Money Matters

Markets Go Down On Bad News

Lords a' Leaping Day

Elaine Meinel Supkis

Just want to thank everyone for the new systems here. I stopped cartooning for a while because of so many malfunctions. It was very disturbing, trying to do things that jerked around or didn't even show up. Now, all is easy and smooth! If only our economy were that easy to repair! Everyone who has no idea what is going on, is aghast at the stock markets of the world all going down as the US Titanic sinks. The Bernanke rate cuts aren't cutting it anymore.

Here is the MarkIt web page that was set up to let the banks learn how well their various funds were doing in a real-time market:

Oh my god. The investors holding these AAA, AA and A bonds were supposed to make a profit if it rose above 100. If it fell, their losses accumulated very rapidly. Losing is very dangerous in this derivative game! And they lost. Big time. The plunge was very rapid from the end of July till the end of October. Then, Bernanke stepped in first, with the usual magic wand waving of rate cuts. Then he went in for a massive injection of funds to stop this decline. Incidentally, the stock market's nightmare ride downwards had barely begun at this point! After all, it reached its all-time high [excluding inflation, of course] of 14,100 in early October, 2007.

So basically, we went from a record market to a complete melt down in less than three weeks. The fact that these funds started floating or rather, deflating rapidly in July when the DOW was at 12,000, is a sign to us that the fall here isn't due to commerce ending or even slowing down. Consumer spending was still forging ahead, after all. The only things that were different were all banking-related. The Basel II Accord rules were taking effect and the banks, who were pretending for the previous year to have great equities in their vaults had to suddenly expose all of this to the cruel light of day. They had to open the books. And all the 'off the books' accounts had to be put on the books. This was the doom that cast everything into the depths of despair!

From Culture of Life News back when the Fed tried to save these markets, November 16, 2007:

Yesterday was a busy day for us Doom Meisters. Today, the landscape is littered with the various CDO corpses that crawled out of various Dark Lagoons. Now the attention of the money magicians turns back to that pesky business of the FOREX situation. The destabilization of international commerce and finance caused by the dying dollar is causing many cascading events which look unconnected at first but actually are all part of the same system. If we look at all this as if it is Götterdämmerung and the Bifrost Bridge is collapsing and Valhalla is being repossessed by the Frost Giant/dragon, Fafner, we can guess what will happen next: the Fat Lady Will Sing.

Fed makes biggest temporary injection since '01

The Federal Reserve on Thursday pumped its biggest temporary daily infusion into the U.S. banking system since just after the September 11, 2001 attacks as short-term lending rates rose on both sides of the Atlantic.

The banks cannot give more loans if they have no reserves and if their existing equities are losers, they have to add reserves, not make more and more loans. They cannot make money totally out of thin air. They have to have a pay-back system somewhere. As well as some savings. Once they were forced to start telling the truth, the whole thing has been impossible. Look at those charts! The losses are staggering. All the AAAs, AA and A ABX CDOs are all moving towards the same place: zero. The BBB papers are now at slightly higher than 10¢ to the dollar. But the others are barely better. All but the AAA papers are now below 30¢ to the dollar. They stabilized briefly from the Bernanke money injection day in mid-November and desperately clung to life until the second half of February. This is when all systems, the Stock Markets, the muni bond markets, the interbank lending markets, you name it, all have decisively turned downwards. The news that the Federal Government was going to hand out a bundle of goodies temporarily buoyed up the markets, the financiers, the bankers, but now that has faded. Even the Japanese are now accepting the idea that the $150 billion Xmas gift from Santa won't save the global economy.

So the ABX funds fell. I give them another month, maybe two, but probably less, to hit zero once and forever. This is how Mother Nature takes care of excess: it is burned. It vanishes into smoke. These ABX charts are not about all the money out there that will vanish in the next two years, it is more like a heart monitor. The patient is dying. When all these funds hit zero, they will be flatlined.

From October, 2006 to October, 2007, the DOW jumped over 2,000 pts. Since then, it has fallen twice as fast as it rose and has now lost in only 4 months, nearly 2,000 pts. Always, the collapse of markets are much faster than the rises.

Ambac Cuts Dividend, Suspends Asset-Backed Insurance

Ambac Financial Group Inc., the AAA rated bond insurer seeking to avoid a crippling downgrade, cut its dividend and will suspend writing guarantees on new asset- backed securities for six months to bolster capital.

The dividend will be reduced to 1 cent from 7 cents, New York-based Ambac said today in a statement. Halting the asset- backed business will free up $600 million in capital, Ambac said.

Ambac is in talks with banks to raise $3 billion to satisfy Moody's Investors Service and Standard & Poor's that it deserves its AAA credit rating. Moody's today gave the company more time and said the extra money may be enough to meet its target. Ambac and MBIA Inc. came under scrutiny over the past three months after losses on asset-backed securities such as collateralized debt obligations.

AAA is supposed to be strong and healthy not dying on your feet, crawling in the dust, hissing, 'My Precioussssss....' The banks need Ambac and Ambac needs the banks and they are clinging to each other's straws here. Ambac was supposed to supply the life boats when any Titanics were threatening to sink. But when the people piloting these super-huge ships tried to jump into these life rafts, the boards broke and into the ocean of red ink, these life rafts fell, spilling everyone out. The Fed has bailed out the banks who are trying to bail out the life boats. But more ships are sinking and ditto, the life boats. Bailing is no good when there is a gaping hole in the bottom of the boat.

Citigroup Underwrote $6.9 Billion of Ambac's Most Troubled CDOs

Citigroup Inc. helped create at least $6.9 billion of securities insured by Ambac Financial Group Inc. that have tumbled in value and may require the insurer to pay claims, according to research by Tavakoli Structured Finance Inc.

Of the $22 billion of collateralized debt obligations linked to the mortgage market and insured by Ambac, about $7.5 billion were underwritten by Citigroup, which is among banks seeking to help Ambac raise capital. Of those CDOs, $6.9 billion, or 92 percent, are experiencing so-called events of default, Tavakoli said. Such events signal the most-senior classes may not be paid in full.

OK, let's get this straight: Citigroup wrote nearly $8 billion in bad loans. Loans that had a 92% default rate and this means in another two months, it will be probably 100%. We look at the two ABX charts and we can see they are collapsing into total default now. So Citibank is finding money--too bad the yen is even stronger today, no?---this is hard. Finding money when the carry trade is gone. Citibank is begging for money so Ambac can do what? Pay back Citibank? HAHAHA. Isn't that a cute one. Namely, Citibank wants LOANS so they can give this to Ambac so Ambac can pay insurance on the 100% bad loans written by Citibank! This is robbing Peter to pay Peter! Why bother with this fiction? Why not simply have Citibank get loans and pay up?

But then, they can't write loans until they get these wheezing, dying CDOs off the books and discharging them to Ambac who then hands over some cash is the only way to keep in business. If Citibank is alive next year, I will be amazed. Of course, they will run screaming to the Fed for help. They cannot go screaming to the King of Saudi Arabia. He wants to cut their heads off. No golden parachutes from him. They beat people to death for drinking coffee with the wrong sex over there. Losing all of the King's money is far greater. Buried up to the neck in the desert and left for the ants to eat, I might guess?

Financial Firms Face $600 Billion of Losses, UBS Says

Financial firms will likely see their losses reach at least $600 billion as the crisis triggered by the collapse of subprime mortgages batters banks, brokers and insurers, UBS AG analysts said.

Banks and brokers stand to lose $350 billion, according to estimates from the global banking unit of UBS, the world's largest wealth manager. Financial institutions have so far disclosed more than $181 billion of writedowns and credit losses.

This is a lot of money. And this is just real estate. Always, the biggest losers are corporations and governments. When they begin to fall, this is when we get full-scale depressions. Inflation surges when we have a growth in the money supply. What we are seeing is an epic collapse in the money supply. I noted last fall that the central banks injected over $600 billion. This hasn't revived much of anything. But I suspect it kept things afloat for a short while. But it can't fix the leaking ships. They will still sink.

AIG Says Cassano Leaving After Losses on Derivatives

American International Group Inc. said the head of its financial products unit, Joseph Cassano, is stepping down after the insurer reported $11.1 billion in losses on contracts sold to fixed-income investors.

Cassano co-founded the unit in 1987 and built it into a business providing financial guarantees on more than $500 billion of assets at year-end, including $61.4 billion in securities tied to subprime mortgages. He will be replaced on an interim basis by William Dooley, 54, a senior vice president of the New York-based insurer's financial services division.

Cramer ran around ranting, 'There is BLOOD in the STREETS' back when he and his goofy friends were wailing for huge interest rate cuts. They then celebrated all of these cuts. Only they work out less and less well each cycle. The massive 1.25% rate cut barely increased much of anything. Note the amounts here, by the way: $500 billion in assets? And what are their reserves? $20 billion? Note how the Wunderkind of 20 years ago is suddenly the Bad Boy of today. I bet the team Mr. Cassano led happily wrote more and more contracts to protect goofy lending deals by others and thus ended out on the same limb as their customers.

This is very similar to sitting on a tree branch and sawing it off on the side next to the trunk. Or chainsawing the bottom of life boats and then dropping them into the water. Actually, many people died on the Titanic because of the lack of reserves: passengers far outnumbered spaces in the lifeboats. The ship's owners believed it was unsinkable so they didn't bother with enough reserves. This sort of goofy thinking is what happened in our financial markets. I remember them all boasting that their hedges and derivatives would protect them no matter what.

Goldman, Bear Stearns Bankers Targeted in Muni Criminal Probe

Goldman Sachs Group Inc. and Bear Stearns Cos. bankers are under investigation in the U.S. Justice Department's criminal probe of the municipal derivatives business, regulatory documents show.

Bear Stearns's Stephen Salvadore and former JPMorgan Chase & Co. banker James Hertz are targets of the antitrust investigation of Wall Street's sales of derivatives and investment contracts to state and local governments, Financial Industry Regulatory Authority records show. Goldman's Shlomi Raz also disclosed to Finra that he is being investigated, without saying whether he is a target.

U.S. prosecutors and the Securities and Exchange Commission have been searching for more than a year for evidence of rigged bidding and other misconduct by banks that sell investments and derivatives, such as interest-rate swaps, tied to municipal bonds. This week Wachovia Corp. and Piper Jaffray Cos. also disclosed in SEC filings that employees were targeted.

The Governor of New York is Eliot Spitzer. He used to prosecute guys on Wall Street. Now he is going after them yet again and he is very much like a shark in this regard. I expect arrests. The good people of New Jersey should get on their own governor's case! He used to be the President of Goldman Sachs! Note how he hasn't been all that noisy about the coup at the muni bond sales. That whole business stank to high heaven, by the way. I look forward to the arrests.

Email this post

Culture of Life News Main Page

A Carpet Of Dollars Can't Sop Up All The Red Ink

Leap Year Day of Doom

Elaine Meinel Supkis

Today is a very magical day: it is the missing day to make up for the light glitch in the solar calendar. A mysterious day which is turning into a fall through the floor day for investors. The dollar continues to fall, stock markets around the world are falling and leverage money making is falling and all is going down the Leap Year rabbit hole together. This reminds me that a year ago, when everyone was boasting about how strong the world's economies were, we had this sudden plunge right about now! And I said, this was a harbinger for things to come when it all would begin to unravel.

One of our readers, Tony, sent me this bit of numbers business:

Speaking of burning $1b dollars - I wanted to let you know that after trying to wrap my mind around his 3 trillion dollar budget I calculated the following:

3 trillion one dollar bills would carpet the entire continental United States...23 dollars deep!!

Why not simply be honest and just put a sideways number eight on the f*king budget and be done with it!

I own 22.8 acres of land. So at 9.6 $ per sq ft, 43,560 sq ft per acre, we would get from the Bernanke helicopter drop, $2,377,942.14. Or rather, since this is spending, I would owe this amount. I don't know that these calculations are correct but it does go well with the Reagan comment that the US debt could, if the dollars were laid end to end, reach the moon---back when it was only a trillion dollars. Now, the deficit is nearing $10 trillion as it heads towards Mars. Actually, we are still merrily spending as if there is no tomorrow. I intend to talk about that and gold later today since all this brings up the Bretton Woods II mess and wage/price controls. A long article that would make this one too long. First, today's bitter news:

Clinton and Obama Focus on Economy; Bush Finds Fault

Hillary Clinton and Barack Obama pressed their economic messages today, drawing in President George W. Bush, who scolded the Democratic presidential candidates for their tough talk on trade.

Touring Ohio, Clinton put out a $5 billion, 12-year plan to cut in half the 13 million U.S. children living in poverty. The plan also would seek to end child hunger by 2012.

Obama reiterated his proposals for strengthening the middle class and ensuring fair trade agreements, saying he would roll back some of Bush's tax cuts to the level they were during the administration of former President Bill Clinton.

``Most rich people were doing pretty good in the '90s,'' the Illinois senator said in Austin, Texas. ``They were rich then and they will be rich when I am president.''

In depressions, the rich who are not in debt remain 'rich'. Wealth is all about relativity. If a man with a dollar in inflationary times is poor, a man with a dollar in depressionary times is rich. The person with money when no one has money, is rich. In the Middle Ages, wealth was depressed so badly since the fall of the Roman Empire, signs of wealth were reduced to its simplest level by 1000 AD. The ONLY persons allowed to sit in chairs were high church officials, kings and emperors. They called these things, 'thrones' and down the scale it went: stools went to the barons, benches to the chivalry and sitting on the floor or standing to the lower levels. When Parliament met back in the times of the Tudors, for example, this being in the 1400s-1600s, the Burgess demanded to sit on bags of wool as a reminder to the kings and queens of England, their tax money came from wool. Before that, they stood while the sovereign sat on the aforementioned 'throne'.

Every election since Nixon, our candidates, one and all, promise to make trade deals that aren't double deals. Yet every one of them does the double deals. Why is this? We just have to look at who is paying for our elections. The main top individual donors pouring millions into elections as well as the media that mediates these things are one and all, united in their desire for open borders and bad trade deals for the US workers. True, our candidates often raise millions from millions of small donors. But this money can be discounted due to the simple fact, these moneys have no strings attached. If NO ONE contributes, the handful of rich donors seeking to open our doors to exploitation will still be powerful since they don't need the small donors. Only if all small donors gave to an upstart party such as under Ross Perot, can we see a serious push away from open borders.

Note Perot here: he took a good hunk of the vote thanks to his personal fortune united with many small donors to talk about the 'giant sucking sound'. He was trashed pretty thoroughly by the ruling elites and note that NO ONE dares appear in public like he did armed with graphs, pie charts and numbers to debate reality! I loved Perot just for that one thing. I itch to see this happen again. But it will not. We have probably one of the most desultory debates about finances possible considering that we are deep into a total banking/finance meltdown of historic proportions. Yet our candidates who remain standing as well as the Fed and others are sleepwalking.

This is where we miss people like Ron Paul. If nothing else, he is a refreshing slosh of water in the face! The need to talk about bottom lines, gold and war financing is at the top of the agenda but in this election, is at the bottom. We have, instead of a decent argument about all our treaties and accords, nothing but Santa Claus promises. All my life, I have watched the public run off to whoever was promising them the most goodies. This disgusting activity has driven our nation down into a very deep hole. Since the people at the top don't care if we go bankrupt, the people in the middle and bottom don't care. The people at the top, instead of running to tax havens while using offshore accounts to flood our finances with debts, if they were serious about protecting America, they would change their own course. But they won't.

The wealth they get this way is too tempting. They don't want to sacrifice one bit of their pleasures and fun in order to build a nation. Instead, they enjoy tearing apart our nation because this gets them richer. So what if we go bankrupt? They plan to decamp to other shores! And this is treason. Our candidates must secretly deal with these traitors while pretending to be patriots. This is why we had a flash in the pan yell-a-thon about Obama not wearing a US flag lapel pin! Talk about stupid. The biggest traitors wave the biggest flags. And just like we have news about the cost of hair dressers or the photos of our leaders wearing funny clothes dominating our media, we have no mention about the cost of government, cost of war, cost of the US life style.

Financial Services Authority turns to insurers as it looks for the next crisis

The Financial Services Authority has turned the spotlight on the insurance industry as it tries to seek out the next problem waiting to explode in the financial industry following the sub-prime mortgage crisis.

The City regulator has written to insurance companies asking for details of their illiquid assets and credit derivatives as it tries to uncover where the risks lie in the financial system.

Insurers are being asked for details of their exposure to credit derivatives - complex financial instruments that have been at the heart of the current financial turmoil. They are also being told to outline how they are valuing these assets at a time when financial markets have frozen up, making it difficult to be confident about their precise value.

I put this in to show that the financial mess isn't made just in America. It is epidemic within the G7 framework. Even countries like Germany that once boasted, it wasn't part of this mess, is part of this mess. The entire get up of the financial accords hammered out over the last 35 years is rapidly imploding and we have only just begun to see the emergence of the Derivative Beast from his dark, deadly cave! Much of the M1 and M2 money growth in the world is in the G7 nation framework. This money flow system is based on 'free trade' which means 'flood the US with imports and pocket the profits and then laugh all the way to the bank.' Only this dynamic is now hammering all the G7 partners of the US. They are now becoming the destination of a flood of imports! The Japanese are fending this off by simply not leaving any excess income to spend on much of anything within their own working class. The US vacillates on this matter. The people funding our candidates want to starve the working class but they want the working class to spend. Thus, the desire to expand working class debt. Only we just hit the ceiling: debts can't rise much more. Time to raise wages. Only this will cut into profits. The ruthless severing of the unions continues as all the major manufacturers with unions continue their buy-outs so they can hire cheap labor. This means, the new workers can't buy much of anything. Classic depressionary systems!

AIG Posts Biggest Loss, Misses Analysts' Estimates

American International Group Inc., the world's largest insurer by assets, posted its biggest quarterly loss as a publicly traded company after an $11.1 billion writedown of guarantees sold to fixed-income investors.

The fourth-quarter net loss of $5.29 billion, or $2.08 a share, compared with profit of $3.44 billion, or $1.31, a year earlier, New York-based AIG said today in a statement. AIG said it doesn't expect to repurchase shares for the ``foreseeable future'' beyond commitments made last year. The company declined in extended trading.

Another sign of the ongoing financial collapse. AIG made a profit last year because many deals were made requiring 'insurance' and so they got the fees. But when the fees vanished as the insurer had to pay out again, now they discover a 10% or less reserve ratio is no good in a hurricane. Just as the major damage from Hurricane Katrina came not from the winds of the storm but from the levees collapsing, so it is here. The levees that separated the dry funds from a flood of red ink have collapsed and now everything is drowning in a sudden and 'unexpected' overflow of red ink.

Since this is a dam collapse and not mere overflow, the money will gush continuously until the river runs dry. Meanwhile, all the central banks in the G7 are frantic to increase liquidity. If my metaphor is correct and I think it is, this means they are worsening this mess. We can't fix the overload of debt by adding more debts. Bankruptcy exists in order to deal with this sort of ceiling: no system is infinite. And infinite debt is impossible. So instead of trying to discover this truth the hard way like Weimar inflation did with their own debts back in the 1920's, so it is here. We must bite this bullet. It is not going to be easy or fun. But we can't let a total banking meltdown get worse and worse forever. The intricate web of treaties, organizations, deals, situations and reciprocal accords and arrangements cannot be battered like this forever. And fixing things means fixing fundamental things.

In this case, the fundamental at stake is the US: our multiple deficits. Trade, finance and military are all one and the same problem. We can't continue as the world's biggest empire and biggest debtor nation all at the same time. The time to give this up is rapidly approaching. We best deal with it directly, now, rather than wait for the Chinese to deliver it to us on a silver platter with our head lying in a pool of blood.

Private equity head hits back after attack by buyout pioneer Moulton

The barbs, made in a speech on the last day of the industry's showpiece conference in Munich, were interpreted as a thinly veiled attack on Mr Moulton, the founder of Alchemy Partners.

Mr Moulton had delivered the opening address for the Super Return International conference on Tuesday. The industry grandee trained both barrels on what he called the "enemies" of private equity – from the media and trade unions to politicians and hedge funds – before launching a surprising attack on the BVCA.

