26/08/08

La più che prevedibile sorte di Fannie, Freddie e Lehman Bros.!

mercoledì 27 agosto 2008

La più che prevedibile sorte di Fannie, Freddie e Lehman Bros.!


Credo davvero che il balletto inscenato dagli analisti intorno alle tecnicamente fallite Fannie Mae e Freddie Mac rappresenti davvero uno dei punti più bassi raggiunto da una professione che pure non ha dato mostra nel passato più o meno recente di livelli accettabili di correttezza o di rispetto delle più elementari regole deontologiche.

Cosa sta accadendo da lunedì in quel di Wall Street è presto detto: di fronte alla segnalazione effettuata da J.P. Morgan-Chase alla Securities and Exchange Commission di dovere procedere a svalutazioni per 600 milioni di dollari su uno stock di perpetual preferred shares di Fannie e Freddie pari ad 1,2 miliardi di dollari, un warning che suona come una campana a morto per le altre banche di investimento e per quelle più o meno globali cui fa capo il resto dei titoli della specie, complessivamente ammontanti a 36 miliardi di dollari cui andrebbe applicata una svalutazione analoga a quella effettuata dalla banca dei nipotini di John Pierpoint Morgan e di quelli di Rockfeller, i nostri ineffabili analisti non hanno trovato di meglio che suonare la grancassa sul buon esito di un asta di titoli a tre ed a sei mesi per 2 miliardi di dollari effettuata da Freddie Mac a rendimenti, peraltro, significativamente superiori a quelli previsti.

Tanto è bastato a queste perle di analisti per sostenere che oramai non vi è più bisogno di quell'intervento pubblico, in realtà un vero e proprio salvataggio, che gli stessi analisti avevano per settimane dato per certo, sino ad indicare lo scorso week end come la data in cui il ministro del Tesoro USA, Henry Paulson, lo avrebbe annunciato, improvvisamente dimentiche del fatto che su scadenze più lunghe, Fannie e Freddie sono giunte a pagare anche tassi effettivi del 16 per cento, che nel solo mese di settembre andranno reperiti, via GSE a lunga scadenza, qualcosa come 225 miliardi di dollari che nessuno è ancora in grado di dire da chi potranno essere sottoscritti, per non parlare poi del più che raddoppio registrato da entrambe le entità nel tasso di mutuatari che si ostinano a non ripagare le rate dei propri mutui.

Non credo di essere troppo malizioso nel vedere in questa cortina fumogena che traspare da questi report ad un tanto al chilo lo zampino dell'attuale ministro del Tesoro statunitense, quell'Henry Paulson che, grazie alla lunga ed onorata militanza nella potente e molto preveggente Goldman Sachs, sa benissimo che non è certo questo il momento di far capire a quanti si ostinano a detenere azioni di Fannie e Freddie che si sta inesorabilmente avvicinando il momento in cui sarà costretto a tirare fuori dal cilindro l'ennesimo coniglio, una mossa che coinciderà con il pressoché totale azzeramento del valore già infimo delle azioni dei due pilastri del disastrato settore del mortgage a stelle e strisce.

Bisogna proprio dire che questo 2008 è veramente un anno bisesto, anno funesto per le Investment Banks e per le divisioni di Corporate & Investment Banking delle banche più o meno globali, in quanto dopo aver spesato sui rispettivi conti economici svalutazioni per svariate centinaia di miliardi di dollari, si sono ritrovate a dover riacquistare quanto avevano venduto nelle auction-term securities, una mazzata da 330 miliardi di dollari o giù di lì, mentre si trovano ora a dover svalutare almeno altri 18 miliardi soltanto per quelle perpetual preferred shares di Fannie e Freddie che erano state costrette a sottoscrivere alla luce della assoluta impossibilità per le due entità semipubbliche di procedere ad un aumento di capitale per via ordinaria, anche alla luce degli svariati flop che hanno caratterizzato gli aumenti di capitale di banche globali di ben diverso standing e certamente molto meno disastrate di F&F.

Poiché, come si suol dire, le disgrazie non vengono mai sole, la notizia della sempre più probabile ritirata della Korean Development Bank dall'intervento in soccorso di Lehman Brothers per la dichiarata contrarietà espressa dal governo coreano è stata certamente accolta con giubilo nell'esotico resort dal quale David Einhorn sta continuando imperterrito e del tutto impermeabile ai segnali che gli giungono dall'alto nella sua offensiva ribassista nei confronti di Lehman ed un numero imprecisato di altre entità protagoniste del mercato finanziario globale, anche perché ad aumentare il suo già rilevante volume di fuoco ha provveduto l'insensata mossa di Effe O Ixs che ha permesso a lui ed agli altri miliardari che si sono messi nella sua scia di realizzare immensi guadagni giocando al rialzo nel mese circa di durata del suo provvedimento che inibiva le vendite allo scoperto sulle principali diciannove entità elencate nella sua lista.

Sempre ieri, la Federal Deposit Insurance Corporation, l'ente federale che garantisce, sino ad un ammontare alquanto modesto, i depositi effettuati presso le banche statunitensi, ha reso noto che nel veramente orribile secondo trimestre del 2008 le banche a stelle e strisce hanno visto i loro profitti calare dell'86 per cento nei confronti dello stesso periodo dell'anno precedente, mentre, al netto delle nove banche già fallite, è giunto a 117 il numero delle banche operanti negli Stati Uniti d'America considerate dalla FDIC ufficialmente in difficoltà.

Non so quanto sia chiaro ai vertici dell'ente federale che rendere noto che un numero così elevato di banche non gode di buona salute, senza peraltro indicarne l'identità potrebbe provocare un deflusso di depositi, in particolare di quelli aventi un outstanding superiore al livello garantito, tale da fare impallidire quanto si è verificato l'estate scorsa nell'ormai celebre caso della poi nazionalizzata per disperazione Northern Rock, ma di tutto questo siatene pure certi che gli analisti a libro paga delle banche di ogni ordine e grado non avranno il tempo di occuparsi, impegnati come sono a scrivere quello che più conviene ai loro datori di lavoro!

Avendo dedicato parecchio spazio nelle ultime due puntate del Diario della crisi finanziaria al convegno estivo organizzato come ogni anno dalla Federal Reserve, non voglio passare sotto silenzio un accurato servizio che ci informa che, secondo gli alti papaveri della Fed, il livello dei tassi di interesse ufficiali non è affatto basso, quasi come se avere tassi di interesse reali negativi per 360 punti base nel caso del tasso sui Fed Funds o di 335 punti base nel caso del tasso ufficiale di sconto fosse una cosa normale.

D'altro canto, è più che evidente che, avendo ormai chiaramente Bernspan ed i suoi complici, l'unico obiettivo di cercare di salvare il salvabile nel meltdown finanziario che sta facendo inevitabilmente seguito all'irrisolvibile problema di un ordinato smaltimento della montagna di titoli della finanza strutturata sfornati a pieno ritmo, almeno sino a qualche mese fa, dalle fabbriche prodotto delle Investment Banks e delle banche più o meno globali, l'unica cosa che conta è mantenere al 2,25 per cento il biglietto di ingresso alla discarica a cielo aperto gestita dalla Fed di Ne York, l'unico luogo al mondo dove questa specie di titoli vengono ancora scambiati alla pari con denaro contante!

Ricordo che il video del mio intervento al convegno della UIL sulla crisi finanziaria è presente nella sezione video del sito dell'associazione Free Lance International Press all'indirizzo http://www.flipnews.org/ mentre gli atti del convegno sono esportabili dal sito http://www.uil.it/ nella sezione del dipartimento di politica economica.

