Money Matters

Kohn Wants To Keep Funny Money™ Window Open Forever

May 31, 2008

Elaine Meinel Supkis

Today we must discuss the astonishing speech by Federal Reserve Vice Chair Kohn. Kohn rose to his high throne after he pushed hard for the Greenspan interest rate cuts to 1%. He sat on his ass during the housing bubble and is now working hard on rescuing the bankers and investment houses that dumped trillions in worthless loans on top of the planet's banking systems. His fix is to take the new emergency regime of the Fed accepting lousy loans as collateral for making Funny Money™ and to do this FOREVER. And he wants an international Funny Money™ clearing house that accepts ONLY VERY SAFE collateral. But this fool can't say what this mysterious VERY SAFE collateral will be. This is because he would have to say, 'GOLD' and the gold markets will go wild with joy as they ought. The Fed has to find some way of getting back the gold standard but we can't, we are bankrupt as a nation. Only China and Russia can do this. We know how this story will end.

Fed might accept foreign collateral: Kohn

The Federal Reserve is actively considering creation of a lending facility that would accept "very safe" foreign collateral from "sound" global banks in case of a widespread liquidity crisis, Fed Vice Chairman Donald Kohn said Thursday.

A new global discount window is "under active study," Kohn said. "It is possible that over time, major central banks could perhaps agree to accept a common pool of very safe collateral, facilitating the liquidity management of global banks," he said, stipulating that such loans only be made to sound institutions.

Quiz time: what is 'very safe collateral'? That has to be something that is like a certain shiny metal that didn't degrade over time. Yeah! I know! GOLD! HAHAHA. It is funny, watching the news lately. Online, we have been debating the utility and value of gold vis a vis paper currencies. I have had mixed feelings about gold much of my life. But as I debated with others online, certain concepts became clearer and clearer.

One chief idea is that gold functions best when it is a near-monopoly of the government banking system and that government is a democracy so there is input from the populace. The second idea is, gold does NOT work if everyone tries to use it, it works best when the top empires use it as a basis for finances. Then, all other financial systems can latch onto the imperial gold standard and run vis a vis this. The third thought was, all empires give in to natural greed and cease using gold as a restraint on spending and instead, basically ditch it and simply make money out of thin air. This is because all the other nations still think the money of the empire is 'good as gold' and track the paper currency faithfully. But along comes my fourth thought: this period of naivety lasts only about 20 years. Then chaos breaks out as the other nations realize the empire that is 'good as gold' is actually a 'dead beat' empire that can't pay its bills and has no gold, it is all now debts! Then the global banking system collapses until a new empire takes up the golden banner and moves to the forefront. Then all other nations reset their own paper currencies against the new imperial eagles and life goes on.

First the British Empire dropped the gold standard at the beginning of the Great Depression after spending 20 years defending it. The US nearly fell along with Great Britain. In 1933 the President via fiat seized the gold coins held by banks and savers. He then issued only paper against these coins and gold bars and took the heist to Fort Knox. After that, the dollar became the world's gold standard until 1972 when President Nixon unilaterally with the blessings of the Federal Reserve chiefs, severed this relationship totally. So the ENTIRE PLANET EARTH has not had a gold standard for a long, long time. But the fiction of an 'imperial gold standard' continues to this day via conspiratorial fiat. The top bankers of the world are simply PRETENDING the US Treasuries have the same value as gold. But they do not. They are IOUs based on future taxes. And government overspending since 1972 had meant the obligations in the future are rising faster than anticipated incomes. This means we are going bankrupt.

So, the central banks want 'VERY safe collateral' but NOT gold? Note how these weasels won't define what these mythological 'VERY safe collateral' things are! Like all things from the Cave of Death, this has to be cloaked in secrecy and darkness. We know that Kohn knows perfectly well what he really should say. Jewish bankers have been playing the gold/paper/scissors game for centuries! Recently, he and his buddies tried to convince us that gold was worthless and stupid and we should never use it as a basis for international trade banking. The G7 central bankers even sold of thousands of tons of gold in the open markets to make their point only to see the price of gold shoot upwards!

So here they are, talking about their desire for a 'VERY safe collateral'? HAHAHA. Next: the 'sound' banks. THERE ARE NONE. They are all obviously bankrupt! Hiding this fact is very important. The trick here of our darling wizards is to point to a toad and say, 'This is good as gold' and then we worship it as the new god. Right now, they are fearful that this won't work so they are keeping this toad hidden from view for the time being. They will slip it into the gold vault in due time. And then tell us this is the most secure form of wealth. And a good basis for creating lending.

This story, by the way, is very important. So I am going to write one of my long, long articles examining the inner workings of this latest attempt at jiggering international banking so it produces wealth while not partaking of capitalist profits from value-added labor and trade. For this lies at the very heart of the present banking collapse.

Kohn Signals Wall Street May Get Permanent Access to Fed Loans

The remarks go beyond Fed Chairman Ben S. Bernanke, who has indicated the central bank would shut lending to investment banks when the credit crisis passes. Lawmakers and regulators are debating how to approach the supervision of investment banks in the aftermath of the Fed's rescue of Bear Stearns Cos. in March.

``If you are a bondholder in one of these Wall Street firms, you know you have a big `Sugar Daddy' now called the Federal Reserve that's going to back you up,'' said Jeff Pantages, chief investment officer of Alaska Permanent Capital Management in Anchorage, which oversees $1.8 billion in assets.

As usual, Bloomberg news carries contrary opinions. This is why I quote that service more than all others combined. Yes, the stock brokers, the bondholders all love the Federal Reserve. As previous articles here show clearly, the Fed operates only to please them. They get rescued the minute their billions of bonuses are threatened. Most of the time, the Fed enables them as they spend recklessly. The Fed will make a stab at stopping inflation or curbing wild lending only to give it up. Volcker was the only one to take it all the way to the end and succeeded in stopping raging inflation. But the stock brokers hated him. Indeed, bankers in general HATE HIGH INTEREST RATES except for DEBTORS. In other words, the ideal world for them is for HIGH consumer interest rates and LOW bond rates! Which is what? What the Fed is creating this very day! Since 2000, when the Fed dropped the rate for BONDS to 1%, mortgages were still well above 4.5%. When the Fed raised bond rates to 5%, mortgages were only slightly higher at 6.5%. But the SPREAD was very small compared to the great spread during the 1% regime.

So Sugar Daddy is protecting not the savings of people putting money in banks. Sugar Daddy is protecting the holders of all other bonds. Namely, the bonds used by bankers as 'assets' which can be used to make loans. Which, thanks to the low interest rates charged by the Fed, are again a huge spread vis a vis lending! The problems we see today are certainly due to debtors unable to pay the interest on these wide-spread loans. And on top of this, the consumer loans are going bad too! And these have humungous spreads! 2,000-3,000 basis points! These things are, in good times, 'good as gold.' This is because it is paid by workers putting in hours producing something.

But when production falls, the ability to pay vanishes and the principal of these consumer loans vanishes along with FUTURE interest payments. The principal lost is bad enough. But the future earnings is far greater in value in these loans. So this has great economic force to the downside.

Libor Fix May Prove Elusive as Banks Offer Solutions

The loss of confidence in the benchmark rate for $350 trillion in derivatives and corporate bonds and 6 million U.S. mortgages spurred the world's biggest banks to recommend fixes, though they reached no consensus. The BBA plans to announce after 5 p.m. today the first changes to Libor in 10 years after the Basel-based Bank for International Settlements suggested in March that some lenders were misstating borrowing costs to avoid speculation that they were in financial straits.

``The BBA clearly needs to fix Libor as it's not functioning as it should,'' said Jan Misch, a money-market trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank. ``How exactly they go about doing that I don't know.''

The loss of confidence in the Libor rate setting system is really due to the collapse of the banking system after the floating currency regime caused too much Funny Money™ creation. Global monetary output has shot upwards rapidly. At first, it was all soaked up by developing nations. But now it has nowhere to go and is now causing global inflation in things people use daily. Housing, food and fuel all are seeing catastrophic bubbles. Instead of understanding that this is an expression of excess monetary creation due to the US ending the gold standard, the bankers like to pin blame on anyone but themselves and their own systems. The Libor depended on a gold foundation. Since that is gone, it is sinking because currencies don't 'float'. They either sink or turn into balloons.

Now we must look at what Kohn actually said. It is worse than the news stories.

Vice Chairman Donald L. Kohn Market participants, scholars, and central bankers and other policymakers have long recognized that liquid money markets are critical to financial stability.

[Elaine: HAHAHA. I wish he would call this stupid 'liquidity' what it really is: RED INK]

Many banks and other financial market participants obtain a significant portion of their funding in the money markets and rely on rolling over such short-term debt. Developments in global financial markets since last summer have underscored that if market participants become concerned about their access to money market funding, they can pull back from providing credit to other financial market participants and to businesses and households. Furthermore, certain liquidity tools traditionally used by central banks may not be fully effective in restoring liquidity to the money markets and containing the threats such money market disturbances pose to financial stability.

[Elaine: No kidding! Only it isn't the lack of 'liquidity' that is threatening the system, it is TOO MUCH liqudity! We are drowning in red ink.]

We all need to reflect carefully on these developments and draw appropriate lessons regarding the management of liquidity risk and the design of central bank liquidity facilities.

The financial turmoil that we have been experiencing since last summer clearly did not originate in the money markets. As everyone knows, the trigger was losses associated with soaring delinquencies on U.S. subprime mortgages that were originated from 2005 through early 2007, a period during which underwriting standards for such mortgages weakened dramatically.

[This is total BS. Kohn is either lying or stupid or both. The financial turmoil originated IN THE FEDERAL RESERVE. Of course, this idiot won't tell the truth, would he? And his 'everyone knows' the mess was started by a bunch of silly home buyers who took on loans they couldn't afford! All 30 million of these nonbankers are the cause! Talk about utter tripe!]
*snip*
I believe that the depth, scope, and persistence of the financial turmoil we have been experiencing is in significant part attributable to broader concerns about the liquidity of money markets. A loss of liquidity in a money market generally has more serious effects than a loss of liquidity in markets for longer-term instruments because such large amounts of money market instruments become due each day. If investors pull back from a money market, the issuers come under substantial liquidity pressures very suddenly. In the case of ABCP, with the exception of paper issued by structured investment vehicles (SIVs) and so-called extendible paper, issuers were able to meet those liquidity demands by drawing on committed lines of credit from banks. But that simply transferred the liquidity pressure to the banking system. Banks generally were able to cope with that pressure, but the need to fund the draws on their backup lines ate substantially into their liquidity and capital buffers. Thus, credit problems in mortgage markets helped reduce the availability of credit across a wide variety of instruments and borrowers.

[Elaine: Note that even this guy admits that the problem isn't long term lending, it is SHORT TERM, overnight or weekly lending. And again, naming things correctly is important. The 'investors' are really SAVERS. If a bank cheats them, they won't put money in a bank and it goes bankrupt. Duh. The only cure is to raise interest rates. The problem this year wasn't a lack of savers willing to lend money to banks. It was the refusal of the bankers to pay a reasonable interest rate! So the told the investors, the real rate was well below the rate of inflation. So the investors took their money into the commodity markets to get a return faster than the rate of inflation. This, in turn, caused inflation to shoot upwards. Horns of dilemma! A sign that the system is totally out of whack.]

The pressure on their liquidity and on their balance sheets, combined with heightened credit concerns, made banks reluctant to provide others with term funding--that is, money market loans with terms longer than overnight. Term premiums embodied in interbank money markets increased markedly; at times the spreads between term dollar Libor and comparable-maturity overnight index swap rates exceeded 100 basis points, and term premiums of comparable magnitude also emerged in interbank markets for sterling and euros. Securities firms and hedge funds also found term funding considerably more costly and difficult to obtain after the strains emerged in the ABCP markets. Convinced that the illiquidity of money markets and persistently enlarged term premiums were a significant impediment to restoring the effectiveness of financial market functioning, the Federal Reserve in late 2007 and early 2008 took steps to make borrowing at the discount window more attractive to banks and provided greater liquidity to primary dealers in U.S. government securities by extending the maturity of its open market operations.

[Elaine: Boo hoo hoo. See what I mean? The spread grew because the central bankers lied about inflation and maliciously lowered rates when rates should have gone UP. So the spreads accurately reflected this harsh fact.]

However, this private-sector intermediation process in money markets became severely impaired in the recent turmoil. As I already mentioned, uncertainty about the value of assets, about the creditworthiness of counterparties, and about future calls on the liquidity and capital of important market participants caused liquidity to dry up in many segments of the money markets. A flight to liquidity and safety is not unusual when uncertainty rises and markets are disturbed, but the breadth and persistence of this turmoil and its spread into money markets made it a substantial threat to financial and economic stability.

To ameliorate the threat to financial and economic stability, the Federal Reserve and a number of other central banks in effect found they needed to provide a substitute for the arbitrage and trading no longer being undertaken in sufficient size by the private sector. These central banks changed the composition of their balance sheets, selling or lending the assets that were in especially strong demand and lending against the illiquid assets the private sector was having difficulty financing. The purpose of those moves has been to forestall fire sales of assets that could no longer be financed, to facilitate orderly deleveraging and reintermediation in the financial sector, and to encourage the reopening of private markets for securitization products so that price discovery could proceed and credit flows resume.

[Elaine: The 'fire sale' was turned into generalized inflation. So instead of the banks and investment houses being burned, they got free money from the Fed which they, in turn, fed directly into the commodities markets creating a huge increase in global inflation. They should be all arrested for fraud, the central bankers and their buddies who got this free money.]
*snip*
I start from the premise that central banks should not allocate credit or be market makers on a permanent basis. That should be left to the market--or if externalities or other market failures are important, to other governmental programs. The Federal Reserve should return to adjusting reserves mainly through purchases and sales of the safest and most liquid assets as soon as that would be consistent with stable, well-functioning markets. In fact, several of the Federal Reserve's new programs are designed to be self-liquidating as markets improve. Minimum bid rates and collateral requirements have been set to be effective when markets are disrupted but to make participation uneconomic when markets are functioning well. Under current law, our facilities for investment banks that don't involve securities eligible for open market operations (OMO-eligible paper) will necessarily be wound down when circumstances are no longer "unusual and exigent"; I'll come back to questions about these facilities in a minute.

[Elaine: Kohn wants 'business as usual' which is where the US government overspends, creates Treasuries which the Fed buys and the US government pays the Fed interest on and then this is passed on through the banking system and is used as the basis for creating more new debts. Only it is debt! It is NOT wealth or something outside of debt creation cycles. It is NOT capital. The banks are so contemptuous of savings and capital, they insult savers and capitalists with ridiculous interest rates for the privilege of using these savings to make profits off of loans! So the bankers conspire with the central bank to turn dross into gold. Again: the loss of gold as the basis means using debt as gold. And this leads to a negative system that is pure black hole. Very unstable and dangerous.]
*snip*
However, the Federal Reserve's auction facilities have been an important innovation that we should not lose. They have been successful at reducing the stigma that can impede borrowing at the discount window in a crisis environment and might be very useful in dealing with future episodes of illiquidity in money markets.

[Elaine: This mysterious 'stigma' is not a bloody palm or forehead. This is the fear that when the news that a bankrupt bank has to go to the Fed and hand over worthless paper they can't sell, this means the bank is BANKRUPT. And then there will be a 'run on the bank' as they say. Already, there is a run on the banks! No one is saving money! The ridiculous interest rates are luring in no money! So instead of raising rates, the Fed has conspired to keep them low via tricks.]

The new auction facilities required planning and changes in existing systems, and we should consider retaining the new facilities for the purposes of bank discount window borrowing and securities lending against OMO-eligible paper, either on a standby basis or operating at a very low level when markets are functioning well in order to keep the new facilities in good working order. The latter might require that we allow the auction to set the price without a constraining minimum, but a small auction should not distort the allocation decisions of private participants.

[Elaine: In other words, the Fed is going to keep on doing this forever. It means that even the fiction that Treasuries are secure is not enough. Now they will claim that dead beat loans that can't be sold to savers are really worth something and then use THIS to lend banks more money. This also means bankers will NEVER have to entice savers for capital. They can just skip that step and go right to the magic money making machine and grind out loans merrily.]
*snip*
Our experience in recent months has underlined the global interdependencies of financial markets. Globally active banks manage their positions on an integrated basis around the world, and pressures originating in one market are quickly transmitted elsewhere. Central banks should consider how to adapt their facilities to help these institutions mobilize their global liquidity in stressed market conditions and apply it to where it is most needed. That approach will require the consideration of arrangements with sound institutions in which central banks would accept foreign collateral denominated in foreign currencies. Those arrangements are under active study and a number of issues need to be resolved. It is possible that over time, major central banks could perhaps agree to accept a common pool of very safe collateral, facilitating the liquidity management of global banks. The stipulation that the institutions be sound is important: Decisions about lending to troubled banks should be made by home country authorities with knowledge and responsibility.

[Elaine: Here it is! The idea we need a new system that is sound and good. Only he won't say what on earth that is. Nor dare he say what it is. He knows it is all pure debt from all the major industrial nations and he knows this amount has ballooned ever since 1972 when Nixon killed the dollar/gold relationship.]

Another instrument of liquidity provision that central banks are examining is currency swaps to facilitate granting liquidity in other currencies. The central banks found currency swaps useful because the impediments to intermediation in money markets naturally extended to transactions across currencies as well as across maturities and counterparties. Supplying credit in dollars to banks in the euro area and Switzerland helped relieve pressure on those banks and in our markets. In recent months, the Fed was able to make currency swap arrangements on short notice but our reaction time could be even shorter if we keep such arrangements in place or on standby. Thinking carefully about which circumstances in the future would warrant the activation of such arrangements will be a useful form of contingency planning.

[Elaine: YIKES. He is saying the present 'emergency' system will be FOREVER! Eternally open. This of course, increases the ability to ignore risk. And this means more wild lending.]

For the United States, of course, perhaps the most difficult and important question involves access to central bank credit facilities by U.S. broker-dealers, including the primary dealers. Over the past several decades, the growing importance of broker-dealers and the increasing interconnections of these institutions with other parts of the financial marketplace have accompanied the shift to intermediation through securities markets rather than through commercial banks.

[Elaine: Here he is talking about the pirates and hell hounds of the offshore tax haven hedge funders and their ilk. Note that he won't tell people who and what they are. He does note that they have usurped a lot of power. And are a danger. He wants to coddle them so they can continue. He thinks this will prevent the system from collapsing. Remember: he thinks the system is collapsing due to deadbeat home owners!]

Financial markets in most other countries are dominated by universal banks; in those circumstances, securities activities are carried out in organizations that have access to the discount window and other aspects of the safety net we associate with commercial banks. As I have emphasized this evening, one of the things we learned over recent months is that broker-dealers, like banks, are subject to destructive runs when markets aren't functioning well, despite the fact that their borrowing in money markets is mostly secured and their assets mostly marketable.

[Elaine: Good grief! If their damn assets are mostly marketable, then they don't need Santa Bernanke to give them money in exchange for these things! And it is obvious that their loans exceed their collateral worth. Which is why they are all bankrupt.] And, in the case of Bear Stearns, we saw that a run on a major broker-dealer when markets were already disrupted by a flight to safety and liquidity could, through a chain of actions and reactions, threaten financial stability.
*snip*
We gave the primary dealers access to central bank credit under the unusual and exigent circumstances prevailing in mid-March. Their counterparties and creditors will presume that such access would again be granted if the health of the financial system is again threatened by loss of liquidity at the primary dealers. The public authorities need to consider several difficult issues with respect to access to the discount window. One is the circumstances under which broker-dealers should be permitted to borrow in the future. One possibility would be to confine such borrowing to circumstances in which the Federal Reserve judges that the stability of the financial system is at risk--as we did in March. Another would be to grant broker-dealers the same sort of regular access enjoyed by commercial banks.

[Elaine: I want to clobber Kohn. If this stupid window to the Cave of Death is kept open at all times, 'just in case', we will see nonstop instability! The only reason these guys will be 'stable' is only if they are SCARED TO DEATH OF FALLING. If there is no fear, they go crazy and run everything in sight up to infinity because this brings in huge profits. The central bankers no longer use gold as the guardian of the Cave of Death. So they set THEMSELVES up in this place and are supposed to be the police who prevent infinity. Only they won't do it! They stand aside and tell the pirates, hell hounds and others to go ahead, raid the Cave of Death and the devil take the hindmost.]

Sometimes we have to look at extended speeches. This is because this is the only way to see into the mind processes of the guys running the systems. If we take the news paper short cuts, we miss a lot of interior details. The entire speech is important to read. For this is the New World Order, everyone, it is talking to us, explaining the next step downwards in the global financial systems. They intend to ride this thing all the way down the mountain. This is a train wreck that is just beginning to fly off the rails. And the engineers are increasing the train's speed.

As usual, while mucking around for information, I came across this old typewritten paper that talks about the floating currency system when it was pretty new. At this time, Volcker was frantically trying to kill hyper-inflation using the old tool of charging higher and higher interest rates until the savers came back to the banks and made them solvent again. The exact opposite of the present methodology Kohn was trying to not explain very well.

Click here for the entire BIS working paper from 1981: Intermediation and Pure Liquidity Creation In Banking Systems by William Allen.

Note the business about the household sector [that is you and me and everyone who isn't a banker or a pirate] is supposed to be a net CREDITOR while the corporations and banks are net DEBTORS. During the previous 5 years the bankers loved to tell us that there was a savings glut in Asia so we had an obligation to suck that up by running up our household debts. We did this and now we are in a situation of too much debt, not too much savings. And any savings in Asia are being sopped up by inflation of food, fuel and housing over there. The last line of this old report are ominous: 'intermediation' deposits from the central banks are VERY inflationary due to the fact that it is pure red ink fake Funny Money™ based on nothing at all except deep government debts.

Now the only question is, when will Kohn retire? He should leave, too. Follow Mishkin into the Ivory Tower fortress where he can teach people how to be stupid.

