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You won't find anyone in financial regulation roles anywhere on earth who EVER wants to limit markets for trading things like stocks, bonds, commodities, and of course, layer upon layer of derivatives.

That's because the regulators are financiers themselves, and (with the exception of a few quaint now-extinct bankers in the 1950's) financiers are "gamblers with other people's money." They get their gambling money by borrowing, and they leverage that borrowing as far as they possibly can. They have only one thought at all times: "I'm going to get rich (richer) (richest)."

Of course, they expect our central banks to bail them out when their gambles go bad (and guess what?). And they consider themselves proven to be superior beings when their gambles pay off, and conduct themselves accordingly.

Naturally, when the systemic effects of all this trillion-dollar gambling turn ugly (as they always do from time to time), the regulators sniff and will carefully tell you it was "fundamentals" that caused the hyper-inflation or great depression, not speculation.

Elaine Meinel Supkis

100% right, Michael. Thanks for saying it so clearly. This is all making me very sad since our politicians are, this week, pushing very hard for war with Iran. Which is making oil impossibly expensive. I see something really horrible in the future.

It is too sad.


All our politicians have known for years that the 'financial services industry' is borrowing money (our collective future earnings) to gamble with and have said nothing to the Public about this crime.

This makes them accomplices to this grand theft and destruction of the US.

They are guilty of treason.

The public however keeps re-electing incumbents at a 95%+ rate, re-electing in effect traitors and thieves.

It's hard to sympathizes with someone who lights their hair on fire and then tries to put it out with a hammer.

That is the 'Merikan Public in a nut shell.

They have become strong as a fox and smart as an ox.

The rest of the world hopes we choke to death on our own stupidity.

We will not disappoint them, we aim to please.


It's taken you a while but you're getting there. If you understand how the banking fraud of fractional reserve banking REALLY works, you will understand stocks and inflation and the importance of gold.

The cycle is simple: Bankers make a mistake. They secretly swap bad loans for good money with the Fed. Interest rates drop. Banks immediately have to lend again.

Imagine having a blank check for 24 hours, but you couldn't give yourself the money, you had to create a loan from which you had to GUARANTEE yourself a steady income stream in interest payments forever. What would you "invest" in (who would you lend to)?

Something people HAD to have. You would want to ENSLAVE you neighbor to guarantee payment of interest no matter what. You've got one chance. Just one lump sum amount. So you would encourage your neighbor to borrow to buy shelter.

Remember the hierarchy of human needs? Food, water and shelter. And health. And (arguably) education and the safety of your children.

As banking crises erupt, each one of these essential needs inflates to levels that do not allow the working classes to survive without borrowing and killing themselves to pay the interest. Why? Because in desperation once the stockmarket dies and they cannot speculate into that, the bankers inflate that which people will kill for. A nice house. Good food. Good education for their children.

At the end of the day, when all is said and done, the bankers simply stand between man and his essential desires and puts out his Satanic hand and says "promise to pay me INTEREST first - or die".

And you pay. Or you die. Or you fight for your life and you children's lives and you kill the bastards.

It's as simple as that.



There is a guy named James Pence who puts what you just said in a very eloquent and pointed manner, but with a twist. Put on your Critical Thinking cap.:


Bear of Little Brain

Re: your interest rate "conundrum".
I don't know if I'm right (I am "of little brain"), but it seems to me that the fractional reserve system, variations in the reserve requirement, and the inherent leverage should be in there somewhere (unless I missed it). Given a big enough reduction in the reserve requirement, wouldn't it be possible to outrun an increasing base rate? As a bank, I may have to borrow from the central bank at, say, 1% more, but if my reserve requirement drops by, say, 50%, doubling my leverage from, say, 10:1 to 20:1, I could still make money from loans, possibly even with a lowering of my own loan rate. Or is that total nonsense?

