the House Nancy Pelosi, D-Calif., is responsible for at least half of this debacle. Her speech Monday, supposedly in favor of the bailout, was as partisan, short-sighted and even hysterical as anything she has ever said. It was the defining moment of her career, and she blew it..."
These reprobates used your retirement as a sledgehammer: "Basically they gave Congress a ransom note: 'We've got your 401(k) and if you want to see your 401(k) alive again, give us $700 billion in unmarked bills,' " Sherman said."
I want to know who the hell "they" are?
For those Americans who somehow believe things will "change" come January with either McCain or Obama, get out of denial. As I said in a past column, the Dogs of Hell have been unleashed against the we the people. If you haven't seen it, this is a 48 second video of Rep. Brad Sherman, where he states "...a few members were told if this bill didn't pass, there would be martial law here in America." Sherman was talking about how members of the House were being flogged with panic threats the stock market would crash several thousand points, etc. What I want to know and I believe we the people have the right to know: Who was telling members of the U.S. House of Representatives that if they did not vote for that bill, September 29, 2008, there would be martial law in this country?
Paulson (who should be criminally charged along with Bernanke and their minions) has stated he's pushing ahead as quickly as possible to implement this newly signed law by Bush. Why wouldn't he? The shadow government is sewing up the final pieces of the complete and total surrender of this nation and our sovereignty.
As I said in recent columns, Freddie and Fannie need a trillion today, but how about next year? The bail out of those two entities was beyond the scope of the U.S. Congress, but they did it anyway. Remember the $85 BILLION borrowed dollars for the AIG bail out? Guess what? They've run through $61 billion already: "The American International Group said on Friday that it had already drawn down $61 billion of the $85 billion emergency bridge loan it received from the Federal Reserve two weeks ago, an announcement that startled credit ratings agencies."
This massive meltdown is going to get worse, make no mistake about it. What Congress did last week will take a few months to shake out and then look out. Can people see the tsunami building?
The stress of the foreclosures is getting to Americans with some committing suicide. Last week, Fannie Mae said they have forgiven a woman in Ohio her delinquent loan when she attempted suicide; they have simply given her the house outright. You, me and our children will be robbed of the fruits of our labor via the Freddie Fannie bail out and this is where the sweat off our back is going? While these deaths are tragic and make me sick to my soul, why don't we all just quit making our house payments and when the loan defaults, stand on the front porch with a gun and demand our loans are forgiven? Can anyone see how this whole mess is already getting out of hand?
How about the states of the Union? 28 million Americans are now on food stamps! In a nation rich in human and natural resources, we the people are being forced into poverty by so-called public servants both at the state and federal level. The burden on the states will continue to grow, i.e., the incompetent idiot, Gov. Arnold Schwarzenegger of California wants Congress to loan his state $7 billion dollars: "California, the most populous U.S. state, will run out of money by the end of this month and needs $7 billion in funding.....Without the short-term funding, California may be forced to halt or significantly delay payments for teachers' salaries, nursing homes, law enforcement and every other state-funded service,'' said Treasurer Bill Lockyer, a Democrat."
The people's treasury is already overdrawn $10 TRILLION dollars as I write this. There's no money to loan, but will Congress write a hot check for the governor and reward gross mismanagement by the California State Legislature? Lined up behind California is Massachusetts: "BOSTON — The treasurer of Massachusetts has asked the federal government about lending Massachusetts money under the same favorable terms it has given banks and firms during the financial crisis." No where in Art. 1, Sec. 8 of the U.S. Constitution does it authorize Congress to borrow money from a central bank to loan to state legislatures and slap the interest on our backs forever. Oxen to the yoke.
This will escalate as the foreclosures pile up with no buyers and property taxes drop to all time lows. Will there be more plunder of the people's empty treasury to bail out states? Unless there is at least a 150 seat turn over in the House and all U.S. Senators up for reelection are defeated and replaced with constitutionalists who will go back in January and get Ron Paul's 2007 bill passed to abolish the unconstitutional, privately owned Federal Reserve, sell off the assets and put the money in the people's treasury for starters, we are headed for a depression; short 4 minute video. Also remember: Only 1/3rd of the Senate is unlawfully up for reelection next month, which is why they voted for this swindle. The rest have no fear of the ballot box. They simply promise voters they will continue to loot the public treasury to satisfy the mobs.
But, hold the phone, folks! Here's the stunning new headline: October 5, 2008. Wall Street May Shun $700 bn dollar bail out. "Fears are mounting that many Wall Street banks and financial firms will refuse to participate in the US government's $700bn bail-out package, leaving global markets and world economies in a perilous state for months to come. 'There is a growing feeling that banks ... might instead decide to tough it out,' said Thomas Caldwell, chairman and CEO of Caldwell Financial, a $1bn-plus fund manager."
What will these geniuses in Congress do if there's a revolt by these private banks?
The past few columns I have encouraged voters to send a tube of cheap lipstick to your house member and senator who voted yes on this grand larceny. Send a deep red like hookers wear as they ply their wares on the street corner and send it to their district offices this week. Let them return to their district offices to tens of thousands of tubes of red lipstick. Get as many people as you can, call the media and make the delivery of the tubes of hooker lipstick a real event.
Attend every debate and town hall meeting for every member of Congress who voted yes on that bail out bill and bring tubes of Hooker Red. Tell people attending why you're giving congress critter Jones the lipstick.
Here is the roll call for the vote (house) (senate). As far as I'm concerned, with the exception of Ron Paul, all 534 of them should be booted and no fat pensions rewarding the mess these people have taken this country into. For years these poltroons have destroyed this country with legislation killing the Bill of Rights, dragging us into endless wars and continuing to hand over our sovereignty to foreign interests.
One of my readers made this fabulous lipstick picture. Print it out, put it on a flyer or blow it up and put it on a sign for all these events. Make the people in your district take notice. Those who yell the loudest get heard. Call your congress critter's district office and find out their schedule; same for your senator. Get out there by the thousands between now and election day. Sadly, eleven states started voting a week before the vote and likely many voters will simply vote back their incumbent based on name recognition or promises for more money for education, unconstitutional "universal health care" and save social security! Sheep will always be sheep.
Let's get the Red Hooker Lipstick brigades out there in force. Help wake up the people in your district.
401(k)s BLEED
By: Devvy Kidd
October 6, 2008
It's almost difficult to describe in mere words what happened last week in Washington, DC. That Blitzkreig is today's definition of shock and awe. When the enemy hits you at a speed you may not have time to get ready for is exactly what the money masters planned when they dropped the bail out swindle into the laps of a body of individuals (Congress), with a few exceptions like Congressman Ron Paul, R-TX, who have virtually no understanding of the subject matter. In cases like sodomite, Barney Frank, D-MA., whose male sex partner was a senior exec at Fannie Mae, Frank should be investigated by the Department of Justice along with Sen. Christopher Dodd, D-CT.
Despite the overwhelming opposition of we the people across this land, Congress passed another nightmare. If you haven't seen the breakdown, it is here. Note the the part which gives the IRS immunity from federal laws, more power to snoop into your life and make your personal income tax information as exposed as a newborn baby. You will see this wasn't just a "rescue" to recapitalize banks, it is more massive pork ridden debt slapped on our backs.
