FDA “Dear Colleague” Letter to the United States Food Manufacturing Industry, Regarding Melamine

“Dear Colleague”? Isn’t that a bit of a cozy salutation from an agency that’s supposed to be a watchdog (*snort* yeah right)? According to this letter, other foods with protein may be contaminated, including soy protein. You know, that ubiquitous cheap ingredient that’s in practically every single processed food.

This letter contains polite suggestions and helpful hints, but shouldn’t the FDA be requiring food manufacturers to take these steps? Seeing as how the U.S. imports about 20 million pounds of just milk products from China? Huh?

http://www.cfsan.fda.gov/~dms/melamltr.html

October 10, 2008

This letter is intended to ensure that members of the United States food manufacturing industry are aware of the Food and Drug Administration’s (FDA’s) serious concern about the possibility that foods or food ingredients produced in China and exported to the United States may be contaminated with melamine or its analogues. FDA has information indicating that melamine and its analogues have been added to milk produced in China and that milk contaminated in such a fashion has been used to manufacture infant formulas and other dairy-based products. As of this writing, Chinese authorities are reporting that in China approximately 53,000 infants have suffered illnesses, with 13,000 hospitalizations and four deaths. Approximately 158 of the victims thus far have suffered acute kidney failure. Chinese authorities have disclosed that, in addition to discovering contaminated infant formulas, melamine has been discovered in 24 of 1202 samples of milk and yogurt. There is little information at this stage to determine when the contamination might have begun or how widespread the contamination might be. However, Chinese authorities report that melamine was found in infant formula, milk, yogurt, and ice cream manufactured by 22 companies in China. The Chinese investigation into this matter is ongoing.

There are currently two recalls for products in the United States related to this situation. Tristar Food Wholesale Co., Inc. has issued a recall of Blue Cat Flavor Drink (Lanmao), manufactured in China, due to possible contamination with melamine. Also, seven Mr. Brown brand instant coffee and milk tea products manufactured in China are being recalled by the King Car Food Industrial Co., Ltd. due to possible contamination with melamine. In addition, California and Connecticut report that their testing of White Rabbit Creamy Candies manufactured in China has shown melamine contamination. Further, other countries (South Korea, Singapore, Hong Kong, Japan, Taiwan, Australia, Indonesia, Canada and New Zealand) have all identified products containing melamine including flavored milks, cakes, candies, crackers, rice snacks, coffee creamer, lactoferrin, and cereal.

Milk and milk products that could originate from China include condensed, dried, and non-fat milk, condensed and dried whey, lactose powder, permeate powder, demineralized and partially demineralized whey powders, caseins, yogurt, ice cream, cheese, whey protein concentrate, and milk protein concentrate.

In light of current circumstances, there are several useful steps to help protect the public health available to manufacturers of products containing milk-derived ingredients, including the following:

• Know the precise origin of each milk-derived ingredient. For example, milk-derived ingredients that are sourced from countries other than China could actually originate from China.
• Determine that milk-derived ingredients originating from China are free of melamine and its analogues prior to usage.
• For food manufactured in the last twelve months which might still be on the shelf at retail or in stock elsewhere, determine whether the food might contain any milk-derived ingredients from China. If any such foods exist, verify that they do not contain melamine or its analogues.

In addition, it would be useful for manufacturers to be alert to the possibility that non-milk-derived ingredients from China that are or may be sold on the basis of protein content, such as soy protein, also could be contaminated with melamine.

Should firms decide to recall any of their products because of the presence of melamine, please follow FDA’s guidelines in 21 CFR Part 7 Subpart C. We encourage you to communicate any concerns to your local FDA district office.

A gas chromatography-mass spectrometry (GC-MS) as well as a liquid chromatograph-tandem mass spectrometry (LC-MS/MS) method for determining melamine and its analogues is available at the following link to the FDA website: http://www.fda.gov/oc/opacom/hottopics/melamine.html#testing.

In addition to sending this letter, FDA has taken, and will continue to take, proactive measures to help ensure the safety of the American food supply. In conjunction with state and local officials, FDA will continue to check retail stores for food items imported from China that could contain a significant amount of milk or milk-derived ingredients. At the same time that FDA began working with the States on this matter, it began sampling and testing milk and milk-derived ingredients and finished food products that could contain these milk-derived ingredients from Chinese sources. The sampling is being done either when products are offered for entry into the United States or at the retail level. In addition to working with state and local governments, FDA is working in close cooperation with Customs and Border Protection within the U.S. Department of Homeland Security, the U.S. Department of Agriculture, other federal agencies, and foreign governments.

FDA recognizes and appreciates the extraordinary collaborative efforts to protect consumers by all of the aforementioned government authorities and industry in response to this matter. We are confident that you will continue to work to provide safe food products to the U.S. customer.

If you have any questions regarding this letter, you may contact John F. Sheehan, J.D. at (301)436-2367 or Benson M. Silverman, M.D. (301)436-1459.

Sincerely,

Nega Beru, Ph.D.
Director
Office of Food Safety
Center for Food “Safety” And Applied Nutrition

Melamine may be routinely used in Chinese animal feed

From the BBC.

The toxic chemical melamine is probably being routinely added to Chinese animal feed, state media has reported.

Correspondents say the unusually frank reports in several news outlets are an admission that contamination could be widespread throughout the food chain.

The melamine scandal began early in September, when at least four Chinese babies were killed by contaminated milk, and thousands more became ill.

The news led firms across Asia to recall products made from Chinese milk.

The problem widened last weekend when the authorities in Hong Kong reported that melamine had also been detected in Chinese eggs.

Four brands of eggs have since been found to be contaminated, and agriculture officials speculate that the cause was probably melamine-laced feed given to hens.

Melamine is high in nitrogen, and the chemical is added to food products to make them appear to have a higher protein content.

‘Open secret’

Several state newspapers carried reports on Thursday suggesting that the addition of melamine to animal feed was widespread.

The feed industry seems to have acquiesced to agree on using the chemical to reduce production costs while maintaining the protein count for quality inspections,” the state-run China Daily said in an editorial.

“We cannot say for sure if the same chemical has made its way into other types of food,” the newspaper added.

The practice of mixing melamine into animal feed is an “open secret” in the industry, the Nanfang Daily reported.

Chinese officials have been criticised for initially covering up the melamine scandal – as they have in the past for other health scares.

Despite a nationwide campaign to raise food safety standards and reassure consumers, China’s broken-down food safety inspectorate is still failing to catch and report lapses in standards when they happen.

Analysts say that Friday’s news reports are an unusual departure for Chinese officials, marking what amounts to a tacit government admission that the problem could affect many parts of the food supply.

Halloween Candy May Be Tainted

This one is from The Bulletin.

With Halloween coming Friday, parents are warned to pay attention to the origin of candy their children gather while trick-or-treating because of the recent melamine contamination of candy, milk and snack products originating in China.

The Food and Drug Administration (FDA) has recalled only one type of candy product, White Rabbit Candy, among the 13 recalls. Several other types and brands of candies may be affected by the melamine scandal, according to an open letter issued on Oct. 10.

The industrial product melamine became a household name two months ago, when on the seventh anniversary of the Sept. 11, 2001 terror attacks, news broke that Chinese baby formula was tainted with the non-food product for the sake of tricking protein level tests. Melamine, a nitrogen compound normally used in industrial products such as plastics, cleaning products, fertilizers and pesticides, appears as a protein in tests on the quality of food products. Melamine has been added to watered down milk to make it appear to have nutritional value.

