The Real Price of Oil: Dollars, Gold, and the Price of Tea in China

Source: War on You.

Oil, it’s the lifeblood of our society. It’s given us the freedom and wealth we have today. It’s given us automobiles and machinery and greased the wheels of the industrial revolution. It made old Jed a millionaire. But oil’s in trouble, the price is up and everyone thinks they understand it. But what if the price of oil wasn’t really up? What if it were just an illusion?

“The price of oil is skyrocketing, and that means gas prices are up…”
That’s about the limit of what most Americans know and understand about the whole oil situation. But there are more complex issues at work, and they involve more than just Middle East politics and China.

The American Geological Institute (AGI) recently released a report looking at the price of crude oil in relation to the U.S. dollar and the price per ounce of gold. It highlights a fact that probably makes some folks at the Federal Reserve very nervous.

This graph makes it easier to understand:

The bottom purple line is the price of a barrel of crude oil per ounce of gold (if you wanted to use gold to pay for a barrel of oil). As you can see, that line is stable, and has been for the entirety of the graph, which is about 7 years.

The top two lines are the price of oil in relation to currency (blue is the Dollar and the red is the Euro). Those lines show that the cost of oil has been going up in relation to currency only. What this chart makes obvious is that the value of oil has not been increasing in real terms, currency has just been decreasing in value.

To put it another way, if the US Dollar were still based on gold (as it was until Nixon eliminated the Bretton Woods system in 1971), then the price of oil would be just as stable as that purple line in the chart is.

So oil is worth the same, and the US dollar is just worth less. Maybe we need to shift our focus away from war and drilling; and towards a better economic policy at home.

Here is the AGI data report

And here’s the summary from the AGI report:

The steep increase in the price of crude oil in the United States remains a headline issue, along with the falling US dollar. The drop in the dollar has caused concern in oil-producing countries which use it as the economic basis for the commodity, and often their currency. The chart below shows the spot market price of crude oil per barrel (BBL) in US dollars and in euros from 2001 to today. The price of oil has grown faster relative to the dollar than to the euro. Yet, a portion of the rise in oil prices is due to the fall of the value of the dollar. The graph also shows the number of barrels of crude oil per cost of an ounce of gold, demonstrating the parallel growth in commodity pricing.

If the US dollar had remained strong in the global economy, oil might, in theory, be around $65 per barrel. However, oil is priced in dollars, and oil prices continue to rise. The impact of increased oil prices can not be ignored in the US economy, and, in turn, can further weaken the dollar. Resource economics is a complex feedback loop where today’s resource boom is driven by many external factors. This complex system bears watching by all geoscientists.

Parasitic Bankers Achieve the End of Capitalism and the Sacking of America

By: Darryl R. Schoon, The Market Oracle.
Communism was a public relations gift to the bankers. By diverting the dialogue to “controlled versus free markets” it obscured the bankers’ real intent—to insert debt into every aspect of free markets. The bankers’ overwhelming success however would destroy both the bankers and the free markets on which they preyed.

Parasitoidism is the relationship between a host and parasite where the host is ultimately killed by the parasite. This is what is happening to the US. Once the most powerful and productive economy in the world, the US , indebted by bankers and government spending beyond its ability to repay, is headed towards sovereign bankruptcy.

The recent request by US Treasury Secretary—and more importantly former Chairman and CEO of investment bank Goldman Sachs— Henry Paulson to bail out Fannie Mae and Freddy Mac with US taxpayer dollars is but another indication of this destructive and parasitic relationship between bankers, government and the economy.

That a private banker from a large Wall Street investment bank is also Secretary of the US Treasury is no coincidence. It is also no coincidence that once again, public monies from the US Treasury are being used to rescue private bankers and to indemnify their losses.

THE FOX IS IN THE HENHOUSE

GOLDMAN’S SACHING OF AMERICA

Receiving taxpayer dollars from the US Treasury for their private benefit is not new to Goldman Sachs. In 1990s, when the Mexican government defaulted on its bonds, investors at Goldman Sachs’ stood to lose billions of dollars. They didn’t.

Buried deep in the subsequent $40 billion US bailout of Mexico was a $4 billion payment to Goldman Sachs, gratis of the US Treasury indemnifying Goldman Sachs against any losses on their investment in Mexican bonds.

The fact that current US Treasury Secretary and former Goldman Sachs CEO Henry Paulson also recently used US funds to underwrite JP Morgan Chase’s private buyout of investment bank Bear Stearns and is now proposing to do the same with Fannie Mae and Freddie Mac is to be expected. For investment bankers, using public money to privately profit is business as usual.