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Benanke Will Hand Out $225 Billion In June

May 29, 2008

Elaine Meinel Supkis

Unbelievable numbers today! Even as the media and the central governments of the G7 nations struggle to pretend the banking crisis has been contained and all is well, out comes the news that the Fed's new, fancy window for handing out massive loans to banks in exchange for crummy, worthless CDOs! A whopping $225 billion worth! WOW. And the debt markets are still flashing red in the US and now, in Europe. The housing collapse has crossed the Atlantic. And now the bankers are launching a NEW risk-remover: a central clearing house for derivatives? HAHAHA. They think this will be the way to deal with the $500+ trillion Beast? I doubt this. Very much.

Fed to make fresh batch of bank loans

The Federal Reserve announced Thursday that it will make a fresh batch of short-term cash loans available to squeezed banks as part of an ongoing effort to ease stressed credit markets. Swap spreads are spreading wider and wider. Even as faith in the Libor rates collapse.

The Fed said it will conduct three auctions in June, with each one making $75 billion available in short-term cash loans. Banks can bid for a slice of the available funds. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers.

The new round of auctions will be conducted on June 2, June 16 and June 30.

Also Thursday, the Fed -- in a separate program -- auctioned $16.4 billion in safe Treasury securities to investment firms, another effort aimed at easing credit problems. That operation drew bids less than the $25 billion being made available, which could be viewed as a sign of some improvement in credit conditions.

Let's get this straight: the Fed is feeding MORE MONEY in the form of taxpayer-backed Treasury securities...to INVESTMENT FIRMS? The same guys who have just bid up most world commodities to the heavens? And a sign that things are improving is, it was 'only' $16 billion? This news is right on the heels of announcing yet another rescue operation to keep our bankrupt banks running?

EACH of these auctions coming out of the brand new 'windows' poked into the Fed bank vault's walls is 'only' $75 BILLION @? This happens to be another $225 billion! Way back last summer, I predicted the amounts ladled out would be over a trillion and I was right, as usual. This $225 billion will be ladled out over the course of one month! Let's do some calculating: if this is done at this rate over the course of a year, it comes to $2.7 TRILLION.

It looks pretty obvious to me that the banking crisis, far from being over, is actually getting worse. Indeed, the housing markets which supposedly is the cause of this collapse is not doing well at all, is it? The rate of repos isn't climbing sky high only because the courts are utterly swamped with repo cases! So it is like a snake that ate a cow. Eventually the cow will be digested but the snake is still trying to swallow it. Far from being over, this process has barely begun.

I photoshopped a series of graphs from the Federal Reserve that tracks the 'Borrow' window they opened so wide this year. Click to enlarge:

This graph shows how the 9/11 bail out was pretty big. Bigger by far than any time in history. It was very unusual for the Fed to give even a billion back then. Seemingly, everything was fine after that spike. But was it?

We know that Bush told us to go shopping and Greenspan said, 'Here, have some free Funny Money™. The bankers went wild. The spread between mortgage amounts and what the Fed was giving them was humongous. One of the biggest spreads in banking history. So the bankers clamored to make more loans and to do this, they had to pass off the old ones because US savings had collapsed and the reserve ratios were really, really stinky.

In July, 2007, all was still seemingly well. Then, by the end of September, now that the Japanese carry trade was in a panic due to the dropping dollar and the rising yen, the Fed began to hand out loans to save the banking system. They, in turn, had to declare losses on the previous housing bubble they created. The BIS regulators had ordered the banks to price their loans realistically. And this was killing them. They had to cry to Bernanke and beg him for goodies. He opened the window to the Outer Darkness and began to churn out amazing amounts of Funny ™ in ernest.

Here is the BORROW chart from 12/12/2007, the seventh anniversary of the Supreme Court refusing to count votes in the 2000 election. We can see that things are going very, very badly suddenly! The money feeding into the bankrupt banking system. The amount is now over 4X greater than on 9/11/1.

Now we go to January 1, 2008. The Fed and the G7 have begun to crow that the whole thing was fixed and there was no emergency. Obviously, they were wrong. For by that date, a mere 19 days after 12/12, look at the charts!

It has doubled yet again! Not even during a month, in half a month. This was done to fix Xmas so the US public could go on a wild spending spree. Lurking in the shadows was very real inflation that was preparing to take off with a vengeance. After all, the Fed was feeding Funny Money™ to speculators at an increasing rate! Note also that this chart stops at $50 billion while the previous ones were at less than $10 billion.

Now look at today! WOW. I added some lines to this graph in red to show us where we are going: TO THE MOON, MARS AND OUTER SPACE! Boom! This is ridiculous.

To accommodate future rescue operations, I enlarged the graph a tad, like more than doubled it in height. The red square is where we are today in this massive, UNPRECEDENTED rescue operation. And I am betting this will double in JUST ONE MONTH. This is a very, very bad sign. Any system that doubles at this speed ends up in infinity. The fact that it overwhelmed all previous amounts in history long ago, was a bad sign. To see it heading into Derivative Beast territory whereby it doubles and doubles and doubles...this is a sign of HYPERINFLATION TO COME. In other words, the central bankers are trying to fix a broken system by feeding it Funny Money™. This money is not real and based on nothing except the Fed promising to tax the American public...in the future, of course, for all eternity.

This is how all empires collapse: they promise money changers and bankers outside of the empire future taxes. 100 years, 500 years of future taxes! This is always a sign an empire is about to bust apart and die.

Click here if you want to play with these graphs:

US and European debt markets flash new warning signals

The debt markets in the US and Europe have begun to flash warning signals yet again, raising fears that the global credit crisis could be entering another turbulent phase.

The cost of insuring against default on the bonds of Lehman Brothers, Merrill Lynch and other big banks and brokerages has surged over the last two weeks, threatening to reach the stress levels seen before the Bear Stearns debacle. Spreads on inter-bank Libor and Euribor rates in Europe are back near record levels.

Credit default swaps (CDS) on Lehman debt have risen from around 130 in late April to 247, while Merrill debt has spiked to 196. Most analysts had thought the coast was clear for such broker dealers after the US Federal Reserve invoked an emergency clause in March to let them borrow directly from its lending window.

HAHAHA. No wonder Bernanke revved up his helicopter today and offered these goofballs another $225 billion in free Funny Money™! If the US had China or Japan's FOREX reserves, he could still do this and not cause global inflation. But alas, he doesn't and can't. So off they go. They want cheap money! I read in the news that these same evil clowns are demanding Russia pay higher and higher rates! But NOT THEM! They want LOW RATES! No matter what. So the Fed dropped its rates to only 2% and they will then keep a straight face while 'borrowing' money from the Fed at a ridiculous rate THEY DO NOT DESERVE. For they were very, very risky in the past and the losses they caused due to handing out loans to everyone and their monkey's uncles, means they are bankrupt.

BANK---RUPT. Dead as dodos. Lying on a highway to hell. I like the 'coast is clear' part of this news story. 'Hey, we can play in the highway again!' these bankers yelled and they ran outside and got run over by a diesel truck driven by a pissed off trucker.

"The steep rise in swap spreads this week is ominous," said John Hussman, head of the Hussman Funds. "The deterioration is in stark contrast to what investors have come to hope since March."

Back in March, the Fed did something very, very stupid: they not only had the open window where the banks could come and dump garbage, they opened the doors and windows to the investment houses starting with Bear Stearns. Instead of dealing with the problem which was too much credit for too cheap, they ended up soaking up the excess lending of the previous 4 years! So the seeming good news back in March was merely 'more rate cuts by the Federal Reserve' and 'the Reserve will exchange junk CDOs for Treasuries.'

But the amounts that are at stake here are more than what the Fed can feed. So the temporary abatement of interest rates changed very little and we are again, right back where we were in January, in November and in August: the same banking collapse rises up yet again! The Fed, time and again, claimed 'Victory!' whenever they papered over this mess. They set out deliberately to force interest rates down in the teeth of raging inflation. This is akin to ordering the incoming tide to turn back. This is an elemental force which can't be fooled. The tricks and schemes being cooked up will fail for the simple reason, the alternative is infinity. They are trying so hard to make things drop to 0%. And this is causing infinity in the mirror world.

Both oil and gold are in retreat right now. I don't know if this is through strong arming the commodity traders in the big houses? I smell a conspiracy here. In other words, is the announcement of another $225 billion Santa Claus gift from Bernanke part of a secret back room deal? The biggest trading houses will funnel their funds elsewhere for the time being? And this is the pay off? Since all these things are done in strict secrecy, we won't ever know unless someone spills the beans.

The problem is, the yen is again falling in value. This will destroy our own economy. When the dollar was weak, our export numbers improved. Now they will continue on the bad trajectory. The US, trying to please our trade partners who are reaming us out, in order to get the 'old' banking system that was based for the last 10 years on the fake 0% Bank of Japan carry trade, will resume that destructive activity, won't they?

Libor Proxies Gain as Traders Seek Truth With Swaps

Traders are starting to use alternative measures for borrowing costs as the British Bankers' Association struggles to keep the London interbank offered rate as the global standard.

Libor, the benchmark for 6 million U.S. mortgages and more than $350 trillion of derivatives and corporate bonds, has been called into question since the Bank for International Settlements said in March some lenders may have understated borrowing costs to keep from appearing like they are in financial straits.

One option growing in popularity is overnight indexed swaps, a gauge of expectations for central bank rates. The Federal Reserve uses the one-month OIS rate to set the minimum bid level when it lends cash to banks through its Term Auction Facility. The Fed has auctioned $510 billion through the TAF since December.

So, the amount the Fed auctioned since December is now $510 billion? Add the June amounts and this will be $735 billion. So, in exactly half a year, it is three quarters trillion dollars? If this keeps up, by next January, it will be around $1.5 trillion. This happens to be the size of the Chinese FOREX reserves. Interesting and possibly connected in an underwater sort of way. Also, the BBA Libor setting system is only 24 years old. It is one of the many destructive things set up in the wake of Volcker raising rates to kill inflation. The G7 bankers swore they would never allow that to happen again. But it seems to me that the alternative system they created has done nothing about what caused this inflation [war and oil making a toxic mix]. It seems this Libor system is from the Plaza Accords era and was created to 'fix' the things the Plaza Accords were trying to fix. I once linked to the original text for those Accords.

It seems the other nations signing this wanted the US to balance our budget and to cut back on our oil consumption! We did the exact opposite, of course.

Bloomberg:

``OIS rates have the advantage that they are set off the fed funds effective rate, which is an overnight rate based on a volume-weighted average of trades that occur each trading day through the major brokers,'' Eric Liverance, head of derivatives strategy at UBS Securities LLC in Stamford, Connecticut, wrote in report dated May 27. ``There is no guesswork involved.''

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events, such as changes in the weather.

Rates quoted by Libor members show discrepancies and have little correlation with their costs of insuring debt from default. UBS AG, whose default-insurance costs rose 919 percent between July 2 and April 15 as it racked up $38 billion of writedowns and losses, quoted dollar-borrowing costs that were lower than its rivals on 85 percent of the days during that period, according to data compiled by Bloomberg.

This is SO unstable! Note that the new replacement for Libor rate setting is something that literally is based on changes in the weather???? Wow. Talk about asking for wild swings! As I look through history, I notice that when an Empire is strong, the value of the currency, the relative value of rare metals, etc. are STABLE. The value of gold is set in stone, for example. The fact that the bankrupt bank, UBS AG, lied about their stupendous interest rates due to their losses means simply, the head of that bank should be arrested and charged with fraud. Not that we set up an even more insecure, uncertain and very changeable system.

Bad Omens for Banks?

Nobody was expecting an easy year for U.S. banks, but many observers thought the bulk of the industry's credit troubles would come in the first quarter. Now, it seems the rest of the year may be even worse. Case in point: A May 28 announcement from KeyCorp (KEY). Mounting loan losses at the regional bank company suggest the banking industry's troubles with bad loans are just beginning.

Cleveland-based KeyCorp, which holds $97 billion in assets, says the year's net loan charge-offs—a measure of how much bad debt the bank may have to write off—could almost double previous predictions for 2008. The bank expected charge-offs of 0.65% to 0.9% of total loans just three weeks ago, but now says they could be in the range of 1% to 1.3%.

Despite housing and credit troubles galore, banks such as KeyCorp have been able to attract investors with generous dividends. On May 28, KeyCorp sported a dividend yield of 6.9%, while Wachovia's yield was 6.1%. Yields from Fifth Third and Regions Financial were even higher, at 9.1% and 8.1%, respectively. Those high yields suggest some investors expect dividends to be cut so banks can hoard capital. Otherwise, an 8% or 9% return would be irresistible to most.

Baird's George said the tough credit trends mean KeyCorp probably won't earn enough in the second and third quarters to cover its dividend. However, he wrote, "It appears that [KeyCorp] has adequate capital to maintain its payout, provided the earnings challenges are temporary."

If credit troubles are brief, banks can afford to maintain their dividends. Bank investors might overlook a brief dip in earnings, however severe. However, the longer the credit crisis continues, the more questions are raised about whether they have enough capital.

Bloomberg:

Banks routinely misstated borrowing costs to the British Bankers' Association to avoid the perception they faced difficulty raising funds as credit markets seized up, said Tim Bond, a strategist at Barclays Capital.

``The rates the banks were posting to the BBA became a little bit divorced from reality,'' Bond, head of asset- allocation research at Barclays in London, said in a Bloomberg Television interview. ``We had one week in September where our treasurer, who takes his responsibilities pretty seriously, said: `Right, I've had enough of this, I'm going to quote the right rates.' All we got for our pains was a series of media articles saying that we were having difficulty financing.''

Just like the goofy news put out by the Fed back last Thanksgiving, they were opening a NEW window so bankrupt banks could borrow secretly. The central banks and all the other banks are terrified their stocks will fall and there will be a run on their banks. And if they told the truth, they got hammered. So everyone lied. Now, the fact that they are all lying bastards should be obvious. The ones who tried honesty couldn't complain that they were seen as in trouble for they WERE in trouble! Deep trouble! With a capital T. But instead of dragging out the other banks and telling the world, 'We are ALL bankrupt!' they retreated into their safe shells and began lying again.

Now what angers me the most is, the Fed is NOT supposed to enable lying. The Fed is supposed to protect the banking system, not help banks in default to fool savers and lure them into putting money where it is being destroyed! The bankers are supposed to be sober and careful! They are supposed to be protecting the interests of the savers who have only one tool in retaliation: withdrawal of savings! If a saver thinks a bank is making a profit and thus, will give him or her a return on these savings, they have nothing to fear. But if a bank is bankrupt, they can lose everything!

The fix set up by Roosevelt in 1933 was to create the FDIC which insured banks that followed certain strict laws and rules and he also set up the SEC that enforced these rules. Then and only then, could they operate! Now, all these FDIC banks have destroyed the banking system to thoroughly, they are ALL BANKRUPT simultaneously. And the Fed struggles to fix this with fake cures. The real problems have not vanished, they have been transfered to the Fed itself! Which is now asking our government that is $10 trillion in arrears, to fix this huge financial hole!

Banks launch central clearer for derivatives

Efforts to tackle the risk surrounding privately negotiated credit derivatives will take a step forward on Thursday when 11 of the world's biggest investment banks announce the creation of the first central clearer for the opaque contracts by September.

The absence of a central clearer has made such contracts risky because there is no guarantee that parties will pay out.

This systemic risk has fuelled the global credit crunch, prompting regulators to step up pressure on banks to show they are trying to make the system more dependable.

Another stupid fix that fixes nothing at all! Nay, it MAKES IT WORSE. They want to isolate the $500+ trillion Derivatives Beast? HAHAHA. I seriously doubt this is possible. What they want is for it to exist, not die! And they will feed it and have it double in size every year till...INFINITY! Again, this is impossible. Instead of admitting this wretched system is fatally flawed, they want to contain it while using it as a risk sinkhole. Not only is there no guarantee the 'parties' will pay out, THEY CAN'T! This is obvious! Just to operate day by day, they are sucking up in Europe and the US far more than a trillion dollars and it is growing as fast as the Derivatives Beast. And this is no surprise, this IS the Derivatives Beast seen from behind! Namely, it is probably the same creature!

I look at things through a mythological mirror. This enables me to cut through the mess to figure out relationships and to foretell the future. In this case, the fact that all the major banks in the West are bankrupt is crucial. Once we accept this fact, a lot of other things come clear, too.

Gold has been beaten down yet again, back into the mid-$800 level. This is psychological. The Chinese are not buying gold right now, they have a massive earthquake to deal with! And the Indians are being hammered by inflation so they can't put free loot into gold, either. And the major investment banks promised the Fed they would not buy gold and oil in huge amounts, either. So as I warned people, the closing of all exits is part of the deal when the banking system collapses. This is why the main tool remains political action. And the US and Europe are far from ready to do this. Everyone wants a return to the messed up status quo still.

Historical Markit ABX.HE Graphs

This graph shows the collapse in value in the official Markit credit default system set up last year to track and reveal the real value of those various hack and slash real estate deals sold by all the pirates on Wall Street. The AAA tranche has collapsed in value from 100% to barely 50% and this, only because the Fed rescue of Bears Stearns filled the marketeers with the hope that they will be saved by Bernanke. So prices went up a bit. Only we can see the decline is resuming and accelerating.

Now to the A and BBB tranches: into the deepest depths they dive! The A ABX.HE numbers are at a miserable and obviously unsustainable 10% and dropping. Not far from the absolute bottom. And the BBBs are below 5%. This is beyond a miserable return. Remember: these things lose more than 'absolute' value on the way downwards. People holding these things lose a LOT of money! Especially since this is part of the system set up to remove 'risk' and thus is attached in many ways to other things that are also collapsing.

S&P Lowers the Boom on 1,326 Alt-A RMBS Classes

Bring on the Alt-A downgrades: Standard & Poor’s Rating Services said Wednesday evening that it had slashed the ratings of 1,326 Alt-A residential mortgage-backed securities, after recent data is proving performance of Alt-A loans originated in 2006 and 2007 to be particularly problematic. The downgrades affect $33.95 billion in issuance value and affect Alt-A loan pools securitized in the first half of 2007 — roughly 14 percent of S&P’s entire Alt-A universe in that timeframe.

Perhaps more telling were an additional 567 other Alt-A classes put on negative credit watch by the ratings agency.

A review of affected securities by Housing Wire found that all of the classes put on watch for a pending downgrade are currently rated AAA, suggesting that S&P’s confidence in thin overcollateralization typical of most Alt-A deals is quickly waning. The total dollar of potential downgrades to the AAA classes in question would dwarf Wednesday’s downgrades, which affected only mezzanine and equity tranches.

Basically, there are far fewer AAA stuff now. Far from the losses ending, they are increasing. It is getting much, much worse. The hopes of the big banking houses that these losses would be made good via the Derivatives Beast pouring trillions of dollars back into empty bank vaults is fading. They are only now just beginning to realize, the Beast is pretend. A legend, not real. It is mythological, not rational. It will vanish in a puff of smoke when they stretch out their hands, begging it to hand over trillions of dollars.

If 14% of the Alt-A universe is pretty much gone, we know that much of the bad stuff was intermixed within the supposed AAA classes. So they will, like a ship with a hole blasted in the hull, sink. And if this 'dwarfs' the $34 billion downgrade, we must assume the amount is around $2 trillion? After all, this is close to the amount the central bankers poured down this huge hole from their new windows.

South American nations to seek common currency

Brazilian President Luiz Inacio Lula da Silva said Monday that South American nations will seek a common currency as part of the region's integration efforts following the creation of the Union of South American Nations (Unasur) last week.

"We are proceeding so as, in the future, we have a common central bank and a common currency," said Lula in his weekly radio program, noting that this process will "not be fast."

Asia, the OPEC oil Arabs and the Asians are all discussing this very same thing. This is because the US dollar no longer is the world's main currency. It is dying rapidly and not due to falling in value. The BANKS are dying. And this is killing the dollar. I don't know if any of these frightened countries will succeed. But the fact that ALL the parts of the planet are discussing this right now is a sign that our days are certainly numbered. It is only a matter of time when the Fed has to give it up. But I fear we may try to start a war with Iran. Which would be our death sentence.

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NY Reserve Chair, Mishkin Resigns---FINALLY

May 29, 2008

Elaine Meinel Supkis

I am a rather strange creature. I am a monetary conservative who supports socialist structures for society. Oddly enough, for the same reasons the first proto-socialist, Herr Otto von Bismark used when he justified the very first modern social safety net supports in Germany 130 years ago. In today's news, we will be talking about the Federal Reserve's obvious failures, the failure of the US imperial/socialist regimes and the turmoil in the Federal Reserve. Yet another director is throwing in the towel and retreating to academia where he can teach youngsters all sorts of useless stuff. And the big news for all gold holders: Canada is now demanding everyone who is buying gold will now have to REGISTER with the government so they can track you guys! Goldman Sachs runs the Bank of Canada and he wants his nose in YOUR affairs!

Thanks to Canuck: The Next Attack on Gold Has Begun

by Gary North

The Toronto Globe and Mail ran a story on money laundering and new Web-based businesses that allow people to buy small amounts of gold and then spend this gold as money.

The development of these businesses is the preliminary step to the restoration of private money. This is regarded with great hostility by national governments and central banks. National governments ever since 1914 have worked with central banks to remove gold from circulation as money. This began with the outbreak of World War I. It has never ceased.

The development of the credit card was the culmination of a dream of every fractional reserve banker. Bankers in a fractional reserve system have always feared the withdrawal of currency by depositors. This reverses the fractional reserve process. It shrinks the money supply.

By substituting digits for currency, bankers have solved this problem. A depositor can move digital money out of his account, but it is transferred to another digital account. The system does not lose deposits. When someone withdraws currency and does not redeposit it, the money supply declines. So, credit cards are a banker's dream come true. The threat of bank runs by depositors has ended.