Worldwide, melamine has been discovered in a variety of candy products, resulting in numerous product recalls. For example, Nestle, the Korean-owned manufacturer of Kit Kat, recalled a batch of mini Kit Kats at the request of the Korea Food and Drug Administration in early October after multiple statements indicating their candies produced in China, Taiwan and Hong Kong were clear of melamine contamination.

The FDA’s letter indicated that seven Asian countries plus Australia and Canada report they have found melamine in a variety of products including candy, flavored milks and cakes. A variety of candies including Cadbury, Snickers, Kit Kat, M&M’s and Dove have been recalled from China, Hong Kong, Australia, Taiwan, South Korea and the United States.

Additionally, the letter indicates an extensive list of products that could potentially contain melamine: “Milk and milk products that could originate from China include condensed, dried and non-fat milk, condensed and dried whey, lactose powder, permeate powder, demineralized and partially demineralized whey powders, caseins, yogurt, ice cream, cheese, whey protein concentrate and milk protein concentrate.”

The letter, which is directed at food manufacturers not consumers, went on to explain there are many unknown factors the FDA has discovered in attempting to understand the extent of the contamination. For example, soy-based products may also be tainted with melamine.

“In addition, it would be useful for manufacturers to be alert to the possibility that non-milk-derived ingredients from China that are or may be sold on the basis of protein content, such as soy protein, also could be contaminated with melamine,” the FDA said.

Nearly all candy products contain soy lecithin, which is used as an emulsifier.

On its consumer safety Web site for Halloween, the FDA recommends parents check candy for tampering, however makes no mention of possible melamine contamination.

However, there is still cause for concern according to Mike Mozart of JeepersMedia, a 25-year toy designer who posts his reviews on YouTube. He recently examined several candy toys originating in China whose ingredients include two types of milk powder that were the same products found in the tainted baby formula in September in China, after first attempting to contact his local Target and Target headquarters directly for product recall and testing.
He spoke to The Bulletin about the potential dangers that he has uncovered in his attempt to expose the potential harms in candies made in China.

Mr. Mozart was originally told by his local store the products would be pulled and corporate headquarters would be notified; however, the products did not move from the shelves.

Over one week ago, Mr. Mozart posted a video on YouTube explaining the cover-up and urging his fans to express concerns to Target and the FDA. The video has more than 300,000 hits and has been marked as a No. 1 video on the popular self-broadcasting Web site, and he is receiving more than 100 e-mails an hour from fans who are updating him with complaint phone calls.

“People should not eat any candy from Asia,” said Mr. Mozart. “I have no proof that they are tainted or not, however China has recently said that every raw milk product in China has been tainted with melamine.”

Mr. Mozart said testing for melamine presence in food products takes only 24 hours. In addition to direction given to food manufacturers, he indicated, products should be taken off the shelf for testing and then replaced if safe.

The World Health Organization (WHO) lists possible indications of melamine poisoning on their Web site. Symptoms include: unexplained crying, especially when urinating, possible vomiting, stones discharged while passing urine, high blood pressure, edema, painful when knocked on kidney area.

While the FDA and the WHO maintain that melamine is unsafe for consumption, the FDA also state that traces of melamine are not considered harmful for human consumption if below two and a half parts per million.

For The Record:

Please note that the article “Halloween Candy May Be Tainted,” published in The Bulletin on Oct. 29, relied on the credible Asian news sources Wall Street Journal’s China Journal and Shanghaiist for information on candy recalls from Asian countries.

Mary B. Worthington can be reached at mworthington@thebulletin.us.

Just in time for Halloween: Candy from China may be tainted with toxic Melamine

Source: YouTube and BrassCheckTV.

Take this seriously and pass it along

In China, ANYTHING made with Chinese-manufactured milk powder before September 14th was PULLED from their store shelves.

In the US, this garbage is still being sold!

Foods at risk: ANY food manufactured in China and potentially any food containing milk powder. US food manufacturers imported millions of pounds of milk powder from China before September 14th. The FDA continues to allow to be sold.

This includes chocolate, cookies, cakes, and even things like packaged macaroni and cheese.

Background

Mike Mozart is a product designer who also runs a video blog about new developments in the toy industry.

His reviews are normally light, cheerful affairs and completely apolitical.

If he appears distraught, it’s because he is. This is serious.

Mozart has discovered that the US is the ONLY country that still permits potentially melamine-contaminated food on its shelves. Even China has removed these products from its stores.

That’s right. This poison that killed and injured thousands of people, mainly children, may be in US food. We’re the only country that hasn’t pulled it from its shelves.

Here’s what you need to know

1. Melamine was added to food products manufactured in China to simulate protein content. These food products were imported into the US by the ton.

2. Melamine itself is bad, but much worse – and not reported – is that melamine is an industrial product, not a food product and often comes contaminated with a wide range of dangerous industrial toxins.

There is no such thing as food grade melamine. None of it is suitable for food.

3. The widespread practice of adding melamine to powdered milk products has killed and seriously injured thousands of children in China.

Melamine injuries children by damaging their kidneys. There has already been a reported spike in kidney stones in American children.

Last year, when melamine was found in pet food sold in the US and traced to death in animals, it was headline news.

This news, potentially far more serious, is being censored.

4. The Chinese government knew this contaminated food was on the shelves killing children and said nothing so as not to put a damper on the “Olympic spirit.”

5. As much 20 MILLION POUNDS of food manufactured in China that contains milk powder was imported into the US this year. Also, it’s not clear how many US food manufacturers use milk powder manufactured in China in their products.

6. The US Food and Drug Administration (FDA) refuses to test for melamine contamination – or it is has, refuses to make the results of these tests available to the public.

Further, the FDA refuses to force food manufacturers to remove the contaminated food from its shelves, something they are completely capable of doing.

7. Why is this being done?

Mozart theorizes: a) to prevent a scandal before the election and b) to avoid further deterioration of the US stock market.

Are these motivations plausible?

Long-time Brasscheck TV viewers know that the FDA has demonstrated over and over again throughout its history that it is a political agency designed to protect well connected law breakers and has next-to-zero interest in the public welfare.

AVOID all food products manufactured in China and any product that contains milk powder that does not disclose its source. (Egg powder is also being identified as a potential source of this contamination.)

The direct YouTube link for this video is:

Please share this information with friends, family members and colleagues so they can make an informed decision about what they eat.

Knowing the parties involved – China, the FDA, the Bush administration, the US news media, and corporate America – you can be sure that none of them can be trusted to look out for your welfare.

Flashback: “The Dollar’s Coming Collapse,” A 2004 Interview with James Turk

Source: The Money Changer.

James Turk and I met in 1985, and have been friends ever since. Over a long career he has worked as an international merchant banker, managed gold portfolios for Abu Dhabi and large funds, and invented and patented a gold based electronic money, GoldMoney®, transferred over the Internet. Frankly, James Turk is brilliant — and brave. He’s one of the few analysts worth reading. (Freemarket Gold & Money Report costs $220 a year for 20 letters, from P.O. Box 5002, North Conway, New Hampshire 03860, www.fgmr.com. You can learn all about GoldMoney® electronic gold-backed currency at www.goldmoney.com.)

Not long ago James kindly sent me a review copy of his new book written with John Rubino, The Coming Collapse of the Dollar & How to Profit From It. Quick as I could, I sat down to read it, because I didn’t think much more could be said on this subject. I was wrong. Turk and Rubino demystify the mystery of money, and make an unarguable case for fleeing the dollar. Doubleday Division of Random House will publish the book in December, so get ready.