Notice on page 298 of the bill, there are provisions for the film and motion picture industry. What does this have to do with bailing out banks? How about page 300 that provides exemption from excise taxes for wooden arrows made for children? Or, how about Section 504 regarding income from Exxon Valez settlements? Here's more on the swindle: GREEN ALERT: Hidden Carbon Tax Provisions in Paulson’s Bailout 2.0. "This appears to be an attempt by global warming fanatics to lay the foundation for an economy-killing carbon tax just like the “cap-and-tax” system that is now destroying European industry. If you think the Mother of All Bailouts is bad, just wait till you see the carbon tax. Get ready to reduce your standard of living drastically."
Reading this bill was like a nightmare that wouldn't end. How many members of Congress actually read the entire 451 pages? Most likely, they just paid attention to the sections that would satisfy those who bought their favors.
Was the procedure used to bring this monstrosity up for a vote constitutional? If the original bill failed in the House, how could the unlawfully seated senate originate a bill of expenditure? Why would people ask this specific question?
U.S. Constitution, Art. 1, Sec. 7: All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.
Here's how it was done via 'Parliamentarian procedures' in the U.S. House of Representatives. In March, 2007, a bill originated in the House, H.R. 1424. This innocuous bill was originally introduced as the 'Genetic Information Nondiscrimination Act of 2008.' As time was of the essence for the banker barons to get their swindle shoved down our throats and these sell outs in Congress to "cobble" together "something," the original text was scrubbed (you'll see here at GovTrak the term "co-opted" is used) and the new bill text is slapped onto this bill number: "In October 2008, it was co-opted as the so-called "vehicle" to pass the relief bill with an amendment that rewrites the whole bill. The House's initial vehicle was H.R. 3997, but they failed to pass their amendment co-opting the bill."
Go look at the bill here. Notice the words: Purpose: In the nature of a Substitute.
This new bill using an old number fails in the House, goes to the unlawfully seated Senate, they pass it, off it goes to the House where it passed last Friday. Nice, neat, slick. But is it constitutional? The bill did originate in the House, but in my eyes, what we saw was yet more chicanery by a body of public servants who care nothing for truth, honesty, integrity or the U.S. Constitution. We know that the U.S. Treasury made up the $700 billion dollar figure; they simply wanted to "pick a big enough number." Now, we have Pelosi's gangsters in the House using back door methods to ram a bill down out throats that is so heinous, these fools simply don't realize what they've done to the American people.
401(k)s. For almost three weeks, popular financial guru's on both the tube and Internet have been telling people these bail out bills would not have any effect on their pension plans or 401(k)s. Keep investing in the stock market and don't touch those 401(k)s! While speaking to my attorney friend out in DC over the weekend, he told me a friend of his checked his 401(k) and found it had lost 47% last week. That's not the only one. Another man I know lost $35,000 of his 401(k) last week and a wonderful lady who emails me all time, Nettie, said her husband's 401(k) had lost almost $60,000 and she was very worried about his mental health. They're in their late 60s and it's too late for them to start over. My heart bleeds to read these emails.
Will these Americans get back these losses? If they leave their money in, they run the risk of the continued and devastating effects of this meltdown which is NOT going to get any better as a result of this monstrous "2008 Economic Stimulus Relief Bill." If people try to salvage what's left and withdraw their own money, the thieves at the IRS will penalize you anywhere from 20-35%. Every time I watch one of these jackals in Congress crow how much they care about "Main Street," I want to puke.
Supposedly one of the promises in this "rescue" bill was to allow Americans to withdraw their 401(k) funds without penalties. It never happened as I read those sections of the bill. Of course not. The puppet masters who own Congress and the White House don't want Americans to pull their own money out of the risky markets. They would rather you go bankrupt or lose what you worked so hard for decades to acquire to protect their game. You can read the 401(k) provisions of the bill here; it begins on page 303. This is what your public servant who voted for that bill (including Obama and McCain) did last week:
Bailout vote: Congress shrinks your 401(k)
"That loss guarantees that a huge amount of money has been wiped off the value of 401(k)s affecting retirement plans. Tens of millions of Americans will be retiring in poverty or will not be able to afford retirement at all because of the votes those 133 Republicans and 95 Democrats made on this fateful "Fools Monday"...Speaker of the House Nancy Pelosi, D-Calif., is responsible for at least half of this debacle. Her speech Monday, supposedly in favor of the bailout, was as partisan, short-sighted and even hysterical as anything she has ever said. It was the defining moment of her career, and she blew it..."
These reprobates used your retirement as a sledgehammer: "Basically they gave Congress a ransom note: 'We've got your 401(k) and if you want to see your 401(k) alive again, give us $700 billion in unmarked bills,' " Sherman said."
I want to know who the hell "they" are?
For those Americans who somehow believe things will "change" come January with either McCain or Obama, get out of denial. As I said in a past column, the Dogs of Hell have been unleashed against the we the people. If you haven't seen it, this is a 48 second video of Rep. Brad Sherman, where he states "...a few members were told if this bill didn't pass, there would be martial law here in America." Sherman was talking about how members of the House were being flogged with panic threats the stock market would crash several thousand points, etc. What I want to know and I believe we the people have the right to know: Who was telling members of the U.S. House of Representatives that if they did not vote for that bill, September 29, 2008, there would be martial law in this country?
Paulson (who should be criminally charged along with Bernanke and their minions) has stated he's pushing ahead as quickly as possible to implement this newly signed law by Bush. Why wouldn't he? The shadow government is sewing up the final pieces of the complete and total surrender of this nation and our sovereignty.
As I said in recent columns, Freddie and Fannie need a trillion today, but how about next year? The bail out of those two entities was beyond the scope of the U.S. Congress, but they did it anyway. Remember the $85 BILLION borrowed dollars for the AIG bail out? Guess what? They've run through $61 billion already: "The American International Group said on Friday that it had already drawn down $61 billion of the $85 billion emergency bridge loan it received from the Federal Reserve two weeks ago, an announcement that startled credit ratings agencies."
This massive meltdown is going to get worse, make no mistake about it. What Congress did last week will take a few months to shake out and then look out. Can people see the tsunami building?
The stress of the foreclosures is getting to Americans with some committing suicide. Last week, Fannie Mae said they have forgiven a woman in Ohio her delinquent loan when she attempted suicide; they have simply given her the house outright. You, me and our children will be robbed of the fruits of our labor via the Freddie Fannie bail out and this is where the sweat off our back is going? While these deaths are tragic and make me sick to my soul, why don't we all just quit making our house payments and when the loan defaults, stand on the front porch with a gun and demand our loans are forgiven? Can anyone see how this whole mess is already getting out of hand?
How about the states of the Union? 28 million Americans are now on food stamps! In a nation rich in human and natural resources, we the people are being forced into poverty by so-called public servants both at the state and federal level. The burden on the states will continue to grow, i.e., the incompetent idiot, Gov. Arnold Schwarzenegger of California wants Congress to loan his state $7 billion dollars: "California, the most populous U.S. state, will run out of money by the end of this month and needs $7 billion in funding.....Without the short-term funding, California may be forced to halt or significantly delay payments for teachers' salaries, nursing homes, law enforcement and every other state-funded service,'' said Treasurer Bill Lockyer, a Democrat."
The people's treasury is already overdrawn $10 TRILLION dollars as I write this. There's no money to loan, but will Congress write a hot check for the governor and reward gross mismanagement by the California State Legislature? Lined up behind California is Massachusetts: "BOSTON — The treasurer of Massachusetts has asked the federal government about lending Massachusetts money under the same favorable terms it has given banks and firms during the financial crisis." No where in Art. 1, Sec. 8 of the U.S. Constitution does it authorize Congress to borrow money from a central bank to loan to state legislatures and slap the interest on our backs forever. Oxen to the yoke.