Gary North: He is a Calvinist Christian who has elements of the End of Times group think in his philosophical base. He is part of this contradictory system whereby his fears drive us into places he doesn't want to go. I have noticed the gold standard community has many 'End of Times' people involved. They are unable to listen to outside voices in this religious matter because of the delusions they collectively hold concerning the return of Jesus which they desire. Like all historical forces, they have some sincere and good intentions but it is coupled or harnessed to hideous destructive forces. The idea that their desire for Jesus to return and kill most humans makes them demonic and thus, followers of the anti-Christ, is nearly inconceivable in their own minds. Yet this is the end result of their desires and beliefs.

About the credit card users, Gary is right. The credit card industry is actually like a trawler fishing operation. They issue cards to all and sundry. Then, you can use the cards and pay off everything with no penalties or interest on the money you 'borrow' for 30 days. I have had the old American Express cards for business purposes. They got paid at the end of the month and I paid an annual fee of $50 for use of this card. Quite useful. Then, around 1980, when the banks were desperate to make loans and interest rates were high anyway, they all began to offer 'free use of our cards if you pay it off!' stuff. So American Express lost its original intent since no one was going to use the fee-based cards. In the end, the thinking was this: the people who used the card and paid this off [called 'dead beats' inside the industry] would inevitably goof up and fail to pay the balance one day and thus, end up with a rising balance and then the card companies get over 18% interest. Then, if they use all sorts of goofy tools and excuses, they can raise the interest rate to the moon. This is thanks to getting rid of all usury laws. We now live in a nation where interest up to and beyond 300% can be charged. This is insane and insidious and is bankrupting America.

Back to Gary North's latest news story: Ottawa warns on gold-backed Web trades

Canada's financial intelligence agency warns that criminals may be exploiting Internet-based companies that convert cash into electronic gold, exposing a new front in the international effort to restrict terrorist financing and money laundering.

While other channels of money laundering are successfully being shut down, authorities are increasingly worried about a proliferation of "digital precious metals operators" websites that offer clients a chance to conduct Internet business in units backed by gold and silver rather than paper currencies.

The Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, says in a report these websites have "achieved critical mass on the Web" and are facilitating millions of transactions on the fringe of the international financial system - the equivalent of a Wild West where legitimate businesses, privacy-seeking individuals and criminals can mingle just out of reach of the law.

At stake is the effectiveness of the financial reporting rules that countries such as the United States, Britain and Canada enacted in response to the Sept. 11, 2001, terrorist attacks. A network that allows individuals to move money around the world means criminals can avoid commercial banks and other financial institutions required to turn over their records to the government.

We still have offshore banking run by pirates. The deal was, the governments would poke their snouts into the affairs of everyone and anyone but would not use this to move against say, Jewish financiers or Middle Eastern gun runners working with the CIA and Mossad and MI6, etc. And this information would not be used to stop the crazy creation of credit by these offshore banking entities. The sole reason for these laws was to go after political rivals, Muslim money that might be used to help popular uprisings against the cruel dictators and despots in the Middle East, to keep money from Hamas above all and to blackmail drug running crime families so they would work with the CIA, Mossad, MI6 etc.

The true reason the governments want to control and track the gold markets is for political power. During the last century, the central bankers have used the government to restrict our choices for economic transactions in order to keep control of our banking systems. As the fiat currency regimes they impose implode on us all, they get very vigilant in preventing us from exiting the situation they, themselves, have created. The central bankers should be furious about the spread of legal usury. Instead, they are focused on getting their claws on SAVERS who have been DRIVEN OUT of the banking system due to the goofy idea that interest rates have to be low because there is no inflation.

Since the banking system is based on this insane and obviously fake idea, savers have only a few choices: they can gamble with their savings by taking on ALL the risks within the present, collapsing banking system. Or they can hoard commodities or bet on the price of commodities shooting up due to hoarding. Or they can spontaneously restart the ancient banking system that existed up until 1972 and the Floating Currency regime of the Bretton Woods II Accords. Namely, they save based on the gold standard. By translating their savings into gold, they can then collect a higher interest rate if the value of gold rises against the dollar or other currencies. There are other reasons for this aside from interest rates. The desire for privacy is of course, one of them.

Now, this is important! The government has used first the Income Tax, then War on Drugs and now the War on Terror to totally destroy our privacy! I am old enough to remember when money in one's hands were a PRIVATE AFFAIR and none of the business of the government. There are reasons for government meddling but the level of meddling today is extreme. Especially since it has huge, glaring empty spots which the governments themselves use for nefarious purposes.

I warned all the gold standard believers that the governments would move against them and registration is the first step towards confiscation. We KNOW this will happen for the simple reason, it has happened already in the past! A desperate government can and will use old tools again and again if they must. And they will, in this case.

Here is a small sample of a free Ebook by Gary North:

You will hear hype about gold at $10,000, just as in 1999 there was hype about “Dow 36,000.” If you are tempted to believe these headlines, remember Prof. Rozeff’s warning:

Looked at this way, it is evident that gold in the portfolio is equivalent to insurance against some devastating contingencies. Complete or partial insurance are possible. The more gold you have, the more insurance you are buying. Over-insuring is costly because the overall rate of return of the portfolio goes down if nothing happens. That's because gold historically provides no real return. Everyone has to decide for himself what the odds of these scenarios or ones like them are, how to insure against them as with gold or some other real assets, how high gold will go when other assets decline, and how much to insure against these events. There are no pat answers to these decisions, but they are within the realm of understandiand even sensible computation.

He does tell the truth: gold will not make one rich except in very exceptional cases. Such as when Bretton Woods II was instigated, if one held gold back then, by 1980, it was quite valuable and rose more than most anything against the dollar. But one had to sell, not hold it, in order to gain a profit from its rise! After 1980, gold languished as the 'smart money' moved into playing interest and FX games as they discovered endless money could be cranked out of this unbalanced and stupid floating currency system. Now, there are millions of traders working day and night to eke out a profit from the shifting sands of relative international trade value of currencies that have no limits or restrictions except whatever the governments choose or not choose to impose. This bizarre exercise in making money from instability is the REAL 'Wild West' and the central bankers are the guys running the damn saloons.

And some of the bar keepers are running away after the piano player who gets gold tips, was shot.

Mishkin to Leave Fed in August, Return to Columbia

Federal Reserve Governor Frederic Mishkin, a central-banking scholar and advocate of the longest run of interest-rate cuts since 2001, resigned to return to Columbia University.

Mishkin, 57, on a leave of absence from the New York school, will step down as of Aug. 31, the Fed said in a statement today, also releasing his letter of resignation to President George W. Bush. Mishkin will attend his final meeting of the rate-setting Federal Open Market Committee on Aug. 5.

The departure may create an unprecedented third vacancy on the seven-member Fed Board of Governors this year as the central bank tries to ease the credit crisis. The vacancies mean that a new U.S. president to be inaugurated in January may have an opportunity to influence monetary and regulatory policy by nominating new members to the board.

Mishkin always pissed me off. Now this enabler of fiscal heroin is running off to his Ivory Tower to hide. After wrecking our entire banking system, he scoots off to teach youngsters the stupidest lessons. Instead of being locked in a pillory and mocked by the crowds, he will sit on his little throne and pontificate. So the poison of his delusions will destroy the coming generations of economists. What a dismal future! Note how the Democrats, by the way, are not filling the Fed seats. I know some readers get angry when I talk politics but we have to be realists here: the Fed is NOT vanishing. So we better insure it isn't terminally stupid.

Obama's financial advisor is Volcker. At least he wants the system set up as it is, to work. If Obama wins this election, I expect Volcker to take charge over selecting the future Fed positions. At least this will slow down the destruction. It is fun to dream of destroying the Fed but reality is what we have to deal with. Perhaps we can influence the Fed's thinking. Or not. But calls for its banishment are far from possible at this point. Indeed, no major nation has no central bank. The trick is to influence them so they function. And to get the Fed back on the gold standard which isn't impossible. Unlike eliminating it which probably is nearly impossible.

Volcker is the anti-Santa Claus. So I support Obama since he probably will listen to Volcker. And another thing: Americans repudiated Jimmy Carter and Volcker and chose Santa Claus Reagan. The worst of our fiscal conditions began after 1982. And the cure is for us to realize that Santa Claus is not a gift giver but a thief. Now, back to the Fed news:

Bernanke Met With BlackRock's Fink, Wal-Mart's Scott in April

Federal Reserve Chairman Ben S. Bernanke met last month with the head of the firm managing $30 billion of Bear Stearns Cos. assets for the central bank, five weeks after the Fed rescued the investment bank from bankruptcy.

Bernanke met with BlackRock Inc. Chief Executive Officer Laurence Fink on April 23 at his office in Washington, according to the chairman's April schedule, obtained by Bloomberg News under a Freedom of Information Act request.

I recall Bernanke babbling about greater openness. Yet, when Bloomberg's reporters wanted information, he clammed up. So they had to go to court. The Fed wants to pry into our private affairs but we can't see THEM. This has got to stop. I don't want ANY private meetings! ALL their meetings minutes should be open to us all within the first 24 hours of ANY meetings! How about that? I will petition Volcker on this issue. As I keep saying, wealth is created in darkness. When one sees how these operations go, one can then plan ahead and evade the problems that are obvious or try to stop stupidity. But when meetings are private and we only get to know stray details, we are in the dark. And this is wrong. Totally wrong. Indeed, all Federal Reserve meetings should be on CSPAN. The guys running it will then be forced to debate IN PUBLIC what the details are and their plans are. They will have to let us know their fears. Of course, they will then clam up and say little. And then hold secret meetings outside the system.

Which is stupid! They MUST air out every thing all the time! Why is that?

Because the secret system has been a total, roaring failure! I believe knowledge is power and if any system is public, it must be really public and not be secretive. The Fed was born in secrecy. And the vote to create the Fed was done during Xmas when most of the Senate was out of town. Of course, the ideal here is to have a national debate about the Fed and then revote on this matter, in public this time! But to force this is going to be very difficult as Ron Paul knows. Not that our multi-millionaire Senators are interested in stopping this system that benefits them and their benefactors.

The unfolding story of the JP Morgan coup against Bear Stearns continues. Drip, drip, drip....the details will leak out. Something very bad happened when JP Morgan made this secret deal. It was another turn downwards for our banking system and the Federal Reserve. The hazards and risks embedded within Bear Stearns were secretly moved from the private ledgers of Bears Stearns to the US tax payers and the tax payers had no say in this matter at any level.

Yesterday, the Dallas chief of the Fed gave a speech. This speech shows the cruel thinking processes of these guys.

Dallas Federal Reserve head: Richard W. Fisher

Storms on the Horizon

Forty-three years ago this Sunday, Bill Martin delivered a commencement address to Columbia University that was far more sober than his Alfalfa Club speech. The opening lines of that Columbia address [2] were as follows: “When economic prospects are at their brightest, the dangers of complacency and recklessness are greatest. As our prosperity proceeds on its record-breaking path, it behooves every one of us to scan the horizon of our national and international economy for danger signals so as to be ready for any storm.”

Today, our fellow citizens and financial markets are paying the price for falling victim to the complacency and recklessness Martin warned against. Few scanned the horizon for trouble brewing as we proceeded along a path of unparalleled prosperity fueled by an unsustainable housing bubble and unbridled credit markets. Armchair or Monday morning quarterbacks will long debate whether the Fed could have/should have/would have taken away the punchbowl that lubricated that blowout party. I have given my opinion on that matter elsewhere and won’t go near that subject tonight. What counts now is what we have done more recently and where we go from here. Whatever the sins of omission or commission committed by our predecessors, the Bernanke FOMC’s objective is to use a new set of tools to calm the tempest in the credit markets to get them back to functioning in a more orderly fashion. We trust that the various term credit facilities we have recently introduced are helping restore confidence while the credit markets undertake self-corrective initiatives and lawmakers consider new regulatory schemes.

I am also not going to engage in a discussion of present monetary policy tonight, except to say that if inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economic scenario. Inflation is the most insidious enemy of capitalism. No central banker can countenance it, not least the men and women of the Federal Reserve.
*snip*
Eight years ago, our federal budget, crafted by a Democratic president and enacted by a Republican Congress, produced a fiscal surplus of $236 billion, the first surplus in almost 40 years and the highest nominal-dollar surplus in American history. While the Fed is scrupulously nonpartisan and nonpolitical, I mention this to emphasize that the deficit/debt issue knows no party and can be solved only by both parties working together. For a brief time, with surpluses projected into the future as far as the eye could see, economists and policymakers alike began to contemplate a bucolic future in which interest payments would form an ever-declining share of federal outlays, a future where Treasury bonds and debt-ceiling legislation would become dusty relics of a long-forgotten past. The Fed even had concerns about how open market operations would be conducted in a marketplace short of Treasury debt.

That utopian scenario did not last for long. Over the next seven years, federal spending grew at a 6.2 percent nominal annual rate while receipts grew at only 3.5 percent. Of course, certain areas of government, like national defense, had to spend more in the wake of 9/11. But nondefense discretionary spending actually rose 6.4 percent annually during this timeframe, outpacing the growth in total expenditures. Deficits soon returned, reaching an expected $410 billion for 2008—a $600 billion swing from where we were just eight years ago. This $410 billion estimate, by the way, was made before the recently passed farm bill and supplemental defense appropriation and without considering a proposed patch for the Alternative Minimum Tax—all measures that will lead to a further ballooning of government deficits.

What a bizarre speech! He goes on and on talking about how our Bismarkian social safety net is going to destroy us! Yet in the beginning of the speech, he tells us the things he will NOT talk about! And what are they? The IMPORTANT stuff! Ha. He even touches on the most important issue of them all: the hazards of if we ran things the way they were run pre-Federal Reserve! WOW. The terrible future, thanks to a budget surplus, of no Treasuries and thus NO FEDERAL RESERVE. HAHAHA. And he even has the cheek to note that the Federal Reserve was scared of this possible future! Amazing. How will they run the Fed if there is not debt from the government to use as ASSETS?????

Here, he hits the entire business right square on its head and then veers off to discuss the need to cut social spending [NOT MILITARY SPENDING] to balance the budget because social services are causing a deficit! No one interrupted him at this point to yell, 'Hey, wait, let's talk about what you said you would not talk about!'

When this 'utopian scenario' occurred, the interest rate was around 6%. The 'fix' was for Greenspan to suddenly and in the teeth of obvious inflation, drop the rates to 1% very swiftly after Bush was installed. Bush told us he was Santa Claus and would cut taxes to get rid of the evil budget surplus. He did a heroic job of killing the dragon of fiscal responsibility and the US government cheerfully more than doubled the national debt! What a performance. So, instead of the debt drying up and the Fed blowing away like a leaf in the wind, it doubled and the Fed's powers grew much, much greater.

This is important. I often despair in stopping this. Just as Ron Paul continues his lonely way, trying to talk about this. We persist just like we hope that Volcker will at least not follow this suicidal procession. Here are some graphs from the Federal Reserve showing the catastrophe that has happened since the Fed conspired with Bush and the GOP to destroy the Federal surplus:

From ALFRED:

Member banks borrowing from the Fed to avoid bankruptcy and bank runs. This is not a 'hockey stick' graph. It is an 'off the cliff and into hell' graph.

Bank ALLL versus nonperforming loans [bankruptcies]:

Consumer debts climb rapidly after WWII. A classic 'hockey stick' situation.

These charts make it totally obvious that the scheme to keep the Fed growing via generating big Federal government deficits is a DISASTER. This foolish game, launched in 1914, is totally wrong. The Ouroboros system of the Treasuries feeding the Fed which, in turn, feeds the government that runs up debts that then become assets in the Fed thanks to the magic of calling debts 'assets'...this has to be debated by everyone and it is of tremendous importance. So long as these idiots running the Fed and in our government insist on demanding we stop social spending because it makes the deficit big, hell's bells! Isn't this what they want?

In other words, this solicitous concern about balancing the budget is pure bunk! They are, in other words, liars. I really wish I could sit in on the Federal Reserve meetings to interrupt them whenever they stray off topic or go down paths that are senseless. The frontal assault on human services comes right when these meddlesome fools are dumping the private financial messes of Wall Street onto our heads? What the hell? Arrest these frauds!

Barry Ritholtz

Consider the Personal Income tax, Corporate tax, Sales tax, and total Tax Revenue for a State:

1) State Income generally peaked in 2005, and has been decelerating since;
2) Only State Corporate tax receipts has turned negative on a YoY basis;
3) During the Recession of 2001, negative year over year revenue lasted as little as 1 quarter (sales tax) to 8 quarters (personal income tax);

If this cycle is even remotely similar to the mild recession of 2001, we are still in the first or second innings.

Sales taxes and other local taxes began their decline back when the housing bubble burst. The Dallas Fed chair claimed he and his ilk couldn't foresee the results of the 1% interest rates and how it would cause a housing bubble. Of course, the recent rate drops to 2% won't cause a housing bubble because the prices are still too high from the previous bubble. It takes many years for a housing bubble to deflate enough to trigger price hikes again. Minimum, 5 years. So here we are, public revenues have been dropping. They dropped dramatically in the Dot Com collapse. Now, they will drop dramatically again. Going to the original article, one can see Ritholtz's many graphs. They clearly show that the sudden downturn in revenues in the late 1990's was alongside the balanced budget in DC. Hmmmm....one of many mysterious coincidences. We do know that the collapse of revenues today began instantly with the housing bubble reaching its zenith. For Wall Street roared along for another year and a half after that. So the mystery here is, what happened in 2005?

And the answer is at the gas pumps: inflation took off. The US went to war for oil in the mistaken idea, we would win instantly and the taps would turn on and we would see super-cheap oil. This didn't happen. Instead, oil shot up in price and is now very high. This, in turn, hammered the economy. And since interest rates were below the rate of inflation, the banking system began to tremble and fall. So interest rates were moved rapidly upwards again. But the damage of the 1% rates continued. Moving up rates above the Bank of Japan's levels simply caused a stock market bubble in 2006-2007. Speaking of the Bank of Japan:

How Will the Search for a 'New Libor' Impact Carry Trades?

Terri Belkas, Currency Analyst, DailyFX.com

Create a New “Benchmark” Rate

Ø ICAP - New York Funding Rate – London bond broker ICAP announced plans last week to launch a US-based index on dollar-denominated interbank borrowing rates, which would be called the New York Funding Rate (NYFR). The benchmark would be based on an anonymous daily poll of 40 banks, including foreign banks that have US offices, and exclude the top six and bottom six quotes. Instead of asking the banks at what rates they would be likely to borrow, they will be asked to estimate the rate at which they are likely to obtain funding. The anonymity factor is considered to be crucial, as individual banks would no longer have to worry being branded the next Bear Stearns if funding problems occur again and borrowing costs jump. There is no set date for launch quite yet, though it could be as soon as this week.

Ø Liffe - Sonia, Eonia - NYSE Euronext's Liffe derivatives market - best known for Euribor - will start trading futures contracts in June based on Eonia, the euro overnight interbank average, and on Sonia, the sterling overnight interbank average. However, Garry Jones, an executive director at Liffe, said that the new contracts are intended to be “complementary” with Libor and are not designed to replace the rate.

How Will This Impact Carry Trades?

Trends for carry trades such as EUR/JPY and GBP/JPY are inherently dependent upon risk sentiment in the markets, as traders that utilize the pairs are usually looking to benefit from the yield benefits that come along with buying the pairs. As a result, it is no surprise that when investors become risk averse and the equity markets tumble, the Japanese yen tends to skyrocket across the majors. As Technical Strategist Jamie Saettele discusses in his most recent technical analysis of the yen crosses, there is substantial downside potential for pairs like EUR/JPY and GBP/JPY. Furthermore, a piece of news such as the announcement of a change in the way Libor is calculated, or worse, signs that investors will stop using the benchmark interest rate altogether and will switch to an alternative like the New York Funding Rate could trigger significant volatility in the markets. As a result, yen traders should keep an eye on the news wires, as the search for a “new Libor” could be the biggest event risk in near-term.

The 'New Libor' is not to be confused with 'New Labour'. Heh. But the Libor is a construct from the ancient gold standard days when the British ruled the Seven Seas. Now, the US rules the Seven Seas and our ships sank some time ago. Minus the gold standard, wild credit creation has now caused yet another bout of global inflation which, as ALWAYS, begins in the oil markets! The carry trade MUST DIE. It has to be slain! The interest rates at the Bank of Japan are now obviously and totally out of whack with reality! It CANNOT CONTINUE. The longer it runs, the worse the global inflation. If the G7 clowns refuse to stop this because they make money off of it, the entire banking system of the world will look the the US bank graphs in this story today! OFF THE CLIFF.

And in closing, here is a little tid bit: I read 'The Street' along with a lot of other news services. They are running this game which might amuse some of the readers here. It is a fake Wall Street betting game. I am rather amused by all this because it is really a fishing expedition. A player can make easy money off of this game. But they have a proviso: if you win, you have to explain to them how you did it! They want to know how to make money in a bear market! So any bearish readers out there, go right ahead and play this game. Might be amusing. And it does pay money on top of everything.

WELCOME TO BEAT THE STREET

In this exciting stock investing game, you can...Use fake money to win real money — up to $5,000 every week. Test your trading skills and strategies with absolutely no risk.

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Worthless CDOs and the Sphinx

5/28/2008

Elaine Meinel Supkis

Some readers here have suggested I not talk about the elections because it conflicts with dearly held beliefs. Just as some readers want to force me into supporting the strange conspiracy stories about the WTC, I have to choose my own road. This is because my view of history isn't just from looking at the past but from being able to see the future to some degree. For the truth lies in a strange place which I call 'the Outer Darkness'. As we watch wealth being changed or even vanishing, it is important to understand that reality has many strands, many levels and TIME IS NOT STRAIGHT FORWARDS. The intersection of time/space and the human collective is of tremendous interest to me. For we all swim in a sea we made ourselves over a million years. And understanding the undercurrents, spotting sharks, looking at surface weather is all very important if one wishes to sail these turbulent seas! This is why I constantly throw out fishing lines and reel in sometimes astonishing information. For the true news is---where are we going? Not, how can I profit from this. For knowing the destination is life and death. Money will be useless if we have WWIII. Only the knowledge how to use sword and shield, horse and spear, how to organize an army using only early iron age weapons will be useful in the future if we have WWIII. Now, back to today's economic news:

A DEBT END FOR BANKS
INSURERS FACE DEFAULTS

Battered investment banks trying to dump billions in soured mortgage securities are being challenged by struggling insurance companies that claim such efforts could cause them further pain.