They’re ruining what has been one of the greatest economies in the world, [Bernanke and Paulson] are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this.
Jim Rogers, Chairman of Rogers Holdings, July 14, 2008

THE TUMESCENCE OF CREDIT

THE DETUMESENCE OF DEBT

It often happens that only in retrospect does the truth become apparent—at least to most. Seduced by the vain hope of eternal profits, investors blindly followed Alan Greenspan’s prognostications when he was appointed chairman of the Federal Reserve in 1987; in the beginning, it appeared that Greenspan was right. Now, two decades later Greenspan’s errors are apparent.

A former director at investment bank JP Morgan, Greenspan clearly understood the role of credit in today’s economy. What he didn’t understand were its limitations. Greenspan’s reputation as a maestro of the markets was built on his continual feeding of cheap credit into the US economy thereby bolstering asset prices and the profits of investors.

Greenspan’s reputation at the time was well deserved, much as BALCO the illegal steroid provider deserves credit for Barry Bond’s astonishing achievements in baseball late in his career. Credit has the same affect on markets as does steroids on athletic performance. That is why both are so popular.

Greenspan’s continual feeding of credit into America ’s economy fueled the greatest expansion of capital markets in history. This directly led to America ’s fatal misperception of credit as the cause of its wealth. It is now beginning to dawn on America that credit, in actuality, is the cause of its problems.

Credit is but debt in disguise and the American economy is now collapsing under the weight of that debt—the bankers’ effluence, extraordinary and compounding levels of public, private and business debt that in only decades has completely drained America of its once immense productivity and wealth.

FANNIE MAE AND FREDDIE MAC – WHO’S NEXT

US mortgage giants Fannie Mae and Freddie Mac own or guarantee $5.2 trillion of US mortgages or nearly half of US mortgage debt. As of March 31 st, however, the combined capital of the two insurers was only $81 billion, 1.6 % of the total owned or guaranteed.

With US housing prices continuing to fall, it was evident, contrary to government assurances, that Fannie Mae and Freddie Mac did not have the requisite capital needed to meet future obligations. The sudden decline in the value of their shares forced US authorities to come to their rescue; but, it will not be the last time the US will be forced to act in such a manner.

The systemic distress set in motion by last August’s credit contraction is still continuing and the recent collapse of Bear Stearns and now Fannie Mae and Freddie Mac are witness to that fact. We are only one year into the contraction and although the liquidity provided by central banks has gone beyond all previous levels, financial institutions are continuing to falter and collapse.

It is possible that the FDIC, the insurer of America ’s savings deposits, may be next. The capital of Fannie Mae and Freddie Mac equaled 1.6 % of the sums they guaranteed. Prior to last week, the FDIC had only 1.2 % of the funds necessary to cover the accounts they insure.

It is now estimated the bank failure of IndyMac last week cost the FDIC 10 % of its capital, leaving the FDIC with even less than its previous 1.2 % to cover additional bank defaults. As it is, $1 billion approximately 5 % of IndyMac’s deposits were not covered by the FDIC and it is estimated 37 % or $7.07 trillion of US deposits are also similarly exposed to bank failures.

As financial institutions continue to fail, bank failures will increase. As usual, government regulators at the FDIC maintain there is no problem. Believe them and you might soon have problems of you own.

PARASITE HOST COLLAPSE

When central banking was introduced in England in 1694 and in the US in 1913, it could not have been foreseen that the spread of credit based money would lead to such levels of indebtedness that systemic collapse would be a possibility, let alone occur.

Only time would make that fact apparent and it now appears that sufficient time has passed.

The economist Hyman Minsky described the three sequential steps of debt in capital markets in his Financial Instability Hypothesis.

Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on ‘income account’ on their liabilities, even as they cannot repay the principal out of income cash flows. Such units need to ‘roll over’ their liabilities – issue new debt to meet commitments on maturing debt. For Ponzi units , the cash flows from operations are not sufficient to fill either the repayment of principal or the interest on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stocks lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes.

It can be shown that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation-amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.

In particular, over a protracted period of good times, capitalist economies tend to move to a financial structure in which there is a large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make positions by selling out positions. This is likely to lead to a collapse of asset values.

As the US is now increasingly meeting its debt obligations by rolling over present debt and/or by borrowing, it is now according to Minsky’s model, clearly in the Ponzi finance mode which can precede a collapse of asset values.