This will escalate as the foreclosures pile up with no buyers and property taxes drop to all time lows. Will there be more plunder of the people's empty treasury to bail out states? Unless there is at least a 150 seat turn over in the House and all U.S. Senators up for reelection are defeated and replaced with constitutionalists who will go back in January and get Ron Paul's 2007 bill passed to abolish the unconstitutional, privately owned Federal Reserve, sell off the assets and put the money in the people's treasury for starters, we are headed for a depression; short 4 minute video. Also remember: Only 1/3rd of the Senate is unlawfully up for reelection next month, which is why they voted for this swindle. The rest have no fear of the ballot box. They simply promise voters they will continue to loot the public treasury to satisfy the mobs.
But, hold the phone, folks! Here's the stunning new headline: October 5, 2008. Wall Street May Shun $700 bn dollar bail out. "Fears are mounting that many Wall Street banks and financial firms will refuse to participate in the US government's $700bn bail-out package, leaving global markets and world economies in a perilous state for months to come. 'There is a growing feeling that banks ... might instead decide to tough it out,' said Thomas Caldwell, chairman and CEO of Caldwell Financial, a $1bn-plus fund manager."
What will these geniuses in Congress do if there's a revolt by these private banks?
The past few columns I have encouraged voters to send a tube of cheap lipstick to your house member and senator who voted yes on this grand larceny. Send a deep red like hookers wear as they ply their wares on the street corner and send it to their district offices this week. Let them return to their district offices to tens of thousands of tubes of red lipstick. Get as many people as you can, call the media and make the delivery of the tubes of hooker lipstick a real event.
Attend every debate and town hall meeting for every member of Congress who voted yes on that bail out bill and bring tubes of Hooker Red. Tell people attending why you're giving congress critter Jones the lipstick.
Here is the roll call for the vote (house) (senate). As far as I'm concerned, with the exception of Ron Paul, all 534 of them should be booted and no fat pensions rewarding the mess these people have taken this country into. For years these poltroons have destroyed this country with legislation killing the Bill of Rights, dragging us into endless wars and continuing to hand over our sovereignty to foreign interests.
One of my readers made this fabulous lipstick picture. Print it out, put it on a flyer or blow it up and put it on a sign for all these events. Make the people in your district take notice. Those who yell the loudest get heard. Call your congress critter's district office and find out their schedule; same for your senator. Get out there by the thousands between now and election day. Sadly, eleven states started voting a week before the vote and likely many voters will simply vote back their incumbent based on name recognition or promises for more money for education, unconstitutional "universal health care" and save social security! Sheep will always be sheep.
Let's get the Red Hooker Lipstick brigades out there in force. Help wake up the people in your district.
Thousands of Troops Are Deployed on U.S. Streets Ready to Carry Out “Crowd Control”
Thousands of Troops Are Deployed on U.S. Streets Ready to Carry Out “Crowd Control”
Naomi Wolf
AlterNet
Thursday, October 9, 2008
Background: the First Brigade of the Third Infantry Division, three to four thousand soldiers, has been deployed in the United States as of October 1. Their stated mission is the form of crowd control they practiced in Iraq, subduing “unruly individuals,” and the management of a national emergency. I am in Seattle and heard from the brother of one of the soldiers that they are engaged in exercises now. Amy Goodman reported that an Army spokesperson confirmed that they will have access to lethal and non lethal crowd control technologies and tanks.
George Bush struck down Posse Comitatus, thus making it legal for military to patrol the U.S. He has also legally established that in the “War on Terror,” the U.S. is at war around the globe and thus the whole world is a battlefield. Thus the U.S. is also a battlefield.
He also led change to the 1807 Insurrection Act to give him far broader powers in the event of a loosely defined “insurrection” or many other “conditions” he has the power to identify. The Constitution allows the suspension of habeas corpus — habeas corpus prevents us from being seized by the state and held without trial — in the event of an “insurrection.” With his own army force now, his power to call a group of protesters or angry voters “insurgents” staging an “insurrection” is strengthened.
U.S. Rep. Brad Sherman of California said to Congress, captured on C-Span and viewable on YouTube, that individual members of the House were threatened with martial law within a week if they did not pass the bailout bill:
“The only way they can pass this bill is by creating and sustaining a panic atmosphere. … Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day and a couple of thousand on the second day, and a few members were even told that there would be martial law in America if we voted no.”
If this is true and Rep. Sherman is not delusional, I ask you to consider that if they are willing to threaten martial law now, it is foolish to assume they will never use that threat again. It is also foolish to trust in an orderly election process to resolve this threat. And why deploy the First Brigade? One thing the deployment accomplishes is to put teeth into such a threat.
I interviewed Vietnam veteran, retired U.S. Air Force Colonel and patriot David Antoon for clarification:
“If the President directed the First Brigade to arrest Congress, what could stop him?”
“Nothing. Their only recourse is to cut off funding. The Congress would be at the mercy of military leaders to go to them and ask them not to obey illegal orders.”
“But these orders are now legal?’”
“Correct.”
“If the President directs the First Brigade to arrest a bunch of voters, what would stop him?”
“Nothing. It would end up in courts but the action would have been taken.”
“If the President directs the First Brigade to kill civilians, what would stop him?”
“Nothing.”
“What would prevent him from sending the First Brigade to arrest the editor of the Washington Post?”
“Nothing. He could do what he did in Iraq — send a tank down a street in Washington and fire a shell into the Washington Post as they did into Al Jazeera, and claim they were firing at something else.”
“What happens to members of the First Brigade who refuse to take up arms against U.S. citizens?”
“They’d probably be treated as deserters as in Iraq: arrested, detained and facing five years in prison. In Iraq a study by Ann Wright shows that deserters — reservists who refused to go back to Iraq — got longer sentences than war criminals.”
“Does Congress have any military of their own?”
“No. Congress has no direct control of any military units. The Governors have the National Guard but they report to the President in an emergency that he declares.”
“Who can arrest the President?”
“The Attorney General can arrest the President after he leaves or after impeachment.”
[Note: Prosecutor Vincent Bugliosi has asserted it is possible for District Attorneys around the country to charge President Bush with murder if they represent districts where one or more military members who have been killed in Iraq formerly resided.]
“Given the danger do you advocate impeachment?”
“Yes. President Bush struck down Posse Comitatus — which has prevented, with a penalty of two years in prison, U.S. leaders since after the Civil War from sending military forces into our streets — with a ’signing statement.’ He should be impeached immediately in a bipartisan process to prevent the use of military forces and mercenary forces against U.S. citizens”
“Should Americans call on senior leaders in the Military to break publicly with this action and call on their own men and women to disobey these orders?”
“Every senior military officer’s loyalty should ultimately be to the Constitution. Every officer should publicly break with any illegal order, even from the President.”
“But if these are now legal. If they say, ‘Don’t obey the Commander in Chief,’ what happens to the military?”
“Perhaps they would be arrested and prosecuted as those who refuse to participate in the current illegal war. That’s what would be considered a coup.”
“But it’s a coup already.”
“Yes.”
Naomi Wolf
AlterNet
Thursday, October 9, 2008
Background: the First Brigade of the Third Infantry Division, three to four thousand soldiers, has been deployed in the United States as of October 1. Their stated mission is the form of crowd control they practiced in Iraq, subduing “unruly individuals,” and the management of a national emergency. I am in Seattle and heard from the brother of one of the soldiers that they are engaged in exercises now. Amy Goodman reported that an Army spokesperson confirmed that they will have access to lethal and non lethal crowd control technologies and tanks.
