Globalisation debt & banking [Archive]

breakfastburrito

8th Jul 2011, 04:20

Excellent post oicur. I suspect we agree on a lot more than we disagree.

Western power is tied directly to the greenback status quo of hegemonyI read an (old) but excellent article covering this point, from the Chinese & Russian perspective that may interest you:

Military Power - Not Gold or the USD or the Renminbi - is the Real Coin of the Global Realm
Jan 27, 2010 11:23 PM

Without exception every financial writer has completely missed the point in the ongoing speculation as to whether or not the US dollar will be replaced or not as the worlds reserve currency.

It will. Here’s why.

China and Russia must work together to topple the American dollar as the world’s reserve currency. They simply don’t have any other option. It’s declare financial war on the US dollar or accept military conquest and slavery.

Suppose Russia had built up dozens of military bases in Canada and that China had built up dozens of military bases in Mexico and suppose that the US Government was making it all possible by loaning those two governments endless billions and rolling over their debt on an ongoing basis even though both were defaulting by cranking ever more IOUs like Bernie Madeoff on crystal meth. If that were the case every last American talking head would be foaming at the mouth and demanding that this lunacy be stopped at once. “Why are we feeding divisions of Chinese infantry just south of the Rio and why are we buying the gasoline for the thousands of Russian tanks just on the other side of the Great lakes?”

Do you understand what I’m driving at now? What I’ve just described above is exactly the quandary the Russians and Chinese find themselves in right now because we have surrounded them with an ever expanding super cluster of military bases while we foment subversion within their countries and prop up hostile puppet regimes on their borders.

How did we arrive at this horrid state of affairs? Let’s take a quick trip back to the end of World War Two in 1945. Every major nation except the USA had been bombed nearly back to the stone age and/or bled white. The only money accepted for trade between nations was the Almighty US Dollar. Not only that, but the USA was the only nation that at that time could offer vast quantities of capital goods of all sorts and they were usually the finest on the entire planet to boot. We lived in the best of all possible economic worlds. All the money we sent overseas was either returned to us to buy capital goods necessary for these shattered nations to rebuild themselves or it just circulated overseas to finance trade among foreign nations in which case we had a sort of credit card with no limit and no requirement to pay down either the principal or the interest.

No lets fast forward and take a cold, sober look at how things changed. Starting in the Seventies we increasingly stopped making things while the foreigners were increasingly making capital goods and consumer goods that were comparable to ours in both quantity and quality. American factory workers started to loose their good paying jobs but the Wall Street financial types were still on a roll because the dollar was still the coin of the global realm.

Then about the late Nineties things started to change. In late December 1999 one Euro was worth about one USD. Now, ten years later, one Euro is worth $1.40. In 1999 Putin clawed his way to the top of the heap in Russia after their bond default in 1998. Since then he has run the worst of the looting buzzards clean out of the country. Most flapped their greasy wings and found new roosts in London or America where the pickings are still easy. And of course by that time China was the supplier of cheap consumer goods to America putting and end to all the light manufacturing jobs in America. In 1996 Russia and China decided they had had a belly full of American Imperium and founded a political/economic/military alliance which is now known as the Shanghai Cooperation Organization, the SCO.

Name one (non-military) capital good or valuable commodity that can only be purchased in America and not elsewhere. There isn’t a single one. Whether you’re talking machine tools or computers or bulldozers or medical equipment or locomotives or chemicals - all of these can be had from sources outside the USA and of at least equal quality. In 1945 the picture of the USA was huge eagle perched on the top of the globe. Today were more like Wiley Coyote who has just run himself off a cliff and is momentarily suspended in mid air just before the inevitable fall.

About the sole potential foreign exchange earner of consequence we have left is our agriculture production and if we export that (which we will) we’ll have famine here and non-stop food riots that will morph into a civil war that will depopulate the entire North American continent by at least 50%.

Don’t believe me? Suit yourself. Two years ago who would have believed that we’d be in a depression two years down the road. That was Black Swan Number One. His big brother is Black Swan Number Two and he makes his kid brother look like a tweety bird because he brings a famine that will culminate in a 3,000 mile long cannibal civil war. Black Swan Number Three is WWIII war with Russia and China to distract the remaining peasants so they won’t storm the Wall Street castle and march all the Lords to the Guillotine.

May the Cyclops eat you next to Last

Attila the Wimp

Military Power - Not Gold or the USD or the Renminbi - is the Real Coin of the Global Realm (http://seekingalpha.com/instablog/527064-attila-the-wimp/45914-military-power-not-gold-or-the-usd-or-the-renminbi-is-the-real-coin-of-the-global-realm)

Troopy

8th Jul 2011, 04:23

Theres a book written by a South Korean, his name is Ha-Joon Chang. He is an economist specializing in development economics at Cambridge university. He has written a book called "The 23 things they don't tell you about capitalism". Very easy and interesting to read.

oicur12.again

8th Jul 2011, 04:24

BB

And I just re read your more recent post with reference to Iraq, Libya and Iran.

I think we are more on the same page than originally thought.

"The only thing backing the USD is the "Full Faith & Credit" of the US - in essence its military might."

Some would suggest that the USD is a defacto oil currency which is why the US have taken action against ME oil producers to prevent them from setting up a competing bourse. The Iranians already have which is why I would not want to be buying beach front property there for a very long time.

Side note wrt Iran - does anybody remember the B-52 that "lost" a nuke on the way from Minot to Barksdale? I wonder why that happened.

gobbledock

8th Jul 2011, 10:14

As always, breakfastburrito is right on the money (pardon the pun).

QFinsider, I have one disagreement with you - the bubble has NOT burst yet. The first 'bubble' was the warm up, banks and institutions, the real bubble is the bankrupcy of entire countries. It has already commenced, look at Ireland, Spain, Portugal. Spain has 20% unemployment, the USA has almost 10% unemployment and is trying to lift its debt ceiling which will bring down the globe financially. They are trying to sell their worthless bonds and fractional money has run its course to the point that the USD is worthless. They can no longer afford a NASA program, cant afford troops in a war and have pretty much fu#ked themselves over. The EURO is collapsing, the GBP is ****e and the wheels have truly fallen off.

I second the motion for all to read The Creature From Jekyll Island and The Report From Iron Mountain. Folks, there is no conspiracy theories, the worlds population had been duped for centuries. Carbon tax is a sham, a global conspiracy to trick panicking people into believing in a global meltdown - what a crock. Read Iron Mountain and you will see that R. S Macnamara created the carbon fraud back in the 60's.

It is time people came out of their cocoons and took a look at what is going on behind the scenes. You are being conned.

waren9

8th Jul 2011, 10:43

Fck me, you guys are full on.

Whats the message for the average wage slave, then?

Avoid debt and buy gold?

Redpanda

8th Jul 2011, 11:37

"Fck me, you guys are full on.

Whats the message for the average wage slave, then?

Avoid debt and buy gold?"

Mutate now, and avoid the rush............

breakfastburrito

8th Jul 2011, 11:38

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.his is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Gold and Economic Freedom (http://www.321gold.com/fed/greenspan/1966.html) by Alan Greenspan [written in 1966] This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal

note: Owning gold was illegal in the US until 1973 & the US abondoned the gold Standard in 1971

This is why my youtube video's above on Greenspan's Bubbles make interesting listening.

Personal opinion only follows:
Get out of debt? Debt for consumption (cars, houses, holidays etc) yes. Debt that produces real income (business, farming & mining), not clear cut.

I'll get back to you with a post on the pro's and con's of various assets in a while.

warren, in the mean time think about why any asset with no counterparty risk may the "store of value" of choice in the future, to move wealth forward in time. (google is your friend if you want to skip ahead)

Foie gras

8th Jul 2011, 11:53

Waza, better than gold is a gun!

He has a good point though, and this should be the focus of the thread.
We can talk about all of this gobbledegook till the cows come home, but what can we do about it - prepare??

Perhaps:-
Get your gun license to protect your family.
When capitalism breaks down, and society starts to fall apart, like in Greece (and it really hasn't started there yet!) and the Middle East, who's going to protect your family?

Alvin Toffler's Book "The Third Wave" (and 4th wave) and written in 1980 describes the various changes that society is going through.

The Third Wave (http://www.solutioneers.net/solutioneering/thirdwave.html)

waren9

8th Jul 2011, 12:17

I already has guns :E Several.

Trouble is, Howard didnt let me bring them here. I have to go home to get them.

All I need now is the gold.

gobbledock

8th Jul 2011, 12:41

warren9, you are learning fast. Gold and Silver are the way to go, particularly gold. These metals through history have been a source of value. You cant 'print' gold, you cant fake real gold, you cant copy real gold. Paper money literally isn't worth a pile of panther piss.
Yes, gold and silver prices can be manipulated but will always retain value. When the sh*t hits the fan financially in the very near future Foie gras may be spot on, buy a gun as there will be anarchy.
The USA Federal Reserve System (sorry I mean the Rothschilds, Carnegies, Morgans, Rockefellers and Chases ) have a lot to answer for.

waren9

8th Jul 2011, 13:04

I will take all of your arguments one step further.

If it really hits the fan, gold cannot feed, clothe or shelter me.

Productive land can do the first and give me the means to barter for the 2nd and 3rd.

Why not just aquire productive land? After all, it too is also a finite resource.

The trick will be defending it. Gold easier to defend than land? Maybe I've answered my own question.

gobbledock

8th Jul 2011, 13:13

Productive land doesnt produce ready made trade. Even the best agricultural land requires farming, machinery, planting, seeding, watering, etc etc, and it all costs $$$$. Gold could pay for those 'tools' that will make your land productive.
Sorry warren9, your 'own question' remains unanswered !!!!

waren9

8th Jul 2011, 13:27

Dont disagree gobbledock,but if you control productive land, you control food supply and everything else downstream of that.

I am not suggesting going and buying a paddock down the road.

gobbledock

8th Jul 2011, 13:35

Another sure way to gain wealth is to marry into the Rothschilds (Red Shields) but that is not possible because you have to either 'interbreed' (however they changed that rule in the late 1800's) or you have to be already extremely wealthy. Or you could ask to borrow some of the worlds entire gold supply from the Vatican (around 10% of the worlds supply is owned by the Catholic church). That still doesnt top he Rothschild gold that is stashed in secret vaults globally, so much that guestimates put the value as high as, wait for it, $50 trillion. Problem is that they are immune to law, audits, and accountabilty - they are the law.

Foie gras

8th Jul 2011, 13:37

Gold could be worth more trouble than it's worth.
You can't eat it.
Staying alive is importantl

Perhaps, small denominations of silver, to barter or trade with?

waren9

8th Jul 2011, 13:40

Thats it then. Guns, gold and land. I'm set.:ok:

Just got one to go.

gobbledock

8th Jul 2011, 13:51

I bet the Leprechaun and Boston Bruce wish they had been members of the Jekyll Island meeting back in 1910 !!

DutchRoll

9th Jul 2011, 07:36

Guns? Gold? Prepare for the imminent breakdown of western society? Ok, enough now. You guys are starting to make me nervous. There are heaps of other blogs where you can arc each other up into a paranoid frenzy.

breakfastburrito

10th Jul 2011, 22:01

Warren, here's probably the best summary I have seen in a while about various assets vs paper claims. There is nothing complex about this at all, in fact it is conceptually remarkably simply, something your grandparents or great grandparents would have understood.

Modern finance is deliberately designed to obscure with "apparent" complexity so that you will not be able to see it for what it actually is - a ponzi scheme. This allows to the beneficiaries of the scheme to exchange paper claims for hard assets. In the end, the paper claims will become worthless, while the assets will still be real.

The following is a modification of Exeter's pyramid (http://en.wikipedia.org/wiki/John_Exter) (I'll post below)

The Pyramid Scheme
http://img694.imageshack.us/img694/4470/assetsandclaimsdiagram.png (http://img694.imageshack.us/i/assetsandclaimsdiagram.png/)

Physical gold is an asset, and as such finds its place at the pinnacle of the asset pyramid of tangibles as the wealth reserve asset, freely chosen by the market in which to store surplus value for any (potentially infinite) length of time. The inverse debt pyramid which stands atop the asset pyramid is composed entirely of abstractions rather than tangibles. These abstractions are all claims on assets, or further derivatives thereof as merely claims on claims, excess claims (synthetically created by being “borrowed” into existence rather than representative of value already created), wagers on the value of this claim or that claim, spreads between claims... the list goes on.

All these claims (ie. the entire inverse debt pyramid) are subject to counter-party risk (http://en.wikipedia.org/wiki/Counterparty_risk#Counterparty_risk), which is to say that default will diminish their value. They are promises of payment, dependent upon the means and intent (http://flowofvalue.********.com/2010/09/chicken-and-egg_5966.html) of the debtor (counter-party).

All assets in the tangible pyramid merely are what they are, dependent upon no one in the sense that they are payment in full, already taken.

As claims on assets, the inverse debt pyramid is a derivative of the tangible asset pyramid. Long before any element of the claims pyramid ever came into being, gold was the pinnacle of the asset pyramid as the supreme store of surplus value (wealth) in a barter economy. The first of these claims originated as claims on gold, as notes claiming ownership of x amount of gold stored at y by z (and as such “z” is the issuer of the notes), circulating as a medium of exchange for the sake of convenience. After gaining currency in this function of convenience, the quantity of notes could quietly become greater than the quantity of gold they purported to represent... How Does Paper Find Value (http://flowofvalue.********.com/2011/02/how-does-paper-find-value.html)?

The values of the assets and the claims had been disconnected.

All monetary claims making up the inverse pyramid are ultimately extensions of credit based originally upon physical gold. These extensions have been steadily inflated for the entire existence of the debt-based monetary system... should physical gold, the wealth reserve asset, cease to be available in exchange for claims upon it, the debt pyramid will deflate. This contraction of credit will not be slow and steady as the inflation was, but rather sudden and catastrophic. Being based purely on confidence in the claims, the situation can and will change as quickly as one can change their mind, with this loss of confidence being known, paradoxically, as hyperinflation. (It will be much like the popping of a bubble, because all this debt in fact is a bubble of epic proportions; when people start finding the utility of an item to be in its value (ie. ever increasing value or capital gain) rather than its normal utility, then it is a bubble.)

Initially, this process creates demand for paper money and paper gold, as whatever value is present in the upper levels of the inverse debt pyramid must pass through these on the way down into gold and the security of the asset pyramid... contracts must be redeemed for dollars before gold and other assets can be purchased, and paper gold is far more readily available than much rarer physical item. This is the deflation which precedes hyperinflation, where the paper currency (cash) increases in value as the value flees the less liquid claims higher up the pyramid. Hyperinflation follows, as the value of physical gold decouples from paper gold claims, and the paper currency circulates faster and faster seeking refuge in anything tangible, becoming practically worthless in the process. This is in reality the deflation of the remains of the inverse pyramid against physical gold, and the consolidation process is complete.

The market has discounted the claims in accord with their true value as given by the assets.
source: The Flow of Value (http://flowofvalue.********.com/2011/06/pyramid-scheme.html)

Exeter's Pyramid with real values included(click on image for larger version)
http://img221.imageshack.us/img221/1456/greatcreditcontractionl.th.jpg (http://imageshack.us/photo/my-images/221/greatcreditcontractionl.jpg/)

Anyone who dismisses the role of gold in the financial system demonstrates their complete ignorance. Gold, to this day is the reserve that underpins the whole global economy. Hint, central banks hold thousand of tonnes of it today, this is what the entire system is leveraged off (see Exeter's pyramid).

flying lid

11th Jul 2011, 21:46

We will all be increasingly screwed as oil reserves rapidly deplete.

True, money is a myth, increasingly electronic and created out of thin air.
Don't worry about that, we can easily conjure up more, our kids, grandkids and great grandkids will pay the tab.

Worry about energy. Cheap, easily transported liquid energy (AKA Oil) cannot be created. It is a resource we all depend upon, it is depleting at an ever increasing rate.

The above is why Carbon Trading been invented. A megga con.

These people are laughing at us all. Have a look how "the elite" live.

Peter Mandelson parties with super-rich Nat Rothschild in Montenegro | Mail Online (http://www.dailymail.co.uk/news/article-2012882/Peter-Mandelson-parties-super-rich-Nat-Rothschild-Montenegro.html?ito=feeds-newsxml)

Enjoy your carbon tax, suckers. It will buy someone a fancy yacht or two.

Lid

breakfastburrito

11th Jul 2011, 22:12

I was waiting for that shoe to drop flying lid...

Consider the "Land Export Model [.pdf] (http://www.mediafire.com/download.php?d9g4o7e01i3fahd)" - wikipedia ELM (http://en.wikipedia.org/wiki/Export_Land_Model). Its more than just depletion rates, its also about the exporters domestic consumption increases. Look very closely at slide 18.

Jeff Rubins also covers this (this is 45 min of your time that will be well spent)
YouTube - ‪The Business of Climate Change Conference 2009‬&rlm;

neville_nobody

11th Jul 2011, 23:24

Is this the beginning of the end for aviation?

Ultralights

12th Jul 2011, 03:11

the beginning of the end started long ago....

flying lid

12th Jul 2011, 09:24

Breakfastburrito, that was an excellent video. Summed up all the important points quite well. Our political leaders do not tell it this way, as it is not to their advantage. Nevermind it will "all out" soon.

Basically cheap (easy to obtain) oil has gone. Prices will rise (for most of us) as a result, quite quickly too. Difficult days ahead for all. Especially for the aviation industry which was built, and depends upon, cheap oil.

Not too sure about carbon tax, though I understand the implications. Will China & India "play by the rules" - I think not. We will see (and pay !!).

My main concern is, given the facts in the video, how our leaders, elite, bankers, China, India, etc, etc will play the situation to their own advantage, (as usual).

Lid

oicur12.again

13th Jul 2011, 08:33

YouTube - ‪Peter Schiff on RT - Dollar Could Collapse This Fall (May 3, 2011)‬&rlm;

Interesting as always to listen to Schiffs comments.

breakfastburrito

17th Jul 2011, 21:19

Derivatives: A Capital Markets Gong Show For Whom The Bell Tolls

-- Posted Friday, 1 July 2011 | | Source: GoldSeek.com

By Rob Kirby

Back in early March, 2011 – PIMCO’s Bill Gross were calling for much higher rates and telling the world that they were selling U.S. Government Bonds.

PIMCO's Bill Gross Says to Sell U.S. Treasuries Now
03/03/2011
……To wit, he predicts that when the Fed’s QE2 bond-buying binge ends at the end of June, there will be nobody to take the Fed’s place as last-resort buyer of U.S. Treasuries at artificially low rates. Treasury yields will need to ramp up sharply by 1.5 percentage points to attract private buyers. Given that the ten-year U.S. Treasury is currently yielding only 3.5%, a 1.5 percentage point jump would equal a 43% increase in interest rates (1.5/3.5). That’s a big move in interest-rate land and would have a significantly negative effect on bond prices.

As you can see, not only did the anticipated rise in interest rates NOT materialize – rates have actually fallen:

http://67.19.64.18/news/2011/7-1rk/image002.gif

Remember folks, Bill Gross [PIMCO] is reputed to run the world’s largest bond fund. Not only was Gross wrong – in investment terms he was SERIOUSLY WRONG – a great many percentage points wrong. Not only did 10 yr. bond rates not go up by 150 basis points – they have indeed FALLEN by more than 50 basis points.

This illustrates a point; namely, that being the biggest in your space [and having former Fed Chairman Alan Greenspan acting as advisor to your company] doesn’t ensure that you NEVER, EVER make a poor market call and “lose-your-shirt” – so to speak.

Accordingly, it sure is a good thing that the world’s biggest derivatives player - J.P. Morgan - has “seemingly” NEVER, EVER made a bet even “1 % wrong” with their 80 Trillion derivatives book. The Morgue has a Market Cap of roughly $180 billion. A wrong bet of a mere 1% on their ‘book’ would translate to a loss of $800 billion dollars eviscerating their entire capital base more than four times over. The knock on effect from such an event would trigger multiple tsunamis reverberating through the global financial system. Sounds absurd, but it’s pure math.

Either J.P. Morgan NEVER makes a mistake or they get a pass if / when they do make a mistake. Back in early 2006, Business Week reported (http://www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm),

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006,

What that means folks, is: J.P. Morgan’s derivatives book constitutes national and international security and they along with other large derivatives player are NECESSARILY excused from wrong way bets. The obscenely large derivatives books of J.P. Morgan and other select money center banks are being used to execute U.S. monetary policy and to achieve other arbitrary financial market outcomes. This has been occurring since at least the mid 1990’s and severely ramped-up in the mid 2000’s.

Additionally, what can be said for J.P. Morgan can also be said for the likes of B of A, Citibank, Goldman Sachs – all with derivatives books [currently] ranging from 44+ to 79+ Trillion in size. Take note of the TOTAL derivatives for Commercial Banks at 243 Trillion:
http://67.19.64.18/news/2011/7-1rk/image004.jpg

TABLE 1 excerpted from: OCC Quarterly Derivatives Report (http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq111.pdf) Q1/11

Commercial Banks Vs. Bank Holding Companies

The Office of the Comptroller of the Currency [OCC] tells us, in the Executive Summary of the Q1/11 Report that derivative contracts remain concentrated in interest rate products, which comprise 82% of total derivative notional values. Credit derivatives, which represent 6.1% of total derivatives notionals, increased 5.3% to $14.9 trillion. It is the settlement of these interest rate derivatives – specifically int. rate swaps of duration between 3 and 10 years – that creates artificial scarcity of physical U.S. government bonds.

The OCC’s quarterly derivatives report is published three months in arrears and typically runs about 30 – 35 pages in length. All but one page of this reporting deals with data on the Commercial Bank level. Commercial Bank reporting falls under the purview of the Office of the Comptroller of the Currency. It’s in the Commercial Bank reportage ONLY where we get a glimpse of bank activity in precious metals:
http://67.19.64.18/news/2011/7-1rk/image006.jpg

excerpted from: OCC Quarterly Derivatives Report (http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq111.pdf) Q1/11

ONLY one page of the quarterly derivatives report [table 2] gives us a high level view of derivatives at the Holding Company Level. Bank Holding Com pany reporting falls under the purview of the Federal Reserve and DOES NOT INCLUDE any breakout or reveal on precious metals derivatives holdings. Take note how – at the Holding Company Level, Morgan Stanley’s Derivatives book swells to over 51 TRILLION – vaulting them from a rather insignificant 8th place on the Commercial Bank list into 4th place on the Holding Company list below. :
http://67.19.64.18/news/2011/7-1rk/image008.jpg

TABLE 2 excerpted from: OCC Quarterly Derivatives Report (http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq111.pdf) Q1/11

Historically it is VERY WELL DOCUMENTED that Central Banks the world over have illustrated a large propensity to hide / veil / obfuscate all their activities relating to precious metals and specifically gold. Note the disparity between the transparency offered by the OCC with their Commercial Bank reportage versus the Holding Company data with falls under the purview of the Federal Reserve. This amounts to 80 Trillion worth of derivatives that the public knows “sweet nothing” about.

Remember folks, it was none other than former Federal Reserve Vice Chairman Alan Blinder – while appearing on the Nightly Business Report back in 1994 – issued these prescient words,

“the last duty of a central banker is to tell the public the truth”

By comparing Total Derivatives in TABLE 1 [Commercial] versus TABLE 2 [Holding Co.] we can identify that Morgan Stanley’s derivatives book stands as a 50 TRILLION BLACK HOLE where reporting of precious metals are concerned; Goldman’s 5+ TRILLION, B of A’s 20 TRILLION, J.P. Morgue’s about 1 TRILLION.

Now everyone should appreciate the fact that Morgan Stanley’s “book” grew from 42.1 Trillion at Dec. 31/10 to 51.2 Trillion at Mar. 31/11 – THAT’S an increase of 9.1 TRILLION in three months at an institution with a market capitalization of 35 billion. Even if you’re asleep and have your head buried in the sand, you’ve got to admit that 9.1 TRILLION ramp in business in 3 months for a company with a 35 billion market cap is quite a feat, eh? Remember folks, interest rate derivates – BY THEIR VERY NATURE, DO HAVE 2-WAY CREDIT / COUNTERPARTY RISK.

The feat performed by Morgan Stanley, outlined above, becomes even more unbelievable when you stop and consider that – according to the OCC – there are virtually NO DECLARED or IDENTIFIABLE END USERS [counterparties] for these products:
http://67.19.64.18/news/2011/7-1rk/image010.jpg
excerpted from: OCC Quarterly Derivatives Report (http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq111.pdf) Q1/11

Now we must ask who Morgan Stanley did their impressive 9.1 TRILLION trade in 3 months with? Just because they remain anonymous doesn’t mean they don’t exist – but they are certainly known to the Federal Reserve because the Fed has purview, as regulator, over Bank Holding Companies. So, by extension – the Fed is comfortable [from a credit standpoint] with “whoever it is” that Morgan Stanley is doing this mind boggling business with. What we can say about the nature of this business is this: in the absence of identifiable end users [counterparties], this trade creates artificial demand for U.S. Government bonds.

So who would Morgan Stanley [and the Fed by extension] accept as a secretive counterparty on this scale - in credit sensitive transactions that serve to create artificial demand for U.S. government securities? Embodied in the answer to this question IS THE REASON why the world’s largest bond fund – Bill Gross/ PIMCO – got it ALL [counter-intuitively] WRONG on interest rates. It also happens to be the EXACT same reason why Amaranth (http://news.goldseek.com/GoldSeek/1303221043.php) got it ALL [counter-intuitively] WRONG with Natural Gas back in 2006.

How many ways can you say Exchange Stabilization Fund? [edit by BB, see next post below on the ESF] It’s the Exchange Stabilization Fund acting through the New York Fed – utilizing agents J.P. Morgan, Citibank, B of A, Goldman Sachs and Morgan Stanley as proxies to implement imperialist U.S. monetary policy.

Let us forget for a moment that natural gas trades in Europe for 2 – 3 times what it trades for in North America – with the reasoning most often given by mainstream pundits that “natural gas is a local market” and let’s move on to crude oil and specifically let’s take a closer look at the price spread between North Sea Crude @ 108.30 and West Texas Intermediate [WTI] @ 91.72:

http://67.19.64.18/news/2011/7-1rk/1.jpg

[B]Crude Truth

Historically and until VERY recently, WTI has traded at a premium to North Sea Brent Crude. This historic relationship has now “flipped” and grown to PERVERTED inverted-ness [today to the tune of 16.58 per barrel] and we have been fed a line by “officialdom” for the past couple of years that this is mainly due to storage constrains or “a glut of crude” centered on Cushing, Oklahoma.

Well guess what folks? The BIG LIE that the perversion of global crude oil prices were due to a “glut” at Cushing, Oklahoma were laid bare by a PANICKING U.S. administration last week when they announced that 60 million barrels of crude were to be released from the Strategic Petroleum Reserve. If there truly was a “glut” of any kind – which according to the lies told to the world by officialdom there must be with Brent trading at a 16.58 premium to WTI – there would be no release of crude from the Strategic Petroleum Reserve.

Many market pundits wrongly refer to or reference the derivatives complex as a “DEBT” that the world has been stuffed with. This is WRONG. What the derivatives complex really is – it’s a price control grid which enables its handlers to harvest the fruits of the world’s labor at arbitrary prices.

The reality – the U.S. Fed and Treasury have become increasingly desperate to make their lies about low inflation believable and provide cover for their increasing monetary debasement by attacking and rigging the most visible, go-to alternatives to failing fiat currency.

In doing so, global financial stewardship provided by America has turned our global capital markets into a sleazy GONG SHOW.

Original Article: Rob Kirby (http://news.goldseek.com/GoldSeek/1309532700.php)

breakfastburrito

17th Jul 2011, 21:20

THE ESF AND ITS HISTORY (Part 1-5)

*****What I have been afraid to blog about: THE ESF AND ITS HISTORY (Part 1-5)*****

June 3, 2011 by Eric deCarbonnel

The video series about the ESF’s history is finally finished! I especially recommend watching the first (explains the basics about the ESF), fourth, and fifth videos (Part 4 and 5 really deal with the material that I have been “afraid to blog about”.)
Source: marketskeptics.com (http://www.marketskeptics.com/2011/06/the-esf-and-its-history.html)

Part 1
‪What I have been afraid to blog about: The ESF and Its History_Part 1‬&rlm; - YouTube

Part 2
‪What I have been afraid to blog about: The ESF and Its History_Part 2‬&rlm; - YouTube

Part 3
‪What I have been afraid to blog about: The ESF and Its History_Part 3‬&rlm; - YouTube

Part 4
‪What I have been afraid to blog about: The ESF and Its History_Part 4‬&rlm; - YouTube

Part 5
‪What I have been afraid to blog about: The ESF and Its History_Part 5‬&rlm; - YouTube

All the evidence is meticulously documented on Eric deCarbonnel's ESF page (http://www.marketskeptics.com/2011/06/the-esf-and-its-history.html)

oicur12.again

22nd Jul 2011, 20:07

The biggest threat to greenback hegemony took another leap forward in the past week as Iran commenced trading sweet crude oil priced in
Euros/Yuan/Rial/Roubles bit NOT in USD.

Cause for war? Of course not, but those fictitious nukes sure are. Standby for another manufactured rationale for western intervention and the subtle elevation of the SDR.

breakfastburrito

22nd Jul 2011, 21:31

The biggest threat to greenback hegemony took another leap forward in the past week as Iran commenced trading sweet crude oil priced in
Euros/Yuan/Rial/Roubles bit NOT in USD.

Nice pickup. Give us your best links.
Oil, Currency,gold & Central banking are inextricably intertwined Gold, Oil and Money in the Free Market (http://fofoa.********.com/2009/07/gold-oil-and-money-in-free-market.html), with two followups, It's the Flow, Stupid (http://fofoa.********.com/2010/10/its-flow-stupid.html) & Flow Addendum (http://fofoa.********.com/2010/10/flow-addendum.html).

Another interesting concept is the ‘The Central Bank of Benghazi’ (http://ftalphaville.ft.com/blog/2011/03/23/523871/the-central-bank-of-benghazi/)

War with Iran would appear to be a dead certainty

oicur12.again

22nd Jul 2011, 23:45

Iran Opens Oil Bourse - Harbinger of Trouble for New York and London? | Oil Price.com (http://oilprice.com/Energy/Crude-Oil/Iran-Opens-Oil-Bourse-Harbinger-of-Trouble-for-New-York-and-London.html)

Interesting article about Iran above.

Libya - nothing to do with protecting civilians and everything to do with slowing the push by oil producing nations to introduce a new global currency on their terms. Also, a money grab. Several hundred billion dollars of Libyan wealth fund "seized" by a broke west.

Normasars

23rd Jul 2011, 01:38

You guys need to take a chill pill.

Maybe Wall Street is more to your liking.:p

Conspiracy theorists maybe?

teresa green

23rd Jul 2011, 04:52

Perhaps Troopy we could counteract with a philosphy on Socialism. "Socialism is a philosphy of failure, the creed of ignorance and the gospel of envy. Its inherit virtue is the equal sharing of misery". Does not give us much to pick from does it?

gobbledock

23rd Jul 2011, 11:37

You guys need to take a chill pill.
Maybe Wall Street is more to your liking.
Conspiracy theorists maybe?
Wall Street - No chance. They are a major part of the current problem, the sooner the whole system collapses in some ways the better, most of those grubby bankers will become part of history.

Chill pill - Very chilled actually. No large wads of worthless bank notes sitting in my vault. When cash is dead I will be doing just fine.

Conspiracy theorist - No chance. Conspiracies like Roswell, 911 blah blah are not my poison. Conspiracies are normally either unproven, or have no proof/real evidence attached.
Was GFC 2008 a conspiracy ? Impossible.
Look at the current economic woes globally, countries are going bankrupt. By August 2 the USA will either default on its debt immediately or raise their debt ceiling which will only delay the inevitable bankrupcy by a couple of years. As was stated earlier they are raiding foreign countries and seizing billions to prop up their own problems back at home. NASA has come to a virtual stop and troops are being recalled from war. Why ? Simple, the USA cant afford it any more. THEY ARE BROKE. This is hard evidence, not a conspiracy. Read/watch the news every day. Even Obama was on the box tonight pleading with Congress to come to the table. Desperate times and desperate measures.

I still cannot believe that people have their heads in the sand and actually believe that everything is ok ?? Now that is scary.

sani-com

23rd Jul 2011, 11:57

most of those grubby bankers will become part of history.

Reminds me of what a friend of mine once said "Bankers: when armageddon comes, they'll be the first to be killed and eaten". Makes me laugh whenever I think of it. :}

neville_nobody

23rd Jul 2011, 14:32

Yep it's all coming to a grinding halt the FAA is being shutdown if they don't get this through congress. I certainly would not want to be be holding shares or currency if the USA defaults.

FAA shutdown would cost government $200 million a week

The government will lose about $200 million a week in airline-ticket taxes and $2.5 billion in airport-construction projects will halt if the Federal Aviation Administration is forced to shut down, Transportation Secretary Ray LaHood said Thursday.

By JOAN LOWY

The Associated Press

WASHINGTON — The government will lose about $200 million a week in airline-ticket taxes and $2.5 billion in airport-construction projects will halt if the Federal Aviation Administration (FAA) is forced to shut down, Transportation Secretary Ray LaHood said Thursday.

A partial shutdown looks increasingly likely because Congress hasn't been able to come to an agreement on legislation to extend the FAA's operating authority, which expires at midnight Friday.

The main obstacle is a provision sought by House Republicans and the airline industry that would make it more difficult for airline and railroad workers to unionize. The provision was added to a long-term FAA funding bill this year, but negotiations on that bill have stalled. Without long-term legislation, an extension bill is necessary to keep the agency operating.

If FAA authority were to expire, airlines would no longer have authority to collect federal ticket taxes. About 4,000 FAA workers whose jobs are funded with ticket-tax revenues will also be furloughed, LaHood said at a news conference.

Air traffic controllers, however, would remain on the job and safety would be maintained, he said. Overall, the FAA has more than 47,000 workers.

"This is no way to run the best aviation system in the world," LaHood said. "Congress needs to do its work."

He declined to answer questions about the possible consequences of a prolonged shutdown. But Sen. Jay Rockefeller, D-W.Va., chairman of the Senate committee that oversees the FAA, said the agency "estimates that it could only operate air traffic and support services through mid-August."

The situation could be a financial boon for airline passengers. Barring an agreement, the taxes will disappear from airline and ticket-selling websites at midnight Friday.

The federal tax on a $300 round-trip airfare is about $61, according to the Air Transport Association. Airlines would still collect airport fees.

"The airlines have been alerted to the potential to need to make this change, and are working on it," Jean Medina, a spokeswoman for the association, said in an email.

Long-term authority for the FAA expired in 2007. Unable to agree on long-term funding legislation for the agency, Congress has kept the FAA operating through a series of 20 short-term extension bills.

Previous extensions have been routine. But this time House Republicans added a provision to what would be the 21st extension bill that eliminates government subsidies for airline service to 13 rural communities. Senate Democrats say the provision, which would save about $16 million, is unacceptable.

jibba_jabba

25th Jul 2011, 10:22

Excellent thread.

A year or two back, mentioning this would have raised the term "conspiracy nut", but alas, economic pain has opened up peoples eyes to the baseless and corrupt Fiat paradigm.

In fact, three things rule the world: G.O.D: Gold, Oil, Drugs.
All controlled by governments / Banks for the most part.
‪The Banking Cartels Takeover - Alex Jones Tv 1/3‬&rlm; - YouTube
‪The Banking Cartels Takeover - Alex Jones Tv 2/3‬&rlm; - YouTube
‪The Banking Cartels Takeover - Alex Jones Tv 3/3‬&rlm; - YouTube

Don't be put off by the tittle, he covers all the geopolitical and connections that will blow your mind:
‪The Truth And Lies Of 911 - Michael Ruppert (2004)‬&rlm; - YouTube

Did anyone watch the George Negus 6pm show, on the 15th July where Negus raises the claim of a heroin resurgence in Australia? Negus stated that it was because Afghanistan was "free"! LOL, CNN and other news sources ran news clips many months ago showing the soldiers (U.S troops and other countries ) "protecting" the POPPY FIELDS. Hearts and minds missions...... on the surface yes, effective ...Hmmm???? Ask why these U.S "Drones" that can bomb and spy on everything cant seemingly destroy any drug traffic leaving Afghanistan??? very interesting concept.

Without harping on to much, there is a massive corrupt system of governance and banking that is ruling our lives, and as long as we choose to be reactive and non-critical we are basically no better than the perpetrators. We ALL have to take action.

For all that are truly interested in this thread I recommend a few sites:

‪What is Anonymous? What is "The Plan"?‬&rlm; - YouTube
What Is The Plan (http://www.whatis-theplan.org/)
For all that want to take action. :D

http://www.infowars.com (http://www.infowars.com/) Listen to the pod casts/live radio. Very interesting highly qualified guests regularly talk on the show. Recommended. http://images.ibsrv.net/ibsrv/res/src:www.pprune.org/get/images/smilies/thumbs.gif

Vids:

The Obama Deception:
‪The Obama Deception HQ Full length version‬&rlm; - YouTube

Terror Storm:
‪TerrorStorm Full length version‬&rlm; - YouTube

Plenty of other vids to shake your reality (Webster Tarpley,Max keiser), don't just blindly go through life believing the TV, always ask questions and DONT give up your rights! http://images.ibsrv.net/ibsrv/res/src:www.pprune.org/get/images/smilies/thumbs.gif

Foie gras

26th Jul 2011, 11:10

Well I'll tell you.
If you are a sheep, keep your head in the trough.
Some time soon you're going to take it.
It's going to hurt and it's going to be hard.
However, with some preparation and clear thinking, you could be a shepherd.
Beware of the wolves though.
This is the only positive piece of news I can give.
You are a group of highly trained professionals, you are all quite capable of adapting to the tough challenges that lie ahead.