Mr. Turk generously made time for this interview on August 27, 2004.

Moneychanger Since, at least the New Deal and the succession of Roosevelt and all his monetary/inflationary tricks, people have been predicting that the dollar would collapse. Aren’t you ashamed to come along 70 years later and predict again that the dollar is going to collapse?

Turk By any logical interpretation the dollar has already collapsed. Today’s dollar only purchases five cents of what it purchased in the 1930s, ten cents of what it purchased in the 1960-70s, and maybe 50 cents of what it purchased in the 1980s. So inflation has already brought the dollar to an ongoing collapse. The sound money people have been warning about this through the decades: the dollar is no longer an effective form of currency.

That raises another question: will the dollar’s problems become more severe? That’s where it becomes a bit more troublesome in terms of projecting and looking at the future. Can this decades-long situation continue, or must it end in some cataclysm? In our view it must come to end in a cataclysm, and that’s what we lay out in the book.

Moneychanger But isn’t the word “collapse” misleading? The people who mange the dollar, the Federal Reserve and the Treasury, have managed the collapse from 1934 until 2004, 70 years, so that the economy did not collapse along with the dollar. Can you really call that a collapse? Also, what’s to prevent their managing it a bit longer, through this decade? Even if it loses (as I expect) at least 75% of its value in this decade — and it’s already lost nearly 30% from February 2002 to March 2004 — it still won’t disrupt the economy too terribly.

Turk Let’s look at the first part of that question, the claim that the economy hasn’t collapsed. You’re widening the point that I was making earlier about the dollar collapsing in terms of purchasing power. When you bring the economy into the discussion you have to ask yourself another question. Are people better off now than they were 20-30 years ago? Looking at real wealth and adjusting for the dollar’s debasement, people are less wealthy today than they were 20-30 years ago. Incomes are lower today than they were 20-30 years ago, partly because the dollar’s been debased, partly because people take home less money after taxes. By any logical measure, I don’t think people are as well off as they were in the 1960s or 1950s when the dollar problems weren’t as severe as they’ve become in recent decades.

But there’s more to that question: we’ve created a debt mountain, a debt bubble. Bubbles always pop. We mortgaged our future trying to maintain standards of living by debasing the currency and borrowing. This is unsustainable and will ultimately bring about the dollar’s collapse.

Moneychanger But the Federal Reserve and the Treasury have managed the collapse. That’s what they do. They are crisis managers. They exist to manage the debasement of the dollar so that this infection does not give the whole economy a fever resulting in death. Would you agree?

Turk Yes, and as a clear result of their managing an unsustainable situation, we have less and less freedom. The Patriot Act just presents the latest example. Look at US financial history. They continue to erode and encumber our freedom. Why? Because they recognise that the present system is not sustainable and they are trying to keep the bubble in the air.

Moneychanger You claim the present system is not sustainable. Allan Greenspan says it is. George Bush says it is.

Turk Well, are they going to tell you that it’s not sustainable?

Moneychanger No, but they have 70 years of success to argue on their side. What makes it different this time? In the dollar’s darkest hours of 1980, when gold hit $850 and silver $50 and they pushed interest rates over 20%, well, yes, it’s a crisis, but we’ll muddle through this one, too. They’ve been muddling through since 1934. What is to prevent their muddling through this time? What specific things will make the dollar collapse this time? By “collapse” I don’t mean “erode” or even “erode quickly”, but I mean collapse in the sense that currency collapsed in Germany in 1923 or Argentina in 2002.

Turk That is exactly what I envision for the dollar. To answer your question we have to consider both supply and demand. In recent decades demand for the dollar has been, more or less, fairly consistent. As the financial bubble has been inflated and the Debt Mountain was built, people have continued to demand the dollar. They still use it for their day to day transactions. But what happened in Argentina and in Germany in the 1920s? Eventually, in a very short period of time, people realised that the hollow promises they were using for currency weren’t worth what they had previously valued them to be. Then began the flight from the currency. The demand for those currencies dropped dramatically. In a long-term time frame, you could say almost overnight, but it was really over a period of weeks and months. People moved out of that currency as quickly as they could into other alternatives.

Demand for the dollar will ultimately drop for essentially the same reasons that demand for the Argentine peso and the Reichsmark dropped: they were fiat currencies oversupplied to the market.

Today far too many dollars are sloshing around the global economy. All it takes is a little break in confidence, then people quickly understand that the dollar is not worth the paper it’s printed on. There are a lot of hollow promises backing your dollar. That will lead to the flight from the currency that will ultimately bring the dollar down. But it’s the same outcome for every fiat currency. That’s the point that Americans don’t yet get. There is no logical reason why the dollar should end any differently than any other fiat currency.

Moneychanger But help me see the unseen. In 1923 Germany the people had already suffered through the inflation of World War I. They had seen their currency lose value as prices rose 800%, they had caught on. That “catching on” was necessary to precipitate the flight from the currency.

In Argentina in the decades of the 1980s and 90s, they had three different currencies, if I’m not mistaken. It may have been four, I can’t keep up with it. All Latin America has a century-long tradition of monetary instability. In the U.S. the last two generations have grown up without seeing gold in circulation, the last generation has grown up without seeing silver in circulation. Since 1971, the whole world has been on a fiat standard. Every currency has been inconvertible, backed by nothing. So why would American confidence break now? They don’t know anything else. They have only known a regime of inflation and ever-depreciating dollars. What will put the idea in their mind now that they have to flee out of dollars?

Turk What will trigger the flight from the dollar? We can’t really predict that. It could be some geopolitical event, some domestic financial event, a bankruptcy of Freddie Mac or Fannie Mae. We just don’t know what the specific trigger will be.

Look at the overall picture of what the dollar is today, and ask yourself a question. Do I want to prepare for this coming event by moving assets out of dollars into other alternatives – other currencies, precious metals, tangible assets. Never mind asking what specific event will starts the flight.

Where we stand today in this country is not unlike where Russians stood in the Soviet Union in the late 1980s. If you had possessed the terrific foresight to say that in two years the Russian Rouble will collapse and the Soviet Union will be history, the average Russian would have just laughed at you. And you know what he would have said? “The government will never let that happen.” Exactly what Americans say today.

“The government will never let that happen.”

But the reality is that the market is bigger than the government. Truth can be hid for only so long, and we have been hiding the truth. We’ve been creating illusions of prosperity, while in reality we’ve been consuming infrastructure and building a debt mountain. The Debt Mountain is ultimately going to be the problem that causes the dollar to collapse.

Moneychanger But, Jim, in the Soviet case the collapse of the currency brought with it with the collapse of the whole governmental system. In Germany and in Argentina the same thing happened. Thinking back to 1720, it is usual for a currency collapse to be accompanied by the collapse of a government or a regime. Do you envision that the kind of confusion in the US?

Turk No, I disagree with your premise. In Argentina and also in Germany, they still had the basically same forms of government, they just brought in new people to run the government. The Soviet Union was different because it itself was the most unsustainable command economy. What will hopefully happen here is that we will return to the constitutional basics that requires the money of this country to be gold and silver coin.

Moneychanger I saw that in your book, but having fought that issue through the courts, I think that the elite that presently rules this country founds all its power on creating money out of thin air. Why would they give that up and return to the Constitutional standard?

Turk I think the American people will demand it.

Moneychanger Really?