George Bush struck down Posse Comitatus, thus making it legal for military to patrol the U.S. He has also legally established that in the “War on Terror,” the U.S. is at war around the globe and thus the whole world is a battlefield. Thus the U.S. is also a battlefield.
He also led change to the 1807 Insurrection Act to give him far broader powers in the event of a loosely defined “insurrection” or many other “conditions” he has the power to identify. The Constitution allows the suspension of habeas corpus — habeas corpus prevents us from being seized by the state and held without trial — in the event of an “insurrection.” With his own army force now, his power to call a group of protesters or angry voters “insurgents” staging an “insurrection” is strengthened.
U.S. Rep. Brad Sherman of California said to Congress, captured on C-Span and viewable on YouTube, that individual members of the House were threatened with martial law within a week if they did not pass the bailout bill:
“The only way they can pass this bill is by creating and sustaining a panic atmosphere. … Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day and a couple of thousand on the second day, and a few members were even told that there would be martial law in America if we voted no.”
If this is true and Rep. Sherman is not delusional, I ask you to consider that if they are willing to threaten martial law now, it is foolish to assume they will never use that threat again. It is also foolish to trust in an orderly election process to resolve this threat. And why deploy the First Brigade? One thing the deployment accomplishes is to put teeth into such a threat.
I interviewed Vietnam veteran, retired U.S. Air Force Colonel and patriot David Antoon for clarification:
“If the President directed the First Brigade to arrest Congress, what could stop him?”
“Nothing. Their only recourse is to cut off funding. The Congress would be at the mercy of military leaders to go to them and ask them not to obey illegal orders.”
“But these orders are now legal?’”
“Correct.”
“If the President directs the First Brigade to arrest a bunch of voters, what would stop him?”
“Nothing. It would end up in courts but the action would have been taken.”
“If the President directs the First Brigade to kill civilians, what would stop him?”
“Nothing.”
“What would prevent him from sending the First Brigade to arrest the editor of the Washington Post?”
“Nothing. He could do what he did in Iraq — send a tank down a street in Washington and fire a shell into the Washington Post as they did into Al Jazeera, and claim they were firing at something else.”
“What happens to members of the First Brigade who refuse to take up arms against U.S. citizens?”
“They’d probably be treated as deserters as in Iraq: arrested, detained and facing five years in prison. In Iraq a study by Ann Wright shows that deserters — reservists who refused to go back to Iraq — got longer sentences than war criminals.”
“Does Congress have any military of their own?”
“No. Congress has no direct control of any military units. The Governors have the National Guard but they report to the President in an emergency that he declares.”
“Who can arrest the President?”
“The Attorney General can arrest the President after he leaves or after impeachment.”
[Note: Prosecutor Vincent Bugliosi has asserted it is possible for District Attorneys around the country to charge President Bush with murder if they represent districts where one or more military members who have been killed in Iraq formerly resided.]
“Given the danger do you advocate impeachment?”
“Yes. President Bush struck down Posse Comitatus — which has prevented, with a penalty of two years in prison, U.S. leaders since after the Civil War from sending military forces into our streets — with a ’signing statement.’ He should be impeached immediately in a bipartisan process to prevent the use of military forces and mercenary forces against U.S. citizens”
“Should Americans call on senior leaders in the Military to break publicly with this action and call on their own men and women to disobey these orders?”
“Every senior military officer’s loyalty should ultimately be to the Constitution. Every officer should publicly break with any illegal order, even from the President.”
“But if these are now legal. If they say, ‘Don’t obey the Commander in Chief,’ what happens to the military?”
“Perhaps they would be arrested and prosecuted as those who refuse to participate in the current illegal war. That’s what would be considered a coup.”
“But it’s a coup already.”
“Yes.”
Wednesday, October 8, 2008
The next burden: Inflation
The next burden: inflation
Chris Payne
London Guardian
Wednesday, Oct 8, 2008
It is now clear that every government in the west is going to try their best to ensure that no savers lose any of their deposits. The Federal Reserve is lending directly to companies, and here in the UK, the government is going to start buying shares in UK banks. There is no escaping the severity of the crisis. Monetary authorities around the world are now focused on trying to ensure that we avoid the fate of the United States in the Great Depression of the 1930s, when output fell by over 30%. Instead, their hope is that the recession to come is more like the early 1970s, when western economies shrank by 5% to 10%. Painful but not catastrophic.
What we cannot escape is the fact that the amount of money in the banking sector far outweighs the value of the assets that it was lent against. This is how it works. You want to buy a house, and you need to borrow £100,000. You go to a bank and they create the loan, and at the same time deposit £100,000 in your bank account. This money did not exist before: it is new money. You buy your house, and at the other end of the chain, the sellers deposit the £100,000 back into the banking system. The amount of money in circulation has risen by £100,000 and is represented by the seller’s bank “savings”. But those savings are a reflection of the value of the house. If the price of the house doubled while they owned it, then £50,000 of those savings is a result of inflation caused by the banking sector creating money.
Supposing the housing market crashes. There is now more money in the banking system than the value of housing stock. The value of that the money has to fall as well. During the Asian crisis 10 years ago, this is exactly what happened. Many banks went insolvent, many savers lost their deposits, and the value of money in the economy fell so as to reflect the new and lower value of assets in the economy. This was exactly what happened in Thailand, but unlike us, their government was simply too poor to bail out savers who happened to have their deposits in the wrong bank.
In the west, we are rich enough to be able to ensure that banks do not collapse, wiping out individual savers. (Indeed, why should some savers be OK just because they were lucky enough to put their deposit in the right bank?) However, what we cannot escape from is the fact that the value of money in circulation now has to shrink to match the falling value of property against which the money was lent. However little we like it, the value of our savings has to fall.
The process whereby this happens is called inflation. Central banks are creating money left, right and centre in order to provide cash to banks. Governments are hugely increasing their liabilities by taking on bad debt or by investing directly in the banks to stabilise their shareholder funds. However, it gets worse, because the government is still liable for all its other expenses such as public services. It will try to borrow as much as it can from savers around the world, like the Chinese. But ultimately many governments are going have to resort to “printing money” to pay for all these costs and the result of this will be huge inflation.
What should now be clear is that the last few years represented an extraordinary credit-fuelled boom. We all earned more, borrowed more, and saw house prices rise to record levels. And the government’s tax revenue was boom-time revenue. Yet all that money was worth less than we thought. As a result, the government now has to expand the money supply to bail out banks, savers, and the economy, while continuing its normal spending. This can only be inflationary, and the end result is that each pound will be worth less.
We are all going to lose money as inflation erodes the value of our savings. This is at least fairer than indiscriminate bank failures. However, it will happen all the same, and the mechanism for it will be inflation. We might avert a Great Depression, but we are all going to feel a lot less well off at the end of the process.
Chris Payne
London Guardian
Wednesday, Oct 8, 2008
It is now clear that every government in the west is going to try their best to ensure that no savers lose any of their deposits. The Federal Reserve is lending directly to companies, and here in the UK, the government is going to start buying shares in UK banks. There is no escaping the severity of the crisis. Monetary authorities around the world are now focused on trying to ensure that we avoid the fate of the United States in the Great Depression of the 1930s, when output fell by over 30%. Instead, their hope is that the recession to come is more like the early 1970s, when western economies shrank by 5% to 10%. Painful but not catastrophic.