It's a battle that pits large financial firms like UBS, Merrill Lynch and Citigroup against insurers MBIA, Ambac and others. These insurers, which the industry refers to as "monolines," provide specialty insurance used to protect investors from losses on various types of debt securities.

At issue is a type of protection that banks have obtained against defaults that is now preventing them from purging portions of their holdings of arcane mortgage securities known as collateralized debt obligations.
Under the terms of this protection, the banks need approval from the monolines in order to unwind these securities - and obtaining that OK is proving difficult in some cases.
*snip*
"Clearly, liquidation into this market is tough but holding on long term might not be your best case," said Joe Messineo, who runs a New York-based structured finance consulting firm. "Not many people envisioned the magnitude of this would come down to documents."
*snip*
Although there are hardly any buyers for CDO paper, the banks would be able to unwind the CDOs and essentially purchase the assets that comprise the complex debt structures - a move that might allow them to better assess the value of the assets and at least eliminate the fees associated with holding onto the debt as CDOs.

The US has had banking collapses in the past. From the inception of the US as a free, sovereign country, our ancestors who were every bit as smart as we are, have had banking collapses. Struggling to figure out the riddle of the Money Sphinx, every generation has to walk through the stinging desert to where She lounges on her divine divan. Like Libra, She also lives at the Gates of Death. The painting I did a number of years ago expresses Her position in this celestial matrix. The earth is seen from afar as it is in the heavens. The riddle at the top is about time and evolution. The wall paper of Her chambers is the back of the dollar which has the All Seeing Eye of the Pyramid of Power. This Pyramid was built by Pharaohs in order to sail past the Gates of Death intact with all their golden hoard. This way, they hoped to cheat Death. Of course, their riches moved forwards in time only until thieves could figure out where the gold was hidden and thus, remove it. We can only imagine the shock of the dead Pharaohs when they actually passed through the Eye of the Needle to discover not one bit of wealth could follow them.

The nature of wealth is dual: there is natural wealth which is bounded by the limits of Nature. Then there is imaginary wealth as dollars are imaginary. The assessed value of anything is imaginary. This is particularly true of the futures markets. We have had futures markets since the Late Middle Ages. It was invented by the seafaring Venetians. Since distant trade was uncertain at best, the knowledge about the condition of ships, caravans and other matters was valuable. For the traders raised money by selling shares of RISK. This risk was so great, the profits from successful trade ventures were astronomical. The invention of the telescope was due to a desire of merchants to climb a tower and scan the horizon to see if their ships were actually coming in. Or even more important, if a RIVAL ship was coming in. This was communicated to the market square where the value of goods such as silks, peppers, spices and other exotic goods fluctuated wildly depending on wether or not ships came into port.

On top of this, insurance was invented early on. The profits from hazardous trade were enormous. But the destruction of wealth when ships sank or failed to find a safe port or the hazards of wars that were constantly breaking out and of course, pirates---all of this made life extremely insecure. And frankly, although we all love making profits based on risk, we dislike losses that have to be paid when there is a failure. So the insurers fixed this by offering a bet that if the ships succeeded, the insurer kept the fee paid by the merchant who feared losses. If there was a loss, the insurer would pay for these losses. NOT the loss of PROFIT but the LOSS OF PRINCIPAL which was the original investment.

Back to the nature of wealth and its intimate relation with death: if insurers remove ALL risk and worse, if insurers guarantee profits in addition to covering for loss of capital, we get this peculiar situation whereby this removal of risks INCREASE RISKS. Namely, the risk of total collapse of the financial matrix supporting this impossible situation. No one deserves to earn a penny in profit on a system that has zero risk. The Holy Grail of all investors and their employees is to discover a scheme, a system that has absolutely no risk yet pours NEW money into their pockets nonstop without fail. First of all, such a system is obviously inflationary. The need to have more and more money to outrun the inflation caused by a system that has had all its risks removed is a treadmill caused by the nature of the system.

We see this clearly as the capitalist system goes through endless cycles. Every time we have gone through a cycle of wealth creation/value destruction, the survivors swear they will never do this again. Yet it happens again and again. Some theorists have this 'generational' concept whereby each generation makes the same mistakes. This is certainly part of the cycle's dynamics. But beyond this, I see older generations joining in with the younger to make the same mistakes all the time. It is deeper or rather, more embedded in human psychology: we all want something for nothing. We all want no risk but want to be rewarded for taking risks and frankly, we love to be risky as much as possible. And we love infinity. This combination insures that we will fall into the same trap over and over again. So the problem is to control the urge to do these things so monotonously. Let's look at an older article about the CDOs that are causing the world's entire banking system to collapse:

CDO History Repeating Itself: Liquidity Crunch Looms: Kevin Depew from Minyanville explains CDOs:

OK, so what are we really talking about here with these so-called CDOs?

CDOs were created in 1987 by bankers at Drexel Burnham Lambert. Wait a minute. Did you say Drexel Burnham Lambert?

Isn't that the same firm that was driven into bankruptcy in 1990 due to illegal trading in junk bonds driven by Drexel employee Michael Milken?

And did you say they were created in 1987? The same year the market crashed? And wasn't the 1980s known as the "Decade of Greed"?

Yes, yes, yes, yes and yes.

So let's see if we got this right. Today, in 2007, the market for securities that were created in the "Decade of Greed" by a firm that was only a short time later forced into bankruptcy due to illegal trading in high-risk bonds is grinding to a halt?

From the inception of the Floating Currency when the regulator of wealth creation, gold, was banished, we have seen a host of spawn born. These creatures all come from the same mother. When gold was finally slain, the Portals to the Outer Darkness yawned wide. When we look at all the charts and graphs running from 1914 to today, we see clearly that everything took off right after the Floating Currency was created. Going back to the painting at the top of this story, we see the Sphinx as a winged woman/lion who judges any who try to pass Her. For She is a chimera. Virgo and Leo combined with Libra: a powerful combination. When we look at the Pyramids we see lines of sphinxes along with a giant sphinx, the most famous sculpture on earth. The Pharaoh who demanded this thing be carved wanted his face on the sphinx. This is because he hoped he would be the Controller, the Guardian of the wealth hidden in the Pyramids. The ancient Greeks and Minoans were the ones to combine the Egyptian sphinxes with Virgo and Libra to create the modern concept. They also, unlike the Egyptians, made most of their profits off of sea-bourne trade.

Many an empire has grown due to trade but once grown, fallen into disrepair by ending trade. Many empires have sunk their own navies and locked the doors to outsiders. This eliminates risks. But it kills profits and eventually the economic system rots as the only profits to be made are via oppressing workers and peasants.

Back to today: in 1987, these toxic, stupid, utterly worthless CDOs were invented by criminals. The system was set up to be a perpetual money machine. Note the time frame: 20 years exactly for these things to finally crash to earth and destroy all the accumulated value set up within their system! This is definitely a 'generational dynamic' here. Like a time bomb set 20 years ago, everyone piled into these CDOs and the monoline insurers who were supposed to reduce risk to 0%. Then, it crashed. Just as the Fed was set up in 1914 in order to prevent a panic/depression and then exactly 20 years later, there it was: the worse panic/depression in US history up to that point in time! This is NOT ACCIDENTAL. The very system set up by the Fed to prevent this was the CAUSE. To this day, no one working within the Fed understands this. Instead of giving the whole matter a very hard, cold look, Bernanke has decided, based on his very faulty premises, that the Fed was the only ones able to stop this collapse and the magic way was simple: just inflate the currency by increasing lending no matter what.

We have to learn a very harsh collective lesson now as this faulty, fatal nostrum is being crudely applied. As we see global inflation and the shifting of wealth from the very poor to the very rich accelerating, we have to recognize that the solutions are the problem! The CDOs should have never been created in the first place. The fact that they were invented, grew and then the ripe fruit blew up 20 years later should alert us to the idea that the CONCEPT was evil. This is a very old thing: the Tree of Life is, when you eat the fruit, the Tree of Death. Adam and Eve were eternal and could talk to God. But when he told them to not eat the fruit of the Tree of Life, the Tree of Knowledge of Good and Evil, they ignored this and did it anyway, being risk lovers. And they earned death for the Tree reversed itself instantly. Instead of easy living, Adam and Eve had to work the land and struggle to survive. Their knowledge grew due to this but the fundamental impulse remained: the children of Adam and Eve want a life at the Garden of Eden and will play every trick possible to regain this. Using knowledge especially the deeper sciences. We hope to regain our innocence so we can enjoy ourselves mindlessly.

The Drexel Burnham Lambert bankers listened to the snake, Milken, and set into motion a system that brought in great wealth. Now, it is in reverse and is destroying wealth. The lesson here is obvious: these safe systems set up by bankers will ALL fail. Unless they are not profitable, then they can live in a static world. But the bankers want dynamism, not stasis. So they must accept the risks and pay for this, not pass the buck. The present system is passing the buck to the working classes. In the form of massive global inflation. Last year, the bankers all were celebrating the seeming lack of inflation and the massive growth in wealth. Last July, they were certain we were finally entering the Garden of Eden. Only they were walking over the bodies of the starving, the dying, the masses who were being locked out of not just the Garden of Eden but even the 'weaving and sowing' world outside of Eden.

The arrogance that some people can be very rich and don't have any obligations to the surrounding populations is something that infuriates me. We are not singular, alone. For the very first Pharaohs had to learn this harsh lesson! They thought they could exploit the labor of the milling masses to build huge pyramids, huge sphinxes and then sail off into eternity with all the wealth for themselves alone...THEY WERE WRONG. For quickly, the masses retaliated and the pyramids were looted and the wealth re-entered the stream of life. Perhaps some of the gold in the bridge in my mouth comes from this golden hoard! It is scattered. And this is good for this is how things grow and are dynamic.

And dynamism is wealth. Money hoarded is meaningless, it is DEATH. When money moves, it lives. And money can live only if there is also risk that has to be paid in full, not cheated. The biggest financial entity on earth is the Derivatives Beast. And it was spawned at the same time as the CDO critter. And like it, the thing ballooned to amazing size. As it grows, the risks it supposed to displace grows. For it has to be balanced! Risk cannot be banished, it is displaced. The more it is displaced, the more destructive it becomes. And when the books have to be balanced, it blows up. For the only way to get rid of it is to make it VANISH. And the poor can't make it vanish. Only the rich can do this. And in their desperation, the rich will try to unload this mess onto the poor while sailing off into eternity with their infernal infinite wealth.

Where they meet the Sphinx.

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US Soldiers Losing Homes Rapidly, Bush Threatens GI Bill Veto

May 27, 2008

Elaine Meinel Supkis

Post Memorial day news: the military have a much higher rate of foreclosures than the average. They have worse pay than the average. And Bush is going to veto the bill passed by the Senate that will give full educational benefits to soldiers who survive the meat grinder in Iraq and aren't insane. Of course, going to school while homeless is a problem. Ask Vietnam vets. Also, the Economist praises the cruel system for lending money in Japan. It never ceases to astonish me how stupid some editors are. And in Washington, DC, protestors from last year who tried to shame the Supreme Court into upholding the Constitution go on trial. They want Gitmo closed and the Supreme Court believes that this is the Soviet Union.

Foreclosures in Military Towns Surge at Four Times U.S. Rate

In the midst of the worst surge in mortgage defaults in seven decades, foreclosures in U.S. towns where soldiers live are increasing at a pace almost four times the national average, according to data compiled by research firm RealtyTrac Inc. in Irvine, California. As military families like the VerSteeghs signed up for the initial lower rates and easier terms of subprime mortgages, the number of people taking out Veterans Administration loans fell to the lowest in at least 12 years.

``We've never faced a situation like this, not in the Vietnam War, World War II, or the Korean War, where so many military are in danger of losing their homes,'' said Paul Sullivan, executive director of Veterans for Common Sense, a Washington-based advocacy group started in 2002 by Iraq and Afghanistan War veterans. ``No one asked them for their credit score when we asked them to fight for us.''
*snip*
An Army or Marine Corps sergeant with four years of experience makes $27,000 a year, plus combat pay of $225 a month, according to the 2008 Military Authorization Act, which increased basic pay rates 3.5 percent from a year ago.

Soldiers authorized to live off-base also receive a housing allowance that this year starts at about $500 a month, 7.3 percent higher than in 2007, paid even when they are deployed. Counting the stipends, they still fall short of the 2007 median U.S. household income of $59,224 as measured by the National Association of Realtors in Chicago.

Some people like to say they are wage slaves. But few are actual slaves like in our military. The Stop-loss program is outright slavery. The victims who, due to either patriotism or economic necessity, fall into this cruel system can't escape. The only way out is to get injured, go insane or commit suicide. All of which happen, alas. Somehow, it doesn't amaze me to learn that these poor people are also deep in debt. This doubles the sense of enslavement. On top of all this, in order to save money, the Pentagon and the GOP have cut the education funds to the bone. The only thing they have raised were two: the bonus paid for escapees to stay in the meat grinder and the death payments. If you die in combat and this is a daily occurrence, then the bereaved families get a fairly big pay out.

But that is like winning a very demonic lottery! If the family member goes insane after the fourth cycle through the meat grinder, the families get nothing. Suicides=$0. On top of everything, the military families were caught in the crocodile's jaws during the housing bubble. Since they earn below the average incomes, since they have a high rate of bad things happening such as going insane when they come home, the average military family qualified for the most toxic loans. Now, less than three years later, they are losing their grip on the home base.

This is very obnoxious. The military wastes half a trillion a year on weapons systems and all sorts of military/industrial stuff but when it comes to the actual humans who have to do the hard labor, suddenly it is Walmart time. The US is going bankrupt. But it is not the fault of the humans who are doing the dying for the imperial powers. They are victims. And like all tools, are cast aside in favor of building more jets, more missiles, more aircraft carriers. And huge, huge profits for the vultures who own the privatized military procurement systems.

I would kindly suggest the US government tax the incomes and bonuses of all the Halliburton creeps, all the Boeing leeches, all the Martin Marietta marionette manipulators, all of the Big Money Bags. Better still, force them to patrol Bagdad. This money is not trivial. This action can raise a good $5-20 billion dollars, easy. Without clipping the incomes of these traitors too severely. I would really like to see every penny they got via military contracts be seized and handed over the the soldiers and their families.

Lenders of first resort

Japan's moneylenders offer banks a lesson in risk management

THEY would call a borrower's workplace a dozen times in an hour demanding repayment. Or send debt collectors to his home in the middle of the night. If the fellow said he could not pay, the representative might recommend he sell a kidney or an eye to raise the cash (and perhaps offer to remove it for him). Some of Japan's moneylenders were an ugly lot.

Yet that never stopped them from being a cornerstone of Japanese consumer finance. Around 14m people, or 10% of the population, have borrowed from a moneylender, or sarakin. There are about 10,000 firms (down from 30,000 a decade ago). The value of outstanding loans totals $100 billion. The biggest ones are publicly traded and often allied with big banks; the top seven make up 70% of the market. But in pockets of the industry, organised-crime groups, or Yakuza, are never far away, notes Jake Adelstein, an expert on Japan's tattooed mobsters.

The business fills an important niche in Japanese society. Where borrowing from the bank is considered shameful and often requires a guarantor, sarakin loans can be as little as $100, borrowers need identification but not collateral, and transactions at kiosks akin to ATM machines take just a few minutes. Loan rates used to be as high as 29.2%—in a country with near-zero official rates. After an outcry at the high levels of debt and the repayment tactics, a law in 2006 capped interest rates at 20% by 2010, and regulated collection methods. Loans were not allowed to exceed one-third of an annual salary. Sarakin were even forbidden from buying suicide insurance on borrowers, since it could lead to, ahem, “moral hazard.”

This stupid article illustrates the insanity of top economic magazines like the Economist. The fearsome lenders in Japan are NOT bankers and they do not lend so people can buy houses or live better. They lend to desperate people who are terrified or backs against the economic wall. Note this story clashes with the legend about Japanese workers saving their money so mightily, it has to come to the US to fund our housing bubbles. And that there is a 'savings surplus' rather than the obvious savings dearth we are actually seeing.

And the stupid line about the feeling of 'shame' which cause these poor people to go to the vicious, criminal Yakuza for petty cash? OH MY GOD. This is akin to saying that dockworkers in the 1950's went to the Mafia for money because they didn't want to try entering a real bank due to their sweaty work clothes! This sort of infantile commentary should have been clipped by the editor. This is just plain common sense!

Japanese animators make fun of all this in a grim way. In last season's children's show, 'Combat Butler' the hero is a high school kid who becomes a butler to pay off his parent's Yakuza loans. The alternative is to have his kidney removed and sold!

Let's leave the brutal Japanese economic system and go back to our own brutal system. The slave soldiers are being courted by the Democrats who came up with a bill that will pay these poor people to go to school a la GI bill of yore. The present system is very parsimonious and doesn't even pay for Junior College in some Podunk Pothole in the Hinterlands.

McCain defends opposition to GI Bill

Sen. John McCain on Monday defended his opposition to a Democratic bill that would expand education benefits for veterans, saying it would hurt the military that he hopes to lead.

The new GI Bill being debated in Congress would expand education benefits for veterans who served at least three years in the military after the September 11, 2001, attacks.

The bill's main sponsor, Sen. Jim Webb, is a Virginia Democrat and, like McCain, a Vietnam War veteran. The Senate passed Webb's bill 75-22 last week. McCain was not in Washington for the vote.
*snip*
"In my life, I have learned more from noncommissioned officers I have known and served with than anyone else outside my family," McCain said at a Memorial Day event in Albuquerque.

"They are very hard to replace. Encouraging people to choose to not become noncommissioned officers would hurt the military and our country very badly."

Several things here: the promise in all the ads soliciting soldiers who are unaware of the stop/loss trap, if they join, they get a free education. I would suggest, this is an education in the school of Very Hard If Not Fatal Knocks. It you survive intact and not insane, consider yourself lucky. This is 'The Moon Is A Harsh Mistress' only the lunar landscape is Iraqi.

The Pentagon money bags are all worried they will RUN OUT OF SOLDIERS if they can exit and get an education. That is, the ones without brain damage or emotional collapse. Or dead. The Pentagon NEEDS these people and so they want to CLOSE ALL DOORS TO ESCAPING THIS TRAP! Isn't that dear?

I say, pack these generals into a Humvee and send them on patrol! In Sadr City! Send McCain, too. McCain has been sparring with Obama over this bill. Bush is going to veto it, of course. Note that any bill handing out endless loot to the military/industrial complex gets passed with little hoo-ha but these sorts of bills, since the money goes to normal people and not pirates, vultures and crocodiles, these bills get vetoed. Again, why do 'I love the military soldiers' people support the GOP? They should hate the bastards.

Here is a student newspaper editorial from a Midwestern state:

Op-Ed Digest: Drawbacks To New GI Bill Temper Student Support

President Bush has threatened to veto the measure, citing the high domestic price tag and the potential the benefits could entice soldiers to leave the service after only three years putting additional strain on an already stretched military force.

Though student newspaper editorial boards hail additional support for veterans, some question if this bill is the best way to express the nations gratitude.

Example:

Indiana Daily Student----On paper, it looks like an exceptional deal. A feat of bipartisan cooperation conceived out of deep concern for Americas returning veterans, the Post-9/11 Veterans Educational Assistance Act of 2007, sponsored by Jim Webb, D-Va., was recently passed by the House and is headed to the Senate, where its fate is uncertain.

But the military, initially expected by most to support the measure, is quickly forming an opposition. The main failure of the bill, critics argue, is that it will place an enormous strain on an already thinly stretched force, as those who have served their 36 months might take off to pursue their degree. While recruiting would be improved because of the benefits, retention would likely plummet, and the cost of training new recruits would be significant.

Some even suspect that this bill is an underhanded attempt to end the war in Iraq by overextending the militarys budget to the point where it cannot continue to fight overseas.

While almost everyone agrees that we as Americans are forever indebted to our veterans and that they are certainly deserving of generous benefits, a bill that does this at the cost of bringing our military to its knees is simply not worthwhile. Regardless of opinion on our countrys current military engagements, bleeding the armed forces to death in the name of veteran benefits is not the way to solve the debate. Read more.

Mercy me. If the students working for this demented paper think it is BAD for soldiers to go to their crummy school, why don't they be patriotic and ENLIST IN THEIR STEAD? This is called 'trading places'. The yellow elephants never look in mirrors. They stomp onwards through life like Bush and Cheney and preen themselves for being patriots while being complete cowards. These student editors should set a good example and get themselves retained for at least 5 stints in the Iraq hell.

Also in the news is the trial of protestors who demand our ghoulish gulag in Gitmo be closed.

From January, 2007, the Supreme Court protest:

The trial for this protest is now happening today. Amazingly, the Washington Post has it featured on the front page. My jaw dropped. Is this paper finally seeing the light? Reforming itself before it is too late? The Überkriegzeitung, the New York Times, is not covering this story. No shock here. After all, the victims of this unconstitutional hellhole are all Muslims. No important prisoners. No hedge fund associates. No real estate moguls like Trump. Actually, they should go there for a stint. Cheney and Bush should be there. Anyone who talks about obliterating humans in a war should go there, too.

Click here to see today's demonstration.

Guantanamo Critics Reiterate Protests as Their Trial Opens

Thirty-five people accused of staging an illegal demonstration at the Supreme Court went on trial yesterday and used the proceedings to renew their complaints about conditions at the U.S. military prison at Guantanamo Bay, Cuba.

Many of the 22 men and 13 women wore orange jumpsuits to show solidarity with detainees. They were arrested Jan. 11, accused of illegally protesting on the grounds of the Supreme Court, a misdemeanor that carries up to 60 days in jail.