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MUTUI: FDIC; 117 BANCHE IN DIFFICOLTA', PROFITTI CROLLANO

MUTUI: FDIC; 117 BANCHE IN DIFFICOLTA', PROFITTI CROLLANO
   (ANSA) - NEW YORK, 26 AGO - Crollano i profitti
dell'industria bancaria americana: nel secondo trimestre, in
base ai dati diffusi dalla Federal Deposit Insurance Corp
(Fdic), i profitti sono scesi dell'86% a causa del prolungarsi
delle difficolta' dei mercati immobiliari e del credito. La Fdic
rileva inoltre che le banche in difficolta' sono 117 nel periodo
aprile-giugno, in aumento rispetto alle 90 rilevate nel primo
trimestre, e che e' necessario per le istituzioni finanziario
devono mettere a punto piani di contingenza che assicurino loro
capitale sufficiente per far fronte a eventuali perdite.
     DRZ
26-AGO-08 21:16

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MUTUI: ANALISTI, PERDITE ASSORBIBILI PER FANNIE E FREDDIE

MUTUI: ANALISTI, PERDITE ASSORBIBILI PER FANNIE E FREDDIE
   (ANSA) - NEW YORK, 26 ago - Fannie Mae e Freddie Mac, le due
agenzie semipubbliche specializzate in prestiti ipotecari, hanno
abbastanza capitale per resistere fino alla fine dell'anno e una
loro nazionalizzazione appare improbabile. Lo afferma Citigroup
in un report, che mette le ali ai titoli delle due societa', che
avanzano in modo deciso a Wall Street. In particolare, le
entrate del terzo e del quarto trimestre dovrebbero risultare
pari a circa 7,5 miliardi di dollari per  Fannie Mae e a 5,5
miliardi di Freddie: questo significherebbe che le due agenzie
saranno in grado di far fronte alle proprie perdite.(ANSA).
     DRZ
26-AGO-08 19:31

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FED: VERBALI, PROSSIMA MOSSA SU TASSI AL RIALZO (2)

FED: VERBALI, PROSSIMA MOSSA SU TASSI AL RIALZO (2)
   (ANSA) - NEW YORK, 26 ago - In particolare i verbali
evidenziano come i membri del Fomc, viste le difficili
condizioni per ottenere prestiti, non hanno ritenuto l'attuale
livello dei tassi troppo basso. Anzi hanno convenuto che la
prossima mossa potrebbe essere un ritocco al rialzo del costo
del denaro, anche se la tempistica e' incerta. Dipendera'
infatti dalle condizioni del mercato che restano ''fragili'' e
dall'andamento dell'economia ''sulla quale continuano a gravare 
rischi al ribasso''.(ANSA).
     DRZ
26-AGO-08 20:12

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Bluffing The Economy, Bluffing Russia