What we cannot escape is the fact that the amount of money in the banking sector far outweighs the value of the assets that it was lent against. This is how it works. You want to buy a house, and you need to borrow £100,000. You go to a bank and they create the loan, and at the same time deposit £100,000 in your bank account. This money did not exist before: it is new money. You buy your house, and at the other end of the chain, the sellers deposit the £100,000 back into the banking system. The amount of money in circulation has risen by £100,000 and is represented by the seller’s bank “savings”. But those savings are a reflection of the value of the house. If the price of the house doubled while they owned it, then £50,000 of those savings is a result of inflation caused by the banking sector creating money.
Supposing the housing market crashes. There is now more money in the banking system than the value of housing stock. The value of that the money has to fall as well. During the Asian crisis 10 years ago, this is exactly what happened. Many banks went insolvent, many savers lost their deposits, and the value of money in the economy fell so as to reflect the new and lower value of assets in the economy. This was exactly what happened in Thailand, but unlike us, their government was simply too poor to bail out savers who happened to have their deposits in the wrong bank.
In the west, we are rich enough to be able to ensure that banks do not collapse, wiping out individual savers. (Indeed, why should some savers be OK just because they were lucky enough to put their deposit in the right bank?) However, what we cannot escape from is the fact that the value of money in circulation now has to shrink to match the falling value of property against which the money was lent. However little we like it, the value of our savings has to fall.
The process whereby this happens is called inflation. Central banks are creating money left, right and centre in order to provide cash to banks. Governments are hugely increasing their liabilities by taking on bad debt or by investing directly in the banks to stabilise their shareholder funds. However, it gets worse, because the government is still liable for all its other expenses such as public services. It will try to borrow as much as it can from savers around the world, like the Chinese. But ultimately many governments are going have to resort to “printing money” to pay for all these costs and the result of this will be huge inflation.
What should now be clear is that the last few years represented an extraordinary credit-fuelled boom. We all earned more, borrowed more, and saw house prices rise to record levels. And the government’s tax revenue was boom-time revenue. Yet all that money was worth less than we thought. As a result, the government now has to expand the money supply to bail out banks, savers, and the economy, while continuing its normal spending. This can only be inflationary, and the end result is that each pound will be worth less.
We are all going to lose money as inflation erodes the value of our savings. This is at least fairer than indiscriminate bank failures. However, it will happen all the same, and the mechanism for it will be inflation. We might avert a Great Depression, but we are all going to feel a lot less well off at the end of the process.
Tuesday, October 7, 2008
Gold vs Paper Money
Gold versus Paper Money
By Ludwig von Mises
July 13, 1953
Most people take it for granted that the world will never return to the gold standard. The gold standard, they say, is as obsolete as the horse and buggy. The system of government-issued fiat money provides the treasury with the funds required for an open-handed spending policy that benefits everybody; it forces prices and wages up and the rate of interest down and thereby creates prosperity. It is a system that is here to stay.
Now whatever virtues one may ascribe?undeservedly?to the modern variety of the greenback standard, there is one thing that it certainly cannot achieve. It can never become a permanent, lasting system of monetary management. It can work only as long as people are not aware of the fact that the government plans to keep it.
The Alleged Blessings of Inflation
The alleged advantages that the champions of fiat money expect from the operation of the system they advocate are temporary only. An injection of a definite quantity of new money into the nation's economy starts a boom as it enhances prices. But once this new money has exhausted all its price-raising potentialities and all prices and wages are adjusted to the increased quantity of money in circulation, the stimulation it provided to business ceases. Thus even if we neglect dealing with the undesired and undesirable consequences and social costs of such inflationary measures and, for the sake of argument, even if we accept all that the harbingers of "expansionism" advance in favor of inflation, we must realize that the alleged blessings of these policies are short-lived. If one wants to perpetuate them, it is necessary to go on and on increasing the quantity of money in circulation and expanding credit at an ever-accelerated pace. But even then the ideal of the expansionists and inflationists, viz., an everlasting boom not upset by any reverse, could not materialize.
A fiat-money inflation can be carried on only as long as the masses do not become aware of the fact that the government is committed to such a policy. Once the common man finds out that the quantity of circulating money will be increased more and more, and that consequently its purchasing power will continually drop and prices will rise to ever higher peaks, he begins to realize that the money in his pocket is melting away. Then he adopts the conduct previously practiced only by those smeared as profiteers; he "flees into real values." He buys commodities, not for the sake of enjoying them, but in order to avoid the losses involved in holding cash. The knell of the inflated monetary system sounds. We have only to recall the many historical precedents beginning with the Continental Currency of the War of Independence.
Why Perpetual Inflation Is Impossible
The fiat-money system, as it operates today in this country and in some others, could avoid disaster only because a keen critique on the part of a few economists alerted public opinion and forced upon the government cautious restraint in their inflationary ventures. If it had not been for the opposition of these authors, usually labeled orthodox and reactionary, the dollar would long since have gone the way of the German mark of 1923. The catastrophe of the Reich's currency was brought about precisely because no such opposition was vocal in Weimar Germany.
Champions of the continuation of the easy money scheme are mistaken when they think that the policies they advocate could prevent altogether the adversities they complain about. It is certainly possible to go on for a while in the expansionist routine of deficit spending by borrowing from the commercial banks and supporting the government bond market. But after some time it will be imperative to stop. Otherwise the public will become alarmed about the future of the dollar's purchasing power and a panic will follow. As soon as one stops, however, all the unwelcome consequences of the aftermath of inflation will be experienced. The longer the preceding period of expansion has lasted, the more unpleasant those consequences will be.
The attitude of a great many people with regard to inflation is ambivalent. They are aware, on the one hand, of the dangers inherent in a continuation of the policy of pumping more and more money into the economic system. But as soon as anything substantial is done to stop increasing the amount of money, they begin to cry out about high interest rates and bearish conditions on the stock and commodity exchanges. They are loath to relinquish the cherished illusion which ascribes to government and central banks the magic power to make people happy by endless spending and inflation.
Full Employment and the Gold Standard
The main argument advanced today against the return to the gold standard is crystallized in the slogan " full-employment policy." It is said that the gold standard paralyzes efforts to make unemployment disappear.
On a free labor market the tendency prevails to fix wage rates for every kind of work at such a height that all employers ready to pay these wages find all the employees they want to hire, and all job-seekers ready to work for these wages find employment. But if compulsion or coercion on the part of the government or the labor unions is used to keep wage rates above the height of these market rates, unemployment of a part of the potential labor force inevitably results.
Neither governments nor labor unions have the power to raise wage rates for all those eager to find jobs. All they can achieve is to raise wage rates for the workers employed, while an increasing number of people who would like to work cannot get employment. A rise in the market wage rate?i.e., the rate at which all job-seekers finally find employment?can be brought about only by raising the marginal productivity of labor. Practically, this means by raising the per-capita quota of capital invested. Wage rates and standards of living are much higher today than they were in the past because under capitalism the increase in capital invested by far exceeds the increase in population. Wage rates in the United States are many times higher than in India because the American percapita quota of capital invested is many times higher than the Indian per-capita quota of capital invested.
There is only one method for a successful "full-employment policy"?let the market determine the height of wage rates. The method that Lord Keynes has baptized "full-employment policy" also aimed at re-establishment of the rate which the free labor market tends to fix. The peculiarity of Keynes' proposal consisted in the fact that it proposed to eradicate the discrepancy between the decreed and enforced official wage rate and the potential rate of the free labor market by lowering the purchasing power of the monetary unit. It aimed at holding nominal wage rates, i.e., wage rates expressed in terms of the national fiat money, at the height fixed by the government's decree or by labor union pressure. But as the quantity of money in circulation was increased and consequently a trend toward a drop in the monetary unit's purchasing power developed, real wage rates, i.e., wage rates expressed in terms of commodities, would fall. Full employment would be reached when the difference between the official rate and the market rate of real wages disappeared.