The demonstration occurred on the sixth anniversary of the opening of the detention facility, which was set up to house terrorism suspects. Yesterday, the defendants continued to make political statements about the treatment of detainees as their trial began in D.C. Superior Court.

As a clerk for Judge Wendell P. Gardner Jr. took attendance, each defendant stood up, gave his or her name and spoke the name of someone they described as a Guantanamo detainee. Some of the prisoners mentioned died at the prison. The gesture was meant to give the detainees a voice in court.

Bravo. This is true bravery. This is brave hearts. This is what we are supposed to admire. Anyone resisting tyranny. Anyone resisting illegal wars, illegal detentions, human rights violations, crimes against humanity.

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Group of 30: the Conclave of Financial 'Geniuses' Meet

May 26, 2008

Elaine Meinel Supkis

The Group of Thirty who are the banking experts of the planet, are meeting this week in Jerusalem. As they overlook the Gaza Ghetto, they sit around the table and discuss the total collapse of the global banking system. I am guessing that they might be wondering if they did something wrong these last 40 years. Naw. They think they know everything which means they understand nothing. Or perhaps they are too close to the problem and thus, cannot see any solution. Since they don't discuss the rise and fall of empires, they won't see the real problems. But then, one of these 30 guys is the guy who runs the Bank of China and I assure everyone, he knows exactly what the meaning of the history of the rise and fall of empires entails. But the Western members won't ask him about THAT! I went to the Group of 30's library. Teased out a PDF from 1981. Lo and behold, the problems we have today were the problems we had back then! Except for one major difference: the US was not $10 trillion in public debt nor $44 trillion in collective debt and the Derivatives Beast was a tiny cute little baby. Who was being raised to protect the banks, not the $575 trillion monster it has become today.

Fed's Geithner Says World Economy Is Coping With U.S. Slowdown

Federal Reserve Bank of New York President Timothy Geithner said the world economy is coping with the U.S. slowdown.

``The world is much better positioned to deal with consequences of the slowdown in the United States,'' Geithner said at a news conference in Jerusalem today. ``It's looking, at least for now, very resilient to the broad pressures you see, particularly concentrated in the United States.''
*snip*
ECB President Jean-Claude Trichet, speaking at the same news conference as Geithner, said the market correction is ``ongoing.'' Trichet also reiterated the ``concern'' of the Group of Seven nations about ``sharp fluctuations in major currencies'' after the euro rose to a record against the dollar.

Otherwise, Trichet and Geithner declined to address questions relating to monetary policy. They were attending an event in Jerusalem hosted by the Group of 30, a private group mainly of current and former central bankers.

Are they screaming at each other? Throwing books at each other? Talking about assassinating Obama? Ooops. The US is leaderless right now. But the international ruling elites, the international brain pool, the international noogies who paw all over each other at Davos or Paris or New York, these guys will slog onwards without any US leadership. They are what they are: the Real Rulers. Time to examine the Group of 30:

Welcome to the Group of Thirty

The Group of Thirty, established in 1978, is a private, nonprofit, international body composed of very senior representatives of the private and public sectors and academia.

It aims to deepen understanding of international economic and financial issues, to explore the international repercussions of decisions taken in the public and private sectors, and to examine the choices available to market practitioners and policymakers.

Here is the list of characters:

So, it is headed by Volcker. It is definitely international. If you click on the web page above, pass the mouse over the names and a thumbnail bio of the various 30 elites will pop up. I notice, despite Obama being called 'an elite', he isn't on this list. I hope this is rectified. Also, Ron Paul isn't on this Augustian list. One can see why! These people, as their site so charmingly says, they exist to 'deepen understanding of international economic and financial issues' etc.

So, everyone, have these 30 geniuses, these 30 conspirators, these 30 elites done a good job? Or have they failed utterly? We should leave out the head of the Bank of Japan and the Bank of China from the failure list. Both have succeeded wildly beyond their happiest dreams. But the rest: are these people naive? Or lost in the Bretton Woods?

First quarter growth faster than expected

The economy grew at an annualized rate of 5.4 percent in the first three months of the year, racing ahead of the gloomy growth outlooks issued by the Bank of Israel and the Finance Ministry.

"The positive data is an indication for how well the Israeli economy can cope amid a global financial crisis," Finance Minister Ronnie Bar-On said in a speech at the 59th plenary meeting of the Group of 30 senior economists from developed countries, hosted by the central bank in Jerusalem on Sunday. "It is clear, however, that we are still in a time of great volatility and uncertainty, and therefore we need to continue to watch the developments in global markets and do everything to maintain budgetary discipline."

Gross domestic product rose by an annualized 5.4% in the first quarter of this year, compared with 5.8% growth in the fourth quarter of 2007 and 5.9% in the third quarter, the Central Bureau of Statistics reported Sunday. Growth projections for the economy in 2008 of 4.3% by the Finance Ministry and 3.2% by the Bank of Israel painted a more pessimistic scenario.

Well, thank goodness Israel is doing well! See what happens when some sweet sugar daddy comes in with billions in free aid? The US generosity has created wonderful economic conditions for Israel. No wonder the Group of 30 are certain outside the US, everyone is going to do pretty good! If we look at the oil producing nations, they are doing just great. And evidently, Europe, China and Japan have figured out how to roll along without the US, too. At least, they would hope to pretend to do this. If the US were to give all of them hundreds of billions, they would probably pull through the collapse of the US pretty good, I guess.

Frankly, the entire economic system of the world depends on the US spending nearly a trillion more than we make. This hemorrhage of red ink is vital for world trade and they are all wondering if they can get along without this, or at least, the red ink being somewhat reduced. Or course, the other big red ink producer, our military patrol of the planet earth is never mentioned. I scanned the library of these brave geniuses and with 30 guys and gals trying their utmost to figure out what is going on with global money making, spending and trading, not a PEEP about the military! Wow! And no wonder!

They don't want to mention this particular elephant in the room because if they did, they would have to rip up all the pretty reports they made so far and rewrite everything. And the tale would not be about a great international financial system but rather, the Decline and Fall of The US Empire. I suppose the Chinese member who was asked to join only recently [they couldn't keep out the real owners of international banking!] is probably itching to write this report but has been told to wait a while. Especially since China is coping with the huge earthquake damage. Rivers are blocked by mountains and have to be cleared, millions of people need new homes and the earthquakes continue to rattle the region. So China will be rather preoccupied for the time being.

Here is a report from 1981 which I picked out at random. For 1981 was a year that pretty much mirrors today. I wondered how they analyzed it back then:

Balance-of-Payments Problems
of Developing Countries

The Imbalance in External Payments

1. The further surge in oil prices in 1979-80 has dramatically increased the scale of international payments imbalances. The oil-exporting countries ran a combined current account surplus of about $115 billion in 1980, requiring the rest of the world to run a deficit of the same magnitude. Non-oil developing countries have been hit particularly hard. They have had to contend not only with much higher oil bills (net oil imports of oil-importing developing countries rose by some $40 billion from 1978 to 1980) but with two other inter-related changes in their external environment: first, the slowdown in the industrialized countries, which provide their main export markets; and secondly, the move to positive real interest rates, which has raised the real cost of borrowed funds.

Both factors have tended to raise their current deficit further and to reduce their debt-servicing capacity. The combined current account deficit of non-oil LDCs totalled some $80 billion in 1980 and could rise further this year, possibly approaching $100 billion. As the International Monetary Fund's "World Economic Out- look stated last year, the projected deficit of non-oil LDCs is all the more worrying because it is coupled with virtual stagnation in the volume of imports. These countries are therefore confronted with a new threat to their growth, a threat that is almost certainly greater than that in 1974, after the first oil shock.

First off: always, always when I visit international geniuses who are elites and who want to rule this planet, I encounter the same thing over and over. They are very solicitous of the woes of the third world. They want to fix the third world's banking problems. They worry a lot about the third world nations racking up too much debt. They are so very concerned that the governments of third world nations might run up $10 trillion in government debt in only 20 years. Ahem. Such touching concern is a sign of absolute total arrogant STUPIDITY.

Mirror, mirror on the wall,
Who is the most bankrupt of them all?
Is it England or is it France?
Or is the US it by chance?

Well, fiddle-dee-dee! I see in the mirror dark, the face of the American public! First, look at the quaint numbers of this report that worries about oil purchasing debts of the third world: $115 billion in oil sales! Wow. Like, today it is what? A trillion? Another amusing feature in this old report for the Group of 30 is the worry about trade imbalances. The US had been somewhat but not badly out of whack for nearly 10 years when this report was made.

Graph from 321 Gold which I heavily modified:

During the first oil crisis, we had rationing instead of high oil costs. The US went into a steep recession and the dollar was devalued vis a vis the yen and the German mark. It went from 4 marks to the dollar to 2 marks to the dollar. Talk about a mark-down! Heh. Well, that boon didn't last very long. The US deficits began as a very small matter. When this Group of 30 report was written, the US had a balanced trade number so the US wasn't worried. But disaster was just around the corner!

Let me make this very clear: the US got cheap oil after Volcker killed inflation with high interest rates. And what happened next? We went deep into debt! And our trade deficit took off. At a negative $100 billion a year at mid-point of that decade, we were so terrified about that number, the US strong-armed Germany and Japan to devalue the dollar yet again. The Plaza Accords did that. The resulting recession in the US meant we ran a one year trade surplus. But this was NOT due to the US selling goods. We sold our MILITARY to the oil Arab kings! Gulf War I balanced our trade deficits. But only for one year. And the resulting recession from more oil price hikes helped the US stop the flood of foreign goods.

Then OIL GOT CHEAPER THAN EVER during the 1990s. Look at the graphs! Wow. The US trade deficit went from $0 to -$800 billion! Back to the G 30 report: it was assumed that all the third world nations would go deep into debt to pay for fuel because fuel prices were running high. And this was true. And the US didn't go this way for the simple reason, we had just hit the Hubbert Oil Peak in 1974 and this was minimized by the Alaskan oil fields coming online before 1980. So we were still solvent. Also, under Jimmy Carter, the US had speed limits of 55 mph, car MPG requirements and other energy initiatives that greatly cut the consumption of energy. All of which was tossed merrily out of the window by the GOP and Reagan!

3. It remains important, in this context, to keep the size of the non-oil LDC deficit in perspective. In connection with the payments desequilibria caused by the 1973-74 oil price increases, the IMF calculated that the growth of the deficit, from about $8 billion a year in 1967-72 to some $30 billion in 1977, was in no sense disproportionate if one took account of the growth in real economic activity and the rise in world trade prices over the period. A somewhat similar perspective is called for as the world faces again disequilibria of unprecedented size.

In the five-year period from 1974 to 1979, the LDCs have experienced a real growth of about 5 per cent per year and world prices of manufactures in terms of U.S. dollars have increased by at least ten per cent per year. Such a conjunction of quantity and price increases produces a doubling of value figures in about five years. Thus, figures for current account deficits for the LDCs that are foreseen for the early 1980s are not by themselves markedly out of line with the figures of half a decade earlier.

'Growth' was often due to the top industrial nations suddenly changing gears and frantically retrofitting so they were more efficient. Before 1974, home insulation industries didn't exist, just for example. And look at the numbers from back then! $8 billion was a huge number. Today, our numb minds have to wrap around the noxious idea that derivatives based on hedging interest rate fluxions is over $300 trillion! For the 1974 period was the introduction of the floating currency regime. Note that the $8 billion grew to $30 billion. The report claims this was 'growth' but we know, if we remember those years, they were VERY inflationary.

The G 30 report from 1981:

(b) Policies for Industrial Countries

10. With regard to the major industrial countries, the emphasis of demand policies at present is placed on the need to maintain the struggle against inflation. The policy response to the second oil shock was shaped by the main lesson drawn from the first oil shock, namely that countries which acted in practice promptly to effect their adjustment also adjusted more successfully than others. There is still some dispute, however, as to whether this was indeed the right lesson-still less the only one-to be drawn from that experience. It would certainly not be correct to interpret this lesson as requiring the adoption of policies aimed at eIiminating the payments deficits of the industrial countries. The main effect of the adoption of such policies would be to raise further the deficits of the non-oil LDCs. The effect on global payments current imbalances would be small.

On the other hand, the need to avoid a cumulative round of belt-tightening should not become a pretext to avoid or postpone adjustment to the real loss of income brought about by the adverse movements in terms of trade. The posture of fiscal and monetary policies should be guided by the need to reduce inflation over the medium term.

11. An important fact in this connection is that the large industrial countries have generally found means of financing their payments deficits without major difficulties. In particular, Germany and Japan, which together accounted for a large fraction of the industrial countries' current account deficit for 1980, made arrangements for financing their payments deficits at least partly by means of capital inflows denominated in their own currencies. These transactions indeed provided oil-exporting countries with opportunities to diversify the currency composition of their foreign assets.

Both Germany and Japan began to really aggressively sell in the US. In particular, automobiles. The second oil shock induced Americans to buy more efficient cars from the high gasoline tax cultures. The US automakers made truly beastly little cars back then like the well-named Gremlin, for example. I once had to figure out how to drive a Pinto in the dark in the rain and it was hellish, for example. Luckily for me, no one crashed into that death trap of a car! I bought a Volkswagen.

I highlighted the part about Japan and Germany creating capital inflows in their own currencies. Both countries have played the US like a fiddle when it comes to currency issues. Despite frantic attempts at manipulating currency values so we get some sort of balance of trade, they always win out in the end. To the point, we obviously gave up entirely. Now we import oodles of oil and oodles of foreign cars.

G 30 report from 1981:

70. Other proposals are directed towards upholding confidence in the international banking system in times of stress; various arrangements to provide supplementary liquidity to the system at such times might be devised. One suggestion is that a "safety net" be established among the major international banks to assure access to liquidity when the inter-bank market is under stress. We recognize the attractions of such proposals but, on balance, we do not think they are likely to be effective in practice.

Proposals to structure a safety net on the basis of swap arrangements between commercial banks (drawn along the lines of similar facilities between central banks) suffer from the critical weakness that their effectiveness depends on inter-bank confidence, which is precisely what is lacking in crisis situations. In such situations, only the central bank has the competence to act as 'lender of last resort' and the authority to require acceptance by all parties of its terms.

As here we can see how the baby Derivatives Beast was born. As a protector of the banks. As a safety net that would prevent failures. As a small thing, a key, a tool to be used carefully to spread risk and deal with sudden inflationary price surges caused by wars which cause oil to shoot up in price suddenly! To protect banks from the effects of the floating currencies that were bobbing and sinking in this maelstrom of inflation and commodity price upheavals and collapses. The Derivatives Beast didn't reach its first trillion dollars until 1989. And it didn't protect us from the savings and loan collapse. Nor did it, even as it was much, much bigger in 1997, it didn't protect Asia from the Great Asian Currency Crisis. And it certainly hasn't protected our own banking system from the present crash.

The US banking system is bankrupt. And the Group of 30 knows this. And they didn't prevent it. Half of them refuse to even acknowledge this is happening. Look at the top of this story! All is well? Who are we kidding? Or rather, who are the G 30 liars kidding?

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Oil Speculators Kill Global Economies, Feed Global Inflation

May 25, 2008

Elaine Meinel Supkis

High oil prices are tormenting all the oil importing nations. This, in turn, is causing tremendous global inflation. This has happened more than once in my life. We have to understand the nature of speculators, high oil prices and how this impacts all sectors of the economy. And the dark pools run by banking houses whereby they can trade alongside the pirates of the hedge funds, these are a big problem that also cause global inflation. And the bankers want to coordinate these dark pools so they can conspire to make this much, much worse. The bankrupt banks need some money stream they can tap and nothing is better than to use energy and food as that money making machine! Which kills all other business, of course.

Losing a Mint: Curb on Coin Sales Angers Collectors

The government rationed food during World War II and gasoline in the 1970s. Now, it's imposing quotas on another precious commodity: 2008 dollar coins known as silver eagles.

The coins, each containing about an ounce of silver, have become so popular among investors seeking alternatives to stocks and real estate that the U.S. Mint can't make them fast enough. In March, the mint stopped taking orders for the bullion coins. Late last month, it began limiting how many coins its 13 authorized buyers world-wide are allowed to purchase.

I have been around a while. I remember several times in my life when people hoarded real silver coins and other silver things, gold suddenly shot up in value, and of course, the fundamental item, oil was the #1 thing to shoot upwards. Food always roared alongside fuel. These cycles always coincided with wars, the creation of excess debt leading to a fast growing money supply an the dollar being heavily devalued. Which only ends when interest rates go up. We have had recessions caused by other things. There have been other bubbles. But the killer recessions, the ones that lead to the greatest dislocations are the ones that feature high oil prices.

It was popular during the 1990's to pooh-pooh the war=>high oil prices=>inflation=> high food prices. Then, the story line became, 'So what? Food and fuel are only 12% of the average American's income.' Of course, left out of this was the horrible idea that the times food and fuel are 12% of the income is when they are CHEAP. When they are expensive like we see today, they are much more than 12% of the income. The purchase of cars, houses and TVs are usually by getting loans. Generally speaking, the middle class pays cash for food and fuel.

So when the fuel gets very expensive, they have to use credit to buy something which is burned, not something that can be sold on ebay, say. Differentiating between purchases that can be resold such as houses, cars or TVs and those things which are consumed and ceases to exist, is very important. The more people have to spend money on one-time consumables, the poorer they are. So when people have to go into debt to buy heating oil, say, this is very destructive over time. On top of this, when the government and the central bankers conspire to make savings impossible by keeping lending cheap, savers who have anything left over after paying the heating bills, will buy something that will retain its value as the currency debases.

Once upon a time, we got silver coins the old fashioned way: the government issued these things and we simply passed them hand to hand! How elegant. Now. they are 'collectables' and we have the comedy of paying $20 for a $1 coin, for example. Whatever the price, the yawning gap between what a coin cost us in 1960 and what it goes for today is a terrible testimonial about inflation. True, TVs and cars got relatively cheaper compared to our incomes! But not fuel and food. A 5¢ loaf of bread is now over $2 a loaf and climbing rapidly.

So now, the Mint can't mint enough coins? This is amazing and shows us the utter, foolish failure of the Fed. The Fed should be ashamed of itself. And as I keep saying, the banking system is really bankrupt. Our Mint is muck. Our government is a failure.

Slick investors strike riches as they cash in on peak oil

Hedge funds are riding high on record oil prices - and now retail investors are joining them. Louise Armitstead reports

Retail investors have joined a raft of hedge funds and pension funds in making millions of pounds by cashing in on the oil crisis.

Thousands of individual investors have piled into oil futures and have made as much as 200 per cent returns as the oil price soared to record highs in recent weeks.

Last week oil prices jumped 7 per cent, breaking three records and touching $135 a barrel on Thursday on new fears that supply is outstripping demand.

Clive Cooke, chief executive of City Index, the financial spread betting firm, said: "We've seen a big switch into oil - it is now by far the biggest trade at the moment."

One trader said: "The price has doubled in a year. With leverage on top this has equated to huge returns and it's been a one-way bet all the way.

Global inflation is being made much, much worse thanks to the speculators. According to what I have read, these pirates get to buy futures with only $6 per barrel. The rest being LENT to them and they pay only when the contract is completed in the future. If the price drops and they can't sell this future oil for $134 a barrel and say, it goes for $120 a barrel, they have to pay the difference. Or go bankrupt. Usually, the get rich if they and their buddies can keep bidding up the oil. And if they fail, they go bankrupt and no one pays up.

Another endless hole in our collective pockets. This game is destroying international trade and economics. Look at how bidding up the price of oil is shoving much of the planet into poverty and insurrections! As all the economic systems collapse, all the pirates want is their cut! This is why I call them 'pirates'. They have no social responsibilities. And the cure is very simple: the Bank of Japan and the Federal Reserve simply have to raise interest rates so high, these pirates can't borrow obscene future funds and then use this to jack up the price of various things!

When inflation becomes GLOBAL it has to be stopped. And each and every time this has happened in the past, the only party capable of stopping this madness was the US and the tool was higher interest rates. This medicine is bitter but it is the only cure. Or we can sit idle while everything spins out of control.

Airbus at `Less Than Zero' Value Still Loses Altitude

Airbus SAS, the world's largest commercial aircraft maker, is valued at ``less than zero'' after this year's 31 percent drop in the shares of parent European Aeronautic, Defence & Space Co., according to Lehman Brothers Holdings Inc. analyst Joe Campbell.

``The market is viewing Airbus as a liability, rather than an asset,'' said Campbell, 62, who is based in New York and has ranked among the top five aerospace analysts for six consecutive years in an Institutional Investor magazine poll.

Not only Airbus but all the airline industry will go under if this keeps up. Not to mention the goofy US auto industry that put all its eggs in the SUV basket. I read in the news that airlines are charging an arm and a leg for every extra thing: luggage, pets, unaccompanied children, they scour their charges to see what they can raise. We will see, like the last three times we went through this war/oil/inflation messes, quite a few bankruptcies and probably some jet disasters like the one today in Europe where a jet taking off simply broke in half and crashed. Both Europe and the US depend very much on selling expensive jets as a way of balancing the trade deficits. Not that the US comes even remotely close to balancing anything this way. But it is always trumpeted as a great thing when Boeing sells a jet. This is going to dry up. Europe is already hurting badly from this. And the whole point of everyone building bigger and bigger jets is to save money on staff. The same pilots will fly double the passengers and thus, make a profit for the airlines. But not if there is huge oil inflation.

Lagarde Calls for Higher Dollar and Yuan Versus Euro

French Finance Minister Christine Lagarde said she wants policy makers to seek a stronger U.S. dollar and Chinese yuan against the euro.

``I would arm twist whoever is holding these strings to pull the dollar up,'' Lagarde said in an interview with Bloomberg News in Chicago. ``I would like to do that for the yuan as well.''

European officials including Lagarde are concerned that the strength of the euro against the dollar and the yuan would hurt the competitiveness of their exporters. Even after the dollar tumbled around 17 percent versus the euro in the past 12 months, Europe's economy has shown resilience to the U.S. housing recession that pushed up borrowing costs worldwide.