Bluffing The Economy, Bluffing Russia
Bob Chapman

From Buck-Busting Ben Bernanke's mouth to God's ears (God must be getting an Excedrin Headache from all the Illuminist and neocon propaganda being wafted into His ears lately): Inflation pressures should moderate this year amid tepid economic growth. He also added that his inflation forecast remains "highly uncertain." Inflation will "moderate" all right, when we go into depression in the next two to three years. Ben is just hedging his bets with the talk about the forecast being "highly uncertain," because he knows darn well that inflation is not going "moderate" any time soon. Meanwhile, it is bound for the stratosphere and will soon enter outer space where it will run into a hologram emanating from the world line running through the event of the former Weimar Republic during its inflationary "heyday." Supposedly, this "stunningly good" news from Mr. Bernanke, who is now dumping barrels of moral hazard out of his helicopter on the US public along with bundles of Federal Reserve notes (aka "worthless paper"), together with another oil crash of $6.59 per barrel, was cause for a nearly 200 point Dow rally on Friday. The drop in oil may have contributed, but the yen was weakened against both the dollar and the euro from the day previous by one and one half yen, a huge and very unnatural drop in yen strength during a single trading day. The PPT had the Japanese bankers hit the yen, and orchestrated a hit on oil despite Russia's capture of Georgia and its resulting iron grip on European oil and gas supplies. These PPT manipulations are what boosted the markets, not talk from Mr. Bernanke, who no one believes anymore. Not a single one of his prognostications has come true. Rally mystery solved.
The Illuminists have fallen into yet another box they cannot get out of. We already told you about the box they are in because the Fed's raising of interest rates would lock up the real estate market and destroy the economy, while its lowering of rates would ignite speculation and inflation, which in turn would destroy what is left of our economy in any case. Now, they have managed to get themselves caught in an "oil trap." If they run oil down too low, the euro deposits plummet, thus draining gargantuan, system-killing amounts of liquidity from the banking system and bringing the credit-crunch to its final implosion. On the other hand, if they keep oil prices too high, the added liquidity from the new flow of petrodollars, which are converted mainly to euros thus driving the dollar down, will also drive costs of all goods into the ozone, and this added cost will eventually kill the US and world economies by cutting off all discretionary consumer spending, and by eventually cutting off some necessary consumer spending as well. They cannot raise or lower oil prices too far in either direction, putting them in a box similar to the interest rate box. The US consumer will be especially hard-hit by high oil prices, and their weakness will be transferred to the world economy, which will not decouple. Decoupling is a myth, like the moderation of inflation predicted by Helicopter Ben. Eventually, the Illuminati will have to lower oil prices to keep mortgages and other consumer loans from going into default and to keep earnings and consumer spending from dropping off a precipice, events which would administer the coup de grace to the fraudsters, which are already technically bankrupt and insolvent. That will drain huge amounts of liquidity from the system because of the euro effect, and the system, and also the dollar, will totally break down if this is allowed to continue for a period of several months, so Mr. Bernanke will have to make up for those liquidity losses with more direct injections of money and credit. As the credit-crunch continues to worsen, as Fannie and Freddie are bailed by capital injections from the US Treasury, as the Fed exhausts its general collateral by exchanging it for toxic waste, as foreigners begin to shun treasury and agency paper due to increased risk, a falling dollar and negative real rates of return, and as bonds and derivatives implode from plummeting real estate values and rising foreclosures and loan defaults, treasuries will have to be created out of thin air. These new treasuries will have to be immediately monetized at an ever-increasing rate, which is highly inflationary, and this will send gold and silver into inter-dimensional space.
Are the system and its fraudsters too big to fail, or are they too big to bail? US investors and consumers are starting to think more and more that the latter is the case. They are sick to death of being lied to, and many, including Jimmy Rogers, think Bernanke should resign for sticking it to the US public with "cutesy" financial moves and bailouts that are dripping with moral hazard. They are sick of paying for OPF - other people's fraud. How will the abuses ever end if no one is forced to suffer the losses which their greed, deceit, stupidity and fraud have engendered? In fact, is that not what Bernanke promised us last year, that he would not allow this moral hazard to occur? The truth is, that is what his Illuminist masters told him to say until the losses mounted up and the fraudsters needed to be bailed out. That way they could shut the public up until the debacles caused panic and fear over a possible systemic breakdown, at which point Bernanke would swoop in like a savior and save the system, with the public allowing anything that would keep them from losing their precious "spendaholic" world. The Fed can make all the new rules they want, but if there is no penalty for not following those rules, what the freak good are they? How will US consumers be able to pay for all this fraudster fallout when one out of three are unemployed and they are faced with double digit interest rates and Weimar-like inflation? It's not going to happen! There will be revolution and social unrest. The Illuminati will be run down and shot like rabid dogs, and we say good riddance to these reprobates and sociopaths when the public finally has their fill of this crap and the trials and recriminations start. We say let the whole system come down, and let's start from scratch. No pain, no gain. Anything is better than what we have now, which is a military-industrial-financial complex run by satanic trillionaires who denude citizens of their earnings with rampant fraud and corruption, who slaughter our children, and what should be our foreign friends, with continual wars for profit and who are trying to make us all into serfs in the ultimate feudal system to be run by the would-be lords of the universe, but not until they wipe out billions of useless eaters with pogroms, plagues, wars, famine and eventually nukes, biochemical warfare and other weapons of mass destruction. Is this what our brave men and women are fighting for? Perish the thought! These miscreants have destroyed themselves and their precious financial and military systems. Let's keep it that way! And let's start a new system that delivers the freedom and prosperity to all, and not just to the privileged few, which is what our Founding Fathers intended when they wrote our Constitution and Bill of Rights!!! Make sure you vote out all incumbents in November, except for Ron Paul.
All of NATO has been totally outmaneuvered by Russia. It is embarrassing. It is like watching the genius, Dr. Strangelove (Putin) against the three stooges, (Bush, Cheney and Rice, or if you prefer, Kissinger, Brzezinski and Rockefeller). Russia controls hundreds of billions in treasuries, agencies and dollar forex, and can dump them at any time, sending the US economy into a tailspin. If China joins in with their treasuries, agencies and forex, which they might well do considering NATO's arrogance, we are all toast. Russia controls a third of Europe's oil and gas and can cut them off at any time, especially now in the aftermath of the Georgian debacle which showed Russia's resolve in spades, thus sending Europe into immediate recession and a deep freeze, and locking up their economies overnight. NATO thinks they can bully Russia by surrounding them with new batteries of missiles, but Russia has the clear logistical advantage. It would be like Russia trying to install missiles in Canada or Mexico. That's not going to happen, and neither are radar towers and interceptor missiles in Poland and Czechoslovakia. The US and its NATO allies are in no position to be messing around with a potential World War III (or if you like, IV, since it seems that III has already been ongoing). Our military has been torn down to puny levels where we are forced to pay for expensive mercenaries and our soldiers and equipment are worn out to a frazzle. Our economy and our financial system have already been destroyed, with the news of our demise being slowly leaked out by the fane-stream media to prevent panic. Our military is spread too thin and has reached the breaking point, and are surrounded by hostile nations with enough weapons and equipment to cut off their supply lines and wipe them out. This is madness, and if it continues, billions are going to die. Perhaps that is what the Illuminati want. They apparently haven't figured out yet that they will be the first to go. You can run, but you can't hide, not even in your mountain bunkers. If the Russians and Chinese don't get you, we will, and that's a promise! You can start World War III, but we are the ones who are going to finish it, and you. The arrogance and gall of these people is beyond belief.
When all is said and done financial institutions are going to have to raise $10 trillion and they are well aware of that. They won't tell you that though. That does not include their maturing debt, which is in the billions of dollars. This funding will be more expensive than before and will negatively affect profits. AIG, Morgan and Citigroup have to raise some $20 billion in long-term debt. They and others will be begging for funds at high rates over the next several months, putting even more pressure on cash flow. Combined the ten biggest borrowers have to raise $208 billion by the end of December, which is no mean feat. Unfortunately, they will be joined by other businesses competing for long term financing as well. The US Treasury will be at the trough as well crowding out all borrowers. As we have said the credit crisis is worse after a year of crisis. That readers in time will turn out to be an understatement. The increased cost of money will worsen the world economy. Banks in the first five rating levels are paying 3-3/8% to 4-5/8% over the Treasury rate or about ½% to ¾% more than the last time they financed. Some in the lower part of the upper tier are paying 1-13/16% more because of bad earnings or losses. We see the very top banks paying 8-5/8%. We see this dilemma getting progressively worse and it is going to have a large impact on the US and world economies.
Observers see what is currently transpiring in Georgia. George Bush and the Israeli's, under the control of Zbig and Mark Brzeninski have initiated the beginnings of WWIII, a plan to destroy Russia and China in order to allow the Illuminati to reign for another century over the world. Barak Obama is Zbig's latest puppet or Manchurian candidate if you will. A new precedent has been set. We now have two Manchurian candidates for president. The Brzeninski plan is for more ambitions than the neocon plan for Iraq, Afghanistan and the Middle East. The stakes in the current conflict are enormous, because it entails the use of nuclear weapons and the death of half the world's population. Mankind has never been presented with such a problem.
After the outbursts by Kiev, Ukraine you can expect pressure on the government there. Ukrainian citizens do not want to be invaded by Russia, nor do they want to be part of NATO. In Georgia, Mikheil Saakashvili will have a hard time holding onto power. That is why Congress will appropriate $1 billion to keep him in power.
Although planned long ago, the operations you now see in Eastern Europe are plans of desperation. Diversions to save the Anglo-American Illuminist Empire crafted by Zbig Brzeninski. As Russia withdraws from Georgia you can expect guerrilla warfare in South Ossetia and Abkhazia. You can also expect the same for Iran. If Ukraine wants to act the time would be now by blocking Russian ships from re-entering their base at Sebastopol. If shooting starts there a wider war will commence.
Jefferson Senior High School in Los Angeles has a 58% dropout rate or only 42% of students graduate. It has the worst record in the L. A. Unified School District. It is a school where students frequently disrupt classes and teachers spend most of their time dealing with trouble-makers, about 50% of students nationwide in inner-city schools do not graduate.
Of the school's 1,977 students, 45% qualified as English learners and more than 90% qualified for free or reduced-price lunches. The school has a 57% transfer rate as opposed to 38% across district high schools. Most children only have a mother in the home who is struggling to feed her family and give emotional support. Just 25 years ago enrollment was 31% Latino, today it is 90%. Blacks are about 10% and there is a sliver of Asians and whites.
Goodyear Tire and Rubber will close 12% or 92 of its company-owned stores and cut 600 jobs. That will cost them $30 million.
The GAO says 2/3's of American companies did not pay corporate taxes from 1998 to 2005. Individual taxpayers get to make up the difference. In the last five years corporate earnings doubled. During the first six years of the decade, corporate tax collections were just 2.2% of GDP, far below the 3.4% average for industrialized countries.
The MBA mortgage applications index fell 1.5% last week to the lowest level since December 2000. The purchase index fell 0.4% and the refi index fell 3.7%. The 30-year fixed rate loan was 6.47%, down 11 bps. More than 77,000 properties, or 28%, were repossessed by lenders nationwide in July, up from 16% yoy. Nine of 33 major markets saw inventory rise significantly. Sacramento foreclosed inventory was 31,219 units, or more than twice to 14,913 units on the MSL listings. San Francisco saw a 190% increase, while Phoenix rose 130%.
William Tanona, an analyst for Goldman Sachs says Lehman will post a $2.5 billion loss for the third quarter. He also believes that recovery for the troubled industry is still a few quarters away, and that many Wall Street banks will focus on purging their books of risky mortgage securities. He lowered third quarter and full year estimates for Merrill Lynch, JP Morgan Chase and Morgan Stanley.
Those short Fannie Mae at $58.00 should be happy; it closed at $4.40 on Wednesday.
The NAR, National Association of Realtors Commercial Leading Indicator for brokerage activity slowed a 0.9% to 117.9 in the second quarter from 119.1 in the first quarter and was 2.1% lower yoy.
The New York AG is intensifying his probe of ARS fraud at Bank of America, Goldman Sachs and Deutsche Bank.
Goldman Sachs has reaffirmed it - calls for $149.00 oil.
The new housing program faces growing doubts among real estate experts and economists, who point out that government will now be competing with lenders and private homeowners who have been struggling to sell in a depressed market.
California communities with the most foreclosures and therefore likely to be first in line for federal aid, already have a relatively ample supply of affordable housing.
Sacramento County has a high need for affordable housing.
The federal government has been using its system of border check-points to greatly expand a database on travelers entering the country by collecting information on US citizens crossing by land, compiling data that will be stored for 15 years and maybe used in criminal and intelligence investigations.
The DHS in a federal register notice said they were guarding against terrorists. What this data collection is all about is spying on citizens and accumulating data bases on everyone. This will be accomplished by June when all travelers crossing land borders will need to present a machine readable document, such as a passport or a driver's license with an RFID, a radio frequency identification chip. This system was authorized in the Enhanced Border Security and Visa Reform Act of 2002, the Aviation & Transportation Security Act of 2001, and the Intelligence Reform & Terrorism Prevention Act of 2004.
These laws do not authorize such a database and only authorizes the government to issue travel documents and check immigration status. This database is worse than a watch list. This is a massive fishing expedition in which government wants to know everything everyone does, especially American citizens.
Officials will record name, birth date, gender, date and time of crossing, and a photo, where available, for US travelers returning to the country by land, sea or air. Data on foreigners is held for 75 years.
Mainline analysts now believe Fannie Mae and Freddie Mac will now need $100 billion to survive. That means a taxpayer funded bailout and nationalization of the GSEs. We see losses at over $2 trillion.
Once the auction-rate securities settlements are made securities firms will probably lose 200,000 investors. It is hard to see them keeping these clients that they treated with such distain. This is very typical of Wall Street today. We hope the investors get smart and go into gold and silver related assets and Swiss franc government bonds.
The more we think about it the more we realize that the US and the Bush administration are in real trouble. Brzeninski's plans for Eastern Europe are already in a state of failure. The imperial American monolith now under the total control of the Illuminati's black nobility has been shaken to its very foundations. What was supposed to be a distraction to the economic and financial chaos in Washington and Western Europe and what was meant to tie down Russian forces for weeks in south Ossetia, has demonstrated that the US and Israel can no longer run a campaign, and reach their objective. All the Georgians that the US and Israel spent years training ran in terror as soon as Russian soldiers went on the offensive. Just like in Iraq and Afghanistan - it's the gang that couldn't shoot straight. We do not blame the grunts and the trainers. We blame the Pentagon, the Department of Defense and the top brass that created another cluster_ _ _ _. Are our forces' leadership capable of winning anything? The Israelis panicked and left the country ASAP. What is next? Will both the US and Israel now leave in disgrace? We are afraid after all the cost in human life and money we will end up in the same position in Iraq and Afghanistan.
Allies of the neocons in Eastern Europe and throughout the world are going to have second thoughts about continuing to host US forces. Is it endangering their population rather than protecting it? Do we Americans really want to continue to fund bases worldwide? Is it not time we stopped being the world's policeman and having wars for profit for the Illuminists in Washington and on Wall Street? If the US refuses to leave then they become an enemy - an occupying force. Where was the US State Department while this was going on? They obviously were hiding and eventually sent the nitwit Condi Rice into the fray. All the hard work, in an attempt to save the day for the Illuminists was done by France's President Nicolas Sarkozy. What incompetence and stupidity. Next we will see NATO forces leave Afghanistan. Russia has won the initiative. It has broken out into a world leadership role. The geopolitical results for the US will preempt them from holding further top standing in Europe. From here on out Europe is going to move their political policy independent of the US. It is very important as well that it will now be recognized that US forces are no longer needed in Europe and should be finally withdrawn. NATO will soon be history. It has lost its reason to be. Lastly, the agreement the US has made with Poland on the neocon missile shield is not a NATO deal. The other EU nations wouldn't go along with the program so the US had to go it alone. We could have in reverse another Cuban missile crisis. This time the US backs down or the world is incinerated.
Twenty-five years ago home equity loans totaled $1 billion and a year ago they amounted to $1 trillion, a 1,000-fold increase, which doesn't include the first mortgage or credit card debt. Americans have been living large.
The regulators that seized IndyMac last month said they would help thousands of the failed thrift institutions cash-short borrowers repay their mortgages and stay in their homes, a model it hoped other banks and collection companies would adapt to stem the wave of new foreclosures in the nation's weakened housing market. They will offer lower priced, fixed-rate loans if they can show they are delinquent or in default on their mortgages. This is coming from the FDIC. When they run out of money you will get to pay for these bailouts.