There is no need to examine anew the question whether the Keynesian scheme could really work. Even if, for the sake of argument, we were to admit this, there would be no reason to adopt it. Its final effect upon the conditions of the labor market would not differ from that achieved by the operation of the market factors when left alone. But it attains this end only at the cost of a very serious disturbance in the whole price structure and thereby the entire economic system. The Keynesians refuse to call "inflation" any increase in the quantity of money in circulation that is designed to fight unemployment. But this is merely playing with words. For they themselves emphasize that the success of their plan depends on the emergence of a general rise in commodity prices.
It is, therefore, a fable that the Keynesian full-employment recipe could achieve anything for the benefit of the wage earners that could not be achieved under the gold standard. The full-employment argument is as illusory as all the other arguments advanced in favor of increasing the quantity of money in circulation.
The Specter of an Unfavorable International Balance
A popular doctrine maintains that the gold standard cannot be preserved by a country with what is called an "unfavorable balance of payments." It is obvious that this argument is of no use to the American opponents of the gold standard. The United States [1953] has a very considerable surplus of exports over imports. This is neither an act of God nor an effect of wicked isolationism. It is the consequence of the fact that this country, under various titles and pretexts, gives financial aid to many foreign nations. These grants alone enable the foreign recipients to buy more in this country than they are selling in its markets. In the absence of such subsidies it would be impossible for any country to buy anything abroad that it could not pay for, either by exporting commodities or by rendering some other service such as carrying foreign goods in its ships or entertaining foreign tourists. No artifices of monetary policy, however sophisticated and however ruthlessly enforced by the police, can in any way alter this fact.
It is not true that the so-called have-not countries have derived any advantage from their abandonment of the gold standard. The virtual repudiation of their foreign debts, and the virtual expropriation of foreign investments that it involved, brought them no more than a momentary respite. The main and lasting effect of abandoning the gold standard, the disintegration of the international capital market, hit these debtor countries much harder than it hit the creditor countries. The falling off of foreign investments is one of the main causes of the calamities they are suffering today.
The gold standard did not collapse. Governments, anxious to spend, even if this meant spending their countries into bankruptcy, intentionally aimed at destroying it. They are committed to an anti-gold policy, but they have lamentably failed in their endeavors to discredit gold. Although officially banned, gold in the eyes of the people is still money, even the only genuine money. The more prestige the legal-tender notes produced by the various government printing offices enjoy, the more stable their exchange ratio is against gold. But people do not hoard paper; they hoard gold. The citizens of this country, of course, are not free to hold, to buy, or to sell gold.[1] If they were allowed to do so, they certainly would.
No international agreements, no diplomats, and no supernational bureaucracies are needed in order to restore sound monetary conditions. If a country adopts a non-inflationary policy and clings to it, then the condition required for the return to gold is already present. The return to gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes only one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity.
The excellence of the gold standard is to be seen in the fact that it makes the monetary unit's purchasing power independent of the arbitrary and vacillating policies of governments, political parties, and pressure groups. Historical experience, especially in the last decades, has clearly shown the evils inherent in a national currency system that lacks this independence.
-------------
[1] This right to own gold was restored to U.S. citizens as of January 1, 1975.
By Ludwig von Mises
July 13, 1953
Most people take it for granted that the world will never return to the gold standard. The gold standard, they say, is as obsolete as the horse and buggy. The system of government-issued fiat money provides the treasury with the funds required for an open-handed spending policy that benefits everybody; it forces prices and wages up and the rate of interest down and thereby creates prosperity. It is a system that is here to stay.
Now whatever virtues one may ascribe?undeservedly?to the modern variety of the greenback standard, there is one thing that it certainly cannot achieve. It can never become a permanent, lasting system of monetary management. It can work only as long as people are not aware of the fact that the government plans to keep it.
The Alleged Blessings of Inflation
The alleged advantages that the champions of fiat money expect from the operation of the system they advocate are temporary only. An injection of a definite quantity of new money into the nation's economy starts a boom as it enhances prices. But once this new money has exhausted all its price-raising potentialities and all prices and wages are adjusted to the increased quantity of money in circulation, the stimulation it provided to business ceases. Thus even if we neglect dealing with the undesired and undesirable consequences and social costs of such inflationary measures and, for the sake of argument, even if we accept all that the harbingers of "expansionism" advance in favor of inflation, we must realize that the alleged blessings of these policies are short-lived. If one wants to perpetuate them, it is necessary to go on and on increasing the quantity of money in circulation and expanding credit at an ever-accelerated pace. But even then the ideal of the expansionists and inflationists, viz., an everlasting boom not upset by any reverse, could not materialize.
A fiat-money inflation can be carried on only as long as the masses do not become aware of the fact that the government is committed to such a policy. Once the common man finds out that the quantity of circulating money will be increased more and more, and that consequently its purchasing power will continually drop and prices will rise to ever higher peaks, he begins to realize that the money in his pocket is melting away. Then he adopts the conduct previously practiced only by those smeared as profiteers; he "flees into real values." He buys commodities, not for the sake of enjoying them, but in order to avoid the losses involved in holding cash. The knell of the inflated monetary system sounds. We have only to recall the many historical precedents beginning with the Continental Currency of the War of Independence.
Why Perpetual Inflation Is Impossible
The fiat-money system, as it operates today in this country and in some others, could avoid disaster only because a keen critique on the part of a few economists alerted public opinion and forced upon the government cautious restraint in their inflationary ventures. If it had not been for the opposition of these authors, usually labeled orthodox and reactionary, the dollar would long since have gone the way of the German mark of 1923. The catastrophe of the Reich's currency was brought about precisely because no such opposition was vocal in Weimar Germany.
Champions of the continuation of the easy money scheme are mistaken when they think that the policies they advocate could prevent altogether the adversities they complain about. It is certainly possible to go on for a while in the expansionist routine of deficit spending by borrowing from the commercial banks and supporting the government bond market. But after some time it will be imperative to stop. Otherwise the public will become alarmed about the future of the dollar's purchasing power and a panic will follow. As soon as one stops, however, all the unwelcome consequences of the aftermath of inflation will be experienced. The longer the preceding period of expansion has lasted, the more unpleasant those consequences will be.
The attitude of a great many people with regard to inflation is ambivalent. They are aware, on the one hand, of the dangers inherent in a continuation of the policy of pumping more and more money into the economic system. But as soon as anything substantial is done to stop increasing the amount of money, they begin to cry out about high interest rates and bearish conditions on the stock and commodity exchanges. They are loath to relinquish the cherished illusion which ascribes to government and central banks the magic power to make people happy by endless spending and inflation.
Full Employment and the Gold Standard
The main argument advanced today against the return to the gold standard is crystallized in the slogan " full-employment policy." It is said that the gold standard paralyzes efforts to make unemployment disappear.
On a free labor market the tendency prevails to fix wage rates for every kind of work at such a height that all employers ready to pay these wages find all the employees they want to hire, and all job-seekers ready to work for these wages find employment. But if compulsion or coercion on the part of the government or the labor unions is used to keep wage rates above the height of these market rates, unemployment of a part of the potential labor force inevitably results.