Welcome to the Floating Currency Regime! Nothing is solid, everything goes up or down and no one knows how to change this. Well, this was a temporary condition that is now chronic. The Europeans want to fix it by jawboning everyone into a configuration that suits Europe so they can export huge amounts to the US and have a trade surplus with us. We, on the other hand, have to use our currency to balance our trade. We should have the weakest currency on earth since we have the biggest trade deficit on earth for years and years. But no one wants this, the least of all, the US consumers. So the dollar is kept at an artificial level and the Europeans complain bitterly but dare not say why. Except generally speaking. At least they admit this is all about trade!

But the US has no allies in this matter, only bitter rivals. The sooner we understand this, the better.

Banks allow access to dark liquidity pools

Goldman Sachs, Morgan Stanley and UBS are to link their private stock trading operations to improve liquidity and better compete with the increasing number of alternative exchanges.

The move, to be announced on Tuesday, will give clients of each bank access to the other’s so-called dark liquidity pools – the private interbank or intrabank platforms widely used to trade stocks away from exchanges.

The pools are used by clients such as hedge funds to buy and sell large blocks of shares in anonymity and without the danger of moving the public price of a stock on an exchange.

The development of dark pools is considered a potential threat to established exchanges. Some analysts suggest the various pool providers could eventually join together, combining their individual ones and then applying for exchange status.

Tuesday’s move stops short of combining the banks’ respective dark pools. “These are access arrangements,” said Will Sterling, managing director of UBS’s electronic trading. “These agreements should offer clients access to additional high-quality liquidity without making their trading process more complex.”

Great. Just what we need. Everyone diving into 'dark pools' where they can buy and sell stocks unseen and no one except the insiders have any idea of what is really going on! I say, all these damn dark pools should be drained because they are swamps. This is wrong, wrong, wrong. The entire system is being hauled into the darkness and this is bad, bad, bad. For as I keep pointing out, this is all about the Cave of Death! Whenever we see this place, we should yell and run like hell.

Simple, eh? This 'joining together' to make dark trades is a CONSPIRACY. And people doing this will do it so they can cheat someone who doesn't know the true value or inside information and this included the SEC. The fact that banks have 'dark pools' is all very much about the whole business of the Derivatives Beast and the creation of Funny Money™. There is no way they should be allowed to do this. It should be illegal. And it is CERTAINLY inflationary. And is feeding the pirates in the speculative markets that are causing global inflation.

Shareholder Distributions Reached Half Of Net Profit In FY07

TOKYO (Nikkei)--Publicly traded companies distributed 12 trillion yen to investors last fiscal year through dividends and stock buyback programs, a record amount representing nearly half of net profit.

And hooray for Japan's 'depression'! As I keep saying, yes---the workers are very depressed. As well as oppressed. The top 1% of Japan has had record profits, their corporations are doing great and they are taking over America. Isn't that hilarious? Every week, I like to point this out. Someday American writers might notice this. Heh. Eventually. If we remind them hard enough.

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Derivatives Beast Is Over Half A Quadzillion

May 23, 2008

Elaine Meinel Supkis

Last night, we examined the concept of 'floating currencies'. This was supposed to be a one-time temporary thing because of the Vietnam War and the Arab Oil Boycott. This bizarre, unstable and dangerous system was made semi-permanent in the mid-1970's despite the obvious downside: raging inflation. Then, it was proven to be a huge easy money-maker for the bankers so they excitedly expanded on this system until it became totally and fatally entrenched. Now, it is collapsing along with the banking system that hatched this bizarre and stupid system. In today's news, we get to revisit the Cave where the Derivatives Beast dwells: this creature grew by over 44% in just one year! It now dwarfs all wealth on earth, by far. It is the baby of the Floating Currency system created under Nixon. It is a symptom of what went wrong and why we have to fix the system by anchoring the monetary system to either gold or oil or both.

The Wikipedia entry for floating currencies has this important information:

In most cases, each country has monopoly control over the supply and production of its own currency. Member countries of the European Union's Economic and Monetary Union are a notable exception to this rule, as they have ceded control of monetary policy to the European Central Bank.

In cases where a country does have control of its own currency, that control is exercised either by a central bank or by a Ministry of Finance. In either case, the institution that has control of monetary policy is referred to as the monetary authority. Monetary authorities have varying degrees of autonomy from the governments that create them. In the United States, the Federal Reserve System operates without direct interference from the legislative or executive branches. It is important to note that a monetary authority is created and supported by its sponsoring government, so independence can be reduced or revoked by the legislative or executive authority that creates it. However, in practical terms, the revocation of authority is not likely. In almost all Western countries, the monetary authority is largely independent from the government.

Just before WWI, the US public was assured that if the government had no control over the bankers who launched the Federal Reserve, they would have two good things: no wars since the government couldn't simply print money like in the Revolutionary War and the Civil War. Secondly, there would be no more boom/busts in the economy which would be wisely regulated by disinterested bankers. HAHAHA. Right after ceding control of the currency to a bunch of pirates, we had WWI, WWII, the Cold War, the Korean War, the Vietnam War, more Cold Wars, a host of endless smaller wars, the Gulf War I, Gulf War II and now heading towards WWIII. Except for the 1920's, the US has been continuously at war or preparing for major global warfare. This, in turn, has slowly bankrupted our government. In 1907, when the Fed was created, the government had no debts.

Now, it is approaching $10 trillion and rising at record rates. On the other front, we had the Roaring Twenties, the Great Depression, the ending of the gold standard, floating currencies, an endless rise in the trade deficit, raging inflation and the total collapse of savings as well as the entire banking system! Way to go, guys! I posted old newspaper articles from back when the Fed creation was being debated. It was perfectly clear that the central bankers were going to use gold as a guardian at the Gates of Death where the Cave of Wealth lies. The gold was to prevent inflation, floating currencies, wars, depressions and bubbles. It took the Federal Reserve pirates less than 20 years to wreck total damage on the banking system. Then another 20 years to destroy the Golden Guardian at the Gates. Libra was murdered in cold blood in order to pay for defeat in Vietnam. Then, the floating currency was introduced in Her stead.

The world was assured that the paper Scarecrow placed on Her throne at the Gates of Death would perform every bit as well as this sere and grave daughter of the Gods. The fiat dollar Scarecrow then sat there and grinned stupidly as the denizens of the night entered and exited the Cave of Death with armloads of wealth. So here we are today, the portals swing wide open, the transfer of wealth from industry and communities by speculators who play financial games using the weaknesses of the fiat currency floating system. The weakest parts of this goofy system are protected and expanded by the regulators who set up the Scarecrow. Instead of ruthlessly eliminating these problems, they are happy about this because exploiting these hazards, they all make lots of money! Without any labor added aside from hiring a few geeks to run computer systems that locate and then run programs that tap into these cracks and flaws! So they WIDEN.

For all wealth that is Funny Money™ is controlled by the same laws of Nature as all living things. If we exploit cracks in a system, this creates roots that take ahold of the rocks of the walls set up to protect something. These roots grow bigger and bigger and pry apart the stones until they destroy the entire building. So it is today: like an abandoned temple deep in the jungles, the global banking system has been shattered by a thousand trees that have torn it asunder with their roots. The bank building is barely recognizable as a stable structure! It is falling down. The Guardian is dead and no longer pruning back the relentless growth. And each leaf of these parasitical trees is fiat money.

In Her place, Libra is gone and the Scarecrow has fallen down and has been torn to shreds by this queer creature who was born the day Libra was murdered: the Derivatives Beast. It feeds on the leaves of the trees that are prying apart the banking system. It lives in the Cave of Death where wealth is made. It only comes out on moonless nights. It is silent and hard to see. If you look at it, you might see its bulk outlined by the dim light of the stars. It was called forth by the wizards of finance to deal with the first cracks in the banking structure. It is the child of the Floating Currency.

Baby has had 40 years to grow. It grows faster than anything on earth. Good years, it grows. Bad years, it grows. Indeed, being a Child of the Outer Darkness, the worse the banking system is, the MORE the Derivatives Beast grows. For years, I have sought to explain this thing using various tools. But in the end, only the mythical tools can explain this thing! And each year, I see it clearer and clearer. I wish our bankers could see it so well.

Derivatives Market Grows to $596 Trillion on Hedging

The market for derivatives expanded at the fastest pace in at least a decade last year as the global credit crisis spurred trading in contracts used to hedge against losses, according to the Bank for International Settlements.

Derivatives, including those based on debt, currencies, commodities, stocks and interest rates, expanded 44 percent from the previous year to $596 trillion, the Basel, Switzerland-based bank said in a report today. The amount of credit-default swaps protecting investors against losses on bonds and loans more than doubled to cover a notional $58 trillion of debt.

``The credit crisis supported growth'' of the market, Naohiko Baba, an analyst at BIS who co-wrote the report, said in an interview. ``Fixed-income markets experienced big turmoil so had more hedging needs.''

It is hard to understand the importance of this news if we just stare at the page with a blank mind. But if one looks at this via the magic lens of mythology, it becomes tragically clear that the attempt at fixing the hazards of risks caused by floating currencies attached to nothing and guarded by no one has led to the creation of a monster that is far, far more dangerous than the hazards of a floating currency! How simple can this be?

Why does this happen? It is also simple: people love to take risks but hate risks because risk leads to DEATH. They want to go to the Cave of Death and get wealth while not dying or risking death. So they created this system as a form of armor. The paradox is, the safeguards leads to more risks and going deeper into the Cave of Death and in the end, the armor itself kills the person using it. Like a knight who puts on heavier and heavier armor to fight the Dragon is finally defeated when his horse can no longer move and he can't lift his sword or lance to throw a blow. The Dragon then picks him apart at its leisure without battle.

This means, inflating everything to fix flaws in the float which are exploited by bankers to make wealth out of thin air leads to either a depression or hyperinflation. Libra isn't really dead, by the way. She was evicted from the Gates of Death but She is still there. We may not see Her but SHE sees us! And being a numbers freak, She keeps tab on what we take out of the Cave of Death and She will make us pay for every penny in the end. This is because She has this dynamic need to balance the books. Since the dawn of time, this has been Her only task. This is why She carries the scales. And in Her hand is the Sword of Death. We can, if we stand in the dark night, look up at the stars and see the edges of this sword glitter.

The Bank for International Chaos in Basel runs a lot of this floating system that is falling apart. Here is this week's report about the Derivatives Beast:

1. Strong growth in credit default swaps Notional amounts of CDSs continued to expand by 36% in the second half of 2007, although the growth rate slowed from the 49% recorded in the first half of the year (Graph 1, left-hand panel, and Table 4). At a cumulated $6.0 trillion3 in the second half, multilateral terminations of CDS contracts almost doubled from $3.2 trillion in the first half, and shaved approximately 14% off the growth rate in this market.

Growth in the notional amounts of multi-name CDSs (40%) again outpaced that in single-name contracts (33%). By credit rating (single-name instruments), CDS contracts on firms with ratings below investment grade and without ratings increased by 54% and 24% from the previous half’s 31% and 9%, respectively, while growth in contracts on firms with investment grade slowed to 32% from 49% (Table 5).

The breakdown by counterparty showed that CDS contracts with insurance firms recorded a high growth rate (46%), along with contracts with banks and securities firms (44%), although the share of insurance firms was still very small (0.8% of all trades). Insurance firms sold $319 billion of the protection bought, and purchased $166 billion of the protection sold by the reporting dealers. In the second half of 2007, insurance firms showed a high growth rate (89%) as purchasers of the protection sold by the reporting dealers.

Gross market values of CDSs recorded a growth rate of 178% in the second half of the year, much higher than the 53% from the first half (Graph 1, right-hand panel). This unprecedentedly rapid growth presumably reflected a substantial increase in insurance prices on CDS contracts as measured by CDS spreads in the second half of the year. This increased valuation of existing CDS contracts, amid the turmoil in global financial markets. By counterparty, CDS contracts with insurance firms expanded at the very high rate of 597%, followed by 225% for contracts with banks and securities firms.

Anyone who pretends to be Libra and a regulator has to face facts. Whenever these stupid humans pretending to be the dire Goddess of Balance see the numbers the BIS staff sees, they should rise up in rage and stop this madness. They should be running around with swords in hand, screaming at the bankers, the politicians, the speculators, 'Stop it right now or else we will kill you!'

But of course, they do the opposite. They desperately tweak and shove around the present system to allow this to continue. They justify it and 'normalize' it by pretending that this is natural and should continue. The BIS has made a small stab at forcing the bankers and investing houses to correctly value their crummy loans and crappy CDOs and other bizarre instruments of capital destruction. But the minute this had to be done, the banking structure completely collapsed. So now, everyone is trying to put it back together WHILE LEAVING ALL THE FLAWS AND CRACKS INTACT. In other words, they are not stopping the failures of the floating currency regime, they are protecting the FLAWS!

So even the wane attempt at pricing to market has been a total failure. This is being papered over because they have to keep this flawed, dangerous and useless system going no matter how many humans die thanks to the global surge in inflation of all things needed for survival!

BIS report:

2. Solid growth in FX derivatives

Notional amounts of OTC foreign exchange derivatives showed a solid growth rate of 16% in the second half of 2007, slightly below the 21% recorded in the first half of the year (Table 2). By instrument, activity in outright forwards and forex swaps and currency swaps remained relatively robust, expanding by 19% and 17%, respectively, while the growth rate of options slowed to 8% from 23% in the first half of the year. By currency, contracts with one leg denominated in US dollars, euros, Japanese yen or Swiss francs showed robust growth, ranging between 16% and 21%, while contracts in sterling slowed to 3% (Graph 2, left-hand panel). By maturity, contracts with maturities over five years increased substantially by 104%, while the growth rate of contracts
with shorter maturities slowed significantly (Graph 2, centre panel).

Gross market values of OTC foreign exchange derivatives in total recorded a high growth rate of 34% in the second half of the year, significantly above the first half’s 6%. By instrument, all the categories (outright forwards and forex swaps, currency swaps and options) showed rates of growth higher than 30% (37%, 32% and 34%, respectively). By currency, the euro, sterling and the US dollar recorded high growth rates (73%, 50% and 32%), while the Japanese yen showed a negative growth rate of –5% (Graph 2, right-hand panel).

'Solid growth'??? This is a false use of words! 'Solid' gives us visual images of strength. When the banking building is 'solid' it means the foundation is whole, the walls are not leaning outwards, the facade is sound, not collapsed. If I were in the BIS and writing this alarming report, I would have said, 'Growth in FX derivatives BALLOON OUT OF CONTROL!' The widdershins thinking of the staff at the BIS is deliberate. Up is down and in is out and big is small. And crucially, evil is good. The derivatives market is pure evil. It arose due to the collapse of the US gold standard. Since the value of the US dollar no longer is 'solid as a rock' but rather is a floating feather or a sinking piece of rotted timber, guessing its value vis a vis all other floating/sinking currencies is great fun and very lucrative. But also creates inflation via the creation of Funny Money™ from this system of betting on future values of these floating/sinking currencies. The vapid nature of all this has been called 'smoke and mirrors'.

One of the aspects of the Cave of Death where wealth is created is the widdershins nature of this place. All human magic is done by making things backwards. During the last Ice Age, shaman would wear clothes backwards, wear a mask to hide their human faces, and talk/walk/draw backwards. This innate understanding of the nature of lightning and reversal/polarities is very deeply embedded in human minds. I wonder about the evolutionary forces that made this possible. Perhaps it comes from the beginning of fire use by humans? I better not go there right now, this story is already way down deep in the dark already.

Note the last line of this report: the euro, British pound and the dollar have GROWN. Japan's currency has shrunk. Yet the yen is weak against the pound and the euro and desires to be weak against the dollar! The other central banks don't hold much in the way of yen. But the Bank of Japan holds over a trillion in euros and especially, dollars! As does the even bigger Bank of China's FOREX locked box. Also, the BIS should be screaming about Europe and the US expanding their currencies by over 50%. And we wonder why there is global inflation???? Yet, when we read the news, seldom is this hard fact mentioned. I read many an article about inflation in the top news media outlets. Yet this fact is never mentioned!

Indeed, the inability to connect all the roots of all the trees tearing apart the Banking System lies at the heart of being unable to fix the collapsing building!

Committee on the Global Financial System

The Committee on the Global Financial System (CGFS), which is chaired by Donald L Kohn, Vice Chairman of the Board of Governors of the Federal Reserve System, monitors developments in global financial markets for the central bank Governors of the G10 countries.

The Committee has a mandate to identify and assess potential sources of stress in global financial markets, to further the understanding of the structural underpinnings of financial markets, and to promote improvements to the functioning and stability of these markets. It fulfils this mandate by way of quarterly monitoring discussions among CGFS members, through coordinated longer-term efforts, including working groups involving central bank staff, and through the various reports that the CGFS publishes.

The CGFS, formerly known as the Euro-currency Standing Committee, was established in 1971 with a mandate to monitor international banking markets. Its initial focus was on the monetary policy implications of the rapid growth of off-shore deposit and lending markets, but attention increasingly shifted to financial stability questions and to broader issues related to structural change in the financial system. Reflecting this change in focus, the G10 Governors decided on 8 February 1999 to rename the Committee and to revise its mandate.

Never before has the banking system been monitored and run by so many international organizations. But what is the result?

A collapsing system that is global! This is due to these regulators and systems people working for the wrong entities. They are NOT working to fix or save the banks! They are working for the trees that are prying apart all the stones of the bank buildings! So they say, 'Oh, look! The trees tearing apart the bank building are getting bigger! LET'S WATER THEM WITH MORE FREE FUNNY MONEY™!' Arrest them all.

Double-digit price rises are about to afflict two-thirds of the world's population

RONALD REAGAN once described inflation as being “as violent as a mugger, as frightening as an armed robber and as deadly as a hit-man”. Until recently, central bankers thought that this thug had been locked up for life. Thanks to sound monetary policies, inflation worldwide had stayed low in recent years. But the mugger is back on the prowl.

Even though America is close to recession and growth in other developed economies has slowed, inflation is rising. Jean-Claude Trichet, president of the European Central Bank, this week gave warning about the mistakes of the 1970s, when inflation was let loose at huge cost to growth. His words were aimed at rich-country central banks, but policymakers in emerging economies are the ones who should most take heed. In countries such as China, India, Indonesia and Saudi Arabia even the often dodgy official statistics show prices have risen by 8-10% over the past year; in Russia the rate is over 14%; in Argentina the true figure is 23% and in Venezuela it is 29%. If you measure the numbers correctly, two-thirds of the world's population will probably suffer double-digit rates of inflation this summer
*snip*
Rising inflation, like so much of the world economy in recent years, can be explained partly by the increasingly complex links between developed and emerging economies. Emerging economies shared some responsibility for America's housing and credit bubble. As Asian economies and Middle East oil exporters ran large current-account surpluses, they piled up foreign reserves (mostly in American Treasury securities) in order to prevent their currencies from rising. This pushed down bond yields. At the same time, cheap imports from China and elsewhere helped central banks in rich economies hold down inflation while keeping short-term interest rates lower than in the past. Cheap money fuelled America's bubble.

This stupid article is typical. Rising inflation is not caused by 'increasingly complex links between...economies'. It is caused by FLOATING CURRENCIES. And the ultimate 'float' is the US dollar. Since everyone tries to manipulate their currencies vis a vis mainly the dollar, as the dollar sinks due to the increasing debts in the US, all the other currencies and relationships shift and change along with it...going down, down, down in value. RELATIVE TO COMMODITIES! We see from the BIS report that Europe and America have created 50% or more Funny Money™ this year so of course, as this Funny Money™ floats around the world, seeking COMMODITIES like crazy, the cost of COMMODITIES climb in all nations. Including in the West where this mad money making is happening. Japan, for example, has tried to kill this by deflating their currency, destroying yen and killing off their workers by starving them of all resources and markets. Even so, COMMODITY inflation is raging in Japan just like elsewhere.

The only way to stop this madcap inflation is to raise interest rates to real levels in the US. And to make Libra visible again so She controls access to the Cave of Death.

U.S. inflation understated, Pimco's Gross says

Gross, the managing director of Pimco, said investors should shun Treasurys, including inflation-protected Treasurys, and put their money into commodity-backed assets, including foreign equities.
Gross argued that inflation rates in the rest of the world have averaged nearly 7% over the past decade, while the U.S. official inflation rate has averaged 2.6%. "Does it make any sense that we have a 3% to 4% lower rate of inflation than the rest of the world?" Gross wondered.

Investors are finally waking up to the notion that "U.S. inflation should be and in fact is closer to worldwide levels than previously thought," he said.
Like a legion of critics of the Bureau of Labor Statistics, Gross identified three major problems with the way inflation is measured in the United States: quality adjustments, "dubious" measurements of housing costs and product substitution.

The consumer price index is being understated by at least 1% per year because of these factors, Gross said. And if inflation is understated by 1%, then gross domestic product has been overstated by that same 1%. Other critics have put the error much higher.

HAHAHA. Since we are the wellspring of global inflation, of course, we must have it here! And we do. Yesterday, I published a picture of a local gas station here. Diesel is now one penny below $5 a gallon! This will cause our entire transportation infrastructure to collapse unless the guys driving goods get price hikes! And since NONE of this can be passed on EXCEPT for food, directly, this means a deadly profit squeeze for anyone manufacturing anything. On top of this, consumers can't buy anything but necessities. This is why inflation is evil: it reduces consumption to the lowest capitalist profit systems. There is little value-added when people struggle to survive on less and less purchasing power.

In Europe, strikes and riots are increasing insidiously. In the US, we see rising despair and hopelessness. This is due to the destruction of socialist writing and thinking. Which means we get more fascism. In England, desperate voters are voting for conservatives who will basically leave the poor and helpless to die while doing what?