Re: commodity markets and speculators.
This is a free market/central control issue, and hence an ideological issue, to some extent. Futures serve a very useful purpose for producers and users. Also, in the futures market, every contract has counter-parties; if I make a "bet" on a higher price, someone else has to "bet" that I'm wrong. However, a dominant group can control that market to the detriment of the other party (silver seems to have been subject to this over the years, and the imposition of the power of big agri-business is attempting to destroy independent farmers). My take on it is that speculators (of which I am one, from time to time) simply provide the lubricant that prevents a "seizure" (in both senses of the word) in/of the market. Margin and leverage (which I avoid, but may be impossible to eradicate totally without destroying the market) will exacerbate volatility, but we must have a mechanism for the market to respond. The price of wheat may or may not have become extreme (it is now down about 30% from its peak), but it has certainly alerted the world to a supply problem. I suspect that we will not outrun Ug99 stem rust, population growth, and water shortages, but higher grain prices have sounded an alarm that a price-control regime may have hidden until it is too late. In extremis, governments need to intervene, but not as a matter of course. We live in an imperfect world, so, as they say, "Be careful what you wish for, lest it be granted".

Here is a graph of the long-term price of wheat. Are we paying too much now, or has the farmer been paid too little for 35 years? Or is it just the market price?


Bear of Little Brain

Agree with you on the crime of fractional reserve banking, but cannot see that loaning others money has to be synonymous with enslavement. You have set up a false condition. I have no wish to enslave anyone, but I do have a little money which I personally cannot utilise. Why can I not loan someone my money for a useful purpose and be recompensed (reasonably) for enabling someone else to improve their lot? Can this not enrich us all? It's all a question of degree. Why can we not band together for our mutual benefit? Perhaps it is simply that we have been blinded to the alternatives by the lizard men, and been divided in order to be ruled.


"Why can I not loan someone my money for a useful purpose and be recompensed (reasonably) for enabling someone else to improve their lot? Can this not enrich us all? It's all a question of degree. Why can we not band together for our mutual benefit?"

Lenders have the power of compound interest working for them while the same power works against borrowers. And, as Albert Einstein remarked, the power of compounding interest is the most underestimated power in the universe. If one group has it working for, and the other against,the two groups are soon separated in economic power to such an extent that the "mutual" benefit part of this scenario doesn't make sense.

I can borrow at -- 7 to 30 percent(credit card rates.)

I can lend at-- through my savings account, oh 1.5 percent or so.

I can invest borrowed money to get a favorable rate of return, in exactly the manner Elaine describes, but that's a problem for someone somewhere down the road, no "mutual benefit" there, all things considered.


Bear of Little Brain

The weakness – and strength – in my position is that it envisages one group working in its group interest, founded on a strong and practical sense of humanity, or respect, or moral obligation. Or whatever. That requires a different model. I have no detailed knowledge to offer, but what I have in mind are the Co-operative Movement, the Friendly Societies (Quakers, I think) and Mutual Societies. Others must have come up with better paradigms in less brainwashed, brain-dead times.
The dominant model is one of exploitation, a different mindset, and one reflected in your example. I note that you "can invest BORROWED money to get a FAVORABLE return". That is the lizard mind infecting you. I was talking about loaning MY OWN money for a REASONABLE return.
My idea of "mutual benefit" has no place for the banksters, or most of "the Suits", come to that. (I was a Suit for twenty-odd years, BTW.)
All the best.

Elaine Meinel Supkis

Compound interest works through CDs. When one has enough savings, one can buy CDs and Treasuries. Then one gets more money back without any labor. Someone else needs to work for that money to return to the saver. The saver saves because of the REWARD from compound interest. If there is no reward, the saver vanishes.

The US collectively has ceased saving during the long period of 'low interest rates'. This meant, savings could not get enough of a return on lending! So people ceased to put their savings in bank CDs and began to pile them into risky investments which then shot up in value: the stock market and housing market and commodity bubbles!

The PRICE OF HOUSING shooting up was borrowers wildly bidding on houses they couldn't buy except if they put 0% down. This money did NOT flow to the banks, it flowed to house sellers! The banks got the fees and handling charges. They also made a killing on the differential between the low Fed rate and the high rate they charged in relation to the Fed rate.

But all of this has nothing to do with compound interest. Compound interest is our FRIEND not our enemy. That is, if you are a SAVER. See?

Since the vast majority of Americans are drowning in red ink, they all dream of the 0%/0%/0% heaven. And that is pure hell for savers who will vanish even more. And that system is eternal depression. Trust me on this.

