May 29, 2008
Elaine Meinel Supkis
I am a rather strange creature. I am a monetary conservative who supports socialist structures for society. Oddly enough, for the same reasons the first proto-socialist, Herr Otto von Bismark used when he justified the very first modern social safety net supports in Germany 130 years ago. In today's news, we will be talking about the Federal Reserve's obvious failures, the resignation of the biggest advocate for cutting interest rates---Mr. Mishkin, the failure of the US imperial/socialist regimes. Yet another director is throwing in the towel and retreating to academia where he can teach youngsters all sorts of useless stuff. And the big news for all gold holders: Canada is now demanding everyone who is buying gold will now have to REGISTER with the government so they can track you guys! Goldman Sachs runs the Bank of Canada and he wants his nose in YOUR affairs!
by Gary North
The Toronto Globe and Mail ran a story on money laundering and new Web-based businesses that allow people to buy small amounts of gold and then spend this gold as money.
The development of these businesses is the preliminary step to the restoration of private money. This is regarded with great hostility by national governments and central banks. National governments ever since 1914 have worked with central banks to remove gold from circulation as money. This began with the outbreak of World War I. It has never ceased.
The development of the credit card was the culmination of a dream of every fractional reserve banker. Bankers in a fractional reserve system have always feared the withdrawal of currency by depositors. This reverses the fractional reserve process. It shrinks the money supply.
By substituting digits for currency, bankers have solved this problem. A depositor can move digital money out of his account, but it is transferred to another digital account. The system does not lose deposits. When someone withdraws currency and does not redeposit it, the money supply declines. So, credit cards are a banker's dream come true. The threat of bank runs by depositors has ended.
Gary North: He is a Calvinist Christian who has elements of the End of Times group think in his philosophical base. He is part of this contradictory system whereby his fears drive us into places he doesn't want to go. I have noticed the gold standard community has many 'End of Times' people involved. They are unable to listen to outside voices in this religious matter because of the delusions they collectively hold concerning the return of Jesus which they desire. Like all historical forces, they have some sincere and good intentions but it is coupled or harnessed to hideous destructive forces. The idea that their desire for Jesus to return and kill most humans makes them demonic and thus, followers of the anti-Christ, is nearly inconceivable in their own minds. Yet this is the end result of their desires and beliefs.
About the credit card users, Gary is right. The credit card industry is actually like a trawler fishing operation. They issue cards to all and sundry. Then, you can use the cards and pay off everything with no penalties or interest on the money you 'borrow' for 30 days. I have had the old American Express cards for business purposes. They got paid at the end of the month and I paid an annual fee of $50 for use of this card. Quite useful. Then, around 1980, when the banks were desperate to make loans and interest rates were high anyway, they all began to offer 'free use of our cards if you pay it off!' stuff. So American Express lost its original intent since no one was going to use the fee-based cards. In the end, the thinking was this: the people who used the card and paid this off [called 'dead beats' inside the industry] would inevitably goof up and fail to pay the balance one day and thus, end up with a rising balance and then the card companies get over 18% interest. Then, if they use all sorts of goofy tools and excuses, they can raise the interest rate to the moon. This is thanks to getting rid of all usury laws. We now live in a nation where interest up to and beyond 300% can be charged. This is insane and insidious and is bankrupting America.
Back to Gary North's latest news story: Ottawa warns on gold-backed Web trades
Canada's financial intelligence agency warns that criminals may be exploiting Internet-based companies that convert cash into electronic gold, exposing a new front in the international effort to restrict terrorist financing and money laundering.
While other channels of money laundering are successfully being shut down, authorities are increasingly worried about a proliferation of "digital precious metals operators" websites that offer clients a chance to conduct Internet business in units backed by gold and silver rather than paper currencies.
The Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, says in a report these websites have "achieved critical mass on the Web" and are facilitating millions of transactions on the fringe of the international financial system - the equivalent of a Wild West where legitimate businesses, privacy-seeking individuals and criminals can mingle just out of reach of the law.
At stake is the effectiveness of the financial reporting rules that countries such as the United States, Britain and Canada enacted in response to the Sept. 11, 2001, terrorist attacks. A network that allows individuals to move money around the world means criminals can avoid commercial banks and other financial institutions required to turn over their records to the government.
We still have offshore banking run by pirates. The deal was, the governments would poke their snouts into the affairs of everyone and anyone but would not use this to move against say, Jewish financiers or Middle Eastern gun runners working with the CIA and Mossad and MI6, etc. And this information would not be used to stop the crazy creation of credit by these offshore banking entities. The sole reason for these laws was to go after political rivals, Muslim money that might be used to help popular uprisings against the cruel dictators and despots in the Middle East, to keep money from Hamas above all and to blackmail drug running crime families so they would work with the CIA, Mossad, MI6 etc.