Turk Yes. I think the American people are wise enough to demand it. The economic problems that will result from a dollar collapse will cause people to recognise what our heritage is, where our roots are and why this country became great in the first place. Sound money is the key element of that and sound money is enshrined in the Constitution.

Moneychanger You could almost say the sound money was the reason that the Constitutional Convention was called.

Turk Yes, because of the memory of what happened during the Revolutionary War with fiat currency. The founding fathers learned their lessons in dealing with fiat currencies and didn’t want their posterity to suffer the same miseries, so they enshrined sound money in Article I, Sections 8 & 10 and it worked for nearly 145 years (counting 1934 as the final end of sound money).

Moneychanger But not everyone at the Constitutional Convention favoured sound money.

Turk No, they were in favour of sound money, but there was a disagreement. First let’s define sound money. Is it gold and silver coin only, or is it gold and silver coin with a parallel fractional reserve banking system. ? At the constitutional convention there were two schools of thought. The Jeffersonian school maintained that gold and silver coin should be the only money of the country. That was ultimately put into place by Andrew Jackson over forty years later when he defeated the banking interests.

On the other side at the constitutional convention was Alexander Hamilton who felt there was a need for fractional reserve banking. And after Jackson’s victory many years later, the fractional reserve banking school eventually won out. Its victory was so complete, in fact, that now we have only fractional reserve banking, no gold and silver coin, and fiat money. To make that fractional reserve banking possible, we have created this fiat currency as well.

Moneychanger Which is necessary to make the fractional reserve system survive.

Turk Yes.

Moneychanger Yes, but even during the constitutional convention there were people who were not just friends of fiat money or fractional reserve banking, like Hamilton. Some went further and wanted the state to just print as much money as it wanted.

Turk Crazy monetary thinking appears in every generation – people who believe the state can create wealth by printing up pieces of paper and forcing people to accept it as money. That thinking was definitely in the minority, particularly since the Revolutionary War experience had discredited it so thoroughly.

Moneychanger So you think this crisis in dollar confidence dollar will bring about that same understanding in the public?

Turk Yes, that’s my expectation but also my hope. I’d rather not think about the other alternatives.

Moneychanger You cover those other alternatives at the back of your book. I really appreciated that you did not leave up in the air how the final collapse will be dealt with and the alternatives for reform. So many people say, yes, we ought to have gold and silver currency, but then after all there is no way we can re-institute it because there is not enough gold and silver, or some such silly thing. At the end of your book you and John Rubino show three different scenarios for the collapse’s outcome and a return to sound money.

Turk Thanks for saying that. We tried to make a realistic assessment, and hope those scenarios will provide food for thought and help guide the public discussion.

Moneychanger Make a connection for me. Why does the mounting business, government and consumer debt in the U.S. make any difference? As long as the Federal Reserve continues to pump out new money, cheapening the overall value of the debt and providing new money to pay the interest, why can’t the debt burden be borne? It has already reached ridiculous, hardly conceivable levels. Consumer debt in the U.S., not counting mortgage debt, is about $18,200 per person. Who would have ever imagined debt like that? I have talked to bankruptcy lawyers who tell me it’s at all unusual for their clients to owe $45,000-$60,000 in credit card debt.

The debt bubble has already blown higher and lasted longer than any sane person expected, but it hasn’t collapsed yet. Why do you maintain that the debt unsustainable?

Turk If you cheapen the debt you cheapen the currency. Keep in mind that for every obligation there is an asset. Many of those obligations have been turned into currency by the banking system. So cheapening the assets, which are debt on the balance sheets of the bank, also cheapens the liabilities on the balance sheet of the banks, which are the fiat currency that is circulating today.

Moneychanger But we have doing that for the past 70 years and it hasn’t collapsed yet. What is it about the debt burden now that makes it unsustainable?

Turk It’s a combination of two things: the magnitude and where that debt is now owed. When I was growing up in the 50s and 60s and Federal debt was growing, people used to say that it didn’t matter because we owed it to ourselves — implying that it was all owed within the country. Now we owe debts all over the world. We owe four trillion dollars to the rest of the world and are living on the good graces of the rest of the world. That’s what creates the vulnerability.

That, too, is what Warren Buffett offers to justify diversifying out of the U.S. dollar and taking a cash position in other currencies. (About 50% of his $35 billion in cash is now invested in foreign currencies, according to his last quarterly report.) He’s saying that we have squandered much of our financial capacity and as a consequence we are vulnerable to what the rest of the world thinks about the dollar and our debt position.

Moneychanger I keep thinking about the surprise. You are telling me that there is an upper limit. A point comes when you can’t make the payment any more.

Turk More importantly, at some point the demand for the dollar will change. Even though they will still need dollars for day to day transactions, people will put their liquidity into other resources. We are seeing this even a little bit presently because the supply of dollars has not been growing very rapidly. Still, the dollar has been dropping on foreign exchange markets. Why? It suggests that demand for dollars is not growing as rapidly as the supply. So we are already starting to see the early stages of the dollar collapse?

Moneychanger When do you think this will happen? By 2010? By 2015? By 2005?

Turk My own assessment is that it will happen within three years, maybe five years at the most. But the important point is not when it will happen, but what you do about it now. You have to prepare your strategies and act and plan for it today. Let’s assume the dollar system survives another ten or 15 years. If you are prepared, you really don’t care when it happens because you have peace of mind knowing that you are ready if and when it does happen. That is the key.

Moneychanger How do you prepare?

Turk We outline of a lot of strategies in the book. I don’t want to get into those in detail, because some are quite complex. There is a basic rule of thumb: minimise your dollar assets and minimise dollars that are owed to you. Instead go for precious metals, strong currencies (some European currencies are stronger than the dollar, but not prefect), and tangible assets of all sorts.

Moneychanger An investor can’t protect himself by going from dollars into Yen or dollars into Euros. Is that correct?

Turk Yes, holding Euros or Yen is better than holding dollars, but that doesn’t answer the problem. Ultimately, if the dollar lands in trouble the other currencies will as well. Neither the Euro nor the Yen is a viable long term currency because they, too, are fiat currencies. They confront all the same weaknesses as the dollar, but for the moment their problems aren’t as severe as the dollar’s.

Moneychanger In their essence they differ from the dollar only in the symbol that represents them.

Turk Yes. The economic conditions are a bit different in those countries, but at the end of the day they are still fiat currencies. My complaint is against fiat currencies of all sorts.

Moneychanger Since you’ve dealt in the gold market for nearly 30 years, you are well aware how narrow the door is into the world of gold investments. When a dollar crisis precipitates, how will precious metals markets behave?

Turk Gold and silver prices will rise dramatically..

Moneychanger Very quickly?

Turk Yes, very quickly. When the rush our of dollars finally comes, it will be like emptying Hoover Dam through a garden hose. The garden hose presents a very limited opportunity to get gold and silver because they will just continue to be bid up.

When you look at gold and silver now from any historical perspective, they are extremely cheap. Month after month I have been recommending that people accumulate them in an unleveraged way, a safe way. Diversify your gold and silver assets and make sure that you control them either through allocated storage or physical possession.

Moneychanger There are four ways to hold gold: physical metal, electronic currency, stocks, and futures and options. Is it practical for a person to put all his assets into gold and silver using those four means?

Turk It’s hard to make a sweeping generalisation because everyone’s situation and temperament is unique. My years of experience in investment management, banking, and everything else has taught me that if there is one right answer, it is diversification. Put your eggs in a lot of different baskets.

