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Archive for April, 2011

Wall Street fiddles whilst the US burns

A few weeks back Max Keiser wrote a piece about how a “complete disregard for the rule of law is at the heart of the issue as to why the U.S. dollar is selling off. There are simply no rules against counterfeiting, insider trading, and market manipulation at every level of the banking system including the Fed and the Treasury”

This was echoed by an article from Jim Willie called Deflationists and blind eyes:

“As long as the insolvent big US banks remain in operation and are not liquidated, as long as toxic paper repositories rest under the USGovt roof, as long as the USGovt deficits remain well above $1 trillion annually, as long as Quantitative Easing legitimizes the debt monetization without checks, the GOLD PRICE WILL RISE INDEFINITELY. It is that simple.”

We can’t have deflation without debt destruction. And so far there has been no appetite for debt destruction anywhere in the world.

So what on earth is going on?

It seems that the answer lies in a recent IMF Bombshell:

“According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.”

That’s not long at all. No-one in the mainstream media is communicating the extent of tectonic shift that is taking place in the murky world of haute finance.

The US will very soon lose world reserve currency status (along with monopoly pricing of oil in dollars too). And this will be a profound change to the world order. Only a small number of people understand or appreciate this, and they are plundering the public purse in nervous anticipation.

Wall Street fiddling, whilst the US burns.

And the UK is likely to get more than it’s fingers burned too.

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Post script: A slightly lengthy article by FOFOA gives a flavour of what could happen to the dollar. FOFOA foresees a hyperinflation scenario to socialise losses:

“Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.. Inflationists and deflationists implicitly agree on this point… we differ only on the question of who, borrower or lender, will take the hit.. someone will pay. But there is a third option that is missing…the hit can be socialized. Human nature has followed this path for thousands of years. You know the old joke about outrunning the bear? Well, these lenders will influence our financial policy as such. They will try to get their debt securities liquefied first, spend the fiat and in this process outrun you and I. Leaving anyone they can beat to the mercy of the hyperinflation bear eating their remaining fiat assets…”

Those in the know then will likely acquire land, resources and physical precious metals (such as Gold & Silver) whilst the fiat valuation is heavily supressed. A legalised land grab right under our noses.

Categories: Finance and money

Hi ho Silver

I attended a lecture at the LSE in London last monthby Thomas Hoenig of the Kansas Fed. The event details are here:

LSE Event 30 March 2011

If you listen to the podcast, at minute 55:30 there is a question from the audience about accusations of Fed collusion in Gold & Silver Market price manipulation:

Transcript:

Question from audience: Thank you for the opportunity, my name is Brandon. I wonder since the US constitution says only Gold and Silver is legal tender then what do you make of Bart Chilton, a CFTC regulator, corroborating a whistleblower named Andrew Maguire out of the LBMA, erm, thoughts that central banks through primary dealers are manipulating the gold and silver markets to make the world reserve currency and other fiat currencies look better against gold and silver.

Hoenig: Um, (nervous laugh), well I do think that we should obey the constitution of the United States that much I can tell you (nervous laugh). I don’t, um, I’m, I didn’t follow your question all the way through, but I do agree that the constitution of the United States should be obeyed. Alright.

Malmgren: The state of Utah has similar thoughts as what you’re expressing at the moment.

Hoenig: Well, there’s a couple of other parties too.

Podcast audio file

There are two things that stood out for me. Firstly, that Hoenig was caught off guard and really didn’t quite know how to handle the question. In fact he somewhat nervously ducked it. “I didn’t follow your question”. Didn’t follow the question?? I think he did fully understand the question, hence the hasty attempt to avoid confronting it. So, in some respects, he has not tried to deny or refute it. Secondly, he did seem to give a form of tacit acknowledgement of the importance of retaining “sound money”, i.e. his ambiguous assertion that “we should obey the constitution”.

It’s a shame that Peter Warburton wasn’t in the room, as he put the point a little more directly a few years back:

“[central bankers] incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies.”

It’s inflation Jim, but not as we know it

I wonder if Mr Hoenig would “understand” what Mr Warburton was saying here. Maybe he does understand it, but is just holding out until his retirement later this year.

Fed certainly seems to have something to hide here, and Hoenig has clearly given a tacit acknowledgement of this.

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Update: recently came across this article by Ned Naylor-Leyland called Gold – could the last person to get their coat please turn the light off!

Categories: Finance and money

It’s the credit creation, stupid

The ICB Interim report is out today, and we could we witnessing a triumph of spin and mis-direction. The banking sector, the ICB and the media all appear to have singularly failed to spot the following:

It is the loan creation aspect of Retail that the Investment banks wants it sticky mits on, not the deposits!