A few years ago this whole financial mess could have been dealt with in a more closed yet painful way. Sure the "D" word, would have been an inevitability.
(I have previously been censored for using this word.)
Anyway, it's akin to putting off the inevitable visit to the dentist, due to the fear of pain.
Unfortunately, with the passage of time, the situation has got terribly worse.
Countries instead of banks are now bankrupt!
(and your tooth has to come out!)
Reference to history suggests that situations like this, generally result in war.
Honestly I don't know what's going to happen, who does?
Just try and get your mind around it, for your own sakes.

breakfastburrito

3rd Aug 2011, 09:19

‪David Stockman: Ben Bernanke is finished!‬&rlm; - YouTube

my oleo is extended

3rd Aug 2011, 22:12

Stockman is 100% correct. Bernanke is done for.
Besides, Bernanke was just another pawn in the Federal Reserve Cartel's game of global dominance. And we know that the Federal Reserve exists only for the benefit of a handful of the the worlds richest families.
Time for Bernanke to pack his tennis shoes and head to Jekyll Island for a well earned break !

jibba_jabba

3rd Aug 2011, 22:52

But alas, its the plan to hyper-inflate the currency, although its better for them if its slower so they can reduce your purchasing power, while incrementally printing there own money to buy up the resources/gold/land etc for pennies on the pound!

We bail-out the banks who lend it back with interest! Don't fool yourselves, Australia is part of that too! Its global hegemony by the private/central banks. :ugh:

We all need to stand together, and thats where we fall apart as modern humans. Distracted by TV/phones/booze/sex (yes they are good in small doses) we compete amongst ourselves so we dont pay attention to what the big boys are doing. Its meant for us to dust our hands off and relinquish responsibility for our future. "Oh the government said that its ok", so if someone challenges that they are a conspiracy guy?.... sounds like 1984 is here!

breakfastburrito

3rd Aug 2011, 23:28

The Elephant In The Room
More Pieces of the Puzzle

by Rob Kirby | August 4, 2009

This following article was an address by Rob Kirby at the Gold Anti-Trust Action Committee Inc., GATA Goes to Washington -- "Anybody Seen Our Gold?", at the Hyatt Regency Crystal City Hotel, Arlington, Virginia, Saturday, April 19, 2008. The original address has been updated and added to since new information has come to light.

My name is Rob Kirby – proprietor of Kirbyanalytics.com, proud GATA supporter and frequent contributor to Bill Murphy’s LeMetropolecafe.com. I would like to extend a warm welcome to GATA delegates from all over the world to Washington, D.C.

I’d like to delve into the numbers, or math, showing how J.P. Morgan’s derivatives book cannot be ‘hedged’.

As per their call reports filed with the Comptroller of the Currency’s Office, we know J.P. Morgan’s derivatives book grew by a cancerous 12 Trillion from June 07 to Sept. 07. The OCC’s Quarterly Derivatives Report serves as the public’s only peek into the opaque and murky world of derivatives-flim-flammery.

Flim Flammery is the understatement of the century. In fact, dealer notionals have EXPLODED parabolic-ally in recent years while END USER demand has been static and virtually non-existent.

http://www.financialsensearchive.com/fsu/editorials/kirby/2009/images/0804_clip_image002.jpg

J.P. Morgan’s derivatives book is epitomized by the chart above; it clearly serves no observable or commercially productive purpose, it’s pyramidal in structure and its elephant-sized interest rates derivative composition exerts pressure on the global interest rate complex.

Let’s look at the composition of their book:
http://www.financialsensearchive.com/fsu/editorials/kirby/2009/images/0804_clip_image004.jpg

We’re shown that 65 %, or, 61.5 Trillion of the total is IRS [on page 22 of 32].

Hedging Mechanics of Interest Rate Swaps > 3 yrs. Duration

Interest rate swaps > 3 yrs. in duration customarily trade as a "spread" - expressed in basis points - over the current yield of a corresponding benchmark government bond. That is to say, for example, 5 year interest rate swaps [IRS] might be quoted in the market place as 80 - 85 over. This means that the 5 yr. swap is "bid" at 80 basis points over the 5 yr. government bond yield and it is "offered" at 85 basis points over the 5 year government bond yield. Let's assume that 5 year government bonds are yielding 1.90 % and the two counterparties in question consummate a trade for 25 million notional at a spread of 84 basis points over. Here are the mechanics of what happens: The payer of fixed rate pays [1.90 % + 84 basis points =] 2.74 % annually on 25 million for 5 years. The other side of the trade - the floating rate payer - pays 3 month Libor on 25 million notional, reset quarterly - typically compounding successive floating rate payments at successive 3 month Libor rates so that actual cash exchanges are settled "net" annually. To ensure that the trade remains a "true spread trade" [and not a naked spec. on rates] and to confirm that 1.90 % is a true measure of where current 5 year government bond yields really are - the payer of the fixed rate actually buys 25 million worth of physical 5 year government bonds - at a price exactly equal to 1.90 % - from the receiver of the fixed rate at the front end of the trade. So, in this regard, we can say that 25 million IRS traded on a spread basis creates a "need" for 25 million worth of 5 year government bonds - because it has a 5 year bond trade of 25 million embedded in it.

Interest rate swaps of duration < 3 years are typically hedged with strips of 3 month Eurodollar futures instead of government bonds.

In recent years the Chicago Mercantile Exchange [or CME] has developed an interest rate swap - futures based hedging product for the 5 and 10 year terms. I acknowledge the existence of these products but due to their 200k contract size and amounts traded, as reported in archived CME volume data, they do not materially impact the numbers in this presentation.

As demonstrated, Interest Rate Swaps create demand for bonds because bond trades are implicitly embedded in these transactions. Without end user demand for the product – trading for “trading sake” creates ARTIFICIAL demand for bonds. This manipulates rates lower than they otherwise would be.

I learned these basics – first hand - over 15 years as a broker in Capital Markets. My largest client at that time was Citibank Canada – who pioneered these instruments for Citibank worldwide. For the bulk of the 1980’s, Citibank Canada was the largest interest rate derivatives player in the world.

Here’s the breakdown of 12 Trillion in derivatives growth in 3 months:

http://www.financialsensearchive.com/fsu/editorials/kirby/2009/images/0804_clip_image006.jpg

65 % of 12 Trillion, or, 7.8 Trillion of it is Interest Rate Swaps

35 % of 7.8 Trillion, or, 2.73 Trillion requires bond hedges

2.73 Trillion / 66 days per quarter = 41.4 billion in bonds per day

Here’s the math showing that 35 % of interest rate swaps require bond hedges:

http://www.financialsensearchive.com/fsu/editorials/kirby/2009/images/0804_clip_image008.jpg

http://www.financialsensearchive.com/fsu/editorials/kirby/2009/images/0804_clip_image010.jpg

Assume a conservative average maturity of 18 months [6 quarters] then one sixth of 33.8 Trillion, or 5.63 Trillion worth of Swaps roll off and need to be replaced every 3 months.

35 % of 5.63 Trillion, or 2 Trillion, required bond hedges to keep the book static.

2 Trillion / 66 days = another 30.3 billion bonds required per day.

So, In Aggregate: J.P. Morgan required more than 71.7 billion worth of bonds each business day – from Jun. 30 to Sept. 30 / 07 - JUST FOR THEIR SWAP BOOK – if it is hedged.

Some, like the OCC themselves, might argue that ‘netting’ – or balancing short against long internally within J.P. Morgan’s book – reduces the amount of bonds required to hedge. Over time netting would have some effect – but “netting” generally occurs at day’s end. This math does not even work intra-day:

According to the U.S. Treasury:

“During the July – September 2007 quarter, Treasury borrowed $105 billion of net marketable debt….”

J.P. Morgan is but one of 20 primary dealers of U.S. treasury securities.

50 % of all Treasury Securities auctioned over this period were 2 yr., 20 yr, or 30 yr. – so they were not used to hedge swaps. This leaves a balance of around 50 billion bonds suitable for hedges.

Treasury also tells us foreign participation in U.S. bond auctions typically tops 20 %. So you’re now left with 40 Billion in “net new” U.S. Treasury Securities – suitable for hedges - to distribute among all domestic players for an entire quarter. The growth component of J.P. Morgan’s book alone, if it’s hedged, requires more than 1.4 billion more than this amount every day!

Bonds required to hedge the growth in Morgan’s Swap book are 1.4 billion more in one day than what is mathematically available to the entire domestic bond market for a whole quarter?

This interest rate swap book is not hedged. J.P. Morgan is the FED.

If you believe the yeomen’s work of John Williams of Shadow Gov’t Stats – this helps explain how we get bogus inflation reports from officialdom in the 2 % range when in reality it is running “double-digits”.

Historically, bond vigilantes would have spotted the ruse and sold bonds raising rates of interest to levels commensurate with real inflation rates at 10 % plus the historic premium of 250 points or 12 – 14 % nominal market rates.

If you’re wondering where the bond vigilantes have gone:

They have all lost their jobs. Long ago, the last of the true bond vigilantes sold bonds – intuitively correct I would argue – not realizing that J.P. Morgan’s Swap Book was a “black hole” of stealth artificial demand. They lost their shirts along with their jobs.

Nowadays – bond traders who have chosen to remain employed – resemble trained monkeys and play the game the way their masters intend them to:

Monetary authorities have long been pursuing expansionary monetary policies while attempting to cloak their actions by suppressing rising interest rates and other natural market reactions.

This has completely perverted our whole banking and monetary system.

This is why false values have been assigned to a host of financial instruments.

This explains why the gold price has been suppressed. It’s another canary in the coal mine that was vigorously and nefariously silenced.

If you’re wondering why J.P. Morgan never seems to get caught up in any sort of hideous mark-to-market losses concerning their derivatives or hedge book – consider that back in the spring of 2006, Business Week’s Dawn Kopecki reported,

“President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”
So do any of you think that J.P. Morgan gets a pass? I would suggest to you that if they had not – our whole financial system would already have collapsed in a heap.

You see folks; hubris has been cast upon us in an attempt to have us believe that wealth is really created on a printing press and on trading desks in N.Y. at J.P. Morgan or Goldman Sachs.

Remember, real wealth really comes from the earth – like gold – just as it always has.

Original: Financialsense:The Elephant In The Room (http://www.financialsensearchive.com/fsu/editorials/kirby/2009/0804.html)

breakfastburrito

4th Aug 2011, 22:22

Original article (http://www.financialsense.com/contributors/daniel-amerman/2011/08/04/us-faces-a-depression-level-unemployment-crisis)

U.S. Faces a Depression-Level Unemployment Crisis
BY DANIEL R AMERMAN CFA 08/04/2011

Overview

The awful truth about deficits and this week's "solution" to the debt limit crisis in the United States is that government debt isn't actually the core problem, but rather represents the costly cover-up of the bigger problem, that of a depression-level unemployment crisis.

The private sector in the United States fell into a depression in 2008 and has not emerged since then. Absent an extraordinary level of government intervention in the economy – which cannot possibly be paid for by taxes or ordinary revenues – the depression in the private economy and a level of unemployment that rivals that of the Great Depression become impossible to hide.

When we talk about the "debt limit crisis", what we're really talking about is the price of the cover-up. The debt limit crisis and the associated Federal Reserve monetary creation fiasco represent the costs of essentially blasting the economy with massive fire hoses full of both created and borrowed money on a non-stop basis, in the (unsuccessful) attempt to make the economy look and feel normal. We can stop the debt crisis at any time by turning off the fire hoses of money that have been flowing since late 2008, but then the depression in the private sector - and the full depression-level rate of unemployment - become plainly visible for everyone to see coming into a presidential election year.

So when we look at the recent so-called disastrous employment "surprises" on the very same financial pages where the debt limit "crisis" with its vague and inadequate "solution" is being covered, we're not really seeing two separate crises, but rather two aspects of the same crisis.

Pierce through the cover-up, look at what the extraordinary level of deficit spending is hiding, and the "surprises" stop. It is then and only then, once we've seen the true nature of the problem, that we can begin to take effective action as individuals to protect ourselves.

The Source Of The Deficit

The United States federal budget deficit is currently at an almost surreal level that is so large that it becomes difficult to comprehend. But let's try. The official budget deficit is currently running about $1.5 trillion dollars per year, or about 10% of the US economy. Now this is not to say that only 10% of the US economy is going through the government (that number is 41% for all levels of government as discussed below), but rather 10% of the current US economy is created by way of - and is reliant upon - the government spending money which it doesn't have. (The vague and toothless "solution" just signed into law hardly puts a dent in this situation, even in the unlikely event that future Congresses and Presidents actually make the hard choices that proved to be politically impossible in 2011.)

Where did this explosive growth in deficits come from? How did things get so out of control, and so quickly?

To understand why this is happening, we need to go back to the financial crisis of 2008. During the end of that year and the beginning of 2009, the US private economy imploded. At high speed, it plummeted from an annual level of approximately $9.4 trillion to a level of $8.1 trillion - a loss of $1.3 trillion dollars, or about 14%. In ordinary circumstances a drop this fast and sharp would throw a nation straight into a Depression with a capital "D".

Yet when one looks at GDP, the total economy only shrank by about $300 billion, or less than a quarter of the fall in the private economy. How could that be? The answer - which lies at the very heart of the current crisis - is that the economy is usually displayed as one number, which is the sum of private and federal spending. When we stick to this one number only and call it reality, it means that a decrease in one side of the economy can be seemingly made to go away by increasing the other side of the economy. As shown in the graph below, what happened was the federal government started spending an extra trillion dollars per year to cover up and smooth over the economic damage from this fundamental, fantastic blow to the private economy, the wealth-producing core of the entire economy.

http://imagesize.financialsense.com/http://www.financialsense.com/sites/default/files/users/u80/images/2011/composition-of-us-economy.jpg

The graph below shows that the total government (federal, state and local) share of the US economy went from 35% at the end of 2007, to 43% by the end of 2009. Outside of a major war, this is unprecedented growth in government spending, and it occurred almost instantaneously. For 2011 - after three years of the federal government blasting the economy with created money - some current estimates are that GDP will be $15.1 trillion (assuming a 2.7% nominal growth rate), and that total federal, state and local government spending will be about $6.2 trillion, meaning the government sector share may be little changed at roughly 41% of the overall economy. This appears to be the new, albeit unsustainable, "normal" (estimate source: usgovernmentspending.com).

http://imagesize.financialsense.com/http://www.financialsense.com/sites/default/files/users/u80/images/2011/government-versus-private-economy.jpg

In other words, the fire hoses aren't working.

To better understand just how dramatic this change was, let's look at the relationship between private and government economies in another way. In 2007 (as the result of decades of government growth), there was $9.4 trillion in the private economy, compared to $5.1 trillion in total spending by the federal , state and local governments. What that means is that for every $1.00 in government spending, there was only $1.86 in the private economy. This was already quite questionable territory in terms of a private sector supporting a public sector, at least outside of an explicitly state-directed economy.

Two years later, by the end of 2009, the private economy was $8.1 trillion, the total government economy was $6.1 trillion, and there is only $1.34 in private economy total wealth generated (GDP) that is available for every $1.00 in government spending. As noted above, estimates for 2011 are that the total GDP will be $15.1 trillion, that total federal, state and local government spending will be $6.2 trillion, and therefore the private economy will be $8.9 trillion (not adjusting for inflation since 2007). If these estimates for 2011 hold up, then there will be a mere $1.44 in private economic output for each $1 in government spending.

http://imagesize.financialsense.com/http://www.financialsense.com/sites/default/files/users/u80/images/2011/real-source-of-deficit.jpg

If you were born in the United States after the end of the Depression of the 1930s, then what is shown in the graph above represents what is arguably the single most important economic event of your lifetime.

(These are the optimistic numbers, by the way, because they're based only on official US government spending and not the far larger annual growth in unfunded government obligations. These official deficit totals do implicitly include the money created out of thin air by the Federal Reserve when used to purchase Treasury bonds, but are deceivingly incomplete as they don't include the Fed's trillions in (effective) bank bailouts nor the previous creation of an artificial mortgage market, each of which relied upon using manufactured cash for politically motivated spending that was outside of the official deficits.)

So, we've had arguably the biggest economic change in most of our lifetimes, it's still going on all around us - but there is comparatively little discussion about it. Not directly. Instead, the symptoms of the central problem (unemployment) fill the headlines, as does the cover-up (the deficits) - but not the heart of the problem itself (the grievously wounded private economy).

We see headlines about the deficit, the debt limit, and even more seriously, the projections showing how the deficit grows without end into the future, at least under any major proposal from either party that details actual cuts. But, the supposedly impossible-to-control deficit that seemingly came out of nowhere to overwhelm the nation isn't some random fluke - the graphs above show exactly where it came from. The government needed an extra trillion a year in spending to fund the cover-up, on top of the massive annual deficits that were already in existence. So using the justification of temporary fiscal emergency, the federal government nearly entirely separated federal spending from federal revenues, which quickly became an integral part of how the government operates.

And that is the real story behind how in a very short period of time the United States jumped from large deficits to almost unimaginably huge deficits.

The Reason For The Cover-Up

There is a reason for this fantastic government intervention. Recessions or depressions with growing job losses are usually the number one reason why large numbers of incumbent politicians lose all personal power. And if there had not been a massive government intervention, that was sustained by both parties, there would have been a fall in the total economy that was a minimum of six times as great as the fall we actually experienced (before multiplier effects). This would have translated to a frightening drop in employment, far larger than what has been seen so far.

To illustrate how bad the economic carnage would have been, absent intervention, let's begin by taking the $1.3 trillion fall in the private economy into account. Next we say that if the private economy is shrinking, and if the government sector is to maintain its size relative to the private sector, then government expenditures must shrink to go along with the new smaller size of the private economy. With a roughly 14% reduction in the private economy leading to a roughly $700 billion (14%) reduction in the previous $5.1 trillion annual level of government expenditures (2007), this means almost $2 trillion dollars of the US economy would have disappeared – along with the associated jobs – in a period of months after the implosion of September 2008 (before any multiplier effects).

This $2 trillion plunge in GDP ($1.3 trillion private plus $.7 trillion government) would have been more than six times the reduction in total GDP that resulted from the "fire hose" cover up approach that is currently bankrupting the nation. Of course, this scenario was not allowed to happen.

To expand on the metaphor, the United States Treasury and the Federal Reserve effectively created a series of fire hoses, stuffed them full of money, pointed them directly at the ailing US economy and the bank system, turned them on full pressure, and these monetary "fire hoses" have been running day and night ever since. The fire hoses create the fantastic level of government deficit spending, they are the source of the debt limit crisis, and they are also precisely why we do not openly see the far greater unemployment that would otherwise be expected to accompany a financial earthquake of this magnitude.

What the deficit constitutes is a denial of reality. It is a cover-up that has been going on for what will soon be three years now – without having made any significant progress in healing the badly wounded private economy that is the true crisis. As with any cover-up that doesn't fix the underlying problem, it is ultimately doomed to failure, and its failure will likely destroy the value of the dollar and most private savings and investments in the United States.

The Problem With Balancing The Budget

On a stand-alone, fundamental basis, there never was a debt limit crisis. Stepping away from politics and returning to the fundamentals, let's keep in mind that what we are talking about is the President of the United States, the United States Senate, and the United States House of Representatives. They are the government and they are the source of the law. There are constitutional issues involved, but given the magnitude of the danger, and the previous flexibility of the Supreme Court when it comes to "interpreting" the U.S. Constitution, there is little from a legal perspective that prevents the United States government from rolling the clock back four years and doing it in a single weekend.

So why didn't they, and why won't they?

The issue, of course, is what happens next. Let's hypothesize and say that the budget is balanced in a weekend, and the economy takes that $1.5 trillion hit.

Because we are now looking at the real state of the US economy– with no cover-up in place – the true employment numbers appear in a matter of weeks or months, as the public workers and government contractors whose employment can no longer be funded, all lose their jobs. As do all the people whose jobs rely on income from those government workers and contracts. And then add in the third round of this jobs-multiplier effect as the impoverishment of the first two rounds of laid-off workers further reduces sales and economic activity. With little of the unemployment benefits to smooth things over either, as the money never really existed for that in recent years.

This wouldn't take long. The implosion of 2008-2009 only took a matter of months. What would likely happen on a quite rapid basis is that the US unemployment rate would go straight to a level of 25 to 30% (and that's a bit on the optimistic side) which means that it would exceed the greatest level of unemployment seen at the very height of the United States depression of the 1930s.

These are not arbitrary numbers or guesses.

Instead they represent the current state of US unemployment when we break it out into all three boxes, as I've previously explained in my article "Hiding A Depression: How The US Government Does It" (linked below). As documented in that article and shown in the graph below, what the government has essentially done is to take a 26%+ rate of unemployment and segment into 3 boxes.

http://imagesize.financialsense.com/http://www.financialsense.com/sites/default/files/users/u80/images/2011/disappearing-employment.jpg

Hiding a Depression How The US Government Does It By Daniel Amerman (http://danielamerman.com/articles/Hiding.htm)

The first "box" is the official U3 rate of unemployment which is currently about 9.2%. The second box is based on the equally official but less often discussed U6 rate of unemployment, which adds in the discouraged, long-term unemployed as well as involuntary part-time workers, taking total unemployment to 16.2%.

The third box is the public and private workers who are effectively finding employment solely by way of the government's "fire hose" of money that is being pumped into the economy, money the government does not have and cannot be reasonably expected to repay (at least at the current value of a dollar, which is another topic altogether). If we remove the deficit, then about 10% of the economy disappears, with a corresponding reduction in job losses and at the very least (without factoring in the likely multiplier effect on job losses), the country goes to a combined unemployment rate in the 25 to 30% range.

The peak US unemployment rate of the 1930s was "only" about 25%. We are already there and worse - if the fire hoses of deficit money stop blasting.

"Then keep on blasting away and turn on some more fire hoses!" one might think, and some commentators are advocating this very approach. Unfortunately, things aren't quite that simple, and there are extraordinary dangers for this approach. For if the monetary fire hoses keep on blasting, then the dollar eventually collapses, the value of savings and most investments are wiped out, and the unemployment levels go to 25-30%+ anyway.

So the destination is the same, and the reality of depression-level unemployment hits anyway, with the difference being that the savings and the retirement accounts have been wiped out in the process of delaying its arrival. The future then is that more than a quarter of the country is unemployed, and the price of delaying the recognition of reality, is that almost everyone is broke as the value of their life savings has been destroyed by the endless, reckless monetary creation and spending without resources that is at the heart of the "fire hoses".

Seeking Societal Solutions

The United States is truly between a rock and a hard place, and the only way out is not to smooth things over, but to face - and fix - reality. The deficit is a catastrophe, but it is of secondary importance compared to the devastation that has been wreaked upon the private economy. Money is ultimately just a symbol, the scorekeeping system that we use for distributing reality, with reality itself being jobs, goods, services and resources. If a country doesn't produce the economic output that is necessary to support the national standard of living, then the real national standard of living eventually falls, regardless of how many clever boys and girls are manipulating the symbol.

In the immediate aftermath of the votes, President Obama immediately shifted the focus to jobs, which is a most welcome shift from the cover-up to the crisis itself. Unfortunately, as an administration source put it, the President doesn't have any "magic beans", in apparent reference to the need to grow a massive beanstalk of an economy.

This gets to the heart of the dilemma, because the "magic beans" are there, as they always have been, but they can't even be seen through the current political filters. The "magic beans" can be found by rewriting the laws to favor the true source of job creation and economic growth in the US. Which is simply to let a million small businesses flourish by stripping away onerous and anti-competitive government regulations. Strip away the corporate welfare that lets mega-corporations (who destroy domestic jobs) dodge taxes altogether while entrepreneurs (who create domestic jobs) pay the highest marginal all-in tax rates in the country. That needs to be turned upside down.

After decades of neglect, the anti-trust laws again need to be vigorously enforced, as we cannot afford to continue the current anti-competitive economy of oligarchies and corporate fiefdoms, locked in their deadly, economy-destroying symbiotic relationship with the political powers-that-be. Keep in mind that when a major corporation splits into four - the jobs effect is the reverse of what happens with mergers. It doesn't mean the corporate employees lose their jobs (or that the shareholders lose their investments), but rather there is a major increase in jobs, on average, instead of the layoffs on a massive scale that are the usual immediate or eventual result of corporate consolidation. (With a good number of those job increases occurring not with cashiers and cooks, but in desirable and well-paying upper and middle management positions, as well as skilled technical support positions.)

Let the free market decide where the resulting resurgent new growth occurs, instead of government micro-management on a partisan basis that is all too often effectively controlled by campaign contributions.

As this approach would involve turning the current political paradigm upside down, negating the influence of wealthy special interests even while removing the partisan and congressional district components of government-directed "stimulus" spending, it is no surprise that the "magic beans" in question remain invisible to policy-makers. Indeed, the "magic beans" are a double negative from a political perspective, as incumbent politicians lose much of the financial power coming from special interest campaign contributions, even as they lose the raw political power to reward friends and punish enemies through controlling the spending of the "stimulus". Meaning such a solution is still likely out of reach at this time, politically speaking.

Individual Implications

Because the politicians fear the personal consequences, it is unlikely that the fire hoses will be turned off. A moderate reduction in the flow seems to be the most aggressive option on the table, and if that occurs (which is far from assured) it still is simply not enough to change the outcome.

Run the fire hoses indefinitely, blasting artificial money into the economy even while politics as usual determines how the money is spent - and the value of the currency is all too likely to collapse.

Historically, a collapse in the value of a currency necessarily forces a major redistribution of wealth, and the segment of the population that is most devastated by this seems to always be the same. It’s the retirees, and the people close to retirement. When we look to Germany, when we look to Argentina, when we look to Russia – it is the pensioners who are impoverished more than any other group. Unfortunately, it appears that history could be in the process of repeating itself.

Of at least equal importance, stocks are profoundly overvalued when compared to a private economy in depression, where the semblance of earnings is likely to collapse when the output of the fire hoses can no longer be sustained.

When we look at the headlines about the destruction of retiree investment values, pension assets and so forth, we're really just seeing the beginning - because most assets are overvalued for a nation whose private economy remains in depression even while the government takes on new debt at a ludicrously unsustainable rate.

When the value of money and the value of assets are falling together, then we have simultaneous price inflation and asset deflation (in inflation-adjusted terms). It is a one-two combination that the conventional financial wisdom is simply incapable of dealing with.

The intertwined results of the crisis and its "solution" may represent the annihilation of most of the retirement dreams of the baby boom generation, even if that is not yet recognized. There is not an even cost that is being born by society as a whole, rather some segments are bearing much more of the burden than others. If your peer group (particularly Boomers and older) is headed for disproportionate financial devastation, then happenstance is unlikely to offer a personal way out. Instead, you must take quite deliberate actions to change your personal financial position so that wealth is redistributed to you, rather than away from you.

To get out of step with your generation, and have wealth redistributed to you even as your peer group is being devastated by this extraordinary destruction of wealth, you need to start with an essential and irreplaceable step: education. You need to gain the knowledge you will need to turn adversity into opportunity.

Contact Information:
Daniel R. Amerman, CFA
Website: Daniel Amerman and the Turning Inflation Into Wealth MiniCourse (http://danielamerman.com/)
E-mail: [email protected]

jibba_jabba

5th Aug 2011, 01:00

nice articles breakfastburrito. it really does some up alot of issue with our Fiat credit unlimited growth thinking. All Fiat currencies have failed in history, and likewise we may be at that exciting time in history when it does it again.

The funny thing is, I get alot of degrading looks when I talk about this stuff and the people behind it all. Conspiracy guy is the usual attitude, but its funny when the pain starts hitting they will be the ones scratching there heads asking for a broke government for money :-) suckers.

The U.S should come out with a better non-farm-payroll figures today so that may see a further drop in gold/silver, if its worse then QE 3 comes in and the ECB start "intervening with monetary stimulation" then its inflation time. You know what happens then :-)

oicur12.again

5th Aug 2011, 09:14

"You guys need to take a chill pill / Maybe Wall Street is more to your liking /
Conspiracy theorists maybe?"

I hope current events turn out to be nothing more than theory.

I hope Celente/Schiff/Rogers/Rickards/Keiser/Engdahl and the rest are wrong because if they are right, we are in a pickle.

A big pickle.

boofta

6th Aug 2011, 01:37

Have a look at the volume of trading recently on the ASX.Options CFD's
and equities.There must be a lot of mugs having to SELL SELL as their
idiotic gambling options blow up in their faces.
Most of this correction is caused by idiots having to sell as the
markets slides, its not panic into cash or bonds, its lenders making
calls on greedy idiots. Between these calls and computer auto trading
the whole mess unravels further and faster than ever.
I had buy orders thru comsec which went thru friday 2-3% lower
at settlement due to the system working too slowly. The prices were
going down faster than the trades could be executed, so cheaper
than instructed-never seen that before.

AlphaLord

6th Aug 2011, 02:02

There are a lot of Bewildered Beasts in the market who panic at the first whiff of a wind change.The startle spreads and they run in the same(wrong) direction.For those who were already in cash this situation will present some excellent buying opportunities.The cycle will then begin again until the next "correction".The startle will claim the same Beasts again.One constant is that they never ever learn from their previous mistakes

my oleo is extended

9th Aug 2011, 02:13

Interesting how this thread has been running for almost 6 weeks. Look at what has happenned since July 7 ?? This is almost prophetic. Where are the doubters and critics now ?
The slide will continue. Share and currency continue to be whittled down to what they are truly worth -Nothing. Gold and silver continue to rise. Gold will be $2000.00 an ounce before Xmas. Silver, already a big mover and growing in value, will rapidly rise becasue as gold nudges toward $2000.00 per ounce it becomses a harder resource to puchase, hence silver becomes an attractive investment. Remember, silver and gold are real. Fiat money is dead.

Foie gras

10th Aug 2011, 00:36

Watch out for the second bounce oleo.
Better off in cash at present.
US now entering deflationary depression.

my oleo is extended

10th Aug 2011, 01:06

Watch out for the second bounce oleo.
Better off in cash at present.
US now entering deflationary depression.
Agreed, the hole is getting deeper. I have a slight concern that Gold and Silver will peak, then drop down again, but I think for anybody who has bought the shiny yellow stuff for under $1500.00 per ounce you will do well. A lot of folks have jumped aboard the gold bandwagon which is pushing up the price, so at some point the laws of supply and demand will negate that the price will have to settle, but at what price is the big question ?
Obama and Co dont want to conceed yet, but glossy statements claiming that the USA is AAA rated regardless of what the market is saying is dangerous territory. I agree entirely that they are entering a deflationary depression . Standard and Poor's have been wrong before, and only represent one opinion, but you have to be a complete fool not to see that a good 30 years of living on debt and has caught up with them, and the entire globe is going to pay for this one.
Our own Mr Swan keeps preaching messages like 'this is unchartered territory' etc. What a croc. Did he actually think you could keep on borrowing, printing money and fuelling inflation without the house of cards finally crashing ?? I am also predicting that the global impact will hit retail very hard here in Australia (already is), people won't spend, imports from China will ease off and eventually China will start to slow off, meaning a gradual and even possible quick drop in resources they require from Australia within the resource sector, that would frig us up completely. Already imports into the USA from China have dropped.
The reality is that countries like Australia have currently got most of their eggs in one basket - Mining and resources. One hiccup and we are up sh*t creek. Unfortunately that hiccup is just around the corner.
The big bubble is starting to burst.........

Global debt crisis could last 20 years, warns Future Fund chairman David Murray | The Australian (http://www.theaustralian.com.au/news/global-debt-crisis-could-last-20-years-warns-future-fund-chairman-david-murray/story-e6frg6n6-1226112193261)

Jock p

10th Aug 2011, 09:22

worth the download

the zeitgeist movement
‪Zeitgeist Addendum‬&rlm; - YouTube

QE3 coming!!
‪Alan Greenspan: WE CAN ALWAYS PRINT MORE MONEY‬&rlm; - YouTube (http://www.youtube.com/watch?feature=player_embedded&v=q6vi528gseA)

Sunfish

10th Aug 2011, 22:16

If Qantas knew what was coming down the financial road, they would stop their expansion plans, euthanase Jetstar and focus on conserving every cent of cash they can. Sell the A380 and B787 slots for what they can.

That means doing as much as possible of their own work in house, in Australia. Repair, don't replace.

The share markets around the world are not undergoing some "correction", this is the beginning of financial Armageddon.

Pray we are indeed "The Lucky Country".

GEAB N°56-Special Summer 2011 is available! Global systemic crisis (http://www.leap2020.eu/GEAB-N-56-Special-Summer-2011-is-available-Global-systemic-crisis-Last-warning-before-the-Autumn-2011-shock-when-15_a6679.html)

my oleo is extended

10th Aug 2011, 22:52

Excellent link Sunfish, albeit scary, but factual.

The share markets around the world are not undergoing some "correction", this is the beginning of financial Armageddon.
Correct. There is no 'correction'. This IS not the 86 Wall Street crash nor is it the 2008 GFC. This time it is governemnts and countries collapsing.
Pray we are indeed "The Lucky Country". It is nice to see a glimmer of optimsism in your words my wise friend, but prayer will not help Australia withstand the gathering storm clouds of financial armageddon. This is a global collapse and unfortunately Australia is not segregated from the rest of the globe. Yes, we will be probably one of the last domino's to fall, but that should not be a reason for people to wrap themselves up in any comfort blanket.
The financial system has been sick for a century, and in the past 30 years has been laying in pallative care. Today it is gasping on its last breath.

As for the dear beloved QF,you will see share spikes in the coming
weeks/months, a few cents here, a few cents there, but get out your pen and paper and plot a graph as the overall price heads south. I would say by Xmas - $1.00 per share. By mid to end of 2012 -$0.50.

The Professor

11th Aug 2011, 01:10

"If Qantas knew what was coming down the financial road, they would stop their expansion plans"

I suspect they do know whats coming down the road which is why they will accelerate the transfer of "operation" of the QF "brand" to Jetstar.

jibba_jabba

11th Aug 2011, 07:03

Interesting watch. Part two contains an interview with Max Keiser

LONDON BURNING: Infowars Special Report on Social Unrest and Economic Collapse 1/4 - YouTube

part 2
http://www.youtube.com/watch?v=aPeLjqJWtkg&feature=mfu_in_order&list=UL

part 3
http://www.youtube.com/watch?v=EqSrVZ1hucY&feature=mfu_in_order&list=UL

part 4
http://www.youtube.com/watch?v=Azv0ENWK0Wo&feature=mfu_in_order&list=UL

Wow, gold price jumped again to over $1810 oz.
I wonder what people who called people like myself "conspiracy theorists" are saying to themselves now? its a big hole and Now JP Morgan are predicting $2500oz! You know its f*cked then!

Very interesting news clip:
RT Video Interview with Michael C. Ruppert : Violence spreads beyond London | COLLAPSENET (http://www.collapsenet.com/free-resources/collapsenet-public-access/news-alerts/item/2122-rt-video-interview-with-michael-c-ruppert-violence-spreads-beyond-london)

Foie gras

11th Aug 2011, 14:13

US Debt Crisis - 2012 is only for America - YouTube (http://youtu.be/Jjv-MtGpj2U)

I urge you all to prepare!

breakfastburrito

11th Aug 2011, 23:25

Debt-hit students urged to sell their kidneys
Published Date: 03 August 2011
By Jenny Fyall

STUDENTS should be able to sell their kidneys for tens of thousands of pounds to pay off university debts, according to a Scots academic.
Sue Rabbitt Roff believes making it legal to sell the body part would boost the number of organs available to save lives and help students struggling with money.

She argues that donors should be paid the average UK annual income of around £28,000.

It is currently illegal to sell organs and tissues in the UK under the Human Tissue Act (2004) and across the world apart from in Iran.

The National Union of Students (NUS) in Scotland described the idea as "ludicrous" and said students should not be expected to lose a body part to pay for their education.

The Dundee University academic makes the controversial comments in an article in the British Medical Journal (BMJ) today. Mrs Roff, senior research fellow at the university's Department of Medical Sociology, told The Scotsman: "We are allowing young people to undertake £20,000 to £30,000 of university fee payments.

"We allow them to burden themselves with these debts. Why can't we allow them to do a very kind and generous thing but also meet their own needs?"

Ethics organisations argue changing the law would exploit poor people desperate for money.

However, Mrs Roff wrote in the BMJ article: "One reservation that many people express about such a proposal is that it might exploit poor people in the same way the illegal market does now.

"But if the standard payment were equivalent to the average annual income in the UK, currently about £28,000, it would be an incentive across most income levels for those who wanted to do a kind deed and make enough money to, for instance, pay off university loans."

She pointed out that three people on the kidney transplant list die in the UK every day.

However, Robin Parker, president of NUS Scotland, said: "Although the lack of available kidneys for transplant is truly tragic given the need, it's ludicrous to suggest that selling body parts is a viable solution to alleviating student poverty.

"Young people, particularly from disadvantaged backgrounds, are already being asked to take on huge debt to afford an education. They shouldn't be expected to remove a body part as well."
The Scotsman (http://thescotsman.scotsman.com/news/Debthit-students-urged-to-sell.6811975.jp?articlepage=2)

I understand this proposal is unlikely to become law soon, however it raises so many good questions about "the system", it is worth a thought experiment:

Would it be restricted just to student debts?
If it is restricted to just student debts, why? What is special about student debt?
Who would pay the donor's debt - the recipient or the Government?
Could the poor ever get a kidney? How about a previous "debt donor"?
How would access to the body parts be allocated? By "need" or by capacity to pay.
Would the 3 deaths per day change, or would it be now that the 3 that died were poor & couldn't afford 12 average salary for their new kidney?
Is there any connection between this and the level of desperation amongst the young that led to the recent riots?

It would appear that the debt based monetary system is not content with using your future labour as collateral for debts (current situation). This takes the next logical step to allow the collateralization of your body parts.

The mere fact this can be genuinely proposed as a debt solution and actually make it to a respectable journal should demonstrate how deeply enslaved the populous actually is, and how you are viewed by the state & large private corporations - as possessions to be exploited & traded.

Edit: If you want a "taste" of the future, hire or download (multiple sources) the 1973 movie "Soylent Green", It takes a while, but it all make sense at the end.

my oleo is extended

11th Aug 2011, 23:54

Debt-hit students urged to sell their kidneys
I wouldn't mention that too loud. I am sure there are some airline executives that might look at incorporating that into pilot remuneration packages !!

Foie gras

12th Aug 2011, 01:18

How much is liver going for?