Feeding the Derivatives Beast! For they are not proposing to be 'conservative' at all. They just want their turn at the helm so they can be pirates. The US Congress just voted for more war spending. And thus, more debt. Both parties. And all the Presidential candidates are vying with each other to see who can be the greatest Beast, the biggest War Monger of them all. So nothing is being even slightly fixed in this area. Global inflation will continue until all other nations cut off exports to the US. This and only this will slay inflation created by the US overproducing dollars by 50%.

Analyst Bove cuts Goldman, Lehman and Merrill to 'sell'

The ratings for Goldman Sachs, Lehman Brothers and Merrill Lynch were cut to “sell” from “neutral” by analyst Richard Bove, who said the largest U.S. investment banks may perform poorly this summer.

Mr. Bove, an analyst at Ladenburg Thalmann, also cut his 2008 earnings forecasts for the banks, as well as that of Morgan Stanley, which he still rates “neutral.”

The downgrades reflect expectations that brokerage stocks “will do poorly this summer for three reasons... weak earnings, clouded secular outlooks, and the seasonal weakness that seems to impact these issues,” the analyst wrote.

This will be a long, hot summer. But then, Bova miscalled past forecasts. Indeed, all the 'forecasters' have a rather poor record. I have an excellent record but few people listen to me because I hang out with Libra. Of course, we are going into a global contortion of huge proportions! And making more Funny Money™ makes this worse, not better. And the confounded system of jiggering the relative values of everything with the universe and each other is collapsing due to it being a cheat and a fraud. For NO system EVER grows nonstop. If they do, they collapse since NOTHING ever goes to infinity without entering the dread land of reversals, the nature of magic is true to this law just as in Nature itself. Even pretend things have a limit. The imagination can't embrace infinity without going mad [ask Einstein about this]. I used to practice by thinking about infinity when I was a child. Then I recognized it as a deadly occupation and so now I respect the limitations of imagination.

Here is an interesting May 15th article from Asia where most of the smarter thinking about money and reality is happening these days:

Managed float or price setting

By Hasaan Khawar

Pakistan claims to be following the Managed Floating Exchange Rate Regime. The foreign exchange rate policy defines the way a country manages its currency vis-à-vis foreign currencies and is closely linked with the country’s monetary policy. If the national unit is tied to any international currency, it is called a ‘pegged’ arrangement but if the exchange rate is left for the market forces to decide, based on supply and demand, it falls under the ‘floating exchange rate regime’.

In the case of floating arrangements, the central banks reserve the right to intervene to check excessive volatility in the currency price, and the policy is termed as managed floating exchange rate regime, though these interventions are not supposed to establish a certain target price level or band for the local currency.

The pegged arrangements on the other hand can be divided into two main classes; hard pegs and soft pegs. Hard pegs either eliminate the local currency altogether and the country adopts another international currency, a phenomenon also termed as dollarisation, as observed in European Monetary Union or have currency board arrangements, where the central bank only undertakes the expansion of monetary assets, by ensuring at least 100 per cent backing by the pegged currency reserves.

In some other cases, these hard pegs are also backed by a basket of currencies, based on the country’s trading profile. In such regimes, the exchange rate either remains fixed for a given time or moves within a very tight band. Soft pegs or pegged floats, on the other hand, come in many forms including crawling pegs, crawling bands or pegged exchange rates within horizontal bands, where the central bank manages to keep the price within a certain range.

The exchange rate policies ranging from hard pegs or dollarisation arrangements to floating regimes form the exchange rate policy continuum, providing many policy options for any country to position itself anywhere on this continuum. Many economists, however, promote the use of floating regimes, especially for countries open to international capital flows, quoting the economic crises of many countries with soft pegged regimes, including Mexico, Indonesia and Brazil, which plunged into economic crises, as opposed to other emerging economies, which did not have pegged exchange rate regimes and managed to survive the crises. Therefore, Pakistan, with a managed floating regime, is supposedly towing the right policy.

The IMF officials however, make a differentiation between the de jure and de facto exchange rate policies of a country, as according to them, despite a country’s claim of having a floating regime, sometimes it might have a commitment for a particular price level - a condition which is not allowed in managed or independent floating regimes.

According to IMF’s website, the last report regarding de facto exchange rate regimes of different countries came out in 2007 and, surprisingly, it ranked Pakistan as one of those countries having different claimed and de facto exchange rate policies. According to the report, in actuality, Pakistan falls under the category of ‘other conventional fixed peg arrangement’.

Back to the stars and Libra: when our ancient ancestors talked about the Gods Themselves dying, they used various images and themes. Across the planet earth, when frightened humans discussed the fading of gods and Götterdämmerung, they used the image of a peg being broken, for example. Loki chained Fenrir the Wolf that eats the world, using odd things such as the roots of rocks, the footfalls of cats and breath of fishes. These are the same chains holding back the Derivatives Beast: nothing at all. Then there is the Nail of the North: the peg that holds the universe together. 'There is a mill which grinds by itself, swings by itself, and scatters the dust....there is a Golden Pole with a Golden Cage on top and this is also the Nail of the North...and a very wise tom cat climbs up and down this pole...singing songs [dirges] on the way down and telling tales [lying] on the way up...' say the shaman of the Ostyaks of the Irtysh River in Sibera. [From Hamlet's Mill]

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Culture of Life News Main Page

Oil, Inflation And Floating Currencies Falling Like Rocks

May 22, 2008

Elaine Meinel Supkis

Accountants struggle to deal with the mounting Enronic problems that plague modern banking and business. This is due to the epidemic of lying both in the banking system and in businesses. Also, we go back in time to review the issue of inflation, floating currencies and oil price hikes. And we look at both an old Time Magazine article that gives very bad advice to home owners and an even older Time Magazine article that accurately discusses the hazards of the Bretton Woods II system before it was fully instigated. Understanding how oil price hikes, wars and inflation interact is life and death for America. Oil dropped a tad today but there is no cause for celebration. We are trapped still and have been since 1972.

Citigroup's `Last Roman' CDO Shows Enron Accounting

Citigroup Inc. created a $2.5 billion mortgage-backed security called Bonifacius Ltd. in August as capital markets seized up and panic swept Wall Street.

The issue took the name of a general, called by historian Edward Gibbon the ``last of the Romans,'' who fought and died for a fading empire. The bonds were created from subprime home loans as demand evaporated. Within six months, Bonifacius collapsed as homeowners fell behind on their payments in record numbers.

Citigroup, Merrill Lynch & Co., UBS AG and other banks created more than $1.5 trillion of collateralized debt obligations like Bonifacius, keeping an undisclosed amount in off-balance-sheet funds called variable interest entities. Bonifacius and $190 billion of similar securities have gone bust since October, spotlighting loopholes the Financial Accounting Standards Board failed to close when Enron Corp. went bankrupt in 2001 after disclosing investments that weren't on its books.

``They never got the real problem fixed after Enron,'' said Lynn Turner, the chief accountant for the Securities and Exchange Commission when the Enron scandal was exposed. ``When people find out how little FASB did, they're going to be shocked. FASB needs to be taken out behind the woodshed and given a good whoopin'.''

The FASB accounting organization slept through the Anderson mess. I knew an Anderson employee who escaped from the World Trade Center collapse and survived. But he got tangled in the collapse of the organization. A very sticky matter, that. Last January, the FASB released a report whereby they propose tightening up the standards. Nothing has been heard since then. Did all the people on the committee commit seppuku or did they go to Siberia? One would imagine, half a year later, they would say something about this proposal.

Who do they think they are? Congress?

Moody’s shares tumble on rating error

Moody’s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models, a Financial Times investigation has discovered.

Internal Moody’s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.

Standard and Poor discovered 'a computer glitch' gave AAA ratings to a bunch of aaa entities. As usual, they blame computers. This 'blame the computer' or 'blame the geeks running the computers' is as old as Univac. Geeks usually don't really care all that much about mere money but they care passionately about computers they run. I have some computer expert geeks for children and in laws so I can claim some knowledge as to how they function.

They HATE mistakes. So when I hear the news that 'computers' and the 'geeks' running them made mistakes, my blood boils. I know from talking to a whole lot of computer geeks, they are under intense pressure from the bosses on Wall Street to insure that the computers conform with the reality that exists within the brains of these bosses which are focused like a laser on one thing: profits no matter what. The 'hedges' that exist seem mostly to be 'whatever you guys can rig.' One computer expert tells us that he and his fellow workers get yelled at regularly by the pirates who hired them. 'Make it WORK, goddam it!' seems to be the supervision.

Freddie Mac Suffers Bout of Temporary Insanity

How long does the word ``temporary'' mean? The accountant who wants to stay employed knows the right answer: ``How long do you want it to mean?''

That new twist on an old joke goes a long way toward explaining Freddie Mac's net loss last quarter of $151 million, which was smaller than analysts' estimates. In reality, Freddie is gushing much more red ink than that. Yet hardly any of it is showing up on the company's income statement.

That's mainly because the government-chartered mortgage financier has deemed $32.4 billion of paper losses from mortgage- related securities as ``temporary.'' Freddie's big sister, Fannie Mae, is in a similar, though less extreme, position with $9.3 billion of such losses.

To ordinary folks, temporary means something of limited duration. Under the accounting rules, the word means almost nothing.

The designation means the losses don't have to be counted in Freddie's calculations of net income or capital, which is supposed to be the company's financial cushion against losses.

Most of these losses are on securities backed by subprime mortgages. About $13.2 billion of them are on securities that have been valued below Freddie's cost for a year or longer. Some of the losses stretch back more than two years. All this has occurred under the tolerant eyes of Freddie's feeble regulator, the Office of Federal Housing Enterprise Oversight.

The refusal to list losses is at the heart of much of this unfolding banking collapse. No one wants to list worst case losses. They don't want to list ANY losses. When losses have been announced, they dribbled these out bit by bit over the last year. But this barely covers the whole losses. Much of these losses have been shuffled off to Freddie and Fannie. As well as Feddie the Reserve with no reserves! Bernanke has vacuumed up a huge dozens of billions in housing losses.

So we are looking at $35 billion in undeclared losses. When losses are shoved forwards in time, they become hyper-destructive of future wealth. Since most wealth is future promises, this poisons the well for years to come. The hope is, the wells won't notice this and animals can drink and not die. This is plainly silly. Ancient accounting rules state that a business must always state the worse case scenario when tabulating losses. This way, they can see clearly the worst and thus, prepare for it or warn investors.

But modern American finance is all about hiding the bad news. This is the 'Hitler' approach to news. Namely, when Hitler was hiding like the coward he was, in his Berlin bunker, he only wanted to hear good news. So he got it until the Soviets were firing rockets on his doorstep and he was driven to suicide.

Here is a Time Magazine insert from last February that tries to explain to readers how they can't save money by waiting for houses to drop in price:

This is a classic! Talk about insane! First, the PRINCIPAL MATTERS. When we sell our houses, we have to pay off any PRINCIPAL that remains. Not the interest rates. The principal. So a $200,000 house will have $20,000 more due at closing than a $180,000 house. As a person who has bought and sold more than one house for a profit, that $20,000 isn't 'nothing'. It is a lot of money! Secondly, the Times bastards assume one will pay more in interest. But we see from charts and graphs, the price of mortgages has not gone up or down much no matter what vacillations of the Fed! The mortgages are pretty set in stone. But even if it goes up, I have bought houses with high mortgage rates. I got them super-cheap! Then, when rates dropped, I sold for huge profits! Duh!

IT NEVER WORKS THE REVERSE! If you get low interest rates but pay a high price, unloading that white elephant is NEARLY IMPOSSIBLE. You take a haircut compared to people who are selling houses bought when rates were high and housing values low! Duh! all over again! Just as Freddie and Fannie Macs are both lying about material values, the accountants are silent as many organizations lie and lie and lie so much they resemble dead skunks on highways. P.U.

The insistence by Time Magazine that a $218,000 house is exactly the same as a $197,000 house is classic, by the way. Over the years, I have talked myself blue in the face to explain to people, it is not how much per month you pay, it is the PRINCIPAL that matters. When we pay off anything, we worry about that. When people think, 'I can afford the monthly payments' they fall into the 'cheap lending trap'. This is when they take on more and more and more debt and can barely pay the interest. Note that most credit cards do this: they have you pay say, $50 a month but the extra interest due is added to the PRINCIPAL so it swells in size and you never, ever pay the damn thing off. Doing this with $200,000+ houses is suicidal.

I think the only reason the Time Magazine editors wanted to lie to people is because they work for advertisers or their spouses are in real estate and need more chumps to rip off. Either way, they are a pack of lying thieves and pirates and should be arrested for fraud.

The Debt Shuffle

After the collapse, Wall Street’s attention naturally turned to the other investment banks, especially Lehman Brothers, perceived as the most vulnerable. So, investors were thrilled when Lehman topped earnings expectations on Tuesday—as the firm took pains to reassure the markets that it has plenty of cash to ride out the turbulence.

Yet aside from a smattering of attention here and there, investors and the media mostly overlooked the balance sheet.In other words, they forgot what happened mere hours earlier with Bear Stearns. Wall Street’s short-term memory is notoriously lousy, but this must set a record. (Could Jimmy Cayne be sharing his stash with his hedge fund buddies?)

Lehman finished the first quarter was total assets of $786 billion, up almost 14 percent from the previous quarter and 40 percent from a year earlier. Other financial institutions are taking down their exposure right now amid the market turmoil to be prudent. Lehman says it wants to. It is not.

Just like Time Magazine lies about housing values versus interest rates, Lehman Brothers lies about its bottom line. Since the FASB has refused to rush through changes that will clearly state, 'Thou shalt not lie about the true value of assets and the true nature of losses', so it is here: it is too easy for everyone to lie. And since the central bankers are lying, the politicians are lying and the investment houses are lying, these liars are creating a Perfect Storm. We see a loss of 'confidence' as savers run for the hills or run for the gold, seeking some sort of shelter. This whole mess can be fixed by returning to the post-Great Depression financial rules. Combined with a return to the Gold Standard. And of course, cleaning house in our government by eliminating the lobbyists and the campaign finance messes.

The investment banks “gross” leverage hit 31.7 times equity, up from the fourth quarter and way up from last year’s 28.1. According to Brad Hintz, an analyst with Bernstein Research, Lehman’s leverage reached its highest point since 2000. Lehman, like all the investment banks, prefers to look at net leverage, excluding hedges, and that went down. And the firm says that the asset rise was mainly a result of increases in short-term items that have low risk. But we’ve heard a lot of that lately across the financial world. It’s quite simple: The more leverage Lehman has, the less room assets have to fall to wipe out its equity.

Gross leverage means they went into debt. Just like the Times Magazine article ignores gross debt while concentrating on monthly interest payments, Lehman Bros would love us to ignore its growss debts and focus only on how little they pay in interest per month! Since interest rates are very low compared to real inflation, this is treated as 'better than savings' since the loans are pretty much 'free'. But not quite. There is that pesky principal lurking there in the dark. It and the Derivatives Beast, continues to swell and grow.

As I pointed out earlier, the low interest rates mask the destruction of wealth. And the Federal Reserve never lowers rates to benefit home owners, they do this for Lehman Brothers and JP Morgan, etc.

Economic Toll Mounts From High Oil Prices

The Ford Motor Company, the American auto manufacturer, said on Thursday it would cut vehicle production for the rest of this year and fall short of reaching profitability in 2009, a long-held company goal. In a statement, a top Ford executive said rising gasoline prices “are having a tremendous impact on our sales, our manufacturing operations and our profitability.”

Meanwhile, Europe’s biggest airline, Air France-KLM, warned of a profound reshaping of the world airline industry caused by what it called the “explosion” in the price of oil. And American Airlines said on Wednesday that it would slash flights and begin charging passengers to check bags, part of a company effort to cut costs in the face of skyrocketing fuel prices.

Oil futures spent months dancing around the $100 a barrel. But in the last two months, prices have taken off, gaining nearly $20 a barrel in May alone.

The transfer of wealth from the G7 West to the oil pumping nations continues. I suppose all Canadians are singing 'O, Canada, We are rich, rich as Russians....' Yes! And they play hockey, too! Goal!

Aside from these lucky duckies, the OPEC nations are raking it in. So we don't just have 'inflation', we have money moving out of America, Europe and Japan and moving to the 'wrong places'. Places that hate us. Well, maybe Canada hates us. Heh. We dare not ask them. Only when they own the Bruins and the Rangers, can we complain, right?

I suppose we get to keep the Devils.

Back to money: Always, always, always, when there are wars in OPEC nations, we have high oil prices, inflation and a collapse of the G7 economies. This has happened four times in my own life: in the early 1970's with the Arab Oil Boycott, the early 1980's Iran/Iraq war, the Gulf War I and now the Gulf War II. Each time, the exact same thing happened. In between each of these wars, we announce that the central bankers killed inflation. Or better: inflation is dead! Then another war comes in the door and inflation roars like a lion in March.

Here is a Time Magazine article from 1974 which talks about inflation and oil:

Time Magazine, Monday, Jan. 28, 1974

Saved by the Float

While it stunts industrial output and cramps consumers, the oil emergency has also stalled the movement toward reform of the international monetary system. The values of major currencies have been wildly gyrating—some up, some down. The dollar has been rising against other currencies because the U.S. has much more oil than Western Europe or Japan and thus stands to be hurt less severely than they by the energy emergency. In the past six weeks the dollar has climbed about 10% against the French franc, 8% against the German mark and 7.5% against the Japanese yen.

Despite the wide fluctuations, international trade and investments have continued to flow without noticeable interruption. Ironically, the reason is that the finance ministers of the 126-country International Monetary Fund were unable to reach agreement on a new monetary system at their meeting in Nairobi last September. Postponing any further action on reform until July, they left in effect the ad hoc system of "floating" exchange rates that has existed since the last big monetary crisis a year ago. If they had agreed at Nairobi to fix rigid exchange rates, the pressures generated by the oil price hike in late 1973 could well have led to huge devaluations and other dislocations and paralyzed the monetary system. As Paul McCracken, former chief economic adviser to President Nixon, says: "It would have been a disaster. Whatever they had agreed on would not have survived the events of the last few weeks."

By contrast, the floating system, which allows exchange rates to be set mostly by supply and demand, absorbed the fluctuations with relative ease. Because the full impact of the oil price increases is still not known, the IMF'S Committee of 20—which is dominated by the industrialized nations that call the shots in monetary affairs—agreed at a meeting in Rome last week to put off indefinitely any plans to fix firm currency exchange rates. Even the French government abandoned its usual allegiance to fixed rates. It decided to stop propping up the value of the franc, which it had done by spending its foreign currencies to buy francs. Now the franc will probably decline.

OK: several things are obvious immediately. First, the 'floating exchange rates' which the US launched so suddenly when we dropped the gold standard totally, was AD HOC. I would suggest, this eternal temporary condition has put us into HOCK and ADDED to our principal we owe the world! Today, a defeated people accept the present, evil, destructive system as a good thing that works. But it doesn't work! Indeed, when the US foisted this upon the unexpecting world, we assured everyone, it was only for the nonce, not forever.

Welcome to eternity! Note how Time magazine admits that a fixed rate would not have survived the Arab oil boycott! HAHAHA. Most of my life, I have argued endlessly with fools who try to pretend that the oil price hikes have nothing to do with inflation. They even innocently echo the lying bastards of the Federal Reserve and Friedman and his other buddies such as Keynes, claiming that only the central banks can create inflation!

Well, they certainly can. BUT they often do this in response to the economic stresses caused by wars and oil. And the very toxic oil wars are the main wars we have had since the Vietnam war defeat. The central bankers flood the markets with dollars when dollars are moving to OPEC. We saw this repeatedly and today it is happening just like all the other times. They hope to dilute and degrade the dollars sent overseas.

Time, 1974:

While a monetary crisis has been avoided so far, international trade and payments problems are looming. The Organization for Economic Cooperation and Development predicts that the industrialized countries will have to pay $50 billion more for imported oil in 1974 than they did last year. Thus, instead of running up a combined trade surplus of $15 billion, as expected before the oil emergency, these nations could have a trade deficit of $20 billion to $25 billion. U.S. officials, including Treasury Secretary George Shultz, believe that the current sky-high prices will exact such a toll on the world economy that "something has to give." Shultz last week urged the oil-producing nations to cooperate with the rest of the world in reducing prices and "scaling down the magnitude of the financial problem."

Some countries might still attempt to cushion the blow to their economies by sharply devaluing their currencies or trying to expand vastly their exports to other hard-hit nations while restricting their own imports. The result, warned IMF Managing Director H. Johannes Witteveen last week, could be a resurgence of old-fashioned protectionism and a devastating trade war.

The currency and trade problems could be eased if oil-producing countries were to put much of their new wealth back into the economies of industrialized nations. Witteveen proposed that the Arabs invest in the IMF itself. The IMF could then lend the money to Western nations or to poorer countries, helping to set their payments balances in order. These complex issues will take months to work out. In the meantime, it appears that the float will become a semipermanent fixture in the international monetary system.

HAHAHA. The Arabs give their money to the central bankers of the IMF who were...CIA agents! You know, even back then, the Arabs knew about the CIA. I assure all readers here, they knew. I know they knew because of my own family. Heh. Many foreigners were not stupid. Particularly kings and such like. They knew that the Americans coming to them in friendship were often shipped out by the CIA. And they would play along. It was all one big joke. Now, they own the CIA, except for the Israelis who also own the CIA. The CIA is now very fractured and at war with itself and is utterly useless to the US.

Note the clarity of this article! They said, countries would devalue their currencies to deal with the oil price hikes! And who did this? The US itself! Wow! This was what Bretton Woods was all about. The US couldn't debase the dollar vis a vis the Saudi currency. The Saudis barely had a banking system back then. They have one now: OURS.

Back then, the US devalued the dollar against Germany and Japan. Japan retaliated by restricting imports in various creative ways. They do this with great intensity whenever oil shoots up in price. I remember how they did it back then. By restricting wages and by complaining that imports were inferior. So Japan has a toilet paper shortage while we had Charmin that was so soft over here! They succeeded in this by dragging out negotiations over restrictions and lack of merchant outlets, each step of these negotiations taking years and years to conclude. Then new barriers rise right behind the ones negotiated away.