Neither governments nor labor unions have the power to raise wage rates for all those eager to find jobs. All they can achieve is to raise wage rates for the workers employed, while an increasing number of people who would like to work cannot get employment. A rise in the market wage rate?i.e., the rate at which all job-seekers finally find employment?can be brought about only by raising the marginal productivity of labor. Practically, this means by raising the per-capita quota of capital invested. Wage rates and standards of living are much higher today than they were in the past because under capitalism the increase in capital invested by far exceeds the increase in population. Wage rates in the United States are many times higher than in India because the American percapita quota of capital invested is many times higher than the Indian per-capita quota of capital invested.
There is only one method for a successful "full-employment policy"?let the market determine the height of wage rates. The method that Lord Keynes has baptized "full-employment policy" also aimed at re-establishment of the rate which the free labor market tends to fix. The peculiarity of Keynes' proposal consisted in the fact that it proposed to eradicate the discrepancy between the decreed and enforced official wage rate and the potential rate of the free labor market by lowering the purchasing power of the monetary unit. It aimed at holding nominal wage rates, i.e., wage rates expressed in terms of the national fiat money, at the height fixed by the government's decree or by labor union pressure. But as the quantity of money in circulation was increased and consequently a trend toward a drop in the monetary unit's purchasing power developed, real wage rates, i.e., wage rates expressed in terms of commodities, would fall. Full employment would be reached when the difference between the official rate and the market rate of real wages disappeared.
There is no need to examine anew the question whether the Keynesian scheme could really work. Even if, for the sake of argument, we were to admit this, there would be no reason to adopt it. Its final effect upon the conditions of the labor market would not differ from that achieved by the operation of the market factors when left alone. But it attains this end only at the cost of a very serious disturbance in the whole price structure and thereby the entire economic system. The Keynesians refuse to call "inflation" any increase in the quantity of money in circulation that is designed to fight unemployment. But this is merely playing with words. For they themselves emphasize that the success of their plan depends on the emergence of a general rise in commodity prices.
It is, therefore, a fable that the Keynesian full-employment recipe could achieve anything for the benefit of the wage earners that could not be achieved under the gold standard. The full-employment argument is as illusory as all the other arguments advanced in favor of increasing the quantity of money in circulation.
The Specter of an Unfavorable International Balance
A popular doctrine maintains that the gold standard cannot be preserved by a country with what is called an "unfavorable balance of payments." It is obvious that this argument is of no use to the American opponents of the gold standard. The United States [1953] has a very considerable surplus of exports over imports. This is neither an act of God nor an effect of wicked isolationism. It is the consequence of the fact that this country, under various titles and pretexts, gives financial aid to many foreign nations. These grants alone enable the foreign recipients to buy more in this country than they are selling in its markets. In the absence of such subsidies it would be impossible for any country to buy anything abroad that it could not pay for, either by exporting commodities or by rendering some other service such as carrying foreign goods in its ships or entertaining foreign tourists. No artifices of monetary policy, however sophisticated and however ruthlessly enforced by the police, can in any way alter this fact.
It is not true that the so-called have-not countries have derived any advantage from their abandonment of the gold standard. The virtual repudiation of their foreign debts, and the virtual expropriation of foreign investments that it involved, brought them no more than a momentary respite. The main and lasting effect of abandoning the gold standard, the disintegration of the international capital market, hit these debtor countries much harder than it hit the creditor countries. The falling off of foreign investments is one of the main causes of the calamities they are suffering today.
The gold standard did not collapse. Governments, anxious to spend, even if this meant spending their countries into bankruptcy, intentionally aimed at destroying it. They are committed to an anti-gold policy, but they have lamentably failed in their endeavors to discredit gold. Although officially banned, gold in the eyes of the people is still money, even the only genuine money. The more prestige the legal-tender notes produced by the various government printing offices enjoy, the more stable their exchange ratio is against gold. But people do not hoard paper; they hoard gold. The citizens of this country, of course, are not free to hold, to buy, or to sell gold.[1] If they were allowed to do so, they certainly would.
No international agreements, no diplomats, and no supernational bureaucracies are needed in order to restore sound monetary conditions. If a country adopts a non-inflationary policy and clings to it, then the condition required for the return to gold is already present. The return to gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes only one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity.
The excellence of the gold standard is to be seen in the fact that it makes the monetary unit's purchasing power independent of the arbitrary and vacillating policies of governments, political parties, and pressure groups. Historical experience, especially in the last decades, has clearly shown the evils inherent in a national currency system that lacks this independence.
-------------
[1] This right to own gold was restored to U.S. citizens as of January 1, 1975.
Gold Prices to Double on Paper
Kiener: Gold Prices To Double On Paper Market Default
Demand of physical gold outstripping supply as global interest rate cuts lead flight from paper currencies
Paul Joseph Watson
Tuesday, October 7, 2008
Jurg Kiener, CEO of Swiss Asia Capital, told CNBC this morning that the flight from paper currencies as a result of global interest rate cuts will lead to a doubling in the price of gold within a short period, as demand for physical precious metals outstrips supply, causing paper contracts on gold to default.
“The physical market has been on fire - it’s getting very hard to buy one ounce coins and smaller bars, most jewelry shops have been running out so we have a supply problem,” said Kiener.
Kiener said that there was a two tier market in gold, the one on Wall Street where the bankers continue to gamble, and the physical market which is “red hot” and demand is outstripping supply.
“I think we’re going to get very close where we see the environment where the paper contracts on precious metal defaulting, and with that we’re going to get a massive price increase in the overall prices of precious metal,” said Kiener.
Asked where he expected gold to go after the paper market broke down, Kiener said he expected gold to double in price, “in a very short period of time, it will spike up quite fast,” he added.
“If you had an oil rally going from $65 to $140 dollars in nine months, I think it can double in gold in a much shorter period because the market is much much smaller,” Kiener stated.
Kiener pointed out that the expected global reduction in interest rates, kick-started last night by the Australian central bank’s one point cut, means gold is a far more attractive option than any currency because purchasing power of paper money will continue to decline.
As we highlighted yesterday, the demand for physical gold is frantic and people are willing to pay premiums of $50 or more to get their hands on the precious metal.
The potential for hyperinflation is a very real threat, and it has led to a spike in gold purchases. The Royal Canadian Mint recently sold out of one ounce gold bullion bars in what tellers described as a “crazy” demand to own the precious metal.
The U.S. Mint also ran out of one-ounce American Eagle coins in August and one-ounce American Buffalo coins at the end of September.
Michael Levy, a gold broker based in Surrey, B.C., said the volume of people purchasing gold is at its highest since the inflation scare of 1979. “People were buying then because of inflation, now because of a growing distrust in paper currency,” he said. “It’s a different mentality but the same rush.”
Yesterday, 40-year market veteran and fund manager Robin Griffiths of Cazenove Capital Management told CNBC that the overprinting of dollars as a result of the Wall Street bailout will act as a catalyst for gold prices to rocket to $2,000 an ounce, as demand for precious metals outstrips supply amidst rumors of market manipulation.
Monday, October 6, 2008
Ten Reasons NOT To Bail Out Wall Street (A RED HOT MUST READ)
Dear Friends
On September 24rd when President Bush and Treasury Secretary Hank Paulson introduced the bail out proposal it was 3 pages long. On those three pages were over a dozen proposals that were outside of what the Constitution authorizes. The most egregious was making the Treasury Department the 4th branch of government without oversight. His law would be law and would trump both Congress and the Supreme Court. This IS the most important illegal power grab in my lifetime. And "Please" remember that when it was first proposed to us we were told that it was the only way our countries economic freedom would continue. By the time the House of Representatives voted on the measure it was expanded from 3 pages to 103 pages. Thankfully good citizens like you from all across the nation reminded the members of the House that they work for us and courageously defeated this grossly illegal bill.