The true reason the governments want to control and track the gold markets is for political power. During the last century, the central bankers have used the government to restrict our choices for economic transactions in order to keep control of our banking systems. As the fiat currency regimes they impose implode on us all, they get very vigilant in preventing us from exiting the situation they, themselves, have created. The central bankers should be furious about the spread of legal usury. Instead, they are focused on getting their claws on SAVERS who have been DRIVEN OUT of the banking system due to the goofy idea that interest rates have to be low because there is no inflation.
Since the banking system is based on this insane and obviously fake idea, savers have only a few choices: they can gamble with their savings by taking on ALL the risks within the present, collapsing banking system. Or they can hoard commodities or bet on the price of commodities shooting up due to hoarding. Or they can spontaneously restart the ancient banking system that existed up until 1972 and the Floating Currency regime of the Bretton Woods II Accords. Namely, they save based on the gold standard. By translating their savings into gold, they can then collect a higher interest rate if the value of gold rises against the dollar or other currencies. There are other reasons for this aside from interest rates. The desire for privacy is of course, one of them.
Now, this is important! The government has used first the Income Tax, then War on Drugs and now the War on Terror to totally destroy our privacy! I am old enough to remember when money in one's hands were a PRIVATE AFFAIR and none of the business of the government. There are reasons for government meddling but the level of meddling today is extreme. Especially since it has huge, glaring empty spots which the governments themselves use for nefarious purposes.
I warned all the gold standard believers that the governments would move against them and registration is the first step towards confiscation. We KNOW this will happen for the simple reason, it has happened already in the past! A desperate government can and will use old tools again and again if they must. And they will, in this case.
Here is a small sample of a free Ebook by Gary North:
You will hear hype about gold at $10,000, just as in 1999 there was hype about “Dow 36,000.” If you are tempted to believe these headlines, remember Prof. Rozeff’s warning:
Looked at this way, it is evident that gold in the portfolio is equivalent to insurance against some devastating contingencies. Complete or partial insurance are possible. The more gold you have, the more insurance you are buying. Over-insuring is costly because the overall rate of return of the portfolio goes down if nothing happens. That's because gold historically provides no real return. Everyone has to decide for himself what the odds of these scenarios or ones like them are, how to insure against them as with gold or some other real assets, how high gold will go when other assets decline, and how much to insure against these events. There are no pat answers to these decisions, but they are within the realm of understandiand even sensible computation.
He does tell the truth: gold will not make one rich except in very exceptional cases. Such as when Bretton Woods II was instigated, if one held gold back then, by 1980, it was quite valuable and rose more than most anything against the dollar. But one had to sell, not hold it, in order to gain a profit from its rise! After 1980, gold languished as the 'smart money' moved into playing interest and FX games as they discovered endless money could be cranked out of this unbalanced and stupid floating currency system. Now, there are millions of traders working day and night to eke out a profit from the shifting sands of relative international trade value of currencies that have no limits or restrictions except whatever the governments choose or not choose to impose. This bizarre exercise in making money from instability is the REAL 'Wild West' and the central bankers are the guys running the damn saloons.
And some of the bar keepers are running away after the piano player who gets gold tips, was shot.
Federal Reserve Governor Frederic Mishkin, a central-banking scholar and advocate of the longest run of interest-rate cuts since 2001, resigned to return to Columbia University.
Mishkin, 57, on a leave of absence from the New York school, will step down as of Aug. 31, the Fed said in a statement today, also releasing his letter of resignation to President George W. Bush. Mishkin will attend his final meeting of the rate-setting Federal Open Market Committee on Aug. 5.
The departure may create an unprecedented third vacancy on the seven-member Fed Board of Governors this year as the central bank tries to ease the credit crisis. The vacancies mean that a new U.S. president to be inaugurated in January may have an opportunity to influence monetary and regulatory policy by nominating new members to the board.
Mishkin always pissed me off. Now this enabler of fiscal heroin is running off to his Ivory Tower to hide. After wrecking our entire banking system, he scoots off to teach youngsters the stupidest lessons. Instead of being locked in a pillory and mocked by the crowds, he will sit on his little throne and pontificate. So the poison of his delusions will destroy the coming generations of economists. What a dismal future! Note how the Democrats, by the way, are not filling the Fed seats. I know some readers get angry when I talk politics but we have to be realists here: the Fed is NOT vanishing. So we better insure it isn't terminally stupid.