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Freddie's Loss is Gold's Gain

Freddie's Loss is Gold's Gain
John Lee

Sometimes people are so caught up in short-term action that we don't look at the long-term picture.

I have said it before: gold goes up not because of inflation (defined as money supply growth), but because of a loss of confidence of in the paper money system. Loss of confidence can occur for several reasons, from creeping up cost of living, rising commodity prices (aside from gold), or feelings that the integrity of the money system is compromised.
I have seen how people refuse to acknowledge the demise of GSE's when it was written on the wall in 2007 (see my Nov 2007 article "Freddie's insolvency":

For those holding Freddie since Oct 2007, their stupidity has cost them 95% of their money as the stock has gone from $65 in Oct 2007 to $2.60 today.
I believe the same thing is happening now regarding gold, but in the opposite direction. People are refusing to believe that the dollar has lost its status. Furthermore, they think the Euro is the new reserve currency and that gold is expensive at $800. All those beliefs will be turned upside-down in 2009. When lending giants like Fannie and Freddie go down, and the government having to guarantee trillions of dollars of their collateralized debts at par which are currently selling at steep discounts, there are moral hazards to the extreme. I wrote extensively about this topic last November in an article titled "Subprime Mortgages Lead to Subprime Currency":
Technically, gold ran ahead of itself in late 2007 as it raced from $650 to over $1000 in late 2007. This was panic buying from smart money that understood the problem with the dollar and GSE's. Gold needs to climb above $850 to start the next wave. When is it going to happen? It could be September, later this year or not until next year. I have ceased trying to time the market. The smart money investors have already positioned themselves in gold. And when gold rises again over $850 and above the 200 DMA (red line), this will signal the start of the retail wave and it will be panic buying from the stupid money who buy gold because everyone else is. The way Freddie went down with a sudden rush could easily be the way gold goes up in a phase of manic buying.
jlee@goldmau.com
1.800.965.6404
August 22, 2008
John Lee is the founder of Goldmau.com and editor of the John Lee's Stock Chart of the Week investment newsletter. Previously a student of James Turk, John is a regular speaker at resource investment conferences.
Goldmau.com publishes its FREE Pre-Market Daily to keep subscribers informed about overnight news and overseas market movements. Goldmau.com subscribers also receive all of John's articles the moment they're published. Click here to sign up to Goldmau.com's free Market Update mailing list now.


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Where should I Go?