Late last night our US Senate voted on it's own version of the bail out. This measure is a thick as a Taylor Caldwell novel. Horror of all horrors it passed. The House will now be asked to vote again, with everyone of those illegal measures plus more in this new bill.
PLEASE KNOW, there is STILL time to call you House of Representatives and tell them NO. Remind them that they work for you. If they refuse to take orders, inform them that you will bring them home to stay in November.
One of my favorite economist has written an outstanding essay on why our nation will be greatly damaged by voting yes to the bail out. I know that all of you are most busy. But let me encourage you to take the time to read this essay and then call your Congressman. I can't think of a better time in my lifetime to call my Congressman and give him your order.
I hope all of you are well.
For the Constitution and to the freedom of our Grandchildren.
Mike Ray
Ten Reasons Not To Bail Out Wall Street
October 1, 2008 at 6:10 pm
by Catherine Austin Fitts and Carolyn Betts,
On September 24rd when President Bush and Treasury Secretary Hank Paulson introduced the bail out proposal it was 3 pages long. On those three pages were over a dozen proposals that were outside of what the Constitution authorizes. The most egregious was making the Treasury Department the 4th branch of government without oversight. His law would be law and would trump both Congress and the Supreme Court. This IS the most important illegal power grab in my lifetime. And "Please" remember that when it was first proposed to us we were told that it was the only way our countries economic freedom would continue. By the time the House of Representatives voted on the measure it was expanded from 3 pages to 103 pages. Thankfully good citizens like you from all across the nation reminded the members of the House that they work for us and courageously defeated this grossly illegal bill.
Late last night our US Senate voted on it's own version of the bail out. This measure is a thick as a Taylor Caldwell novel. Horror of all horrors it passed. The House will now be asked to vote again, with everyone of those illegal measures plus more in this new bill.
PLEASE KNOW, there is STILL time to call you House of Representatives and tell them NO. Remind them that they work for you. If they refuse to take orders, inform them that you will bring them home to stay in November.
One of my favorite economist has written an outstanding essay on why our nation will be greatly damaged by voting yes to the bail out. I know that all of you are most busy. But let me encourage you to take the time to read this essay and then call your Congressman. I can't think of a better time in my lifetime to call my Congressman and give him your order.
I hope all of you are well.
For the Constitution and to the freedom of our Grandchildren.
Mike Ray
Ten Reasons Not To Bail Out Wall Street
October 1, 2008 at 6:10 pm
by Catherine Austin Fitts and Carolyn Betts,
(1) Crime that pays is crime that stays.
There is reason to believe that Wall Street and those they represent are holding loans without collateral, multiple loans secured by the same properties, and other fraudulent instruments among the "troubled assets." Based on the secret "Treasury Conference Call" with 800 Wall Street insiders, we know the deal proposed to be passed by Congress isn't the real deal promised to Wall Street.
(2) This smells like obstruction of justice.
Bail-out without due diligence of so called "troubled assets" is a perfect way to hide documentation of financial crimes. It is also a perfect means to launder both the past ill-gotten gains and new federal money spent recklessly and without necessary safeguards and oversight mechanisms. Be very suspicious when they tell you "we just can't tell what's in these troubled assets." We can assure you that the federal government has field offices all across the country that deal with significant amounts of real estate and mortgage assets on a dailyl basis. If Treasury refuses for more than a decade to comply with the laws, with approximately $4 trillion missing (and counting), it is not competent to manage $700 billion of taxpayer money while its arm is twisted by Wall Street.
(3) Wall Street owes the federal government money.
We need to get stolen money back from the banks that served as depositories for the US government (including trillions for which the Pentagon and HUD could not account) and punish them, not create another opportunity for them to game the system and engage in criminal enterprises to rob consumers. To the extent there has been regulatory wrong-doing, let's not let the miscreants leave town with the evidence.
(4) Good guys are shut out.
A bail-out provides no way for honest leaders to come to the fore and use their creativity and expertise to restore balance and integrity to the system or for unproductive and poorly-managed banks that contribute to current over-capacity in the banking system to die a dignified death.
(5) This results in more investment in the "bubble economy."
Spending massive amounts on non-productive uses ("buying" worthless credit default swaps, mortgages with no collateral and derivatives, which could even include the derivatives used to manipulate the precious metals markets) as opposed to productive uses (repairing infrastructure, creating alternative energy systems, supporting inventing and production of "green" products) is inflationary.
This bail-out will drive prices of food, water and energy up for the people who can least afford it.
(6) Bail-out does not result in capital circulating in healthy ways.
The bail-out of Wall Street and too-big-to-fail banks and insurance companies that are getting bigger by the minute by swallowing up other failing financial institutions (and creating more institutions that are "too big to fail") does not result in trickle-down to those whose money was stolen in recent swindles (S&L, dot.com, current housing crisis), i.e., the taxpayers/middle class and working poor.
(7) These arrangements will result in more corruption.
Centralized "fixes" are sure to result in black holes, no-bid contracts and other scandals.
(8) The bail-out drains the real economy, rather than invests in the real economy.
The US economy can't be productive or grow if consumers don't have jobs and can't afford to purchase goods and services. Real stimulation of Main Street is accomplished through productive investment, not bail-outs that shift money to unproductive sectors. We should use all of our precious resources to reinvest in our people in the real economy.
(9) It props up sectors that need to downsize and consolidate.
There is significant overcapacity in the financial and banking sectors. Brainpower and talent needs to stop blowing financial bubbles and shift to economic activities that create real value.
(10) It is a temporary "fix" to keep Wall Street afloat until after the election.
Our resources are better invested in permanent, long-term solutions. This bail-out will not fix anything. Rather, it will help the perpetrators get away and ensure that the ultimate day of reckoning is worse.
The Administration wants to drain the real economy to bail out Wall Street. It seems to us that the more appropriate plan would be to require Wall Street to return the $4 trillion plus that is missing and use that to rebuild the real economy.
We think the time has come to reverse the flow. Go to any business school in the country. That is what they teach. Money should move out of unproductive sectors into productive sectors. The bail-out does just the opposite.
"Just say NO!"
--
Mike Ray
"Always vote for principle, though you may vote alone, and you may cherish the sweetest reflection that your vote is never lost." -- John Quincy Adams
Hyperinflation Catalyst for $2M Gold
Hyperinflation Catalyst For $2,000 Gold
Wall Street bailout, overprinting of dollar will cause commodity to soar says 40-year market veteran
Paul Joseph Watson
Monday, October 6, 2008
40-year market veteran and fund manager Robin Griffiths of Cazenove Capital Management predicts that the overprinting of dollars as a result of the Wall Street bailout will act as a catalyst for gold prices to rocket to $2,000 an ounce, as demand for precious metals outstrips supply amidst rumors of market manipulation.
Griffiths said that as the world deleverages, dollar strength could drive gold prices down to $750 an ounce, but that this would be the bottom and it would represent a great buying opportunity.
“Once we get through the crisis, people will realize they’ve printed an awful lot of dollars, too any dollars, and thrown them from a helicopter window - we need to hedge the risk of too many dollars around and real stuff is the way to do that and gold will be an excellent way,” Griffiths told CNBC this morning.
“I think we’re coming up to re-test that $750 low and that’s going to be a buying opportunity, and if this is correct on a 12 month view from here, we’ll go straight off the top of the chart and eventually I’m thinking a target of $1400 to even the $2000 range,” said Griffiths, admitting that the forecast had caused him to become a gold bug.
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