It's been force feed, and well pickled!

breakfastburrito

14th Aug 2011, 23:31

40th Anniversary of the worlds first "pure fiat" reserve currency

Today, the 15th August marks the 40th Anniversary of the creation of the worlds first pure paper backed reserve currency

‪Nixon Ends Bretton Woods International Monetary System‬&rlm; - YouTube
Nixon defaults (1:05 point) on 15th August 1971

Original article (http://www.businessweek.com/magazine/the-nixon-shock-08042011.html)

FEATURES August 04, 2011, 4:45 PM EDT
The Nixon Shock
How Nixon stopped backing the dollar with gold and changed global finance, a 40-year-old decision that still echoes in Greece, Ireland, and the U.S.

By Roger Lowenstein (http://www.businessweek.com/bios/roger-lowenstein-2176.html)

http://images.businessweek.com/cms/2011-08-04/brettonwoods33__01__370.jpg

“Inauguration Day was cloudy, grim,” wrote Arthur Burns in his diary on Jan. 20, 1969. As he watched President-elect Richard Nixon, Burns—an immigrant from Galicia, the son of a housepainter who had risen to become the foremost expert on U.S. economic cycles and chief economist to Dwight Eisenhower—saw a man with “a look of exaltation about him.” It was not a feeling Burns shared. “I would have felt better if his head were bowed and his body trembled some.”

Nixon was inheriting an overheated economy—inflation was already a concern. Burns, 64, would be joining the Administration as a uniquely trusted adviser. In 1960, when then Vice-President Nixon was seeking the White House, Burns had warned him that if the Federal Reserve tightened interest rates, it could damage Nixon’s chances. It had played out just so: The Fed tightened, the economy suffered a recession, and Nixon lost to John F. Kennedy. Nixon never forgot the power of the Fed, and he remembered Burns as an economist with political savvy.

So it was that a year into his term, with the economy faltering, Nixon tapped Burns to replace William McChesney Martin Jr., the Fed chief who had dashed his hopes in 1960. According to Burns biographer Wyatt Wells, Nixon issued his appointee some blunt instructions: “You see to it,” Nixon said. “No recession.”

Burns had more to address than a faltering economy and a famously meddlesome patron. By December 1969, inflation had topped 6 percent—its highest level since the Korean War. Inflation had disturbing international implications because, in the system known as Bretton Woods that had prevailed since the end of World War II, the U.S. was committed to backing every dollar overseas with gold. Thus, foreign countries had the right to exchange their greenbacks at the rate of $35 per ounce. The other currencies were fixed to the dollar, and the dollar—the sun in the monetary sky—was pegged to gold.

For the first years after World War II, Bretton Woods (named for the New Hampshire resort where delegates from 44 Allied nations met in 1944) worked perfectly. Japan and Europe were still rebuilding, and foreigners were eager for dollars they could spend on American cars, steel, and machinery. Even as they accumulated currency reserves, America’s trading partners were content to park them in interest-bearing dollars rather than in inert metal. And since the U.S. owned over half the world’s official gold reserves—574 million ounces at the end of World War II—the system seemed secure.

But from 1950 to 1969, as Germany and Japan recovered, the U.S. share of the world’s economic output fell decisively, from 35 percent to 27 percent. Other nations had less need for dollars and more for deutsche marks, yen, and francs. Also, U.S. spending on Vietnam and domestic programs flooded the world with dollars. Bit by bit, America’s allies began to ask for gold.

The official charged with monitoring gold and other international exchanges was the Undersecretary for Monetary Affairs, a gruff, 6-foot, 7-inch banker named Paul Volcker. He had been worried about the gold market for quite some time. Although the U.S. fixed the official gold price, a market existed in London, in which, in effect, companies sold metal to jewelers and dentists, with central banks sopping up the surplus. Generally, the banks kept the price near to $35. One day in 1960, when Volcker was working at Chase Manhattan, someone burst into his office with news: Gold was at $40. Volcker couldn’t believe it. The price receded, but it was a worrisome foretaste. Jitters in the gold market were an early symptom of domestic inflation.

By the time Nixon took office, officials knew they were sitting on a powder keg. As Volcker, then 41, recalls, he warned incoming Treasury Secretary David M. Kennedy that they had two years to save the dollar. America’s balance of payments deficit in 1969 had reached $7 billion—small by today’s standards but scary then. This meant more dollars accumulating in London, Bonn, and Tokyo. Volcker pressed the Europeans to revalue their currencies; if Americans had to pay more for French wine, fewer dollars would pile up overseas. Germany modestly revalued; others refused. The Europeans, as well as Japan, were caught in a trap: They were reluctant to hold dollars, but unwilling to give up their dependence on exporting goods to America.

Nixon had minimal patience for the details of international finance. When an aide informed him of monetary problems in Rome, Nixon snapped, “I don’t give a s— about the lira.” What he did care about was the domestic economy, especially the politically sensitive unemployment number. And despite his instructions to Burns, in 1970 the U.S. suffered a recession, triggering a rise in unemployment to 6 percent, its highest mark in a decade.

Nixon was furious with Burns. He began taking economic cues from George Shultz, the Labor Secretary and then Budget Director. Shultz argued that Burns had erred by limiting the expansion of the money supply, which over the course of 1970 was less than 4 percent. Shultz, a former business school dean at Chicago, was echoing the theories of his close friend, Milton Friedman, the architect of the Chicago School. To Friedman, money supply was the single key tool at the Fed’s disposal. Friedman viewed money in terms of supply and demand: If the Fed printed more dollars, then money would be worth less and goods would cost more, i.e. inflation. But he also saw overly tight money as having worsened the Great Depression.

Burns, only eight years older than Friedman, had taught Friedman at Rutgers and been a mentor to him since. The two maintained a close friendship, and their families summered at nearby homes in Vermont. However, Burns didn’t share the rigid Friedman-Shultz belief that the money supply was everything. Burns distrusted single-answer diagnoses and blamed inflation partially on other factors, such as the growing power of labor unions. When even the 1970 recession failed to curb inflation, Burns was stumped. “What the boys around the White House fail to see,” Burns scribbled in his diary, “is that the country now faces an entirely new problem—sizable inflation in the midst of recession.” As Burns would tell a congressional committee, “The rules of economics are not working the way they used to.” Prices were going up even when factories stood idle—a seeming refutation of the economic rules.

Despite the galloping inflation, Nixon pressured Burns to loosen monetary policy. White House aides, violating the central bank’s supposed independence, inundated the Fed with memos on the need to lower rates. “The pressure that Nixon exerted was unbelievable,” says Joseph Burns, the late Fed chief’s son. Volcker agrees that it got “very rough.”

As the economy shifted into a tepid expansion in ’71, Burns allowed the money supply to expand at an annual rate of 8 percent in the first quarter, 10 percent in the next. This was wildly expansionary. Allan Meltzer, a Fed historian, says Burns’s policy was partly attributable to honest miscalculations. (Determining the rate of money supply growth is fiendishly difficult.) But Meltzer says Burns was also influenced by Nixon’s bullying. The President alternately flattered Burns and excluded him, and Burns careened between feisty shows of independence and toadying displays of loyalty. In his diary, Burns assures the President that “his friendship was one of the three that has counted most in my life”; a few months later he is recoiling at Nixon’s “cruelty” and, still later, at his anti-Semitic outbursts. He feared the consequence of higher unemployment, yet was committed to the success of the Nixon Administration. This conflict led Burns to a dramatic about-face. In 1970, the Democratic-led Congress had authorized the President to impose wage and price controls. Nixon, who had played a small role in administering war-time price controls while working for the Office of Price Administration, thought they wouldn’t work. The issue became a political football. Then, at the end of 1970, Burns gave a speech advocating a wage and price review board that would issue guidelines and try to restrain inflation through suasion and public statements. Milton Friedman regarded it as an endorsement of centralized planning—and a personal betrayal. He stayed up all night writing his mentor what, he said later, was an overly harsh letter; Burns and Friedman were never friends again.

In the first half of 1971, unions representing copper, steel, and telephone workers negotiated wage increases of more than 30 percent over three years, in addition to cost-of-living adjustments. To modern readers, it may seem odd that the chairman of the Federal Reserve was reluctant to raise interest rates in the teeth of double-digit inflation, but the modern view that only the Fed can control inflation was not widely accepted. Balanced budgets were thought to be of equal importance. And, as Meltzer notes, few Americans thought inflation was worth sacrificing jobs for. That summer, Time magazine opined that, “once an inflation starts, no government could accept the severe recession and unemployment needed to stop it cold.” This was the conventional view—that the Fed was powerless.

Friedman argued that it was better to snuff out inflation because, in the long run, inflation (which merely amounted to printing money) wouldn’t truly create jobs. Friedman’s position was later to become gospel. At the time, though, many economists believed that by adding to the money supply, the central bank could spur growth. Burns, therefore, urged the White House to curb inflation by non-monetary means. He encouraged the President to “jawbone” industries to show restraint and to form a council of wise men who would publish guidelines. Nixon feared guidelines were a step toward controls; his solution was to bring inflation down without a recession, by working toward a balanced budget. Herbert Stein, his economic adviser, told him flatly it wouldn’t work. Burns chafed: “I am convinced that the President will do anything to be reelected.”

Rampant domestic inflation was mirrored, franc for franc, in markets overseas. Foreign governments intervened to buy dollars to shore up America’s currency (and their export trade). This left their central banks swollen with greenbacks. “Foreigners buying dollars caused a monetary expansion, similar to today,” says Ronald McKinnon, an economist at Stanford University. Meanwhile, America’s gold stock had dwindled to $10 billion, half its 1960 level. The gold standard now existed only in name, for foreign banks held far more dollars than the U.S. held gold. This left the U.S. vulnerable to a run.

With shrewd timing, in early 1971, Nixon appointed a new Treasury Secretary, John Connally, a hulking former Texas governor, who saw these various financial trials—inflation, the pressure on the dollar, the mounting trade deficit—as affronts to the national honor. It was the peak of the Vietnam protest movement, and Connally felt the U.S. had absorbed enough humiliations. He had no abiding economic philosophy; as he proclaimed to Nixon, “I can play it square, I can play it round, just tell me how you want me to play it.” What he brought to the Nixon team was enormous ego, force of personality, and a political intuition that economic reforms, which appeared imminent, had to be presented in a program acceptable to ordinary Americans. That Connally lacked financial expertise bothered him not a whit. “I can add,” he said upon taking the job. His role, as he saw it, was to pull together the competing recommendations of Shultz, Burns, and Volcker into a policy suggesting coherence.

Burns continued to back a wage council; he also thought the U.S. should devalue against gold (that is, raise the gold price above $35). Volcker believed this would be ineffectual, as other countries would simply devalue their currencies by the same percentage. To Volcker, the key to restoring balance was a 10 percent-to-15 percent devaluation of the dollar against the yen and the European currencies. Even if America’s allies refused to budge, Volcker thought the U.S. could force the issue by temporarily halting gold-dollar convertibility.

The pressure intensified that spring. In April and into May, as speculators sold dollars and hoarded deutsche marks, Germany was forced to purchase $5 billion to stabilize the exchange rate. This was a huge sum in an era in which hedge fund goliaths did not exist. On May 5, Germany caved to the upward pressure on its currency and let the deutsche mark float. This brought the West a step closer to Friedman’s dream of freely trading currencies, but it did not alleviate the crisis.

The gold exodus continued and, to make matters worse, the U.S. began running a substantial trade deficit, a politically charged issue given that unemployment remained at 6 percent. Nixon had to act, but his advisers were split. Volcker, as well as Shultz, wanted to close the gold window. Burns was vehemently opposed. Severing the gold link would turn money into … paper. If the government no longer had to preserve the dollar’s value in metal, how could the Administration claim, with any credibility, to be countering inflation?

This question prompted officials to give controls a second look. No one in the Administration, from Nixon down, believed in controls in an economic sense. They were Sovietized economics, an attempt to force markets where they didn’t want to go. But the economics didn’t matter to Connally; what counted was a forceful display of power. Over the summer, Connally, with Nixon present, briefed Shultz—essentially so the latter could air his objections and then get behind the program. Secrecy was imperative. “Don’t tell your wife,” Nixon warned Shultz.

The intent was to move after Labor Day, but on Aug. 12, a Thursday, Britain stunned the U.S. by demanding that it guarantee the value of $750 million. On Friday, Nixon summoned 15 advisers to Camp David; he insisted no outsiders be told. Volcker wisely took exception and briefed a colleague in the State Dept. and also the Japanese. Stein, the economic adviser, told William Safire, the speechwriter, that they were embarking on the most momentous economic decision since March 1933. “[Are] We closing the banks?” Safire asked. Stein said no, but the gold window might be disappearing. “What a tragedy for mankind,” wrote Burns in his diary.

The plan, presented by Connally, had three key points. First, America would stop converting dollars to gold. Second, to combat the potential inflationary effects, wages and prices would be frozen for 90 days. And third, the U.S. would impose an import surcharge of 10 percent. Connally’s idea was to use the surcharge as a cudgel, to pressure other countries to renegotiate their exchange rates.

The Camp David weekend was intended for Connally to get everyone’s support before the program was announced. People slept two to a cabin (the bed was too short for Volcker) and convened in the dining room. Nixon remained cloistered in his cabin, the Aspen Lodge, but called anxiously for updates. Burns spent an evening pacing the grounds with Volcker, wringing his hands over the gold standard. Burns alone was invited to the President’s cabin for a private audience. Although Nixon regarded the pipe-smoking Fed chairman as pompous and long-winded, he knew Burns was trusted by the public, and he needed his support. Otherwise, it was Connally’s show.

Connally brilliantly packaged the program not as America abandoning its commitment to the gold standard but as America taking charge. He turned the dollar’s collapse, which could have appeared shameful, into a moment of hubris. The emphasis would be on righting America’s trade balance, as well as minor points such as a 5 percent cut in foreign aid. An aide to William P. Rogers, the Secretary of State, called and interjected, “You can’t cut foreign aid.” Connally said, “Tell him if he doesn’t shut up we’ll make the cuts 15 percent.” Shultz muzzled his disquiet over price controls; even Burns joined ranks. The group feverishly debated whether Nixon should address the country on Sunday night, which would mean preempting the popular Gunsmoke. The public relations aspect was paramount. Stein wrote later that the discussion at Camp David assumed “the attitude of scriptwriters preparing a TV special.” No one pretended to know how controls would work; the question was scarcely debated.

Addressing the nation on Sunday, Nixon blamed currency speculators and “unfair” exchange rates rather than U.S. monetary policy. Politically, he hit the jackpot. Monday’s nearly 33-point rise in the Dow was the biggest ever to that point. Nixon’s “New Economic Policy” drew raves from the press. “We unhesitatingly applaud the boldness with which the President has moved,” read the New York Times editorial. In the present era, America’s inability to repair its fiscal problems has tarnished its credibility and hampered its currency negotiations with China. The Nixon Shock showed the U.S. taking action. That December, Shultz and Volcker successfully negotiated a broad revaluation of exchange rates.

Volcker envisioned that once exchange rates were modified, Bretton Woods would be restored, perhaps with a more flexible mechanism for adjusting rates. He tirelessly negotiated with Europe and Japan, but Bretton Woods could not be put back together. The gold window stayed shut. More devaluations followed, and by 1973, currencies were freely floating.

Friedman’s prediction that, left to the market, currencies would regulate themselves with only gradual adjustments proved wildly incorrect. The dollar plunged by a third during the ’70s, and currency volatility has threatened several national economies since; in 1997, Asian and Latin American countries were wrecked by currency runs. To this day, Volcker regrets that Bretton Woods was abandoned. “Nobody’s in charge,” he says. “The Europeans couldn’t live with the uncertainty and made their own currency and now that’s in trouble.” The effect on America’s domestic economy was even worse. As Shultz says, “Price controls gave the illusion of doing something about inflation.” They further liberated Nixon from concern for the normal rules. Late in 1971, he wrote to the Fed chief, “You have given me absolute assurance that money supply growth will be adequate to maintain growth.” Burns scrawled in the margin, “Never gave him absolute assurance. What nonsense!” But Burns, intentionally or not, delivered on Nixon’s demand for an expansionary monetary policy.

Controls had the desired short-term effect; inflation was quiescent through the end of 1972, when Nixon easily won reelection. The controls, however, proved difficult to end. The 90-day freeze begat a more complicated wage and price regime, a Phase II, followed by a Phase III, lasting into ’74. And Burns’s easy money fostered a monetary steam cooker that controls could not suppress. By August ’74, when Nixon resigned, inflation had topped 11 percent. Soon it would go even higher. Expectations of rising prices became embedded in the system.

The Nixon Shock was a central cause of the Great Inflation. It also spelled the end of the fixed relationships that had governed the financial universe. Previously, people took out mortgages for set periods and at fixed rates. They had virtually no options for saving money other than in banks, and the interest rates that banks could pay were capped. Floating currencies unleashed a new world of risk and instability. For the first time, investors could bet on the direction of interest rates or the Swiss franc. New financial instruments, new speculative tools, proliferated. The world gravitated from the certainties of Bretton Woods to the dizzying market cycles we’ve lived with since. Donald Kohn, who joined the Fed in 1970 and retired last year as vice-chairman, thinks Bretton Woods was doomed. But bankers have yet to find as rigorous a standard as gold. And they have become ever more apt to please politicians, deferring recessions at the risk of inflating asset bubbles.

Burns was replaced by Jimmy Carter in 1978. The following year, with inflation rocketing toward 15 percent, Burns delivered a keynote speech, “The Anguish of Central Banking,” in which he argued that central bankers around the world were failing because elected leaders were unwilling to risk displeasing constituents. The new Fed chief, Volcker, did tame inflation; unlike Burns, he had the fortitude to subject the country to a brutal recession. But the dilemma faced by Burns—how to withstand the demands of the public for limitless monetary expansion—did not go away. We see it now in the troubles of nations from Greece to Ireland to the U.S. And the anguish that Burns felt is Ben Bernanke’s unfortunate inheritance.

oicur12.again

15th Aug 2011, 00:12

It makes a mockery of the popular press approach that our current woes can be blamed on recent leadership in Washington. These problems go back to WWII and as the article shows, the first US default of 1971 was where all indicators starting running off the chart. Debt has driven growth for westerners since 1971 and we are heading for austerity measures that we have not seen since pre WWII.

What the article fails to mention is that we effectively have an oil standard in place of the gold standard and as a consequence conflict will be expanded in oil producing regions in order to prevent a shift from the petro dollar system.

Lebanon,Iraq,Afghanista,Libya,Syria,Iran.

Access to oil is important. Western funding and expertise to restore production of neglected oil fields is important. Ensuring Total/Fina/Elf keep their grubby euro based hands off oil is important.

But the most important thing is controlling the currency in which oil is traded, the oil markers used and the bourse through which it flows.

breakfastburrito

15th Aug 2011, 01:58

Good points about the "oil Standard" ocuir. I forgot to include the usual disclaimer that the Bloomberg version is the official Government sanitised™ and approved version of history.

Here's an interesting interivew:
Roubini Says Recession Risk Greater Than 50%
Nouriel Roubini Says Invest in Cash - YouTube

Complete 22 min interview is here: WSJ (http://blogs.wsj.com/economics/2011/08/12/video-roubini-says-recession-risk-greater-than-50/)

onetrack

15th Aug 2011, 14:12

breakfastburrito - Excellent article, that "Nixon Shock" article. Thanks for bringing it to our attention. I was one of those who benefited greatly from Nixons "shock" in the 1970's and 1980's as a gold miner and gold mine owner.
The gold price went from an artifically-depressed $35 an oz., to $120 oz. within a couple of years. By 1980 it was over $600 an oz., and all the gold miners were laughing.

However, the simple facts that the above article did not elaborate on are...

1. Printed money is a store of value that was originally designed to replace and simplify barter. Whilst the printed money can be exchanged for a set value of a precious metal, it remains stable.

2. Once a printed currency is unlinked from a set value, to "float", it does two things. (a) It gives politicians and bureaucrats a lot more political power. (b) The printed note proceeds to lose value daily and inflation commences.
The inflation can be hidden, it can be manipulated by cunning politicians ("Tricky Dicky")... but it relentlessly continues its inflationary march across economies, affecting various sectors according to the economic pressures and conditions set by the politicians and bankers.

Eventually, there is no containing the inflationary pressure, and the more notes get printed, in desperate efforts to rein in an out-of-control economy... the more the currency devalues, and the more inflationary pressures increase to a bursting point.

The inflationary pressure that the US$ is currently under is enormous. The finest indicator of this is the current gold price. It's not that gold is worth a lot more than last week, or last month, or last year... it's that the US$ is worth so much less, on a daily basis, due to the inflation created by lack of a finite store of value for the US$.
Coupled with printing presses that are rolling day and night, producing that cute bankers and economists product... "quantative easing"... this means that the US$ has, as its true value, little more value than the paper it's printed on.

The U.S. Govt has a debt hangover worse than any drunk who has imbibed solidly for 3 days... the economists, bankers and financiers are at a loss as to where to turn next, to revitalise an economy that has received club-like blows to the head for years... and the U.S. is staring into an abyss that closely resembles Germany in 1923.

There is little left by way of options. As the financiers, traders and dealers still juggle "financial trades" by buying in one currency to sell in another, "to make more money"... so the great con-trick of the 20th century is about to collapse their financial "system" about their ears... because they are literally playing with "monopoly money".

DutchRoll

15th Aug 2011, 14:41

It's not a matter of calling people on this thread "conspiracy theorists" per se.

It's a matter of people on this thread apparently thinking the world is about to disastrously end and talking of buying up gold bullion (good luck with that), getting their guns oiled & loaded, and taking to the bush with their billy can and swag.........or paranoid wording to that theatrical effect. I actually have visions of you blokes holed up in a cave somewhere hundreds of miles from civilisation with an empty coke-can tripwire warning system at the entrance, huddled over your fire keeping your 12 inch long beards out of the cinders, cooking up the lizard you caught the previous evening, jealously guarding your gold bullion and your personal organs from the Kidney Collectors doing suburban doorknocks, in a scene reminiscent of something out of Mad Max 2.

Good on you. Off you go. You won't mind if I stay put?

onetrack

15th Aug 2011, 15:04

DutchRoll - Unfortunately, your vision is a little opaque, as I personally have no need to revert to the "backstop" position, with hoarded guns, ammunition, gold and food, as many extreme right wingers propose.

However, I like many others, have serious concerns about the immediate future of the economic and monetary systems of the world, and the economic system of America in particular.

There has never been a time in the worlds history where a raft of World Govts and countries, have immersed themselves in such a mire of debt and economic pea-and-thimble trickery... that promises to see numerous countries renege on their debt (default)... and thus bring about world-wide economic chaos, and substantial depletion of intrinsic values, that we rely on daily.

Such things as the value of your home... the buying power of your wages... your ability to repay your debts... and your ability to absorb huge losses as massive economic readjustments take place... are all things that make right-thinking people stop and take stock of what would happen to their financial position, and general ability to survive, in what will almost certainly become a time of great economic re-adjustment... as Govts fail to honour their debts, and support the (supposedly) intrinsic value of their monetary systems.

The rush to buy gold, by both Govts and individuals, is merely a warning signal along the narrow railroad track of the worlds economies, that should be a sharp warning to the runaway train of fiat currencies, that it's heading for a train wreck of epic proportions.

breakfastburrito

15th Aug 2011, 20:09

onetrack, thank you for taking the time to share your experiences, I value the history of those who were there during the 70's boom, literally at the coal face very highly. Please feel free to elaborate & contribute to this thread, you have a deep understanding of the monetary history & we could all learn something from you. As you have pointed out, the various historical accounts may miss the nuances & subtleties of actual events. Thank you.

For the record, I don't own a gun, and have not fired a round since 1985.

jibba_jabba

16th Aug 2011, 08:07

Very elegantly put onetrack.

If people doubt that this defaults/renig of debts wont happen, consider this:
» Soros: Dollar ‘no longer’ reserve currency Alex Jones' Infowars: There's a war on for your mind! (http://www.infowars.com/soros-dollar-no-longer-reserve-currency/)

At 1:20 in the vid he mentions commodities as a basket of backing to a reserve currency. If gold for example is a part backer to another currency then expect $2500 - $5000 oz prices. silver will most likely jump to $150 - 250oz when that happens. Soros by the way is only looking out for Soros. Is he hinting that their will be another reserve currency group? interesting thought, however it will take a massive amount of liquidity to make that happen as US treasuries are the most liquid in the world.

If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.
- Thomas Jefferson

big white bird

16th Aug 2011, 11:52

happy days, eh.

dutch roll, you are in denial mate. and it's tough for you, admit it.

you know nothing about all this.

you fear the effort and time it would take to get up to speed and figure out what to do, if anything, to prepare yourself.

ok, so you're a bit late to the edu-me-cation here.

further delays may cost you.

or not.

good luck with the 'or not' part.

well done to the contributors.

heavy going, but i've been doing this for nigh-on 20 years now.

16, in fact.

jibba_jabba

19th Aug 2011, 00:38

Venezuela Plans Funds Transfer - WSJ.com (http://online.wsj.com/article/SB10001424053111903392904576512961180570694.html)

interesting :-) gold at $1827oz today..... another record...again.

my oleo is extended

19th Aug 2011, 00:55

interesting :-) gold at $1827oz today..... another record...again. Nice price !!
As for Venezuela, maybe it is a very prudent move ? Think about it, the worlds most powerful nation is broke. They are so desperate that under false pretencies they raided Libya and confiscated billions of dollars of so-called 'dirty money'. Maybe the bully boy antics of Uncle Sam will include raiding the gold supplies of weaker nations also ? Why not, desperate times equal desperate measures perhaps ? It is probably less risky stashing your gold supplies in China and Russia than leaving it in Venezuela where the USA could come in under some sort of 'military need' and pinch the lot..
This worldwide problem is hotting up. Obama's 'financial armageddon' edges closer.

jibba_jabba

19th Aug 2011, 01:33

Just remember Obama is a Wall street puppet for many bigger players above him!

oicur12.again

19th Aug 2011, 06:08

Chavez has been threatening the greenback status quo for years with off budget oil bartering and forex fiddling putting him squarely in the sights of Washington’s power elite.

Washington has been arming the crap out of Colombia for years all in the name of the “war on drugs”.

Does anybody see a connection here?

Coincidently as I write this, my ipod hit a song on shuffle by Bruce Cockburn written in 1985 called “They call it democracy”.

I will attach the lyrics below, very poetic and well timed I thought, sorry to those non musos,

Padded with power here they come
International loan sharks backed by the guns
Of market hungry military profiteers
Whose word is a swamp and whose brow is smeared
With the blood of the poor

Who rob life of its quality
Who render rage a necessity
By turning countries into labour camps
Modern slavers in drag as champions of freedom

Sinister cynical instrument
Who makes the gun into a sacrament --
The only response to the deification
Of tyranny by so-called "developed" nations'
Idolatry of ideology

North South East West
Kill the best and buy the rest
It's just spend a buck to make a buck
You don't really give a flying ****
About the people in misery

IMF dirty MF
Takes away everything it can get
Always making certain that there's one thing left
Keep them on the hook with insupportable debt

See the paid-off local bottom feeders
Passing themselves off as leaders
Kiss the ladies shake hands with the fellows
Open for business like a cheap bordello

And they call it democracy
And they call it democracy
And they call it democracy
And they call it democracy

See the loaded eyes of the children too
Trying to make the best of it the way kids do
One day you're going to rise from your habitual feast
To find yourself staring down the throat of the beast
They call the revolution

IMF dirty MF
Takes away everything it can get
Always making certain that there's one thing left
Keep them on the hook with insupportable debt

jibba_jabba

19th Aug 2011, 07:34

oicur12.again thanks for the addition to my music collection :ok:

Gold smashing higher breaking $1850oz! hahahahaha and to quote g.bush "let us not tolerate outrageous conspiracy theories"....... greed at the masses expense :-) No wonder they call us sheople! :ugh:

breakfastburrito

22nd Aug 2011, 08:51

Alasdair Macleod's (financeandeconomics.org) GATA speech 6-08-2011 (http://financeandeconomics.org/Articles%20archive/2011.08.06%20GATA%20Speech.pdf)[.pdf] does a brilliant job of drawing all the strands of the last 100 years together to provide an explanation of why the system is imploding.

Gnadenburg

22nd Aug 2011, 09:59

Washington has been arming the crap out of Colombia for years all in the name of the “war on drugs”.

Off the top of my head, and everyone can check wikpedia, but the Colombian military's structure is built around mostly counter-insurgency assets such as Vietnam era light strike aircraft and helicopters. All very logical in a drug war scenario.

If the US was arming Colombia to the teeth to threaten or balance Venezuala's massive procurement of modern Russian fighters and the like, you would have seen gifted F16's or F18's by now.

But we have not. So I don't see your connection.

evyjet

22nd Aug 2011, 12:11

RSA Animate - Crises of Capitalism - YouTube

I thought this was a brilliant explanation of our recent history.

There's plenty of more info if you google David Harvey.

Dixons Millions

22nd Aug 2011, 15:47

"We'll all be rooned," said Hanrahan.....

breakfastburrito

25th Aug 2011, 22:34

Friday, 29 July 2011

JOURNAL: Central Planning and The Fall of the US Empire

Here's some thinking that draws on decision making theory. It's very much in line with how the late John Boyd (America's best strategist) would approach it.

-----------------------------------------------

One of the most interesting underlying reasons for the decline of the Soviet Union, and soon the US, is misallocation of resources due to a reliance on central planning.

Misallocation in this context means that year after year, decade after decade, the wealth of a nation is spent on the wrong things. The wrong projects are funded. The wrong infrastructure is built (or not built -- the US is 38th in the world in Internet connectivity and falling). The wrong things were bought and so on. Eventually, the accumulation of bad investment made the USSR so fragile that even the smallest shock could topple them.

The reason for this failure was that the Soviets relied on central planning. A system of economic governance where small group of people -- in the Soviet Unions case bureaucrats -- had all the decision making power. They decided what was spent and where. Even with copious amount of information, they decided badly.

Why did they decide badly? The massive economy of a modern superstate is too complex for a small group of people to manage. Too much data. Too many uncertainties. Too many moving parts.

The only way to manage an economy as complex as this is to allow massively parallel decision making. A huge number of economically empowered people making small decisions, that in aggregate, are able to process more data, get better data (by being closer to the problem), and apply more brainpower to weighing alternatives than any centralized decision making group.

Of course, the misallocation due to centralized decision making wasn't supposed to be a vulnerability of the West. To allocate resources in our economy, we had a conceptually more efficient mechanism: markets. Markets are supposed to be a mechanism that allows massively parallel decision making.

Those assumptions are proving false. The succession of market bubbles, the global financial collpse of 2008, and the recent US debt problem is prima facie evidence that gross misallocation has occurred for decades. The wealth of the West, particularly the US, is being spent on the wrong things year after year, decade after decade. We are now as fragile as the Soviet Union in the late 80's.

What happened?

Central planning took over the decision making process in the US, both through the growth of government and through an unparalleled concentration of wealth.

The parallels between the rapid growth of US government bureaucracy and the Soviet bureaucracy is straight forward. As more and more of US economy was controlled by a narrow group of decision makers allocating government resources, the more sluggish the entire economy became (most of this was due to massive growth and mis-allocation in entitlements and defense). Further, the ability of government bureaucracies to extend their decision making to remaining majority of the economy through regulatory action, is also a form of centralization. However, even with all of this government growth, it's is still not enough to account for the level of misallocation we are seeing.

There's is something else at work.

The answer is that an extreme concentration of wealth at the center of our market economy has led to a form of central planning. The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy. As a result, we now have the equivalent of centralized planning in global marketplaces. A few thousand extremely wealthy people making decisions on the allocation of our collective wealth. The result was inevitable: gross misallocation across all facets of the private economy.

To see what this extreme wealth concentration looks like as a distribution, we don't have to look further than income distribution in the US (classic power law). The liquid wealth of those on the extreme left of the curve completely outweighs the 99.5% of the population to the right (the distribution is FAR more skewed than most people even imagine -- Republican or Democrat). This graph would also be a good way to demonstrate how decision making in a bureaucratic dictatorship in a country like the Soviet Union looked like before it collapsed.

http://globalguerrillas.typepad.com/.a/6a00d83451576d69e20154341856fb970c-800wi

The result of central planning in the US has finally hit the wall. The list of problems is endless. The misallocations range from the dangerous $600 trillion derivatives market to the destruction of the US middle class (by exporting jobs and the substitution of income with debt).

The end result is that our economic and political system has become very fragile. All it will take is is one extremely bad decision and the cascade of failure that follows will catch everyone off guard.

JOURNAL: Central Planning and The Fall of the US Empire (http://globalguerrillas.typepad.com/globalguerrillas/2011/07/journal-central-planning-and-the-fall-of-the-us-empire.html)

breakfastburrito

26th Aug 2011, 02:43

Max discusses the secret $1,200,000,000,000 ($1.2 Trillion) bailout of the Wall Street banks in 2008. (data revealed after Bloomberg FOI request)

http://www.youtube.com/watch?v=Fsubt_gdeBA&feature=player_detailpage

flying lid

27th Aug 2011, 20:54

This is interesting, though a little hard work to understand (for me)

[1107.5728] The network of global corporate control (http://arxiv.org/abs/1107.5728)

The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic "super-entity" that raises new important issues both for researchers and policy makers.

Download the PDF on right hand side, or click this direct link

http://arxiv.org/PS_cache/arxiv/pdf/1107/1107.5728v1.pdf

Introduction

A common intuition among scholars and in the media sees the global economy as being dominated by a handful of powerful transnational corporations (TNCs). However, this has not been confirmed or rejected with explicit numbers. A quantitative investigation is not a trivial task
because firms may exert control over other firms via a web of direct and indirect ownership relations which extends over many countries. (etc etc)

A bit (well a lot) technical, but interesting & scary.

Lid

beachbunny

27th Aug 2011, 23:28

The rules (which have been broken) are really quite simple.

Unless prosperity is geared to productivity, the system will fail

oicur12.again

29th Aug 2011, 19:32

Gnads,

COIN, yes. But that’s how Washington has often fought its proxy wars in the America’s.

But take a look at what Colombia has in the pipeline.

Destroyers/Submarines/Artillery/more Kfirs/KC767/heavy transports.

Sounds like one hell of a war on drugs.

“Plan Colombia” is not yet complete.

breakfastburrito

31st Aug 2011, 04:09

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." Attributed to Thomas Jefferson, Letter 1802 to Secretary of the Treasury, Albert Gallatin

"Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again.

However, take away from them the power to create money and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money." (Said to be from an informal talk at the University of Texas in the 1920s, but as yet unverified.)
Sir Josiah Stamp Director, Bank of England 1928-1941 (reputed to be the 2nd richest man in Britain at the time)

Congress Giving Millions of Foreclosed Homes To Wall Street Slumlords
By KEN LAYNE
12:46 PM AUGUST 24, 2011

Great news, everybody: After deliberately failing to help millions of American families stuck in vulture mortgages, the U.S. government is now giving those foreclosed homes to Wall Street for pennies on the dollar so that Wall Street can then rent the now-vacant foreclosures back to the same people pushed out during the Wall Street-caused housing bubble collapse. Wall Street stands to make an immense profit by becoming, overnight, the “largest improved real-estate owners in the world.” Who says capitalism doesn’t work, with a little help from the government by taking away the property of the working class and giving it to billionaires who pay no taxes (http://cryptogon.com/?p=24439)? Who says that?

The Street/RealMoney.com reports on this innovative solution to the problem of millions of foreclosed homes currently not providing income for Goldman Sachs: (http://www.thestreet.com/story/11224917/1/a-huge-housing-bargain--but-not-for-you.html)

The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors — vulture funds.

These homes, which are now the property of the U.S. government, the U.S. taxpayer, and U.S. citizens collectively, are going to be sold to private investor conglomerates at extraordinarily large discounts to real value. You and I will not be allowed to participate. These investors will come from the private-equity and hedge-fund community, Goldman Sachs and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction.

In the process, these investors will instantaneously become the largest improved real estate owners and landlords in the world. The U.S. taxpayer will get pennies on the dollar for these homes and then be allowed to rent them back at market rates.

source (http://wonkette.com/451867/congress-giving-millions-of-foreclosed-homes-to-wall-street-slumlords)

Cost Index

9th Sep 2011, 01:47

I can't get this youtube thing to embed the video. Very interesting watch.

Gold to hit $20,000 an ounce! :ooh:

Debt Collapse - $20,000 Gold - Mike Maloney On Gold and Silver (Full Presentation) - YouTube (http://www.youtube.com/watch?v=tj2s6vzErqY&feature=player_embedded#)!

I must say this has been an intersting thread. Some may say it's conspiracy theory stuff but thers a grain of truth to everything.

breakfastburrito

9th Sep 2011, 02:10

Cost Index, you need to get the actual URL of the youtube video (without the =embedded), paste it into the reply, then BB code automagically parses it correctly: Bling
Debt Collapse - $20,000 Gold - Mike Maloney On Gold and Silver (Full Presentation) - YouTube

Mike Maloney is very good, I found this article thoroughly researched & very interesting: Mike Maloney: How the Hunt Brothers Capped Gold…Yes, GOLD! (https://goldsilver.com/news/mike-maloney-how-the-hunt-brothers-capped-gold-yes-gold/)

Dixons Millions

9th Sep 2011, 17:26

I've only just (quickly) read this thread, so I do apologise to all if what I say has already been mentioned by other Pruners...

It's not a matter of calling people on this thread "conspiracy theorists" per se.

It's a matter of people on this thread apparently thinking the world is about to disastrously end and talking of buying up gold bullion (good luck with that), getting their guns oiled & loaded, and taking to the bush with their billy can and swag.........or paranoid wording to that theatrical effect. I actually have visions of you blokes holed up in a cave somewhere hundreds of miles from civilisation with an empty coke-can tripwire warning system at the entrance, huddled over your fire keeping your 12 inch long beards out of the cinders, cooking up the lizard you caught the previous evening, jealously guarding your gold bullion and your personal organs from the Kidney Collectors doing suburban doorknocks, in a scene reminiscent of something out of Mad Max 2.

Good on you. Off you go. You won't mind if I stay put?