According to Minsky, capital markets over time become increasingly unstable. Asset values in real estate are now collapsing, equities will be next, bonds will follow. Almost one hundred years after the Federal Reserve introduced debt-based money to America in 1913, both host and parasite are now approaching the same end, parcus nex , sic economic death.

Not only is the host, the US economy, in imminent danger, so too are the parasites, the banks. Bridgewater Associates, the giant US hedge fund, has warned its clients that current bank losses may reach $1.6 trillion, four times previous estimates.

The implications are discussed by financial journalist Ambrose Evans-Pritchard in The Telegraph.co.uk, July 8, 2008:

Bank losses from credit crisis may run to $1,600bn, warns Bridgewater
By Ambrose Evans-Pritchard

Bridgewater Associates has issued an apocalyptic warning to clients that bank losses from the worldwide credit crisis may reach $1,600bn (£800bn), four times official estimates and enough to pose a grave risk to the financial system.

The giant US hedge fund said that it doubted whether lenders would be able to shoulder the full losses, disguised until now by “mark-to-model” methods of valuing structured credit.

“We are facing an avalanche of bad assets. We have big doubts as to whether financial institutions will be able to obtain enough new capital to cover their losses. The credit crisis is going to get worse,” said the group in a confidential report, leaked to the Swiss newspaper SonntagsZeitung.

Bank losses on this scale would have far-reaching effects. Lenders would have to curtail loans by roughly 10-to-one to preserve their capital ratios. This would imply a further contraction of credit by up to $12,000bn worldwide unless banks could raise fresh capital.

It would be almost impossible to attract or even find such sums from investors. While sovereign wealth funds command roughly $3,000bn in funds, this money is mostly committed already. The funds have grown extremely wary of Western banks with sub-prime exposure after burning their fingers so many times already.

Bridgewater said true losses would mushroom if the banks were compelled to use “mark-to-market”, which foretells a much crueler haircut for investors in the outstanding pool of structured debt from mortgages, credit cards, car loans and such like, together worth $26.6bn.

The International Monetary Fund has estimated bank losses of roughly $400bn. A chunk has already been covered by fresh infusions of capital, allowing the lenders to continue lubricating the global financial system without having to squeeze credit too hard.

The great unknown is whether this is the end of the debacle. A number of hedge funds believe the alleged losses – typically measured by the ABX index – may overstate the likely level of defaults. They are buying the spurned securities for as little as eight cents on the dollar.

If Bridgewater is anywhere near correct, governments alone have the wherewithal to rescue the system. This would mean the de facto nationalization of the banking systems in the US , Britain and Europe.

We are at the end of an era. Capitalism, itself, is a misnomer. It should instead be called creditism or referred to by its subsequent state, debtism, for capital de facto is credit, not money. This does not mean credit is not important. Credit is an integral part of functioning economies but its use should be constrained within gold and silver based monetary systems in order to prevent its abuse.

But in its present form where credit-based money (fiat money) completely replaced gold and silver based currencies (savings-based money), central bank originated credit has led to today’s unsustainable levels of debt.

Trillions of dollars of that debt are now beginning to default and, as a consequence, credit is being withdrawn by banks, the intermediaries of credit in today’s system. It will soon begin to appear that money is becoming scarce. But that’s an illusion. The money was never there in the first place. It was only credit.

Real money, gold and silver currencies, were the first victims of central banking in the US . The latest victims are those who are about to be affected by the collapse of the US and global economy. Central banking and its spawn, credit and debt, are now everywhere and, unfortunately, so are the consequences.

GOLD SILVER & FIAT MONEY

The truth about money has been pushed out of public discussion by the powerful forces closest to the spigots of credit and the trough of government largesse. Now, because the edifice of paper money is crumbling, the truth about money and gold and silver is finally being discussed—at least on the internet.

Gold and silver are money is because gold and silver have intrinsic value and function as storehouses of value as well as mediums of exchange. Fiat money, paper money, has no intrinsic value. What fiat money does possess is the ability to masquerade as money.

This ability, however, is temporary for governments and bankers cannot resist the considerable temptation that paper money presents to them—for governments, to spend what they do not have and for bankers, to extend credit and debt beyond the limits gold and silver would otherwise present.

Money is a most interesting topic and because of its current abuse, we are only now once again beginning to understand the monetary roles of gold and silver. Recently, at Session IV of Gold Standard University Live, in Hungary , I was fortunate to hear Professor Antal Fekete expound on the historic role of gold in monetary systems.

It is self-evident that gold and silver possess monetary qualities that fiat monies do not. What are less well-known are the virtues that such metals bring to economies that understand their correct usage and role.