He criticised the trade body for using "dodgy" statistics to paint private equity in a misleadingly positive light. "We shouldn't use flaky statistics to show an over-optimistic image," he said.

Mr Walker, a former press secretary to the Queen, said the BVCA stood by its research but did admit the numbers were not perfect. "We need a lot more data, and it's my job to see that it happens.

'Data! Data! My Offshore tax haven for more data!' cries the secretary of the Queen as he stumbles around Bosworth Field. The numbers aren't perfect? HAHAHA. I will note here that Her Majesty's servant slithered off to the offshore haven heaven for royal barking dogs to make some loot! Isn't that ever so funny? Meanwhile, Prince Harry is shooting turbans in Afghanistan in the present movie, 'Harry of Afghanistan.' Into the breechcloths! O, band of brothers! Meanwhile, back in the financial trenches, the men with the tranches are trembling. Boo hoo! The media is mean to them. Perhaps they will try again to sue me to make me stop talking about the Queen, her pirates and their covens.

Speaking of covens, note the name of the group here: Alchemy Partners. LLP. HAHAHA. The sorcerer's apprentice guild incarnate! One reader here sighed with relief when I didn't mention Her Majesty's pirates or wizards yesterday. Well, I am NOT the one who keeps bringing this up! It is all in the news! Should I ignore this? HAHAHA. No. I won't. The Alchemists are attacking the Queen's pirates and yo-ho-ouch. I hope they turn them into newts.

Under the normal rules of capitalism, any industry that can produce double-digit annual growth should soon be swamped by eager competitors until returns are driven down. But in fund management that does not seem to be happening. The average profit margin of the fund managers that took part in a survey by Boston Consulting Group was a staggering 42%. In part, this is because most fund managers do not compete on price. Instead, they persuade their clients to select their funds on the basis of past performance, even though there is little evidence to show that this is a good predictor of future success. Nor can investors be sure that the intermediaries who sell the funds—brokers, advisers and bankers—will steer them in the right direction. These middlemen often get a cut of the fund managers' fees, so they have little interest in recommending low-cost alternatives.

Can we all say it in a chorus? HAHAHA. Pass the bottles of beer on the wall, me darlings! Talk about collecting loot. And these pirates wonder where the investors went. Until these creeps running these funds are punished with a whack from a cat of nine tails, they will continue to loot. And they will NOT figure out why this is bad. Not for a while. Only after most of them are in prison, out in the streets, begging or fleeing enraged mobs, will we see an end to the present financial crisis.

Leveraged funds rush to sell debt

Troubled leveraged funds are likely to sell almost $100bn worth of asset-backed bonds and financial company debt by the end of the year as they struggle to avoid defaulting on their own debt, according to analysts at Citigroup (NYSE:C) .

Sales of asset-backed securities, such as mortgage-backed bonds and collateralised debt obligations, have gathered pace in recent weeks, pushing prices down further and keeping the market shut for new issues.

And as more fake money vanishes, let us wave a hanky in bye-bye. These ships aren't vanishing over the horizon, they are pulling a Titanic. Glub. Down they go as they squabble on the deck. Note that these funds are all LEVERAGED. These clowns created a huge sea of red ink. They borrowed money to play money games. The more they played, the more money they borrowed and the more debt was created. This went on and on as it was laughably easy with loans running below the rate of inflation. They still do! Inflation rages, thanks to all this. And loans are even cheaper than ever! But the downward spiral has begun. Like any dynamic movement, it must go all the way until the end. People up to their eyeballs in debt can't get out of debt via more debt. This is logic.

I say, it was OUTLAWED, this use of debt to play speculative games! Then this was thrown away and the doors to a flood of debts were opened wide as it is much more profitable to bet with someone else's savings than one's own! Note that again, in the news, is this story of a trader, this time in wheat, pulling an Evil Keviel. 10% of the wheat futures were fictional trades! Based on no funds. Ergo: illegal. But then, the speculations based on loans should be illegal, too! They are boosting all the commodity markets right now. This flood of lending continues to seek bubbles. And is succeeding.

Peloton Blames Wall Street Lending Crackdown for Fund Collapse

Peloton Partners LLP, the London- based hedge fund manager being forced to liquidate a $1.8 billion asset-backed fund, said it's a victim of Wall Street's reduced lending.

``Credit providers have been severely tightening terms without regard to the creditworthiness or track record of individual firms, which has compounded our difficulties and made it impossible to meet margin calls,'' Peloton co-founders Ron Beller and Geoff Grant said in a letter yesterday to clients.

Peloton joins Thornburg Mortgage Inc. and Sailfish Capital Partners LLC on the growing list of funds and companies that have had to sell securities or shut down after banks restricted how much they could borrow, or demanded more collateral as values of securities backed by mortgages slumped. The world's biggest financial institutions are cutting off lines of credit to hedge funds after at least $163 billion of asset writedowns and market losses.

``More hedge funds will blow up this year than ever before,'' said Michael Hennessy, who helps oversee $10 billion of hedge fund investments at Morgan Creek Capital Management in Chapel Hill, North Carolina. ``Financing is much harder to get. The bubble has burst.''

All these ships were made of paper. Like paper hats set afloat, they are now all soggy and sinking. Note how these hell hound hedge funds were making their deals with debts! I complained about this for years! And as usual, when this happens, it causes a total melt down when deals unravel. After the Great Depression, Congress figured this out and passed laws forbidding this sort of stupid thing. Unlike someone who has savings in a bad deal, one can hang on for dear life for several years. BUT if the money is BORROWED and the equities it is borrowed against, whether real estate, stocks, etc, if these fall, then the bill comes due if it is more than the assessed value of the equities which have debts parked on top of them.

So in bad times, forced sales shoot up! To prevent this, our government tried to disallow this sort of goofy finances. This was tossed out by people eager to make themselves rich without real work. Now we get the downwards multiplier effect: each fall forces more falls. Each equity, as it loses value, forces more sales. This is true in real estate as well as in the hedge funds. Both echo each other, too! Creating a 'perfect Katrina levee collapse' moment.

VRDOs Spell More Trouble For Banks

Yes, we've heard all about the problems in the mortgage derivatives markets, with the bond insurers, and in an arcane and little understood corner of the debt markets: auction rate securities. But a form of municipal money market security called the variable rate demand obligation (VRDO) and related tender option bonds and Dutch auction structure securities are also wrecking havoc.

Like the auction rates securities recently grabbing headlines, VRDOs are another one of those long-term debt masquerading as short-term securities deals. The banks that invented them converted long-term tax-exempt bonds into investment eligible money market funds by agreeing to let investors sell their holdings in periodic Dutch auctions or by backing them with funding commitments, and getting a rating from a monoline bond insurer to enhance the credit.

There is about $250 billion of VRDOs outstanding and another $350 billion of Dutch auction structure securities.

Since all our governments are in the red, we need bond markets to function. Since we allowed all the Great Depression laws and rules to be suspended or eliminated, we get to see gravity do its worse. As everything collapses, we have to recall that 9/11 was just like this: the very weight, the poor design of the World Trade System is collapsing from its own weight as well as significant damage from war! And the fires of misspending on war are destroying the guts of our WTC nation. Just as on that day, the whole thing is imploding at a very fast speed. The ditherings of our leaders is comic in comparison. They are reading 'The Pet Goat' in unison even as we are all running around, screaming. All forms of investment are seizing up because the underlying basis is 'leverage' which is 'red ink' which is 'the carry trade' which is the Bank of Japan. Now, the US is becoming the 'carry trade'. And these powerful shifts in relative power and value are hammering us internationally as well as in domestic markets! All these banking panics in history have ALWAYS led to depressions.

No matter how we try to evade this fact, this is the truth. The belief that we can spend our way out of this is foolish since we are deep in debt. Japan is deep in debt. England is deep in debt. Yet all three act as if they can generate infinite loans! Japan does have a huge trade surplus with the other two but this is now changing direction. The joy the Japanese had at the news that the US was going to misspend more money has now evaporated. The yen is up. They read that most Americans intend to save their bonuses, not spend them on Japanese imports. So the Nikkei, which rose 1,000 pts on the news of easy loans, more debt and more funny money, has now fallen by nearly this much and will continue to fall.

Regulators are girding for dozens of bank failures. There were just four last year and an unprecedented none in the 18 months before that. Ben Bernanke, chairman of the Federal Reserve Board, said Thursday that banks will have to raise capital so they can continue to lend, which is his way out of the credit market crisis.

In 2006, no banks failed due to the flood of easy money pouring across our land! Even bankrupt individuals couldn't go bankrupt! We saw TV shows of people filing for bankruptcy and getting credit offers THE SAME MONTH! All the banks were desperate to make these deals! Who could lose? But now, this is over. Now, it is hard to get loans. Bankruptcies are soaring due to the very same easy money given out like candy in 2006. This will end only after all the bankrupts are bankrupt.

Putin Makes Medvedev Suffer Russian Inflation Jolt

Russia's prosperity is built on nine successive years of expansion, a sixfold increase in average incomes and almost $500 billion of currency reserves. They contribute to Putin's inability to contain consumer-price growth, which overshot its target in every one of his eight years as president except 2003.

Medvedev, 42, the likely winner of the March 2 election, must find ways of containing inflation that accelerated to 11.9 percent in 2007. Failure to do so may trigger unsustainable wage demands, squeeze consumer spending and dent company profits.

Cash dominates transactions, with almost 90 percent of cards used only to withdraw rubles from bank accounts, according to Anatoly Aksakov, a member of the lower house of parliament.

Just included this to prove, inflation is global, not local. Oil selling nations have it. Manufacturing nations have it. And the evolving depression will finally kill inflation the hard way.

Dollar Falls to 2 1/2-Year Low Against Yen Before Spending Data

The dollar fell to a 2 1/2-year low against the yen on speculation a U.S. government report will show consumer spending stayed at the weakest in six months.

The currency headed for its biggest monthly loss against the euro since September as a cooling economy prompted traders to bet the Federal Reserve will cut interest rates at least twice more this year. The dollar is the second-worst performer this month among 16 major currencies against the euro after Fed Chairman Ben S. Bernanke said the dollar's depreciation is ``a positive factor'' for reducing the U.S. trade deficit.

``This is the Bernanke shock, causing much faster dollar depreciation than expected,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets. ``We are entering into another world of dollar weakness. The Fed is not unhappy about that.''

The U.S. currency declined to 104.67 yen, the weakest since May 2005, before trading at 104.88 yen as of 9:24 a.m. in Tokyo, from 105.37 yen in New York late yesterday. It traded at $1.5188 per euro, from $1.5193 in New York late yesterday, when it touched $1.5229, the weakest since the euro began trading at about $1.17 in January 1999.

The dollar may fall to $1.5230 per euro today, Kato forecast.

The Japanese complain about a weak dollar while they flooded us with goods and debts. The wave of inflation this has caused has now sloshed back into Japan as we see in the Nikkei news:

Jan Core CPI Rises 0.8% On Year

TOKYO (Kyodo)--Japan's key consumer price index rose 0.8 percent in January from a year earlier, the government said Friday.
*********************************************
Stocks: Open 2% Lower On Stronger Yen, Fresh Credit Turmoil

TOKYO (Kyodo)--Tokyo stocks opened about 2 percent lower Friday on the U.S. dollar's fall into the upper 104 yen range and fresh credit turmoil sparked by grim comments from U.S. Federal Reserve Chairman Ben Bernanke.

We all must remember this harsh truth: inflation can't be stopped by easy credit or more government spending. Energy and food price hikes are the nastiest and most important forms of inflation because no one can escape them in inflationary times. And all inflationary periods are balanced by deflationary periods. And there is no infinite debt. And pirates are EVIL. Someone better inform the Queen about this. And finally: I am going to find out tonight if I will be on national radio. Will give the details later. The wall of isolation is breaking down! I hope. It has been a long time coming. Also, my new Adobe Photoshop is coming today! I can cartoon again! Hooray! Thanks to generous readers. Thank you, all. You are so wonderful!

Email this post

Culture of Life News Main Page

Washington--You Are FIRED!---A movie review

2/28/2008

Elaine Meinel Supkis

Mr. William Lewis, a fine film maker, contacted me recently to let me know that my news service appears in a movie he just made. He then sent me a copy. It is called 'WASHINGTON---YOU ARE FIRED!' So my husband and I got it today in the mail and sat down for over 2 hrs worth of very good, informative, fair, well-paced and well-directed movie about the Bill of Rights and how we have lost them to a bunch of liars, crooks, devious deal makers and our Congress critters in DC. This new movie is a definite must-watch. Left, right and center: we all have the same civil rights at stake!

Washington, You're Fired!
A film about taking back OUR government

What if the President of the United States had ordered the NSA to data-mine the electronic communications of every single American... BEFORE the attacks of September 11 had even occurred? What if every email, every phone call; every time you surfed the Internet, your private communications were being siphoned into a gigantic dragnet funded by a forty-five billion dollar budget and carried out in cooperation with the FBI, AT&T, and Verizon? Compelling first-hand testimony and whistleblower accounts, punch holes in the official "war on terrorism" excuse that has been used to dismantle the U.S. Bill of Rights and tip the scales of executive checks and balance in this country.
The United States stands at a threshold where one man, the President of the United States, has been granted dictatorial ruling powers by the U.S. Congress. The President, any president, now holds solely in his or her hands the power to become judge, jury, and executioner. Is this the kind of government that our founding fathers enshrined forever in the U.S. Constitution? Will the American people recognize their loss of civil liberties and rise up to affect change in Washington or will they drift even further into a state of affairs that is quickly beginning to resemble that of a 1940's police state; complete with a National ID, a Homeland security force, and enough "terrorist-related" spy laws to know what color underwear you have on at this very moment...

Do the American people even know the names of the Bills that were used to exterminate the U.S. Constitution? Chances are, the answer is no... "Washington, You're Fired" is a chance for every American to play a serious game of political "catch-up" minus the partisan punch lines. We'll examine both sides of the political aisle exposing some of the most damning laws ever enacted in any country.

Bills such as the USA PATRIOT Act, the Military Commissions Act, and the John Warner Defense Act have crippled the U.S. Constitution and have weakened the liberties that Americans once thought they could never lose. The loss of Habeas Corpus and Posse Comitaus; coupled with a new definition of “torture” are just the tip of the Orwellian iceberg. If enacted, HR 1955 will for the first time put “thought crime” laws on the books, robbing Americans of their right to freedom of conscience thought.

We will examine constitutional issues as they relate to the Katrina disaster, the President's illegal spy program, NSA data-mining, FISA's secret court, the illegal wiretapping of millions of Americans, the re-defining of "privacy" rights, frightening Executive Orders and "terror-war" legislation.

We don't just drop the bomb and run... In "Washington, You're Fired" you'll be shown what to look for in any candidate for political office, plus we provide the tools necessary to enable all of the people to make informed decisions about their political candidates. Problems and solutions are addressed by man on the street interviews with people who think just like you do... and a few who don't, but that's America... right?

“Washington, You're Fired” is a powerhouse of information that every person in this country must fully comprehend before casting their vote in 2008 or in any election for that matter. Get a copy today and share it with someone you care about.

Written, Produced & Directed by William Lewis
Co-Written & Produced by Keith Abel

Feature length DVD $19.95

This movie was a joy to watch. The director knows how to make good transitions from one topic to another. The movie covers a lot of ground from WWII till this last year, 2007. It moves from discussing the CIA to the history of wiretapping, the courts and how they ruled about wiretapping. It mentions the Church Commission and it goes over, item by item, the Homeland Security Act as well as rendition rules and secret courts.

Item by item, Mr. Lewis starts with the First Amendment and works his way down the long list including the important 'Right to bear arms' section. He talks about Hurricane Katrina and how a number of long-standing civil rights were violated there. He shows the story of the bridge to nowhere when the people escaping the doomed city were shot at when trying to reach safety. There are so many things in this movie that are covered, I would have to watch it several times to catch all of it!

This is an excellent movie to show neighbors, family members and friends. For it is not ideological or strident. With a cool narrator ticking off all the facts and reading us the information, one after another, it is impossible to see any real bias or hysteria. Just the facts, sir! And they are all there, one by one. This is why I think this movie is a good springboard for any discussion about our collapsing democracy. Democrats or Republicans, the vast majority in Congress have not only allowed Bush to create laws out of thin air, they voted repeatedly for eliminating our UNALIENABLE civil rights. This movie spells this out, literally, letter by letter in this case.

I want my rights back. I want my Constitution back. This movie helps explain how we can do this. I is very much, a must-watch.

CLICK HERE TO PURCHASE THIS MOVIE:

A reader of my news service who is also a very enthusiastic supporter sent me an interesting DVD, 'The Creature From Jekyll Island'. This is a lecture by Edward Griffin about the birth and history of the Federal Reserve. I found this online and decided to put it up here for anyone who wishes to listen to it. This is distributed by www.realityzone.com.

A Talk by G. Edward Griffin

Author of The Creature from Jekyll Island

We'll start way back in history to give some kind of historical perspective to this; we'll go back to the first century BC and the tiny kingdom of Phrygia. There was a philosopher by the name of Epictetus and it was Epictetus who said "Appearances are of four kinds: things either are as they appear to be; or they neither are nor appear to be; or they are but do not appear to be; or they are not and yet appear to be." When I read that statement for the first time, I had a big chuckle over it and I thought for sure that if Epictetus were alive today he would probably be a Harvard professor of money and banking; it sounds like so many explanations that I have read about various aspects of the Federal Reserve System. What he did was he took a fairly simple concept but by the time that he was through explaining it, we didn't have any idea what he was talking about. All Epictetus said was that appearances can sometimes be deceiving. That's all he said but by the time he was through explaining the four different ways in which they can be deceiving, we were left back at the switch somewhere.

Nevertheless, I thought, accidentally perhaps, Epictetus had given me a track to run on so-to-speak. Actually it could be the theme since if there's anything in the world that is deceiving it is the Federal Reserve System. In fact, it is one of those appearances of the fourth kind which are those appearances which are not and yet appear to be. I'm going to use that as sort of a hook on the topic. We'll come back to it from time-to-time and punctuate it if I can remember to do that because it tells us something at the most fundamental level about the Federal Reserve System and that is that appearances can be deceiving.

When I did my research on this topic I came to the startling conclusion that the Federal Reserve System does not need to be audited, it needs to be abolished. This is very intriguing to think we should audit the Fed but I discovered that probably if they audited the Fed it would get a clean bill because it's undoubtedly doing exactly what it's supposed to do according to the law. What it is supposed to do according to the law is justification for abolishing it so all we have to do is understand what the Federal Reserve System is supposed to do and we'll be pretty upset about it. The fact of the matter is that most people haven't the foggiest idea of what it is in fact supposed to do.

Email this post

Culture of Life News Main Page

Freaky Inflationary Froo-Froos

2/28/2008

Elaine Meinel Supkis

Today is a harmonic number day and the music of the markets is distinctly more like a Schoenberg 12 tone tune. Chaos. We go around the world today to visit a number of markets trying to deal with inflation. We examine how this is impacting gold markets in Asia. And the price of oil and gold continues to climb while the dollar continues to drop against the euro and even the yen. China is continuing to slam the doors shut on everyone's fingers as I fully expected. While Gross of PIMCO thinks we are playing 'Old Maid', he is really playing 'Hot Potato' with fellow investment banks anxious to pass along trashy pieces of paper that are losing value. And Fannie Mae may be the Old Maid but these guys want her to also be the sucker here. To sop up all the stupid mortgages they made during the bubble.

Investors continue to shun market

An analyst at Saigon Securities Incorporation told Thanh Nien Daily that investors “didn’t believe in the market.”
*snip*
Other analysts said the increasing inflation rate and absurdly high deposit rates had caused investors to shun the stock market.

“Many investors have opted to park their money in banks,” a HCMC stock investor said.

“The one-month savings rate has reached 1.1 percent.”