Where should I Go?
Dale Allen Pfeiffer

(Editor's Note: Not exactly financial in nature, but something interesting to think about. - JSB)
The following article originally appeared in The Mountain Sentinel two years ago. Currently there are a number of people making panicky statements that everyone needs to relocate. To present a fair assessment of the idea and to help calm people down, I have decided to reprint this article for free.
Since this article was written, my family has moved from Appalachian Kentucky to Evansville Indiana. Evansville is not a haven of preparedness. It will face many problems as we enter an age of energy depletion and impoverishment. Our reason for moving here is that we have a lot of family in this area, and family can be a far more important resource than any other.
My daughter is in public schools now. While she does battle with the authoritarian rigidity, patriotic propaganda and religious zealotry that plague the public schools, she is at least making friends.
For my part, when I can spare a little time from working on novels and short stories, or playing the fiddle and the banjo, I do a little work with the local sustainability group, and the food co-op.
As this article asserts, there is no place in North America that is ideally prepared for the joint crises of resource depletion, environmental destruction and economic impoverishment that now loom before us. Relocation is an option, but for many people it is not the best option - perhaps for most people.
The Delusion of Survivalism
Many people have asked me where they should go to survive the end of the oil age. People asking this question generally fall into one of two groups, those who believe that civilization will disintegrate into lawless chaos where former neighbors will be preying upon each other and hordes of murderous starving bandits will swarm out of the cities to feed on the suburbs. The other group are those who see things breaking down, but not to the point where they must seek to defend themselves against every stranger. These people want to find a community and/or a farm where they can become self-reliant.
I will address the total breakdown group first. If there is a total breakdown of civilization and we are left with neighbors preying upon neighbors, then there is no place you can go. Whatever remote mountain hideaway you sneak off to, in this scenario you will have to deal with pillagers out to take what little you have. Anywhere you go, there are already people there.
In this day and age, the only places you can go to hide away are lacking in human population because they are so inhospitable. There are so few people there because it is so difficult to live there. And the few people who already live there probably meet that ecosystem's limited carrying capacity for human beings.
As someone who has lived alone in the wilderness, I have to ask you: do you really want to be a hermit. Do you want to spend your entire day struggling for the basic necessities? Can you make your own clothing, build and maintain your own weapons, grow, forage and hunt enough food to feed yourself, lay in a sufficient store of fuel to keep you from freezing in the winter? The list goes on and on. Sure, you can survive off what you forage and hunt, make clothes and blankets out of hides, and live in a debris hut; but do you really want to?
Stop romanticizing about the myth of the rugged individualist. It is just that: a myth. Almost all of the rugged individualists I have met were maladjusted misanthropes who would likely have been institutionalized if they had lived among others. This is not to say that I have not known many sane and balanced mountainmen and mountainwomen. But the sane ones do not live in total isolation, however limited their interaction might be, they are part of a community.
Consider indigenous peoples throughout the world. They are not rugged individualists. They all belong to tribes. Their sense of identity is closely linked to the community of which they are a part. It is their family and their safety net. They could not imagine trying to make it on their own and would wonder why anyone would ever want to do such a thing. When they are taken out of their tribal setting and placed in modern civilization, they are lost without their community.
The pioneers were not rugged individualists. They knew that community was the key to their survival. They worked together to build their community, plant and harvest their crops and provide everyone within their community with the necessities of life. It was only with difficulty that their sense of community was squashed by the modern industrialized community and the centralized state.
Let's get this straight. The myth of the rugged individualist is extolled by the dominant socioeconomic system because it helps cover up the atomization of society, and it leaves the disillusioned and disenfranchised uninclined to work together towards an alternative.
And where did you ever get the idea that you will have to fight your neighbors for survival, or that the cities will unleash hordes of desperate degenerates to pillage the countryside? This is an unlikely scenario. Sure there might be a rise in crime if the established order breaks down, or there might not. In large part, this depends on us.
When we look at examples of collapse, we do not see much real change in the crime rate. In a socioeconomic collapse, here does seem to be a relationship between the crime rate and the strength of community. The more tightly knit the community is, the lower the rise in crime, and vice versa.
During the Great Depression, people helped each other. Though they may have little to share, they did share it. During the collapse of the Soviet Union, people helped each other. Even in North Korea, people helped each other - though they were terribly repressed by their government.
The counter-argument is that this is a different situation. There will be no recovery, and in the US people are atomized, selfish and overly competitive. We are no longer predisposed to help each other, and there is very little sense of community left. Where people were once loyal to their community, they are now loyal to their company. And if that company closes its doors to them, they will do whatever it takes to survive.
My answer to that is Argentina. The people there were highly atomized and terrorized. More so, even, than people in the US. Decades of experience taught them not to concern themselves about their neighbors; to look out only for themselves. But when the Argentine economy collapsed, the people banded together to create one of our best examples of how people can respond positively on a grassroots level to a collapse. For details on this, I refer you to my article Coping with Collapse; Examples from Argentina in the The Mountain Sentinel, Vol. 1 No. 1.
The scenario that the collapse of the dominant socioeconomic system will result in a dog eat dog situation is another myth. This myth most likely evolved from the misconceptions of social Darwinists. It is reinforced by the fear mongering of the US news media which portrays our communities as dangerous places full of murderers, rapists and thieves. And it is fleshed out by our entertainment media (that is our manufactured perception of reality) that thrives on cop shows and violence.
We are taught that it is a dog eat dog world, where you must always watch out for the other guy, and where the successful businessman is he who reads The Art of War. Then we internalize the perception of crime and violence that we are fed daily by our media. It is no wonder that we wind up projecting our own fears and insecurities onto the world around us, believing that the collapse of the dominant system will leave us fighting each other for our very survival.
Hog wash.
Where to Go
Okay, we have done away with the myths of survivalism. Now to address the second group: those who worry that their community is not prepared for the collapse of the dominant system and who are honestly wondering what to do and where to go. Let's start off by stating that there is no place that is fully prepared for the collapse. There are a few places where a portion of the citizens in aware of the approaching problem and are beginning to prepare for it, but these places are at present very few and would be quickly overrun if we all headed there. As of this writing, most communities are unprepared and very few people are even aware of the pending problem. So, for the most part, you can forget about moving into a community where people are already aware of the problem and are actively addressing it.
Now, where should you live? There are four choices: wilderness, rural, urban and suburban. Each has its own benefits and drawbacks; except for suburban, which has most of the drawbacks of both rural and urban with few benefits.
If you are living in a wilderness area, you will want to become completely self-sufficient and you might want to hide your location as well. We have already discussed wilderness living somewhat in the section above. It still presents a viable option, which would probably be best pursued if a group of likeminded people move to the wilderness to establish their own community. The difficulties in doing so would be very similar to the difficulties encountered by the first settlers who came the North America, but would be further complicated by the fact that the remaining wilderness areas are largely inhospitable areas that cannot sustain too many people.
If you are living in a rural area, then you will want to become a family farmer living as part of a farming community. A farmer's life can be a hard life, but it is not without its rewards. One major benefit of being a farmer is that, so long as you can hold onto your land, you will have food. Bear in mind, farming is not something you just decide to do. Even if you have the right skills and a knowledge of farming, it will take some years of preparation, trial and error before you have gained enough experience to even begin becoming a self-sufficient farmer. Perhaps your greatest resource will be the advice of the experienced farmers who are your neighbors.
If you are in an urban area, you will want to organize your community so that you can survive with the cooperation of your community. You will want to establish community gardens, and self-sufficient utilities such as water and sewage. And you will need to form an agricultural cooperative with outlying farmers, to help supply your community with the food you cannot grow.
It is those living in the suburbs who would be wisest to pull up stakes and move to one of the other three areas. Suburbanites are too widely scattered to build any sort of functioning community, yet too concentrated to feed themselves by farming. If most of the residents of a suburb move away, the few remaining might be able to plow up all of the lawns and become farmers, but they will be lacking the support communities that are already established in rural areas. The worst off of the suburbanites will be those who live in trailer parks, closely followed by those who live in condos. There are simply too many people in these locations and the living quarters simply won't be viable without heating, electricity, water or sewage treatment.
Do You really Want to Move?
If you move, you will be the new kid on the block. Even in wilderness areas, there are residents who will look on you as the new-comer. You may always be the outsider. And if things become difficult, you may be persecuted simply because are new.
If things have become difficult before you even begin to consider your move, then you probably won't be welcome anyplace else. Communities struggling to survive are not going to welcome the displaced.
If you move too far away, you will have to contend with cultural and language differences. These differences will mark you and serve to keep you apart. If you move to a small town in the south and do not join a church, then you are likely to remain isolated. If you are moving as little as 300 miles south or north of your current latitude, you will likely find yourself in a different climate. Though you may have been an experienced gardener in your former home, you will have to learn what to grow in your new location and when to plant it.
Stop and think for a moment. If you have been living in your present location for several years, then you know what is around you. If you need something, you know where to go to find it. And you know what neighborhoods to avoid. You have a network of friends and acquaintances. You know where the local farmer's market is, where the food co-ops are, and where you can find community activists with whom you can work. And, though you might not realize it, you probably know where to go to fish, to hunt, to forage.
In your new location, you will know none of that. If times are already getting hard when you make your move, then you will be at a distinct disadvantage.
Although the idea of moving might have some appeal - certainly, the grass is always greener - do you really want to move? You need to decide whether it would be preferable to move to a new and unknown community, or to help organize the community where you are already at home. Instead of asking "Where should I go?", you should be asking "Where do I want to live?" And, if you honestly consider all of the possibilities and important factors, your answer might be to stay right where you are and get more involved in your local community.
Speaking from Experience
Early in the year 2001, we had a family catastrophe that forced me to leave my position, pull up stakes and move. All of our savings was used up paying for medical and legal expenses. With what little we had left, we had to find a new home in an area where I could find no employment in the field for which I was trained. We wound up buying a trailer in a mobile home park, and went to work as a substitute teacher until I could make enough money as a journalist and author to leave that job.
We lived in that trailer park until summer of 2005. Although we were grateful to have a roof over our heads, the neighborhood was bad and the trailer was too small. Our yard was a small lot composed of shaded sand and acidic soil. We couldn't grow anything on the little land we did have. From the beginning, we knew that we would have to get out of this trailer park, preferably before the economy went sour.
In summer of 2005, we did make a move, all the way from Michigan down to Kentucky. The major factor in choosing the location was the proximity to relatives in southern Indiana and Tennessee. The price of real estate and the affordability of a mortgage were also major factors. There were other factors that I won't get into here. In hindsight, although we now have more room, a better yard and a much safer neighborhood, the move has not placed us in a much better position.
The town we live in, as it turns out, is a dead town that has been overtaken not by suburbs but by suburbanites. While it looks like a small town, and it has a local government (indeed, it is the county seat), it is not a functional town in the sense that the residents meet all of their needs locally. We drive 20 miles to do our grocery shopping, and 60 miles to do any major shopping, or to reach the only decent food co-op in the area. Most of the people who live in this town make a 20 to 60 mile drive to work every day. When the price of gasoline climbs over $4.00 per gallon, people around here are going to have a very difficult time carrying on with their lifestyles.
We are very isolated in this community. We are not church-going people, and so there is no social interaction with our neighbors. We have been invited to attend a couple of the local churches, and though we have been tempted to go simply for the socialization, we can't bring ourselves to actually do so. We have started attending services at the Unitarian Universalist church 20 miles away, but none of the other members reside in our area.
Our daughter, who is now 14, has no friends. When we first moved here, we sent her to public schools. Though we quickly found that the local schools were 3 years behind the schools she attended up in Michigan, we kept her in the school so that she could make friends. She did meet a couple of girls who were friendly, she did not socialize with them outside of school because we did not attend their church. Other kids teased her because she was different. In the end, we started home schooling her. We have found her one friend, who subsequently moved 40 miles away. And it is mainly to provide her with social activity that we began attending the Unitarian church.
Last summer we planted a large garden, but most of it failed because of the heat. We did get a good crop of green beans, a fair crop of carrots and a few tomatoes, but everything else failed, including corn, squash (zucchini, summer and acorn squash), cabbage, broccoli, cauliflower, and peas. We have since learned that down here peas should be planted early in the spring, while cabbage, broccoli and cauliflower should be planted at the beginning of September. But nobody down here did well with their gardens this summer. It was too wet in the spring and again in at the end of summer, while midsummer was much too hot and dry. And fall has struck hard and cold this year, so fall/winter crops are suffering as well.
Michigan had a lot of state land where I could hunt, forage and simply enjoy nature. And there were any number of lakes up there for fishing, not to mention the Great Lakes. Because it was largely settled before becoming a state, Kentucky has very little open state land. It is mostly private land and some national forest. There are some rivers down here, but I don't know that I would eat anything out of them, even if I knew where to fish them. And there are a few small manmade trout ponds where you can pay to fish in a puddle so small I would have a tendency to caste right over the water and hit the guy on the far shore. I wouldn't know where to hunt around here or where to forage. And half of the plant I normally forage for - such as cattail or boneset - are comparatively hard to find around here.
No doubt, if I had grown up in Kentucky, none of this would be a problem. I would know where to hunt and forage, or I would know who to ask permission to hunt and forage on their land. And we would be recognized members of the community. But, as it is, it was a mistake to move here, and now my hope is to get out of here before things fall apart. I wish that somebody had given me the advice I have tried to pass along in this essay, and I wish that I would have listened to it.

www.oiltruth.com



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Don't Cry For Me Argentina...