But I would like to make a distinction. Physical metal and digital currencies, like GoldMoney®, are different from stocks, which again are different from futures and options. First off, futures and options are paper, they’re derivatives. You don’t really own gold, you just own someone’s promise to pay you gold. That’s just like unallocated storage, or what I also unallocated call pool accounts and certificates. They are just promises to pay, not real physical metal. I would avoid those because gold and silver are the bedrock of your portfolio and you don’t want to take any chances with that.

Stocks are different from both the other two because stocks interpose all the risks of being in business. They aren’t really gold and silver, they are companies with management and are subject to acts of God. Stocks are an investment, not money. Whether in physical or digital form, gold and silver are money. That makes them different from the other assets. When you look at a portfolio you normally think “stock, bonds, cash.” Gold and silver are your cash.

Moneychanger I have to explain that over and over because people don’t understand that gold and silver are currencies that compete will all others. When they think of currencies they think dollar, Yen, or Euro. They don’t think dollar, Yen, Euro, gold, silver. Without thinking in those terms you can never understand what is really happening.

Explain to us about digital gold because this is a new player on the scene. Digital gold didn’t exist in 1980 or perhaps the outcome of the currency crisis then might have been very, very different.

Turk Yes. We haven’t used gold as currency for a long, long time. Back in the 19th century gold coins used to circulate. In the early 20th century some gold coins circulated alongside paper gold certificates. But for the past 70 years there has been no gold currency.

Digital gold is a new 21st century form of gold currency. It enables gold to circulate as currency without any of the impediments. You own gold, sitting in the vault. (In GoldMoney®’s case, the vault is in London.) You transact on line by clicking ownership of the gold from your account to someone else’s account. The gold never leaves the vault, but stays in allocated storage, and in the case of GoldMoney is insured by Lloyd’s of London. The ownership changes from you to the other person the moment you click it out of your account. It’s like passing a gold coin from hand to hand but you do it online, anywhere in the world, any time day or night.

Moneychanger It sounds like a good idea, but what sort of volume is there? If I had a GoldMoney® account where could I spend it?

Turk There is a chicken and an egg issue here. Merchants want a lot of users and users want a lot of merchants, so we are building up the GoldMoney® base. We now have about $27 million worth of gold in GoldMoney®, about 12,000 accounts with people in over 100 countries. As merchants see that more and more people using GoldMoney® to buy gold because its inexpensive and convenient, more and more merchants are starting to accept GoldMoney® in payment. A lot of people are using it for international transactions. A small businessman buying supplies worth $3,000 a month from Hong Kong can go to his bank and pay $50 to send a wire transfer, and if he’s lucky the wire will get into Hong Kong three days later. With GoldMoney®, he makes the payment of $3000.00 in gold instantaneously and it costs about a dollar. So we’re finding a lot of peer-to-peer payments being made with GoldMoney®.

Moneychanger There are several purveyors of GoldMoney®. At one time there were 20 to 30?

Turk There several purveyors of digital gold currency, but there is only one purveyor of GoldMoney®. There are many imitators, and a couple of them have failed. All of them basically infringe the patents we have on this process, but more importantly, they haven’t gone about the whole business correctly. They haven’t established the governance procedures, they haven’t created the control mechanisms to provide the assurances of integrity that customers must have to know that their gold is safe. Before you look at any of these programs ask yourself is your gold safe? With GoldMoney® I am sure you’re going to answer yes to that question. When you look at the alternatives, you’ll have a lot of question marks.

Moneychanger What about silver? As a bimetallist I know I am in the company of maybe two or three other people on the face of the earth. Still, I was a little bit miffed by your emphasis on gold. How you think silver will perform over the course of this dollar collapse?

Turk I think silver will do extremely well. The fundamentals for silver are very, very bullish and it looks like we will continue to see what we have seen for the past few years, silver outperforming gold. I am very, very bullish on it. Silver as an asset will show considerable appreciation and I am quite bullish.

But is silver going to have a role as currency? In the physical world it may, although only time will tell. In the digital world I don’t think it necessarily will. From a currency point of view silver in the last 100 years was the subsidiary coinage used to make the small change. It wasn’t practical to make gold coins that small. In the digital world that is no long an issue. With GoldMoney®, for example, you can send as little as a penny’s worth of gold so there’s no need for a subsidiary coinage in a digital world. Once you digitise gold you can divide it up into amounts as small as you want. I don’t see silver necessarily having a digital currency role, but that doesn’t necessarily mean silver won’t do well. In fact, I think silver will outperform gold.

Why am I more a monometallist than a bimetallist? Because it has a huge consumer & industrial demand, silver is more volatile than gold. That’s why in my mind silver is not as good a money as gold is. Gold’s demand is almost all monetary demand.

Moneychanger I understand that but a fundamental question of valuation underlies the question of bimetallism or monometallism. That fundamental question is echoed in the Latin proverb, Quis custodiet custodes ipsos? Who will guard the guards themselves?

What regulates the value of gold? The fact that an ounce of gold buys 16 ounces of silver. What makes an ounce of silver valuable? Sixteen ounces of silver will buy one ounce of gold. The correspondence of value between the two defines the value of each.

The alternative is a monometallic system where the value of gold is defined in terms of paper money: one ounce of gold buys thirty-five paper dollars. Without silver in the system to validate valuation, then gold will be valued in terms of a paper currency. As we’ve seen in the last 100 tragic years, that is the camel’s nose of fiat money. It’s a crucial epistemological question, and if it’s not answered correctly it will destroy the monetary system.

Turk I don’t object to bimetallism per se. In the past bimetallism has been implemented by government fixing the ratio between the two metals. Government price fixing in any form never works, and that’s been the problem with governments fixing bimetallism ratios. If we have two different metals circulating freely without the government fixing their exchange rate, I can live with that.

Moneychanger I completely concur. But it’s interesting that the Founding Fathers did not create a monometallic monetary system. Looking at the constitution and later enactments like the Coinage Acts of 1792, 1834, 1837, and 1849 you see that they made the silver dollar the standard coin, with gold “eagles” valued in dollars. They never intended that gold/silver ratio to remain fixed at that rate forever, but to be adjusted to changes in the market. They only fixed it in accord with the technology available at that time, and intended for the ratio to be adjusted periodically. They made silver the standard, with gold coins adjustable in weight according to how the ratio rose or fell.

Turk But governments are never in a position to understand what the market already understands. So even with an adjustable ratio, the market will always move ahead of government.

Moneychanger You are quite right. But today, of course, with the communications capability to transmit value changes around the world instantaneously, there’s no reason why you couldn’t use both gold and silver because the market will be constantly iterating toward a current ratio. That fits in rather well to your definition of money as a “means of communication.”

Turk There will always be a ratio because in the market people will always be exchanging between gold and silver. My only complaint is with government fixing that ratio.

Moneychanger My only complaint is having governments in the money business at all. Suppose they weren’t. Suppose that the US government announced tomorrow, “In 18 months we will close the Federal Reserve and we will no longer accept its notes for taxes and other payments. Also, the US Treasury is getting out of the money business, and we’re going to encourage every other government in the world to do the same.” Why, in six months we would see the biggest economic boom the world has ever known.

Turk I wholeheartedly agree

Moneychanger I deeply appreciate your giving me time for this interview, and I applaud your book. It’s hard for me to approach a book about money, gold, and the dollar collapse and find anything I haven’t heard before. But in your book I found a considerable number of things I had not heard before. The way you put things together will be extremely helpful for every investor.

Turk: Thank you, Franklin.