Dutch, no one minds if you stay put. That is your call, you are an individual with your own opinion. That is the beauty of life, isn't it? No one can take that from you. But may suggest a reading/viewing of all presented on this thread would be a good "investment" for you and your family...

If Qantas knew what was coming down the financial road, they would stop their expansion plans, euthanase Jetstar and focus on conserving every cent of cash they can. Sell the A380 and B787 slots for what they can.

That means doing as much as possible of their own work in house, in Australia. Repair, don't replace.

The share markets around the world are not undergoing some "correction", this is the beginning of financial Armageddon.

In a perfect world I would have AJ sitting right here, right now in front of me and quote the above from Sunfish. Shake him. Slap him. Make him understand. What we are now living through is the end of the "game" as we know it, a complete and total restructuring of the financial and power landscape. This does not happen often, but nonetheless has occurred throughout history whenever the reigning government/power tries to dilute the money, i.e. bring in Fiat currency. Look what happened to Rome..Today is no exception.

Watch this space. Dow 20 at less than 4000, ASX 200 less than 1500. Your home (let alone you rental) here in Aus off 40 (!!!) percent. Grand predictions, yes. But let me continue. Japan share market and property peaked in 1990, and to this day still at a 70% discount. Don't think it can happen here? China, the big bubble. It implodes, where does that leave Australia, the two speed economy? How bout this. Totally f**ked. And you clearly know where the EU and US is headed. so, what does one do.....?

Well, not buying (traditional) shares, not buying property (until the suckers sell it to me at a massive discount). Art? No idea, can't help you. But to you AJ, your new investments WILL FAIL. For all of the reasons above and more...

Prepare yourself. Like in Austin Powers, I like Gooooold....

The Professor

9th Sep 2011, 19:13

“If Qantas knew what was coming down the financial road, they would stop their expansion plans, euthanase Jetstar and focus on conserving every cent of cash they can. Sell the A380 and B787 slots for what they can.”

The same observation could made about the finance industry in Wall Street. ALL banks were involved in dodgy investments and yet despite clear warning signs, NONE of them put the brakes on and queried the logic of what they were doing. As one of the Wall street major players was quoted “we had to keep dancing until the music stopped”.

Its one of the follies of capitalism, the market races toward a cliff at break neck speed and then when the system falls over the edge into recession or depression everybody dusts themselves off and says “holy crap what happened, I didn’t see that coming”.

Some of the most astute analysts the world has to offer are warning of huge currency collapses and defaults but QF has no choice but to continue dancing until the music has stopped.

Although, many would suggest the music has already stopped.

FEMA camps anybody.

The_Equaliser

9th Sep 2011, 21:40

Y2K, Peak Oil , Global Warming, End of Days, Islamic Uprising/Holy War, Collapse of the Monetary Sysyem. Who says that human beings love the idea that the world will end during their brief time on the planet. Our view of the world is often confined by our own brief time on it.

Foie gras

9th Sep 2011, 23:29

Aren't you glad you've taken my advice:-

Bought a Chicken tractor.
Paid off your debt.
Stayed out of gold?
Got your gun licence.
Cashed up.
etc, etc.

Any other ideas?

You'll be taking it somewhere else, if you haven't!

For your own good, start thinking outside of the box.

Cost Index

10th Sep 2011, 09:39

A change of tact but still "on theme."

So, some of us here are believers in a change in the next decade in the power base of where wealth will come from. Some have described what's coming as the greatest opportunity for wealth enhancement in generations. How to take advantage? Gold, Silver, now before it gets too expensive if you have spare cash lying around. Property is stagnant. But what about Super? What funds should one invest in for the next few years?

Foie gras

10th Sep 2011, 09:58

Good question.
Should you have SMSF, perhaps a small percentage in collectibles?
An asset.
Provided that you have some expertise in the field, will hold some value.
Depends on your interpretation of the looming crisis.
Land is another possibility.
Seriously who knows?

Captain Gidday

10th Sep 2011, 14:10

OK. Let us accept the bleeding obvious, that the US and others have been printing money at an unsustainable rate for years, thus devaluing cash, and a global crisis is imminent as a result.

Then why would you get 'cashed up'? Why do you advocate turning to the one thing that is losing its 'value' at a rapid rate as more is produced and the firehoses pour it into the world's monetary system? Surely this looming or imminent crisis should be one of inflation, not deflation? So everything else should be getting more expensive in currency terms - houses and land, gold, silver, oil, food. What has happened in these cases before in these situations, e.g. Germany 1920s, Zimbabwe more recently has been hyperinflation, not deflation.

You all seem to agree with each other that printing money and pumping it into the system is the problem. But then half of you seem to be saying that the solution is to be cashed up, [in other words, invest in the very thing you all agree is losing its value] wait for real estate and other assets to drop 40% and then make a great killing. Comsec filled my order 3% cheaper, that sort of thing. Why are you buying shares at all?

Situational awareness seems reasonable - forward prediction of what consequentially happens next seems like it needs work. Just my 2c.

Foie gras

10th Sep 2011, 22:56

Timing, Capt!
Cash is the means to be flexible.
The great debate, Inflationary Depression v Depression, continues.

Foie gras

11th Sep 2011, 00:03

qVl9V0GVQwo&feature

Sunfish

11th Sep 2011, 00:12

Possums, read your Paul Krugman, we are in a liquidity trap, or at least America is.

America is in a deflationary economic situation. When that happens, debt becomes progressively more expensive and jobs are lost. Consumption is curtailed because goods are cheaper the day after tomorrow than they are today. Furthermore, if you are in debt, the value of the asset offsetting the debt declines - this puts peoples house mortgages under water.

This is much worse than inflation unless you are a cashed up millionaire, in which case this suits you perfectly. Go figure.

jibba_jabba

11th Sep 2011, 01:03

thats right sunfish, however, when deflation becomes the norm, inflation will be caused by "stimulus" from central banks etc and then whammy, hyper inflation if we are not careful.
Everyone thinks America is separate in its economic challenges, which is false, it as the reserve currency affects all parts of the world using USD..... except Libya and look what happened to them and many others like Libya. The most obvious thing is commodity prices, as they are priced in USD, so when it hyper inflates/weakens then we all must pay more for the product and this is offset in a minor way by exchange rates and small other factors.

So as they play with matches in a tinderbox for a house, we all will burn.; Thats the nature of a fiat currency when it is not backed by physical assets.

TIMA9X

11th Sep 2011, 03:07

a4vRBImEQ3I&feature=colike

Whoever wrote the script came up with some good points....... interesting concept

packrat

11th Sep 2011, 05:18

Look for a financial institution that is going to give me around 5.8% for a 12 month term deposit on $X00k.Liquidate whatever I can and put $Y00k it into an offset account against my small mortgage.Cut my discretionary spending .Review the rents on my investment properties.Look at other ways of reducing my tax.Review my stance on debentures and EFTs.Clear all the bad debt I have:Credit Cards(the Amex is no longer convenient),Store cards etc.
Forward Pay the kids school fees and ask for a consideration of discount for doing so
Interest rates are on the way down.Lock in a decent rate for term deposits now.When rates fall continue to pay the same weekly interest payments on my mortgage
Weather the storm.The rest I have no control over.So I'm not going to sweat it

gobbledock

11th Sep 2011, 06:39

The below link is interesting.
Interesting to see a few posters on here now mentioning 'hyper inflation', well the USA has already entered hyper inflation. The final stages of their economic collapse will really speed up in the next few months but the show is over folks, they are done and dusted as with the rest of us.

THE MADNESS OF A LOST SOCIETY 2 : FINAL WARNINGS - YouTube

jibba_jabba

11th Sep 2011, 07:39

gobbledock

11th Sep 2011, 07:59

Jibba Jabba. It will fluctuate (ounces) for a little longer, between $1750 - $2000. By XMas it should be worth $2500 and by this time next year $6500. Start plotting previous highs and lows and match them up to every time something big is announced such as austerity measures, USD moves downwards, unemployemnt rates and jobs growth rates downgraded etc in the USA and you will see the spikes. It takes a long time to plot but it can be done. Starting educating yourself very very well, there is plenty of fact and data out there, and it is worth taking the time to research it.

Foie gras

11th Sep 2011, 23:03

Good video GD!
I still question the point at this time of investing in gold.
You cant eat it.
As you say we are possibly entering hyper inflationary times (god help us!), small denominations of gold/silver would be helpful in bartering for supplies.
In these times survival is all you can value.
Should it go the other way?
Deflationary, well that's text book.

Slasher

12th Sep 2011, 03:41

From one of my investment partners in crime -

I believe the so-called "Chinese miracle" will be unmasked as
mostly a fraud powered by a huge increase in bad lending from
state-controlled banks. In the currency markets I believe the Euro
will collapse in the second half of this year, as will the Aussie
dollar, which serves as a proxy for the Chinese economy.

I expect this next "down leg" in the world's markets to be more
severe than the crisis of 2008 because the balance sheets of the
Western democracies are now less prepared to manage the losses.

Although I don't concentrate on Oz or its dollar, I do write a
lot concerning the latest double crises in the Jet Blast threads
US Hamsterwheel and Irish Insolvency. Take a look if you're
interested.

breakfastburrito

12th Sep 2011, 22:42

I notice quite a few posters realise there is a problem, but very few know what to do next. I’ve tried to condense the things I have learnt into a short “first principles” philosophy of monetary theory. This is an attempt at a short, concise summary, not a complete treaties. Hopefully you will think about what I have written and do your own research so you can work out how best to protect yourself. It is not referenced, but all the information is generally available via google searches.

This summary is also relatively “quick & dirty” off the top of my head, and I welcome any corrections. It is my set of operating principles. Am I right or wrong? That is for you to judge. I wouldn't be surprised if our grandparents were much more aware of these principles than we are today. This is not by accident.

============================================================ ===

This is a short essay on my mental model of money, it is draw from many sources, both books and the Internet. Notable references, "Stored Labour - A New Theory Of Money" by Hugh A. Thomas, “The Mystery of Banking (http://mises.org/daily/5499)” by Murray Rothbard (free download [.pdf (http://mises.org/books/mysteryofbanking.pdf)] [.epub (http://mises.org/books/MysteryOfBanking.epub)]) & blogger FOFOA (fofoa.********.com).

Before we delve into the question of money, ask yourself a few couple of questions. . Firstly, Can you define the characteristics of money, what is it? Second, where does it come from. Why do we need money? Stop here and write your answers down before continuing.

In writing your answers, did you find it difficult? I suspect a lot of people will grapple with these apparently simple questions. These are deceptively difficult questions to answer, questions that you have never been forced to confront, but paradoxically are vitally important to your way of life. If you can confidently answer these questions, you probably don't need to read on.

Intrinsic value & Labour
To be have an intrinsic value, a resource around us needs to have some human labour component applied to it. An wild apple tree with a ripe apple has no intrinsic value to any human until some act of labour is applied to it. The simple act of picking the fruit, causes the fruit to gain value, it can now be eaten immediately for sustenance or stored for consumption in the future.

We can take this analogy further, with a farmer providing additional labour to the tree, it will take on a greater intrinsic value. As he prunes, nourishes and protects the tree, more fruit is produced, less is lost to pests and disease, it gains greater intrinsic value. Nothing has value unless human work is done.

The concept of "The Future"
Why would our farmer tend to the apple tree? Because he has the concept of the future. He can image that by providing labour to nurture the tree, it will provide fruit for him at some point in the future, rather than immediately. It is a prerequest to have the concept of tomorrow "the future" for the concept of money to have any meaning.

Trading
Our apple farmer spends a considerable amount of his time tending to his tree, during this time, he is unable to perform other tasks to provide him with shelter & food. So in order to gain these essentials, he trades with someone else for these things. He may trade a certain number of apples directly with another who makes bricks for shelter. This would be a direct exchange - barter. There is a “co-incident of wants”, each desires what the other is offering before the exchange occurs.

However, there are a few problems. The apples are not always available, and when they are they don't last for very long. Additionally the brick maker has no need for apples. However, he has a neighbour that does, That neighbour also has something of value desirable to the brick maker.

The brick maker exchanges a certain number of apples from the farmer for his bricks, he then exchanges the apples for the item from his neighbour. The brick maker has just invented what we call money. This allows two items to be traded through a third (money, the apples). In order for this to happen, all three must have some intrinsic value. What should those values be? Whatever the parties decide each of the three items is worth in relative terms.

What is money?
Economists will tell you money has three characteristics, it is a unit of account (every unit is identical to the next, ie dollars, apples or ounces of gold), it is a medium of exchange, and thirdly, it is a store of value. In this discussion, we will mainly be concerned with the store of value property of money. How did you go with the list you wrote down?

Lets test our example: Unit of account - each apple is roughly identical. Medium of exchange - apples are traded for bricks and then traded for a third item. Store of value, the apple farmers labour is preserved through the two transactions ( the apples have an intrinsic value to the neighbour).

The apple farmer can't always produce a crop, and he can't live on apples alone. How will he provide food and shelter? He can exchange apples for other things he needs directly, or store the labour in something else to be exchanged for his needs in the future. He must produce an excess of apples to his own needs to trade for other items for the times of the year in which he won’t have a harvest.

As we have seen, commodities are money, however some commodities are better than others. Foods rot & spoil at various rates, materials are actually consumed. Over time (5000 years), and by trial and error, the market place decided that the best money was gold & silver. There a very special characteristics of these metals - they are next to each other on the periodic table for a good reason. They are both inert, (although silver does tarnish), they can be cast by fire. Purity can be tested by flame and they are rare. In addition they are not consumed and are not industrial materials (this has changed only in the last 150 years for silver). Both require considerable amount of labour to produce and therefore represent a durable concentrated store of human labour. (As an example it takes 20 to 30 tonnes of material to produce each ounce of gold)

Our apple farmer can exchange his apples at harvest time for precious metals as a store of value to exchange so something else either now or in the future. This is an example of an asset based money system. Literally any asset can be used, however most things simply don’t have suitable physical characteristics. The most important thing to note about an asset based monetary system is represents “final settlement”. The gold (asset) sitting in your hand has no obligation to anyone else, nor does it anyone else owe you. The gold is gold, a lump of inert useless metal, that’s it. In the asset based monetary system, the asset is first created by human labour, then released into circulation.

Fiat Money
Fiat is from the Latin “By Decree” or “make is so” & means that money is what someone says it is. Rather than the marketplace deciding, it is made so by the force of law. Modern currency is “fiat” money, as governments through legal tender laws and require it for tax payments & require debts to be settled in its currency.

Fiat money in the modern banking system is produced as a debt - money is “loaned into existence”. The asset backing the currency is the obligation of someone else to repay that debt in the future.

The best example is that of a mortgage. If you take out a mortgage, you sign a contract the loan note - that is the obligation to repay a sum with specific performance characteristics (period, interest rates, frequency of payments). You also assign the house as security (collateral) over the loan. At the instant you sign the mortgage note, the bank creates a ledger entry in the vendors account (assuming simultaneous settlement for simplicity). The bank has just created the vendors money “out of thin air”, backed by your obligation to repay that amount over a period of time. This is an example of the creation of “credit money”. Note, that this credit money is the book entry version of the paper money.

The vendor is now free to convert his credit money to paper money at the bank. The bank purchases its paper money stock from the Central bank, and this is almost totally seemless to users of the system. Therefore credit & paper money are convertible into each other, in essence there is no practical difference between the two.

However, what happens if your loan goes bad? The credit money created by the bank has been released into the system. The money created could still be a book entry, or it could have been converted to physical cash. In other words the once the money is created it can’t be extinguished, even though the obligation backing the money has lost value. In this case the banks capital is written down, and its shareholders lose the money. If the capital goes to zero, the bank fails.

However, under modern central banking, the bad loan can be purchased at face value from the bank, by the Central Bank. That is the bank hands over your bad loan and receives up to 100 cents in the dollar back from the Central Bank. Where did this money come from? It was of created out of thin air of course! This is how a bailout works, and this is also the basis of inflation. (Inflation is defined as an increase in the money supply)

Notice also that the money is created, but not the interest, this must also be loaned into existence in the future, to pay the obligation in the loan note. It is a mathematical requirement that the amount of money in circulation (both credit and paper) constantly increased to ensure previous debt obligations plus interest are repaid. The compounding nature of interest
is an exponential function, hence, the constant requirement of growth. Without constant growth, the system is mathematically doomed to insolvency, hence the continuous mantra of growth from government & business.

Money is continuously created out of thin air and added to the system, but not removed. Some of this money ends up as reserves back at the Central Bank, but most of it remains in circulation (mainly as credit money). As the money supply has generally increased at a faster rate than the rate of growth of “real production”, more fiat money is constantly chasing real world goods, hence the price of real world goods increases in fiat terms. In reality, the price increases are actually the value of the fiat money is declining in purchasing power against real world production.

This is an example of a debt based monetary system. The important difference is that the money is created first and released into circulation, then the production is created in the future.

Final settlement
There is no “final settlement” when receiving payment in fiat currency. What do I mean by this? When you are paid in fiat for either an asset or your human labour, you receive an asset in the form of someone else’s obligation to continue to make good a payment in the future. That is someone owes you. If you receive paper dollars, you have to find someone to accept those dollars to convert them back into real world produce. That is, you now have counter-party risk. Will someone else always accept an asset that is someone else’s obligation for future human work? Therefore, while ever you hold an asset that is an IOU you have counter-party risk. This is why papeir money is called a “bank note”. Pull one out of your wallet & check, it is signed and counter signed. It is a loan note.

Final settlement can only occur when you receive an asset that has no counter-party risk. It could be an ounce of gold, a bag of wheat or a barrel of oil. None of these have any obligation attached to them

Lets apply the money test once again to fiat currency: Unit of account, yes. Medium of exchange, yes. Store of value - this is where fiat currency fails the test. In the short term yes, in the long term, the store of value function diminishes rapidly over time. Further, this store of value is dependant upon someone always else accepting it as payment in exchange for their human labour in the future,

Summary of differences between asset & debt based monetary systems
The Key difference between the two is when work is done to create money. Asset based systems human labour creating intrinsic value from a resource is done first, then the commodity is released in circulation as the monetary unit. Over time, the market came to use two non-useful metals as a proxy for this created labour. This monetary unit is trustworthy because others will accept this proxy.

Debt based monetary systems can produce the monetary without any work being done at all (except the cost of physically producing the paper or credit), with the promise that human labour will be performed in the future. Once again, the paper asset is a proxy for human labour & intrinsic value, yet to be completed. Users of the system must trust the system to issue only the amount of monetary units capable of supplying real world goods. If more units in excess of production are released into the system, the value in terms of future human labour of each existing unit is diminished.

In both cases a proxy is used to represent stored human labour. The use of the proxy is necessary to allow indirect exchange to avoid the “co-incidence of wants” problem of barter. If everyone agrees on a standardised unit of exchange, then the unit can circulate as money.

Why use fiat Currency
Fiat currency is generally introduced by governements as it provides an “elastic” money supply, that is there is almost always a scarcety of money, and money can be created by governement & the banking system to solve this problem by creating future promises to pay. In other words, it allows creating stored human labour today, for payment by someone else in the future. Governments, not the market place decide what we use as money

Central Banking
Modern banking practice is based on the “fractional reserve” principle. That is, almost all the money deposited is loaned out over and over again, your money already being a loan of course. Modern banks hold around 8% of your money (in Europe, some hold less than 1% and are levered 75:1 loans:capital). This fraudulent practice means that if trust in the bank occurs, a “run” is possible as depositors seek return of their money. Modern banks are insolvent as standard business practice, they cannot meet their contractual obligations if all depositors wanted their currency at once.

Because the system is vulnerable to the dreaded “bank run” a system of Central Banking was introduced, where the Central Bank can act as banker to the banks as “lender of last resort”. Given that the Central Bank can create money out of thin air at no cost, ultimately the penalty is the creation of money inflation (loss of value of each unit), resulting in price increases over time.

The important Central Banks - The Bank Of England (BOE), the Federal Reserve (FED) are privately owned institutions. The European Central Bank (ECB) is owned by other Central Banks in the Eurozone, and while I haven’t looked at their ownership, I’d be confident that they are all ultimately privately owned institutions. Note, some Central Banks are owned by their governements, however they are effectively controlled by the large private central banks through acces to tthe international credit system at the Bank Of International Settlements (BIS) - The central Bankers Central Bank.

Derviatives.
Modern currency can be viewed as a derivative of real world production. In addition, there are derivatives of the currency itself. This allows for fantastic leverage of the future to be brought into the present. Other derviatives include stocks, bonds and exotic financial instruments (plain vanilla options, swaps CDO’s CDS’s etc). See Exeters pyramid.

Why do Governments, Banks & business like fiat Currency?
Governments like the fiat system, because, in conjunction with the private bank owners currency with future payment of human labour can be distributed now to purchase votes. Bankers love it because they get to create money out of thin air and charge interest on that money in addition to skimming some of the money as fees & charges for the credit creation process, and can redeem them into real world assets now.

Businesses love it fbecause future obligations are spent today, allowing price increases through increase currency unit supply. The profits are illusory, as the purchasing power of those “profits” is continuously diminishing.

The Bottom Line
In short, a fiat system allows the future to be spent now. As long as those obligations can be postponed, and users of the system believe the system can continue to postpone the ever increasing future debt against real world production, the system can continue to work. However, once enough users of the system realise the system is mathematically doomed to fail soon, then trust in the system will be lost, and the system will fail. When it fails, those future obligations (paper & credit currency) will lose the stored value function.

Fiat & derivatives of fiat fail the money test as a trustworthy long term store of human labour (value), as they can be created at will at virtually no cost.

Any real world asset can act as a store of value, but not all of them can act as money. Gold & silver have been used for over 5000 years as long term durable stores of human labour. They are not the only store of value, just the most convenient, trustworthy & universally recognised concentrated ones.

Fiat Money Supply inflation v's real world production
http://www.marketoracle.co.uk/images/2010/Feb/swaps-24-7.jpg

Exeter's Pyramid
http://img221.imageshack.us/img221/1456/greatcreditcontractionl.jpg

Foie gras

13th Sep 2011, 00:39

Great post BB, brings us back to the basics..
Slasher has got some good input as well, on the Irish... Jet Blast page.

Lets move on, we all know we have a problem.
How about using some of that CRM stuff, and come up with some possible scenarios and answers to help the average "wage slave" cope with this dilemma?

big white bird

13th Sep 2011, 08:29

Meanwhile, in the real world of making money, aka trading it, opportunities abound.

Yet here, in the ethereal world of analysing and looking for that last piece of lint in one's navel, ridiculous amounts of time are wasted sitting on the sidelines, pontificating.

Yes, yes, heard it all before.

Fiat money, world coming to an end, grab your guns n head for the hills.

Why not buy GXY, CNN or, shock horror, COH.

Where were you when AUN traded low? Did you buy TLS Aug 9 basis action post 18 NOV 11, or were you wasting time reading this guff or worse, spending valuable time putting together power point projections explaining the guff?

No love lost on these posters with me. I'm here for a break. Won't last long. Out for a run soon, then back at it. Readers, if you're worried, get an education on how markets work. The world will continue to turn. Product will be needed. Just figure out what that is, believe in yourself, maintain discipline, ensure tight money management and get busy!

**** this lot. They're like bloody Professors at University.

Foie gras

23rd Sep 2011, 18:44

One bird to another.
My excuse is that I'm a goose.
Been force fed all this b/s for years.
Wiser now but the ole liver is stuffed.

So you're a big bird.
Surely a turkey!
Good luck, you're going to be hung strung and quartered.

bulstrode

24th Sep 2011, 01:43

When the dust eventually clears the world economic system will be more robust and most likley more regulated since the banks can't be trusted to manage their own affairs with integrity.The obscene bonuses paid will hopefelly be a blot on histoys time line.
In the mean time buying opportunities abound.Prices on just about everything are falling.Unfortunately short term pain in the form of rising unemployment will hurt some economies.
Life goes on~groceries need to be bought,cars repaired,fuel bought and then we begin all over again.When the memory of this lesson learnt dims a future generation of financial hostshots will make the same mistakes all over again.Greed and overconfidence assign humanity to the curse of the financial crisis ground hog day.
Aviation is held hostage to the same deja vu

Capn Bloggs

24th Sep 2011, 09:21

onetrack

24th Sep 2011, 13:38

Capn Bloggs - What is wrong with gold, is that 600 economists world-wide are telling the world that gold is a useless, barbaric relic, and of no use in any modern monetary system.
Unfortunately 6,000,000,000 people disagree with those economists, and continue to buy gold, and see gold for what is - a store of value, no matter what the economists may say, or what the treasury depts do.

I find it interesting that your linked article makes no mention whatsoever of the gold holdings, and the love of gold, by the Chinese and the Indians.
Both those countries form 1/3rd of the worlds population, and both of those countries are presently buying gold on a big scale.
To omit those countries, and their gold figures, from ones story and figures, leads one to believe that the gold story was written by an economist, for the benefit of other economists.

There's no way in the world that every gold-holding country in the world would dump their entire gold stocks on the open market in one go. Only the foolish countries dispose of any substantial amount of their gold holdings.
The shrewd countries such as China buy gold to keep value in their wealth, when that wealth is threatened by a declining value in any monetary (fiat) currencies they hold.

The US$ shows signs of rapidly becoming the US Lira, as billions of US$'s are printed daily with no asset backing to match. Thus, the shrewd Chinese are exchanging their US$'s for gold, while the US$ still has some buying power.
Gold is one of the worlds unique metals, in that is exceptionally rare (in comparison to base metals)... it has a historically unique position in the financial operations of any country in history... and its wealth-retention abilities are recognised and revered world-wide... and it has always been that way. Nothing that I, and 5,999,999,999 other people, can see, will ever change that fact.

Baileys

24th Sep 2011, 14:42

Bubble.

Just like tulips....and Aussie house prices. Those that are in on the bubbles would strongly disagree. Just watch and see over the next few years.

Foie gras

24th Sep 2011, 16:13

The swiss franc, was regarded as being a safe hedge.
Look what happened there.

Gold is fine, provided it is not confiscated by the government, as was done by the Roosevelt Government.
Presidential Executive Order no. 6102.
5th April, 1933.

You've got to come up with some better ideas!

flying lid

24th Sep 2011, 19:51

I find it interesting that your linked article makes no mention whatsoever of the gold holdings, and the love of gold, by the Chinese and the Indians.
Both those countries form 1/3rd of the worlds population, and both of those countries are presently buying gold on a big scale.

Too true. A few weeks ago, changing planes at Dubai, 0100 local time, the airport gold shops where crowded with Indians buying gold. A frenzy the like of I've never seen before. Thought it quite amusing at the time.

Difficult to predict the future, short, medium or long term with stocks, gold, cash, etc. Have some of everything is about the best I can come up with. Diversify your assets.

One thing is for sure, the top 0.00005 % of the worlds population, the super rich, WILL profit and get richer. They will make it so, at your expense, and mine.

Lid

ga_trojan

24th Sep 2011, 23:22

I wouldn't necessarily trust anything economist from the IMF or UN are saying about anything at the moment as 1. they don't really know anyway, and 2. they may have ulterior motives.

There is obviously some sort of value in gold if central banks are loading up on it. South Korea bought 25 tonnes in a purchase two months ago.

So if professional money mangers who are running countries are buying gold why would economists then suggest that average joes at least have a small Gold holding? Given that money is so volatile at the moment, and the chance that the Euro could sink and the greenback will be under some serious pressure in 2012 why wouldn't you hold at least a small proportions of your savings in gold?

Central banks return as gold buyers - FT.com (http://www.ft.com/cms/s/0/05232c38-e209-11e0-9915-00144feabdc0.html#axzz1YulCiRq4)

Emerging central banks boost gold holdings in July (http://www.vanguardngr.com/2011/09/emerging-central-banks-boost-gold-holdings-in-july/)

Gnadenburg

25th Sep 2011, 02:00

Bubble.

Just like tulips....and Aussie house prices. Those that are in on the bubbles would strongly disagree. Just watch and see over the next few years.

Australian house prices will come off but considering the rises in the last decade you would have to expect it. How much will they come off their highs? I don't think it will be as bad as many doomsayers like to predict.

High interest rates can come off and cushion a disorderly adjustment of Australian housing prices- and I believe the RBA will do this as anything disorderly will seize up consumer confidence and affect the wider economy adversely.

The $AUD will come off quickly in the above scenario and there is a lot of money abroad waiting to move into Australian property.

Foie gras

25th Sep 2011, 06:38

http://brontecapital.********.com/2011/0....

Models for a Greek Sovereign Default
I am on a plane - long-haul over the Pacific - and someone asked me to spell out what I thought would happen with a Greek sovereign default. As this is drafted on a plane it is designed to outline extreme views (you know the ones after two glasses of wine). If people want to explore more modest views that is for the comments. Still all options look bad.

I see two broad variants - both of course stick most of the losses on Germany and France. Some variants are totally disastrous.

Variant 1 - the Argentine option: Default and de-peg the currency.

When Argentina defaulted not only did the government default but they forced a private default. If you had a debt in US Dollars in Argentina prior to the default you were forced to pay it back in Peso. Indeed it was illegal to make payment in US dollars.

Likewise if you had a US dollar asset you got back Peso. A dollar deposit in Citigroup in Buenos Aires became a peso deposit. If you really wanted to keep your dollars you needed to make your Citigroup deposit in New York.

The forced private sector default was necessary for Argentina. The Argentine banks all had lots of US dollar funding. If you devalued without forcing their default then they would all have uncontrolled defaults (a true disaster) and the country would lose its institutions. Telefonica Argentina would have failed too - failing to replay USD debts.

The same applies in Greece. If the Greek Government were to devalue the new Drachma (to perhaps a third the value of the Euro) then the banks (which are loaded with Greek Sovereign paper) would default. Even Hellenic Telecom would default because they would be forced to repay their billions of Euro borrowings whilst collecting only Drachma phone bills.

The Argentine economy was doing quite nicely after the devaluation. The lesson was that devaluation worked - provided you simultaneously forced private sector default.

If you were Greece you would take this option without hesitation.

However this option has explosive implications for Europe. You see a bank deposit in Athens is going to turn your Euros into Drachma. Overnight it will lose 70 percent of its valuation.

So it has to be done quickly and with an element of surprise (as per Argentina when most people did not get their dollars over the border). Without surprise people will rush their money to Deutsche Bank in Munich.

One weekend we will just find that the Greeks have done it.

But now suppose Greece does pull this trick. The day after we have a Drachma - deposits are in Drachma. We might print a single 10 drachma note and allow it to settle against the Euro - then over time print more. This should work for Greece.

Now if you are Irish or Italian or Portuguese (or even Spanish) you know the rules. You get to get your Euro out of the PIGS and into the core (Germany) as fast as possible. So max all your credit cards (for cash), draw all your bank deposits and load them in the boot of your car and make the drive to Switzerland or Germany. Somewhere safe. Otherwise you are going to lose half the value the day that the rest of the PIGS do a Greece.

And this bank run – a run including tens of thousands of Italians driving their Fiats - will surely blow apart every Italian bank. And their Euro-skeloritic compatriots will sign the death knell for for all their banks too.

If you are going to go the devaluation route you are going to have to do it all at once. Like the big-bank weekend (maybe coinciding with a week long bank holiday) in which all core European countries get their own currency back.

There is a precedent. It is not a pretty one. When the Austro-Hungarian empire collapsed there was a single currency over a huge area covering much of what is now Euroland. In this case the rather Germanic Austrians were in charge (or rather were in charge until their empire collapsed).

What they did was put troops on all the borders and made it illegal to take cash (or wire cash!) across borders. Then all Austro-Marks in each country was stamped - converted to Drachma for Greece, Marks for Germany, Peseta for Spain or whatever the currencies of the day were [If someone remembers the 1918 border splits better than me they are welcome to say...]

In this conception all Spanish debts become Peseta debts. All German debts become Mark debts. All Greek debts become Drachma debts. Unstamped currency goes worthless.

If you are going to split the currency I see no alternative to a big bang - and if you do that I see no alternative to troops at the border stopping transfers (and wire transfers) because shifting cash North looks so profitable against a sudden devaluation. Suddenly – and against all historic hope – its time again to guard the French-German (and every other European border) with troops for a week whilst the money is stamped.

Note however almost every country borrowed in hard currency (Marks) and got to repay in soft currency (Drachma). This is a scheme which shifts the loss home to Germany and with little compensating benefit except that they get their beloved Mark back. Its a scheme that is way better for the periphery because they get to keep their institutions. In two years they should bounce back like Argentina bounced back after their default.

Unilateral Greek default and devaluation without planning for the periphery to do the same - well that is a true mess. Too ugly almost to think about - and it would be unilateral for less than a week. The rest of Europe falls into that abyss with maximum movement of deposits and cash in the meantime.

The second variant on Greek default. Greece defaults and stays in the Euro

The second variant on Greek default is the one that Germany prefers – Greece defaults and stays on the Euro. (Credit Agricole also prefers this.*)

In the second variant Greece has a huge problem after the default - which is that its banks are insolvent. They own a whole lot of Greek Paper. Moreover Hellenic Telecom does not look that great either.

The recession goes from bad to worse and the government deficit goes from bad to worse. The Germans wind up owning the banks and the telephone company as partial offset to their losses lending to them. The Greek Institutions are captured by the Germans. (All your base are belong to us.)

They also wind up getting paid a little more as Greek austerity - as long as it lasts and that might be a long time - partially reduces German losses but at huge social costs.

The Eurozone becomes really dysfunctional - with the whole periphery totally unable to work their way out and having lost all their key institutions to the Germans who neither know how to run them nor really want them.

Moreover Greece stays expensive and unproductive and becomes more socially fractious. The likelihood of them staying the the Eurozone would be pretty low. (After all what have the Germans ever done for me!)

Europe would be held together by a massive and compulsory German aid budget. If they can't get that agreed on on day dot (and Merkel and the German constitutional court are not of that mind) then my guess is that is is in Greece's interest to go the Argentine route and let the rest of Europe fend for themselves.

And for that Europe will need troops on borders. Armed and dangerous.

Bring out the guns.

gobbledock

25th Sep 2011, 06:57

I've been following this thread with interest (pardon the...). One of the glaring conclusions is that gold (and a gun) is the go. Could you gold pundits comment, then, on this article:
What is wrong with gold? (http://www.investopedia.com/articles/05/033105.asp#axzz1Yn5vhc7t)
Gold can't be copied, gold is real, paper money if fiat. Paper is printed off a machine. The more they print means the higher inflation rises and the more you pay for electricity/gas/bread/everything. It is cyclic and tweaked/controlled by a countries economosits. Problem is when debt exceeds income, hence the USA dilemma, tonnes of money is going out of one hand and little is coming in through the other hand.
Both the USA and Europe are finished, simple as that. Neither can pay off their debts.

People keep asking 'why are the politicians sitting on this and doing nothing' ? Ha! What can they do? The game is up thats why they can't fix it, it is unfixable and the point of no return has been exceeded.
If you want to really know where it will all end, research German economy 1920-1923 and you will see the answer, propserity one day and hyperinflation and bankrupt the next. The same fate awaits the USD and probably the Euro. The Germans are the only ones with money and even that is not enough to dig their neighbors out of this hole.
The USD currency will be scrapped and a new one introduced, with the Germans that still didn't resolve all their issues, but what they did mirrors what the USA will have to do. China already know it, they know that America's merely printing off more money is feeding the inevitable default, in fact last week the Chinese actually came out and said it, that 'America was going to default by stealth'. Printing more money is a desperate measure and only putting off the inevitable conclusion, they will default and when they do it will be a global pandemic, plus the Chinese won't be too happy about losing the $2.3 trillion the Yanks owe them..Do your research friends.

Captain Gidday

25th Sep 2011, 07:18

Balstrode has it right:
Life goes on~groceries need to be bought,cars repaired,fuel bought and then we begin all over again.

Look, the last recession in Australia began in 1991, so it is obvious that anyone younger than about 35 could not have been in the workforce back then. And interestingly, most screen jockeys at financial trading houses would be younger than 35, so probably would have no personal experience of a recession. They are basing their decisions on a fear of the unknown. Buying US Treasuries as a 'safe haven'. Is that logical? Is it a herd thing?

Let us say economic activity in Australia declines by 3% year on year next year. That means that 97% of economic activity continues unchanged. You'll hardly see any change in traffic in your local Woolies or at your Shell station. In fact, because the price of fuel most likely will fall steeply, fuel sales by volume might increase. Generally, the wild consumption of resources and manufactured goods will decline a bit. Overall, pollution will reduce a bit, the amount of junk going to landfill might reduce a bit. Is any of that necessarily bad?

Some job descriptions are more vulnerable to recession than others. For example, if you are an architect or a real estate agent, expect some very quiet times as new construction dries up and house sales drop. [That's already happening]. Ditto for builders - get a job building infrastrucure. And ditto for merchant bankers, as it happens.

In general terms, in case you are unlucky and become one of the additional 5% or so of the workforce [not the population] who will join the ranks of the unemployed you should already be:
Building up your cash reserves.
Getting in front on your mortgage repayments.
Reducing other forms of debt as much as possible.
If you are leveraged you may be about to feel the pain. And it will hurt. Sorry, you might lose your house, if you lose your income. Hope your conservative Mum and Dad will find room for you at their place.
So what happens to pilots? Generally, if past recessions are any guide [and they are the only guide we have], not a lot happens in fact. Most passengers stay in work, so most flying continues. People tend to go on holidays to closer destinations, like the Gold Coast, Fiji or Bali. Good for you if those destinations are on your roster and your company is fleet of foot to exploit the new demand. Not so good for longhaul, but as the AUD declines, inbound tourism picks up.

Recessions weed out weak or poorly managed companies in all industries. I think Australia has one major airline group in each of those categories, so that could be a wild card.

Where are the safe jobs to weather the storm? Well, stacking shelves at Woolies is obvious. Working for a utility [driving a tram, bus or train, reading water meters] another fairly safe haven.

Most of all: [B]you won't need a gun [except to shoot rabbits, maybe] , you won't need gold. Even in the Great Depression, the fabric of society did not unravel. In fact, it was quite common for people to start helping strangers. The closest thing we have in modern times to give you the idea is the outbreak of community spirit in New York after 9/11. Did I see someone mention cannibalism earlier on this thread? Not going to happen.