Don't Cry For Me Argentina... Save Your Tears For Yourself
Darryl Schoon

 

While bankers do control the issuance of credit, they cannot control themselves. Bankers are the fatal flaw in their deviously opaque system that has substituted credit for money and debt for savings. The bankers have spread their credit-based system across the world by catering to basic human needs and ambition and greed; and while human needs can be satisfied, ambition and greed cannot-and the bankers' least of all.

I have a bad feeling about what's about to happen. The Great Depression is the closest that comes to mind. I, like most, was not alive during the 1930s when it happened. Nonetheless, what once was feared in private is now being discussed in public. It's going to be bad. It's going to make high school seem like fun.

The United States of America is the next Argentina

This Time is Different: A Panoramic View of Eight Centuries of Financial Crises by University of Maryland's Carmen Reinhart and Harvard's Kenneth Rogoff makes for perfect reading when flying between the US and Argentina.

There is perhaps no better analysis than Reinhart and Rogoff's on the history of sovereign defaults; and, as such, Reinhart and Rogoff's paper was ideal reading material when traveling between the US and Argentina, for the sovereign defaults that happened in the past to Argentina will soon be happening to the US.

But a US default will make Argentina's debt defaults pale both by comparison and consequence. The US, unlike Argentina, is the world's largest economy, the issuer of the world's reserve currency and the world's largest debtor-and a default by the US on its debt will shake the very foundations of our increasingly fragile global economy.

Soverign Debt Liquidating Ambitions

The power of ambition is extraordinary. The power of ambition transformed the US from the world's only creditor after WWII into the world's largest debtor in less than fifty years. Wanting to emulate England's 19th century empire in the 20th, the US instead has mirrored England decline in the 20th century here in the 21st.

Credit and borrowing fueled America's ambitions in the 20th century as it had England's in the 18th and 19th. During the 1980s, to pay for President Reagan expansion of the military, the US quadrupled its national debt in less than a decade by borrowing three trillion dollars during a presidency pledged to balance the budget.

When Reagan took office, US debt totaled one trillion dollars. When Reagan left office, US debt totaled four trillion dollars. Reagan's vaunted slogan of fiscal conservatism was just that-a slogan; and while talk is cheap, the debts now have to be repaid.

Just as the costs of WWI forced England to abandon the gold standard in the early 1900s, post WWII military spending forced the US to suspend the convertibility of the US dollar to gold in 1971; and the consequences, e.g. burgeoning trade deficits and global currency instability, are now putting unsustainable strains on a financial system already in extremis.

Ambition has its price and the bill is now due and owing. The question is: how will the US pay what it owes? In Hyman Minsky's Financial Instability Model, the US is close to "Ponzi status" if not already there since the US is having to roll its debt forward and borrow from others to pay the interest as it can no longer pay down the principle.

In 2006, in an article published by the St Louis Federal Reserve Bank, Professor Laurence Kotlikoff stated the US was "technically bankrupt" as there was no way the US could pay the $65.9 trillion it owed.

Evidently, Professor Kotlikoff was conservative in his estimate or we're going downhill faster than he knew. Just three months ago, on May 28, 2008 Richard W. Fisher, President and CEO of the Dallas Federal Reserve Bank estimated the obligations of the US to be actually $99.2 trillion, 50 % higher than Kotlikoff's figures.

Fisher stated:

In the distance, I see a frightful storm brewing in the form of untethered government debt. I choose the words-"frightful storm"-deliberately to avoid hyperbole. Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets that we are now working so hard to correct.

Fisher should know what the US owes and the danger that sum represents. As President and CEO of the Dallas Federal Reserve Bank, Fisher is a part of the Federal Reserve System-the very system that has indebted America into perpetuity when its credit-based money forced out gold and silver based money in 1913.

But in his speech Fisher said nothing about the role the Federal Reserve has played in America's fatal dance with debt, warning instead about the increasing costs of entitlements such as Social Security and Medicare.

Fisher is part of a larger effort to now blame America's entitlements as the primary cause of our problems, assiduously avoiding the role his own Federal Reserve Bank has played in sinking our once wealthy nation into perpetual indebtedness.

In truth, the entitlement program that poses the greatest threat to America is-and always has been-the Federal Reserve System. Without the Federal Reserve's credit-based money whose compounding interest (paid to the bankers) is obliged to be paid for by a possibly unconstitutional US income tax [note: the Federal Reserve Act and Federal Income Tax were both instituted the same year in 1913], the US would not be indebted and bankrupt as it is now.

If Ben Bernanke and Richard Fisher et. al. at the privately owned Federal Reserve Bank resigned and stopped plundering the US for their own benefit at the expense of the public in order to line the pockets of their banker friends with public funds, the US might have a chance of successfully getting out of this mess.

But, of course, they won't and the now privately controlled US government will continue to indebt the American public so insiders can continue to profit immensely at the public trough. But the question still remains, how will the US pay its unpayable debt? The answer is as clear as it is obvious. It won't because it can't.

Debt and Destruction South of the Border

In their well-researched paper, Serial Defaults and Its Remedies, Reinhart and Rogoff write "Cycles in capital flows to emerging markets have now been with us for two hundred years". If we are to understand the dynamics of serial default, it would do us well to look at these cycles and their relevance to what is happening today.

Serial Defaults and Its Remedies, Section 2.
Capital Flow Cycles and the Syndrome of "This Time Is Different":

..a pattern of borrowing followed by crisis is evident in the string of defaults during 1826-28 in Latin America that come on the heels of the first wave of massive capital flows from Britain into Latin America in 1822-25…A second wave of capital flows from Britain came during the 1850s and 1860s. The cycle ended with the crisis of 1873. The next wave of capital flows into emerging markets coincided with the shift of the financial epicenter of the world from London to New York. Among Latin American countries, the borrowing binge of 1925-28 was [financed] with "cheap" money from New York. Capital flows peaked in 1928, the year before the U.S. Stock market crash ushered in financial and currency crises around the world and eventually an international debt crisis during 1929-33.

Argentina is at the very epicenter of Latin America borrowings and defaults and a cursory judgment may well lay the blame for such on Argentina. But understanding the past is akin to sedimentary sampling and a deeper reading of events reveals far more than the too familiar story of a spendthrift deadbeat nation borrowing more than prudence would otherwise dictate.

The capital flows from England and the US in the last two hundred years to Latin America were flows of credit, not money. The distinction is critical in understanding what has happened during the last two centuries. It explains the basis of the British Empire and current American power. It also explains the exploitation of Argentina.

The British Empire was founded on the central bank invention of credit-based money and the subsequent ability to substitute this new "money" for costly gold and silver; and the issuance of paper money allegedly backed by gold and silver is a critical component in the confidence game of central bankers to pass off their printed coupons as the real thing.

What the private bankers accomplished with the creation of the Bank of England was the government's "legitimization" of the bankers' new credit based coupons, sic paper money-coupons upon which the private bankers could now charge interest just as they had when loaning actual gold (what a wonderful scam). The new coupons were a lot easier to come by, especially when the king gave them a monopoly over its issuance.

The advantage to the king was that the king now had an unlimited supply of "money" that could be used to finance his wars-wars which led to the establishment of the British Empire; the cost of which was transferred directly as a burden to the people as the new counterfeit debt-based money was now an obligation of the state, not of the king.

This was the genesis (genius to the bankers and government) of the modern income tax where the people are forced to pay interest on the credit-based money issued by their own government. This was also the beginning of credit-based markets, deceptively called capitalism in order to closely identify the newly counterfeit credit based economy with the real money it had replaced.