What is so absurd about offering interest rates that are greater than inflation? This should be the rule, not derided as terrible or stupid. Banks are supposed to be the safe harbor. If inflation is 12% then banks must offer 13% on savings, at the very least! Look at the US: we have a system that offers rates well below the rate of inflation. One keeps money in the bank only to pay bills. We have a banking crisis due to this. Savings has collapsed and debts have soared and now, soured. Global inflation has been prowling the planet ever since oil prices began to rise relentlessly due to US oil wars and our terrorist actions against oil pumping nations such as the attempted coup in Venezuela or the attempt to strangle the Iranians.

The US is going to the UN to demand this get worse. Isn't that shocking? Americans should be storming the State Department and string up the people doing this. Better still, going to the Boss, Mr. Cheney, and arresting him for treason. The more we pressure Iran, the higher the price of oil. This logic should be the subject of huge headlines in the US. Yesterday, I had to purchase fuel. I saw nothing but agonized faces at the pumps. Ouch. I was outraged that diesel rose over 20% in one month alone! At this rate we will be paying $200 a barrel for oil at the end of the year.

Fuel is fueling world inflation but the other thing fueling this has been the flood of easy loans put out by banks in Japan, Europe and the US. The G7 has flooded the world with a fabulous amount of money, over 12% a year increase, well over that. So it, in turn, has unleashed a flood of inflation everywhere. As with all periods in history, when the oil rises, inflation shoots up. The G7 discovered this nostrum for higher oil prices back in the 1970s. They now let this happen without a word of remorse. They will try to destroy the wealth of all the commodity nations if this is what it takes to maintain power of the bank.

Only this time around, there are other forces at work! China signaled this first by raising the reserve ratios and interest rates repeatedly right at the same time the cynics running the G7 banking system were turning on the taps and flooding the banking system with ever-lower lending as well as over a trillion in emergency funding. After some hesitation, Australia joined in the tightening process of the Chinese since they are a commodity nation, not a manufacturing nation and need to prevent inflation which would cause their profits from trade to vanish just as it is vanishing in Saudi Arabia. Unlike the 70's, by the way, the Middle Eastern nations now have not only their own banking systems but own a large chunk of the G7 banking system. China has been buying up on this, too. The bankers of the G7 sneer that they are losing money on these deals. But both China and Saudi Arabia know that once they get their claws into our banking system, they can eventually take over. And thus, begin to control how we inflate or deflate our currency or make loans!

They all know they are in a long-term game of nerves. They need to see who will fold first and they have no intention of folding. They can move money from one system to another rather secretively since their governments are very secretive and ruled ruthlessly. It is as if we are playing a banking game with the guys who made the Federal Reserve back in 1907 only this time, instead of being the robber barons of banking back then, these new players are foreign powers who want to rule us.

China Faces `High' Inflation Pressures, Planner Says

China faces ``relatively high'' inflationary pressures, said Han Yongwen, secretary general of the National Development and Reform Commission, the country's top planning agency.

The inflation rate was 7.1 percent last month, the highest in more than 11 years. The first-quarter rate may be 6.9 percent because of rising transportation costs and disrupted food supply, the planning body-affiliated State Information Center said today.

Note how the Chinese admit to food and fuel inflation. Nations that maliciously ignore this important inflation will fall beneath the wheels of history. I remember when our nation mocked Russia and China for their inflated happy-talk 5 Year Plan statistics! We thought they were very stupid to lie about reality. We warned them that pretending things were better than in reality would lead to a collapse. Both dictatorships finally did collapse due to exactly that! And what is the lesson here? HAHAHA. I better warn the Federal Reserve and the Treasury.

Indeed, I wonder if the ghosts of all those dead communist bureaucrats slipped over to the US and took over the souls of our leaders? Certainly, all the happy talk I read in many a government report coupled with the fantastical spewing of statistics from a bunch of lying bastards leads me to suspect they are communist plants! Meanwhile, the hard-nosed accountants of yore that used to be the backbone of America seem to be haunting communist nations. Let's look at another Asian nation:

S Korea posts big current account deficit

South Korea suffered its biggest monthly current account shortfall in almost 11 years in January on higher commodities prices and may have to enlarge its deficit forecast for the whole year, the central bank said on Thursday.

The seasonally adjusted current account deficit widened to a provisional $2.03bn in January, the biggest since a $2.21bn loss in February 1997, from a revised $1.07bn deficit in December 2007, the Bank of Korea data showed.

Japan's fake depression is rapidly turning into a mess and dragging down all of Asia who do heavy trade with Japan. Japan has chased out yet more Korean businesses from Japan and they are busy trying to drive down Chinese trade. While the US flounders and flops. I said in the past that China doesn't really mind Japan doing this. It merely prepares the ground for China to suck in all its neighbors in the future. True, trade with China and Japan has surpassed Japan's trade with the US. But unlike the US, China is very determined to enter Japanese markets. And Japan much prefers the dupe to the East in the US rather than their near neighbors who understand them better and can see through their schemes more. Eventually, China wants direct trade with South Korea. The new train agreement between North and South Korea are part of a package to tie Manchuria into the Koreas and then to Siberia.

China was talked about on NPR last night and I listened while snow plowing. As I have often said, China's leaders would crack down on the 'cheap' exports and would try to move them out of the country in the long run. This is due to it being a waste of China's precious resources. China is a huge nation but doesn't have infinite water, air or energy resources. They want the maximum value-added activity because this brings in the wealth. This is why they want to be the manufacturing center for solar panels, maglev trains, jets, automobiles, etc. Coupled with hard-nosed population control policies, they hope to bring things under control. I also noted in the past, the rulers do NOT want a host of billionaires running amuck, making trouble. So they would squeeze them in the end.

As gold price soars, a Korean custom suffers

Thirty-four years ago, each of the guests at Moon Sang Soo's first birthday party brought the customary baby present: a 24-karat gold ring.

When Moon was accepted to college, his parents had 20 of these rings, each weighing one don (3.75 grams, or an eighth of an ounce), melted down and recast as a miniature crown, which he now proudly displays in his living room.

But in December, at his own son's first birthday party, only half of Moon's 50 or so guests brought a ring. The others presented the baby with cash, slipping it into his parents' sleeves.

Gold prices have climbed due mainly to Asian people being able to buy more of it...up until now. The vast majority of global gold sales are in Asia. And as I keep pointing out, much of this is for magical purposes. Bride prices, baby good luck ceremonies, funerals, etc. These are the main reasons along with jewelry for the ladies who use it as protection money. If a husband is brutal, she can pawn her jewelry and flee. And yes, it is emergency money during wars, riots and revolutions. The fact that we are beginning to hit the top ceiling of Asian ability to buy gold is significant. In the West, gold buying continues. But mainly as an inflationary protection. This is quite simple. In Vietnam, people have stopped buying gold because the banks are sensible. They are giving good interest returns so inflation still hurts people who can't save but those who can are happy. In the US, we see rates being dropped on purpose. There is no profit in saving in banks! So the banking crisis worsens as savings continue to flee to gold, to anything but the banks!

Until the Fed gives up on this attempt at fake interest rates, gold will continue to see a flood of investors seeking returns that protect savings.

Japanese factory output shrinks

Factory production fell 2% last month, that was much more than economists were expecting, and compares with a rise of 1.6% in December.

Concern is rising that Japan's export-dependent economy is being hurt by the slowing US economy.

Last night, the Nikkei resumed it plunge. It floated upwards for a few weeks thanks to the happy news that the US was going to give huge rebates to people so they could buy Japanese products. But the news since then has been increasingly gloomy. For example, the yen continues to be strong against the dollar. They hate this with a passion. The other news is, commodity inflation can't be kept at bay in Japan any longer via the cool tool called 'cutting worker's wages' anymore. According the the Nikkei news, workers from the industries doing this are fleeing their jobs and moving towards or into Tokyo. There is no longer any incentive to work.

Greenspan says US economic growth is at zero; PIMCO's Bill Gross says US needs a "demand-based" fiscal package not a boost to consumption

The former chairman of the US Federal Reserve Alan Greenspan, has warned that US economic growth has stalled and a quick recovery is not likely. Meanwhile, Bill Gross, manager of the world's biggest bond fund PIMCO, says that until recently, US and therefore global demand has been driven by the ability to lower interest rates and extend credit to an increasing majority of Americans. Gross says that because demand in the form of consumption has been artificially and fictitiously stimulated in recent years by financial engineering run amuck, there is a legitimate question as to whether its black hole imploding destructiveness can be totally countered with another dose of lower yields and deficit spending packages.

"As of right now US economic growth is at zero," Greenspan said on Monday, at an investment conference in Jeddah, Saudi Arabia's Red Sea commercial capital. "We are at stall speed."

The US Federal Reserve said last week that 2008 growth will be between 1.3% and 2%.

Dead in the waters. The red ink Red Sea. Greenspan created this. Now he goes to the people seeking to buy us out to tell us that we are PWNED. That's all, folks! Gross of PIMCO made a lot of money from the several bubbles created by Greenspan. Now he, too, tells us we are PWNED. We can all go to the PWNED shop with the three balls of the Medici on the outside and turn over whatever valuables we have left. Isn't this sweet? I remember these guys back in the old days of 2005. While I was yelling about the super-low below the rate of inflation interest rates and the fake inflation statistics that leave out all essentials, they were telling me that I was stupid to worry about all that stuff.

Here is a comment I made in February, 2005, at Angry Bear right before starting my own blog:

Why did we have "inflation"? Depending on the ideology and class biases of various economists, there is no real consensus of what is inflation and what causes it.

This is deliberate. They don't want to know what causes it because this means making life/political choices no one really wants to make.

American inflation: this is the result of wanting to have your cake and eat it too and pretend it isn't bad for the waistline. It is what happens to a currency when you want a free lunch.

We saw virtually no inflation during the Clinton Golden Years only because Russia suddenly joined world oil markets causing the price of oil to collapse. Then China joined world labor markets causing the price of labor to collapse.

Inflation is back because both Russia and China have now readjusted world price expectations and are now reaping the benefits of higher prices. So now, we have inflation without the nice side of inflation, our own wages going up. Instead, they are stagnating with means, in real buying terms, depression.
Elaine Supkis | 02.27.05 - 8:04 am | #

Germany is in the same bag as the ole USA and I will note that Germany and France are struggling to get out of the energy noose that will strangle their economies. If they succeed, they will be much stronger than us. We are pretending we can tax cut/run huge public debts out of our economic coming stranglehold. This is beyond dumb.

I wrote this 9 months before the housing bubble began to leak air. This was back when oil was still under $60 a barrel and gold was barely coming to life again. But the forces we see today were at work back then. A good system depends on people who can see reality before it hits them on the snoot. Being able to respond to possible future events is the highest skills required by guardians of any state. This is why our government should be scouring the postings of all people online who make predictions and analyze things. Those whose past postings are correct should be hired to run things. The ones in the public as well as private who miscall events or misunderstand the deeper forces should be fired. This means firing most of the guys running the top positions in the Federal Reserve, firing the head of the Treasury and of course, our top rulers in the White House.

Seeing all this mess as it developed was easy as falling off a log, of course. And the reason the guys who created this mess couldn't see it was because they did not want to see it. They and their buddies made money irresponsibly by ignoring reality and now, as reality bites our heads off, we have to play this game of 'who could have guessed?' Which is stupid, of course, since Google search lets us know that there were people who did guess back then.

Americans Plan to Save, Not Spend, Tax-Rebate Checks, Poll Says

The stimulus plan Congress approved this month may provide less of a jolt to the U.S. economy than intended, as most Americans plan to save rather than spend their tax rebates, a Bloomberg/Los Angeles Times survey shows.

Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.

Maybe we can all put our rebate checks in a bank in China or Vietnam! Earn real interest. I know that a number of people want to pay down their debts for the simple reason, credit card debt isn't cheap. It is expensive as hell. And so people are frightened because the credit card companies are being hammered by late payments and defaults so they are raising rates and punishing penalties which increases the rate of non-payment. Far from easing, credit in the consumer class is shrinking rapidly. And the consumers are scared enough to make this worse by trying to undo it all. The system depends on more and more credit leading to more and more spending. Buying gold doesn't expand commerce, it kills commerce since it isn't part of a value-added system like manufacturing is, for example. But it is a good hedge against reckless inflation caused by government misallocation of money or wars. And we are at war! And like in all wars, gold's utility rises while war spending rages. And spending on the Iraq war has risen every year. The Pentagon's budget rises, too. And rose 7% this year so inflation will be at least 7% and since this is for wars where there is oil, this means oil will continue to rise in price, too. A vicious circle. Back when the US was joyful about 'winning' the Iraq war, I heard so many people say, 'NOW oil will be cheap again!' And it was at $50 a barrel back then. Now, it is over $100 and rising relentlessly.

Freddie Mac Posts Record Loss, Remains `Cautious'

Freddie Mac, the second-largest mortgage-finance company, posted a record $2.45 billion loss for the fourth quarter as rising defaults sent credit costs soaring.

The net loss, which amounted to $3.97 a share, widened from $401 million, or 73 cents, a year earlier, the McLean, Virginia- based company said in a statement today. Freddie Mac, which buys and guarantees home loans, had predicted the results would be similar to the third-quarter's $2 billion loss.

Government-chartered Freddie Mac and Fannie Mae, which account for 45 percent of the $11.5 trillion home loan market, are posting their biggest-ever losses as foreclosures and tumbling home prices increase costs. Freddie Mac Chief Executive Officer Richard Syron said today the company remains ``extremely cautious'' for 2008.

Both Congress, the President and the banks are all pushing to have Fanie Mac and Fannie Mae take not just 45% of the housing market risks but 100% of this! They want a COMMUNIST SYSTEM. Due to lack of savings, lack of paying realistic interest rates, these guys are now pushing to have the government eat ALL the losses if loans fail! See? Insanity! This way, banks can merrily issue loans of any sort and then PASS IT ON. To the taxpayer. Note how the losses here are shooting up! The intention is to have all losses end on the government side of the ledger. Remember the GOP push for 'privatization'?????

HAHAHA. It was a con job, of course. As I noted years ago! The ONE THING the government should NOT BE DOING is this! Why should our government be our bankers? Eh? And if they are, they should charge realistic interest rates! And who sets that? The Federal Reserve which is neither Federal nor a reserve! These private banks get to screw the Federal Government whenever they want! And the banks? They want to earn FEES on writing loans and then pass them off! Onto the tax payers! They will write loans to infinity if they don't have to worry about them going bad. And the collapse of the US economic system continues and speeds up.

I say, eliminate the Fannie packs and sent them to the banks. If the banks can't eat them, then we should declare a bank emergency and arrest all the bankers. Put them on trial concerning how they came up with the 0% down/super low 2% mortgages. Then arrest the politicians who egged this on. And they did. Bush even praised banks for doing this! This was a crime. No sane saver would trust a bank with their money while bankers were doing this stupid thing. As I point out again and again, we NEED compound interest and the method for paying for houses in ancient times like when I bought my first house years ago with 20% down, are good rules and work. I paid off all my mortgages before reaching 50 years! This is not impossible! My children are doing this right now. And they paid more than 20% down on their homes!

They won't bankrupt America. But the people who thought handing out funny free money would not cause inflation as well as banking collapses: they knew better. They wanted those damn fees.

Multi-billionaire Gross of PIMCO: [And] if Washington gets off its high “moral hazard” horse and moves to support housing prices, investors will return in a rush.

But let there be no mistake: this description of Old Maids and PIMCO’s Investment Committee’s attempt to avoid holding one is serious business and the game playing does involve some of the same skills that little kids learned by playing cards generations ago. Pretend that you don’t hold the Maid? Banks have been playing that game for nearly 12 months now and only recently have entered the confessional to expose some of their sins. Are the monolines showing any of their cards? No – just ask MBIA’s CEO – they’re doing just fine thank you. “But by the way,” he’ll say, “take a card, one of these good ones on the end or maybe the one in the middle with the exposed edge.” Bank loans for sale by Wall Street at distressed prices? Nah, those Harrahs and Clear Channel loans are money good – “as a matter of fact all of the $150 billion or so we have in inventory are great assets” the banks will say. We’ll just hold on to these maids – unless you pay 95 cents on the dollar that is. Don’t wanna take a loss you know.

And so the game goes on and on. Its most recent twist involves an asset class known as Auction Rate Preferred Stock and the astounding revelation that its holders didn’t even know they were playing cards to begin with. Holders of ARPS – mostly wealthy investors, but also the likes of Bristol-Meyers and other visible corporations – thought they were holding AAA assets with money market liquidity. In this case, most of the assets probably are AAA, but the liquidity has suddenly evaporated, transforming them from a 30-day to potentially a 30-year asset. The assets on these Maids it appears are real but they have come with a marriage license. Whoops! Another Old Maid in masquerade.

Speak of the devil himself. First, note how he mocks the banks for wanting 95¢ on the dollar for crummy loans that should have never been made. He won't pay more than 85¢ on the dollar. The losses these represent is way the wailing-baby jerks who penned these loans want Fannie Mae to take on 100% of the loan holding risks. The Big Guys like Gross want short term stuff so they can flip or unload if inflation eats it. NONE of these clowns want to hold these things for 30 years. Well, the American people don't want to pay off, either. Note how as soon as the value of the house began to really climb, many were enticed into going deeper into debt? Thus, the need for everyone to pass the buck here. And the buck is losing value during all this. Massively. Now, they are all in a panic to pass it faster. People owing money love to pay with cheaper dollars but NOT if they have to spend every penny on food and fuel. This is why ALL PARTIES are getting 'poorer' in this mad cycle. This is a very destructive deflationary spiral despite the appearance of inflation as I noted back in early 2005.

Gross:

Slow credit growth is a harbinger, however, for slow economic growth (if any) and that in turn leads to the necessity for low short-term interest rates for an extended period of time. I think Ben Bernanke knows that restarting the U.S. growth engine almost by definition requires nominal GDP growth of 5%. He’d prefer that nominal rate be composed of 3% real and 2% inflation, but desperate times sometimes require compromise: 2% real and 3% inflation may be the best he can hope for in 2009 as soaring commodity prices and a declining dollar add to the equation’s complexity. If so, a bond investor should expect a prolonged, several year period of low short-term rates (Fed Funds averaging 2½%) with vulnerability on the intermediate and long-term portions of the U.S. curve due to inflationary fears and the diminishing support of foreign central banks and SWFs. If, as a bond investor, I expected 3% inflation (2% in 2008 – higher in the out years), a 3% 5-year Treasury would not seem very appealing. Nor, I should add, would a 3.80% 10-year or a 4.65% 30-year bond.

He is a bond trader. What did these guys do the other day? Oh! They charged the munis selling muni bonds 20% interest! OUCH. And of course, the Fed rate will at at 2.5% forever. I thought this would be the magic number while snow plowing yesterday. And talk about a goofy idea. To keep Fannie Mae afloat with inflated tits, they are going to ignore inflation just like Japan is ignoring inflation. So what if worker's wages aren't dropping? They will continue to ignore true inflation statistics and true banking values. They will ignore all the dirty details while focusing on one thing and one thing only: lending money, collecting fees and dumping all this on top of the US taxpayer who owes not only nearly $10 trillion in US government spending but many more trillions in individual debts! And all of this will be paid for by these same people who have no savings? Are we nuts? This is like the banks funding their monoline insurers who are supposed to be protecting the banks from their own bad loans!

Can't Anyone Here Deal with Derivatives?

Merrill Lynch overstated cash flows received from derivatives-financing transactions.

I continue to try to figure out the Derivative Beast. No one can see it. We can see its footprints in the snow. They are the size of whole cities. Stomp, stomp, stomp, the Beast trudges across the earth, smashing everything under its paws. Or hooves. No one has any clear idea how this creature looks. I would suggest it has seven heads and the Whore rides on its back.

By the way, I may be on the radio soon. Will let everyone know when and where.