If you are too young for your parents to have told you from their personal experience about the 1930s then watch these three video clips. (http://aso.gov.au/titles/documentaries/bread-and-dripping/clip1/) In the first clip the woman is in fact describing general daily life for women in the 1930s, with or without a Depression, in my opinion. My mother and grandmother were still working much like this when I was growing up in the 1950s, except that electricity had by then arrived. Look closely at the other two clips. Does anyone look malnourished? Do you see Mad Max in the background, plundering and pillaging?

Don't underestimate the power of people to overcome advertisity and hard times. A little off topic, but read Henry Lawson's poem 'On the Wallaby' (http://en.wikipedia.org/wiki/Freedom_on_the_Wallaby). Send a copy to Leigh and Alan. They'll appreciate the heads up. Google 'on the wallaby' if you don't know what the expression means.

Fliegenmong

25th Sep 2011, 07:31

Onetrack mentioned -

"Only the foolish countries dispose of any substantial amount of their gold holdings."

Like this clown!

Worth its weight in gold - The Drum (Australian Broadcasting Corporation) (http://www.abc.net.au/news/2010-03-05/worth-its-weight-in-gold/351864)

In November 1997 the then Treasurer, Peter Costello, shocked some people when he announced he'd signed off on the sale of $2 billion worth of Australian bullion. On the day he announced the sale the price was around $US306.00 an ounce. At the time, according to Mr Costello, gold "no longer plays a significant role in the international financial system

Sure Swan is a goose........but Costello certainly wasn't any better

breakfastburrito

25th Sep 2011, 09:28

Captain Gidday, I admire your optimism, but the maths of this article "sealed the deal" for me when I read it in March 2010. Read the article carefully (re-read if necessary it to get your head around it) and think about what he is driving at. The implications are profound.

SATURDAY, MARCH 20, 2010
THE Most Important Chart of the CENTURY
The latest U.S. Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing the data current through the end of 2009. What follows is the most important chart of your lifetime. It relegates almost all modern economists and economic theory to the dustbin of history. Any economic theory, formula, or relationship that does not consider this non-linear relationship of DEBT and phase transition is destined to fail.

It explains the "jobless" recoveries of the past and how each recent economic cycle produces higher money figures, yet lower employment. It explains why we are seeing debt driven events that circle the globe. It explains the psychological uneasiness that underpins this point in history, the elephant in the room that nobody sees or can describe.

http://img716.imageshack.us/img716/4840/diminishingproductivity.jpg

This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.

The data for the diminishing productivity of debt chart comes from the U.S. Treasury’s latest Z1 data, the complete report is posted below: [NOT SHOWN see original article BreakfastBurrito]

On page two of that report is the following table showing the Growth of Non Financial Debt:

http://img215.imageshack.us/img215/4479/z1nonfinancialdebt.jpg

I included Financial debt onto the end of the table, that data comes from page 14 of the Z1 report.

This table makes clear what is happening. Business, household, and financial debt is trying to cleanse itself, to bring the level of debt back within the ability of incomes to support it. Our governments, armed with people who cannot explain the common sense behind debt saturation, are attempting to compensate by producing prolific amounts of Governmental debt.

They feel they must do this because if they do not, then debt and money – since debt backs our money – would both decrease and that would cause the economy to slow. But by adding money, and debt, they have created a sovereign issue where our nation’s income cannot possibly service our nation’s debt. In just the month of February, for example, our nation took in $107 billion, but spent $328 billion, a $221 billion shortfall. That one month shortfall exceeds all the combined shortfalls of the entire Nixon Administration – one month.

This is like an individual earning $5,000 but spending $15,000 a month. Would you lend your money to such an individual?

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Modern monetary theory does not understand, nor does it correctly describe the debt backed money world in which we live. Velocity, for example, slows as debt saturation occurs. This is only common sense, and yet the formulas do not account for the bad math of debt, nor its non linear function. Velocity is blamed partially on the psychology of “consumers.” What nonsense. It is as mechanical as the engine in your car, it was designed that way. Once people, businesses, and governments become saturated with debt, new money/ debt when introduced can only be used to service prior existing debt.

Thus money creation at the saturation point stops adding to productive efforts and becomes a roll-over affair with only the financial services industry profiting via interest and fees. In other words, money goes out and circles right back around to the banks instead of rippling through a healthy non saturated economy. If you cannot follow that most simple logic, then going to Harvard will not help you.

Below is a chart of the Gross Federal Debt, it is now $12.6 Trillion dollars and headed straight up, a classic parabolic rise:

http://img854.imageshack.us/img854/6513/grossfederaldebt.png

Below is a chart of the Gross Federal Debt expressed in year-over-year change in billions of dollars. The same phase transition of debt saturation is clear as a bell.

http://img148.imageshack.us/img148/9103/grossfederaldebtyoychan.png

Below is a chart of Federal Net Outlays, parabolic and again headed straight up:

http://img638.imageshack.us/img638/6561/federalnetoutlays.png

Clearly this is not sustainable and that means that change to our monetary system is rapidly approaching. No, it will not be left to your children or your grandchildren. It is an immediate problem and fortunately there is an immediate solution. That solution is called “Freedom’s Vision.” It can be found at swarmusa.com (http://www.swarmusa.com).

That chart of diminishing returns is the window to understanding why humankind is trapped in a central banker debt backed money box. No money for NASA manned space flight – NASA’s total budget a puny $18 billion in comparison to the $1.9 Trillion that went to service the bankers last year. One half the schools closing in Kansas City, states whose debts and budget deficits seem insurmountable all pale in comparison to how much money went to service the use of our own money system.

It doesn’t have to be like that, in fact it’s a ridiculous notion that the people of the United States, or any country, should pay private individuals for the use of their money system. Ridiculous!

It’s difficult to see this from inside the box, so let’s look at what happened to Iceland to illustrate. The central banks of the world created financial engineered products and brought them to the banks of Iceland. These products created a boom in the amount of credit. Prices of everything rose, and the people of Iceland then had no choice but to go along for the bubble ride. Then with incomes no longer able to service the bubble debt, the bubble collapsed.

To “save the day,” the IMF and central bankers around the world rushed in to “rescue” the people, banks, and government of Iceland. They did this by offering loans... documents that create money simply by signing a contract of debt servitude. That contract demanded ownership of Iceland’s infrastructure such as their geothermal electrical generating plants. It also demanded the future productivity of the people of Iceland in that they should work and pay high taxes for decades to pay back this “debt.” Debt that they did not create or agree to service in the first place!

There were some wise people who saw through this central banker game and started a movement. They DEMANDED that the President of Iceland put the debt servitude to a vote and the people wisely said, “Central Bankers Pound Sand!”

Thus they now control their own destiny, their future productive efforts still belong to them.

It’s easy to see from the outside looking in, but it’s not so easy to see that it's EXACTLY the same thing occurring in the United States and no one is rising up to stop it. No one, that is, except the movement of people at SwarmUSA.com (http://www.swarmusa.com/vb4/content.php).

To all the naysayers who think the people do not have the power to make the change, I say take a look at history and how humankind has overcome its obstacles to progress with each new step. Mankind is now teetering between the brink and the dawn of a new renaissance. A new renaissance is coming because mankind is about to free itself from the chains of needless debt that are holding humanity back.

THE Most Important Chart of the CENTURY (http://economicedge.********.com/2010/03/most-important-chart-of-century.html)

==============================================

Capt Bloggs,from page 2 of this thread:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.his is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

Gold and Economic Freedom (http://www.321gold.com/fed/greenspan/1966.html) - Alan Greenspan 1966

Anthill

25th Sep 2011, 12:49

Tom Waits - "God's Away On Business" - YouTube

Who are the ones that we kept in charge?
Killers, thieves and lawyers...

Foie gras

26th Sep 2011, 08:00

What have the Greeks done for us?........
Well lamb souvlakis, purple valiants, changed the architecture of our 'burbs with concreted columnular villas, of course philosophy, poetry, civility and all that stuff,.... sanitation... Well that was the Romans, pizzas, alphas, duccatis, straight roads and syphyillis, of course the aquaduct.
The Poms,... well that was warm beer and cold pies, hot Xmas luncheons, cricket, god save the queen at school every monday morning, morrys and rangies, and the Vickers Viscount!
The Americans,.. KFC, maccas, the Simpsons, AIDs, the internet and of course the Boeings!
The Chinese,... Well.... dim sims, fried rice and everything else that we buy!
Apart from electric cars, what else will they give us?.. A repressed rigidly closed society?.
I guess when the money runs out we'll find out!

Captain Gidday

26th Sep 2011, 09:21

Breakfastburrito.
Reading your article reminds me of watching so called 'World Series Baseball'. Just as the Yanks organise a series of games between a team from Texas and a team from San Francisco and call it a "World Series", so the author of the article continually says humanity has a problem, just because the USA has been living way beyond its means. The World does not have a problem. The USA does.
Luckily for Australia, Mr Costello [though he might have sold off some gold too cheaply] did a great job paying off just about all Federal Government debt during his tenure as Treasurer. That would seem to mean, following along with the logic of the article, that if [when] the chill winds blow again soon, the present Australian Government can stimulate the economy again by going mildly into deficit, hopefully temporarily. The stimulus injected into the economy should have a very positive effect on economic activity, as it did during the 2008 crisis. We are much further back up the curve, perhaps where the US was in the 1960s, so that seems a reasonable prediction. Just so long as the stupid baying hounds of the media learn a little economic theory in the meantime and stop banging on about returning to surplus by 2012 [wrong in the circumstances that are unfolding].

China, most of Asia and some of the emerging economies like Brazil are also nicely placed on the curve and though their exports might slow for a while, are also nicely placed to stimulate domestic demand.

That assumes the graph is actually telling us anything useful. I spent quite some time studying stats at Uni, a lot of it a waste of time, it must be said, but it did teach me to be suspicious around zealots with numbers. Can you see any intuitive relationship between the concepts of productivity and deficit spending? I don't find it easy to link productivity, i.e. working harder and/or smarter, with how much debt a government is getting into. Though it churns out a sweet looking chart, does it actually mean anything? I mean, you could chart souvlaki consumption in Greece against total Greek government debt and come up with some pretty chart, but what have you achieved?

Swarm USA only has 186 members, according to their website, so unless Bill Gates or Warren Buffet are on their mailing list, we are way out on the fringe here.

breakfastburrito

26th Sep 2011, 12:51

Capt Gidday, a few bits of housekeeping
US Centric (World series analogy) - Fully agree that this article is US centric, as is (unfortunately) a significant body of work, in print & internet. This is a function of the reserve currency system (Bretton Woods I & II). Under this system, whatever happens to the reserve currency affects everyone. Almost everything is traded through US dollars in some way shape or form. Therefore, unfortunately for us, what happens to the US economy is critical to almost every economy that is tied into the reserve currency system (basically everyone).

Swarm USA - I visited that site incidently in preparing the formatting of the article. I make no representation for or against that site. I preserved the links merely for completeness. Even if it only has 1 member, does this detract from the message if it is a cogent argument?
=========================================

Though it churns out a sweet looking chart, does it actually mean anything?
Money in our current monetary system is actually debt - Money is loaned into existence (Government sells a bond to the Central Bank, the Central Bank then creates money out of thin air - holding government the bond as collateral - an IOU backed by governments ability to tax citizens. Government then spends money into the general circulation). Notice that the principle is loaned into existence, but not the interest. This is the fatal flaw in our current system. More money must be continuously loaned into existence to pay the interest on the previously created money. In other words, the money supply must continuously increase.

Consumers can only borrow so much. In theory, they can borrow so their entire income is spent on interest payments - debt saturation. Debt saturation for most people occurs before it reaches 100%, probably around 30~40% of their disposable income. But our system mathematically requires more money to be continuously loaned into existence to pay the interest on previously created money.

Once consumers are "tapped out", there is only one entity with the ability to continuously spend more than its income - the government through deficits. However, as government debt grows, the proportion of spending devoted to paying the interest continuously increases. In other words, of every additional dollar borrowed a greater proportion is devoted purely to pay interest on previous debt, and thus a smaller proportion enters into circulation. Eventually, for every dollar borrowed, none actually enters the economy - it simply pays the interest bill - this is debt saturation. That is what chart 1 is telling you. This is the point the US is rapidly approaching, and it is our problem because of the currency linkages through the Bretton Woods II system. (Its our currency, but your problem -- Treasury Secretary John Connally)

If you want to see how money is debt, this video explains it:
Money As Debt-Full Length Documentary - YouTube

Captain Gidday

26th Sep 2011, 21:25

Money is loaned into existence (Government sells a bond to the Central Bank, the Central Bank then creates money out of thin air - holding the government bond as collateral - an IOU backed by governments ability to tax citizens. Government then spends money into the general circulation).

So, then, Breakfastburrito, if that is the case, countries such as China and Norway, who have no net Government debt and have huge reserves, therefore should also have no currency in circulation? The argument is not cogent.

But that is not to say the US doesn't have a problem. Which is why Iraq and Libya were trying to move their payment for oil from USD to Euros, I suppose. Which is why Uncle Sam has been so interested in Iraq and Libya lately, I suppose.

breakfastburrito

27th Sep 2011, 01:47

So, then, Breakfastburrito, if that is the case, countries such as China and Norway, who have no net Government debt and have huge reserves, therefore should also have no currency in circulation?

The operative phrase being "no net Government debt". There is also private debt, and I believe if you investigated both China & Norway that there is net total debt- Its just not owed by the government. The government is not the only entity that can create credit, private banks can, they actually create the bulk of credit money in circulation. This is why they have such immense power.

You have inadvertently hit the nail on the head with "should also have no currency in circulation". This is correct, it is the Achilles heel of the system. Without debt, the current money system would cease to exist. Further, without a continuous exponential increase of money & credit in supply to pay back the interest on the money previously created, the system will fail (a series of cascading bankruptcies as interest payments cannot be made, as it has not yet been created).

The argument is not cogent.
Really, did you watch the video? Did you do a google search to test the veracity of my statement?

Here is the US Federal Reserve's (a private bank BTW) own publication: MODERN MONEY MECHANICS (www.rayservers.com/images/ModernMoneyMechanics.pdf)

Here's a quote from page 3:
Who Creates Money?
Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

The actual process of money creation takes place primarily in banks.(1) As noted earlier, checkable liabilities of banks are money. These liabilities are customers'accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts.

In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.

Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented
for payment.

Murray Rothbard provides an excellent explanation of mechanics of money creation in "The Mystery Of Banking (http://en.wikipedia.org/wiki/The_Mystery_of_Banking)" - available for free as a pdf (http://mises.org/books/mysteryofbanking.pdf) or .epub (http://mises.org/books/MysteryOfBanking.epub) format, in addition to paper format from amazon.

I haven't just "made up" these arguments. They are extremely well document, and have been well understood by the Bankers for hundreds of years. The fact that you are unaware of this "credit creation" process (as is almost everyone) is because the bankers & governments don't want you to see the fraudulent nature of the system. It is highly unlikely you will read about "fractional reserve banking" in any mainstream media. This does not mean it doesn't exist.

Captain Gidday

27th Sep 2011, 03:12

BB. I was merely replying to your statement. You said, without any qualifications, that the only way money is created is for governments to issue debt. Sure, the video suggests private banks create money, but that's not what you said.

So, the Reserve Bank of Australia is not a private bank. I don't know if that should make us feel better, or not.

What happened when Allco and Babcock and Brown went broke, or Ansett for that matter? Or the Icelandic banks, or Greece in the very near future? Did all the loans that were not repaid mean that money disappeared out of the system entirely? If so, is that a good thing or a bad thing? [Don't ask me, I don't know]. I do know that despite the assertion that the Icelanders told the central banks to "pound sand", that they look like having to pay back depositors in the UK and the Netherlands for many years, starting in 2017. And there are only 300,000 Icelanders

If I and thousands of other people my age have diligently paid off our mortgages and loans and owe nothing to anyone, does that mean money has been leaving the system? Or does the fact that we now are accumulators of cash in our bank accounts just make the cycle repeat. Thank goodness for government guarantees on savings accounts, in that case.

You know, we all really need to go outside and play, and not sit hunched over our screens trying to make sense of this stuff. Go and look up at the stars, or watch the waves roll in. In the larger context, it doesn't matter much. Seeya.

breakfastburrito

27th Sep 2011, 05:24

Sure, the video suggests private banks create money, but that's not what you said
Agreed, I wasn't clear on that point, it had been a long day.

So, the Reserve Bank of Australia is not a private bank. I don't know if that should make us feel better, or not.
That is correct, the RBA is actually a Federal Government institution, however (always a caveat) it is part of the global central bank system administered by the Bank of International Settlements (http://en.wikipedia.org/wiki/Bank_for_International_Settlements) (BIS), a private institution - It is not accountable to any national government.

In essence to gain access to the global credit market Central Banks, private or government have to be part of the BIS system. Therefore, the BIS controls all central banking - in effect controlling them. The international banking cartel exerts its influence through this BIS mechanism. The Australian government has far less control over the RBA than we are lead to believe.

Here's a list of some countries that weren't aligned with the BIS system: Iraq, Iran, Libya, North Korea & Syria, interesting isn't it.

What happened when Allco and Babcock and Brown went broke, or Ansett for that matter?
“Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.”
C.V. Myers - The Coming Deflation (1976)

Therefore, in these cases whoever held the debt takes a haircut (discount) of somewhere between 0 & 100%. Most likely banks & pension funds held bonds over these companies, and they incur a loss of capital.

When bailouts happen, the central bank buys these bonds at par with freshly created credit money. This is exactly what happened in the US with the toxic mortgage debt. Banks were "made whole" while the Fed became owner of the toxic waste. This has the effect of devaluing each current dollar - and this shows up as inflation, hence the rise in commodities since the bailout began in 08

If I and thousands of other people my age have diligently paid off our mortgages and loans and owe nothing to anyone, does that mean money has been leaving the system? Or does the fact that we now are accumulators of cash in our bank accounts just make the cycle repeat. Thank goodness for government guarantees on savings accounts, in that case.
If you have no debt's and own assets outright, you are in a strong position. If you have cash/shares/superannuation as assets you might want to think about purchasing some insurance "outside" the monetary system. This could be gold, silver, farmland, collectables (art wine, rare books) or a myriad of other physical assets that people will always need. The key is that none of these assets has a liability attached to it. How much insurance you purchase is a very personal decision, dependant upon your perception of risks and rewards.

You know, we all really need to go outside and play, and not sit hunched over our screens trying to make sense of this stuff. Go and look up at the stars, or watch the waves roll in.
Yep, just finished a nice bushwalk.

Captain Gidday

27th Sep 2011, 06:25

What happened when Allco and Babcock and Brown went broke, or Ansett for that matter? .
Yes, yes, yes. I know the debt holders take a haircut, I was one in BBL. I was more wondering how this effects the fiat money system. Does the removing of debt out of the system have a geared effect in reverse?

If I and thousands of other people my age ....owe nothing to anyone, does that mean money has been leaving the system

Again a question of theory. If the population is ageing, then this should be translating into reduced need for debt. This is especially so if the 'good' reasons to go into debt, to gear into assets such as real estate that have been in an inflationary bubble all my working life, more or less, will in future not be a particularly brilliant strategy. So if consumers reduce rather than increase their debt overall, as % of income, how is that going to affect the creation of money?

breakfastburrito

27th Sep 2011, 08:02

Does the removing of debt out of the system have a geared effect in reverse?
Excellent & perceptive question. If debt is extinguished out the system (as an example the central bank buys back banknotes from banks and burns them), then the effect is exactly reversed - and yes because of leverage typically 10:1 for Aus banks there is a 10:1 effect. There is an alternate mechanism for removing credit money from the system, the Central Bank sells bonds in the market (Open Market Operations).

However, these almost never occurs as it would cause the money supply to drop - deflation, an anathema to central bankers (see Bernanke "Helicopter Ben" speech in 2002 (http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm)).

Lets do a hypothetical. You take out a mortgage, you sign two documents a loan note and pledge the house as collateral. On the day of settlement, the bank simply deposits the money in the vendors account through a ledger entry - it has created money out of thin air with your mortgage note as the asset to back the credit money created.

The vendor goes to the bank and withdraws his funds in cash and spends the money immediately. It has entered circulation, it is beyond the control of the bank.

However, you now default on your loan - the money has been created, but the asset (loan note) is now worth significantly less. Its a bad market and the bank only realises 50% of the loan after foreclosing & sale. The loan loss is deducted from the shareholders capital. If enough loans default, shareholder capital is wiped out and the bank is insolvent.

The central bank decides to bailout the bank, as many loans have defaulted. It buys the mortgage note at par, so it creates money out of thin air and exchanges it for the mortgage note. The bank is free to then loan out this money again, at a leverage of 10:1. This process inflates the money supply (as the original money created is still in circulation) and eventually leads to higher prices as there is more money in circulation chasing a fixed number of goods.

The key point is that the credit money created out of thin air has been converted to cash and enters the circulation. If a loan goes bad, there is no method to cancel or extinguish the individual money units "backed" by this particular loan. In theory each currency unit could be identified and cancelled as its backing failed. This would lead to a situation where random holders of currency would suddenly see some of their money become worthless as it is arbitrarily cancelled.

Instead we have a system where bailouts devalue everyone's currency just a bit - everyone pays a price through decreased purchasing power. The money supply must not be allowed to drop for any meaningful length of time or the system is mathematically guaranteed to fail.

This is why the largest outstanding derivatives are for interest rate swaps (342 Trillion as of 2009- BIS figures) used to suppress interest rates so more credit could be lent and credit quality dropped (NINJA sub-prime loans). The mantra of "growth growth growth" from governments and business is all about stimulating the growth of loans to keep the ponzi scheme going.

Demographics - yes aging will diminish the need loans adversely affect the demand for loans. This is why the banking cartel wants to "lever up" Asia. As yet they haven't reached debt saturation, and this is the only way to keep the system going now that Europe & the North America are tapped out.

hongkongfooey

27th Sep 2011, 12:02

All very interesting, I only have one question, what is the AUD going to do over the next 6 months ?

The_Equaliser

27th Sep 2011, 22:24

Quote:
Here's a list of some countries that weren't aligned with the BIS system: Iraq, Iran, Libya, North Korea & Syria, interesting isn't it.

Do you really believe this crap, talk about ultra right wing American conspiracy theories. Let me guess, next you will be telling us that the banking cartel is run by faceless Jewish bankers.

breakfastburrito

28th Sep 2011, 03:48

Yep, if you claim that I'm hanging out on those right wing conspiracy theory sites like cnbc.com and bloomberg.com, then I'm guilty as charged

Libyan Rebels Form Their Own Central Bank

Published: Monday, 28 Mar 2011 | 2:52 PM ET Text Size
By: John Carney
Senior Editor, CNBC.com
Libyan rebels in Benghazi say they have formed their own central bank.

The rebel group known as the Transitional National Council released a statement last week (http://www.bloomberg.com/news/2011-03-21/libyan-rebel-council-sets-up-oil-company-to-replace-qaddafi-s.html) announcing that they have designated the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya, and that they have appointed a governor to the Central Bank of Libya, with a temporary headquarters in Benghazi, according to Bloomberg.

Is this the first time a revolutionary group has created a central bank while it is still in the midst of fighting the entrenched political power? It certainly seems to indicate how extraordinarily powerful central bankers have become in our era.

Robert Wenzel of Economic Policy Journal thinks the central banking initiative reveals that foreign powers may have a strong influence over the rebels.

This suggests we have a bit more than a ragtag bunch of rebels running around and that there are some pretty sophisticated influences. “I have never before heard of a central bank being created in just a matter of weeks out of a popular uprising,” Wenzel writes.

Source: Libyan Rebels Form Their Own Central Bank (http://www.cnbc.com/id/42308613/Libyan_Rebels_Form_Their_Own_Central_Bank)

The Transitional National Council released a statement announcing the decision made at a March 19 meeting to establish the “Libyan Oil Company as supervisory authority on oil production and policies in the country, based temporarily in Benghazi, and the appointment of an interim director general” of the company.
The Council also said it “designated the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and the appointment of a governor to the Central Bank of Libya, with a temporary headquarters in Benghazi.”

Source:Libyan Rebel Council Forms Oil Company to Replace Qaddafi’s (http://www.bloomberg.com/news/2011-03-21/libyan-rebel-council-sets-up-oil-company-to-replace-qaddafi-s.html)

Why would a group of rag-tag rebel fighters want to set up a central bank? I'm dying to hear your explanation.

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
-- Adam Smith

There are conspiracies to cheat the public all around you, just look at the Qantas Freight cartel prosecutions, Pratts VISY and the list goes on.

All I do is look around at the world, and I see the uber wealthy getting wealthier, and the average person getting poorer. The vast majority of Americans have had their wealth stripped away from them in the housing crash. The average European is about to have his wealth stripped via the EFSF bailout as the taxpayer backstops and bails out the Portugal/Ireland/Italy & Greece. I have asked myself the question why, and how can I do something to protect myself from this process.

If you really want to see the breathtaking fraud that has been committed under in full view of the regulator in the US, have a listen or read this interview of William Black, a law professor who was the chief prosecutor for the S&L crisis in the early 90's. He asks the question on why there have been no prosecutions for the financial calamity that is underway, with massive mortgage fraud, documented by the FBI in 2002: William Black: Why Nobody Went to Jail During the Credit Crisis The FBI is no longer chasing white collar criminals (http://www.financialsense.com/financial-sense-newshour/guest-expert/2011/09/14/william-k-black-phd/why-nobody-went-to-jail-during-the-credit-crisis). If there's no conspiracy why aren't the criminals in jail?

So, if you make it through all that material and your still convinced I'm a right wing conspiracy theorist then there's no fact or reasonable argument I can present that will change your mind.

For the record, I'm neither left or right, they are simply labels to identify you with a tribe in the same category as Ford/Holden, NSW/Queensland &Essendon/Collingwood. There is only one politician in this country that I can see actually has any integrity, the good Senator X.

I'm not bringing religion into it, and I suggest you do the same. Perhaps you would care to dispute my arguments with some facts, I'm all ears.

DutchRoll

28th Sep 2011, 05:38

All I do is look around at the world, and I see the uber wealthy getting wealthier, and the average person getting poorer.
On that, we can totally agree.....

There is only one politician in this country that I can see actually has any integrity, the good Senator X.
My opinion is that there are actually a couple lurking in both the major parties too, however their integrity has ensured that they'll never ever be under consideration for the top job.

However I would totally agree that the vast majority, in all of the Australian political parties, and their leaders, plus the majority of independents, are <brown smelly stuff>.

ga_trojan

28th Sep 2011, 07:27

Here's a list of some countries that weren't aligned with the BIS system: Iraq, Iran, Libya, North Korea & Syria, interesting isn't it.

You can also throw Yugoslavia and Sudan into that lot as well. Yugoslavia were a prosperous, independent nation until the IMF came along to give a hand.:mad:

So of all the countries that didn't have a private central banking system North Korea is the only the one the US hasn't invaded.......:hmm:

Interesting quote here from Wikipedia on Yugoslavia.

Yugoslavia was once a regional industrial power and economic success. From 1960 to 1980, annual gross domestic product (GDP) growth averaged 6.1 percent, medical care was free, literacy was 91 percent, and life expectancy was 72 years. But after a decade of Western economic ministrations and five years of disintegration, war, boycott, and embargo, the economy of Yugoslavia collapsed.

The_Equaliser

28th Sep 2011, 22:00

The countries you have outlined were either war torn or despotic dictatorships, or both. It is a good thing they are not part of the BIS. The idea that a newly installed government in Libya should take control of the central bank and the monetary system is also complately sensible. Especially considering Gaddafi and his family were in control of it and on the run. No conspiracy here.

breakfastburrito

28th Sep 2011, 23:42

How about those nut jobs at the Asia Times:

Libya all about oil, or central banking?
By Ellen Brown

Several writers have noted the odd fact that the Libyan rebels took time out from their rebellion in March to create their own central bank - this before they even had a government. Robert Wenzel wrote in the Economic Policy Journal: I have never before heard of a central bank being created in just a matter of weeks out of a popular uprising. This suggests we have a bit more than a rag tag bunch of rebels running around and that there are some pretty sophisticated influences.
Alex Newman wrote in the New American:
In a statement released last week, the rebels reported on the results of a meeting held on March 19. Among other things, the supposed rag-tag revolutionaries announced the "[d]esignation of the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and appointment of a Governor to the Central Bank of Libya, with a temporary headquarters in Benghazi."
Newman quoted CNBC senior editor John Carney, who asked, "Is this the first time a revolutionary group has created a central bank while it is still in the midst of fighting the entrenched political power? It certainly seems to indicate how extraordinarily powerful central bankers have become in our era."

Another anomaly involves the official justification for taking up arms against Libya. Supposedly it's about human rights violations, but the evidence is contradictory. According to an article on the Fox News website on February 28:
As the United Nations works feverishly to condemn Libyan leader Muammar al-Qaddafi for cracking down on protesters, the body's Human Rights Council is poised to adopt a report chock-full of praise for Libya's human rights record.

The review commends Libya for improving educational opportunities, for making human rights a "priority" and for bettering its "constitutional" framework. Several countries, including Iran, Venezuela, North Korea, and Saudi Arabia but also Canada, give Libya positive marks for the legal protections afforded to its citizens - who are now revolting against the regime and facing bloody reprisal.

Whatever might be said of Gaddafi's personal crimes, the Libyan people seem to be thriving. A delegation of medical professionals from Russia, Ukraine and Belarus wrote in an appeal to Russian President Dmitry Medvedev and Prime Minister Vladimir Putin that after becoming acquainted with Libyan life, it was their view that in few nations did people live in such comfort:
[Libyans] are entitled to free treatment, and their hospitals provide the best in the world of medical equipment. Education in Libya is free, capable young people have the opportunity to study abroad at government expense. When marrying, young couples receive 60,000 Libyan dinars (about 50,000 US dollars) of financial assistance. Non-interest state loans, and as practice shows, undated. Due to government subsidies the price of cars is much lower than in Europe, and they are affordable for every family. Gasoline and bread cost a penny, no taxes for those who are engaged in agriculture. The Libyan people are quiet and peaceful, are not inclined to drink, and are very religious.

They maintained that the international community had been misinformed about the struggle against the regime. "Tell us," they said, "who would not like such a regime?"

Even if that is just propaganda, there is no denying at least one very popular achievement of the Libyan government: it brought water to the desert by building the largest and most expensive irrigation project in history, the US$33 billion GMMR (Great Man-Made River) project. Even more than oil, water is crucial to life in Libya.

The GMMR provides 70% of the population with water for drinking and irrigation, pumping it from Libya's vast underground Nubian Sandstone Aquifer System in the south to populated coastal areas 4,000 kilometers to the north. The Libyan government has done at least some things right.

Another explanation for the assault on Libya is that it is "all about oil", but that theory too is problematic. As noted in the National Journal, the country produces only about 2% of the world's oil. Saudi Arabia alone has enough spare capacity to make up for any lost production if Libyan oil were to disappear from the market. And if it's all about oil, why the rush to set up a new central bank?

Another provocative bit of data circulating on the Net is a 2007 "Democracy Now" interview of US General Wesley Clark (Ret). In it he says that about 10 days after September 11, 2001, he was told by a general that the decision had been made to go to war with Iraq. Clark was surprised and asked why. "I don't know!" was the response. "I guess they don't know what else to do!" Later, the same general said they planned to take out seven countries in five years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran.

What do these seven countries have in common? In the context of banking, one that sticks out is that none of them is listed among the 56 member banks of the Bank for International Settlements (BIS). That evidently puts them outside the long regulatory arm of the central bankers' central bank in Switzerland.

The most renegade of the lot could be Libya and Iraq, the two that have actually been attacked. Kenneth Schortgen Jr, writing on Examiner.com, noted that "[s]ix months before the US moved into Iraq to take down Saddam Hussein, the oil nation had made the move to accept euros instead of dollars for oil, and this became a threat to the global dominance of the dollar as the reserve currency, and its dominion as the petrodollar."

According to a Russian article titled "Bombing of Libya - Punishment for Ghaddafi for His Attempt to Refuse US Dollar", Gaddafi made a similarly bold move: he initiated a movement to refuse the dollar and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Gaddafi suggested establishing a united African continent, with its 200 million people using this single currency.

During the past year, the idea was approved by many Arab countries and most African countries. The only opponents were the Republic of South Africa and the head of the League of Arab States. The initiative was viewed negatively by the USA and the European Union, with French President Nicolas Sarkozy calling Libya a threat to the financial security of mankind; but Gaddafi was not swayed and continued his push for the creation of a united Africa.

And that brings us back to the puzzle of the Libyan central bank. In an article posted on the Market Oracle, Eric Encina observed:
One seldom mentioned fact by western politicians and media pundits: the Central Bank of Libya is 100% State Owned ... Currently, the Libyan government creates its own money, the Libyan Dinar, through the facilities of its own central bank. Few can argue that Libya is a sovereign nation with its own great resources, able to sustain its own economic destiny. One major problem for globalist banking cartels is that in order to do business with Libya, they must go through the Libyan Central Bank and its national currency, a place where they have absolutely zero dominion or power-broking ability. Hence, taking down the Central Bank of Libya (CBL) may not appear in the speeches of Obama, Cameron and Sarkozy but this is certainly at the top of the globalist agenda for absorbing Libya into its hive of compliant nations.

Libya not only has oil. According to the International Monetary Fund (IMF), its central bank has nearly 144 tonnes of gold in its vaults. With that sort of asset base, who needs the BIS, the IMF and their rules?

All of which prompts a closer look at the BIS rules and their effect on local economies. An article on the BIS website states that central banks in the Central Bank Governance Network are supposed to have as their single or primary objective "to preserve price stability".

They are to be kept independent from government to make sure that political considerations don't interfere with this mandate. "Price stability" means maintaining a stable money supply, even if that means burdening the people with heavy foreign debts. Central banks are discouraged from increasing the money supply by printing money and using it for the benefit of the state, either directly or as loans.

In a 2002 article in Asia Times Online titled "The BIS vs national banks" (http://www.atimes.com/global-econ/DE14Dj01.html) Henry Liu maintained:
BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies. The BIS does to national banking systems what the IMF has done to national monetary regimes. National economies under financial globalization no longer serve national interests.

... FDI [foreign direct investment] denominated in foreign currencies, mostly dollars, has condemned many national economies into unbalanced development toward export, merely to make dollar-denominated interest payments to FDI, with little net benefit to the domestic economies.
He added, "Applying the State Theory of Money, any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation." The "state theory of money" refers to money created by governments rather than private banks.

The presumption of the rule against borrowing from the government's own central bank is that this will be inflationary, while borrowing existing money from foreign banks or the IMF will not. But all banks actually create the money they lend on their books, whether publicly owned or privately owned. Most new money today comes from bank loans. Borrowing it from the government's own central bank has the advantage that the loan is effectively interest-free. Eliminating interest has been shown to reduce the cost of public projects by an average of 50%.

And that appears to be how the Libyan system works. According to Wikipedia, the functions of the Central Bank of Libya include "issuing and regulating banknotes and coins in Libya" and "managing and issuing all state loans". Libya's wholly state-owned bank can and does issue the national currency and lend it for state purposes.

That would explain where Libya gets the money to provide free education and medical care, and to issue each young couple $50,000 in interest-free state loans. It would also explain where the country found the $33 billion to build the Great Man-Made River project. Libyans are worried that North Atlantic Treaty Organization-led air strikes are coming perilously close to this pipeline, threatening another humanitarian disaster.

So is this new war all about oil or all about banking? Maybe both - and water as well. With energy, water, and ample credit to develop the infrastructure to access them, a nation can be free of the grip of foreign creditors. And that may be the real threat of Libya: it could show the world what is possible.

Most countries don't have oil, but new technologies are being developed that could make non-oil-producing nations energy-independent, particularly if infrastructure costs are halved by borrowing from the nation's own publicly owned bank. Energy independence would free governments from the web of the international bankers, and of the need to shift production from domestic to foreign markets to service the loans.

If the Gaddafi government goes down, it will be interesting to watch whether the new central bank joins the BIS, whether the nationalized oil industry gets sold off to investors, and whether education and healthcare continue to be free.

Ellen Brown is an attorney and president of the Public Banking Institute, Public Banking Institute - Banking in the Public Interest (http://PublicBankingInstitute.org). In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are Web of Debt - How Banks And The Federal Reserve Are Bankrupting The Planet... (http://webofdebt.com) and http://ellenbrown.com.

Asia Times: Libya all about oil, or central banking? (http://www.atimes.com/atimes/Middle_East/MD14Ak02.html)

The BIS vs national banks (http://www.atimes.com/global-econ/DE14Dj01.html)[Asia Times] By Henry C K Liu

More from those "right wing conspiracy theorists nut jobs" at the UK Daily Mail & Telegraph:

MICHAEL BURLEIGH: This saga of moral squalor shames Britain
Last updated at 11:24 AM on 8th September 2011

They say that when supping with the Devil, you should bring a long spoon. The discovery of secret correspondence between the Labour government and the Gaddafi regime in the abandoned British ambassador’s residence in Tripoli reveals dining arrangements akin to snouts grubbing greedily together in one stinking trough.

The tone is occasionally risible. ‘Dear Muammar’, Blair begins a letter to Gaddafi on December 28, 2006, adding the Arabic New Year salutation ‘Eid mubarak’ with a toe-curling desperation to please. Maybe Gaddafi had already wished Tony ‘Happy Christmas’? I somehow doubt it.

In the following March, Blair was at it again, writing with gushing insincerity to ‘Engineer Saif’ – Gaddafi’s playboy son Saif al-Islam – thanking him for sending him a copy of his ‘interesting’ LSE thesis. That will be the plagiarised thesis Saif concocted with the help of Tony Blair’s favourite academics at the London School of Economics, an institution whose once-proud reputation has been dragged through the mud after it accepted Gaddafi’s tainted cash.