Capitalism: the Spread of Debt in Disguise

The flow of credit from England and then from its surrogate successor, the US, to developing nations such as Argentina was but the flow of printed coupons designed to harness and indebt the wealth and productivity of new lands.

The "capital" was really only credit, thinly disguised debt in the form of paper money originally issued by central banks, the Bank of England in Britain and the Federal Reserve Bank in the US, the twin towers of monetary Mordor.

The wonderfully sounding idea of unfettered capitalism is but a smokescreen for bankers to leverage their coupons in the form of credit and thereby indebt and control the productivity and wealth of others. As such, it has accomplished its goal admirably but its success will now cost the bankers dearly.

Three centuries of indebting nations, businesses, and the citizenry with constantly compounding debt is no longer sustainable. This is why central bankers in London, New York, Paris, and Tokyo are in such distress. Debtors can no longer pay their debts, defaults are on the rise and bankers may actually have to find real jobs if their confidence game continues to disintegrate.

Bankers' Fears

Lawrence Summers' credentials as a banker are impeccable. Educated at MIT and Harvard in economics, Summers has served as Chief Economist for the World Bank, US Secretary of the Treasury and President of Harvard University.

Recently, in March 2008, Summers stated:

..we are facing the most serious combination of macroeconomic and financial stresses that the U.S. has faced in a generation--and possibly, much longer than that…It's a grave mistake to believe in the self-equilibrating properties of economies in the face of large shocks. Markets balance fear and greed. And when fear takes over, the capacity for self-stabilization is not one that can be relied upon.

On June 29, 2008 the Financial Times quoted Summers:

... we are in an economic environment where we have more to fear than fear itself…

Lawrence Summer's fears are not to be taken lightly. They are the banker's equivalent of Jim Cramer's televised fit of fear when interviewed on CNBC last year.

While Summers is rightfully fearful of the current economic environment, the rest of us have far more to fear from bankers like Lawrence Summers and others like him. Summer's role in the manipulation of the price of gold is found in his 1988 paper Gibson's Paradox and the Gold Standard co-authored with Robert Barsky, published in the Journal of Political Economy (vol. 96, June 1988, pp. 528-550).

The hubris of bankers such as Summers is stunning. Fixing the price of gold hoping to control interest rates and prices is like fixing the temperature of thermometers hoping to control global warming. Such is the short reach of Summers' considerable intellect.

Evil Bankers. Fact or Fiction?

But the real danger of bankers like Lawrence Summers lies not in their untethered intellect but in their cold ambition and selfish greed that sees nations and people as but living fodder to be milked, used and discarded as they and others profit.

In 1991, Summers issued the following memo while serving as Chief Economist at the World Bank:

…developed countries ought to export more pollution to developing countries because these countries would incur the lowest cost from the pollution in terms of lost wages of people made ill or killed by the pollution due to the fact that wages are so low in developing countries…the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.

As the World Bank's Chief Economist, Summer's memo is a chilling reflection of the heartlessness that lies at the core of bankers and banking establishments. The World Bank itself seems to be a favorite watering hole for those of questionable intent.

Robert McNamara, the architect of the Vietnam War was President of the World Bank as was Paul Wolfowitz, the architect of the Iraq War. The current President of the World Bank, Robert Zoellick, is also an ardent supporter of the Iraq War (also on Zoellick's considerable list of "credits" is his service as advisor to Enron, his membership on the Council on Foreign Relations and Trilateral Commission and his attendance at the secretive Bilderberg meetings from 1991 to the present and his role as Senior International Advisor to investment bank Goldman Sachs).

It is no coincidence that those heading the World Bank are closely associated with America's vast war machine. Bankers have profited from fueling the military ambitions of both England and the US for the past two centuries and continue to do so today.

But perhaps the most damning indictment yet of the World Bank and today's bankers is John Perkins's Confessions of an Economic Hitman (Barrett Koehler, 2004) in which Perkins reveals the hidden intent of the World Bank and US bankers to cold-bloodedly indebt third world countries such as Argentina and profit by their misery.

In their review of Confessions of an Economic Hitman, Russell Mokhiber and Robert Weissman write:

Remember Smedley Butler?

He was perhaps the most decorated Major General in Marine Corps history. In the early part of this century, he fought and killed for the United States around the world. Butler was awarded two Congressional Medals of Honor.

Then, when he returned to the United States he wrote a book titled "War Is A Racket" which opens with the memorable lines: "War is a racket. It always has been."

"I was a high class muscleman for Big Business, for Wall Street and for the Bankers. "In short, I was a racketeer, a gangster for capitalism."

In a speech in 1933, Butler said the following:

"I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912. I brought light to the Dominican Republic for American sugar interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested."

Smedley Butler, meet John Perkins.

Perkins has just written a book, "Confessions of an Economic Hit Man" (Barrett Koehler, 2004). It is the War is A Racket for our times. Some of it is hard to believe. You be the judge.

In 1968, after graduating from Boston University, Perkins joined the Peace Corps and was sent to Ecuador. There, he was recruited by the National Security Agency (NSA) and hired by an international consulting firm, Chas. T. Main in Boston.

Soon after beginning his job in Boston, "I was contacted by a woman named Claudine who became my trainer as an economic hit man." Perkins assumed the woman worked for the NSA.

"She said she was sent to help me and to train me," Perkins said. "She is extremely beautiful, sensual, seductive, intelligent. Her job was to convince me to become an economic hit man, holding out these three drugs - sex, drugs and money. And then she wanted to let me know that I was getting into a dirty business. And I shouldn't go off on my first assignment, which was going to be Indonesia, and start doing this unless I knew that I was going to continue doing it, and once I was in I was in for life."

Perkins worked for Main from 1970 to 1980. His job was to convince the governments of the third world countries and the banks to make deals where huge loans were given to these countries to develop infrastructure projects. And a condition of the loan was that a large share of the money went back to the big construction companies in the USA – the Bechtels and Halliburtons.

The loans would plunge the countries into debts that would be impossible to pay off.

"The system is set up such that the countries are so deep in debt that they can't repay their debt," Perkins said. "When the U.S. government wants favors from them, like votes in the United Nations or troops in Iraq, or in many, many cases, their resources – their oil, their canal, in the case of Panama, we go to them and say – look, you can't pay off your debts, therefore sell your oil at a very low price to our oil companies. Today, tremendous pressure is being put on Ecuador, for example, to sell off its Amazonian rainforest -– very precious, very fragile places, inhabited by indigenous people whose cultures are being destroyed by the oil companies."

When a leader of a country refuses to cooperate with economic hit men like Perkins, the jackals from the CIA are called in. Perkins said that both Omar Torrijos of Panama and Jaime Boldos of Ecuador -– both men he worked with – refused to play the game with the U.S. and both were cut down by the CIA -– Torrijos when his airplane blew up, and Roldos when his helicopter exploded, within three months of each other in 1981.

If the CIA jackals don't do the job, then the U.S. Marines are sent in - Butler's "racketeers for capitalism."

Perkins also gives lurid details of how he pimped for a Saudi prince in the 1970s, in an effort to get the Saudi royal family to enter an elaborate deal in which the U.S. would protect the House of Saud. In exchange, the Saudis agreed to stabilize oil prices and use their oil money to purchase Treasury bonds, the interest on which would be used to pay U.S. construction firms like Bechtel to build Saudi cities.

For years, Perkins wanted to stop being an economic hit man and write a tell-all book. He quit Main in 1980, only to be lured back with megabucks as a consultant. He testified in favor of the Seabrook Nuclear power plant ("my most infamous assignment") in the 1980s, but the experience pushed him out of the business, and he started an alternative energy firm.

When word got out in the 1990s that he was starting to write a tell-all book, he was approached by the president of Stone & Webster, a big engineering firm.

Over seven years, Stone & Webster paid Perkins $500,000 to do nothing.

"At that first meeting, the president of the company mentioned some of the books that I had written about indigenous people and said - that's nice, that's fine, keep doing your non-profit work," Perkins told us. "We approve of that, but you certainly would never write about this industry, would you? And I assured him that I wouldn't."

Perkins assumes the money was a bribe to get him not to write the book.

But he has written the book.

You be the judge.

Evil bankers? Fact or Fiction? You be the judge.

Default or Just Deadbeats?

While Reinhart's and Rogoff's work on sovereign default is worthwhile and  important, their glaring avoidance of the geopolitical aspect of credit flows from England and the US to Latin America and other developing regions is indicative of the blind eye scholars turn to the activities of those who pay them.
 