Bear of Little Brain

When no-one can protect the real value of their savings, the rational thing to do is to put it where it will be protected. Housing was a rational decision, initially. Gold and silver may be rational decisions for the present. A bubble grows out of a situation which, in its early stage, is utterly rational. Until it isn't. Real things become a sensible refuge when the currency cannot be trusted.
As to compound interest, The Reaper enforces the limit on that.

Elaine Meinel Supkis

I have paid off compound interest loans in my own life. It is not impossible at all. But then, I also lived for ten years in a tent due to stubborness about going into debt. So now I have a house and no debts.

People know there is always a way to do things but this often involves sacrifices. And people really don't like to do that part of the deal so they choose the easier way.


A crucial distinction, I think, is that the particular debt which concerns us here is consumer debt - it is debt which has financed consumption.

Consumer debt is really nothing like business debt. In a business debt, one bets the borrowed money will make enough money to pay back the debt, the interest, and also return a profit. (Of course one can bet wrong, but that's a different subject.) The prospects for consumption debt are nothing like this...One gets some gratification of some sort and then one has a big financial problem on one's hands.

A good rule of thumb, and I think a rule which was once well understood by the vast majority of Americans, is to NEVER use debt to finance consumption.

Most people never make a great deal more money than they will spend -- even before all this great and tragic accumulation of debt, most people were living from paycheck to paycheck and were really very,very close to insolvency anyway. (Back in 1999, I remember someone I respected telling me the average person was only one or two paychecks away from bankruptcy.) Under these circumstances, if you borrow money, you are doing yourself mischief...It's just that the mischief doesn't appear immediately...It's deferred mischief, so to speak. (In contrast to deferred gratification.)

But what gets me is that lenders know damned well that in getting all these people into debt they were getting them into mischief...It has to be part of the plan. There's not going to be a "rescue"...Who will mount the rescue? I don't know what the endgame is here, but I bet the lenders have bet that the probability of revolt is manageable and worth the risk in order to gain iron-handed control of the "citizenry."

Elaine Meinel Supkis

Correct, Yusef. Businesses can't grow unless they use some credit to create greater capitalist profits via upgrading the machinery, expanding markets, improving products, etc. But consumer spending is often a waste.

If, for example, we spend money on upgrading the heating system so it runs better or uses a cheaper fuel, the payback in the form of lower bills means the debt pays for itself via savings due to the installation of a better system.

But a debit is fixing the roof, for example. That just prevents future possible repair bills from rain, for example. Buying a car on credit is a loss for the first 6 years then after 10 years, the car finally is making up for the earlier losses, each year it runs after the first years paying it off, the interest rate losses are returned in savings from the value of the car. But it is never a profit. It simply keeps the losses down.

If one upgrades from an SUV gas guzzler to a 45 mpg car, the money spent on paying the interest on the loan is returned nearly instantly via fuel cost savings. So if one has an SUV today, it pays handsomely to go into debt to switch. This is NOT PROFIT. But it is certainly SAVINGS. If one takes these savings and then plows it into financing a system that creates energy generators, for example, then one can reap the PROFIT in the form of dividends, etc in the future. That is capitalism.

Anyway, the more you save the more you have saved. Which is an important lesson few seem to know these days.

Bear of Little Brain

Yes, Yusef, consumption debt has been part of some plan, but perhaps it will backfire. The "easy-come debt" of the amoral bankers may find itself up against an "easy-go" debtor who no longer feels he has any moral obligation to repay the debt anyway ("They shouldn't have been so stupid as to lend it to me."). Plenty of mortgage defaulters seem to have handed in their keys on the basis that "it was just a bad business deal" and there are even businesses in the US now that will assist the borrower in dumping his debt. What comes around, goes around. Maybe there are a lot of debtors who saw the game, cynically took the money on a "live for the day" basis, and don't give a flying f***. Whatever, they'll probably blame the lender for being so lax, and who could blame them? Not me.
A member of my family ran up an amazing unsecured credit card debt equivalent to several tens of thousands of dollars, which he could no longer even service. After a lot of hassle (all round!), he finally became really angry and just told them he would file for bankruptcy if they contacted him one more time. They wrote off the debt. (Now we know that they probably no longer even owned the debt - it had been packaged, sliced and diced and sold off - probably to some dumb-ass running my pension fund!) He told me that everyone he knew was in debt by several thousand pounds; it was part of their way of life. But this casual attitude to debt must cut both ways. I pay off my card every month. If it even looked as if I could not do that, I would destroy the card before paying those creeps one penny. It must be a generational thing (maybe).