Obama's financial advisor is Volcker. At least he wants the system set up as it is, to work. If Obama wins this election, I expect Volcker to take charge over selecting the future Fed positions. At least this will slow down the destruction. It is fun to dream of destroying the Fed but reality is what we have to deal with. Perhaps we can influence the Fed's thinking. Or not. But calls for its banishment are far from possible at this point. Indeed, no major nation has no central bank. The trick is to influence them so they function. And to get the Fed back on the gold standard which isn't impossible. Unlike eliminating it which probably is nearly impossible.
Volcker is the anti-Santa Claus. So I support Obama since he probably will listen to Volcker. And another thing: Americans repudiated Jimmy Carter and Volcker and chose Santa Claus Reagan. The worst of our fiscal conditions began after 1982. And the cure is for us to realize that Santa Claus is not a gift giver but a thief. Now, back to the Fed news:
Federal Reserve Chairman Ben S. Bernanke met last month with the head of the firm managing $30 billion of Bear Stearns Cos. assets for the central bank, five weeks after the Fed rescued the investment bank from bankruptcy.
Bernanke met with BlackRock Inc. Chief Executive Officer Laurence Fink on April 23 at his office in Washington, according to the chairman's April schedule, obtained by Bloomberg News under a Freedom of Information Act request.
I recall Bernanke babbling about greater openness. Yet, when Bloomberg's reporters wanted information, he clammed up. So they had to go to court. The Fed wants to pry into our private affairs but we can't see THEM. This has got to stop. I don't want ANY private meetings! ALL their meetings minutes should be open to us all within the first 24 hours of ANY meetings! How about that? I will petition Volcker on this issue. As I keep saying, wealth is created in darkness. When one sees how these operations go, one can then plan ahead and evade the problems that are obvious or try to stop stupidity. But when meetings are private and we only get to know stray details, we are in the dark. And this is wrong. Totally wrong. Indeed, all Federal Reserve meetings should be on CSPAN. The guys running it will then be forced to debate IN PUBLIC what the details are and their plans are. They will have to let us know their fears. Of course, they will then clam up and say little. And then hold secret meetings outside the system.
Which is stupid! They MUST air out every thing all the time! Why is that?
Because the secret system has been a total, roaring failure! I believe knowledge is power and if any system is public, it must be really public and not be secretive. The Fed was born in secrecy. And the vote to create the Fed was done during Xmas when most of the Senate was out of town. Of course, the ideal here is to have a national debate about the Fed and then revote on this matter, in public this time! But to force this is going to be very difficult as Ron Paul knows. Not that our multi-millionaire Senators are interested in stopping this system that benefits them and their benefactors.
The unfolding story of the JP Morgan coup against Bear Stearns continues. Drip, drip, drip....the details will leak out. Something very bad happened when JP Morgan made this secret deal. It was another turn downwards for our banking system and the Federal Reserve. The hazards and risks embedded within Bear Stearns were secretly moved from the private ledgers of Bears Stearns to the US tax payers and the tax payers had no say in this matter at any level.
Yesterday, the Dallas chief of the Fed gave a speech. This speech shows the cruel thinking processes of these guys.
Storms on the Horizon
Forty-three years ago this Sunday, Bill Martin delivered a commencement address to Columbia University that was far more sober than his Alfalfa Club speech. The opening lines of that Columbia address  were as follows: “When economic prospects are at their brightest, the dangers of complacency and recklessness are greatest. As our prosperity proceeds on its record-breaking path, it behooves every one of us to scan the horizon of our national and international economy for danger signals so as to be ready for any storm.”
Today, our fellow citizens and financial markets are paying the price for falling victim to the complacency and recklessness Martin warned against. Few scanned the horizon for trouble brewing as we proceeded along a path of unparalleled prosperity fueled by an unsustainable housing bubble and unbridled credit markets. Armchair or Monday morning quarterbacks will long debate whether the Fed could have/should have/would have taken away the punchbowl that lubricated that blowout party. I have given my opinion on that matter elsewhere and won’t go near that subject tonight. What counts now is what we have done more recently and where we go from here. Whatever the sins of omission or commission committed by our predecessors, the Bernanke FOMC’s objective is to use a new set of tools to calm the tempest in the credit markets to get them back to functioning in a more orderly fashion. We trust that the various term credit facilities we have recently introduced are helping restore confidence while the credit markets undertake self-corrective initiatives and lawmakers consider new regulatory schemes.
I am also not going to engage in a discussion of present monetary policy tonight, except to say that if inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economic scenario. Inflation is the most insidious enemy of capitalism. No central banker can countenance it, not least the men and women of the Federal Reserve.