Debt Rattle, October 25 2008: Ass Clowns

Source: The Automatic Earth.

If there’s one reassuring light flickering in this collapsing tunnel, it must be that you have the courage and audacity to leave control of the rescue and repair of our economic systems in the hands of the same ass clowns who confidently led you into that tunnel.

That takes guts. Still, I’m not quite sure what the reasoning behind it is. People like Greenspan, Bernanke, Paulson and Gordon Brown have either consistently missed out on a zillion signs that something was going awfully awry, or they have consistently lied to your face.

What makes you think that they will either start recognizing the $800 trillion gorilla now, or that they will all of a sudden begin to tell the truth? Wouldn’t it make sense to quiz them on what exactly it is they know about the matters at hand, and/or hook them up to a polygraph for a while?

Every single member of the power gang will tell everyone willing to listen that none of what is going wrong at the moment could have been foreseen. That is something we know to be a load of bull; yours truly, and many others, have been warning for years that it would come to this. Still, you leave the steering wheel in the hands of a rag tag bunch of incompetent liars. As I said, it’s brave, but I can’t figure out how it would be smart too.

And it’s of course not just on the level of governments, houses of representatives and central banks that insincere stupidity rules. Every citizen of the western world can be confident to have lost around 30% of their retirement savings at this point at the hand of fund managers. Every town, county and state is losing money fast. Not only through decreasing tax revenues, what’s likely to be an even harder blow are the losses through bad investments by fund managers.

The most ironic thing of all will be that while you lose your jobs and your homes, the ass clown gang will either keep theirs or leave with golden handshakes and huge retirement benefits. You might want to think about that, and you might want to stop taking it all lying down.

A large number of clowns knew very well what was going on, and did indeed foresee much of it. The rest are dumb followers. Letting that very group now handle the issues makes you a dumb follower too.

They are spending trillions of dollars of your money on schemes that are guaranteed to fail and misfire; if they had the capacities needed to solve the problems, then there would be no such problems in the first place. It’s either that, or they have intentionally designed and caused them. That’s the only two options there are.

It’s time to look at all the ass clowns through the prism of our legal systems, to hold them accountable for any and all intentional mismanagement of the public’s interests. If it turns out they are merely stupid and ignorant, you fire them, since you don’t want borderline cuckoos to manage your affairs. If they are not stupid, they’ve been lying, and should go to jail.

Start out by challenging the claims that none of the mayhem could have been foreseen; we know it could have been, because it was. Start with that, and then take it from there. That is what the judiciary branches of democratic societies are for, and if the laws of the land are not properly applied, there no longer is a democracy. It really is that simple.

Oh, and I have a little math question. The IMF has $200 billion in funds. It uses $2 billion on Iceland’s 300.000 citizens. Pakistan has 175 million people. What’s missing in this picture?

Seriously, though, the billions that will go to Pakistan are going to make life very hard over there. The IMF and World Bank mafia is taking over the entire control over the nation’s finances, in a version of economic martial law that looks all too familiar to those who know what happened in South America, Asia and Russia in the past five decades. Pakistan will become the new test lab for the disaster doctrine of the world’s top ass clowns. You have been warned.

Rep. Sherman Feels Heat for Reporting on Threat of Martial Law

Source: American Chronicle.

Congressman Brad Sherman said on the floor of the House that a few Congress members had been told there would be martial law in America if they did not pass Paulson’s Plunder. Here’s video.

Sherman has not retracted that statement. He has not suggested that the Congress members who had told him that didn’t really tell him that, or weren’t honest, or didn’t take it seriously, or that it didn’t influence their votes. But he has put out a statement to the media, clearly at the instruction of the leaders of his party, attempting to backpedal. Here’s his new statement which begins by quoting his floor comments:

On Thursday, October 2nd, I stated on the floor of the House of Representatives that, “The only way they can pass this bill is by creating and sustaining a panic atmosphere. That atmosphere is not justified. Many of us were told in private conversations that if we voted against this bill on Monday, that the sky would fall, the market would drop two or three thousand points the first day and a couple of thousand the second day, and a few members were even told that there would be martial law in America if we voted no. That´s what I call fear mongering, unjustified, proven wrong.”

There has been significant speculation in the blogoshere and other places regarding this statement.

Speaking during the second House debate on the bailout bill, I was describing what I regarded as the increasingly unbelievable things that had been said while the House considered the bailout package – extreme things put forward as reasons why Congress had to pass that bill right away. I urged my colleagues not to take the extreme statements seriously and urged them to defeat the bill. It should be clear from the context of my speech that I did not believe that martial law would be declared under any circumstances and I did not think that such absurd and outlandish comments should cause members to vote for the bill.

I also want to stress that I have no reason to think that any of the leaders in Congress who were involved in negotiating with the Bush Administration regarding the bailout bill ever mentioned the possibility of martial law — again, that was just an example of extreme and deliberately hyperbolic comments being passed around by members not directly involved in the negotiations.

It’s anyone’s guess whether Sherman is claiming that the members who said they were threatened were being deliberately hyperbolic or the unnamed members of the administration or the military who threatened them were being deliberately hyperbolic.

Sherman’s press guy sent me his new statement and wrote: “If you have any questions regarding this statement on his Martial Law comment, please do not hesitate to contact me.”

So, I contacted him by immediately replying thus:

Thanks.

Yes, I have a couple of questions.

Are you blaming the congress members who said they were threatened with martial law for speaking about it, or are you suggesting they spoke falsely?

Or are you claiming they spoke truthfully but did not take the threat seriously?

Have any of the members involved named anyone who supposedly made the threat?

David

I have yet to receive any response.

Diving off the USS America

http://meltdown101.livejournal.com/9491.html

In these days of rapid changes in the Political paradigm, it’s becoming obvious that the U.S. has overestimated the confidence it expects from the rest of the world. The fragmentation had already begun but is now accelerating as each country realizes the damage that faith in Uncle Sam’s integrity, both financial and moral, can unleash.

From Taipei to Dublin, Governments which are by their nature the largest investors, are abandoning the ship as they realize that their own economies are being dragged down by the biggest economic grift in modern history perpetuated by the United States of America. The past confidence in US backed Bonds and securities is fast deteriorating as the rest of the world realizes that, a country, being an economic entity just like any large corporation, is only as valuable as it’s assets and liabilities.

We have seen this realization come along as Iceland Hungary, South Africa, Pakistan and South Korea are knocking on the IMF front door and looking for a helping hand, much the same as Banks have been doing to their governments ever since the consequences of their insane and greedy actions were finally realized. Leverage, Leverage, Leverage. It has been the new mantra in the Alchemy of creating wealth where there is none. Leverage only signifies risk and risk by it’s definition is not something that you want to pay your grocery bills with every week. Imagine that you would eat or not eat, sleep in your house or on the street, clothe your children or have them freeze all on the turn of a dime in the nefarious and manipulated Ponzi scheme that is the “Investment” world ?

You would not, as your family is your biggest priority and you reduce to the absolute minimum the potential risks to which you are exposed to ensure that they are safe, warm and well fed.

It’s unfortunate for us that Governments the world over were only too happy to go along with the crazies that were running the investment banks, the Hedge funds, the Mutual funds etc etc. Doing so guaranteed them corporate donations and a cushy place on one of their boards after they left the equally corrupt political arena. The revolving door has been spinning ever since there was a government and a merchant.