BTW, it'll be interesting to see if this June 5 bank boycott will have any legs.


Great dialogue, folks. I wish every family, school, and legislature in America was discussing this subject.

You're making the correct and important distinction between credit (debt) for business investment and credit (debt) for household consumption. Note that there is a maximum rate of growth of business investment credit creation at any given time that is justified by the ACTUAL rate of growth of real (non-financial) business investment.

For the last 26 years (commencing at the end of the Volcker recession) the rate of growth of business credit creation has greatly surpassed the rate of growth of real(non-financial) business investment. All the EXCESS BUSINESS CREDIT CREATION has gone into the gluttonous maw of the financial industry, which has developed a daisy-chain of Ponzi loan-leveraging to the point where the financial industry is the biggest owner of "assets" in the country.

These "assets" - unlike houses for families and building and equipment for real (non-financial) businesses, are primarily equities, debts and their derivatives (the largest dollar quantity of which are credit-default swaps (justified as safety hedges, they now function as unstable speculation instruments). A society that promotes and bails out excess credit creation for the exclusive purpose of expanding the financial sector and making financiers richer than God, will end up facing hyperinflation and/or credit-collapse-based depression sooner or later.

Also note that compound interest does not normally have the same effect (in reverse) on the borrower as on the saver: When you are saving, the interest received (which by definition you add back into the total principle) causes the total principle owed to grow (the interest is "compounded" and principle increases without the need to add any more principle). When you are borrowing, the interest paid does NOT reduce the principle owed in any way, so there is no real reverse "compounding" process in which interest affects total principle. The one exception, of course, is the "negative amortization" mortgage in which the interest OWED AND NOT PAID is added to the principle owed, which keeps getting larger.


If you want to know why no amount of currency adjustments, tariffs, wars, or any other international processes can save America from itself, consider this:

Finance now consitutes 21% of GDP (and is growing rapidly); industrial production constitutes 12% (and is shrinking rapidly). Finance produces credit; industry produces goods.

If you're a creditor nation (you loan money to others), replacing industry with finance can work to your advantage; when you're a debtor nation (you borrow money from others) it can't. No one is killing us, nor do they need to - we are committing suicide.

Bear of Little Brain

Michael: the idea of excess business credit creation is interesting, but you say it all goes into financial instruments. Could it not also have funded an excess of all forms of production and distribution capacity and, in a sense, brought forward future production to meet a demand brought forward by excess consumer credit creation? Both bring forward future consumption (a "boom"), which ultimately has to be offset/foregone/compensated for when the debt level becomes unsustainable and has to be paid down (a "bust"). I suppose this excess production/distribution capacity is part of the malinvestment that has to be wrung out of the system (to be honest, and having an industrial bias, I'm at a loss as to just what the other parts might be; excessive financial services, perhaps?).
Just musing.


Thanks everyone for the insighful comments. This has been a great discussion, very clean, very clear.

Bear of Little Brain, I understand exactly what you're saying, but you're missing the distinction between "true" banking and fraudulent frb.

When you have money saved you don't need and you give it to a bank for 2 years for a return of 5%, that's full reserve banking and NO ONE (even Murray Rothbard) would have any problem with that.

However, when a bank promises to pay you your money AT CALL, and then races off with this money and lends it "long", that's frb, that's fraud and that's the evil little game that causes all the problems. There is no material distinction between frb and embezzlement, once you really understand how frb works.

Check out this very clear piece from the great Murray Rothbard to get an understanding of the subtle distinction between "real" banking and "embezzlement" (frb) banking, which causes so many problems in the real economy:


Bear of Little Brain

Isn't GDP a funny thing? A mother decides to go to work and pay for nursery care. GDP increases. The government brings in all manner of regulation requiring administration and inspection. GDP increases. The government wages war somewhere and used munitions and destroyed weapons have to be replaced. GDP increases. They find a simple herbal cure for all illnesses and dental decay. GDP collapses. Strange virus makes everyone peaceable and war and violence ceases. GDP heads towards zero. No-one is bothered.