Eight years ago, our federal budget, crafted by a Democratic president and enacted by a Republican Congress, produced a fiscal surplus of $236 billion, the first surplus in almost 40 years and the highest nominal-dollar surplus in American history. While the Fed is scrupulously nonpartisan and nonpolitical, I mention this to emphasize that the deficit/debt issue knows no party and can be solved only by both parties working together. For a brief time, with surpluses projected into the future as far as the eye could see, economists and policymakers alike began to contemplate a bucolic future in which interest payments would form an ever-declining share of federal outlays, a future where Treasury bonds and debt-ceiling legislation would become dusty relics of a long-forgotten past. The Fed even had concerns about how open market operations would be conducted in a marketplace short of Treasury debt.
That utopian scenario did not last for long. Over the next seven years, federal spending grew at a 6.2 percent nominal annual rate while receipts grew at only 3.5 percent. Of course, certain areas of government, like national defense, had to spend more in the wake of 9/11. But nondefense discretionary spending actually rose 6.4 percent annually during this timeframe, outpacing the growth in total expenditures. Deficits soon returned, reaching an expected $410 billion for 2008—a $600 billion swing from where we were just eight years ago. This $410 billion estimate, by the way, was made before the recently passed farm bill and supplemental defense appropriation and without considering a proposed patch for the Alternative Minimum Tax—all measures that will lead to a further ballooning of government deficits.
What a bizarre speech! He goes on and on talking about how our Bismarkian social safety net is going to destroy us! Yet in the beginning of the speech, he tells us the things he will NOT talk about! And what are they? The IMPORTANT stuff! Ha. He even touches on the most important issue of them all: the hazards of if we ran things the way they were run pre-Federal Reserve! WOW. The terrible future, thanks to a budget surplus, of no Treasuries and thus NO FEDERAL RESERVE. HAHAHA. And he even has the cheek to note that the Federal Reserve was scared of this possible future! Amazing. How will they run the Fed if there is not debt from the government to use as ASSETS?????
Here, he hits the entire business right square on its head and then veers off to discuss the need to cut social spending [NOT MILITARY SPENDING] to balance the budget because social services are causing a deficit! No one interrupted him at this point to yell, 'Hey, wait, let's talk about what you said you would not talk about!'
When this 'utopian scenario' occurred, the interest rate was around 6%. The 'fix' was for Greenspan to suddenly and in the teeth of obvious inflation, drop the rates to 1% very swiftly after Bush was installed. Bush told us he was Santa Claus and would cut taxes to get rid of the evil budget surplus. He did a heroic job of killing the dragon of fiscal responsibility and the US government cheerfully more than doubled the national debt! What a performance. So, instead of the debt drying up and the Fed blowing away like a leaf in the wind, it doubled and the Fed's powers grew much, much greater.
This is important. I often despair in stopping this. Just as Ron Paul continues his lonely way, trying to talk about this. We persist just like we hope that Volcker will at least not follow this suicidal procession. Here are some graphs from the Federal Reserve showing the catastrophe that has happened since the Fed conspired with Bush and the GOP to destroy the Federal surplus:
Member banks borrowing from the Fed to avoid bankruptcy and bank runs. This is not a 'hockey stick' graph. It is an 'off the cliff and into hell' graph.
Consumer debts climb rapidly after WWII. A classic 'hockey stick' situation.
These charts make it totally obvious that the scheme to keep the Fed growing via generating big Federal government deficits is a DISASTER. This foolish game, launched in 1914, is totally wrong. The Ouroboros system of the Treasuries feeding the Fed which, in turn, feeds the government that runs up debts that then become assets in the Fed thanks to the magic of calling debts 'assets'...this has to be debated by everyone and it is of tremendous importance. So long as these idiots running the Fed and in our government insist on demanding we stop social spending because it makes the deficit big, hell's bells! Isn't this what they want?
In other words, this solicitous concern about balancing the budget is pure bunk! They are, in other words, liars. I really wish I could sit in on the Federal Reserve meetings to interrupt them whenever they stray off topic or go down paths that are senseless. The frontal assault on human services comes right when these meddlesome fools are dumping the private financial messes of Wall Street onto our heads? What the hell? Arrest these frauds!
Consider the Personal Income tax, Corporate tax, Sales tax, and total Tax Revenue for a State:
1) State Income generally peaked in 2005, and has been decelerating since;
2) Only State Corporate tax receipts has turned negative on a YoY basis;
3) During the Recession of 2001, negative year over year revenue lasted as little as 1 quarter (sales tax) to 8 quarters (personal income tax);
If this cycle is even remotely similar to the mild recession of 2001, we are still in the first or second innings.