It was a given that Asia, especially China and Japan, and the Middle east oil kingdoms could not dump the dollar as their foreign reserves and thus their real value was joined at the hip to a Fiat currency. This relationship, while it kept industry flowing and brought forth the industrial might of China and Japan, was always one that was subject to the health of the U.S. and the soundness of it’s economic plinth. The destruction of that plinth and it’s rendering in to dust by deliberate policy decisions by the U.S. financial/government elite has now arrived like a tornado in the faces further East.Japn is now on the brink of collapse as their exports have plummeted and their Yen has also priced itself out of a viable export market as other currencies decline.

From the Asian Investor Online..

“Taiwan’s financial regulators reportedly have ordered that nation’s insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.”

The U.S. government has poured billions of its taxpayers’ money in to these institutions for nothing. The value of the securities from these agencies relies on the state of the US housing market which is in its last death throes before ending up as a stain on the carpet. But this is a seminal illustration of the fallacy and bizarre investment logic that is the root core of the mess we find ourselves in today. And deserves an explanatory tale that does not have a happy ending…

Imagine your employer proposed to you that your wages, to feed your family and sleep under a roof, would be based on how many apples his orchard produced every year would you accept the offer Sure there would be years where the sun would shine and the frost go away before the blossoms appeared but there would be other years where the harvest would fail through uncontrollable circumstances.

If you signed up to the deal, your boss is happy and you mistakenly are happy to take the risk because this could mean extra wealth and comfort for your family. You would indeed be crazy to go for an arrangement like this but foreign Governments have been doing it for years because it’s not THEIR money or livelihood that is at stake but that of their “Family” which they are honor bound to protect but have forgotten completely about.

Slowly the realization dawns that the Apple grower has been secretly removing the topsoil from his orchard and selling it to his neighbor at a good profit. The orchard starts to suffer and the crops begin to fail. The apple farmer is still OK because he pays lower wages and makes a profit by selling the topsoil. Since the wages of the employee have been falling, his purchasing power has been falling along with it. Reduced Purchasing power ie consumer spending results in less demand for goods. The healthy response to this should be that prices reduce to enable sellers to continue to operate and purchasing power returns to the consumer.. But what the government has been doing is to interfere in this basic process and pump more liquidity in the form of easy credit in to the money supply. This restores the prices to higher levels as inflation kicks in. So now, the Boss’s employees have to pay for their groceries with borrowed money with its accompanying interest and soon finds himself living beyond his means. The credit companies are happy, the boss is happy but the consumer has just been raped. That happy feeling that the credit companies feel is based on the fact that if the consumer fails to meet his repayments, they can just force him to sell his house and then recuperate their money along with the interest. The Boss is happy that he has used his business to make a lot of profit for himself and his family out of his exploitation of his workforce and no matter what happens in the real economy he will be fine as he has stashed his nest egg away for the rainy days to come. But his hubris is about to be destroyed by his nemesis as his trust in the system of greed and leveraging will come home to destroy him in the form of a Stock Market Crash. Sound familiar yet ?

When you multiply this arrangement 10 million times with the resultant reduced consumer spending, the increased housing inventory, the increased number of people who cannot afford to buy any of this inventory, the increased unemployment because of the reduced demand for goods, the only results are falling house prices and increased poverty. Still not too bad as the creditors can just swipe up the properties and put them on their asset sheet. But as time goes on the value of these assets drops lower. When they were actually high during the real estate bubble, created by the Fed and Treasury working in concert, the Investment companies came up with the most brilliant and the at the same time the most insane virtual wealth creation in financial history. Mortgage backed securities and derivatives which are basically an insurance sold on the value of the underlying asset, in this particular case (and there are many more) the value of property. The extra leverage they could achieve on these creations is on an order of 30% or more. What his means is that the Credit Companies, and by these we are talking about Banks and investments houses etc, have inflated their assets by 30% of their actual value. Now if the real value is the value of a property then what happens when the house price plummets ? The actual loss on the asset sheet is 30 times greater as it would be if they had not leveraged the mortgage in the first place. But greater leverage when times are good means huge profits and bonuses so who are they to complain.

We have seen this asset unwinding over the last year as reality set in and the underlying asset value has deteriorated dramatically because of rising unemployment and poverty. It does not seem a long stretch to say that the Government has deliberately impoverished their own population. But that’s another matter for later..

But back to Taiwan and it’s shunning of “Government backed securities” The Taiwanese government had invested heavily in the latter in the uninformed belief that the American economy was sound and their investments were safe. Just goes to show, you don’t have to be a genius to be a central banker. Governments all over the world bought the same snake oil from Uncle Sam, in part helped by the Godzilla of corporate propaganda and Wall St.. In my own opinion, I think them calling foul now and casting the blame, no matter how well deserved, on the U.S. speaks to their own lack of intelligent forward planning and concern for the welfare of their electorate.

So what we are seeing here is the inevitable disappearance of trust which started out as one between banks, investors and corporations and now has spread to a disappearing trust between nations.

We have seen France call foul on Ireland over Bank deposit guarantees (see http://meltdown101.livejournal.com/8177.html and http://meltdown101.livejournal.com/3226.html ), China call foul on the U.S.saying it has destroyed the world economy with it’s Fiat based currency and trade subsidy arrangements, Germany complaining of France’s plan to assist in Industry directly by buying preferred shares to ward off the wealth funds of Asia and the Oil Kingdoms, the UK chasing after Iceland , Axe in hand, to recover the savings of UK depositors. This hasn’t broken out in war yet but as the situation becomes inevitably worse, tensions will continue to rise and we may be entering an era of isolationism and concurrent smaller regional alliances.

This weekend, Asia and European nations are sitting down to try and work a way out of the mess between themselves, deliberately excluding the U.S for the moment. Well let’s face it , who would want Uncle Sam at the table ?

Taiwan Dumps Fannie, Freddie. And Uncle Sam?

Source: Barrons.

Despite bailout, GSE debt is eschewed by major foreign investor, and ally.

WHO LOST TAIWAN?

After Mao drove the Nationalists off the Mainland in 1949, the cry went up among U.S. conservatives, “Who lost China?”

Now Washington might well worry about who lost Taiwan as a major investor in U.S. agency securities as the Republic of China has openly questioned their credit quality — even after the federal government has committed hundreds of billions of dollars to bail out mortgage giants Fannie Mae and Freddie Mac.

Beyond that, Washington might well worry that other nations also no longer view its agencies — and now, by extension, the very credit of the United States of America — beyond question.

Taiwan’s financial regulators reportedly have ordered that nation’s insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.

Such an order would be a stunning rebuke to Washington, coming a little more than a month after the federal government effectively nationalized the mortgage giants. Fannie and Freddie last month were placed into conservatorships with the Treasury standing ready to inject up to $100 billion through purchases of preferred shares in the government sponsored enterprises.

As a result, Fannie and Freddie debt has the “effective guarantee” of the U.S. government, a spokeswoman for the Federal Housing Finance agency, the regulator for the GSEs, said Thursday. (That was a “clarification” of FHFA director James Lockhart’s earlier declaration to the Senate Finance Committee that Fannie and Freddie debt had the “explicit” guarantee of the U.S. Treasury, Dow Jones Newswires reports.)

Moreover, Ginnie Mae securities have always been backed with the same full faith and credit guarantee as the U.S. Treasury.

In either case, the Taiwanese action is a blow to the reeling U.S. mortgage market, which has been supported by the Republic of China’s purchases of agency securities. According to U.S. Treasury data, Taiwan owned a very substantial $55 billion of U.S. agencies along with $43 billion of Treasuries as of June 30, 2007, the most recent date for which these data are available.