Email this post

Culture of Life News Main Page

Diesel Fuel Here Hits $4.15 A Gallon

February 27, 2008

Elaine Meinel Supkis

I had to put diesel in my plow truck today after plowing out people from the latest of many ice storms. I nearly fainted when I saw the price: $4.15 a gallon. Just last week, it was $3.56 a gallon! WOW. Then I went grocery shopping. WOW. OK, fellow Americans: we will see serious trouble soon. Everywhere I went, I met very angry people and they should be angry. Time to wake up from the dream of world conquest! Our money is dying. The dollar fell hugely against the euro today, more than 10¢ this month alone! Insanity. And then Herr Greenspendthrift goes off to the Middle East to echo what Iran Kitty has been saying all this last three months: dump the dollar! Well, we shall have fun over here. Time to hitch Sparky, my horse, to the truck and use him to plow. Also, I figured out the need for Bernanke to drop rates to 2.5%: this is the 'teaser rate' all those billions in Sub-prime mortgages rake in! So there will be no 'reset'! Cheap mortgages will save us! After the dollar dies.

Greenspan gives green light to depeg

His remarks about clarity arose from his habit, while in office, of making delphic comments that had the power to move markets and transform economic policy in the space of a few words. The famous 1996 remark about “irrational exuberance” was the best example of such a remark – it set the tone for US monetary policy for the next few years, until the American market got carried away in the
dotcom boom.

His opinions on the dollar peg with GCC countries seemed clear enough. In Abu Dhabi he said: “Depegging is probably the most useful thing that can be done to stop the increasing influence of foreign assets on the monetary system and therefore the monetary base, which is basically the major force in inflationary pressures.”

He seemed to reinforce this message in another speech in Jeddah: “In the short term free-floating [of the Gulf dollar-pegged currencies] will not fully dissipate inflationary pressures, although it would significantly do so.”

This snipped was published in the Emirates Business News. At the last two meetings of the oil pumping nations in the Middle East, Iran teased the others about their peg-leg relationship with the dying US dollar. Now Greenspan is echoing this? HAHAHA. Life is full of irony or maybe it is just flatulence? Greenspendthrift gets paid huge dollars or rather lots of Weimar dollars to talk and talk and talk. This man is a hoot since he feels that now he should tell the truth: he shafted everyone in the US and has utterly destroyed us and now he is going to sell us down the river so he can get rich in his dotage? Arrest this man! If the most powerful banker in America turns out to be a traitor, arresting him and making an example is very important. I feel that many people who loved guys like him back when it looked like we could make magic money forever should reconsider this. Reagan betrayed America and so did Greenspan. Both men as well as Bush Sr and Clinton, everyone but Carter has, upon leaving the White House or the Federal Reserve, runs off to the rest of the world to collect their pay from their true masters: the New World Order wants to own our Presidents. As well as Greenspan and his cronies. They all cock an eye, while in office, on these future pay-outs. And they collect. Reagan hardly waited a month to rush to Japan to get his millions, for example.

This form of treason has been going on so outrageously, the Chinese have used this to their advantage not to mention the oil sheikhs and kings. As well as other people who have interests in ruling us. All have been pulling the strings via virtually undisguised bribes. This is true of England, too. As well as most elected rulers of the 'democracies' in Europe and South America. Well, thanks to all these WONDERFUL people, the dollar is dying. The US is losing its industries. We are deeper and deeper into debt. We are seeing inflation in all the most dangerous parts of our economy and virtually none of this makes so much as a peep in this awful election cycle which focuses on hair cuts, photos of turbans, accusations of peeking up skirts or plagerizing platitudes: damn.

But then, every time Kucinich or Ron Paul did try to talk about the important things, the media shut them out. Or talked about stupid things about either man. This is democracy. Welcome to hell.

Oil Rises Above $100 to Record Close After the Dollar Declines

Crude oil rose above $100 a barrel to a record close in New York as the U.S. dollar fell to an all-time low against the euro, prompting some traders to invest in commodities as a hedge against inflation.

Reports today showed that U.S. home prices tumbled, consumer confidence weakened and producer prices rose last month. Hedge- fund managers and other large speculators increased net-long positions, or bets on higher oil prices, in the week ended Feb. 19, a Commodity Futures Trading Commission report showed.

``The continuing upward pressures from the weakening dollar, geopolitics, and the use of energy as an inflation haven continues apace,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``There is an inflation wave ripping through commodities of all stripes.''

A Texan diesel refinery blew up and now my pocketbook is being picked due to price gouging. Thanks a lot, everyone at the top. The $5 gold coin that sells for $150 is sitting on my desk as an icon, a goddess, a plea for salvation. And it buys only slightly more than filling the double tanks on my Ford 350. And snow plowing ice eats energy like crazy. Even as gold struggles to get ahead of inflation, the oil guys, the guys paying Greenspendthrift, the people supporting the Iraq war, Bernanke and all of these jerks---they kill the dollar so fast, even gold won't be able to keep up at this rate. Everyone is now figuring out the obvious: the only way to save the collapsing housing bubble is to drop rates below the 'teaser' rates that are resetting. Then everyone can pretend all is well because no one will be kicked out of their grossly-overpriced mansions.

But this will cause ever more inflation. Bernanke assured everyone last Thanksgiving, the plans to save everything would not weaken the dollar. Since then, the dollar has gone from being sick to the verge of death. Will Bernanke continue? Will he hesitate due to tremendous inflationary forces being released by this action? Will the banks sit idle during this? They expect global wealth to pour in while offering insane interest rates? Are the Japanese savers putting their money into the Bank of Japan?

Hell, not even here, are people saving money! It makes no sense. The thing being saved is the huge derivative Beast that overshadows all the wealth in the world. This is shuddering and collapsing inwards, sucking down trillions in paper wealth. But the horror is, dropping interest rates won't save anyone. It actually makes things worse. For the dollar is losing value, too. If all these things end up being reset at zero, the economic system ceases. This is why Greenspan is warning everyone to cut their losses and flee.

Producer Prices in U.S. Increase More Than Forecast

Prices paid to U.S. producers rose more than twice as much as forecast in January, pushed up by higher fuel, food and drug costs, signaling inflation may keep accelerating even as growth slows.

The 1 percent increase followed a 0.3 percent drop in December, the Labor Department said in Washington. The median forecast in a Bloomberg News survey of economists was for a 0.4 percent gain. Excluding food and energy, so-called core wholesale prices climbed 0.4 percent, the most in almost a year.

Combined with figures showing consumer prices also rose more than forecast, today's report may prompt the Federal Reserve to consider raising interest rates as soon as the economy stabilizes. Fed officials, including Governor Frederic Mishkin yesterday, have warned that higher prices may stoke inflation expectations.

MAY stoke inflation? What the hell has been going on all this time? Was I hallucinating this last 35 years? I reached adulthood only to be greeted by on sickening inflationary episode or massive dollar devaluation after another. Every 8 years, it seems. This so annoyed me that I decided to zero out my debts back in 1990. And succeeded finally a few years ago! This doesn't mean I avoid the downside of inflation. Even if people park money in 'safe' havens, they still are hammered by inflation on a daily basis. It is just that any savings they can eke out can be saved and not lost, too. When Bernanke took over the Fed, I went ballistic. Indeed, there were a number of us on the internet who did this back then. But NOT MANY.

Here us an article I wrote soon after Bernanke took over the Federal Reserve:

I warned everyone that Bernanke is an idiot. He celebrates the destruction of our manufacturing base, claiming that shipping jobs to China to scrub inflation due to energy hikes creates jobs here in America. Alas, the jobs created are also not "inflationary" since no one can ask for or get pay raises! Great. Sounds like a depression.

'Ben Bernanke, in his first public speech as Federal Reserve chairman, laid out a scholarly case Friday that keeping inflation low and stable tends to foster economic growth and jobs.

This sensibility — now largely a consensus view — marked an evolution in economic thinking, Bernanke said in remarks at Princeton University in New Jersey. '
*snip*
Well, I predicted from my very first article about Bernanke that he would be both insane as well as ill-informed. He is going to finish us off. We are so very doomed thanks to this idiot.

"Central bankers, economists and other knowledgeable observers around the world agree that price stability contributes importantly to the economy's growth and employment prospects," he said. "But that view did not always command the support it does today."

Well, he better consult with me! Or read this story of mine!

Price stability exists? What the farking hell? I see none, none at all!

I wanted to get more past stories from Blogger but as usual, it is crashed. So I dragged that story out. It certainly nails everything on the head as well as rear end! What can we say? I knew more of what was going to happen than Bernanke! Why doesn't the Fed and everyone bang down my door, asking me to help?

Yes, the mountain here is very icy and you need a truck with chains on the tires to make it up the hill. But then, in all stories about wisdom, one has to climb a mountain, anyway. Or maybe it is my crazy cackle, the 'Hahaha' stuff? Well, I try to be funny. What else can we do?

The fact is, I have said since day one, inflation in fuel and food are THE most important things to track. France didn't fall into riots and revolution because the price of laces rose! Indeed, the price of laces FELL. What rose were the prices for food and fuel! Always, always and even more often, all riots and revolutions happen when food and fuel suddenly spurt in price. This should be hammered into the heads of these idiots running things. Far from minimizing it or even outright, ignoring this, they should be focused on this like a laser.

People can double up in houses and so the loss of a home isn't so hideous. But we all have to eat! And not freeze to death! So the loss of food and fuel bites directly. It is, in other words, literally life and death. Already, food riots are spreading across the third and some second world nations. Today, Congress passed a bill increasing....BIOFUELS! This is fueling food inflation. Yes, farmers will be happy with higher prices but they all buy what I bought today: diesel fuel! And if it rises twice as fast as the value of their harvests, guess what?

They don't make a profit. If the price of corn shoots upwards faster than diesel prices, then we have food riots. The farmers in the US represent a small minority. The teeming masses in the cities on the other hand, are far, far greater in number. I have been in cities that were burning down in the past. It is not a pretty thing. Indeed, it is teeth-grindingly horrible. The only store in my community that survived was the one where the owner ran out with a rifle and shot a rioter dead. It was, needless to say, a liquor store. The paint store in another neighborhood survived only because the owner had four huge sons armed with pistols who shot into the air and said, they would kill anyone who came within ten yards.

All the others went up in smoke. I picked through the ruins. We had no police, no fire department. The mayor refused to call the National Guard. I had to hike to City Hall in Manhattan to demand the military support! The social disorders continued for months afterwards. This is why I prize some sense of balance. We cannot let things slide off of cliffs here. And ignoring or mocking people talking about inflation in essentials is provocative in the extreme. Note today's latest example from the Fools in the Fed:

Fed's Mishkin: Core inflation focus best for economy

Federal Reserve Governor Frederic Mishkin on Monday defended the central bank's emphasis on core inflation, saying an emphasis on less volatile prices produces a stronger economy in the long run.

"Stabilizing core inflation ... leads to better economic outcomes than stabilizing headline inflation," Mishkin said in a speech at East Carolina University.

Core inflation strips out volatile food and energy costs.

The bastard. How dare he! The extra $25 I paid to fill my fuel tanks compared to just last October is no joke in my household. Already, I don't use any fossil fuels to run my heating system. I use only the woodstoves and wood from the trees in the forest. I am running out of things to cut here. I can only imagine the pain and suffering of people on fixed incomes who have NO raises in Social Security who are told that inflation is only 2% or 3%. My god, are they going to be starved to death?

YES! This is the plan! I see little inflation in their fake 'core'. I see infinite inflation outside of this 'core.' And anyone with a brain can see this! If they didn't see this back in 2006 when I wrote so scathingly about all this, they damn better know it now! There have been NO price 'fluctuations' in essentials. They have ONLY gone up and up and up! For the last 7 wretched years! Never have they fallen. Sometimes, they pause only to resume their climb. But we are not seeing 2% inflation in these areas.

Bernanke Fails to Cut Loan Rates for Most Americans

Ben S. Bernanke, who has reduced interest rates faster than any Federal Reserve chairman since 1982, is failing to bring down the cost of credit for most American homeowners.

The average fixed rate for a 30-year home loan rose more than half a percentage point during the past four weeks to 6.04 percent, according to Freddie Mac, the world's second-largest mortgage buyer after Fannie Mae. The increase occurred after the Fed lowered its benchmark rate by 0.75 percent on Jan. 22 and cut the rate by a further half-point eight days later.

When Bernanke faces Congress tomorrow and Feb. 28, he will be questioned about why long-term bond yields are moving in the opposite direction to the Fed funds rate, said Credit Suisse Group Chief Economist Neal Soss. Lower fixed mortgage rates would avert foreclosures and give consumers more money to spend, said Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago.

Bonds and mortgages are not dropping because there is inflation. DUH. Does Congress, one of the chief causes of this inflation, not understand? But they should set up a row of mirrors. 'Did I vote to increase military spending and money for the Iraq occupation?' they can ask themselves. Then they can all take a knife in hand and slit their wrists and bellies or chop each other's heads off, perhaps. The shame of what they have done should overcome their souls and they should feel an obligation to make restitution. And not what Diane Swonk said! Give people cheaper loans so they can go out and spend more money?

Why is there inflation? Gads! Mirrors! We need more mirrors here. If the point is to spend why not give me a billion dollars? And give all my readers a billion dollars? Heh. That will be less than the cost of the occupation of Iraq. Unless everyone on earth decides to read here so they can get a free billion dollars. Only this won't buy the $5 gold coin a reader sent [thanks for that coin, it will be a great item to chat about here for the next umpteen years!]. Right now, I burn the Wall Street Journal and the New York Times when I need to relight the fires that heat my home. With a billion $1 bills, I can dispense with that.

C.A.R. Reports Sales Decrease 29.8 Percent, Median Home Price Falls 21.9 Percent

Home sales decreased 29.8 percent in January in California compared with the same period a year ago, while the median price of an existing home fell 21.9 percent, the CALIFORNIA ASSOCIATION OF REALTORS(R) (C.A.R.) reported today.
"This most recent decrease in the median price is yet another result of the liquidity crunch, which has choked off sales in recent months for nearly half of California's housing market," said C.A.R. President William E. Brown. "Sales do appear to be edging up, but recent declines in the median price have been due to a lack of sales in the over $500,000 range, where funds are extremely scarce and jumbo loan rates are at near-record margins compared to conforming loan rates."

It is already too late. House prices are falling. Even if people want to buy these cheaper houses, they can't. Why? The inflation eating up their money! They need to EAT and use ENERGY. And with these going sky high, they can't afford mortgages they could have afforded just three years ago. When one must spend $250 a month for a commute that cost only $80 a month back in 1999, well! That is impossible. Many of the houses languishing in value are in areas requiring long commutes! They were built when oil was much cheaper. Now, they are death traps. Starving to death in some exburb while also freezing or dying of the heat, isn't a life style choice many will make. The only road back is the one that tames food and fuel inflation, not makes them worse. So far, all the solutions including the $150 billion Federal give-away are all very inflationary.

States Seek Congress's Aid as Subprime Boosts Costs

U.S. governors including New Jersey's Jon Corzine and New York's Eliot Spitzer may ask Congress to help reverse rising municipal debt costs stemming from the subprime mortgage market's collapse, Washington Governor Christine Gregoire said.

Gregoire, Corzine and Spitzer joined other governors Feb. 24 in forming a group that will ``produce something that gets us out of the problem, but most importantly produce something for Congress'' to deter a future borrowing squeeze, Gregoire, a Democrat, said during a National Governors Association meeting in Washington yesterday.

What is squeezing the states? Fuel costs! Food costs! Inflation forcing workers to demand raises! Loss of tax revenues as families flee their exburbian housing! Everything will spiral downwards just like it did back in the 1970s. And the cure back then was to bite the bullet and raise interest rates. It hurt a lot. But continuing down the food/fuel inflation route hurts even worse in the long run. But then, no one has dared to stop the true problems which is all about the US wanting to control the earth via military spending and military adventures. The War on Drugs and the war on unions are killing us. The refusal to understand nature and how energy works is killing us. Our refusal to understand the Hubbert Oil Peak is weakening our nation as a whole.

And we must understand that we cannot rule this planet. No one should rule it. It should be a global democracy. Everyone matters. Everyone should have a voice in how this world is run. The US is going to lose its grip anyway so we may as well control how we exit the world stage. Spending like fiends only hurts. Ask the Russians. They tried this. They invaded Afghanistan...and had a nuclear power plant blow up. Do we have to do that, too? We already are making all the other mistakes Russia made.

Bernanke Says Economy Is "On Track" And I Say, To Hell

Exactly 2 years ago, I wrote this piece:

RED ALERT!!!

Danger: completely stupid economist with great powers running into competely corrupt politicians! How on earth will "output" cause inflation? Output was supposed to be "manufactured stuff" and he is using it to describe people buying things merrily because there is tons of money running around, purchased via cheap, below inflation rate loans! And this will cause inflation, all right, in HOUSING. Which is exactly what has been going on so far! And which is excatly what is wrong with everything! The Fed deliberately turned our homes into ATM machines so we can churn out money to our heart's content and of course, buy stuff which never showed any inflation because the Chinese pegged the yuan to the dollar and the Japanese do this even more outrageously.

Inflation won't happen because people want to buy stuff, it happens because the irresponsible Fed is upping the money amounts while not backing it with anything and the only reason this worked so far is because the Chinese government needs to entrap us by selling us IOUs which they plan to collect in a horrible way since the game we are playing, "Let's see who consumes all the planet's resources" is a very deadly game which will end when everyone decides to cull the world's population just like Hilter decided to do way back in 1933 with his "Lebensraum" program.

From two years ago, more fun stories that echo today nearly exactly:

Aesop's Ant and Grasshopper Story is one we easily misinterpet. The ant plans ahead for bad times and works in concert with other ants (this is the important part) to insure the ant community can live through the winter of hard times. The grasshopper doesn't cooperate with anyone and happily hops about, stuffing its face and living hand to mouth. Then it dies in winter. Just call it a libertarian or Republican.

The grasshopper imagines the Chinese ants will pity it and feed it when hard times happen. The Chinese assure us that they, themselves, come first and the handouts we are getting right now won't be there. We refuse to understand this and hop around happily, eating everything in our path.
*snip*
Anyway, the point is only 6,000+ years old and what ails us? We can't figure this out? We have vast grain stores and are actively planning to wantonly turn it into fuel by burning it or distilling it. This is because the great bounty of oil makes growing corn ridiculously easy and seemingly cheap. But when the oil becomes dear in price, kiss corn goodbye!

Mother Nature isn't finished with Winter yet. She is now very lopsided thanks to global warming and the disorder the oceans are in with the melting ice changing salinity and the rate of flow. But bored with plummelling Asia, She is lifting her skirts and coming back to us.

Remember November? It was like January. Brrr. I work outside so I am hyper aware of the weather! Then mid December to now, ridiculously warm, like mid to late spring. Seeing this, people decided to spend money they set aside for fuel, spend it all on junk and fun stuff! Whoohoo.

Now Mother Nature is blanketing us with snow and in the next days, she will be blasting us with ferocious winds and extreme cold. I have seen Marches here when the temperature seldom climbs above zero. I suspect we just might have that this year.

A note here: in January, it went to 70 degrees here. It was downright hot. Now, it has been going below zero every week and will do this tonight. Grrrr....I keep saying, History is a bitch who laughs to death due to humans doing the same foolish things over and over.

Click here for the story that went with that old cartoon from January, 2006.

Zhu said his background left markets uncertain about how Bernanke would respond to the challenges they face.

Masses of cheap credit left in markets despite 19 months of Fed rate tightening -- which now has been joined by other major central banks -- presents a huge vulnerability, he said.

Excess liquidity is the key issue confronting financial markets today, not consumer inflation, he and Roach said.

I am rather proud about nailing things on the head every time.

Email this post

Culture of Life News Main Page

All About A Gold Coin Sent In The Mail

February 27, 2008

Elaine Meinel Supkis

A very, very kind reader from the US West sent me a real $5 gold coin from the US mint as a gift. Aside from the wonderful generosity of this gift, it is a good springboard for talking about gold and money which are intertwined like the winged staff of Mercury. Understanding money and gold means understanding old religions and belief systems that come from the dawn of minting coins and even earlier when gold was used nearly only for religious purposes. This is a fascinating topic and one that goes deep into that dark, dank cave we call 'the Human Psyche'. Why have humans chosen gold as a mirror for wealth? Why does it retain this even today to some degree? Why does money hark back to its darker roots? Why can't the magicians control the paper representation for wealth? Dark, dark parts of the brain are at work here. We must always end up talking to the Gods, living and dead.