You have to pinch yourself to realise that these letters are not a spoof, but instead some of the more farcical elements in the grotesque dealings of a major western power with a flyblown desert dictatorship in North Africa whose leader was recently described by David Cameron as ‘a monster’.
We all knew that Blair had signed up to a sordid Faustian pact with Gaddafi, but to see the letters and embassy documents which have emerged in Tripoli, as well the information obtained from the office of his former Minister for Security Musa Kusa – who turned sides and fled here this spring – is to realise the true, appalling extent of the damage that has been done to Britain.

The manner in which the machinery of government and the security and intelligence forces were co-opted into highly dubious practices on Gaddafi’s behalf is staggering.

Who could have possibly believed that MI6 illegally provided the Libyan secret police with tailor-made questions to be asked of its Islamist detainees, in the sure knowledge that Gaddafi’s thugs habitually used torture?

How can we reconcile the fact that MI6 information and advice was used by Gaddafi to undermine the fundamentalist Libyan Islamic Fighting Group, whose leader Abdel Hakim Belhadj was held and tortured for six years in Libyan jails, with the fact that we now proclaim him a rebel hero who has just been appointed chief of security in newly liberated Tripoli?

Perhaps the most appalling indictment of the last government’s dealings with Gaddafi comes in the form of documents leaked from the office of the dictator’s former henchman Musa Kusa – a man who used torture without compunction and was known in Libya as The Fingernail-Puller-in Chief.
These appear to show that MI6 actually helped capture Belhadj and deliver him into Gaddafi’s hands – an episode hardly likely to lead to a cordial relations with the new regime

We have heard much in recent weeks of the antics of Britain’s Special Forces heroes, as they have brilliantly directed Nato airstrikes on Gaddafi’s forces. But the documents now unearthed in Tripoli reveal that the very same SAS was involved in training the feared Khamis Brigade, commanded by one of Gaddafi’s sons and thought to have been behind some of the worst atrocities in the conflict. Ninety of these killers were even brought to Britain for instruction, before returning home to Libya with Blair’s stamp of approval. Whether that quality assurance covered the Khamis Brigade’s inclination to line rebels against a wall and shoot them is a moot point.

Of course one cannot be naive. In global politics, Western powers such as Britain have to deal with monsters and Mad Dogs – as Ronald Reagan memorably called Gaddafi.

But what is so grotesque is quite how close to him Labour became, and how unscrupulously fawning it was in carrying out his wishes.
Everything about the Labour government’s relations with Libya seems sordid, whether under Blair or Gordon Brown. And how hypocritical these two men seem given the moralising posturing they indulged in on the international scene. Both were always ready to lecture any erring Third World government, not to speak of the Chinese and Russians, on human rights while at the same time helping Gaddafi with his murderous activities.
It was back in 2004 that Blair made his deal with Gaddafi, shaking hands with the dictator amidst the kitsch surroundings of his now burnt-out palace in Tripoli.

They made an odd couple, the right-on London lawyer whose wife was a noted human rights advocate, and the rancid old tyrant.

But Blair saw political capital in embracing the monster. The ostensible reason was that Gaddafi would abandon his WMD programme, although there is no evidence that he did so. The real reason was that Shell and BP would gain extensive drilling rights in an oil and gas-rich country much nearer to Europe than the Gulf. For his part Gaddafi was fed up with being an international pariah and saw the advantage of Western investment in industry, oil and tourism.

But the deal Blair made was shameless. He was to let bygones be bygones. Gaddafi’s past support for the IRA? Think nothing of it. The gunning down of WPC Yvonne Fletcher outside the Libyan Embassy in 1984? Let’s forget it.
Lockerbie? Now this is where things began to unravel – for Blair and Brown ignored the potential anger of both American and Lockerbie families by releasing the bomber Abdelbaset Al Megrahi after Gaddafi threatened ‘holy war’ if the mass killer died in his Scottish prison.

U.S. outrage over the deaths of 270 people – most of them American citizens – was construed merely as a ‘presentational risk’, the papers now show. How typical that a party which was so obsessed with image and PR should construe such a crime in such amoral terms.
Officials also noted in the papers that Megrahi’s release would lead to suspicions that ‘the UK is prepared to do anything to maintain its commercial and other ties with Libya’.

Quite how far Labour’s leaders were prepared to go to keep those oil and gas contracts is now depressingly apparent.
Instead of congratulating himself on bringing down Gaddafi, David Cameron should be initiating a public inquiry into this episode of moral squalor, while ensuring that nothing like it occurs in our relations with the new Libya – or any foreign power – ever again.

DailyMail: This saga of moral squalor shames Britain (http://www.dailymail.co.uk/debate/article-2033779/Gaddafi-Tony-Blairs-saga-moral-squalor-shames-Britain.html)

Tony Blair's six secret visits to Col Gaddafi
Tony Blair’s close relationship to Colonel Muammar Gaddafi has come under fresh scrutiny after it emerged he had six private meetings with the dictator in the three years after he left Downing Street.

By Robert Mendick, Chief Reporter9:32PM BST 24 Sep 2011

Five of those meetings took place in a 14-month period before the release of Abdelbaset al-Megrahi, the Lockerbie bomber.

Mr Blair is coming under increasing pressure to make public details of all his meetings and discussions with Gaddafi. It follows the disclosure in The Sunday Telegraph last week that on at least two occasions Mr Blair flew to Tripoli on a private jet paid for by the Libyan regime.

Among the new meetings uncovered by this newspaper is a visit to Gaddafi in January 2009, when JP Morgan, the US investment bank which pays Mr Blair £2 million a year as a senior adviser, was trying to negotiate a deal between the Libyan Investment Authority (LIA) and a company run by the Russian oligarch Oleg Deripaska, a friend of Lord Mandelson. The multi-billion dollar deal, which later fell through, would have seen the LIA provide a loan to Rusal, the world’s largest aluminium producer.

JP Morgan’s involvement in the deal is revealed in an email sent to the LIA by the bank’s vice-chairman, Lord Renwick, in December 2008, in which he sought to “finalise the terms of the mandate concerning Rusal before Mr Blair’s visit to Tripoli”.

JP Morgan said Mr Blair had no knowledge of the Rusal proposal. A spokesman added: “JP Morgan declined to participate on such a transaction and thus Mr Blair was never involved, and it was never discussed with him.”

A spokesman for Mr Blair said: “Neither Tony Blair nor any of his staff raised any issue to do with a Russian aluminium company.” He added that the “bulk of the conversations” with Gaddafi had been about Africa and how Libya could develop infrastructure. While Gaddafi raised the issue of Megrahi’s release, Mr Blair always repeated that “it was a matter for the Scottish government”, the spokesman added.

Global Witness, an anti-corruption campaign group which obtained the Rusal email, said Mr Blair’s links to the LIA raised potential conflicts of interest between his roles as a Middle East peace envoy, fund-raiser in Africa and business adviser. Robert Palmer, a spokesman, said: “It’s hard to see how being Middle East peace envoy squares with doing business with a tyrant.”

Mr Blair's spokesman said: "Tony Blair has never had any role, either formal or informal, paid or unpaid, with the Libyan Investment Authority or the Government of Libya and he has not and has never had any commercial, business or advisory relationship with any Libyan company or entity."

This newspaper can also disclose that the Foreign Office granted a visa for Gaddafi’s daughter Hana to come to Britain last year, even though she was supposedly killed in a US bombing raid in 1986. Evidence has also emerged of the full extent of Britain’s deals with Khamis Gaddafi, the tyrant’s feared son, whose Khamis brigade has been accused of committing atrocities.

Tony Blair's six secret visits to Col Gaddafi (http://www.telegraph.co.uk/news/politics/tony-blair/8787074/Tony-Blairs-six-secret-visits-to-Col-Gaddafi.html)

Clearly the situation is far murkier than your "no conspiracy here" argument. What is the truth? We are only ever allowed to see just the thinnest slivers of what actually happens behind closed doors at the highest levels. From the crumbs that do fall off the table, it is clear that something stinks to high heaven.

No conspiracies here, move along. We will have to agree to disagree.

oicur12.again

29th Sep 2011, 16:44

the equaliser

Take a look at Wesley Clark's chat about what has been planned.

Wesley Clark and the Truth about the Middle East - YouTube

War has been manufactured since the beginning of time for reasons of money and power dressed up has humanitarian intervention (Balkans/Libya) and national security (Afghanistan/Iraq).

gobbledock

30th Sep 2011, 02:24

Breakfastburrito, your posts are articulate and well researched. Pretty much all of what you share with others is fact and already out there, no personal conspiracy theories are evident in any of your comments.
Instead of wasting time responding to people like Captain Gidday, keep posting your informative work instead. Some people either refuse to see the truth or simply enjoy arguing over fruitless points for no discernable reason.
As for Libya, if it wasn't so obvious it would be funny -- Central banks are a license to print money, control economies, load your own pockets (or those of a select few) !!! It works in Europe and the USA, why not Libya ??
The grey economic clouds are getting darker. I have said this before, look at what the worlds take was on global economies and finance when this thread commenced ??? Minimal talk on Greece defaulting or even the USA defaulting for that matter, yet here we are a few months later and the ball of string has well and truly unravelled with countries scrambling for solutions, riots, job losses, inflation and bankrupcy, and all the while some posters on here have been throwing around their comments about some of us being "conspiracy theorists, professors or other weido's" ? Unbelievable.

And anybody who thinks Australia is positioned to withstand the coming financial storm also needs to stop living in fantasy land. We are currently in a deeper state of debt than ever before. It all hangs on a knife edge because China is our lifeline and that gravy train has to run out of steam, and it will turn soon. China's inflation is becoming a problem, and remember, the USA WILL default on their loans which includes the 2.3 trillion they owe China, and Greece will also default on its loans (and no, Germany will not play 100% mother to Greece as Germany would risk ending up in the same sh#tpile), this in turn will contribute to the world wide economic disaster that is rapidly approaching. As soon as China and its thirst for resources slows we will be well and truly up sh#tcreek. It is a matter of when not if.
As for Swanny being the 'World's Best Treasurer' ? Ha, what a laugh. He has the best current economical standing, ironically by default. It is not his doing that we have weathered the storm better than other nations, it is by sheer luck that China has such a big resource appetite and we have the resources to feed it, simple as that. The current and previous Australian governments can take no credit for that, mother Australia and what lies beneath the ground get all the glory.

Slasher

30th Sep 2011, 05:09

Hedge-fund manager and short-seller Jim Chanos recently offered his latest bearish take on the coming chaos he sees ahead for China.

Chanos who's a bloody brilliant "forensic accountant" in my book (and nailed the Enron and Worldcom frauds) believes the country is headed for a huge real estate bust - one that will send the prices of Chinese banks, real estate developers and commodity producers much much lower. In fact if I quote Chanos on Bloomberg earlier this week -

"The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They're turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China. Regulators over there are really trying to get their hands around the problem. In the meantime local governments have every incentive to just keep the game going. So they will continue with these projects and continue to borrow as the central government tries to rein it in."

In 2008, Americans learned the hard way what happens when a mania in rampant lending, real estate speculation, and shady banking practices hits a wall. When Chanos is proven right on China, and marks my words on this guys, it's going to get really fcuking ugly down there in Oz with that ratbag lunatic government currently in federal power.

I suggest you spare an hour to hear what Chanos is saying. Take it from me - this bugger knows what he's talking about when he speaks on China!

99HNFCn5RP8

However I should mention that China isn't your biggest near-term worry. That remains with the slow moving financial bloody train wreck taking place in Europe. The latest news I have comes in the form of the IMF's estimate that European banks have more than $400 billion in credit risk. Again from Bloomberg -

The European debt crisis has generated as much as 300 billion euros ($410 billion) in credit risk for European banks, the International Monetary Fund said, calling for capital injections to reassure investors and support lending. Political squabbling in Europe over ways to fight contagion and delays in implementing agreed measures are raising concerns about the risk of defaults by governments, the IMF said. Banks in turn face "funding challenges" because of investor concern about their potential losses from government bonds they hold, with some relying heavily on the European Central Bank for liquidity, it said.

Whatever those stupid politicians do or say, you only need to know that Europe is in a no way out situation - the only possible outcome is more money printing to "paper over" the giant debts countries like Italy and Greece have piled up over the year.

SOPS

30th Sep 2011, 07:01

I claim no expertise in any of this, but from what I understand that is currently happening in Europe...Goverments are setting up a scheme to guarantee money that they dont actually have...to lend to themselves..to pay back loans with money the dont have!!!! (if that makes sense)

This has to be a recepie for total meltdown:ugh:

ga_trojan

1st Oct 2011, 09:40

Satyajit Das on the Aviation Business and Finance. Absolutely fascinating interview and sounds awfully similar to QF. It is how finance/accounting gurus manipulate and ultimately destroy aviation businesses. They turned airlines into trading companies.

Anyone working in the airline business should hear this.

Interview starts at 2 minutes.

The Friday Podcast: How Money Got Weird : Planet Money : NPR (http://www.npr.org/blogs/money/2011/09/30/140954343/the-friday-podcast-how-money-got-weird#more)

Captain Gidday

1st Oct 2011, 10:43

Sounds like he must have worked for Ansett / AWAS.
Now, if only airlines could really become like banks and bring money into existence, eh, Breakfastburrito? Oh yes, I forgot, they do. It's called Frequent Flyer Points.

SOPS

4th Oct 2011, 13:17

Well I think it has started...and on CNBC we have the guy from "Kramers Money" or what ever he is called..that the last time told us all was good...he is now saying that maybe he sort of did say a bit did not really but I did say this was coming......

The next week will be interesting..hold on tight !!!!

Jock p

5th Oct 2011, 23:06

Says it all really

"The wealthy, not only by private fraud but also by common laws, do every day pluck and snatch away from the people some part of their daily living. Therefore, when I consider and weigh in my mind these commonwealths which nowadays do flourish, I perceive nothing but a certain conspiracy of rich men in procuring their own commodities under the name and authority of the commonwealth.

They invent and devise all means and crafts, first how to keep safely without fear of losing that which they have unjustly gathered together, and next how to hire and abuse the work and labor of the people for as little money and effort as possible."

Thomas More, Utopia

gobbledock

6th Oct 2011, 00:18

You know the system is sick when aprroximately 1% of a countries wealthy have 20% of the countries money in their bank accounts.
When Warren Buffet tells you that he pays less tax than his PA you know something is totally wrong.
The USA Federal Reserve is a structured milk cow for a handful of trillionaire families. When will the world's populous unite and tear this corrupt system apart? It has to be time to tear down the walls protecting a virtual mafia of banking families acting as puppeteers who are holding the population to financial ransome. Give these bast#rds their just deserts. As for the governments who are allowing this rot to exist, who are bending over and allowing themselves and their countries to cop it sweetly because they don't have the balls to say 'enough is enough' well they are equally accountable.

Foie gras

6th Oct 2011, 23:02

v=fCsIqLPjP4A&feature=

gobbledock

7th Oct 2011, 08:30

Well i'll be damned, Gen X, Y whatever you wish to call them have woken up !!
Listen to the kid folks, he knows his history, he comprehends the rort, he see's what is coming.

Anthill

7th Oct 2011, 09:45

Obviously an Enemy of The State.

:ok:

oicur12.again

7th Oct 2011, 18:28

Gold vs Every Central Bank - YouTube

oicur12.again

7th Oct 2011, 18:42

Total economic meltdown , the Euro will end Europe will disintegrate ...... - YouTube

mikk_13

7th Oct 2011, 20:42

I read a lot of this stuff. I think only a few know whats comming.

The most important little bit of info I picked up in the last weeks is this;

Rumour has it that the german gov has ordered plates for printing Mark, and they are doing it in a hurry.

The reason is this:

Greece has 2 options,
1. stay in euro- euro banks take hair cut (nationalized), greek people take more of a hair cut, german economy will suffer because of high gov debt due to bail outs, merkel gets the sack since the germans ain't happy bout it, greece is ****** since they still have huge debt with high unemployment and thus depression.
2. leave euro- banks in euro nationalized, massive losses compared to 50%default by greece, greece devalues currency as much as it needs to wipe debt (money prining), greece recovers after the pain, less political unrest. Germany still has to nationalize banks, only this time it costs more since they lost 100% of their greek bonds, german economy suffers due to massive debt, inflation in germany will explode due to eventual money printing by ECB to bail out governments across europe. After this, the rest of the pigs will follow what greece did and thus the problem with decimate anyone left in the euro (germany, france etc. )

So either way germany is stuffed if they do nothing. The only real option they have is to be first off the boat. Print their own currency, sudden announcement that they will leave the euro. The mark will rapidly value against the euro and this will lead to a slowing of the massive export market in germany. Euro will collapse over night but germany won't be stuck with the bill at the end of the night if and when the pigs leave the euro. the rest of the euro community is stuffed.

It will be sudden and shocking, and this will ripple across the pond to the states, where the real problem will start.

breakfastburrito

7th Oct 2011, 20:48

Foie gras, that is a breakfastburrito approved RANT :ok:

Jim Rickards has lots of interesting interviews floating around, well worth searching out. In this interview he nails the problem as Triffins dilemma (http://en.wikipedia.org/wiki/Triffin_dilemma).

Related is Gibson's paradox. This article: Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices (http://www.gold-eagle.com/editorials_01/howe082201.html) explains how the former Treasury Secretary "solved" the paradox, utilizing government "pegging operations" to suppress the price of gold. As Rickards points out, in the end, Mr Market is bigger than even the central banks, hence the solution will only buy more time.

oicur12.again

7th Oct 2011, 21:31

Collapse of the Dollar - Rise of the Amero - YouTube

breakfastburrito

8th Oct 2011, 01:21

Submitted by Brian Rogers of Fator Securities

Economic Punctuated Equilibrium

“I have been studying the traits and dispositions of the "lower animals" (so called) and contrasting them with the traits and dispositions of man. I find the result humiliating to me.” - Mark Twain, Letters from the Earth

Talking Brazil

Happy Friday to one and all. First things first, I just finished a multi-city non-deal roadshow with Banco Fator’s head of equity research and strategy, Lika Takahashi. For those who aren’t familiar with Lika, you really should be. She has been one of if not the most pragmatic, conservative Brazil equity strategists in the market and typically destroys her competition with her price target on the Ibov. Investors we spoke to had 3 main questions for Lika: 1) what is our outlook for inflation in Brazil, 2) what is our outlook for growth in Brazil and 3) what is our take on the Brazilian central bank’s recent decision to cut rates by 50bps.

On inflation, I think central bank head Tombini has a problem. He said he expects global growth to decline and this downturn in GDP will attenuate inflationary pressures in Brazil. The problem I have with this view is that the Fed, BOE, ECB and BOJ won’t simply sit around and take a deflationary slowdown without a fight. They will print, obviously. This will produce monetary inflation and will help to keep commodity prices resiliently high. Tombini expects inflation to come down, I say good luck with that.

On growth, it’s possible that Brazil keeps the 3.4% or so growth next year based on the strength of their services labor market and government spending for the World Cup and other infrastructure projects. However, keep a close eye on China. For the first six months or so of the year there weren’t too many analysts overly concerned about dramatically slowing growth in China. However, the last few months have seen a bevy of “hard landing” articles about China. If China does hard land, say 6% growth, then Brazil will also slow dramatically.

On the central bank’s decision to cut rates only 2 days after Dilma went on TV and said that she wished rates would go down, I obviously feel that the days of central banking independence championed by Henrique Meirelles are dead.

All that being said, I should note here that I am actually quite bullish on Brazil. Why? Simply put, they have options. Despite my concerns about Tombini’s recent move, the central bank has a plethora of tools they can implement to help stabilize any major volatility. Government spending and general debt levels have been conservative recently and could be increased to offset bad times. And finally, Brazil has one of the best demographic profiles around with a huge population of young people and an increasing trend of poor people moving up the economic ladder.

It’s not that Brazil will avoid all problems, they won’t, it’s just that on a relative basis Brazil is much better positioned to deal with their problems than the vast majority of developed nations and nearly all of the emerging market countries.

Which brings me to the macro view.

Economic Punctuated Equilibrium

The late Harvard/NYU paleontologist Stephen Jay Gould and Niles Eldredge, who is the curator of the invertebrates department at the American Museum of Natural History, proposed a rather radical evolutionary theory in 1972 called punctuated equilibrium. The evolutionary thinking at the time was generally that species changed very slowly and gradually over time. Gould and Eldredge challenged this notion with punctuated equilibrium by arguing that rather than slow, gradual change, species remained stable for long periods of time and only changed during short, brief bursts of major change.

For example, an animal population could live for many generations without any noticeable change in genetic make-up. Then, due to the effects of an earthquake, volcano, climate change or some other major event, the population could be split into different groups with different geographies, food and water sources, climates, etc. As the populations react to the sudden change, they will go though rapid and noticeable adaptations to their new environment which will result in great change over a short period of time. However, after the major adjustment takes place, the population will stabilize again and largely remain the same until another great environmental change.

I’m obviously generalizing here and my apologies to the late Professor Gould and Professor Eldredge for the dumbed down explanation of their great theory, but I’m just an average equity research salesman and need to keep this simple.

When I think about the history of the financial and economic system of the US, I see many ways in which the theory of punctuated equilibrium is playing out. By and large, we have lived through long periods of general stasis punctuated by brief periods of radical change. Some of those periods of change can be identified as the creation of the Fed in 1913, the Bretton Woods Conference in 1944, the closing of the gold window in 1971 and the repeal of Glass-Steagall in 1999 via Gramm-Leach-Bliley. After every one of these major turning points, the market has had to make quick, radical adjustments. Following the adjustments, sometimes painful ones, the market would enter into relatively long periods of “stability.” But stability for whom? The 1% that controls the game.

He Who Controls the Game Wins

In my opinion, the problems we face today are not because we built a robust, transparent, fair system that is simply facing a few bumps in the road. Hardly. The problems we face today exist because the economic system has never been allowed to evolve into a system that is truly fair or just for all. Rather it is designed to ensure that the 1% who have always controlled things will maintain that control. It’s all very subtle, but make no mistake about it, crony-capitalism is the rule of the day.

And even when we did implement evolutionary changes that benefited all members of society (Glass-Steagall), the powers that be patiently waited until the moment was right to snatch that freedom away from the people and hand it back to the 1% (Gramm-Leach-Bliley).

The Fed controls the issuance of our currency and thus controls the price of money. The Fed also oversees our banks and thus plays a hugely vital role in how transparent (or not) our banking system is. Politicians control the legislative process and largely determine the judges that oversee the judicial process. These same politicians are controlled by large corporations and wealthy individuals due to the ridiculous way our campaign finance laws work and our lack of term limits. See the pattern?

Is a New Economic Punctuated Equilibrium Moment Upon Us?

Given the complete and utter disaster that awaits us once the curtain is finally drawn back in Europe, it’s important to consider whether or not the crisis we currently face is nothing but another downturn or is it in fact another game-changing, punctuated equilibrium moment? I firmly believe it is the latter. I’ll spare the audience the laundry list of challenges we face as a global economy - unsustainable debt loads, ghost cities, peak oil, climate change, over $700tr in notional derivative exposure, etc. - it’s a long list. In the final analysis, it’s hard to conclude anything other than the system we’ve known since 1971 is about to implode.

The powers that be know this and they are very afraid. Every piece of chewing gum they’ve tried to use to glue their global economic model back together again has failed. Humpty Dumpty has had a great fall but the cracking-up isn’t over yet. Indeed, we have arrived again at one of the great turning points in economic history. However, the current destination is the one that the 1% hate so much. This is the moment where some of the 1% lose their grasp on power and money and witness first-hand Schumpeter’s creative destruction.

Historically, these are the times when pitchforks are carried and torches lit. Think about how wealthy, powerful Brits felt when news of the original Tea Party made its way to London. Think about how a rich plantation owner in the South felt when news of Lee’s defeat at Gettysburg filtered down. Think about how a New York investment banker felt in 1933 when Glass-Steagall was passed. They were very likely afraid, very afraid. The edifice of their power and wealth was crumbling down around them.

Which brings me to Zuccotti Park.

Something Very Big Is Occupying Wall Street

Financial analyst and commentar Mike Krieger wrote a great piece yesterday where he discussed the Occupy Wall Street protestors and what’s happening in Lower Manhattan. One of the comments I particularly liked was Mike’s use of Mahatma Gandhi’s great quote to describe how the protestors are being viewed by the powers that be.

“First they ignore you, then they laugh at you, then they fight you, then you win.” - Mahatma Gandhi

The protestors downtown have moved past the ignore stage as the media blackout has given way to the sheer weight of the story. The strategy has now shifted to discrediting/laughing at/making fun of the protestors. The problem with this phase for the media will be the extremely difficult way it’s going to be to pigeon hole this crowd. They don’t represent the left or the right. They don’t represent the Dems or Repubs, business owners or labor unions, capitalists or socialists, rich or poor, black or white. They represent all of us.

All of the above groups are present and participating in these rallies. The protestors aren’t necessarily anti-capitalist or anti-corporation per se. They are anti the current system. The system that they have no influence over and yet controls their lives. The system that has seen average real wages remain flat for decades while inflation slowly exacts its insidious costs. The system that pushes forward fake politicians with movie star smiles, populist rhetoric and polished speaking styles, whose sole mission once elected is to maintain the status quo for the wealthy individuals and corporations that got them elected. The system that prints out of thin air and borrows from third world China and elsewhere trillions of dollars to bail out the wealthy while sending the bill the average taxpayer. The system that will produce, for the first time in the history of the United States of America, a current generation of young citizens who will be worse off than their parents were before them.

That’s what I think the protestors are all about and I support it 100%. Occupy Wall Street is creating the next economic punctuated equilibrium moment and I say the sooner the better.

Have a great weekend.

Brian

* Fator Securities LLC, Member FINRA/SIPC, is a U.S. entity and a member of the Fator group of companies in Brazil. The comments below are from Brian Rogers, who is employed by Fator Securities (Brian’s opinions are his own and do not constitute the opinions of Fator Securities or the Fator group of companies).

Fator Securities LLC is not affiliated with Zero Hedge or any third party mentioned in this communication; nor is Fator Securities LLC responsible for content on third party websites referred to in this communication.

This material was not prepared by Fator Securities LLC. U.S. Persons seeking further information must contact Fator Securities LLC in New York at (646) 205-1160. This material shall not constitute an offer to sell or the solicitation of any offer to buy (may only be made at the time qualified participants are in receipt of the requisite documentation, e.g., confidential private offering memorandum describing the offering, related subscription agreement, etc.). Securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful or until all applicable regulatory or legal requirements of such jurisdictions have been satisfied. This material is not intended for general public use or distribution and is intended for distribution only to appropriate investors. The opinions contained herein are based on personal judgments and estimates and are, therefore, subject to revision. Past performances are not indicative of future results.
Source:Guest Post: Economic Punctuated Equilibrium (http://www.zerohedge.com/news/guest-post-economic-punctuated-equilibrium)

Cost Index

8th Oct 2011, 06:19

Occur12.again interesting how in your first video the guy talks up gold and then in the next video another guy says he doesn't like it despite the fact they are both pretty much talking about the same end game.

With currency debasement happening there is only one dieection for gold to travel, and that's North. Question is, when to off load it.

neville_nobody

8th Oct 2011, 11:18

The only real option they have is to be first off the boat. Print their own currency, sudden announcement that they will leave the euro.

Apparently that isn't an option as there is no constitutional way anyone can exit the Eurozone. If there was; number one would be to punt the Greeks, deflate their dollar and start the country again as with Argentina.

You would find if Germany tried to exit they would be taken to the European High Court. Ultimately they are a sovereign nation and can do what ever they want but they would want to have the military ready to backup any form of exodus of Europe as it will get ugly.

mikk_13

8th Oct 2011, 11:39

You would find if Germany tried to exit they would be taken to the European High Court. Ultimately they are a sovereign nation and can do what ever they want but they would want to have the military ready to backup any form of exodus of Europe as it will get ugly.

this is true. I guess if the rumours of mark printing are true they will take the risk, it would obliteration the euro before anything could be decided in the euro court. The announcement will be backed up by immediate bank holiday in europe to stop a run on the french, italian etc banks. The euro will be dead instantly and there won't be anything to fight over.

The other thing is that it is not the germans fault the greek, spanish governments were reckless and so it would be politically possible to push it through.

gobbledock

9th Oct 2011, 02:43

Some UK momentum, once again more measures about to be unleashed to ensure pensions become worthless, inflation empties your pocket, and your superannuation takes a hiding. Quantitative easing by the Bank of England (printing more money)
Quantitative easing by the Bank of England: printing more money won’t work this time - Telegraph (http://www.telegraph.co.uk/finance/financialcrisis/8811210/Quantitative-easing-by-the-Bank-of-England-printing-more-money-wont-work-this-time.html)

There has never been proof that QE works. The question is 'did people know about the BoE’s QE plan before it was announced? Damn straight - there was a strange 4% rally on Tuesday.Yep, the bankers, politicians and those in power get the inside tip, secure their assets while everyone else gets screwed. Add to this the EURO's collapsing and the USD collapsing and you have the 1930's again on our doorstep.
The EURO is dead, the USD is dead and the Pound is not far behind it.
What is unravelling is the death of greed and incompetence. Any child could see that 'printing money' to create material worth is simply as ludicrous as it sounds.

I just hope that when it finally implodes the mass populous track down the merchant bakers, lying politicians, federal reserve board members, parasites, manipulators, leeches and Wall Street pigs who have killed the world's global chance of prosperity to satisfy the lust of an elite few.

This story is playing out still and the ending will be the greatest financial, social and economical bloodbath in 80 years.

Cost Index

9th Oct 2011, 13:33

BreakfastBurrito. Did you get that article from Zerohedge? One of my favorite sites.

breakfastburrito

16th Oct 2011, 03:20

Cost Index, yes that one came from ZH.

In conversation with: Prof. Steve Keen - YouTube

He gets to the Australian economy at the 18:40 mark. He blog is: debtdeflation.com (http://www.debtdeflation.com/blogs/), with particular emphasis on the Aussie housing market.

600ft-lb

16th Oct 2011, 04:07

Steve Keen's interview, at 4:05 - very relevant to this situation.

Cost Index

17th Oct 2011, 01:15

Anyone seen any other Australian bloggers online that address property, precious metals, bonds and inflation/deflation possibilities? Everything I've seen is very US or EUR centric, a local perspective would be great.

breakfastburrito

17th Oct 2011, 01:48

CI, slide over to talkfinance.net (http://www.talkfinance.net/), they have a great relatively low volume series of forums that focus on all the AU issues you mention.

Another is macrobusiness.com.au (http://www.macrobusiness.com.au/), this is open to all contributors in an article/comments format.

Cost Index

19th Oct 2011, 02:20

Thanks BB, will do.

breakfastburrito

20th Oct 2011, 00:41

If you have been following this thread and understand the fraud of "debt as money" is the root cause of the ongoing crisis, this interview will make complete sense and join more pieces of the jigsaw puzzle together.

William Black was the chief prosecutor in the Savings & Loans crisis of the late 80's. He also has an interview on FSN on the same topic: William Black: Why Nobody Went to Jail During the Credit Crisis The FBI is no longer chasing white collar criminals (http://www.financialsense.com/financial-sense-newshour/guest-expert/2011/09/14/william-k-black-phd/why-nobody-went-to-jail-during-the-credit-crisis) (downloadable interview & transcript).

David DeGraw and William Black on the Dylan Ratigan Show 17/10/11 - YouTube

Foie gras

20th Oct 2011, 23:07

LyePCRkq620&feature

gobbledock

21st Oct 2011, 04:59

Foie gras - Well done!

breakfastburrito

24th Oct 2011, 03:57

Nassim Taleb on #OccupyWallStreet, Global Banking and Hammurabi's Code

Oct. 18 (Bloomberg) -- Nassim Taleb, author of "The Black Swan" and a New York University professor, discusses the "Occupy Wall Street" protest and his view of the global banking system. Taleb, speaking with Erik Schatzker on Bloomberg Television's "InsideTrack," also discusses the need to apply the principles of "Hammurabi's Code" to the banking system.

Nassim Taleb on #OccupyWallStreet, Global Banking and Hammurabi's Code - YouTube

Jock p

24th Oct 2011, 09:15

John Perkins The economic hit man

Tell me it isn't true :{

John Perkins: "Zeitgeist: Addendum" Extended Interview 2008 - YouTube

Foie gras

24th Oct 2011, 22:54

Remember: when in doubt, baffle with bull****. From Dow Jones:

EU Paper Confirms Looking At 2 EFSF Options, May Combine Them -Senior EU Source
EU Paper Says EFSF Option To Set Up Special Purpose Investment Vehicle -Senior EU Source
EU Paper Says EFSF Bond Insurance and Special Vehicle Options Could Be Combined - Senior EU Source
EU Paper Says Neither EFSF Leverage Option Requires Change To EFSF Rules -Senior EU Source
EU Paper Says EFSF SPIV Would Combine Public, Private Capital - Senior EU Source
EU Paper Says EFSF Could Set Up One Central Euro Zone SPIV - Senior EU Source
EU Paper Says EFSF SPIVs Could Be Set Up In Several Euro Zone Countries - Senior EU Source
EU Paper Says EFSF SPIVs Would Be Used For Bond Purchases, Bank Recapitalization - Senior EU Source
EU Paper Says EFSF Bond Insurance To Be Tradable Independently Of Bonds - Senior EU Source
It also has a Phillips-head screwdriver, opens cans, serves as a flashlight, dispenses crazy pills can be used as a garrote. And if you act now, you can get get a second one free for the low, low price of €1 trillion, leveraged infinitely courtesy of the world's most complex structured credit product ever conceived.

(Another ZH product.)

gobbledock

25th Oct 2011, 04:34

It gets worse. That red haired clown Gillard has come out blazing and naturally is defending Obama saying the economical issues are all Europe's fault !
Of course, the mighty USA couldn't have fu#ked up, I mean they have the worlds most effective tax system don't they?

Gillard is also hinting (Swanny is being more cautious) that countries outside of the EU may have to 'chip in' to pull the EU out of it's giant hole. You heard it, Australian taxpayers to chip in and help pay off another countries billions that were squandered and misappropriated by government incompetence, arrogance, and banking cartel greed sanctioned by government!
Let her try, if one cent more of my taxpayer money goes towards bailing out another countries corporate greed while our own health system, transport, infrastructure, pensioner and childcare systems are caving in I will be leading the charge against this out of touch regime in Australia we are all ensnared by.

simsalabim

25th Oct 2011, 05:19

The grand plan of world banking,debt and the pursuit of power. World government coming to you soon .The video is 32 minutes long but well worth it.

David Icke - Essential Knowledge For A Wall Street Protestor - YouTube (http://www.youtube.com/watch?v=t6IQjceKceY&feature=related)

SOPS

27th Oct 2011, 09:17

Now I am getting really worried...the EU is going to ask China for money.....this seems to me to make no sense at all, I mean why would China even be interested in investing in something that appears to be in terminal meltdown???

AlphaLord

27th Oct 2011, 09:33

The Eurozone is a major importer of Chinese goods
Prop them up so they can continue to purchase goods..OR
Perhaps China just wants to be a good global citizen?

breakfastburrito

27th Oct 2011, 20:55

Jim Rickards had two very interesting interviews on the Euro (3 Oct (http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/9/3_Jim_Rickards.html) and 17 Oct (http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/9/17_Jim_Rickards.html)). He talks about a 3-way system between the US, Europe & China and you can't just consider the bilateral relationships.

Jim's new book Currency Wars (http://www.amazon.com/gp/product/1591844495/ref=s9_simh_gw_p14_d4_g14_i1?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-2&pf_rd_r=0QG693RXJ9V398M137SM&pf_rd_t=101&pf_rd_p=470938631&pf_rd_i=507846) is in pre-release and is already #3 best seller in international economics, he is very well followed.

Another couple of interviews that are worth listening two are by Martin Armstrong (http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/10/15_Martin_A._Armstrong.html) (previous interview is linked from that page). Armstrong also releases a large number of papers on his web site: Armstrongeconomics.com (http://armstrongeconomics.com/martin_armstrong_writings/).

Foie gras

30th Oct 2011, 06:08

I've said it before and now say it again, we have been "cruising in coffin corner" for too long and finally have hit some turbulence.
Prepare for recovery, or go down with the ship.

We've discussed many issues pertaining to global economies, debt and the meaning of life, etc.,
Sourced, not just from ZeroHedge and Market Ticker, now!
Steve Keen has made some great regional comment.

Largely, the Australasian situation has been ignored.
So; we believe in the bs that has been flowing from those above?
(I have an aversion to large birds, swans are included, sorry!)
Once again riding on the sheep's back.
Apathetic, maybe?

Do you continue to follow the group think, or stand on your own feet?
Time to pull your head out of the sand, and hopefully prepare.

breakfastburrito

31st Oct 2011, 05:44

When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.
--Frederic Bastiat

Sometimes the law defends plunder and participates in it. Thus the beneficiaries are spared the shame and danger that their acts would otherwise involve… But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them and gives it to the other persons to whom it doesn’t belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Then abolish that law without delay - No legal plunder; this is the principle of justice, peace, order, stability, harmony and logic.”
― Frédéric Bastiat, The Law

“You say: "There are persons who lack education" and you turn to the law. But the law is not, in itself, a torch of learning which shines its light abroad. The law extends over a society where some persons have knowledge and others do not; where some citizens need to learn, and others can teach. In this matter of education, the law has only two alternatives: It can permit this transaction of teaching-and-learning to operate freely and without the use of force, or it can force human wills in this matter by taking from some of them enough to pay the teachers who are appointed by government to instruct others, without charge. But in the second case, the law commits legal plunder by violating liberty and property.”
― Frédéric Bastiat, The Law

The Law Frédéric Bastiat [.pdf] (http://mises.org/books/thelaw.pdf) 1850. Also available as an audiobook [.mp3] (http://www.archive.org/download/FredrichBastiatTheLaw/TheLaw.mp3).

How prophetic of Bastiat. We have just witnessed "The Law" being used for plunder. Nothing new under the sun.

breakfastburrito

7th Nov 2011, 20:34

Financial Cancer: Our Financial System Is Intrinsically Fraudulent and Unstable

November 7, 2011

Our financial system is like a fast-mutating cancer that evades any control and is still perfecting its ability to game and loot.