Elaine Meinel Supkis

Thanks for all the discussion here. I don't know if other people here are speed typists....it takes trouble to write things!

I learn a lot here from readers and trust me, I click on all links and read them. This is how I get many great pieces of this big puzzle: how our financial systems work.

"Long' and 'short': time is money, Why is this?

I would say, we are mortals. Although money comes from the Cave of Death, we can't wait forever for it to 'mature'. We need it now to survive. When we are prudent, we have savings. We can use this for later in life if, god willing, we live that long. There is obvious risk of us dying before maturity. This is why all savings have to take into account 'risk': the risk of the saver dying!

This is why we have life insurance.

The breaking down of this system is due to people wanting wealth with 'hedges': NO RISKS. This is impossible and dangerous. Indeed, the problem is risk is being misunderstood by the central bankers who underestimate the true risks of death and destruction. We saw in China how swiftly the Grim Reaper can work. And He is hovering over the US.

So we have to press our bankers and financiers to correctly evaluate the risk of default, the risk of death. They don't want to do this. They want rosy scenarios.


You're right, as usual. MOST credit creation ultimately results in some good or service outside the financial sector being produced somewhere; a cheap-credit boom produces a GDP boom (a large part of that GDP growth is the expansion of the financial sector itself, of course).

This like a "trickle-down" model, similar to the claim that if businesses in general make more profits by paying less taxes and having fewer regulations (like pollution controls), eventually they will create more jobs and workers will get higher wages. The American worker is still waiting for the wage raise (in inflation-adjusted money) that supply-side policies were supposed to provide this way (they HAVE provided STUNNING growth in business profits!).

Note the term "MOST credit creation" above. MOST, not ALL. The remaining credit is EXCESS credit, which can 1) exit the economy to be invested overseas, pay for more imports, etc. 2) be used by the financial sector to fund its own growth 3) serve as newly-printed money to fuel inflation in the price of everything. The real problem occurs when the RATE OF GROWTH (even from a small base) of EXCESS credit is faster than the RATE OF GROWTH of actual (non-financial business investment. This is what's been out of control and has produced all our economic problems.

You're also right that unsustainable debt produced by the expansion of a financial sector based on EXCESS credit creation is...well, unsustainable. Economic forces tend toward self-correction, regression to the mean, and equilibrium. Under benign conditions, this would mean the contraction of EXCESS credit creation (and EXCESS credit/debt itself) to zero (non-excess), so that ALL credit creation was for real (non-financial) business investment (with only as much going to finance as serviced real business investment growth. When there's been EXCESS credit creation for decades, and each time the economy has tried to correct itself by contracting credit, the Fed and Congress have stepped in with negative interest rates, bailouts, tax rebates, etc, to prevent the curative correction, it means that when a correction becomes unavoidable, the rate of EXCESS credit creation will have to be LESS THAN ZERO to return to equilibrium - which would require a SEVERE credit contraction in the financial sector, comparable to 1929-1933. That is what we are now facing, and NOTHING is as important to the Fed and the Treasury as preventing (or postponing) that collapse at this time.

Bear of Little Brain

Karma: thanks for the courtesy. I would simply say that frb has been considered "real" banking by default since at least the establishment of the Bank of England, and, yes, it is embezzlement. I was just calling for a consideration of how to overcome or bypass this fraud. Please see my response to Yusef above.
It's all a variation on "What's so funny about peace and love and understanding" anyway. ;-)
I'll check your link in the morning. It's very late here. Thanks.
All the best


In the linked article, I provide the chart of the EUR/JPY, FXE:FXY, which is a proxy, that is, a measure of the yen carry.

It shows that massive, I mean massive amounts of money flowed through the Yen Carry Trade facility, since the Fed assisted JP Morgan buyout of Bear Stearns on March 18, 2008. The money went first into the BRICS, EEB, then after that topped out, money went into the commodity-gold currencies and into gold.

I belive that a financial emergency is coming for any number of causes, and given such, one may not have access to one's wealth in money market accounts and in brokerage accounts, therefore, I recommend that one buy gold at BullionVault.com.

Over the next three weeks; one may be able to buy gold at a lower price, as it's daily chart shows bearish engulfing at resistance, and its weekly chart, shows a shooting star at the middle of a broadening top pattern; these are bearish signals on gold.