First, an email exchange I had recently with one of my readers. Even as I throw very strong hints about the Truth about Gold, it is very, very hard for people to understand how this works. This is due to the very nature of where the concept of gold as money lies: in our emotional parts of our minds where we made our gods. The place where the dream world and the waking world make their interchanges is where the belief in the power of gold as well as the power of magic lies. This particular part of the mind is also where our sexual desires live. Explaining this is difficult without going into neuroscience so I go back to Dr. Freud. His entire opus was tossed out recklessly by modern people who resent his talk about women wanting to be men, for example. But his musings about mythology are very useful. And his attempt at explaining the Dream World is useful as a guide when unentangling the skein of dreams.

Here is the email exchange:

On Feb 26, 2008, at 11:27 AM, R. wrote:

What is money? If gold is not money, who do Reserve banks hold it? Why do they still treat it as money?
*********************************************

Sent: Tuesday, February 26, 2008 3:08 PM
To: R.
Subject: Re: money

They [the Fed] don't hold anywhere near the reserves they had in 1964.

And it is like the oil reserve: it is a reserve to be used in the future....namely, during wars.

Wars and gold go hand in glove. Why? This is because MERCENARIES AND ALLIES demand it. For inside stuff, governments always print IOUs which we call money.

Elaine
*******************************************

On Feb 27, 2008, at 7:22 AM, R. wrote:

Currency is OK as a medium of exchange but is not money. That is why the governments have less gold than they did in 1964 as it is being used by many as a store of value and as a medium of exchange in some places and by many as stored wealth waiting for the time when it will become recognized as money again in the west. In the not too distant future the world will finally come round to the realization that currencies are useful but must be backed by real money in order to control the inate urge by governments to expand currency and credit beyond the growth in production in the real economy. Certainly governments will fight it but China or Russia will implement the change if things lag action-wise as they tire of uncollectable paper IOU’s from deadbeats like the US and to signal that they have assumed the mantle as the new world money center.

I am reminded of the scene from Lawrence of Arabia when the money box in Akaba turns out to contain only paper money, which the Bedouins throw in the fire and complain bitterly about there being no real money as Lawrence promised. Even brigands know what wealth looks like!
*******************************************

From: Elaine Supkis [mailto:[email protected]]

On Feb 27, 2008, at 8:20 AM, Elaine Supkis wrote:

The history of gold is one of depressions. They lasted for many years, sometimes, centuries.

It bought poverty. Note what I said about mercenaries. The Saudis were 'mercenaries'. See? City people prefer paper money because it is easier to control and use. This is why paper money always drives out the use of gold. Gold is held for emergencies. But if you have gold and then USE it, you lose money. It is a very odd glitch in the human psyche.

This is why gold can't be used in any modern system and always ends up sidelined.

Elaine
*******************************************

I used this example of the typical emails I get. Intelligent questions that make me think about things. I really do enjoy getting these emails and am happy people take time out of they busy days to write about these matters. The puzzle about money, gold and sex is of great importance. Pretending these are not connected is part of the problems we are dealing with today in the economic realm. Many modern economists don't even want to be bothered with this topic and one of the few last great minds to wrestle with the Angel of Wealth was Dr. Freud. He accurately located the nexus for all this as being part of the Dream World. The roots of Indoeuropean languages has a lot to say about brilliant light, gold and the soul. They intersect in the language and this means they intersect in our mental picture of the world. Non-gold based cultures have a different visual image of the soul, wealth and power. For example, the Polynesian People looked to the glittering stars or the flashing brilliance of sea creatures for this sense of divinity and power, there being virtually no gold on the many Pacific Islands they colonized. In Australia, the natives there had no concept of gold, not value for it and their dream world was ruled by the Sun.

This is also true of the European Ice Age people who left us marvelous cave paintings and various carvings and models. CS Lewis, with his Narnia series, chose the tawny gold of the lion as his emblem of godhood. As many people who watched these mighty hunters come dashing out of the tall grasses to panic huge herds of Ice Age grazing beasts. The lion was, from the very start of our ability to rationalize things, the emblem of power, glory, godhood and fear. To this day, the top representation of this powerful force is still the lion. Back at the dawn of civilization, gold and copper could be picked up easily from the surface of the earth where it had lain scattered over the billion years or more as the earth underwent many changes and upheavals. The softness of gold meant it didn't need to be melted or require many tools to manipulate. Its weakness in this regard meant the earliest stone age people, admiring and fearing the Lion could hammer this with rocks and turn it into icons representing the power of the Lion.

Gold, due to its malleability, was easy to shape but useless as a tool. There is an old Russian story, very old, about a lumberjack who is blessed with great wealth. The dwarf turned his axe into gold. The man went back to work and swung his axe. Instead of biting into the tree, it bent! He was enraged and went to the merchant to exchange it for a real axe. The merchant was pleased and tried to cheat the man by lying about the value of the gold. When the exchange was made, the man went off, happy to be able to work and the merchant took out his gold axe only to find, it was steel again.

This is a marvelous story, by the way. If we want to understand gold, we go to myths and fairy tales which give an honest representation of what gold really is. It is one of our oldest magical systems! The natural wisdom of these stories should alert us to the reality that we are not talking about 'wealth' or 'money' but about a deeper matter. Let's go back into the dim beginnings of civilization. How did people do business? Did they use money the minute they began to build cities? If so, what exactly did this money buy?

Barter is the oldest method of trade. Everything from food, sea shells, knapped rocks that were turned into tools, furs, horns and of course, art works were exchanged at various levels of values and needs. If there was a shortage of something important, the 'price' it commanded would rise. Food is often the source of these ups and downs in value. Naturally, when food is scarce, its value soars above all other things large or small. This is because it is how we stay alive. Next to this, using things to buy females or slaves is a very common form of commerce. War does this, too. Either one trades or one raids.

Gold has not been central to trade but it is very much central to wars. Even in ancient times, traders would make clay objects representing barter items like sheep skins, sheep, wheat [bread] or other objects. These were used with doing long distance deals. The representation of these objects would be used to make deals before delivery, for example.

The Larry Gonick cartoon book has a lot of funny things to say about all this. On page 100 of this terrific book [I highly recommend it for all sorts of reasons!] Larry explains how merchants developed records for barter trade rather than direct bartering. Many of the clay tablets and other 'documents' from the era before the explosion of the Tera volcano wiped out the thriving Mediterranean trade empires in 1,600 BC were not stories but tallies of trades. The earliest written records were 'money': bills of lading, so to speak.

Indeed, I suspect the leap in the mind that turned barter into symbols which were then traded as proxies preceded the concept of 'coins'. Gold, as well as grain, had value, of course. It was traded and weighed on scales just like gems or grain or anything that was weighable. They didn't weigh sheep or cows or pigs. But as a farmer, I know that we can judge weight by eye and feeling the animal to see how fat they are. Just looking at the flesh above the eyes tells us how fat they are. But gold was a raw material that was weighed, like grain. And if it was turned, via human labor, into a work of art, this was judged by its beauty and form, not the value of the gold, itself. A cunningly crafted gold object was obviously worth more than a simple lump of gold.

Bast, Perfumed Protector, Cat Goddess...

Her name has the hieroglyph of a 'bas'-jar with the feminine ending of 't'. These jars were heavy perfume jars, often filled with expensive perfumes - they were very valuable in Egypt, considering the Egyptian need (with the hot weather) of makeup, bathing, hygiene and (of course) perfume. Bast, by her name, seems to be related to perfumes in some way. Her son Nefertem, a solar god, was a god of perfumes and alchemy, which supports the theory.
*snip*
Even from very old times, as protector, Bast was seen as the fierce flame of the sun who burned the deceased should they fail one of the many tests in the underworld.

One of the very earliest trade objects that were easy to carry and could not be produced just anywhere were the perfume concentrates from beyond Upper Egypt and other distant lands like beyond India. To barter for these was very difficult. The traders had to travel far and thus, perfume was very precious. One way to bargain for this was to trade gold objects which were small, too. The volume of trade versus size matters. Today, we see all sorts of nearly useless cheap stuff travel long distances and the cost per item it vanishingly small thanks to the use of fossil fuels and huge ships. The smaller the craft, the more people it takes to move it and the higher the chances of being accosted by pirates or sunk in storms, the more one has to carry smaller and smaller items of greater and greater value. Thus, early trade over great distances were in the form of perfumes, fine art work, silk and spices. And gold objects were a useful barter item, it being small and heavy as well as lasting a long time.

Unlike silk, perfume, fine wines and spices, gold doesn't deteriorate over long voyages. Unlike all the other items, it doesn't break, have to be sealed or protected from weather. It doesn't rust or lose its beauty. Since gold is often NOT where civilizations are---those being where there is good food growing opportunities---it had to be traded or discovered or stolen via armies. And since all cities used this in trading for the fine, civilized stuff, they had to have gold and gold was often in the hinterlands, thus the need to conquer 'savages' who tend to be where the gold is.

Bast is the goddess of perfumes and it the jar it comes in. The fact that She also is part of the Gates of Death complex is a strong hint to us that the golden shining lioness is part of the mirror of life and death that is shining in our eyes. The languages we use consider shimmering light to be synonymous with eternal life, the word 'miracles' comes from 'shining light.' And in CS Lewis' 'Narnia' stories, the Lion, Aslan, always has a sweet-smelling breath. Which is directly related to the belief of Bast, the Goddess of Perfume, Wealth and Death. People die, trying to bring perfume to Egypt. And it is used in the embalming process, too. So the rich needed it badly, to clear away the smell of rotting flesh.

Statues of Bast and other top gods in the pantheon were cast and used as trade objects. These were bartered for perfumes, etc. And from them, these small icons, came the concept of coinage, of royal money.

In this recent exchange which I had with a reader, note how it goes: he tells the truth when he said the Saudi raiders of the Turkish port were angry when they found only paper money. I pointed out that gold has traditionally been used to buy mercenaries. And he didn't realize the Saudis were mercenaries being lured into attacking this port the Brits wanted for other reasons, the lure being the gold. Right now, Spain is fighting this deep sea explorer in court over who gets the gold from a British ship sunk 200 years ago, carrying gold to a king Britain wanted as an ally.

Spain wants this gold not so they can park it in a vault and use it to buy allies or mercenaries. They want it because these coins can be resold for much greater value than their gold content! They are icons for collectors who want the feelings gold coins rouse. I collect things like this and know the feelings well. I vividly remember many dreams over the course of my life where I dig up precious gold coins of ancient provenance. Farmers do this all the time in Europe. There are many grave robbers, since the dawn of grave making, who seek to dig up or find the buried treasures. For many burials of kings and lords are with their gold.

Why is this? If gold were used strictly for trade, why would they bury it so often? The history of humanity burying gold is quite striking. Throwing it into deep wells, into volcanoes, even, the Venetians throwing a gold ring annually into the Adriatic Ocean comes to mind! Why dig up gold, form it into cunning shapes and then throw it back into the earth again? This makes no sense!

Except to the Gods. Gold is shining, it is eternal. It doesn't age or go bad. Gods are supposed to do all this, too. Except the Gods die! Since the beginning of religion, people have had these Gods all die. And so the gold of the Gods goes with them into various graves or places where the Gods dwell or return to. So humans, for many thousands of years, have sought out gold, made it into shapes and forms most cunning, done various magical tricks and incantations with it and on it and around it and then CAST IT ASIDE! Over and over again. Think of Frodo and the Ring of Doom: it must be destroyed! Returned to the Gods of Fire!

Let us visit the Chinese who are the cunning inventors of many financial systems we take for granted today. The brilliant minds of ancient China thought long and hard about all this. They invented paper money, after all. Before paper money, gold and jade were used as grave offerings to the Guardians at the Gates of Death. Then, when paper money was invented, the Chinese had a brilliant idea.

Why not burn this money and the smoke would rise to the stars where these mysterious beings dwell? Then, they would let the dead enter unmolested! This meant losing the value of the printed money but it also prevented inflation. Burning the money meant it didn't recirculate! Then the crafty minds of the people losing the value of this paper went into high gear. 'If the money is burned, the Gods can't see if it is fake or real! So why not have our bean curd bun and eat it too?' they thought. So, to this day, the Chinese use counterfeit money at funerals. And have inflation, of course.

Back to the gold $5 coin sent by a reader: the history of money in the US is always a fascinating topic. Unlike most other systems on earth, the US is full of people who debate the meaning of money and how to make it. We argue about the relative merits of paper, gold, silver and simple writing of numbers in a book to make money. We are enmeshed often in these debates. During the entire 19th Century, these debates raged and they affected our politics to a very high degree.

This is from the US Mint's homepage. Note how the $5 gold coin as well as the others are fluctuating in price. Also note their value: it isn't the number stamped on the coins. It is now based on the weight of the coin, in the case of my coin, it is now over $150 for just one tenth an ounce. The change in value from 1900 till today is striking, isn't it? The paper dollar is 30X cheaper than the gold dollar.

Today, the debate about our currencies and our monies has been revived thanks to the Internet. Starting with the collapse of the currency during the Vietnam War, there was little debate in the mass of people due to the media muffling it all. I remember how the value of the silver coinage was so far ahead of its face value, it paid to melt the coins. I remember being rather angry when I noticed that our quarters and dimes suddenly had a thin sliver of copper/zinc in the middle. These 'sandwich' coins were a harbinger of the collapse of the dollar. I remember the fury of travelers and traders when the dollar suddenly changed value due to the Bretton Woods II Accords. New York City, where I lived and where my husband and I worked in the foreign trade sector, was thrown into chaos and had great financial troubles due to this.

NYC has always, since Colonial times, been pro-gold. This is due to foreign trade. As we see, trade has always used various forms of gold icons, coins and art objects as trade items for other, more perishable goods. Even in 1900, trade was in fairly small ships compared to today's super-tankers and super-container ships! Another facet I forgot to mention concerning gold is how it doesn't have to be traded like FX markets today. One didn't have to know the relative value of currencies. People simply weighed the coins and did their own transcriptions as to its value. Indeed, any trading nation that protected its currency and didn't debase it with other metals often became the rulers of the Seven Seas which were the main route for most of the exotic trade.

Farmers and others selling large-load, perishable items preferred, since the founding of Ur back 8,000 years ago, to use non-gold pictures or numbers to denote value. This is because the trade was close at hand. The temple priests could hold the grain or count the cows and then keep this on record as these were consumed while the farmers knew they could 'bank' on the value with the temple who would dole out what they needed later, say, for the spring sowing.

Here is a good web page about the US Mint and how it came into being:
The United States Begins Minting Coins

Not until three years after the Constitution was put into effect in 1789 did the newly seated Congress again take up the coinage issue. Finally, on April 2, 1792, Congress approved an Act requiring coins to be minted bearing the words "United States of America" and "an impression emblematic of liberty, with an inscription of the word Liberty, and the year of the coinage...". This was the first major step in establishing our national coinage system.

The Act authorized the salary of the Director of the Mint, who was to receive two thousand dollars annually, and other mint officials. President Washington appointed a famous scientist and philosopher named David Rittenhouse to be the first Director, a man widely respected for his professionalism and integrity.

A self-educated genius, Rittenhouse constructed America's first astronomical observatory with telescope, helped arbitrate the famous Mason-Dixon line, invented the metallic thermometer, advanced the field of mathematics, and was a master clockmaker. So highly regarded was Rittenhouse, that along with Washington, Thomas Jefferson and Alexander Hamilton both urged him to accept the Director's position.

Note how the founder of our mint is an astronomer. I often teased my grandparents, all of whom were astronomers, and my mom and dad who are also astronomers, about religion and how they were really priests. Money and astronomy go hand in hand. For the first astronomers were also the first to understand the Gods. And they were the guides for fellow humans to the Gates of Death. Since one cannot understand the stars unless one also figures out how numbers work as representations for the stars and their movements relative to the earth, so it is with money: the mysteries of money, numbers and the stars were the province of the astronomers. Even in the Enlightenment, this was true. The lead thinkers of the 18th century were rationalists and they liked to think they could think and therefore, not have their heads chopped off afterwards. Alas, this was a mistake. The guillotine still went to work. Thinking or not.

The US started a Mint and instantly, a huge row began over the concept of a central bank and what was money in the first place. Banks rose and fell, the US wavered between imitating the British Empire which was going increasingly for the strictly gold standard and the defects of the gold standard. This all came to a head in that great emergency, the Civil War. There was a gold panic in 1864 due to the government refusing to accept papers it issued for supplies and then repay it with gold. The collapse of the gold certificates caused riots in NYC and drove many a speculator into bankruptcy. This chaos even hit London. British trade with NYC came under great pressure due to a crisis in currency trade due to the dropping of the gold promises in the US.

From then until 1873, the US wrestled with this mess. Then, Britain and the biggest maritime banks in NYC managed to rush through Congress the Gold Act of 1873. This coincided with a terrible disaster far off in Austria: the stock market panic of 1873. The whole world slid into a great depression. The US went to the gold standard. This was very bad timing, of course.

Here is Mr. Loud's take on all this:

The result was that the dollar (and so the American monetary mass and ultimately output and employment) was linked to a metal that was getting scarcer and scarcer, because between 1879 and 1897 the rate of increase in gold output slowed, and the demand increased at the same time. The monetary mass could not keep pace with the strongly expanding economy, and price measured in gold declined strongly. This deflationary effect was hindered to some extent by the spreading monetization of the American economy and a more efficient banking system that allowed to pile up more paper money on a given currency base (that is, gold). (more on this)

We see between 1875 and 1896 a deflation of about 1% a year in the general CPI. A the same time the output rose by 6 % a year. Economists reader should not say, <>. It's precisely this growth that made the prices go down. With a fixed quantity of money if the number of transactions rises and the velocity cannot rise sufficiently, then prices have to fall.

All this led to a depression so great that you would have to wait for 1932 to see the same again. Unemployment peaked at 18 % in 1894. But some people suffered more than others

This was called, in England, the Long Depression. Millions of peasants in Europe were displaced and had to flee their homes. Many came to America. They needed money. Gold was limited. Popular support for government-issued paper is strongest at the bottom of society. Gold-backed wealth is strongest at the top. And paper is popular with landlords and owners of great estates that produce food. Gold is very popular with sailors and international traders. The tension between these forces is what keeps money on an even keel.

FOR WE NEED BOTH.

The Bryan/McKinley debate is important and I shall tackle that later. The 'Crown of Thorns' was a tremendously popular speech back then. And if we went to a gold standard, it would be popular again for the same reasons.

Coin Composition

Minting from gold and silver continued well into this century. It was not until 1933, during the Great Depression, that the Mint ceased producing gold coins. A silver crisis caused the replacement of silver in 1966 in quarters and dimes; however, the half-dollar was composed of 40 percent silver from 1965 to 1970. The Bicentennial Kennedy Half Dollar contained 80 percent silver and 20 percent copper. But today these coins are now composed of cupro-nickel clad, with a pure copper core, and an outer layer of a 75 percent copper, 25 percent nickel alloy.

Nickels are made from the same 75-25 alloy, and the cent, once a copper coin, is now composed of copper plated zinc. The cents are less expensive for the Mint to manufacture, and at 2.5 grams each weight about 20 percent less than cent previously minted of 95 percent copper and 5 percent zinc, which weighed 3.11 grams. The cent's composition was changed in 1982, and cents, and both copper and copper-plated zinc cents were produced that year.

Note how this debasement is worsening. I included, at the very top of this story, pictures of very old pennies along with the old dimes. Humans can never go to a pure-magic number financial system nor can we go to a pure-gold system. One is too loose and the other, too tight. We need a balance here.

I will be tracking the value of the precious gold coin a reader sent. I will periodically put the tally up on this blog for all to see. And we can discuss inflation more. Note how inflation has settled upon the world like a vulture on a starving cow. Food, energy and debt for farmers, peasants and traders are all rising like crazy across the entire planet now. And the grim bankers causing this refuse to take responsibility. ALL of them, outside of the obviously frightened Chinese who have long memories of famine, all the others are minimizing this. All, outside of the Chinese, are pretending we do NOT have to pay attention to this. That food and fuel are optional and subject to sudden rises and falls. Well, so do equities, trade goods and lots of other things! Such as real estate, just for an obvious example!