The US simply inflates its way out of these monetary wealth transfers. Only this time around, the Arabs have control of our banking system so this misses its target. We hope this will hammer China but China isn't stupid, either. They are cooperating with the Arabs to translate US dollars into ownership of the US itself. Doesn't it make us all sad, reading these old articles? It shows how custom grows out of desperate measures that everyone knew was wrong in the first place!!!!

December 5, 1980,

Price Council Fears New Inflation Surge; Gasoline and Heating Oil Cited 11 Percent Food Rise Expected Reagan Aides See Quick End

WASHINGTON, Dec. 4--Rising prices for food and energy are likely to cause a new acceleration of inflation that will last well into next year, the Administration's inflation-monitoring agency said today in an unusually pessimistic appraisal.

Here it is again, in an old article from 1980. All these articles admit that oil has something to do with inflation. I would suggest the 'floating' dollar sinks like a rock in retaliation whenever there is a hike in oil prices! And the Arabs know this. This is why the present sinking of the dollar is failing miserably. They have had half a century to think of ways of retaliating.

September 1, 1980

Germany Battles Its Recession; West Germany's Battle Against Recession Bundesbank Is Firm on Rates Jobless to Top 1 Million Trade Unions Are Critical

Despite the clouds gathering over the economy and growing election pressures, officials in Bonn and bankers in Frankfurt are staying with a policy of tight money. Paying West Germany's dramatically higher oil bills is taking top priority.

HAHAHA. Class, what does Germany do every time the US drops the value of the dollar when oil price hikes cause 'inflation'? What are they doing this last 5 years?

Strengthening their home currency! This way, oil inflation is moderated! Why does Germany do the exact opposite of the US?

They have very high taxes on energy. So they have a cushion. The US has low taxes and deep debts. Back in 1974, our debts were manageable but we wanted to buy more and more oil so we let our debts run out of control. So our only weapon against high oil prices is to drop the value of the dollar. But this backfires! These days, the wily Arabs insure oil goes up even more. So, the more we kill the dollar, the more oil prices kill us. I don't think this is working and we should ask the Germans what to do next.

'Invade Russia and France!' they might say. Heh.

Ideas on Liberty - July 2007

Unfortunately, many educated commentators have not learned this important truth. One of these is Robert Samuelson, who wrote in the Washington Post (“The Upside of Recession?” April 25) that government subsidies can increase inflation and that recessions can reduce it. But that ain’t so.

To understand Friedman’s aphorism, let us consider this thought experiment: Suppose tonight, as we sleep, Harry Potter flies across the country and waves his magic wand to cast a money-doubling spell. The spell has no effect on the amount of goods and services; it affects only money. Every nickel becomes a dime, every quarter becomes a 50-cent piece, every dollar becomes two, every ten-dollar bill becomes a twenty, every checking account doubles its balance—in short, the money supply doubles overnight. What would we expect to happen to prices over the next day or two?

Helicopter Bernanke and Bush and Congress have done just that. We are all waiting for the Funny Money™ from the Federal government to wash over the land. Businesses are bracing for this money to come in and so prices are not dropping. If people are smart, they will either buy all of next year's heating oil or some such. Or park the money in some account like buying gold or some such. Then they can wait for the inevitable price drops. For this is very inflationary for oil and food and such. In the bitter end, it will not increase 'commerce' it will increase the money spend on survival stuff.

The inability to understand how this fake money feeds the wrong side of the equation is the whole problem with our pundits and rulers. They want to believe there is one sort of inflation. There is not. We have 'asset inflation' when easy lending encouraged by bankers is handed out like candy and then we get periods when the government gives lending to banks who hand it to speculators! And THEY bid up the price of things we need to survive, not houses, TVs or cars. No, it is food, fuel and medicines they bid up.

So what does cause inflation? Well, what or who increases the money supply? Central banks do. In the United States, the Federal Reserve System (the Fed) controls the money supply and thereby causes any inflation that occurs.

Let us look at some of Samuelson’s specific points. He implies that high oil prices are driving inflation when he writes, “We all know about oil. Prices are about $60 a barrel,” and he asserts that government spending drives inflation when he writes, “[T]he government’s subsidies for corn-based ethanol are worsening inflation.” Samuelson is surely correct that government should not subsidize ethanol and thereby push up the prices of corn and all things made with corn. But high oil prices and government spending on ethanol do not change the money supply, so they cannot change the level of prices.

Surely higher prices for oil and corn drive up the prices of goods and services produced using oil and corn, such as transportation and many foods, so we should expect to see higher price levels in those sectors of the economy. But inflation is an increase in the prices overall, not in just some sectors. If the prices of transportation and food rise, then the prices of other goods and services must fall unless more money flows into the system. If we have no more to spend in toto, then when we must spend more money on gasoline, we have less money to spend on, say, clothing. This means that clothing makers would have to lower their prices in order to sell their wares; they in turn would have less to spend on cloth, labor, and other inputs, so we should expect to see lower price levels in those sectors of the economy. The higher prices in one sector would be offset by lower prices in other sectors, as long as there is only so much money to go around.

Except this whole analysis is crock. The problem with inflation is simple: prices of necessities go up. BUT NOT WAGES. When this happens, the working class which is the vast majority of people, get beggared. The excess money flows AWAY from the consumers, from the masses and OFF SHORE or to OPEC or somewhere but NOT within communities. So we have the horrors of inflation along with a LOSS OF MONEY CIRCULATION WITHIN THE COMMUNITIES AT HOME.

So Arabs get rich, the US gets poorer. Understanding this is very important. This has nothing at all to do with the money supply and everything to do with the money's direction of flow. And this matters a hell of a lot more. Slight changes in direction of flow has shattering effects. This month, China will cease to pass money out of China and will have it flow into China to pay for the earthquakes. This means the money won't flow to the US. This will change the dynamics of 'inflation' and will be very depressionary. We will have less money at home even as our central bank struggles to make more and more money. Yet we will have inflation of all global markets at the same time. Isn't that lovely?

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The Fed Drops Rates To Help SPECULATORS, Not Housing

May 21, 2008

Elaine Meinel Supkis

I was fooling around with a bunch of graphs while listening to Mahler's Symphony #6. And then had some revelations. We have to understand how the Fed interfaces with mortgage rates and housing bubbles. The chart below makes it crystal clear: the Fed causes these things to happen because of the SPREAD between its rates and bank rates. Also, the Congress is holding hearings this week about speculators driving up the value of many important commodities at a mad rate that hasn't been seen since, since...since Volcker had to raise interest rates to 18% to stop them back in the 1980's. Time to read the testimony at that hearing and I hope to hear from readers about this riddle. Thanks!

Click on image to enlarge:

When I drew up this graph and began to color it in, I noticed several things. One was, the interest rate charged by the Federal Reserve doesn't match the mortgage rates offered to homeowners by the banks. Indeed, there is virtually NO match! What the hell is going on here?

I noticed that only twice did the Fed rate rise above the rate the banks charged for house loans. Both were due to Volcker's attempts at killing off inflation! Between each dragon-slaying event, housing BOOMED. But so did inflation. After the second surge by the Fed, Volcker was thrown out of office and we got the Greenspan/Bernanke regime. Note how each time the Fed dropped interest rates, the banks DIDN'T FOLLOW SUIT. They merrily charged far more for mortgages than the Fed's ongoing rates! But every time the Fed RAISED rates and the mortgage and Fed rates merged, housing COLLAPSED. And this time around, from 2006-2008, is no different!

Anyone who tells me the Fed drops rates to 'save housing' is NUTS. Or listens to propaganda. The central bankers are born liars. They lie about nearly everything and anything. If you gave them a lie detector test, they would cause the needle to jerk right off the chart.

The question is, if rates have barely changed between 2000 and 2008, why has housing had this sudden boom and even faster bust? Who had money burning in their pockets and were eager to give it to anyone and everyone so long as they promised to pay back at the rates that were more than 350 basis points higher than the money the Fed was shoveling into the member banks? Eh?

Sometimes things hit me like lightning. I was going to do a different story but needed to review some statistics so I went off to the Fed and fooled around in their graphs section. This chart is very much a revelation to me! For I added the percentage of rise and fall in value of the housing stock. Then and only then, did it become crystal clear: the rate of interest for mortgages did NOT cause the housing bubble! Not even slightly!

No, the true nature of this beast was the action of the tentacles of the Federal Reserve: all of its member banks. They got the cheap loans, not the homeowners. They had cheap money that HAD to do out the door, fast. A huge amount of cheap loans that HAD to be quickly turned into 'money' as it had to become the tar baby for some human somewhere who would use FUTURE labor to pay for the money handed out via the central bank to the member banks!

The Hunt for the Chump was on! As this easy money that was so tempting poured into the accounts of the member banks, so long as it sat there, it was a DEBIT, not an asset. To change it into a plus money making asset required giving it out as a loan in the housing markets. The pool of 'good people' who could put 10% down was limited. The funds the Fed made available was unlimited. So all the member banks dropped requirements to the point of 0% down and no certification of income or anything at all. I remember when a person couldn't get a loan for housing unless your income could support it.

But during this bubble, that was thrown out the door. People could buy 2, 3, 10 properties. People in prison bought and traded properties! Anyone including a flood of illegal aliens could buy a home with no money down. When the 350+ basis point difference became too difficult for the increasingly ill-funded purchasers using this flood of Funny Money™, the banks willingly shoved even the payment of interest into the future with their new 'teaser' rates and the 'don't bother with the interest and let it become part of the principal' games.

In other words, the rate drops were NEVER for the homeowners. Who always needed a sudden flood of Funny Money™? If I drew a chart showing Wall Street collapses, there it is: EVERY DAMN TIME THE FED DROPS RATES IT IS FOR GOLDMAN SACHS AND JP MORGAN!

And shockingly, guess who founded the Fed? Eh? Of course, readers here know I hate the Fed and wish it ill. The main thing here is, the manipulations, the gyrations our interest rates undergo, the wilder and wilder surges we all go through are not due to the Fed 'tightening' or 'loosening' money. It is due to the Fed doing this on behalf of a bunch of pirate speculators! Who have only one desire: to enrich themselves as fast as possible. Greenspan let the cat out of the Fed bag by muttering something about 'irrational exuberance' except Goldman Sachs and JP Morgan are not irrational at all.

They play with the toys Santa gives them. And cheap loans is the biggest gift Santa has! I was very angry last fall as Cramer was running around foaming at the mouth about 'blood in the streets' but every time the Fed dropped interest rates, stocks would shoot upwards to new records. Now, rates are dropped and stocks...hey! They shoot up! But yesterday, these pirates learned there will be no more rate cuts for JP Morgan or Goldman Sachs and the stock market crashed. They blamed it on record oil prices. But I saw in the news all last week when stocks were rising, that this was due to higher oil prices and since oil companies are on the stock market ticker, this drove UP stocks!

In other words, stocks are ENTIRELY dependent on how low interest rates are. Why is this, I ask.

HAHAHA. Are these clowns using hard-earned savings to play the markets? OR ARE THEY USING LOANS? The answer is painfully obvious! We know there is a lot of loans out there right now because they are being used by speculators...in commodity markets! The cheaper the loans, the more they make commodities climb. THIS IS CAUSING INFLATION.

Long ago, I said all the yapping about the housing crisis was NOT the cause of the banking collapse. It was a symptom. The real cause is in the graph above: housing is crashing due to the banks ceasing the flow of money towards housing for the simple reason, the 350+ basis point advantage is GONE. They make NO PROFITS. But they do make profits if this money flows to...the speculators. They have an endless appetite for cheap loans! Considering the risks they are taking, a loan for less than 11% is cheap as hell.

If oil rises by 165% in six months, my god! The profits! Paying 10% on a loan from a bank to play that market: what a spread! This is why the hedge funds that finally dumped their toxic paper off at the Fed for a fist full of Treasuries ran off to the oil markets and plunked it all down on bids! As well as rice, wheat and a host of other things. No one is putting on housing. Housing is dead as a doornail since it is declining. We can be certain, when it begins to rise again, they will pour money into housing lenders again.

Right now, the spread between mortgages and Fed rates is around 250 basis points. In the news this week is the not-so-surprising information that the lenders are letting people buy houses with only 3% down. A ridiculous amount. This is in a desperate attempt to revive the housing bubble for political reasons. Too many people are poking around the smoking ruins of the housing/banking collapse. And the flood of Funny Money™ pouring into commodities is rapidly destroying our nation's economy, nay, the entire planet's international and internal commerce and trade!

Since the US is hugely responsible for this global inflation, we have to understand how it works in order to fix it. Below is the testimony of the people responsible for controlling the speculators who are running riot across the entire planet. To show how nearly impossible it is to rein them in under present circumstances is obvious. We shall talk about that in a moment:

Testimony of The Commodity Markets Council On Financial Speculation in Commodity Markets: Are Institutional Investors and
Hedge Funds Contributing To Food and Energy Price Inflation?

Before the Committee on Homeland Security and Governmental Affairs U.S. Senate

May 20, 2008

Examining The Role Of Institutional Investors And Hedge Funds In Commodity
Markets

CMC views the investment activity of institutional investors and index funds as legitimate “financial hedging,” but we recognize that it is passive in nature and not responsive to price levels or supply and demand fundamentals. In 2005 and 2006, CMC worked closely with the Commissioners and staff of the Commodity Futures Trading Commission (CFTC) to bring about a better industry understanding of the nature of index fund activity in futures markets. The result of this collaborative effort was the CFTC’s release of a new Commitment Of Traders (COT) Supplemental report showing index fund financial hedges as a separate and distinct category.

We believe the COT Supplemental Report provides much needed transparency to the market about the size and behavior of such investors. Despite being a relatively young report, it is already one of our industry’s most essential tools for analyzing markets. Although some organizations believe that the activities of large institutional investors in futures markets pose a threat, CMC believes that this is not necessarily the case. CMC recognizes that passive investment in the commodity markets may have had some price impact, but current evidence shows that market fundamentals generally support the current price levels seen in the futures markets.

The CFTC recently indicated that it will take a “go-slow” approach in expanding exemptions for this new class of investors. CMC supports this regulatory approach because it will allow the Commission and market users more time to thoroughly evaluate the potential this passively invested money may have on commodity markets. Given the many concerns in the commercial marketplace about convergence, CMC believes it is critical for market participants to have a clear idea and understanding of this new type of investor. It is important to note that this type of investment is new and different, but not necessarily bad.

My god. This is pure madness! This 'type of investment' is not new at all! It is a ghoul from a very musty, old grave. Time and again, the bankers create a mania of some sort. This is usually due to lending maniacs money to play games with tulips, Mississippi mud or South Sea froth. As for the harm being done by these speculators: it is immense. This commodity bubble mess is historic. I have seen this before: it was in the late 1970's and Volcker strangled it quite dead with his high interest rates.

This sort of brain-dead supervision by the people who should be taking things in hand is typical. For example, when Congress sits down to discuss the trade deficit, this same mealy-mouth, pandering talk is all we get. Only when the heads of the Fed talk with Ron Paul do we see any sign of life. The rest of the multi-millionaires in the Senate, for example, flee the room when Paul takes on the Fed. They don't want to hear about this at all. Nor do they really care about the trade deficit or they would all be yelling. They are a tad frightened about the massive bubble in commodities because this will destroy what is left of our nation! It can cause WWIII! No one outside the US is very happy with this mess except the Saudi Royals and Putin. And Chavez. And Iran, for that matter. I would think our Senators would look at this and flip out. Yeah.

A prediction: if oil hits $200 a barrel as the US threatens Chavez and Iran as well as Russia [with those stupid missiles in Poland!] this will be due to the speculators knowing this threatens the future of oil shipping so they bid up the price. And at $200 a barrel, our economy will collapse. Millions of Americans will have to go without heating, travel to work, food will be too expensive, our nation will collapse. And if the Fed feeds these speculators more cheap loans, it will get WORSE. Cheap Fed loans=>speculators using it to bid up oil=>total social and economic collapse of the US. I would think someone would put all this together and react.

Equally important is the distinction between passive investment and price-responsive investment. Typically index funds and institutional investors engage in passive investments. They take a position and hold it until a determined time. They do not change their position based on market movements. On the other hand, hedge funds tend to be more responsive to market signals and act as a traditional speculator. As such, hedge funds are subject to speculative limits which are appropriate.

In the last decade, futures markets, especially in the enumerated agricultural commodities, have grown immensely because of the relevance of their products to the commercial hedging, financial hedging, and general international and domestic trading communities – including hedge funds, index funds, and institutional investors. This increase in volume boosts liquidity, aids in price discovery, and enhances market efficiency.

Futures markets today reflect global economics and trends, not speculative buying power. Speculative activity in futures markets may influence day to day prices, but it is powerless in the face of larger, fundamental forces. If prices begin to retreat tomorrow, speculative activity will follow that retreat, not cause it.

My god. This guy is effing insane. He is mad as a hatter without a toupee. How on earth has flooding the commodity markets with a vast sea of easy loans, aid in 'price discovery'? It would be like when I go out to pump some gas in my car. I discover I am going to have no money for food! What a neat thing to find! ARGHHH. And 'liquidity': hey! I recall for the past six months, the bankers shrieking about the LACK of liquidity. And yet, when even one drop of liquid is squeezed out of the central bank's lemons, the price of all commodities shoots to the moon! What a shock!

Policy Recommendations To Consider

To address the concerns surrounding this new investor in commodity markets, CMC
recommends:

1. Monitor Index Fund Positions. To maintain competitive markets, exchanges and the CFTC should continue to monitor index fund participation and be prepared, if necessary, to examine the structure of the hedge exemptions granted to the funds. In the agriculture futures markets, volume grew immensely in the last decade and the increased liquidity benefited all market participants. Fund investment contributed to this prosperity, and CMC believes that the CFTC and lawmakers should move slowly when adopting measures that will discourage such participation in the markets.

2. Continued Product Innovation. As the markets evolve and learn to adapt to the changing supply and demand dynamics, CMC would support legislation and regulations that allow exchanges to continue to innovate and create new products to manage risks. [ARRRGHHHH! LIKE HELL!]

3. CFTC Study Of Alpha Trading. CMC also recommends that the CFTC initiate a study of the trend toward “alpha” or “enhanced return” trading by index and hedge funds. Because this type of investment is price-responsive and not passively managed, CMC believes it is speculative in nature and should be reported as such on the CFTC COT Supplemental Report.

Margin Requirements

With crude oil prices moving higher and higher, CMC shares the concerns of many lawmakers. We are confident in the ability of CFTC professional staff to monitor and evaluate trading in energy markets, as well as their conclusions about the impact of speculation on prices in the energy futures markets. [Sort of like watching the Titanic sink while appreciating how nicely the orchestra on deck is playing]

CMC is concerned about a provision in the Consumer-First Energy Act of 2008 that would require the CFTC to set a “substantial increase in margin levels for crude oil.” It appears the intent of the provision would be to lower prices; however, we believe that increased margin requirements would force many market participants off-exchange and into less transparent markets.

A margin payment, also called a performance bond, is the amount of money or collateral deposited by either a customer with a broker, a broker with a clearing member, or a clearing member with a clearing organization. A margin payment does not serve as a partial payment on a purchase, but rather serves to manage counter-party risk and ensure the financial integrity of the markets. Raising margin requirements will not reduce volatility or manage prices. It will increase the cost of futures transactions and potentially push speculative liquidity from the regulated exchange marketplace.

CMC Grain Futures Performance Task Force

With unprecedented challenges facing the US grain markets, CMC brought together exchanges and exchange-users to discuss futures market performance. The Task Force reviewed many market-related issues with the participants and the role of institutional investors and hedge funds was a significant point of discussion.

As CMC is still working to finalize our findings report, I can provide a general overview based on the dialogue the Task Force panel had with the participants. CMC will make the full report available to you as soon as it is complete.

The overriding concern expressed by participants is the financial impact of high commodity prices and increased price volatility – not futures market performance. Most market participants agree that current supply and demand fundamentals support high commodity prices. They do not believe that institutional investors or hedge funds are pushing price levels higher. Specifically, participants identified the following as the primary reasons for current price levels:

1. Strong economic growth in developing countries such as China and India resulting in increased demand for commodities.

2. Increased demand for commodities used for biofuel production and government mandates on biofuel use that result in inelastic demand for grains and vegetable oils.

3. Reduced yields in major producing regions due to weather events that are resulting in historically low world grain stocks-to-use ratios.

4. Export restrictions imposed by other nations.

5. A weakening U.S. dollar.

Meanwhile many grain and oilseed handlers face greater financial scrutiny as the sub- prime mortgage problems increase the pressure on lenders. This tighter credit creates an increased need for more consistent convergence between cash and futures markets.

Consistent convergence was the primary topic regarding technical futures market performance. While most participants agree that basis weakens in high price environments relative to more normal market conditions as grain and oilseed handlers’ increased risk is incorporated in lower cash grain bids, participants still expect consistent basis strengthening as futures markets approach expiration. Some Task Force participants have disagreed on why convergence has been inconsistent – citing either insufficient storage charges on futures market receipts and certificates; index fund and/or speculative activity in the market; or the multitude of external shocks hitting the market. Most of those interviewed by the Task Force urged Exchanges to not make drastic changes until the markets adjust to this new operating environment.

The panel discussed a number of proposals that might improve convergence, but no broad consensus emerged from the process. Nonetheless, the largest number of participants generally supported increasing storage rates. Participants also supported seeking CFTC approval to clear OTC grain swaps.

Seriously, they are desperate to stop the OIL speculators. But NOT the entire system which is totally out of whack. Examining where this mysterious speculative money comes from is literally life and death. The Japanese carry trade is where the lowest interest rates on earth are. And we have to confront the Bank of Japan about all this just like we have to bang on Bernanke's bald head about all this. Damn. They have to stop the merry go round of easy lending to the big speculative banking houses, the founders and owners of the Fed itself. JP Morgan and Goldman Sachs. We have to clip their wings before they fly off with all the wealth in the world.

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