Analysis by Steve Keen in his Roving Cavaliers of credit shows that the Money Multiplier effect is bunkum. Credit creation preceeds money creation, not the other way round. Seignorage is the privilege of the banks who create loans “out of thin air”.

The Golden Goose is therefore the lending business, hence the neoliberal desire to de-mutalise building societies etc. The strategy was to liberate the access to credit, not to obtain savings.

Taking a look at page 191, Figure A7.1, of the ICB Interim report it states that “Securitisation” should only reside in the “Permitted in non-bank institutions” box.

I’m curious as to how the commission expects that this will work in practice given that “Securitisation” actually transcends Retail & Investment banking, as stated in my ICB Submission.

The retail arm “Originates” the loan in the first place. So they must hand it over (i.e. sell it) to the Investment arm for them to package up and re-sell!

Therefore, the Retail arm is de facto engaging in Securitisation! To declare it sits outside the retail sphere is a blatant mis-representation of how modern banking works! It is not the institutional form of banking that matters, but the monetary functions of banks.

Is the wool getting well and truly pulled over our eyes, here?

This is a firewall without any walls.

If this weren’t bad enough, “The price is wrong!”

Since the 1990s the risk associated with greater lending has been under-estimated, and seems to be continued to be under-estimated. From my ICB submission:

“the phenomenal growth in debt witnessed these last 20 years may not be all fully attributable to genuine economic investment and instead could be the symptom of poorly judged credit issuing”

It was based on Peter Warburton’s seminal work “Debt and Delusion”. The Neoliberal model of financial stability was to reign in inflation through a deliberate disregard for credit creation; the expansion of which was completely under-priced:

“The virtual elimination of the credit quality spread, in all its dimensions, ought to be regarded as a source of fear and trembling, not a celebration of capital market efficiency.” (p.174)
“The highly developed consumer credit and securitised loan markets of the USA
provide an acid test of credit quality developments throughout the Western world.” (p.175)

And so far, it seems that they have failed that test. The pursuit of competition through de-regulation has helped to mask declining levels of debt quality through the appearance of benign risk levels. Risks which when potentially need to be shouldered by private institutions is being shifted onto taxpayers.

The stakes have just been getting and higher and higher since Warburton wrote that in 1999, yet no-one seems to have the intelligence or balls to challenge this fundamental assertion:

The debt is not warranted, and is severely under-priced. It is not “investment” debt that has been growing, but debt for consumption. Debt that has been peddled in ever greater quantity facilitated by fraudulent mis-pricing of risk!

The relentless creation of (misguided) credit has appeared to have been ignored yet again by institutions who supposedly are entrusted with the country’s best interests.

Categories: Finance and money

The story behind “Sell Freedom, Buy Control”

The way to appreciatie how I arrived at my conception of “Sell Freedom, Buy Control” is to study two things that happened in the early 1970s:

Firstly, in 1971 Nixon closed the Gold Window. The US economy had started to hit certain fiscal limits. The monetary system was trying to tell us that we might be nearing the buffers. The evidence of problems was there for all to see.

Secondly, the book “Limits to growth” was published in 1972. It told of the dangers of presuming infinite growth in a finite world. It sold millions of copies and had the potential to shape both policy and expectations of people in the developed world. What ever happened to those concerns about our limitations?

The backlash was formidable. The extent of propaganda aimed at demolishing the idea of resource limits was matched by the sheer extent of economic manipulation to support a more upbeat narrative.

The US subsequently embarked on a re-structuring that essentially involved it extracting tribute from the rest of the world (rather than growing benignly / organically). Tying in Western Europe and Japan to a fiat money mirage kept the illusion going. It bought 30-40 years of apparent peace and stability. It also provided the basis for a fundamental re-structuring of wealth and class relations; all operating covertly.

Since 2007 the house of cards is starting to topple; meanwhile the bilking of the system is just becoming more overt, if you just know how to look for it.

David Harvey’s “A brief history of Neoliberalism” is a great primer on the economic & social warfare aspect of the current crisis, showing how the 70s marked a turning point

David Strahan’s “Last Oil Shock” covers the resource issues and the extent of insider / political manipulation that has been happening for the last 30-40 years to hide the impending problems from the public.

Taken together a credible narrative of our times unfolds.

For a more jovial (but no less powerful) summary, Rob Newman’s History of Oil is a truly eye-opening account of the 20th Century, and what may be in-store for the near future:

This is the story of our times. But it is one that the media refuses to tell.