Sales taxes and other local taxes began their decline back when the housing bubble burst. The Dallas Fed chair claimed he and his ilk couldn't foresee the results of the 1% interest rates and how it would cause a housing bubble. Of course, the recent rate drops to 2% won't cause a housing bubble because the prices are still too high from the previous bubble. It takes many years for a housing bubble to deflate enough to trigger price hikes again. Minimum, 5 years. So here we are, public revenues have been dropping. They dropped dramatically in the Dot Com collapse. Now, they will drop dramatically again. Going to the original article, one can see Ritholtz's many graphs. They clearly show that the sudden downturn in revenues in the late 1990's was alongside the balanced budget in DC. Hmmmm....one of many mysterious coincidences. We do know that the collapse of revenues today began instantly with the housing bubble reaching its zenith. For Wall Street roared along for another year and a half after that. So the mystery here is, what happened in 2005?
And the answer is at the gas pumps: inflation took off. The US went to war for oil in the mistaken idea, we would win instantly and the taps would turn on and we would see super-cheap oil. This didn't happen. Instead, oil shot up in price and is now very high. This, in turn, hammered the economy. And since interest rates were below the rate of inflation, the banking system began to tremble and fall. So interest rates were moved rapidly upwards again. But the damage of the 1% rates continued. Moving up rates above the Bank of Japan's levels simply caused a stock market bubble in 2006-2007. Speaking of the Bank of Japan:
Terri Belkas, Currency Analyst, DailyFX.com
Create a New “Benchmark” Rate
Ø ICAP - New York Funding Rate – London bond broker ICAP announced plans last week to launch a US-based index on dollar-denominated interbank borrowing rates, which would be called the New York Funding Rate (NYFR). The benchmark would be based on an anonymous daily poll of 40 banks, including foreign banks that have US offices, and exclude the top six and bottom six quotes. Instead of asking the banks at what rates they would be likely to borrow, they will be asked to estimate the rate at which they are likely to obtain funding. The anonymity factor is considered to be crucial, as individual banks would no longer have to worry being branded the next Bear Stearns if funding problems occur again and borrowing costs jump. There is no set date for launch quite yet, though it could be as soon as this week.
Ø Liffe - Sonia, Eonia - NYSE Euronext's Liffe derivatives market - best known for Euribor - will start trading futures contracts in June based on Eonia, the euro overnight interbank average, and on Sonia, the sterling overnight interbank average. However, Garry Jones, an executive director at Liffe, said that the new contracts are intended to be “complementary” with Libor and are not designed to replace the rate.
How Will This Impact Carry Trades?
Trends for carry trades such as EUR/JPY and GBP/JPY are inherently dependent upon risk sentiment in the markets, as traders that utilize the pairs are usually looking to benefit from the yield benefits that come along with buying the pairs. As a result, it is no surprise that when investors become risk averse and the equity markets tumble, the Japanese yen tends to skyrocket across the majors. As Technical Strategist Jamie Saettele discusses in his most recent technical analysis of the yen crosses, there is substantial downside potential for pairs like EUR/JPY and GBP/JPY. Furthermore, a piece of news such as the announcement of a change in the way Libor is calculated, or worse, signs that investors will stop using the benchmark interest rate altogether and will switch to an alternative like the New York Funding Rate could trigger significant volatility in the markets. As a result, yen traders should keep an eye on the news wires, as the search for a “new Libor” could be the biggest event risk in near-term.
The 'New Libor' is not to be confused with 'New Labour'. Heh. But the Libor is a construct from the ancient gold standard days when the British ruled the Seven Seas. Now, the US rules the Seven Seas and our ships sank some time ago. Minus the gold standard, wild credit creation has now caused yet another bout of global inflation which, as ALWAYS, begins in the oil markets! The carry trade MUST DIE. It has to be slain! The interest rates at the Bank of Japan are now obviously and totally out of whack with reality! It CANNOT CONTINUE. The longer it runs, the worse the global inflation. If the G7 clowns refuse to stop this because they make money off of it, the entire banking system of the world will look the the US bank graphs in this story today! OFF THE CLIFF.
And in closing, here is a little tid bit: I read 'The Street' along with a lot of other news services. They are running this game which might amuse some of the readers here. It is a fake Wall Street betting game. I am rather amused by all this because it is really a fishing expedition. A player can make easy money off of this game. But they have a proviso: if you win, you have to explain to them how you did it! They want to know how to make money in a bear market! So any bearish readers out there, go right ahead and play this game. Might be amusing. And it does pay money on top of everything.
In this exciting stock investing game, you can...Use fake money to win real money — up to $5,000 every week. Test your trading skills and strategies with absolutely no risk.