In mid-July, Treasury Secretary Henry Paulson announced plans to back Fannie and Freddie, which were effected in early September. Indeed, the federal government’s actions were in no small part to reassure foreign holders of GSE paper, who had come to trust in its implicit guarantee of the U.S. government. Failure to back Fannie and Freddie would almost certainly have had catastrophic implications for the dollar and all U.S. financial assets.

Yet, as more recent Treasury International Capital numbers show, investors around the globe have been shedding U.S. agency securities since mid-year. The latest TIC data show some $79.4 billion of agencies were liquidated in July and August by investors abroad while they added $69.1 billion to their holdings of Treasuries.

Despite those actions to prop up the GSEs, yields on Fannie and Freddie debt securities have continued to rise to record spreads over Treasuries. Two-year Fannie notes were yielding almost 140 basis points (1.40 percentage points) over Treasuries while 10-year Freddie notes traded 95 basis points over the corresponding Treasury note. Those extraordinary yield premiums for what are, de facto, U.S. government obligations.

The deterioration in Fannie and Freddie securities’ prices, resulting in part from the liquidation from abroad, has hit foreign holders hard.

“Exposures to U.S. agency MBS have created massive holes in Taiwanese insurers’ balance sheets,” according to Asian Investor. As a result, the FSC has eased requirements for MBS to be marked to market.

At the same time, the Insurance Bureau at the Financial Supervisory Commission in Taipei revised rules for the treatment capped allowable exposure for mortgage-backed securities, although the regulators stopped short of ordering their outright sale.

Perhaps something was lost in translation of the housing bill that provided for the Fannie-Freddie bailout.

In the U.S., the $130 billion Pimco Total Return Bond fund — the world’s biggest fixed-income fund, run by Barron’s Roundtable member Bill Gross — boosted its holdings of MBS (primarily Fannies and Freddies) to 79% by the end of September. That was the highest since June 2000 and an increase from 69% at the end of September. DJ Newswires quoted a Pimco manager this week that he continues to favor agency MBS and direct debt, precisely because of the federal backing of the securities.

On the other hand, distance may have provided a different perspective. Gross had argued forcefully for the U.S. government to use its own balance sheet to fight the credit crisis. And his portfolios of agency MBS and notes rallied when Washington followed his advice.

Taiwan, by contrast, perhaps sees things differently. As a small island with few friends, the ROC has to look out for its own interest. The irony is that America is one of those few allies. If Taiwan implicitly says it doesn’t trust the credit of the U.S., what does it say about it say about that nation’s faith in Washington in other spheres?

Public must call time on Big Brother Britain

Sent in by a dear reader. Please distribute widely.

http://www.power-to-the-people.co.uk/2008/10/public-call-time-big-brother-britain/

Enough is enough, the UK is becoming a police state by our control obsessed government and we are sitting back and allowing it to happen. It makes me angry to see such lethargy. Everytime a new act is brought in, far more sinister aspects are buried in the detail, which further curtail our civil liberties, freedom and privacy. This has got to stop and now, state should not be permitted to control the people, it should be the other way around. As it stands, just 650 members of parliament are pushing some 65m people around, yes, I mean 650, because whilst this government may have a majority, the MP’s from other parties are not making enough noise about this massive intrusion into our lives, they should be fired, the lot of them. We are quick to condemn the bankers (rightly so in many cases), but we do nothing about the MP’s that have consistently introduced or supported Acts of Parliament that intrude into our lives, in a way that will affect us for many years to come. We must put a stop to it.

It is expected that plans to collect more data on people’s phone, e-mail and web-browsing habits will be included in the innocuously sounding ”Communications Data Bill”, due to be introduced in the Queen’s Speech in November. By all accounts, these proposals are supported by Home Secretary Jacqui Smith, Gordon Brown and much of the Labour government. Once again, the government is expected to justify this gross intrusion into the personal lives of 65m people under the auspices of ‘counter-terrorism’, this is utter garbage, they know it and we know it. Yes, there are terrorists out there and they don’t wear badges, but this country has faced terrorism before and the security forces managed to investigate and prosecute without such laws.

I don’t know how many terrorists are out there, but it is not 65m and is probably less that a couple of thousand, why should the privacy and personal of 65m people be invaded by this government because of a few people that mean us harm? This whole thing needs to be put in perspective, more people in the UK die on the roads than as a result of terrorism, more soldiers are killed abroad, that in the UK as a result of terrorism, in fact, more people are killed in farming accidents that as a consequence of terrorism. This government have invested massively in the security services, allowing them to go on a substantial recruitment drive, there should be no need for a massive Big Brother surveillance operation of the entire population of the UK. Before some smart-arse suggests that it is this surveillance and investment in the security services that has reduced the number of terrorist incidents in the UK, I would ask them to provide further evidence that this is the case and then to put it into perspective. For example, it is well know that the airline industry work out whether safety mechanisms are worth introducing on their planes on the basis of a cost/benefit analysis. In other words, will the costs associated with an accident outweigh the cost of implementing the safety programmes. Fact of life, they all do it, they just rarely tell us!

Of course the government will issue the usual platitudes and assurances that they will not misuse this information, but can we believe them. The Icelandic authorities had their assets frozen using anti-terror laws, in spite of the fact that there were other laws that could have been used and would have been just as effective. A local council used anti-terror legislation to spy on the parents of a child that they throught was in the wrong ‘catchment area’. This list, trust me, goes on and on. We also know that this government ant it’s private sector partners are incapapble of securing data, which means our personal lives could be open to all and sundry. Some will argue that if you have nothing to hide, then there is nothing to hide, these same people probably still believe in Father Christmas. As we know information, any information can be used in different ways, depending on the the intepretation of the recipient, how many times have we said or done something that was completely misrepresented?

I have nothing to hide, but I object strongly to my personal calls, web browsing habits and email being monitored and invaded by the state. Government’s could even misuse this information to find out how we intend to vote! It is an appalling proposal and it is high time the British public called time on the control obsessed government and it’s supporters, irrespective of which party they represent. This goes beyond party politics, it is a direct attack on the very fabric of our society and no-one will be safe from government interference if it is allowed to pass into law. If the government believe that this act is so important, then they should allow the British people to vote on it through a referendum, I believe they will get a resounding No…and they know it!

People often tell me that there is “not much we can do”, but there is. Our members of parliament are worried sick that they may lose their seat at the next election, we must emphasise to them that if they support this attack on our civil liberties that we guarantee they will. We must demonstrate to our MP’s that they should be more in fear of the wrath of the British public that the Chief Whip of their own parties. Opposition MP’s should do their jobs and oppose this draconian piece of legislation. We must also warn our local members of parliament that if they vote for this Act, that we will not vote for them, we must make it clear, that we have a voice, not once every 5 years, but throughout their tenure and that we will have it heard. Everyone that feels this Act is a direct infringement of our civil liberties, right to privacy and an attack on the very fabric of our society, should write to their MP and tell them so. I have provided a ‘draft letter’ which can be viewed, personalised and sent to your MP. Draft Letter to MP

I would also invite all fellow bloggers that feel as strongly as I do on this issue to reproduce this article in part or full, topped and tailed if they wish, to publicise this issue to as many people as possible. Let us all stand up and fight in this issue, and remind this government who is actually in charge.

RESIST!

For more information on how the UK government is steadily eroding our rights to privacy and our civil liberties, I would recommend that you take a look at these articles. Privacy Controls – Nothing to Hide