Lawrence Summers was President of Harvard University where Kenneth Rogoff is now employed. It is not likely those who hired the likes of Summers would look kindly upon Rogoff should he begin asking questions whose answers would lead to truths Harvard's trustees would rather not see the light of day.

So instead of dealing with the critical issues raised by John Perkins, Reinhart and Rogoff consider the phenomena of sovereign defaults as an innocent rite of passage much like high school through which developing economies must pass. Perhaps it is so, perhaps not.

But their "trained" eye wanders a bit, even to an untrained eye such as mine. According to Reinhart and Rogoff, the US is a "default virgin", sic the US has never missed a debt repayment or rescheduled on at least one occasion. While this is strictly so, the US is nonetheless at the center of the largest default in monetary history.

In the 1970s, the US defaulted on its gold obligations under the Bretton-Woods Agreement. After overspending the greatest hoard of gold in history, 21,775 tons, between 1949 and 1971, the US had 7,000-8,000 tons of gold left and still owed perhaps over 31,000 tons to others.

In 1973, when the US officially refused to convert US dollars held by other countries to gold, it was the biggest monetary default ever. In that one act, as a consequence the entire global monetary system shifted from a gold-based system to a fiat-paper system.

Of the US default on its gold obligations, Professor Antal Fekete wrote in June 2008.

Thirty-five years ago gold, symbol of permanence, was chased out from the Monetary Garden of Eden, replaced by the floating irredeemable dollar as the pillar of the international monetary system. That's right: a floating pillar. The gold demonetization exercise was a farce. It was designed as a fig leaf to cover up the ugly default of the U.S. government on its gold-redeemable sight obligations to foreigners. The word 'default' itself was put under taboo even though it punctured big holes in the balance sheet of every central bank of the world, as its dollar-denominated assets sank in value in terms of anything but the dollar itself. These banks were not even allowed to say 'ouch' as they were looking at the damage to their balance sheets caused by the default. They just had to swallow the loss, obediently and dutifully join the singing of the Hallelujah Chorus of sycophants in Washington praising the irredeemable dollar and the Nirvana of synthetic credit.

Debt virgin? Hardly, and whether the US defaulted or not is not just a question of semantics, it is a matter of truth-which, like credit, is now surprisingly hard to come by.

This Time it's Different

Carmen Reinhart and Kenneth Rogoff's paper, This Time It's Different, refers to the idea that sovereign defaults are a thing of the past. That we have somehow fixed what was wrong and it won't happen again. Reinhart and Rogoff think otherwise.

But this time, in a different way it really is different. This time default will come to both banker and debtor alike. The bankers' system itself is now collapsing under the weight of debt that the bankers' debt-based money has produced.

Banks are finding themselves increasingly bankrupt as are the governments the bankers used to debase the world's currencies. This time, not only will Argentina possibly suffer another sovereign default, so too will its creditor, the US, as will many of the US banks that issued that debt.

The default of the US will remain, however, outside the limited definition of default used by Reinhart and Rogoff. The US will not miss a payment or reschedule its debt. Unlike Argentina, the US prints the currency in which the Argentine and US debt is denominated. The US will print its way out of its debts. Argentina cannot.

Because of the enormity of the US debt, the amount of dollars necessary to print to pay down the debt will lead to the hyperinflation in the US and the destruction of the US dollar. Those who live by the sword sometimes die by the sword-though not often.

In that same article where Professor Kotlikoff estimated US liabilities to be $65.9 trillion, Kotlikoff also wrote:

The United States..appears to be running the same type of fiscal policies that engendered hyperinflations in 20 countries over the past century.

Maybe this time it isn't different..

Don't Cry For Me Argentina... Save Your Tears For Yourself

In 1976, the Argentine military overthrew the democratically elected Argentine government. The first to recognize the dictatorship was the US. The second was the International Monetary Fund, and within 24 hours of recognizing the soon-to-be most brutal regime in recent history, the IMF arranged a loan to the military junta.

At the time, Argentina's external debt totaled $7 billion. When the bloody dictatorship ended with the return of democracy six years later, Argentina's debt totaled $43 billion, a debt owed mainly to US banks.

The common law concept of caveat emptor has particular relevance here, caveat emptor-Latin, "let the buyer beware", is a legal precept that buyers must take responsibility for the conditions under which the sale was made.

If you loan to a dictatorship, don't expect to be repaid if a democracy emerges. - Richard Perle, former US Assistant Secretary of Defense and neoconservative lobbyist

Richard Perle who supported the Iraq War said those words shortly after the US invaded Iraq. While it is doubtful Perle believes the same applies for debts incurred by the US supported dictatorship in Argentina, the truth of Perle's words extend beyond Perle's situational principles or a lack thereof. In a court of law, an illegal contract cannot be enforced-unless, of course, the court has been bought off.

A critical distinction between the debt "owed" by Argentina and the debts owed by the US is that Argentina's debt was illegally imposed upon Argentina by the IMF, the US and international bankers without the consent of the Argentine citizenry, The US debt, however, was incurred with the consent of the American people-or was it?

That, my fellow Americans, is a $99.2 trillion question.

Bankrupt Be the Bonds that Bind

Americans with their outstanding obligations now measured in trillions of dollars of outstanding US bonds have much in common with the Argentine people. We have both been enslaved and bankrupted by the same financial system.

While it is impossible for the debt burdened Argentines to do something about US banks, it is not impossible for Americans to do so. The US Federal Reserve Bank-the largest emitter of debt-based money in the world-while not an official US government agency is nonetheless still subject to the rules and laws of our land.

Stirrings in the Electorate

Dissatisfaction, the beginning of change, is now occurring. The two political polarities are finally awakening to the fact that both have been callously used by those in power. The US has lurched right then left then right again, but it continues to go in the same disturbing direction, a direction now equally distasteful to those on the left and on the right.

In modern democracies, successful politicians must possess two qualities: They must say what the people want to hear and they must do what those in power want done.

It has been easy to manipulate those on the right as well as those on the left. The Republicans and Democrats have done so for years. But where's the beef? The nation's finances have been even more badly managed by the Republicans than the Democrats-and Iraq? Sure, vote for the Democrats and stay mired in a conflict they promised they would end.

Both parties are controlled by the same money, the same money that now controls global governments and institutions such as the World Bank and the IMF, the same money that buys politicians, scholars, the military, lawyers, TV anchors, radio talk show hosts and anyone  else whose influence they can use for their own ends.

There is a reason why we are indebted as we are and there is a reason why we are mired in a war that one wants except the few that do, the few that now control our nation and many others. In the midst of this most unreasonable world, there are reasons-whether you want to know them or not.

Humanity now finds itself at the beginning of a profound shift, a shift that will force us-if we are to survive, if we are to triumph-to put aside our differences to accomplish together what we obviously cannot accomplish apart.

The two political polarities must find common ground or they will soon find there is no ground at all. What is happening is bigger than money and power although it involves both. It involves humanity, it involves all of us and unless we find each other we will soon find there will be nothing left to find at all.

We are closer to the end than to the beginning. Keep your own counsel. Buy gold and silver. Keep the faith.

In Argentina, I read in a recent issue of Scientific American that physicists now believe that in the beginning of time the Universe was only one centimeter across. That knowledge heartened me. We have come a long way.

Copyright © 2008 Darryl Schoon

Darryl Robert Schoon
email: info@drschoon.com
website: www.drschoon.com
website: www.survivethecrisis.com
About Darryl Robert Schoon
In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later.In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that - preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters.In October 2005, Marshall Thurber, a close friend from law school convened The Positive Deviant Network (the PDN), a group of individuals whom Marshall believed to be "out-of-the-box" thinkers and I was asked to join. The PDN became a major catalyst in my writings on economic issues.When I discovered others in the PDN shared my concerns about the US economy, I began writing down my thoughts. In March 2007 I presented my findings to the Positive Deviant Network in the form of an in-depth 148-page analysis, "How to Survive the Crisis and Prosper In The Process."The reception to my presentation, though controversial, generated a significant amount of interest; and in May 2007, "How To Survive The Crisis And Prosper In The Process" was made available at www.survivethecrisis.com and I began writing articles on economic issues.
The interest in the book and my writings has been gratifying. During its first two months, www.survivethecrisis.com was accessed by over 10,000 viewers from 93 countries. Clearly, we had struck a chord and www.drschoon.com, has been created to address this interest.


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