Two frequent contributors provided fresh insights into why the current global financial system will implode: it is intrinsically fraudulent and acts as a financial cancer, evading the "immune system" of regulation and perfecting its ability to exploit and loot the last remaining pockets of low-risk capital.

We start with David P.'s excellent exploration of systemic fraud:

Your essay The Collapse of Our Corrupt, Predatory, Pathological Financial System Is Necessary and Positiv (http://www.oftwominds.com/blognov11/collapse-of-corrupt11-11.html)e was entirely correct about risk. But let me come at this from a different angle - namely fraud.
Finance skims a percentage off the real economy. Some part of the skim is legitimate reward for capital allocation - a necessary part of a capitalist system and part of what makes it more efficient than a command economy. But some part of the skim is fraud.

Where are we now? Let's look at the sources of skim:

First there are the more legitimate skim sources - interest payments, management fees, IPO fees, M&A fees, trade commissions.

Then there are the less legitimate bank sources: penalty credit card interest rates, late fees, usage fees, over-the-limit fees, late payment fees, bounced check fees, low balance fees. And the capital markets sources - front-running, insider trading, account churning, manipulation of the news cycle, the captive analyst "ratings game", trading against your own client's order book, forex trades which are marked at the day high or low irrespective of when the trade took place, market manipulations at options expiration, stuffing your managed client accounts full of dubious IPOs and new issues that your organization is earning fees from originating.

Bucket shops and ponzi schemes take it even a step further - no actual financial activity takes place. Its simply robbery.

And now we add the new stuff: credit default swaps without margin, fraudulent loan origination, sliced & diced mortgages, mark to myth accounting, foreclosure halts to avoid realizing losses, extend & pretend, quote stuffing, HFT trading activity that boils down to denial of service attacks on exchange computers causing delays in pricing information, highly complex derivatives sold to unsuspecting but optimistic public servants, too big to fail status providing cheap backup in the event of trouble, and increased organizational size that facilitate cartel-like control over government and regulators.

But if that's not enough, there is the structure itself: they aren't doing this with saved capital, but rather with freshly printed and/or borrowed capital. Its all done with 12:1 leverage at a minimum. So only 8.3% of the gambling (optimistically anyway) is actual capital - saved surplus. And if Basel II says it's risk-free, well there's no need for reserves at all. It is just manufactured money, which effectively mean each bet is diluting the actual savings of real people. And if the bet goes bad, the Fed will ride to the rescue with low-cost money. But usually the bet goes well, because ordinarily the number of sources of fraud today is so HUGE, its practically impossible not to succeed.

Unless of course they get too greedy. Or the debt levels rise so high that large numbers of borrowers default. And guess where we are.

The financial system is supposed to allocate capital and take a modest skim as reward for helping society to be efficient. When they are doing this, they provide a net benefit to society because it's a win-win proposition. They are making society more efficient, and they thus earn their percentage.

However, and this is the key point: fraud provides no net benefit to society. Fraud extraction is a zero sum game. For every dollar extracted through fraud, someone in the productive society ends up losing - savings, salary, whatever. This is why fraud is bad.

(I say that leverage is zero sum because constructing money from thin air for a leveraged investment causes inflation and thus steals from savers.)

Currently, it is my opinion that the vast majority of today's highly profitable financial activity is fraud. They have gone way, way beyond their mandate of capital allocators. Because most of its activities are based on fraud, the finance industry is acting as a parasite, sucking the life blood from the rest of society. Its bad enough we have peak everything, a world population of 7 billion people, and globalization to deal with - but we also have to face these challenges while a leech is weakening us with every step we take!

As a result, when this bloated, fraud-based financial system dies, we'll have a awesome, positive chance to rip off the parasite and replace it with something more beneficial. Simply re-executing glass-steagall will do for a start. Bring back 9-3 boring banking, where banks retain the mortgage and live with the risk, and capital markets once again do their job of capital allocation -- but without the fraud so rampant today.

Same conclusion, different angle. Intrinsically, I believe that capitalism does actually allocate capital more efficiently than competitive systems. And yet, how the current system works is so wrong. And I figured out it was fraud. Fraud was the bad guy. Remove fraud, and things get a lot better.

But after re-reading your essay, fraud wasn't the whole answer either. Fraud might be the leech, but leverage is the system killer.

One other comment.

If you apply statistics incorrectly to market behavior, you get into trouble. It is possible to successfully hedge away risk if the failure of one investment is truly uncorrelated with another. Joe defaulting on his mortgage is a unique event, and won't affect Sam and the likelihood of him defaulting. Then you can apply statistics and things should work out fine. Of course, in a debt bubble or a recession, that's no longer true. The same factor that caused Joe to default will also affect the likelihood that Sam will default too. Unemployment, being underwater, herd behavior, "its better to rent" - it all correlates, completely destroying the underlying assumption. Real life trumps statistics.

This further supports your basic premise - in the real world, there are almost always hidden correlations that reveal themselves at the worst possible moment, typically at the point of maximum leverage. Thus for practical purposes, it is impossible to hedge away risk; as a result, leverage still kills.

We've seen this most recently in sovereign debt. Basel II lets banks lever to infinity on sovereign debt because it assumes sovereign debt has a zero default risk. Hmm...

So - remove fraud, remove leverage, admit risk will always exist, and the capital markets can go back to fulfill their traditional role in society of capital allocation, making us all more efficient.

But of course removing fraud and leverage removes all of the easy zero-sum profit opportunities; all that remains is the job of capital allocation. While its true that capital allocation materially contributes to society, it turns out it is also hard work. Who wants to do that when there's easy money to be made in fraud - with leverage! And that's why we have to have another crash so we can return finance to its proper - and necessary - role in society.

Contributor Michael M. explores the analogy that our financial system is in effect an aggressive cancer, and also explores the system's inherent instability:

I think the risk "hedging" can be split into two parts, first using/inventing "hedging" instruments who won't live up to their name in a major event (CDS anyone?), and second hiding risks in existing allegedly time-tested limited risk systems/instruments.
You mostly covered the first part in your article.

Some more examples for the second variant, besides lowering the down payment on house mortgages, are: Gaming VaR models (so for a 1% VaR the risk in the 99 days remains the same, but the blowup in the 1-out-of-100 event becomes much much larger), or lowering of Fractional Reserve requirements, or Sweep accounts (deposits in checking accounts get sweeped into savings accounts, i.e. are put into money market funds where the risk is a [little] bit higher, but the owner of the capital [the depositor] doesn't receive higher premiums), or student loans becoming non-dischargeable.

"So what happens when one counterparty (issuer of a hedge) somewhere in the chain runs into trouble? The entire chain collapses."

Or the accounting rules are manipulated, so the entity next in line after the collapsed one is allowed to keep their risk valued at par on the books, even though their hedge just vanished (and they are not able to get replacement hedges at an acceptable price in the current market) and the ongoing collapse freezes in a state of suspended reality - but the trouble is not undone!

The system has not blown up yet because there are still some pockets of unimpaired, really low-risk capital available to game and loot.

In effect the financial system is still perfecting its ability to game and loot, just like a cancer which, due to non-self-restrained growth and fast mutation, continuously improves its ability to elude or withstand the immune system. Until the host cannot bear the strain anymore.

How could we ever get to this point?

Too much stability. Thereby lowering reserves and safety margins more and more, until one day (maybe even without a large increase in volatility first!) a swing exceeds the safety margin. Oops. Which is exactly what Nassim Taleb is saying, but almost no one fully understands him.

This leads to my quote, which I came up with myself:

Stability breeds stupidity.

But at the same time one must remain humble of being able to overview all relevant parts of the picture... it can go on for a LOT longer than oneself can come up with a functioning game plan for, no matter how far you stretch your imaginable reality.

Which makes me go back to my "(over-)complexity" meme. I nowadays also look at The Fourth Turning (http://www.amazon.com/gp/product/0767900464?ie=UTF8&tag=charleshughsm-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0767900464) through my complexity goggles... and war is still the strongest simplifier - quicker and more rigorous even than a systemic collapse!

Charles Hugh Smith: Financial Cancer: Our Financial System Is Intrinsically Fraudulent and Unstable (http://www.oftwominds.com/blognov11/financial-cancer11-11.html)

Anthill

7th Nov 2011, 22:09

“You say: "There are persons who lack education" and you turn to the law. But the law is not, in itself, a torch of learning which shines its light abroad. The law extends over a society where some persons have knowledge and others do not; where some citizens need to learn, and others can teach. In this matter of education, the law has only two alternatives: It can permit this transaction of teaching-and-learning to operate freely and without the use of force, or it can force human wills in this matter by taking from some of them enough to pay the teachers who are appointed by government to instruct others, without charge. But in the second case, the law commits legal plunder by violating liberty and property.”

After dinner one night with a barrister friend, I asked him why the various Acts were writen in language that was difficult to follow, sometinmes in sentences that ran for hundreds of words. His reply was "****, we can't allow a system where the man in the street could readily understand their rights!" He was being sarcastic. This man represents many, many cases pro bono and is a champion of human rights and justice issues.

One of the most evident flaws in all this process is that hardly any US citizen actually vote. Talking to man-in-the-street Americans, they quite plainly comprehend that they are being screwed over. What is happening to these people is that a state of 'quiet civil war' exists in that country and the middle class is losing. 17 % of Americans now live below the poverty line , which is set at an unrealistic (low) $22,000 USD for families. The fastest growing segment of those now living in poverty are white university graduates with dependants. The problem is that the major political parties have been bought out in the process.

Since the bailout, the US banks have continued on their merry way with wasteful consummer lending. However, instead of lending for real estate, the financing for cars is now the flavour of the month. Motor vehicles are available for 0% down and drive away. As the advert. says "All you need to leave behind at the showroom is your signature" :rolleyes:

jibba_jabba

7th Nov 2011, 22:50

Alan Watt - PrisonPlanet.tv Interview - YouTube

something interesting about the control of population in which there seems to be a grass roots awakening, unfortunately through hardship.

Must See Videos: Roger Waters Supports Occupy Movement | COLLAPSENET (http://www.collapsenet.com/free-resources/collapsenet-public-access/news-alerts/item/4961-must-see-videos-roger-waters-supports-occupy-wall-street)

MODS - Dont know why youtube link always posts video twice!

breakfastburrito

7th Nov 2011, 23:05

Jibba, the best way to post youtube is to use the [/YOUTUBE tag, the trick is to NOT put the whole youtube url, but just the unique video identifier, in the video you posted the identifer is SUu55mtg39E (look closeley at the whole URL) without any of the http (it assumes that for YouTube - Broadcast Yourself. (http://youtube.com)) & without =embedded_player or other cruft.

so, putting it together for your video: [YOUTUBE]SUu55mtg39E[/YOUTUBE <--- missing final ] for demo, giving.

[YOUTUBE]SUu55mtg39E

Ultralights

8th Nov 2011, 00:21

Jeebus! a 2 hr long youtube video! i dont know where ill find the money to pay for the electricity to run my computer that long!

blackhand

8th Nov 2011, 02:52

Does anyone know where the billions of dollars are?

BH

breakfastburrito

8th Nov 2011, 05:55

Perceptive question Blackhand.

The billions are paper obligations - they don't exist as real wealth. You are the one that will help convert this "paper obligation" to "real wealth" (goods and services) as part of your (taxpayer) obligation! Think of it as a continuous obligation to pay the vast majority of the fruits of your labour for the rest of your lifetime to private institutions controlled by a very small number of people - the true elites. This obligation extends to those that haven't even been born yet - the future population.

The cunning part is that the billions are owed in the future, backstopped by the taxpayer to the private banks. These obligations are to be enforced by the government by force if necessary. How will they extract the money? Via direct taxes and the hidden tax of inflation. The government will simply take the obligations onto its books and make the elite whole, just as they have and are doing in the US/Europe & Japan. Almost all the populations of those regions have been converted to debt serfs.

I've shown this chart before. Reserves is another name for assets, of which the bulk is likely to be bonds and derivatives of bonds, AKA debt obligations. What this chart shows is that since 1971, reserves have begun to accumulate at a much greater rate than real production. As of the 2006, there was roughly 10:1 reserves to real production.

Therefore, the vast majority of these obligations cannot be "realised" into real goods & services, ie spent. This is why creditors (obligations owners) will accept "haircuts", because, in the end, if they end up with 20% of the value of the bonds, they are still owed more than the ALL the global production of goods and services.
http://desmond.imageshack.us/Himg41/scaled.php?server=41&filename=sultansfoswaps247.jpg&res=medium

So, in answer to your question, where are the billions? They are sitting as paper obligations in the financial system. Ultimately the workers & citizens backstop this unpayable debt. This backstop consists of government enforced labour expropriated by tax (direct or inflation). This constant debt obligation is simply a method to control & milk the populus, shifting real wealth up the pyramid to the elites.

Here's an interesting article on the "fear" that the US government may actually pay off its debt, and the consequence.

What If We Paid Off The Debt? The Secret Government Report

Planet Money has obtained a secret government report outlining what once looked like a potential crisis: The possibility that the U.S. government might pay off its entire debt.

It sounds ridiculous today. But not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system.

We recently obtained the report through a Freedom of Information Act Request. You can read the whole thing here (http://media.npr.org/assets/img/2011/10/20/LifeAfterDebt.pdf). (It's a PDF.)

The report is called "Life After Debt". It was written in the year 2000, when the U.S. was running a budget surplus, taking in more than it was spending every year. Economists were projecting that the entire national debt could be paid off by 2012

http://www.npr.org/news/graphics/2011/10/gr-pm-govt-debt-462.gif

This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.

"It was a huge issue ... for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration.

The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.

But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.

Banks buy hundreds of billions of dollars' worth, because they're a safe place to park money.

Mortgage rates are tied to the interest rate on U.S. treasury bonds.

The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track.

If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?

"I probably thought about this piece easily 16 hours a day, and it took me a long time to even start writing it," says Jason Seligman, the economist who wrote most of the report.

It was a strange, science-fictiony question.

"What would it look like to be in a United States without debt?" Seligman says. "What would life look like in those United States?"

Yes, there were ways for the world to adjust. But certain things got really tricky.

For example: What do you do with the money that comes out of people's paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?

In the end, Seligman concluded it was a good idea to pay down the debt — but not to pay it off entirely.

"There's such a thing as too much debt," he says. "But also such a thing, perhaps, as too little."

The copy of Life After Debt we obtained reads "PRELIMINARY AND CLOSE HOLD OFFICIAL USE ONLY."

The report was intended to be included in the official "Economic Report of the President" — the final one of the Clinton administration. But in the end, people above Jason Seligman decided it was too speculative, too politically sensitive. So it was never published.

The danger that we would pay off our debt by 2012 has clearly passed. There are plenty of Treasury bonds around these days. U.S. debt held by the public is now over $10 trillion.

Read More: How The Surplus Turned Into A Deficit, In One Chart (http://www.npr.org/blogs/money/2011/05/03/135954609/in-01-the-u-s-budget-picture-was-rosy-what-happened)

NPR: What If We Paid Off The Debt? The Secret Government Report (http://www.npr.org/blogs/money/2011/10/21/141510617/what-if-we-paid-off-the-debt-the-secret-government-report)

ga_trojan

8th Nov 2011, 06:37

Fascinating episode well worth listening too. Who would have though that being debt free would come with so many problems!!

blackhand

8th Nov 2011, 19:33

Thank you Mr Burrito for the explanation.
Once one understands that the billions exist only as numbers generated by a computer the question now is are we being manipulated somehow to believe there is an actual crisis?
BH

breakfastburrito

8th Nov 2011, 20:35

BH, - manipulated into believing there is a crisis, yes. But the "crisis" is for the banks, not so much the ordinary folk. There are actually two economies in one system. There is the "real economy" where you & I exist, then there is the financial economy. This financial economy dwarfs the real, yet is a derivative of the real. But because it so big, it drives the real economy - a feedback loop.

I've also shown these charts before, the first is the classic "Exeters Pyramid"

(click to expand)
http://img221.imageshack.us/img221/1456/greatcreditcontractionl.th.jpg (http://imageshack.us/photo/my-images/221/greatcreditcontractionl.jpg/)

Look carefully at the numbers T is for trillion. Then think about this, the global economy is ~60 T in size, yet the derivatives in the system is 1600 T, the financial world is 20 times the size of the real world. How can this work? The maths simply does not compute to my way of thinking. (This is a nice cross-check against the the first chart in my my post #200 (http://www.pprune.org/6795728-post200.html). Both correlate to some number that is at least 10x actual GDP)

Someone clever then came up with a modification to Exters pyramid
http://img694.imageshack.us/img694/4470/assetsandclaimsdiagram.png (http://imageshack.us/photo/my-images/694/assetsandclaimsdiagram.png/)

The narrow point is the choke. The problem is converting the claims to asset through the choke point of the neck. When people lose faith in the "paper claims" - money, bonds, stock and decide they want something real or tangible, they need to move through the choke.

Hyperinflations are one example of "loss of faith" in the currency system - or moving through the choke. These are currency NOT economic events. As you can see from second chart, if the population suddenly decides en mass that currency system is not a good store of value for some reason, they all panic and try to get rid of the paper claims, then not all of the claims will be able to pass through the neck before the paper side becomes worthless.

Now you understand why Greece is so important, Even though its debt is small relative to the whole system, the writedown of just 1/20th or so of the global debt means the banking system is out of capital, and so insolvent. No country can be allowed to default. Therefore, more paper claims are manufactured by the central banks to prop up the system. The object of the game is simply to keep the fraud going for as long as the population continues to have believe that the system will continue to work for them, ie have faith in the system.

While the system is still working, the government gets its share of the bargain - control, and the elite get its side of the deal, the ability to convert paper wealth converted to real wealth (land, oil, minerals, productive capacity). The object of the exercise is simply to sustain "the game" for as long as possible, to milk to most out of the population. They all know the paper game is going to end, eventually.

gobbledock

9th Nov 2011, 21:48

Australian dollar dumped on EU worries
From: AAP
November 10, 20117:14AM

THE Australian dollar has fallen more than US 2 cents on the leadership crisis in Greece, and record highs for Italian bonds.

Talks to form a unity government in Greece faltered overnight, with the major parties unable to agree on who should lead the country.
Talks to secure a new leadership and agree on a debt bailout have been ongoing for three days, after Prime Minister George Papandreou stood down on Monday.
Talks have now been put on hold until tonight.
Meanwhile, Italian 10-year bonds reached yields of 7.4 per cent, a record high, despite Prime Minister Silvio Berlusconi's agreement to resign yesterday.
Fears Italy may be coming closer to insolvency were reflected in European markets, which continued to drop after the announcement.
US stocks have also responded, with the Dow Jones Industrial Average recently down more than 400 points.
At 06:30 AEDT this morning, the Australian dollar was trading at $US1.016, down from $US1.0362 yesterday.

Interesting how a week ago Berlusconi was arrogantly clinging to power, personal wealth and Hookers !
This mess is far from over. Greece's debt is half of what Italy's is, and only half of Greece's actual debt default has been propped up. This is just the fuse that has been lit. Italy owes around 2.5 trillion and then of course you have Uncle Sam at a debt of close to 15 trilion. Why do you think Silvio has done the bolt from politics? He is probably down at his bank trying to draw out whatever he can before the doors are closed permanently.
People just don't get it, this is not a world financial crisis unfolding that has origins commencing this year, 2008 or 1980. We are talking decades of borrowing, poor monetary management and controls, succesive governments putting their heads in the sand and clicking their heels saying 'it will be ok, I know it will be ok'!
Some things cannot be saved or repaired, the current crisis reflects that. Research Germany 1920 - 1923, superb example. Also research the Nixon era. When Nixon became President in 1969 he and others had no idea that on the surface the US economy looked sound, lower interest rates and lots of jobs, but the Nam war was raging, masking the underlying perilous state of the USA economy.
Anyway, enough said, plenty of great data out there worth studying. But Obama is the new puppet in this. He had no true inkling of what actually lurked beneath Wall Street and the Fed when he took power. Obama received a political death sentence the day he was elected and did not even know it.
Remember - Finance, economies and money are cyclic, just like weather patterns. And they cycle approximately every 36 years, we are now at around 40 years since the last major economic malfunction which melted down around 1971 -73, remember a little thing called 'seperating the gold standard from the dollar value'? That was one contributing factor.

Top it off and you have that nupty Gillard offering to assist Greece with a few billion of our own dollars (somebody fire up the printing press, we need more money to send to Greece because we certainly don't have that sitting in the bank, hang on, let's borrow it from China, everybody else does!), which is ludicrous, the party is over folks, Greece will still default, and when it does what will the Carbon Queen do then - find money to send to Italy, then America?? Swanny is obsessed with a budget surplus, fool. All that is is a smoke and mirrors pony show, surplus is a terminology to pyschologicaly fool the Australian public into thinking we are debt free, we aren't. We are racking up debt at a rate of $100 million per day, fact. Having a surplus does not mean we don't have massive debt squirrelled away in another corner of the room.

Finally, remember the USA pulling it's troops out of Nam starting around 1973? Why? America was broke. Sound familiar, Obama started pulling troops out of the middle east around 12 months ago with the program escalating recently? Why? America is broke. It is all cyclic my friends. Problem is that this time the problem is on a scale never before seen in history. The deck of cards is falling, brace for impact.

jibba_jabba

10th Nov 2011, 06:54

» Rogers: “100% Chance Of Crisis Worse Than 2008,” Italy Implodes Alex Jones' Infowars: There's a war on for your mind! (http://www.infowars.com/rogers-100-chance-of-crisis-worse-than-2008-italy-implodes/)

oicur12.again

10th Nov 2011, 19:35

MaxKeiserTV's Channel - YouTube (http://www.youtube.com/user/MaxKeiserTV?blend=1&ob=4#p/f/2/VsgS9PsUf5U)

jibba_jabba

11th Nov 2011, 00:40

New World Order Monetary System - YouTube

blackhand

11th Nov 2011, 05:12

@breakfastburrito
Thanks again.
I am struggling through the concept that the finance system is more like a pyramid marketing scheme than a system that is based in each countries real wealth.

I am seriously considering becoming a dope smoking hippie and withdrawing from the madness.:{

evyjet

11th Nov 2011, 10:52

Blackhand.... I'm with ya...See you in Byron for a joint ;)

breakfastburrito

11th Nov 2011, 21:59

I am struggling through the concept that the finance system is more like a pyramid marketing scheme than a system that is based in each countries real wealth.

Unfortunately, a Ponzi scheme is exactly what this "game" is. Think about it another way. Its really a game of promises - you give me something now (labour), and I promise to give you that something back + EXTRA later, much later. Paying tax to receive a pension is the classic case. Forgoing something now (sacrifice, forgone income) to be rewarded in the future (pension for life) is the psychology at work.

The problem is when the reward becomes due, with a paper/credit scheme, the value of that reward can be arbitrarily adjusted by the controllers of the scheme. Whilst in nominal terms it can be higher, in purchasing power it can be less: here is an example:

...Wallich explained that inflation "is technically an economic problem. I mean the breakdown of our standards of measuring economic values, as a consequence of inflation." The strong are smart enough to understand that inflation "introduces an element of deceit into our economic dealings." Contracts are no longer made to "be kept in terms of constant values," but one party understands this better than the other.

Wallich went on to emphasize that "the increasing uncertainty in providing privately for the future pushes people who are seeking security toward the government."
Chairman Greenspan: A Fiat Mind for a Fiat Age, June 15, 2010 by Frederick J. Sheehan (http://mises.org/daily/4472)

Henry C. Wallich was Federal Reserve Board Member in the 1970.
That essay is a very good historical study of the situation since the 1950 to now, worth a read.

The controllers of the system understand the physiology and the "paper game", and manipulate it for their own gain.

If you really want to move onto something that will provide a brilliant original piece of thinking, reviewing the history of money & the question of "what is money" back to antiquity visit: Moneyness: FOFOA (http://fofoa.********.com/2011/11/moneyness.html). This is a big piece, it traverses a huge range of terrain. Conceptually it is quite daunting, but he is probably the best "money" thinker on the web. Not the easiest of reads and it will take quite a while to get through, so make sure you leave time to read it.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~

The Veil of Secrecy at the Fed Has Been Lifted, Now It's Time for Change

Senator Bernie Sanders

As a result of the greed, recklessness, and illegal behavior on Wall Street, the American people have experienced the worst economic crisis since the Great Depression. Millions of Americans, through no fault of their own, have lost their jobs, homes, life savings, and ability to send their kids to college. Small businesses have been unable to get the credit they need to expand their businesses, and credit is still extremely tight. Wages as a share of national income are now at the lowest level since the Great Depression, and the number of Americans living in poverty is at an all-time high.

Meanwhile, when small-business owners were being turned down for loans at private banks and millions of Americans were being kicked out of their homes, the Federal Reserve provided the largest taxpayer-financed bailout in the history of the world to Wall Street and too-big-to-fail institutions, with virtually no strings attached.

Over two years ago, I asked Ben Bernanke, the chairman of the Federal Reserve, a few simple questions that I thought the American people had a right to know: Who got money through the Fed bailout? How much did they receive? What were the terms of this assistance?

Incredibly, the chairman of the Fed refused to answer these fundamental questions about how trillions of taxpayer dollars were being spent.

The American people are finally getting answers to these questions thanks to an amendment I included in the Dodd-Frank financial reform bill which required the Government Accountability Office (GAO) to audit and investigate conflicts of interest at the Fed. Those answers raise grave questions about the Federal Reserve and how it operates -- and whose interests it serves.

As a result of these GAO reports, we learned that the Federal Reserve provided a jaw-dropping $16 trillion in total financial assistance to every major financial institution in the country as well as a number of corporations, wealthy individuals and central banks throughout the world.

The GAO also revealed that many of the people who serve as directors of the 12 Federal Reserve Banks come from the exact same financial institutions that the Fed is in charge of regulating. Further, the GAO found that at least 18 current and former Fed board members were affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis. In other words, the people "regulating" the banks were the exact same people who were being "regulated." Talk about the fox guarding the henhouse!

The emergency response from the Fed appears to have created two systems of government in America: one for Wall Street, and another for everyone else. While the rich and powerful were "too big to fail" and were given an endless supply of cheap credit, ordinary Americans, by the tens of millions, were allowed to fail. They lost their homes. They lost their jobs. They lost their life savings. And, they lost their hope for the future. This is not what American democracy is supposed to look like. It is time for change at the Fed -- real change.

Among the GAO's key findings is that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the GAO, the Fed actually provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

The GAO has detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms, and, in at least one instance, themselves.

For example, the CEO of JP Morgan Chase served on the New York Fed's board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs.

Getting this type of disclosure was not easy. Wall Street and the Federal Reserve fought it every step of the way. But, as difficult as it was to lift the veil of secrecy at the Fed, it will be even harder to reform the Fed so that it serves the needs of all Americans, and not just Wall Street. But, that is exactly what we have to do.

To get this process started, I have asked some of the leading economists in this country to serve on an advisory committee to provide Congress with legislative options to reform the Federal Reserve.

Here are some of the questions that I have asked this advisory committee to explore:

1. How can we structurally reform the Fed to make our nation's central bank a more democratic institution responsive to the needs of ordinary Americans, end conflicts of interest, and increase transparency? What are the best practices that central banks in other countries have developed that we can learn from? Compared with central banks in Europe, Canada, and Australia, the GAO found that the Federal Reserve does not do a good job in disclosing potential conflicts of interest and other essential elements of transparency.

2. At a time when 16.5 percent of our people are unemployed or under-employed, how can we strengthen the Federal Reserve's full-employment mandate and ensure that the Fed conducts monetary policy to achieve maximum employment? When Wall Street was on the verge of collapse, the Federal Reserve acted with a fierce sense of urgency to save the financial system. We need the Fed to act with the same boldness to combat the unemployment crisis.

3. The Federal Reserve has a responsibility to ensure the safety and soundness of financial institutions and to contain systemic risks in financial markets. Given that the top six financial institutions in the country now have assets equivalent to 65 percent of our GDP, more than $9 trillion, is there any reason why this extraordinary concentration of ownership should not be broken up? Should a bank that is "too big to fail" be allowed to exist?

4. The Federal Reserve has the responsibility to protect the credit rights of consumers. At a time when credit card issuers are charging millions of Americans interest rates of 25 percent or more, should policy options be established to ensure that the Federal Reserve and the Consumer Financial Protection Bureau protect consumers against predatory lending, usury, and exorbitant fees in the financial services industry?

5. At a time when the dream of homeownership has turned into the nightmare of foreclosure for too many Americans, what role should the Federal Reserve be playing in providing relief to homeowners who are underwater on their mortgages, combating the foreclosure crisis, and making housing more affordable?

6. At a time when the United States has the most inequitable distribution of wealth and income of any major country, and the greatest gap between the very rich and everyone else since 1928, what policies can be established at the Federal Reserve which reduces income and wealth inequality in the U.S?

Given the growth of the Occupy Wall Street movement and given the concerns of millions of Americans about Wall Street, we now have a unique opportunity to make significant changes to one of the most powerful and secretive agencies of the federal government. One thing is abundantly clear: Americans deserve a Federal Reserve that works for them, not just the CEOs on Wall Street.
Huffington Post (http://www.huffingtonpost.com/rep-bernie-sanders/the-veil-of-secrecy-at-th_b_1072099.html)

blackhand

13th Nov 2011, 03:41

Don't be fooled, the UN, in reality are a sleeping dormant giant is pivotal to the Illuminati as they will be used to carry out the Illuminati's 'dirty work'. The UN and it's octopus like tentacles will help bring about the supposed NWO which is the Illuminati's 'end game'. This is a game being played out in a physical and spiritual battlefield. Are you for real!!!
Ah I get it, you are already at Byron Bay.

BH

Captain Gidday

13th Nov 2011, 08:08

What happened just then? Epic derail and train crash! Did the Scientologists just poke their heads over the parapet, or something?
That's unfortunately the trouble with conspiracy theories. Nobody can actually find these guys. Maybe they spend H24 on their private jets being in-flight refuelled by secret UN forces. Do I hear the theme from Goldfinger in the background?

breakfastburrito

14th Nov 2011, 01:33

Behold the EFSF structured finance vehicle. Money as a "Structured Finance Product".

EFSF the Magnificent
http://www.lighthouseinvestmentmanagement.com/wp-content/uploads/2011/11/EFSF-by-Lighthouse.png

If you can understand this chart, then you probably have nothing to fear from the system. If on the other hand, like me you struggle, then there is much to be wring your hand about.

If you look carefully enough and have paid attention, then you would understand that this looks exactly like a Collateralized debt obligation (http://en.wikipedia.org/wiki/Collateralized_debt_obligation) (CDO) - Right down to the "tranching" or tiering of risk through an SPV - Special Purpose Vehicle. Yet, this is what our "money system" has become. If knowledge is power, and you can't understand the complexity of something like this, its highly likely you are going to end up on the wrong end of the deal.

gobbledock

14th Nov 2011, 02:42

Very good flow chart Burrito, it nicely depicts the flowing loop in layman's terms.

P.S
I removed my earlier post about the U.N, my reason is that I don't yet think the majority of people would understand the rationale behind the post except to label me a loonie, conspiracy theorist or both!
However, in Burrito's flow chart you will recognize the IMF who are coincidently making for themselves a louder and louder voice of late, correct? The IMF is a branch of the UN. My point is that there are some interesting links and interests from several players in the global economic game being played out.
Question for yourselves to answer is 'what are the overall interests of the UN in all of this?'. And no - peace, unity and harmony for the good of mankind is the wrong answer.

breakfastburrito

20th Nov 2011, 08:04

Bankers taking over the world conspiracy theories?... proved correct this week. Watch a series of bloodless coup's by the bankers roll out across the Western world over the next decade or so. Sh!t just got real.

What price the new democracy? Goldman Sachs conquers Europe

While ordinary people fret about austerity and jobs, the eurozone's corridors of power have been undergoing a remarkable transformation

STEPHEN FOLEY FRIDAY 18 NOVEMBER 2011

http://www.independent.co.uk/incoming/article6264098.ece/ALTERNATES/w620/Pg-12-eurozone-graphic.jpg

The ascension of Mario Monti to the Italian prime ministership is remarkable for more reasons than it is possible to count. By replacing the scandal-surfing Silvio Berlusconi, Italy has dislodged the undislodgeable. By imposing rule by unelected technocrats, it has suspended the normal rules of democracy, and maybe democracy itself. And by putting a senior adviser at Goldman Sachs in charge of a Western nation, it has taken to new heights the political power of an investment bank that you might have thought was prohibitively politically toxic.

This is the most remarkable thing of all: a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti. The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank's alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis. Until Wednesday, the International Monetary Fund's European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons.

Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as "the Vampire Squid", and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence. The political decisions taken in the coming weeks will determine if the eurozone can and will pay its debts – and Goldman's interests are intricately tied up with the answer to that question.

Simon Johnson, the former International Monetary Fund economist, in his book 13 Bankers, argued that Goldman Sachs and the other large banks had become so close to government in the run-up to the financial crisis that the US was effectively an oligarchy. At least European politicians aren't "bought and paid for" by corporations, as in the US, he says. "Instead what you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions."

This is The Goldman Sachs Project. Put simply, it is to hug governments close. Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort. Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government. The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

Mr Monti is one of Italy's most eminent economists, and he spent most of his career in academia and thinktankery, but it was when Mr Berlusconi appointed him to the European Commission in 1995 that Goldman Sachs started to get interested in him. First as commissioner for the internal market, and then especially as commissioner for competition, he has made decisions that could make or break the takeover and merger deals that Goldman's bankers were working on or providing the funding for. Mr Monti also later chaired the Italian Treasury's committee on the banking and financial system, which set the country's financial policies.

With these connections, it was natural for Goldman to invite him to join its board of international advisers. The bank's two dozen-strong international advisers act as informal lobbyists for its interests with the politicians that regulate its work. Other advisers include Otmar Issing who, as a board member of the German Bundesbank and then the European Central Bank, was one of the architects of the euro.

Perhaps the most prominent ex-politician inside the bank is Peter Sutherland, Attorney General of Ireland in the 1980s and another former EU Competition Commissioner. He is now non-executive chairman of Goldman's UK-based broker-dealer arm, Goldman Sachs International, and until its collapse and nationalisation he was also a non-executive director of Royal Bank of Scotland. He has been a prominent voice within Ireland on its bailout by the EU, arguing that the terms of emergency loans should be eased, so as not to exacerbate the country's financial woes. The EU agreed to cut Ireland's interest rate this summer.

Picking up well-connected policymakers on their way out of government is only one half of the Project, sending Goldman alumni into government is the other half. Like Mr Monti, Mario Draghi, who took over as President of the ECB on 1 November, has been in and out of government and in and out of Goldman. He was a member of the World Bank and managing director of the Italian Treasury before spending three years as managing director of Goldman Sachs International between 2002 and 2005 – only to return to government as president of the Italian central bank.

Mr Draghi has been dogged by controversy over the accounting tricks conducted by Italy and other nations on the eurozone periphery as they tried to squeeze into the single currency a decade ago. By using complex derivatives, Italy and Greece were able to slim down the apparent size of their government debt, which euro rules mandated shouldn't be above 60 per cent of the size of the economy. And the brains behind several of those derivatives were the men and women of Goldman Sachs.

The bank's traders created a number of financial deals that allowed Greece to raise money to cut its budget deficit immediately, in return for repayments over time. In one deal, Goldman channelled $1bn of funding to the Greek government in 2002 in a transaction called a cross-currency swap. On the other side of the deal, working in the National Bank of Greece, was Petros Christodoulou, who had begun his career at Goldman, and who has been promoted now to head the office managing government Greek debt. Lucas Papademos, now installed as Prime Minister in Greece's unity government, was a technocrat running the Central Bank of Greece at the time.

Goldman says that the debt reduction achieved by the swaps was negligible in relation to euro rules, but it expressed some regrets over the deals. Gerald Corrigan, a Goldman partner who came to the bank after running the New York branch of the US Federal Reserve, told a UK parliamentary hearing last year: "It is clear with hindsight that the standards of transparency could have been and probably should have been higher."

When the issue was raised at confirmation hearings in the European Parliament for his job at the ECB, Mr Draghi says he wasn't involved in the swaps deals either at the Treasury or at Goldman.

It has proved impossible to hold the line on Greece, which under the latest EU proposals is effectively going to default on its debt by asking creditors to take a "voluntary" haircut of 50 per cent on its bonds, but the current consensus in the eurozone is that the creditors of bigger nations like Italy and Spain must be paid in full. These creditors, of course, are the continent's big banks, and it is their health that is the primary concern of policymakers. The combination of austerity measures imposed by the new technocratic governments in Athens and Rome and the leaders of other eurozone countries, such as Ireland, and rescue funds from the IMF and the largely German-backed European Financial Stability Facility, can all be traced to this consensus.

"My former colleagues at the IMF are running around trying to justify bailouts of €1.5trn-€4trn, but what does that mean?" says Simon Johnson. "It means bailing out the creditors 100 per cent. It is another bank bailout, like in 2008: The mechanism is different, in that this is happening at the sovereign level not the bank level, but the rationale is the same."

So certain is the financial elite that the banks will be bailed out, that some are placing bet-the-company wagers on just such an outcome. Jon Corzine, a former chief executive of Goldman Sachs, returned to Wall Street last year after almost a decade in politics and took control of a historic firm called MF Global. He placed a $6bn bet with the firm's money that Italian government bonds will not default.

When the bet was revealed last month, clients and trading partners decided it was too risky to do business with MF Global and the firm collapsed within days. It was one of the ten biggest bankruptcies in US history.

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent. Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries' debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under. No bank – and especially not the Vampire Squid – can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less. The alternative is a second financial crisis, a second economic collapse.

Shared illusions, perhaps? Who would dare test it?

What price the new democracy? Goldman Sachs conquers Europe (http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html) - The Independent.

Foie gras

20th Nov 2011, 11:04

An Ad, but to the point.
Hey Ray you don't have Harriers anymore!
(In stereo I'm afraid!)

Blackcurrant Tango Commercial - YouTube

breakfastburrito

27th Nov 2011, 21:21

rGkmgnprrIU

(40 years is referencing Nixon closing the gold window (15 Aug 1971) and moving to a pure paper fiat currency)

Cost Index

28th Nov 2011, 03:31

I like Steve Keen a lot. I like his very pragmatic realistic view of things. Especially the truthful notion of waiting for those in control to die off or retire before a new wave of thought can be entertained to elicit positive change. Sad but true. Applies in many other areas of life as well....