Soon gold will be going higher tht is above $950, as investors have greater perception of the investment demand for gold, that has arisen this week, as can be seen in the chart of gold relative to stocks GLD:VTI, and as bankers and investment bankers make loans where the funds are used to buy gold; and as hedge funds and institutional investors continue to go to the well -- the Bank of Japan for 0.5% interest loans.


No problem. I totally agree it's difficult (impossible?) to overcome the fraud now, after it was legitimized by the corrupt British government in 1694.

Gold has traditionally been used as the ultimate hedge against unfettered, "monster" frb. It is being used again.

There is no practical alternative, without a sea-change in attitudes regarding money. At the very deepest level there are only two solutions to our current dysfunctional system:

(1) The slow suffocation of frb by raising reserve requirements and real interest rates, whilst at the same time issuing debt-free fiat currency from Treasury (google Web of Debt, American Monetary Institute, Prosperity UK for lots of ideas regarding how this could happen); or

(2) Open the Mint to gold and silver (google Antal E Fekete, Murray Rothbard, GoldSeek, Richard Daughty or Ron Paul for lots of ideas on how this could happen.

This link contains the cleanest, most beautifully written synopsis of all these issues I have come across. I've never heard of Mike Hewitt but he's a brilliant writer. But that's often the way, isn't it?

Read it and weep in memory of the Consitution and honest money.


P.S. Elaine, I'm a speed typist and also I'm supposed to be working - hence the numerous typos. Sssshhhhhh.......back to work now...

Elaine Meinel Supkis

Read my latest article that examines oil, inflation and FLOATING CURRENCIES.

It is amazing to go back in time and read old magazines. They weren't stupid back then. They could see what would happen. The present regime of 'floating currencies' where FX markets, not the gold markets, determine the value of currencies, was supposed to be a short-term VERY TEMPORARY thing in 1972-1973. To fix the sudden jump in oil prices!

Look at where we are now! OUCH. This is why I keep saying, we must go back to the older banking methods. They proved to be good. We must regain at least the 1933 system. At the very least.


Your research is timely, as the ever incredulous Henry Paulson spoke in CNN interview on 5-22-2008 that rising oil prices are not driven by market speculation but instead reflect tight supplies and growing global demand.

Mr. Paulson, former CEO of investment banking firm Goldman Sachs, also said in Orwellian way, that the long-term economic fundamentals are strong, and the United States remains competitive globally.

Paulson cited a need to bolster training and education of the U.S. workforce but didn't give details or any committment to do so.

He also insisted that the United States has a strong dollar policy, but I see no evidence of that; in fact I see just the opposite, as TAF, TSLF, and PDCF, only serve to debase the US currency, and lever up the price of gold which trades inversely of the US Dollar.

In summary, Mr. Paulson's communication is all Orwellian Newspeak, where words are twisted and are the exact opposite of reality.

Elaine Meinel Supkis

Correct, Richard, well said.


Focusing on the news and various chatter is a total waste of time. Focus on one thing: THE FEDERAL RESERVE MUST BE ABOLISHED.

The US has already booted out 2 of them.


The Primary Owners of the Federal Reserve Bank Are:
1. Rothschild's of London and Berlin
2. Lazard Brothers of Paris
3. Israel Moses Seaf of Italy
4. Kuhn, Loeb & Co. of Germany and New York
5. Warburg & Company of Hamburg, Germany
6. Lehman Brothers of New York
7. Goldman, Sachs of New York
8. Rockefeller Brothers of New York
All the primary owners are branches of European establishments. Foreigners, almost entirely Jewish, control the United States Money supply. They literally own exclusive rights to the dollar and simply enter dollars into their banks books to make money which they then lend back to us at a profit. For them money does not grow on trees, it is simply a data entry into their account. Clearly the private ownership of the U.S. Dollar is by far The Greatest Crime of the Century. The owners of this bank have been responsible for instigating all the major wars and depressions in the last 100 years. They own the bank, they own the dollar and they own all the major media channels, the military industrial complex and most politicians, judges and cops.

Sometimes the bank pays an arbitrary 'franchise fee' to the U.S. government to keep the politicians paid off.

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