And inflation caused by paper money always ends up on the farm. And then flies to the cities. Where we have riots and revolutions! Duh! Ask Marie Antoinette or the Romanovs about that! Unhappy peasants, unhappy proletariat=guillotines.

Email this post

Culture of Life News Main Page

Capital Flows In And Out Of Royal Pirate Coves

February 26, 2008

Elaine Meinel Supkis

Time to attack the Queen of England again. I can't help it. The European news is filled with more stories about the royal tax havens. The Liechtenstein business is now pulling in banks in Switzerland. The gnomes are gmad. Heh. A think tank wants to see if the G7 can control the flow of money across borders. This would anger the gnomes gno end, eh? Even more amusing, a British writer calls for these gnome ghomes to be invaded! I am very happy to see someone else call these places pirate coves, etc. I have been suggesting naval attacks for some time already! But a curious thing here: the British writer, Mr. Butler, cannot attack the Mistress upstairs! He cannot say, 'These pirate coves swear fealty to the Queen of England who owns them.' This would get him arrested for sedition. But since my family voted to execute Kings of England or revolted against Kings of England, I say, 'Off with Her Majesty's head!' And She can't do a thing about this. Heh, again.

We must curb international flows of capital

By Dani Rodrik and Arvind Subramanian

First large downhill flows of capital – from rich countries to poor countries – led to the Latin American debt crisis of the early 1980s. In the 1990s similar flows begat the Asian financial crisis.

Since 2002 the flows have been uphill, from emerging markets and oil-exporting countries to the developed world, especially the US. But the outcome has not been very different. So, it does not seem to matter how capital flows. That it flows in sufficiently large quantities across borders – the celebrated phenomenon of financial globalisation – seems to spell trouble.

Causes and consequences vary, depending on which way capital flows. Developing country borrowing was associated with unsustainable fiscal policies (Latin America) and inappropriate exchange rate policies (Asia). But the financial sector was not blameless: for every overborrower there was an overlender.

The pathologies were different when the US went on a borrowing binge. Large current account surpluses and the associated savings glut in the rest of the world fed a global liquidity boom, which stoked asset prices. Even though the roots of the subprime crisis lie in domestic finance, international capital flows magnified its scale.

Why, pray tell, has money been flowing 'uphill'? And why is Japan being left off the list of countries that are 'rich'? This sort of simplistic writing and thinking is common in the mainstream. I can only guess why. Perhaps it is because the people paying writers to write stupid things make money this way? There has to be some financial benefits for stupid thinking and stupid writing. Indeed, it is painfully obvious that a refusal to see into the future or to understand events and cause and effect is very much part of 'making money.' I keep harping on how magical money is. Gold isn't money. Wheat isn't money. Coins are not money. Money is all about numbers. And since ancient times, numbers have been recognized as being part of the divine Celestial system. If we look at myths from the beginning of the city/state religions such as Ur or Pharaonic Egypt, they use lots of numbers and the concept of magic numbers takes hold. This was due to standardizing the calendar and figuring out the movement of stars. This is because these religions tracked the stars and were also tithing the harvests, holding the surplus and dispensing the surplus as well as lending, using this surplus as a bank. Tracking and controlling this surplus, tracking and controlling trade with other religious/government centers was the job of a host of religious clerks who invented writing as well as numbers.

One might say, 'In Gods We Trust...but put it in writing!' This article in the Financial Times claims that it does NOT MATTER how capital flows! This blatant lie irritates the hell out of me. It matters a tremendous amount not only how much is flowing but where it flows. A slight change in the world flow of finances can cause tremendous effects. Whole nations can suddenly go down in flames! Others can suddenly find themselves swamped. Currency values fluctuate wildly. This causes chaos in markets. This leads to panics, bubbles and bankruptcies. This can trigger massive wars! I can't imagine anything more dire! We all have watched with bated breath as the G7 attack Iran over and over again, trying to strangle Iran Kitty who meows back and scratches us on the nose by raising world oil prices. We can see how the threat to use first, yen, then euros and now rubles to sell oil on their new bourse has caused major panic in the G7 nations. This changes the flow of money! And this causes tremendous effects.

Russia has just changed the world flow of money too. Demanding Europe pay them in rubles just like Iran. When Iran demanded Japan pay in yen back in July last summer, the effects were instantaneous. The Japanese lost control of the yen and couldn't depreciate it without being suddenly hammered in the Iranian oil markets! Along with China changing their formidable FOREX mix, this caused the yen to rise from 125 to the dollar to nearly 100 to the dollar to the great distress of the Japanese. The flow of money around the planet went through several major changes between February, 2007 and August, 2007. This triggered a nearly total banking collapse in many of the G7 nations that were busy attacking China over currency values all spring and summer.

Note also, just as I talked about in yesterday's story examining two Congressional Reports, the belief that there was a savings glut and the US was a baby in a high chair who had to eat this glut, so it is echoed here. Gads, nothing irritates me more than that stupid story cooked up by economists to explain reckless US spending. Proof that I am right, do note how the US is trying to 'restart' the economy with MORE reckless spending we can ill-afford!

Financial Times:

But how is such a levelling-off of flows to be achieved? In the current context, the source of liquidity is large current account surpluses in the oil-exporting countries and east Asia, especially China. Reducing these should be a high policy priority for the international community. Two concrete actions – one for each source of liquidity – suggest themselves.

First, some variant of petrol tax in the main oil-importing countries (including the US, China and India) is essential to cut demand and reduce oil prices and hence the current account surpluses of oil exporters.

Yes, the US government should tax gasoline much higher. The US overspending on imported energy is a huge part of our trade deficit with the world. But we are babies. We want our SUV lifestyle and will kill endless Iraqis for this. Even as that war is costing us dear and driving us into debt and forcing us to go to China, hat in hand, to beg for money, we do this. This is our choice. We will do this until China slams down the bank door on our fingers. And we won't take our fingers out, we will try to rob the bank. So this isn't a matter of money helplessly flowing. It is money flowing where people are wanting more loans. China has become our bank. As they told me in 1984, 'We be bank!' So it is. This isn't accidental. They figured out how to do this and did it.

Financial Times:

It is time for a new model of financial globalisation, one that recognises that more is not necessarily better. As long as the world economy remains politically divided among different sovereign and regulatory authorities, global finance is condemned to suffer deformations far worse than those of domestic finance. Depending on context, the appropriate role of policy will be as often to stem the tide of capital flows as to encourage them. Policymakers who view their challenges exclusively from the latter perspective will get it badly wrong.

As nearly always, these economic professors writing this article---it took more than one!---want a New World Order. Ein Mark, Ein Führer, Ein Reich! Sieg Heil! If only we had one currency, one leader and one empire, why all our imperial bankrupt deals will turn to gold instantly! Wave some more wands, guys, and we will have a global ruler. China is the present bank so I would assume it will be 'One Yuan, One Hu and One Big Mess.' I don't think we won't love this but we are babies so I suppose we can wail and shake our little plastic rattle made in China.

Swiss bank dragged into German tax probe

German prosecutors are investigating whether Swiss bank Vontobel may have helped German residents to set up secret accounts via an office in Liechtenstein, bringing a second bank into the focus of a scandal involving alleged tax evasion.

The FT has learned that prosecutors have information linking a small number of German residents with accounts at Vontobel and are now trying to establish whether the accounts were used for tax evasion purposes. They are also trying to establish whether this was bank policy or the work of individual employees, possibly to aid tax evasion.

The gnomes in Basel are bitter. The Liechensteiner mess has leaked into their own vaults. I suppose squads of assassins will be skiing off in search of Mr. Keiber. The Swiss sharp shooters won't Miss. Ah, I think I already wore everyone's patience thin with the gjokes at the top of this story. Suffice to say, this isn't over until the Fat Lady is arrested. And if there is a lady who should be arrested, She is in Buckingham Palace, England. Die Köningin von England. Elizabeth II.

Blockade the tax havens!

By William Butler, Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions. Tax havens are to those engaged in tax evasion what fences are to thieves. Tax evasion is a crime. It’s not harmless cleverness and fun; it’s theft from the community you live in. Those who engage in it, and those who facilitate it, are criminals. It is time that the more determined, if not yet sufficiently aggressive, attitude and actions of the civilised world towards money laundering is extended to tax evasion through off-shore tax havens and the corrupt states/entities that live off this trade.

The list of countries that make a living out of tax evasion and related activities (essentially the same countries that consciously created, and in some cases continue to offer, facilities, laws, regulations and institutions to facilitate money laundering) is long. The OECD lists 35 microstates with the tax haven designation, but this excludes larger countries with strong bank secrecy laws whom the shoe fits just as well (e.g. Austria, Switzerland, Luxembourg).

Many are located right in Europe. The include micro-states/entities like Monaco, Liechtenstein, Andorra (the only three tagged as “uncooperative” tax havens by the OECD), Guernsey, Jersey and the Isle of Man. Any country with an unhealthy respect for bank secrecy is part of the tax evasion/money laundry fraternity. Among the EU members, Luxembourg and Austria are prominent examples. Cyprus has long been a surprisingly copious source of funds invested in the former Soviet Union. Outside the EU but in the heart of Europe, Switzerland has long profited from the facilitation of foreign tax evasion and money laundering

HAHAHA! About time! As I point out again and again, currency values, the flow of investment money, the granting or removal of loans, all things to do with money flows can and almost always leads to wars, invasions, revolutions and coups! And if a hostile power sucks like a vacuum, all tax resources from a government, this is war! War, I say! And more wars. If tiny principalities under the rule of crazed royals insist on destroying the financial bases of all democracies, they must retaliate! And what are navies and air forces for, anyway? Why do we have submarines and Marines? Hell! We have them to enforce our laws. And if outlaw pirate coves run by royals are ruining our nations then we must attack.

Note in this article, how the good professor halts right at the gates of Buckingham Palace.

The good Butler:

The exact modalities may differ from case to case. Jersey, Guernsey and the Isle of Man should simply be absorbed lock, stock and barrel into the UK, with English laws, rules and regulations applying across the board. The special status of these strange entities is not cute; it’s an enabler and facilitator of unethical and illegal behaviour.

And who, exactly, is responsible for this 'special status' and why can't Butler utter Her damn name? Lawyers in England accused me of sedition in the past. And I laughed at them for they would have to make me go to England where I could rehash the last 500 years of jurisprudence and the American Revolution, and perhaps, the Magna Carta which my ancestors wrote or rather, dictated to the scribes! Power grows out of the sword, indeed! And if the Queen wants to hide from her subjects the fact that She and her buddies are draining the Treasury and destroying both America and England, to the barricades! HAHAHA. Right! They did it in Moscow! They did it in Berlin! They did it in England long ago. The failure of a full revolution back in the 1600s is why I am here and not on some English estate, abusing the peasants.

The Queen has a special relationship with the Channel Islands and the Isle of Man.

The Channel Islands and the Isle of Man are not part of the United Kingdom, but are dependent territories of the English Crown.

Both have their own forms of self-administration, although the United Kingdom government is responsible for certain areas of policy.

The Queen has a special relationship with both Crown dependencies, and is known there by unique titles.

She is very much the Queen of these pirate coves Butler wants to surround and force into compliance. Of course, being the spawn of lords who fought the Crown periodically, I say, invade! But we can cut to the chase by storming Her palaces. She can live like me. I clean my own floors. I have no Butlers to serve me. I chop my firewood, I saddle my own horse, supervise my own sheep myself, with the dogs, of course. I grow my own veggies. I can survey the world from my mountainside and enjoy thoughts of former rule but in general, I can only boss around the chickens and the other animals boss me around. And this is wonderful. She can survive like this if she is dumped outdoors. Her son, Charles, should have no problem. They aren't helpless babies, after all. Why the rump empire of England wants to keep this very expensive family camping out on what should be public property baffles me. They are NOT nice people at all, not nice at all. Quite the contrary. Look at their bloody history! OUCH. They are no better than I and I don't destroy my children's marriages. Time to cut off this hangover from the Dark Ages.

Back to the Queen and her pirate coves:

ISLE OF MAN

The Isle of Man lies in the Irish Sea, roughly the same distance from England, Scotland and Northern Ireland.

It has the oldest representative government in the Commonwealth. The legislative system was introduced around 800 AD when the Isle was part of the Norwegian kingdom of the Hebrides.

The original government, the Tynwald, consisted of the King, two advisers, the chief officials and council, and the Keys, which was a representative group 'of the worthiest men in the Island'.

In 1266 the island was ceded to Scotland, and England later acquired it by treaty under Edward I. The lordship of Man was handed over to English lords in return for regular payments to successive monarchs.

From 1405 to 1765 the island was ruled by the Earls of Derby, and later the Dukes of Atholl, as Lords of Man.

The use of the island as a secure base for smugglers became such a problem that, in 1765, the British government gave the island its own legislature but required all customs and taxes to be paid into the British exchequer. The lordship reverted to the Crown, and George III became Lord of Man.

The Crown's personal representative today is the Lieutenant Governor, who is appointed by The Queen and who has delegated power to grant Royal Assent to legislation dealing with domestic matters.

WE HAVE PRECEDENT! When the islands run by the royals are overrun with pirates, Parliament has the right to take it over! And guess when that happened? When the German Hanovers took over the throne, the Parliament took these islands off the hands of the royals. But the Kings of England wanted them back and stupidly, they got it. The mad king got it for his own use and he and his heirs are responsible for it. Note that the guy running this pirate cove is APPOINTED BY THE QUEEN! HAHAHA. So She is responsible! I say, make her pay all the lost taxes her representative has stolen.

CHANNEL ISLANDS

Situated 10 to 30 miles off the north-west coast of France, the Channel Islands are not part of the United Kingdom.

They are dependent territories of the English Crown, as successor to the Dukes of Normandy.

The Channel Islands were part of the Duchy of Normandy when Duke William, following his conquest of England in 1066, became William I.

In 1106, William's youngest son Henry I seized the Duchy of Normandy from his brother Robert; since that time, the English Sovereign has always held the title Duke of Normandy.

By 1205, England had lost most of its French lands, including Normandy. However, the Channel Islands, part of the lost Duchy, remained a self-governing possession of the English Crown.

While the islands today retain autonomy in government, they owe allegiance to The Queen in her role as Duke of Normandy.

And so we can see, Butler should have explained what 'allegiance' is and how this works within kingdoms and these pirate coves are part of the Queen of England's KINGDOM. Ergo: She must be stopped. Of course, She will excuse all this and claim her hands are tied. Well, this is silly. If She isn't responsible for anything, why have this old hag hanging out in the first place? The Brits may love her but she costs them a fortune. And She performs no useful function except to be Disney Land. Why not use a wax statue of her instead? It will save money. And since She and her little islands are bankrupting England, at least she could be shipped to Jersey or the Channel Islands to live. Let them kow tow to the old creature. Have fun!

After all, the royal running Liechtenstein isn't living in the Habsburg palaces in Vienna anymore.

From UK government constitution:4. Crown representation in the Crown Dependencies

The Queen is the Head of State of each Island and the Lieutenant Governor on each
Island is Her Majesty’s personal representative. The Crown is ultimately responsible
for the good government of each Island and exercises its responsibilities for the
Islands through the Privy Council. The Crown also makes appointments to the
judiciary in each Island.

Government officials must never state or imply that the Islands are part of the United
Kingdom, or Great Britain, or England, or act on that assumption.

Note how severe this is! England has spent an absolute fortune trying to conquer first, Wales, then Scotland and still clings to a good part of Ireland! The royals sent one army after another, one navy after another, all in order to steal Ireland from the Irish people. They let millions of Irish die of starvation in 1848 during the Potato Famine. They forced millions of Irish out into America and elsewhere. They were tremendously cruel and passed terrible laws dispossessing the Irish of their lands and goods! This has gone on for CENTURIES and even today, England still refuses to reunite Ireland under Irish democratic rules! Look at the Troubles of this last 50 years!

Good grief. And they have to handle these pirate coves with kid gloves? Arrest the Queen! Throw her out. I will even teach her how to cook, sew and be polite to the delivery boys.

Email this post

Culture of Life News Main Page

The Subprime Hangover: Here comes the $739 billion taxpayer bailout

February 25. 2008

BY MIKE WHITNEY

The SEC probe of the securitization of subprime mortgages into collateralized debt obligations (CDOs), announced last summer, has yielded no official enforcement cases....SEC chief, Christopher Cox, along with other top-level administration officials, has cautioned against quick-fire regulatory or enforcement responses to the worsening credit crisis, noting that the market instead should be left to work it out.” Nicholas Rummel, “SEC Drift Said to Prevent Action on Credit Crunch”, Financial Week

That's right. The biggest economic scandal in the last half century, the subprime fiasco, and the “business friendly” stooges at the SEC are still sitting on their hands reciting passages from Milton Friedman instead of dragging crooked banksters off to the hoosegow in leg-irons. Go figure? SEC Chairman, Christopher Cox, has come under withering attack from Senator Christopher Dodd who chairs the Banking Committee and who accuses the SEC of being “asleep at the switch”.

Dodd said the SEC “needs to help restore investor confidence in the markets by more vigorous enforcement, by more comprehensive regulation of credit rating agencies, and increased accountability and transparency of publicly traded companies.” (Financial Week)

“Accountability...transparency” in Bushworld? Nice try, Dodd, but its a losing cause. The Bush administration is not just philosophically opposed to oversight; they've handed over the entire financial system to a cabal of banking scalawags who've turned it into their personal fiefdom. This same cast of fraudsters engineered the subprime swindle and ripped off trillions of dollars from investors around the world. And, don't kid yourself; Bush is proud of the damage he's done by taking a wrecking ball the SEC. For him, it's like a good day at the races. He has no intention of reigning in the crooks or restoring the publics' confidence.

New York Governor Elliot Spitzer has joined Dodd in criticizing the so-called “regulatory agencies” for failing to determine whether any securities laws were broken. In a Washington Post article, Spitzer blasted the SEC's inaction saying that the Bush Administration would be judged by history as a “willing accomplice” to the subprime collapse.

But Spitzer and Dodd are wasting their breath. The culture of corruption from 7 years of Bush misrule has spread like Kudzu to every jag and eddy in Washington. If we were really a nation of laws rather than nincompoops, federal agents would be busy rounding up every investment banker and hedge fund sharpie on Wall Street so they could get to the bottom of the subprime boondoggle. Regulators still haven't even decided whether it was a case of overzealous marketing of dodgy securities or downright fraud. That should be "job one" for the SEC.

The reason all this talk about “regulation” is so important now is that the same banking giants who cooked up the subprime scam have just presented the Bush administration with a $739 billion bailout package they plan to unload on the American taxpayer. According to Sunday's New York Times:

““As losses from bad mortgages and mortgage-backed securities climb past $200 billion, talk among banking executives for an epic government rescue plan is suddenly coming into fashion. A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble. The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes. To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.”

What Bank of America is proposing is that the US government guarantee the shoddy mortgages that the banks issued to “unemployed shoe-clerks with bad credit” so they could peddle them as Triple A “securities” to unsuspecting investors. Now that subprimes are blowing up at a record pace, the banks need a government bailout before their balance sheets are reduced to cinders.

But what does the poor taxpayer get out of the deal besides soaring inflation, bulging fiscal deficits, and the “warm and fuzzy” feeling that he's helped some tasseled-shoed charlatan keep his larder in the Hamptons full of Dom Perignon and crab cakes?

The reason we're in this mess is because financial innovation and deregulation have driven the markets off a cliff. And that started with the bankers. Financial innovation has nothing to do with the efficient deployment of capital for productive activity. No way. In fact, it is the exact opposite. The financial innovations of the last decade have primarily focused on transforming the liabilities of dubious mortgage applicants into complex debt-instruments which are enhanced with massive amounts of leverage and exotically-named derivatives. The investments banks and brokerage houses fought hard to establish the present system which they call “structured finance”. They spent over $100,000 million lobbying congress to remove the legislative firewall which kept investment and commercial banks separate. Those laws, particularly Glass Steagall, made sure that the public was protected from the Ponzi-scams which proliferated just prior to the Great Depression. But, now, 30 years later, the same scams are back with a vengeance. The cult of free market orthodoxy and Reagan-era flim-flam has put us on track for another stock market crash ala 1929. That's why Bank of America and their buddies in the industry have turned to the administration for a way out. Their flagging balance sheets can't take another year of rising foreclosures and dwindling assets. They need Big Brother to cover their debts and rebuild their capital-base. Otherwise its curtains.