Foie gras

30th Nov 2011, 04:09

vGQIxYfKKtc&feature

breakfastburrito

5th Dec 2011, 01:07

Source: Counterpunch (http://www.counterpunch.org/2011/12/02/debt-slavery-%E2%80%93-why-it-destroyed-rome-why-it-will-destroy-us-unless-it%E2%80%99s-stopped/)

WEEKEND EDITION DECEMBER 2-4, 2011
Hammurabi Knew Better

Debt Slavery – Why It Destroyed Rome, Why It Will Destroy Us Unless It’s Stopped
by MICHAEL HUDSON

Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.

Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.

Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.

By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.

This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, also communal infrastructure and extract tribute. In response, democracies are demanding referendums over whether to pay creditors by selling off the public domain and raising taxes to impose unemployment, falling wages and economic depression. The alternative is to write down debts or even annul them, and to re-assert regulatory control over the financial sector.

Near Eastern rulers proclaimed clean slates for debtors to preserve economic balance

Charging interest on advances of goods or money was not originally intended to polarize economies. First administered early in the third millennium BC as a contractual arrangement by Sumer’s temples and palaces with merchants and entrepreneurs who typically worked in the royal bureaucracy, interest at 20 per cent (doubling the principal in five years) was supposed to approximate a fair share of the returns from long-distance trade or leasing land and other public assets such as workshops, boats and ale houses.

As the practice was privatized by royal collectors of user fees and rents, “divine kingship” protected agrarian debtors. Hammurabi’s laws (c. 1750 BC) cancelled their debts in times of flood or drought. All the rulers of his Babylonian dynasty began their first full year on the throne by cancelling agrarian debts so as to clear out payment arrears by proclaiming a clean slate. Bondservants, land or crop rights and other pledges were returned to the debtors to “restore order” in an idealized “original” condition of balance. This practice survived in the Jubilee Year of Mosaic Law in Leviticus 25.

The logic was clear enough. Ancient societies needed to field armies to defend their land, and this required liberating indebted citizens from bondage. Hammurabi’s laws protected charioteers and other fighters from being reduced to debt bondage, and blocked creditors from taking the crops of tenants on royal and other public lands and on communal land that owed manpower and military service to the palace.

In Egypt, the pharaoh Bakenranef (c. 720-715 BC, “Bocchoris” in Greek) proclaimed a debt amnesty and abolished debt-servitude when faced with a military threat from Ethiopia. According to Diodorus of Sicily (I, 79, writing in 40-30 BC), he ruled that if a debtor contested the claim, the debt was nullified if the creditor could not back up his claim by producing a written contract. (It seems that creditors always have been prone to exaggerate the balances due.) The pharaoh reasoned that “the bodies of citizens should belong to the state, to the end that it might avail itself of the services which its citizens owed it, in times of both war and peace. For he felt that it would be absurd for a soldier … to be haled to prison by his creditor for an unpaid loan, and that the greed of private citizens should in this way endanger the safety of all.”

The fact that the main Near Eastern creditors were the palace, temples and their collectors made it politically easy to cancel the debts. It always is easy to annul debts owed to oneself. Even Roman emperors burned the tax records to prevent a crisis. But it was much harder to cancel debts owed to private creditors as the practice of charging interest spread westward to Mediterranean chiefdoms after about 750 BC. Instead of enabling families to bridge gaps between income and outgo, debt became the major lever of land expropriation, polarizing communities between creditor oligarchies and indebted clients. In Judah, the prophet Isaiah (5:8-9) decried foreclosing creditors who “add house to house and join field to field till no space is left and you live alone in the land.”

Creditor power and stable growth rarely have gone together. Most personal debts in this classical period were the product of small amounts of money lent to individuals living on the edge of subsistence and who could not make ends meet. Forfeiture of land and assets – and personal liberty – forced debtors into bondage that became irreversible. By the 7th century BC, “tyrants” (popular leaders) emerged to overthrow the aristocracies in Corinth and other wealthy Greek cities, gaining support by cancelling the debts. In a less tyrannical manner, Solon founded the Athenian democracy in 594 BC by banning debt bondage.

But oligarchies re-emerged and called in Rome when Sparta’s kings Agis, Cleomenes and their successor Nabis sought to cancel debts late in the third century BC. They were killed and their supporters driven out. It has been a political constant of history since antiquity that creditor interests opposed both popular democracy and royal power able to limit the financial conquest of society – a conquest aimed at attaching interest-bearing debt claims for payment on as much of the economic surplus as possible.

When the Gracchi brothers and their followers tried to reform the credit laws in 133 BC, the dominant Senatorial class acted with violence, killing them and inaugurating a century of Social War, resolved by the ascension of Augustus as emperor in 29 BC.

Rome’s creditor oligarchy wins the Social War, enslaves the population and brings on a Dark Age

Matters were more bloody abroad. Aristotle did not mention empire building as part of his political schema, but foreign conquest always has been a major factor in imposing debts, and war debts have been the major cause of public debt in modern times. Antiquity’s harshest debt levy was by Rome, whose creditors spread out to plague Asia Minor, its most prosperous province. The rule of law all but disappeared when publican creditor “knights” arrived. Mithridates of Pontus led three popular revolts, and local populations in Ephesus and other cities rose up and killed a reported 80,000 Romans in 88 BC. The Roman army retaliated, and Sulla imposed war tribute of 20,000 talents in 84 BC. Charges for back interest multiplied this sum six-fold by 70 BC.

Among Rome’s leading historians, Livy, Plutarch and Diodorus blamed the fall of the Republic on creditor intransigence in waging the century-long Social War marked by political murder from 133 to 29 BC. Populist leaders sought to gain a following by advocating debt cancellations (e.g., the Catiline conspiracy in 63-62 BC). They were killed. By the second century AD about a quarter of the population was reduced to bondage. By the fifth century Rome’s economy collapsed, stripped of money. Subsistence life reverted to the countryside.

Creditors find a legalistic reason to support parliamentary democracy

When banking recovered after the Crusades looted Byzantium and infused silver and gold to review Western European commerce, Christian opposition to charging interest was overcome by the combination of prestigious lenders (the Knights Templars and Hospitallers providing credit during the Crusades) and their major clients – kings, at first to pay the Church and increasingly to wage war. But royal debts went bad when kings died. The Bardi and Peruzzi went bankrupt in 1345 when Edward III repudiated his war debts. Banking families lost more on loans to the Habsburg and Bourbon despots on the thrones of Spain, Austria and France.

Matters changed with the Dutch democracy, seeking to win and secure its liberty from Habsburg Spain. The fact that their parliament was to contract permanent public debts on behalf of the state enabled the Low Countries to raise loans to employ mercenaries in an epoch when money and credit were the sinews of war. Access to credit “was accordingly their most powerful weapon in the struggle for their freedom,” Richard Ehrenberg wrote in his Capital and Finance in the Age of the Renaissance (1928): “Anyone who gave credit to a prince knew that the repayment of the debt depended only on his debtor’s capacity and will to pay. The case was very different for the cities, which had power as overlords, but were also corporations, associations of individuals held in common bond. According to the generally accepted law each individual burgher was liable for the debts of the city both with his person and his property.”

The financial achievement of parliamentary government was thus to establish debts that were not merely the personal obligations of princes, but were truly public and binding regardless of who occupied the throne. This is why the first two democratic nations, the Netherlands and Britain after its 1688 revolution, developed the most active capital markets and proceeded to become leading military powers. What is ironic is that it was the need for war financing that promoted democracy, forming a symbiotic trinity between war making, credit and parliamentary democracy which has lasted to this day.

At this time “the legal position of the King qua borrower was obscure, and it was still doubtful whether his creditors had any remedy against him in case of default.” (Charles Wilson, England’s Apprenticeship: 1603-1763: 1965.) The more despotic Spain, Austria and France became, the greater the difficulty they found in financing their military adventures. By the end of the eighteenth century Austria was left “without credit, and consequently without much debt,” the least credit-worthy and worst armed country in Europe, fully dependent on British subsidies and loan guarantees by the time of the Napoleonic Wars.

Finance accommodates itself to democracy, but then pushes for oligarchy

While the nineteenth century’s democratic reforms reduced the power of landed aristocracies to control parliaments, bankers moved flexibly to achieve a symbiotic relationship with nearly every form of government. In France, followers of Saint-Simon promoted the idea of banks acting like mutual funds, extending credit against equity shares in profit. The German state made an alliance with large banking and heavy industry. Marx wrote optimistically about how socialism would make finance productive rather than parasitic. In the United States, regulation of public utilities went hand in hand with guaranteed returns. In China, Sun-Yat-Sen wrote in 1922: “I intend to make all the national industries of China into a Great Trust owned by the Chinese people, and financed with international capital for mutual benefit.”

World War I saw the United States replace Britain as the major creditor nation, and by the end of World War II it had cornered some 80 per cent of the world’s monetary gold. Its diplomats shaped the IMF and World Bank along creditor-oriented lines that financed trade dependency, mainly on the United States. Loans to finance trade and payments deficits were subject to “conditionalities” that shifted economic planning to client oligarchies and military dictatorships. The democratic response to resulting austerity plans squeezing out debt service was unable to go much beyond “IMF riots,” until Argentina rejected its foreign debt.

A similar creditor-oriented austerity is now being imposed on Europe by the European Central Bank (ECB) and EU bureaucracy. Ostensibly social democratic governments have been directed to save the banks rather than reviving economic growth and employment. Losses on bad bank loans and speculations are taken onto the public balance sheet while scaling back public spending and even selling off infrastructure. The response of taxpayers stuck with the resulting debt has been to mount popular protests starting in Iceland and Latvia in January 2009, and more widespread demonstrations in Greece and Spain this autumn to protest their governments’ refusal to hold referendums on these fateful bailouts of foreign bondholders.

Shifting planning away from elected public representatives to bankers

Every economy is planned. This traditionally has been the function of government. Relinquishing this role under the slogan of “free markets” leaves it in the hands of banks. Yet the planning privilege of credit creation and allocation turns out to be even more centralized than that of elected public officials. And to make matters worse, the financial time frame is short-term hit-and-run, ending up as asset stripping. By seeking their own gains, the banks tend to destroy the economy. The surplus ends up being consumed by interest and other financial charges, leaving no revenue for new capital investment or basic social spending.

This is why relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage. To restore economic balance, antiquity’s cry for debt cancellation sought what the Bronze Age Near East achieved by royal fiat: to cancel the overgrowth of debts.

In more modern times, democracies have urged a strong state to tax rentier income and wealth, and when called for, to write down debts. This is done most readily when the state itself creates money and credit. It is done least easily when banks translate their gains into political power. When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade. The fall of the Roman Empire demonstrates what happens when creditor demands are unchecked. Under these conditions the alternative to government planning and regulation of the financial sector becomes a road to debt peonage.

Finance vs. government; oligarchy vs. democracy

Democracy involves subordinating financial dynamics to serve economic balance and growth – and taxing rentier income or keeping basic monopolies in the public domain. Untaxing or privatizing property income “frees” it to be pledged to the banks, to be capitalized into larger loans. Financed by debt leveraging, asset-price inflation increases rentier wealth while indebting the economy at large. The economy shrinks, falling into negative equity.

The financial sector has gained sufficient influence to use such emergencies as an opportunity to convince governments that that the economy will collapse they it do not “save the banks.” In practice this means consolidating their control over policy, which they use in ways that further polarize economies. The basic model is what occurred in ancient Rome, moving from democracy to oligarchy. In fact, giving priority to bankers and leaving economic planning to be dictated by the EU, ECB and IMF threatens to strip the nation-state of the power to coin or print money and levy taxes.

The resulting conflict is pitting financial interests against national self-determination. The idea of an independent central bank being “the hallmark of democracy” is a euphemism for relinquishing the most important policy decision – the ability to create money and credit – to the financial sector. Rather than leaving the policy choice to popular referendums, the rescue of banks organized by the EU and ECB now represents the largest category of rising national debt. The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations. The same is true for America’s $13 trillion added since September 2008 (including $5.3 trillion in Fannie Mae and Freddie Mac bad mortgages taken onto the government’s balance sheet, and $2 trillion of Federal Reserve “cash-for-trash” swaps).

This is being dictated by financial proxies euphemized as technocrats. Designated by creditor lobbyists, their role is to calculate just how much unemployment and depression is needed to squeeze out a surplus to pay creditors for debts now on the books. What makes this calculation self-defeating is the fact that economic shrinkage – debt deflation – makes the debt burden even more unpayable.

Neither banks nor public authorities (or mainstream academics, for that matter) calculated the economy’s realistic ability to pay – that is, to pay without shrinking the economy. Through their media and think tanks, they have convinced populations that the way to get rich most rapidly is to borrow money to buy real estate, stocks and bonds rising in price – being inflated by bank credit – and to reverse the past century’s progressive taxation of wealth.

To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting planning power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning and taxation is accused of being “the road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic. Governments are told to pay bailout debts taken on not to defend countries in military warfare as in times past, but to benefit the wealthiest layer of the population by shifting its losses onto taxpayers.

The failure to take the wishes of voters into consideration leaves the resulting national debts on shaky ground politically and even legally. Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them. New governments may act democratically to subordinate the banking and financial sector to serve the economy, not the other way around.

At the very least, they may seek to pay by re-introducing progressive taxation of wealth and income, shifting the fiscal burden onto rentier wealth and property. Re-regulation of banking and providing a public option for credit and banking services would renew the social democratic program that seemed well underway a century ago.

Iceland and Argentina are most recent examples, but one may look back to the moratorium on Inter-Ally arms debts and German reparations in 1931.A basic mathematical as well as political principle is at work: Debts that can’t be paid, won’t be.

This article appears in the Frankfurter Algemeine Zeitung on December 5, 2011.

MICHAEL HUDSON is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (http://www.amazon.com/exec/obidos/ASIN/0745319890/counterpunchmaga) (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy (http://www.amazon.com/exec/obidos/ASIN/3980846695/counterpunchmaga). He can be reached via his website, [email protected]

breakfastburrito

12th Dec 2011, 07:54

"The System Has No Way of Solving The Problem.": U.S. Economist Richard Wolff about the Crisis in the U.S. and Europe
24.11.2011

The first 30 second intro is in German, but the interview is in English

-EsA2bYaO6o

Transcript

The crisis in the U.S. and Europe is not a pure financial crisis, says Wolff. Especially in the U.S. wages have stagnated or even declined since the 70ies with increasing working hours. To keep the consumption going private households and the state had to build up huge debts while assets have concentrated more and more in a small group of capital owners. Instead of paying higher wages workers got loans from the capital owners. At the breakout of the crisis in 2007/2008 this construction collapsed. The system has no way of solving the problem. "The irony is that all the attention these days is on little Greece or Italy. But the much bigger problem is the U.S.", says Wolff. The States already have as debt more than their GDP. These growing debts are like a "big elephant" running towards Europe. But nobody wants to deal with that. The unprecedented Occupy movements have been very succesfull so far. They unite different movements, challenge the capitalist system and get sympathy from the majority of the population.

Gäste:
Richard Wolff: Professor of Economics Emeritus, University of Massachusetts, USA

Transkript:
Kontext TV: Welcome to KontextTV Richard Wolff.

Richard Wolff: Thank you very much for inviting me.

Kontext TV: Richard Wolff, talk first about the economic and financial crisis in the US. It's deepening right now, what are the causes for the crisis and how is this crisis in the US linked to the crisis in the Eurozone right now ?

Richard Wolff: Well, to begin it's the most serious economic crisis in the lifetime of the people alive in the US today. The only thing like it was the collapse of the 1930s, the great depression, which is 75 years ago, so there are very few people left who have a clear understanding of it. So it came as shock to the US, because it had been believed because of the ideology in the US, that we had a free enterprise market system that wouldn't have collapses, that wouldn't have this kind of a downturn, as we call it, that would last that long. We're in the 5th year of this, so the first thing is, it's a very severe economic downturn, it is lasting longer than anyone expected, it is cutting into the economic system much worse than was expected. So it's a major economic crisis and it's lasting so long that it has now produced a political crisis on top of the economic crisis like in Europe in many ways. Second, it is not a financial crisis, i.e. it is not produced by the banks, it is not produced by the financial economy, it is produced in the whole economy, it is as much a part of the non-financial as the financial. The reason it is called the financial crisis in the US is to comfort people it's a crisis limited only to part of the economy, rather than a crisis of the whole economy. Let me explain: For most of the history of the US we were a society in which wages rose, year after year, roughly from 1820 to 1970, 150 years, producing in the US the highest wages in the world, producing a belief that Americans have to this day, that they are in a special place, where you are rich if you work hard, where you will have your children live at a better standard than you and your grandchildren even better and so forth. All of that stopped in the 1970s when the long term labour shortage of the US ended. You have to understand that the reason the wages rose was we never had enough labour. We had a successful capitalism without workers. Partly because we killed all the Indians we found there when we first came as Europeans and afterwards that capitalism was successful and there weren't enough workers. Which is why we are a nation of immigrants. One after the other, but in the 1970s it stopped. The computer meant we didn't need people so much. American corporations moved out of the US in huge numbers for cheap labour elsewhere, i.e. China and India. And finally, the women's liberation movement moved millions of women into the labour market. So you had less demand for jobs, because of computers and export of work, and more people looking, women and more immigrants keep coming. The result was real wages stopped rising for the first time in US history as a country, since the 1970s, the real wage, the amount of money a worker gets adjusted for the prices that have to be paid is flat. This is a trauma is a psychological problem for a culture that has expected rising wages. No one discussed it in the 1970s, it was not recognised as a problem so every American family tried to solve it itself by doing two things: 1) More work. Americans work more hours of paid labour per year than any other advanced industrial country. About 20% more paid hours of labour per year than a German or a French or Italian would. That is a fundamental difference. And it meant over the last 30 years that the American worker is physically exhausted. Because the women leave the home for work, because the wages aren't going up, the families falling apart, because the women held it together and they are now exhausted too. But the most important thing is that working class in America, starting in the 1970s, to deal with the trauma of no more rising wages decided to keep on consuming as they had been promised they could, as they had promised to their children you'll have a college education, you'll have a car, you'll have a nice home and they borrowed the money. And for 30 years the American working class borrowed more money than any working class in the world ever borrowed. For their home, for their car, for their credit card, and for their university education. All students in the US now graduate with debt. 30 years ago almost no students had debts. So, by 2007 we had an exhausted working class. They couldn't work any more hours, couldn't borrow any more money, it couldn't send out any more people from the household to work. They were finished. And the rising economy was over and it collapsed. The economy built on rising consumption for 150 years couldn't any more, there was no way it was gonna happen. At the same time the wealth of America got shifted. For 30 years the wages were the same, the productivity of workers kept rising. So the workers produce more each year, better machines, more machines, new computers, faster labour, better training, so the worker-output delivered to the employer goes up for the last 30 years, every year. But what the employer did for the worker is flat for 30 years, because there is no longer a labour shortage. So you have the working class cannot get any more money, has to borrow all the money, to keep on consuming, but the employer class is wealthier than ever before, because they get all the gains of productivity for 30 years and they don't have to raise their wages, and has transformed the US. First the employer class has payed themselves fantastic salaries. Executives at the top of American corporations get much more, relative to Executives at the top of German or French or Italian corporations. They paid themselves this enormous sum of money. Number 2: They moved in to shape politics. They were smart. They understood that if they become relatively more wealthy and a mass of people don't you better control the political system or else the working class will use the political system to nullify what we are doing. So, American workers, who were exhausted with all their labour withdrew from politics. And the employers took all the extra money and moved in to shape politics. So that now the Republican and Democratic Party are both dependent on money of the same employer class, which is why whether you have Bush or Obama, the differences are very small. We have one party with to factions in the US and no opposition to handle the new problem of a highly unequal society. And so the crisis comes when the mass of people can not keep it going. And the rich have speculated on all the debts. For example, over the last 30 years the American working class borrowed more money - who did they borrow it from? From the employer. Because they were making the employer richer and richer, the employer lend them the money, instead of paying wages increasing, which is what they had done previously. So from an employers point of view, it was phantastic. You no longer raise the workers wages, instead you lend them money so they have to pay you back - and pay interest. But of course after 30 years as the debt of the working class goes up, but the underlying wage does not, you reach a point where you can't pay your debts. In 2007 the crisis begins, when masses of people can not pay their debts. It's a little bit like thinking of the American working class like the Greeks today. They can not pay. Their debts are impossible. And therefore the system has no way of solving the problem. The only way to enable the working class to resume consumption is to pay higher wages. The capital's class can't do that, doesn't want to do that, resists every effort to make them do that and the irony is, by doing this the capitalist's class undermines its own situation. And that's why the crisis is so severe. There is now way out without massive changes that the capitalist's class, the employers class, will not do. And so you have the situation and it is just as serious in the US as in Europe. In many ways more serious. The irony is, that all the attention, these days is on little Greece, or Italy. But the much bigger problem is the US. The debts of the US, of one country, are much larger than those of Greece, Spain, Portugal, Ireland, Italy, France combined. It is a peculiar situation, that the world's right now focused on Europe, southern Europe, when in fact the big problem coming down the road is the US. We already have as debt more than our GDP. When the trouble with Greece began their debt was 130% of GDP, ours right now, is already about a 105-110% and moving towards 135% fast. E.g. in 2011 the increase in our debt will be 10%. 1500 billion on a debt of 14500 billion. So roughly 10%. The estimated rate of economic growth of output this year: 2%. Our debt is rising five-times faster than our GDP. It's only a matter of two or three years before we are at, where Greece was, when the crisis in Greece began. But people are not looking at the situation, they're not accepting - because they don't want to - how serious the crisis is, not in the US. And here in Europe, because you're busy looking at your European problems, you don't see that there is a large elephant running towards you and sooner or later you gonna have to do something about this elephant.

Kontext TV: We are seeing protests all over the place, we are seeing the Occupy movements in the United States. Yesterday there was a general strike in Oakland, unprecedented strike one has to say. We are seeing protests in Greece and Spain. What are your thoughts on these movements. And where are they heading ?

Richard Wolff: I think the movements are successful in bringing an immense array of people together with very different issues, priorities, and programs. So they refuse to pick one or two, they're not going to tell us, and that's very very smart, because, they are gathering together 30 years angry about this problem, racial issue, economic issue, gender issue, whatever it is, they gather in the same movement. They have tried, little social movements for their own issue, it hasn't worked. In order to make real progress around gender, racial, ethnic, we have to get everybody together. We can only change the system if we are unified and have the strength of enormous numbers. And this is working. That's why people are coming together, they are not fighting each other. It should be that we fight for racial issues or it should be fight against the war in Iraq - no no no - they understand we are bringing everybody together. Later on we will worry about which issue when. But at first we have to be strong enough to make a difference. We're not gonna make the mistake of being fighting out and then separating and splitting - this group does this, that group does that. It is very important. And that's why they're so successful. Every attempt has been made by the police to repress it. Fail! The police had failed, including in Oakland. If you follow what happened in Oakland in a bad case of police over reacting, the mayor, who ordered the police in, went on TV the day after, mayor Quan, a woman, she said that she was sorry, she made a mistake, she should never have done that. The police chief is now openly fighting with the mayor. We haven't seen this before. There was a general strike yesterday, it was very successful, it closed the port of Oakland, one of the most important ports on the west-coast of the US, it had walkouts of public employees, private employees, there hasn't been a general strike of this sort in the US for at least a quarter of a century if not longer. This is the first one and it was quite successful. So, I think you're seeing a movement determined to grow, determined to question the whole thing. Let me make one more point. From the beginning this movement has said that it is against the entire system. It doesn't want a little change here the law changed a little bit. That's not the problem, the problem isn't this or that or the other. It is the system as a whole, and they'd been willing to give a name to the system and the name is capitalism. I've been active in every major political movement in the US since 1955-1960, because i've been around that long. In the past those of who wanted to argue that capitalism is a part of the problem had great difficulty to do that. That was seen as dangerous or disloyal or too much - that's not the case anymore. I go everywhere, i've been speaking at many of the occupy-movements, I talk about "The problem is capitalism" and that's acceptable, not everybody agrees, but it's an acceptable part of this movement. That's another way, this is completely different. This is a challenge to the system as a whole and it is determined not to be reduced to something affecting this subgroup or that subgroup, this is a change, and it's been successful in getting that across to the American people. A movement which says openly that capitalism is the problem is now getting between 55% and 60% sympathy in every national poll conducted by the NYT, CBS, and so on. So here's a movement that is more radical than anything we've seen. And within one and a half months of existence, has the majority of the American people expressing sympathy. The left had never believed it could do that. And we have already done it and we're just at the beginning.

source:"The System Has No Way of Solving The Problem.": U.S. Economist Richard Wolff about the Crisis in the U.S. and Europe | Kontext TV - Das unabhängige Nachrichtenmagazin (http://www.kontext-tv.de/english)

Foie gras

12th Dec 2011, 11:33

Nothing has changed, this happened a few months ago!
We're still kicking the can.
Guy Just ******* Lost it on Air - YouTube

Sunfish

12th Dec 2011, 19:22

I pulled the pin on the stock market in October.

Be aware that from February 1, 2012, the Federal Government will only guarantee the first $250,000 of bank deposits per institution, per person.

You need to think really hard about what that tells you.

Ultralights

12th Dec 2011, 21:22

i must admit, a 1Kg 999 silver bar does feel very good in the hand, and they look good stacked up in the safe deposit box! :ok:

prospector

12th Dec 2011, 21:34

The clip above headed Lost it on Air,

I would have thought he would have been praised for having "FOUND IT" and having the moral integrity to shove it to all the talking heads that pussyfoot around the periphery of the major problems.

breakfastburrito

12th Dec 2011, 22:04

Foie gras, *WOW*. Ratigan speaks the truth on MSNBC and keeps his job! In 4:45 he encapsulates everything that is wrong with the system - the corrupt Banking/Political/Trading triad (although he missed the M.I.C) that is harvesting the US & Western world, until every last drop of blood has been squeezed from the system. Then it will be allowed to collapse as a broken shell, with the new Robber Barons sailing off into the sunset. The system has a limited life expectancy, plan accordingly.

K9P

13th Dec 2011, 05:30

This is called the Euro Bailout Package.

Read carefully as I am sure this is exactly how it works.

It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a E100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the E100 note and runs next door to pay his debt to the butcher.

The butcher takes the E100 note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the E100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the E100 note and runs to pay his drinks bill at the taverna.

The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the E100 note.

The hotel proprietor then places the E100 note back on the counter so the rich traveller will not suspect anything.

At that moment the traveler comes down the stairs, picks up the E100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.

No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a lot more optimism.

And that, Ladies and Gentlemen, is how the bailout package works.

Simples!

TIMA9X

13th Dec 2011, 05:43

sc2h_kA7mfU

T28D

13th Dec 2011, 05:47

Here we are with planes grounded all over Australia because of the new age threat --- volcanic ash and jets -– they don’t mix
Professor Ian Plimer (a member of the School of Earth and Environmental Sciences (http://www.ees.adelaide.edu.au/) at the University of Adelaide. He is also a joint member of the School of Civil, Environmental and Mining Engineering (http://www.ecms.adelaide.edu.au/)) could not have said it better!
If you've read his book you will agree, this is a good summary.
Are you sitting down?

Okay, here's the bombshell. The volcanic eruption in Iceland, since its first spewing of volcanic ash has, in just FOUR DAYS, NEGATED EVERY SINGLE EFFORT you have made in the past five years to control CO2 emissions on our planet, all of you.

Of course you know about this evil carbon dioxide that we are trying to suppress, that vital chemical compound that every plant requires to live and grow, and to synthesize into oxygen for us humans, and all animal life.

I know, it's very disheartening to realize that all of the carbon emission savings you have accomplished while suffering the inconvenience and expense of: driving Prius hybrids, buying fabric grocery bags, sitting up till midnight to finish your kid's "The Green Revolution" science project, throwing out all of your non-green cleaning supplies, using only two squares of toilet paper, putting a brick in your toilet tank reservoir, selling your SUV and speedboat, vacationing at home instead of abroad, nearly getting hit every day on your bicycle, replacing all of your 50 cents light bulbs with $10.00 light bulbs...well, all of those things you have done have all gone down the tubes in just four days.

The volcanic ash emitted into the Earth's atmosphere in just four days - yes - FOUR DAYS ONLY by that volcano in Iceland, has totally erased every single effort you have made to reduce the evil beast, carbon. And there are around 200 active volcanoes on the planet spewing out this crud any one time - EVERY DAY.

I don't really want to rain on your parade too much, but I should mention that when the volcano Mt Pinatubo erupted in the Philippines in 1991, it spewed out more greenhouse gases into the atmosphere than the entire human race had emitted in its entire YEARS on earth. Yes folks, Mt Pinatubo was active for over one year, think about it.

Of course I shouldn't spoil this touchy-feely tree-hugging moment and mention the effect of solar and cosmic activity and the well-recognized 800-year global heating and cooling cycle, which keep happening, despite our completely insignificant efforts to affect climate change.

And I do wish I had a silver lining to this volcanic ash cloud but the fact of the matter is that the bush fire season across the western USA and Australia this year alone will negate your efforts to reduce carbon in our world for the next two to three years. And it happens every year.

Just remember that your government just tried to impose a whopping carbon tax on you on the basis of the bogus ''human-caused'' climate change scenario.

Hey, isn't it interesting how they don't mention ''Global Warming'' any more, but just ''Climate Change'' - you know why? It's because the planet has COOLED by 0.7 degrees in the past century and these global warming bull artists got caught with their pants down.

And just keep in mind that you might yet have an Emissions Trading Scheme (that whopping new tax) imposed on you, that will achieve absolutely nothing except make you poorer. It won't stop any volcanoes from erupting, that's for sure.

But hey, relax, give the world a hug and have a nice day!

PS: I wonder if Iceland is buying carbon offsets?

Foie gras

13th Dec 2011, 23:05

T28 which planet are you on?
Too many volcanic vapours.
Come back to mother earth.
We love you man!

Ultralights

14th Dec 2011, 00:47

and volcanic gas releases has exactly what to do with global debt and banking?

my oleo is extended

14th Dec 2011, 01:04

T28D I want some of the **** you are smoking..Solid post!!

and volcanic gas releases has exactly what to do with global debt and banking?
The putrid sulphur emissions are similar in nature to what merchant bankers emit; Smelly **** that can be invisible to those it effects yet be toxic to mass areas of population without them realising!
I think that may be what he is getting at? Or is that bankers and volcano's are deep pits of burning fire that consume anything in it's/their path?

airdualbleedfault

14th Dec 2011, 05:24

I like the Dylan Ratigan clip, spot on !

Maybe someone here can explain why ANZ bank in Hong Kong is lending money in AUD @ a full 1% less than ANZ in Australia, and lending money in HKD at just over 2%. Yep, if you want to live in lovely HK, your monthly mortgage payment will be in the vicinity of 80% principal and 20% interest, I 5hit you not.
( I'm sure there is a logical, financial double speak, gobble de gook BS answer, but I don't buy it )

We are being royally screwed :mad:

Anthill

14th Dec 2011, 07:23

I can see T28s point precisely. There is a link between the manipulation of global markets and a carbon tax in terms of accelerating the movement of capital from the poor/middle/upper middle classes to the super rich. Time will tell.

selling your SUV and speedboat

No friggn' way. I like my SUV :p

Normasars

14th Dec 2011, 08:20

OZ is rapidly approaching the most expensive country in the world to live in; and it aint going to get any better any time soon.:*

Critical Reynolds No

16th Dec 2011, 01:55

my oleo is extended said on 9th August:
Gold will be $2000.00 an ounce before Xmas.

http://www.gifsoup.com/imager.php?id=200712

hongkongfooey

16th Dec 2011, 09:46

Apart from the obvious, Tokyo, Geneva etc, In Hong Kong a flat that an Australian homeless person wouldn't live in is 1,000,000 AUD, western style groceries are on average 30% more expensive than Oz and fuel is nearly 2$ a litre, I think Australia has a ways to go. Don't even go down the tax road, as an expat in HK you get almost nothing for your 16%, not even clean air.
I should add, I'm not the slightest bit happy with the tax system and yes, the cost of living is getting ridiculous by Oz standards.

Chimbu chuckles

17th Dec 2011, 10:11

There is a hell of a lot of BS conspiracy drivel on this thread but 'economist' Wolff takes the cake in many respects. The real reason real wages have declined since the 70s is because politicians, mostly but not exclusively of the left, have been printing money and wasting it.

Its just typical an 'economist' who self identifies as being of the Left would try to blame capitalism. You can also lay the blame for capitalisms failings - crony capitalism - mostly, but not exclusively, at the feet of left wing politicians.

Yes there is fault on both sides of the parliament but, as we have seen amply demonstrated, the preponderance is on the left.

If Wollf doesn't like capitalism what's his alternative - socialism?

When has that ever worked - EVER?

onetrack

17th Dec 2011, 10:20

This following article by Michael West, in todays Australian on-line newspapers, reveals that all that has really happened since 2008, is that the financial crims are still in charge.

I admire Michael West as a very good, hard-hitting, investigative finance journalist. He regularly drops the biggest turds he can find, on the heads of those human banking-coterie turds, who are totally f##*king our world economic system, with their greed, lack of ethics, and outright criminality.

What is also totally amazing, as West points out, is that we have yet to see one handcuffed perp-walk, when it comes to making these financial manipulators pay... with real, jail-time penalties... for the financial crimes they have indulged in, and continue to indulge in..... :suspect:

ANOTHER CRACK IN A ROTTEN SYSTEM

It's the season for gongs, those cheesy "best and worst of the year that was" wrap-ups. Worse even than gongs, a rash of the dreary "what the year ahead holds" stories is upon us.

Never fear, let us save you the effort. Here is what the pundits will say: challenges lie ahead, we are cautiously optimistic, we forecast equities to rise by 10 per cent in 2012. Bank it.

Top down, bottom up, name your methodology, they'll get there. Year in, year out, any big-city economist, strategist, or anything "ist", will tell you: "up 10 per cent, difficult environment, cautiously optimistic".

You can bet on that, but unless you are too big to fail, you can't bet on the market without risk.

Take Jon Corzine. Corzine has just found out he is not quite big enough to elude failure. His broking firm MF Global took a hairy-chested $US6.3 billion punt on European bonds - a bet more than five times the book value of the firm - and blew up. Worse, MF had gambled $US1.2 billion of its clients' funds, funds that were supposed to be in segregated accounts, sacrosanct.

And so it was that markets were perturbed again this week, and not just by the usual boondoggling in Europe. Yes, there was the spectre of deflation anew, which hurt asset prices. Speculators even took the long-handle to gold. But there was also Jon Corzine and the latest bogey-word - "re-hypothecation" - which shook the confidence of the trading cognoscenti.

Hypothecation is when borrower pledges capital. Re-hypothecation happens when a broker or a bank redeploys assets pledged as collateral by customers for its own borrowing. The risk is that somebody else controls those assets in the event of default.

So markets were spooked. Why didn't you tell me about this loophole in international brokerage borrowing rules? Are my funds safe? How about my counterparty's counterparties? What if I have been re-re-hypothecated? If they can pledge the money in my account to somebody else in cross-border mega-punt … get me out!

Corzine, a former chairman of Goldman Sachs and Democrat Senator, was ducking and weaving last night as Republicans went for his jugular for staying at the Ritz Carlton in Washington despite the vanishing of his clients' funds.

It was just another show trial on Capitol Hill. For all the corruption and the trillions of dollars lost in the past four years there is yet to be a "perp-walk".

Same deal here. Babcock, Allco, MFS, ABC, Rubicon. Nary a bad word or a slap on the wrist.

At least they handcuff them from the front when they perp-walk them stateside. But there has been none of that. And MF Global looks unlikely to be the first. Corzine is, after all, a big Democrat donor. Besides, it only got its dealer's licence from the Federal Reserve earlier this year, one of 22 licences to deal Treasury bonds. And apparently, gearing up client money on the sly and punting it is legal.

Under the Fed's Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140 per cent of the client's liability to the prime broker.

In Britain, there is no statutory limit on how much you can re-hypothecate. All one needs is an office in London and a brass plaque.

According to Thompson Reuters, thanks to this "asymmetry of rules", by 2007 re-hypothecation had "grown so large that it accounted for half of the activity of the shadow banking system''.

So when you hear that old chestnut from your broker - "there's a lot of cash sitting on the sidelines" - just be mindful of the daisy-chain of financiers who might stake a claim to that "cash".

The International Monetary Fund reckons collateral has been "re-hypothecated to a factor of four".

Nor are Australia's banks quarantined from this staggering leverage. Hyper-hypothecation highlights how little grip regulators have on the complexities of world finance.
Be sure that when it comes to our banks, exposure to re-hypothecations will loom large among the host of toxic gremlins lurking off balance sheet. That's the problem, it's all off-balance sheet.
All we know for sure is that, whatever it is, we as taxpayers own it, thanks to "too big to fail" (mentality).

Not to worry, the world will muddle through. The next couple of months may be interesting though. Christmas is traditionally the time for a rally. It happens most years.

This year though, it may be tricky, what with band-aid solutions to the gaping wounds of Europe, marauding hedge funds and possibly the European Central Bank in holiday mode.

Just a thought, but sovereign bonds are vulnerable to attack. Holiday markets are illiquid. No doubt Jon Corzine's old firm, Goldman Sachs can do its bit.

It's latest corporate strategy is to "seed" a bevy of hedge funds with capital. Financed and schooled in the Goldman way - probably heavily re-hypothecated - these evil little mini-me Goldmans are being unleashed on the world, ready to hypothecate all over the place.

For its part, Goldman had hypothecated $US18 billion in capital as of September 2011. It was modest by Wall Street standards, as JP Morgan sold or re-pledged $US410 billion of collateral received under margin loans, derivative transactions, securities borrowed and reverse repurchase agreements.

The original article website: Another crack in a rotten system (http://www.watoday.com.au/business/another-crack-in-a-rotten-system-20111216-1oylw.html#ixzz1gmV8KU6b)