Other versions of the so-called “Rescue Bill” have been floating around Washington for the last three weeks, but they all follow the same basic guidelines. Under one of the plans, 600,000 subprime mortgage-holders, many of whom are already delinquent on their payments or in some stage of foreclosure, would be able to refinance their loans under the Federal Housing Authority (FHA) which would federally guarantee the mortgage in the event of default.

Great idea, eh? So, now the taxpayer is going to have to pay for the people who lied on their applications (and who really can't afford the homes they're in) so the banks can recoup their losses. This plan doesn't make sense.

Why on earth would the taxpayer want to buy 600,000 subprime mortgages at “current value” when housing prices are falling, inventory is soaring, sales are sagging, foreclosures are at historic highs, and millions of homeowners are expected to simply “walkaway” from their loans?

No thanks. Let the banks go under. They created this mess. Besides, all we're doing is rewarding the people who deliberately destroyed the system. They can fend for themselves. The first order of business should be to restore public confidence; not bail out crooks. “Credibility” matters in a market-based system; especially one that relies so heavily on the hocus-pocus of fractional banking. When trust is lost; the system crashes. End of story. That means it's time to clean house at the SEC. Give everyone a pink slip, two weeks pay and send them home. Then scour the countryside like Diogenes for a few honest men.

Second, people in positions of authority have to be held accountable for their crimes. Millions of investors have lost their life savings or retirement in the subprime/securitzation debacle. Someone's got to go to jail. Apologies just don't cut it. So far, not one CEO has been led off to the Paddy-wagon in handcuffs. It has all been swept under the rug by an administration that has filled every regulatory position in Washington with industry lobbyists, business-friendly tycoons and corporate “yes-men”. The results are just what any sane person would expect; disaster. The financial markets are completely unsupervised; the SEC is just a subsidiary of the multi-national corporations. It has no teeth. If it was really independent; then Cox and his goons would be storming the investment banks with tasers and truncheons. Instead, he spends most his time explaining why he won't enforce the laws and prosecute cases.

And there should be no doubt about who is really responsible for the subprime woes. The investment banks employ some of the country's “best and brightest”. These are sharp guys who have studied at some of our finest colleges and universities. Does anyone really believe that a Harvard MBA---who understands all the fine-points of high-finance--really thought that ignoring all of the standard criteria for prudent lending, and issuing trillions of dollars in loans to applicants who had no job, no collateral, bad credit, and were unable to come up with a few thousand dollars for a down-payment---was a great idea?

Of course not. It was a swindle from the get-go. The reason the banks looked the other way and issued these shaky mortgages was because they didn't really think there was any risk involved. After all, it wasn't their money. They simply repackaged the loans into bonds and sold them off to someone else. No worries. But, does that make them any less guilty?

Consider this: If the banks didn't know that the mortgages were bogus, than why are all the various types of mortgages; including Alt-As, piggybacks, home equity loans, ARMs, prime, and "interest only"---defaulting at the same time? It is not just subprime mortgages that are failing; it runs the gamut.

The reason is obvious; it's because the banks were making windfall profits and didn't want to rock the boat. They knew they were peddling garbage. How could they not know? The banker's primary task in life is to figure out who can pay him back "with interest". And they're pretty good at it, too. So why did they start handing out hundreds of billions of dollars to anyone who could fog a mirror? In fact, it got so out-of-hand that (according to The New York State Commission of Investigation) "a homeless woman earning $10 an hour was recently approved for a $470,000 adjustable rate mortgage". In a similar incident, two Hispanic migrant workers in Bakersfield, California, who made roughly $45,000 in combined income, were approved for a mortgage on a home valued at $725,000.

These aren't innocent mistakes. They're part of a broader pattern to fudge the paperwork so unqualified "high-risk" loan applicants would look like J. Paul Getty and secure a mortgage. That way, the banks could continue to rake in lavish origination fees and maximize their profits.

But then the plan hit a rough patch and the Gravy-train tipped over into the ditch. When the credit storm hit the markets in August, the mortgage securitization went into deep freeze and the easy money from Wall Street dried up. The banks got stuck holding billions of their own bad paper. Now every foreclosure eats into their capital so, they've turned to the government for a handout. Of course, they don't want the public to know what's really going on so they've asked the Bush administration to help them pull the wool over everyone's eyes. According to the New York Times one banking official summed it up like this:

“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market.”

Really? So, on top of everything else, the banks want the Bush administration to organize a public relations campaign that will make the multi-billion bailout look like it was designed to help struggling homeowners instead of crafty bankers. Unbelievable. No doubt Team Bush will do whatever they can to help out.

Bank of America's proposed $739 billion bailout is just the first of many hyper-inflationary, economy-busting trial-balloons we can expect to see in the near future. The banking system is in terminal distress; collapsing from hundreds of billions in worthless assets, bad bets, and poor decision-making. Their capital impairment problems were all brought on by themselves. And they should be forced to pay the consequences, whatever that may be. They managed to take a simple, revenue-generating activity like mortgage lending, and turn it into a textbook case of grand larceny. It's pathetic.

In their present condition, many of the banks will be back for another handout in a matter of months. Next will be commercial real estate (CRE) which is already slumping and on its way down. Then it'll be the $160 billion in private equity deals and leveraged buyouts (LBOs) which need refinancing. Then it'll be the maxed-out credit cards, and delinquent student loans and defaulting car loans all of which are failing at a faster and faster pace. It is not just the “structured investment” market that's unraveling now; it's the whole speculative paradigm of hyper-inflated assets, toxic bonds, over-priced equities and bizarre-sounding derivatives which are crashing down in one great debt waterfall. The investment banks are at the very center of the problems. They've played it fast and loose from the very beginning and now they've come up snake-eyes. Tough luck. Only they shouldn't count on a $700 billion freebie from Uncle Sam to make up for their own bad judgment.

Dupe Ex Machine Cranks Into Action

February 25, 2008

Elaine Meinel Supkis

A big snow storm approaches yet again, just after the last one melted. The cycle of storms is like the cycle of bad news we have been through lately. The latest attempt at preventing the inevitable storms has boosted Wall Street: the monoline insurance characters were saved! Deus ex machine was cranked down onto the stage and from it issued an angel from Standard and Poor. 'Arise, Ambac, arise, MBIA! With a wave of my magic wand, you shall live again!' And everyone clapped. Next: the Dragon enters from stage left, spitting flames of rage due to inflation from the US and Japan. We look at two US Congress reports about all this trade deficit/global savings glut business.

U.S. Stocks Gain, Led by Energy, Drug Shares; Ambac, MBIA Rise

U.S. stocks staged their biggest rally this month after Standard & Poor's kept AAA debt ratings for the nation's largest bond insurers, easing concern credit losses will extend the worst earnings slump since 2001.
*snip*
``People are breathing a sigh of relief and jumping back in again,'' said Peter Kovalski, who manages financial services stocks at Alpine Woods Capital Investors, which oversees $12 billion in Purchase, New York. ``All financials that would've been vulnerable to a meltdown in credit markets rebounded on this news.''
*snip*
MBIA is no longer under review for a downgrade by Standard & Poor's, indicating the bond insurer is a step further away from losing its AAA insurance credit rating. Ambac, which ranks second to MBIA among bond insurers, is still being reviewed for a possible downgrade, S&P said.

``As long as the ratings are there, banks do not need to write down securities on their balance sheets that are guaranteed by Ambac and MBIA,'' said Anton Schutz, who manages $150 million at Mendon Capital Advisors in Rochester, New York.

OK, does anyone with half a brain think that ANY rating agency these days have ANY legitimacy? Maybe we should ask Kerviel and Kieber to tell us how to rate these guys. Indeed, it should occur to more than one person that this is a cover up. Just as fake as ratings last summer. Back then, everything was rated AAA. Even BBB was thought to be merely a slight variation on AAA that brought a better return!

Then the banking system collapsed. All aspects collapsed as it occurred to more then one investor, that something stank. The putrid smell is now quite obvious. So I suppose, putting a clothes pin on our noses, we can agree that Ambac and MBIA are now smelling sweet as roses growing up a wall in Liechtenstein. Everyone who has money invested within this bizarre and dysfunctional fiance/banking system wants desperately for Ambac and MBIA to be 'saved'. I noted the other day that the rescue operation is simply the entities being insured are the same ones who are guaranteeing these insurers. But this is kind of incestuous, I would venture to suggest. If these banks crash, they can't fund the insurers, can they?

Now that Tinkerbell is done with her tinkering, we can clap our hands and Ambacbell and MBIAbell will come alive. Isn't this cute?

When credit cards put you in jeopardy

Consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in just the last year. And it's become a habit for them to spend more than they have. The overall credit card debt grew by 315 percent from 1989 to 2006, according to public policy research firm Demos.

To compound the problem, fewer people are paying their credit cards bills on time. The percentage of people delinquent on their credit cards is the highest it's been in three years, according to CardTrack.com.

This habit of spending more than we have is called 'trying to cope with inflation'! People don't want to go in debt and pay 30% on the most expensive loans on earth. This isn't cheap money. Money is cheaper and cheaper, in our wallets. Accessing credit is very, very dear. And the fact that payments to these loan sharks is falling behind more and more is a very bad sign, indeed. One thinks perhaps filling the gas tanks of cars and paying heating bills is driving people to desperation. I know that the first half of winter in the North wasn't all that bad. The second half has been a trial. It has dropped below zero here a number of times.

Personally, I gave up on gas heat long ago. I go out into the woods with the chainsaw and axe and warm up by hauling wood around. Even when it is at zero, I get rather warm. But most Americans can't do this. They are stuck, paying increasing bills. Electric and food bills are up, too. And will continue rising due to global inflation. The cruel winter in China will force the government to buy grains and other foods and this is good news for farmers here but bad news for most Americans who can barely paddle along as it is. The rising use of credit cards is bad news, not good. They represent the Last Frontier in economic collapse.

Central bank: China to stick to tight monetary policy

The primary risk to China's economy is inflation and the government will stick to the tight monetary policy, said central bank vice governor Yi Gang here on Sunday.

However, the tightening measures would be "proper" and "moderate" to avoid recession, Yi said at a seminar on Chinese economy held in the Beijing University.

Last December, China decided to shift its monetary policy "from prudent to tight" in 2008 to prevent overheating and a surge in inflation.

China has changed the flow of money as well as global resources. If they return to internalizing their finances, the US will be in great trouble. On the other hand, if our farms don't get hit by any blights or droughts, we could make a lot of money selling our grains. But this will raise food prices here. And the US has a huge trade deficit with China. If China sucks out our food in return, this will balance things but it will increase inflation in the very things the working poor least can handle.

This is the backside of all those cheap goods from China. For a few years, it was marvelous. I couldn't believe how cheap everything was. But the party is now over.

Time to go back into the past to see what Congress and the White House though about the growing trade deficit. This report is from when we finally balanced the government spending. The debates about trade deficits have evolved over my lifetime. From 'this is very bad' to 'this is great'. Let's see how they did this.

Council for Science and the Environment: 1999 Trade Deficit Report

10-Jan-2001; Craig Elwell

The size of the U.S. trade deficit is ultimately rooted in macroeconomic conditions at home and abroad. U.S. saving falls short of what is sought to finance U.S. investment. Many foreign economies are in the opposite circumstances with domestic saving exceeding domestic opportunities for investment. This difference of wants will tend to be reconciled by international capital flows. The shortfall in domestic saving relative to investment tends to draw an inflow of relatively abundant foreign savings seeking to maximize returns and, in turn, the saving inflow makes the higher level of investment possible. For the U.S., a net financial inflow also leads to a like-sized net inflow of foreign goods--a trade deficit. Absent the prospect of any major change in the underlying domestic and foreign macroeconomic determinants, most forecasts predict the continued widening of the U.S. trade deficit in 2000 and 2001.

Note how they are very clever here. The process is reversed. People are selling us stuff because we don't save money. They lend us money and we then have to discharge this new money being lent to us by refusing to buy US goods. Instead, we are so grateful we buy Toyotas. Alas, this isn't what happened. Starting in 1970, the US began to run trade deficits. Instantly, there was great alarm at this development. Many efforts were made to force Germany and Japan to stop flooding us with imports. The tools used were mostly monetary: the infamous Bretton Woods II Accords weakened the dollar to the point, we hoped, imports would balance. They didn't.

At first, we all imagined it was the fault of the price of oil imports for this coincided with the US importing increasing amounts of oil, the US hitting its own Hubbert Oil Peak at this point. Even as deep sea wells and Alaskan oil poured in more and more, the loss from the earlier wells meant diminishing returns versus the desire to use oil. We use more oil than ever before.

Several times, the US struggled to evade the trade deficit net and each time, monetarist manipulations were done but this didn't fix anything. Then a new course was set: to embrace deficits. To sell this to Americans as our birthright. To remove all our domestic non-military manufacturing and send it all to cheaper labor/cheaper environmental laws locations. Then the goods could return, cheaper, and thus, the dollar will be maintain relative value due to it not staying home but traveling overseas. The excess dollars created by excess debt would not inflate our prices but go away and return only as more goods.

So we had dollar stability, nay, everything got cheaper at home and to make up for this, we went into debt in the housing sector. Inflating the value of houses meant we could feel rich while declining into debt. The monthly payments on this new debt were cheaper than regular loans since it was against something a bank could seize. So we celebrated this new place to park our financial decline. By 2000, the outsourcing, offshoring process was bearing its poisonous fruits. But instead of doubting this process, the need to justify it all and to expand it was overwhelming. So if we read this report, it is the common thread: trade deficits are good, not bad. We can live with it. The benefits are our due. The world wants to lend money to us and we need the money and it balances things! So the unbalanced trade becomes a nifty way to create monetary balance.

All our troubles really took off at this point thanks to this childish belief system.

The benefit of the trade deficit is that it allows the United States to spend now beyond current production. In recent years that spending has largely been for investment in productive capital. The cost of the trade deficit is a deterioration of the U.S. investment-income balance as the payment on what we have borrowed from foreigners grows with our rising indebtedness. Borrowing from abroad allows the United States to live better today, but the payback must mean some decrement to the rate of advance of U.S. living standards in the future. U.S. trade deficits do not substantially raise the risk of economic instability, but they do impose burdens on trade sensitive sectors of the economy.

We were quite capable of producing what we consumed. If we transfer all our factories to other countries then yes, we need to spend beyond our production. The trick here is the same trick Standard & Poor fixed the monoline insurance mess: ignore the reality and use pure magic. I am also amazed at this report talking about 'productive capital'. What on earth was that? Were we producing more factories with exportable goods? Or were we using this to expand our military occupations?

Alas, history since 2000 shows where this was being used: mostly for military purposes. Some investment was, during 1999, in the Dot Com bubble. This report came along when that was fading fast. The money in that sector pretty much vanished for good. Also note here that they admit the wild spending in 2000 may lead to diminished living standards in the future! But this didn't really bother them since 8 years later is like eternity: will never come.

Policy action to reduce the trade deficit is problematic. Standard trade policy tools (e.g., tariffs, quotas, and subsidies) do not work. Macroeconomic policy tools can work, but have a limited scope for action in practice. It is most probable, however, that the trade deficit will correct itself, without crisis, under the pressures of normal market forces.

All things resolve themselves, willy-nilly. The problem with waiting until this happens is obvious. We may not like the way they decide to resolve. A total crash of our internal as well as external economies is not a good route to take. History shows us, this can be very painful as well as quite destructive. Letting things slide until the only choice is to threaten nuclear warfare is not recommended. Especially since some of our trade partners have nuclear arsenals. I often come back to this fact: the US leadership and many people deciding our course of action are dangerously foolish. This document is a classic example as to how impossible it is for them to imagine obvious outcomes that are a grave danger to all of us.

Right on the heels of this being launched, the US took the worst of all possible courses: tax cuts, allowing terrorist attacks in the center of our finances and trade as well as military complexes and then several disastrous wars. ALL WARS CAUSE INFLATION. The US dealt with this by dropping interest rates, not raising them as is usual in wartime. This dumped the excess money the Fed created with these wars and moved all of it into both real estate speculation and corporate debt accumulations. None of which created any export products. The flood of exports exploded along with all this new funding ground out by a host of places: Washington, DC, the Federal Reserve and the Bank of Japan.

The trade deficit widens as the economy expands, not because of trade barriers abroad, not because of foreign dumping of exports, and not because of any inherent inferiority of the United States goods on the world market, but primarily because of underlying macroeconomic conditions at home and abroad. In effect, the U.S. economy spends more than it produces, and this excess of demand is met by a net inflow of foreign goods and services leading to the U.S. trade deficit.

Talk about refusing to see what the macroeconomic conditions really were! War spending isn't mentioned, of course. Even when this report was made and we were in between major wars, the US spent, since 1963, as if we were continuously at war. This is why the specter of inflation always troubled our economy. So much so, we hardly notice it anymore. But we spend heavily on war factors and this is a huge financial burden which we refuse to carry. It is always been an overdraft in our budget. The heady joy about balancing the budget made people forget the dangers. For trade deficits simply grew even with this.

Now on to last summer. This is the most recent report about the general trade deficit and our financial future. Note how this is even more insane than the one at the beginning of the Bush regime:

CRS report to Congress, June 20, 2007

Is the trade deficit caused by global savings glut?

In an often-cited speech in early 2005, Ben Bernanke, now the chairman of the Federal Reserve, argued that the underlying cause of the trade deficit was not insufficient domestic saving, but rather a “global saving glut.” He argued that there was too much saving worldwide and not enough investment demand, and that the United States was the natural destination for this excess saving. As a result of the global saving glut, the trade deficit increased, interest rates remained low, demand for capital and residential investment rose, and the incentive to save decreased in the United States. He argued that because the trade deficit was not “made in the U.S.A.,” policy steps to reduce the budget deficit or raise private saving were unlikely to significantly reduce the trade deficit until the global saving glut ended.

Just for that alone, Bernanke should have been rejected as capable of running the Federal Reserve! Even as it is obvious to anyone with a brain that savings in the US has collapsed and now is negative, he still clung to the notion of a savings glut which the US had to accept in order to function! Last June, as nearly a trillion dollars was being dumped onto every possible buy-out deal the offshore hell hounds could concoct, the idea that this was all savings was total insanity. Of all people, Bernanke should know about the carry trade from Japan which was at its height that month. The ¥ was only 124 to the dollar! It had been falling for a while even as the dollar fell against the euro. These developments should have alarmed everyone.

The conventional view and the global saving glut view are not necessarily mutually exclusive. To an extent, the difference between the two is tautological — the conventional view stresses that U.S. saving is too low relative to foreign saving, and the global saving glut view stresses that foreign saving is too high relative to U.S. saving. It is important to acknowledge foreign causes for international capital movements, but in doing so, changes in domestic conditions should not be neglected. Although neither view leads to any hard conclusions about whether the trade deficit is good or bad, the global saving glut implies that reducing it is largely out of American hands.

The world's most powerful empire, the ruler of the Seven Seas, the possessor of more nuclear bombs than anyone, is helpless??? This fatalism is a common thread throughout this last 35 years. We can't help ourselves. Like babies, we sit in our highchair and hope that the people who save money will feed us. Eh? This bizarre attitude is coupled with boasts that we are the world's most dynamic and biggest economy. We are #1. Yet we are also unable to set things to right? And note the uncertainty here. In 1974, we knew perfectly well, our trade deficit was deadly. But after years of it growing, it morphed into a good thing or at least, something we can live with. This is most bizarre.

Contrary to the global saving glut hypothesis, data show that world saving is close to its lowest level in decades. However, low interest rates (although not unusually low by historical standards) suggest that worldwide investment demand is probably low as well. Data also show that the rise in saving in the developing world (notably among oil producers and East Asian countries) over the past few years has gone hand-in-hand with the significant accumulation of official foreign exchange reserves. At the same time, there has been a decrease in government saving in the United States since the 1990s. In recent years, a large fraction of U.S. net capital inflows have been the result of foreign reserve accumulation by other countries rather than coming from private sources, which suggests that global imbalances are not primarily the result of decisions by private investors and that (because of the fall in U.S. government saving) the trade deficit to a great extent may indeed have been “made in the U.S.A.”

The policies that created the trade deficit certainly were hatched in the U.S.A. But everyone who surround us want a piece of this apple pie. They happily spoon fed us their exports while we sat there and drooled onto our bibs. The governments of Japan and China have been the top purchasers of our cheap government debts. But this was due them desiring control over our government's policies so the politicians in DC would not fight off their exports to the US. This put us in hock to them. And of course, savings in the realm of individuals saving money and then their banks investing it in US papers like our CDOs, etc, certainly happened but in the oddest of ways. Chinese and Japanese working people were saving money in GOLD or in other, stronger currencies. Their governments encouraged this because it weakened their own currencies and thus, increase trade with the US. On top of this, the money flow was via the Bank of Japan via the carry trade which was raging when this report came out. The collapse of this dynamic is why 'liquidity' suddenly vanished like a door slamming shut. The trade deficit continued. But the flow of money ceased. And I may add, with tremendous finality. Since mid-August, the central banks in Europe and America have struggled to make up for the vanished money flow from Asia.

But China, far from sending money here anymore is probably going to use it to buy more things they need to hoard since the US is now creating global inflation. The sea of red ink has now hit everyone right between the eyes.

Economic theory predicts that capital will flow to the country where it can earn the highest real rate of return. Although some economists are concerned by the scale of U.S. borrowing, most believe that international capital flows are generally mutually beneficial: they allow the borrowing country access to more capital than
domestic saving would allow, and they allow the lending country to earn a higher rate of return than could be earned at home. If rates of return (adjusted for risk)6 were higher in the United States than abroad, then capital would flow into the United States and a current account deficit would result. Rates of return might be higher in the United States than abroad for several reasons.

First, the United States has enjoyed an increase in productivity growth since the mid-1990s that has not been experienced widely abroad. As a result, U.S. economic growth has tended to consistently outpace growth in most other industrial countries in the past 10 years. At least in the short run, this productivity boom might be expected to raise U.S. rates of return above foreign rates.

Second, interest rates are determined by the intersection of the supply of national saving and the demand for investment spending. Because saving rates are so much lower in the United States than abroad, one would expect higher interest rates in the United States.

This section shows what happens when one goes insane. Up is down, in is out. We have NOT been 'more productive.' We have witnessed a dreadful collapse in pay for the working class. In China, for example, wages have been slowly rising. In Europe, they have riots if wages drop. But wages are falling there because factories are seeping out of Western Europe and into Eastern Europe or beyond. The US has grown mostly debts as everyone copes with this monstrous 'productivity growth' by borrowing more and more money. With interest rates at super-low levels while this was going on, it was pretty easy to live. But that is now over.

Note the bizarre last paragraph here. Interest rates were going up but not due to great productivity or rising savings. Even as rates rose, savings still fell! And we were hoping the higher interest rates would attract savings but it lasted hardly an eye blink before the dreaded collapse of world finances hit. Instantly, the Fed in desperation dropped rates and is still dropping rates. How can world excess savings be attracted to the US under these conditions? The trade deficit roars onwards, barely pausing. Only when we simply can't buy much of anything at all, will it end.

Third, demand for U.S. investment spending is being crowded out by budget deficits that are competing for the same pool of private saving, which increases interest rates.7 Because the budget deficit pushes up interest rates (which attract foreign capital inflows), the budget deficit and trade deficit are often referred to as
“twin deficits.”

Fourth, economic theory suggests that additional investment is subject to diminishing returns. For example, adding a second machine at a factory would be expected to yield less additional output than the first machine for a given labor force. Many countries have higher investment rates than the United States; therefore, rates of return may be lower abroad because of diminishing returns. (This assumption would be less applicable to developing countries because their capital stocks are so much smaller than those of industrial countries.) For example, despite persistently low economic growth and low rates of return during the past decade, Japan’s investment rate was still roughly 4 percentage points of GDP higher than America’s in 2006. With investment rates so high, perhaps it is of little surprise that the Japanese would prefer to invest their remaining saving in foreign assets.

Japan is 'investing' in the US for one reason only: to insulate themselves from possible retaliation by the US for the trade deficits we run with Japan. If Japan assembles Toyotas here, they can also import even more from China and Japan and sell them, too. I witnessed the gigantic Toyota auto ships coming to port in Elizabeth, New Jersey. The ships are massive boxes! With no paintings on the side to show us whose ship this is or what they are carrying. They are painted taupe color to blend in, not stick out. This is how all these things are operating: via stealth. The 'investments' here are schemes to take over our systems and then force them to run in such a way that all the power and profits flow out of the US. Which is what is happening, of course! PROFITS MATTER. Where they flow matters! This is capitalism, after all.

In determining why international capital flows have changed, an important consideration is the form they have taken. Official foreign exchange reserves in developing countries more than doubled in dollar terms from 2003 to 2006, and more than tripled from 2001 to 2006, rising to $3 trillion in 2006.23 In many East Asian
countries, although overall saving has fallen, there have been large increases in foreign exchange reserves, as shown in Figure 3.24 When a country accumulates foreign reserves, its trade surplus increases (or trade deficit decreases) and its currency appreciates less than it would otherwise.

Many Asian countries, including China and Japan, have not seen their currencies significantly appreciate against the dollar in recent years.25 These countries presumably were attempting to maintain the attractiveness of their exports, but may also have been attempting to strengthen their fiscal position to stave off future financial crises (à la Bernanke’s war chest analogy). The accumulation of foreign reserves in oil-exporting countries stems from their higher oil revenues in recent years, which has not been completely offset by higher imports. Furthermore, not all state-controlled capital flows in oil-exporting countries are recorded as foreign reserves. The Economist recently estimated that $2.5 trillion may be held in various countries’ sovereign-wealth funds.

Far from offsetting imports of oil with exports, we are losing to Europe, Japan and China in sales to oil countries. We have trade deficits with ALL of the people we buy oil from! Even as we sell them weapon systems and jets, they still overwhelm us. This is a disaster.

Economic theory cannot predict how much a country should borrow abroad (at low levels), but if borrowing were becoming burdensome, one would expect net investment income payments abroad to be large. Despite being the world’s largest debtor country, the United States earns more abroad on its foreign assets than it pays out to foreign lenders. (Although its liabilities exceed its assets, the United States is earning more on its assets than it is paying on its liabilities.) As long as this is the case, it is difficult to see why the current account deficit is not sustainable — although it is implausible that the United States could borrow limitlessly without foreign debt payments becoming unsustainably large.

Bernanke points out that one potentially troubling feature of the current situation is that so much investment has been residential, which is unlikely to increase the nation’s productive capacity and reduce the burden of paying back foreign debt in the future. So far, global imbalances have not disrupted economic activity and have arguably been mutually beneficial, since they have allowed low saving economies like the United States to increase their investment rates and high saving economies like Japan to earn a higher rate of return. Thus, the mere existence of current account imbalances cannot be seen as problematic per se. If one were to argue that the current account deficit were harmful to the United States, it would have to be on the grounds of its future, rather than current, economic effects. The most widely cited worst-case scenario is if foreigners became unwilling to lend further to the United States, causing the current account deficit and the dollar to suddenly plummet. This event would presumably cause unrest in financial markets, leading to broader economic disruption. The gap between domestic saving and investment would suddenly need to be bridged through higher domestic saving and lower domestic investment, which would require a sharp rise in interest rates to occur.

Well, well, this came out mid-June. We learned exactly how messed up our 'limitless' debt accumulation really was soon afterwards. Parking most of this foreign investment in real estate was already a disaster when this report came out. I warned about this in 2005. This report is from 2 years later. Note again, how the 'worst case scenario' will lead to higher interest rates. Well, here it is and we see these rates... in our muni bond markets. And soon, elsewhere. The grab bag of goofy rescue schemes are all set to make our trade balance, our inflation and our red ink much, much worse. This is why a correct analysis has to include adult warnings of obvious dangers. And we can't then say, 'We are helpless.' Or, 'We don't have to worry since it will work itself out.'

Note how this report does mention some bad things which could happen. This 'sudden higher domestic savings' is code for 'Help! Volker! Save us!' The 'higher rates' are around 20% as we saw just this month in the muni bonds. This will cause mayhem at home and mayhem is around the corner if we don't figure out which way this street goes.

If, on the other hand, the current account deficit and dollar were to decline slowly, there would be little reason to expect it to cause economic disruption because the decline in investment spending would be offset by higher production in export- and import-competing industries. Domestic investment would have to fall and domestic saving would have to rise to restore equilibrium to financial markets. Higher interest rates would be the channel through which these changes would occur, and how much interest rates rose would depend on how sensitive saving and investment are to interest rate changes. This would be true in both the conventional view and the global saving glut view.

I looked for a more recent report but this is the latest one. Since we are NOT going the higher interest rate route, we are in serious trouble. What are the consequences of a super low, Japanese-level rate? Will world savings flow here under those circumstances? If the US is exporting to Asia, will Asia want to lend us money? According to these experts, the answer is, 'Nope.'

The risk that the record current account deficit could lead to economic disruption for the United States is still considered small by most economists, but potentially dangerous. Raising national saving through policy changes such as reducing the budget deficit remains the best defense against this risk. At worst, those measures would prove ineffective, as the global saving glut view predicts, but would still have a salutary effect on the U.S. economy in their own right.

When this report came out, the gold markets were beginning to really climb. This report has nothing to say about the various schemes to drop the value of gold such as a number of European banks dropping interest rates, for example. The need to mention gold is vital here since it is a good indication of a collapse of putting money into investments that are productive and parking it in a fairly inert and safe place until the inflation is recognized by the central banks and proper interest rates rise to deal with it. This was already quite obvious in June. I talked about this here.

The report ignores this because of the 'baby factor.' It is hard to think of three things at once when one is a helpless baby waiting for Mama Chinese dragon to feed some easy money at cheap interest rates or for Miss Toyota Japan to pass along more carry trade loans.

Email this post

Culture of Life News Main Page

Tax Evaders, The Keibler Elf And the Alpine Gnomes

February 25, 2008

Elaine Meinel Supkis

Well, it seems that Der Spiegel of Germany has many more details about the shadowy man who spilled the Leichtensteiner beans! He is Mr. Kieber. A computer expert with a criminal past! This cutie pie really did sell these tax evader's records to the US government after all! And the past of this guy makes one wonder: do they find these people under rocks? As well as the diplomatic problems concerning tax evaders, the places that host them and how the major democracies must deal with top people at home refusing to pay taxes and instead, cheating. All very relevant issues.

Tax Whistleblower Sold Data to the US

The identity of the informant from Liechtenstein is now known, or at least his past identity is. He used to be 42-year-old Heinrich Kieber. He now has a new name, courtesy of the German government. And he lives somewhere else, in an undisclosed location -- wealthy, but alone.

Evidently, if one reads the entire article, this guy was a criminal looking for some sort of hook or crook he could cook. He finally hit pay dirt but the pay back may put him under 6 feet of dirt. It seems that some of the people whose records he managed to filch are money laundering accounts of Russian Mafioso. The guys who have elaborate murder techniques. Kieber better avoid tea shops. And vodka drinking contests. And tall, slender prostitutes. He can't drive flashy cars or flash any bling, either. It must be hell to be a rich man and unable to appear in public or spend it in a way that draws attention. It is a Midas curse.

This guy also dabbled in real estate swindles as well as shady characters in the blackmail world which is why he was able to play the blackmail game with the biggest powers on earth. Unlike the sorcerer's apprentice, Evil Kerviel, Keiber has a slightly different name. Which I think is rather funny, actually. Both men worked at the bottom levels of the banking systems. But often, this is where the goodies are. The levers of power. The place where the guys at top are the most clueless. Especially in the computer era. Many guys get to the top by doing virtually nothing useful. They often have laughable skills. One thing they know is how to schmooze. Going to the right parties, agreeing with the right bosses, stabbing the right backs and backing the right goons, this gets one to the top.

Knowing how to enter data, use computers to find data and shifting data around: that is for drones like the Kiebler elf or the daring young apprentice. To think the world's biggest banking systems are being held hostage by a bunch of people who know data entry is amusing and dreadful at the same time. All these years, I have been convinced that the detachment of the top tiers from the bottom has become nearly total. In ancient times such as in my own youth, anyone wishing to climb the ladder at banks had to go to college, get a degree and then start at the bottom, managing or working in a local branch bank. Then they can move upwards and gain the top when a ripe age of over 55 years. Today, we have two groups: the Wunderhunden who are the three headed computer data dogs who can create massive, weird programs designed to separate an investor from their funds without them figuring out how they got shafted. These guys move to the top by the age of about 30 where they then do really stupid things and everything then explodes and everyone loses all their money.

Or they go to school and daddy or mommy gives them all the contacts they need and they stroll into their allotted corner upper floor offices and begin to ask the secretary what they are supposed to do and the secretaries then do all the work. They also go bankrupt but a tad slower. About every 50 years or so, the whole banking system collapses and they profess wonder and amazement. 'My secretary never said this would cause a panic and a depression!' they sigh.

Back to the Kiebler elf:

Kieber knew that he had been convicted of fraud in Spain and was wanted by the police there. The pressure was probably what prompted him to make a copy of the LGT data. In January 2003, after resigning and going into hiding, he used the stolen data in an attempt to blackmail Liechtenstein authorities. According to Liechtenstein state prosecutor Robert Wallner, in return for being assured of free passage and given two forged passports, Kieber agreed that he would not turn over the stolen client data to "foreign media and authorities."

But the Liechtenstein authorities turned down the offer. Nevertheless, Kieber turned himself in -- and got off lightly. For the Spanish fraud charges, his attorney Müller negotiated a penalty of one year in prison, reduced to three years' probation, which would not be entered into his police record in Liechtenstein. He was not convicted of data theft and, on Jan. 7, 2004, Liechtenstein authorities closed the Kieber case. The bank and the judges were convinced that Kieber had learned his lesson and, out of remorse, would return all of the client data unused.

Kieber must have begun his final mission shortly after the court issued its decision. He negotiated with the Americans first, then with the British. He obviously came to some agreement with the Americans, because US tax investigators have apparently hit pay dirt in 50 cases since the summer of 2007.

This is funny. The Liechtensteiners let him go but didn't check out his digs for stolen data? Shows how people can't cope with modern technology. I am glad the US went after this data, by the way. I had some harsh words about that at first but I am also certain this business is due to the guys at the bottom of the ladder here. There are many good, honest people working for the US government. They do many good things and get little reward or recognition. For example, the people who compile information are a great bunch who then see their work either buried or mauled by the guys in the top story corner offices. Thank you for doing a necessary job, guys!

The government of then Prime Minister Tony Blair, on the other hand, refused to pay Kieber until it had collected on its tax claims. The Germans would probably never have found out about the Liechtenstein goldmine if British tax authorities hadn't taken so long to recover the money owed to them. Kieber became impatient, cancelled his negotiations with the British and contacted the BND instead.

On June 21, 2006, Kieber gave the BND a sample of the ultimate prize -- 14 sets of data from the Liechtenstein bank. At first, he would only allow the German agents to read the data on a laptop screen, but eventually he gave them excerpts. On July 10, 2006, tax investigators in the western German city of Wuppertal, who were working with the BND, confirmed that what Kieber had delivered was "important material." It was a signal for the BND to request another meeting with the man from Liechtenstein.

Evidently the loot from the US wasn't enough. Thus the further shopping by Kieber. The Germans are physically a lot closer to this than the US and it looks like people at the very top were playing this tax evasion game including banks.

The tax investigators with the German task force (known as EK Liechtenstein II) set up to investigate the Liechtenstein accounts have their work cut out for them, because it involves examining the entire accounts of suspicious companies. The Liechtenstein establishments can also be used to bring money back into Germany relatively unnoticed.

More than half of the investors and about 3,100 foundations and establishments on the DVDs are from abroad. Some are part of organized crime in the Balkans and in Russia, including both well-known and relatively unknown companies. This represents another, less high-profile element of this affair, and it is also the reason that German authorities believe that the informant's life is in danger. The DVDs he sold to the BND have provided the agency with a mountain of details about the international flow of money, so much information, in fact, that the agency would be hard-pressed to process it all on its own.

This explains why Germany's Federal Office of Criminal Investigation (BKA) was asked to help out. Its officers are looking into the possibility of launching investigations into money laundering, although the BKA has already said in advance that money laundering lies outside its jurisdiction.

This is going to cause a lot of chaos in the illicit drugs/sex and bribery departments of more than one bank! From the beginning of banking, there has been this darker side. The earliest bank in Austria was founded on money received from the ransom of King Richard the Lionhearted. The Vatican's banking was launched on the sales of time cut off of Purgatory and a quicker ascent to Heaven. The Knights Templar dealt with money that transited from Muslim to Christian hands. They got in trouble when they refused to use some of this to ransom the King of France when his crusade in Egypt fell apart.

The Bundeskriminalamt or the BKA tangled with Atta, by the way.

1995: Germans Investigate Atta for Petty Drug Crimes
According to a book (citing federal law enforcement sources) by Jurgen Roth, described by Newsday as “one of Germany’s top investigative reporters,” in this year the BKA (the German Federal Office for criminal investigations) investigates Mohamed Atta for petty drug crimes and falsifying phone cards whilst he is a student at the Technical University at Hamburg-Harburg. While he isn’t charged, a record of the investigation will prevent him from getting a security job with Lufthansa Airlines in early 2001 . [ROTH, 2001, PP. 9F; NEWSDAY, 1/24/2002]

That is rather chilling. Like Kieber, Atta slipped in and out of the grip of the law more than once. Kieber now has a new name and ID. I doubt he will stop acting like a criminal. It isn't money they want, it is often an itch to do other things. They can't sit at home, watching TV. Maybe we can have them all go on the Judge Judy show. Look at Donald Trump! If ever there was a con man in need of isolation on some distant, very small island about to be drowned by global warming, he is it.

Der Spiegel:

The affair strongly reminds veteran investigators of the "bank cases" in the late 1990s, which led to thousands of investigations after a series of spectacular raids of German banks. Prior to the raids, bank advisors had recommended to their clients that they move their assets to accounts with the banks' subsidiaries in Luxembourg, so as to circumvent a capital gains tax which was introduced in Germany in 1993.

For the banks, this meant that they could retain their clients' accounts, and in some cases could even earn a little additional revenue in transfer fees for moving the money to the Luxembourg accounts. But according to one former investigator who was deeply involved in the 1990s bank investigations, some German banks apparently preferred models that allowed them to keep the funds in-house.

Under this model, assets already deposited in Germany would be transferred abroad using a series of transactions intended to camouflage the flow of money, and would then be transferred back to the same bank, but into a new account. The only difference was that, after making its accounting excursion to Liechtenstein, the money in this new account no longer formally belonged to a bank client liable for German tax. Instead, the assets had become the property of a Liechtenstein foundation, establishment or similar fiduciary entity under Liechtenstein law. The real owners of the assets were known to only a handful of insiders in the Alpine principality -- and possibly to an account advisor at the German bank.

Now we get down to the real nitty gritty: how banks do things. They hire a zillion Kiebler elves to use computers and other tools to play money moving games. These elves slice and dice and hammer and haw for the gnomes in the upper floor corner offices. They make CDOs and AMTs and ABXes as well as SIVs and monolines. They then move them hither and yon and pass them back and forth and in between, various apprentices and hell hounds toy with this and the gnomes at the top are filled with joy as they see their numbers climb and climb and they then give themselves big bonuses. Banks have sticky fingers. It took years of pressure to force them to honor money deposits. They would pretend they had to mail everything when they really used computers to transfer data. This would give them several days to use the funds for themselves. Even as we type in data and then send it across the planet in seconds, they still pretend there is this turtle they must use if your money is in their hands. It crawls around, visiting odd places before dropping off your payments or giving you credit for money due.

Bankers tell us we must trust them. We say, you guys must earn our trust.

Email this post

Culture of Life News Main Page