It is a world quite unlike ours, a world where producers and savers, not speculators, are protected and rewarded, where the value of bonds are constant, where interest rates are stable because of market forces, not subject to the whims of politicians and bankers. Such were the considerable thoughts and insights Professor Fekete provided on these critical matters.

On our return from Hungary, Martha and I again stopped at the Bank of England on Threadneedle Street in London, the fountainhead of central bank credit-based money. Over the Christmas holidays, I had worn my bespoke pin-striped suit made of fine English gabardine complete with vest and gold chain when I had my photo taken. This time, however, due to the accelerating decline in the fortunes of central bankers everywhere, I decided a more casual attire would be more appropriate.

Regarding fiat money, I cannot more highly recommend Ralph T. Foster’s Fiat Paper Money—The History And Evolution of our Currency , a well researched and fascinating account of fiat currencies throughout history. Once read, you will never again believe that governments and bankers can resist the temptation to gain by the debasement of currencies. Our present circumstances are a case in point. ($28.50 by Ralph T. Foster, tfdf@pacbell.net (510) 845-3015)

Money is a most important matter and we should seek to understand its history for our future depends upon it.

Status Report On The Collapse Of The U.S. Economy

By Richard C. Cook, Global Research.

With the economic news of the week of July 14—the continuing crisis among mortgage lenders, the onset of bank failures, the announced downsizing of General Motors, the slide of the Dow-Jones below 11,000—we are seeing the ongoing collapse of the U.S. economy.

Even the super-rich are becoming nervous as cries for an emergency suspension of short selling ring out.

What is really taking place, however, is that the producing economy of working men and women is being crushed by the overall debt burden on households, businesses, and governments that could reach $70 trillion by 2010. The financial system, including mortgage giants Fannie Mae and Freddie Mac, is bankrupt, as the debts it is based on cannot be repaid.

This is because the producing economy of people who work for a living simply can no longer generate enough purchasing power for people either to pay their debts or allow them to purchase what is being sold in the marketplace. In turn it is the debt burden and the loss of societal purchasing power that are crashing the stock market. Thus the collapse of the financial economy has started to destroy the producing economy as well.

It’s a “perfect storm,” the result of a 200-year-old financial system where money is largely created by bank lending and where since 1980 our industry and jobs have been increasingly outsourced abroad to cheap labor markets. Thus domestic incomes have stagnated while the nation’s GDP has not been able to keep up with the exponential growth of debt.

While the mainstream media are blind, deaf, and dumb as to the causes, the victims within the middle and working classes are seeing their livelihoods ruined, jobs taken away, pensions eroded, homes foreclosed on, and are being saddled with ever-increasing debt and forced to work under more and more stress due to rising burdens of taxation, gas and food price inflation, and bureaucratic rules and regulations. The only places a more-or-less normal life may still be possible will be the wealthiest imperial centers like Washington, New York, Houston, Chicago, or San Francisco.

All that the current bailouts being engineered by the Federal Reserve are doing is to create more debt to shore up failing financial institutions. No new wealth is being created. It’s band-aids on band-aids.

The problem politically is that control of the U.S. long ago was turned over to the bankers and the financiers of the Western world. It was called financial “deregulation,” accelerated under President Ronald Reagan, and has run amok since then. From a longer historical view, it’s the same phenomenon that first created and then ruined the British Empire , and it’s what created and is now ruining the American Empire today.

A side-effect of control by the bankers and financiers is that they are also Zionists, so we have the added multi-trillion dollar burden of trying to conquer the Middle East on behalf of the international oil interests and the state of Israel.

The situation has deteriorated sharply since the 1970s as U.S. affairs have been managed on behalf of the financial interests by what you might call the “Three Amigos”—Henry Kissinger, Paul Volcker, and Alan Greenspan. Kissinger, while Nixon’s secretary of state, made the U.S. dependent on the Middle East for oil, lavished billions on Israel ’s war machine, and created the petrodollar to support our trade and fiscal deficits. Volcker, while chairman of the Federal Reserve, crashed the U.S. producing economy in the recession of 1979-1983, leading to the rise of the “service economy.” Greenspan, during his own Federal Reserve chairmanship, presided over the bubble economy which was created through massive official fraud in home mortgage lending and is now sinking like the Titanic.

The politicians have enabled these financial crimes. Above all it’s been the Bush family which has served as a political Trojan Horse for the financiers for three generations, with affairs having become much worse since George H.W. Bush invaded Iraq for the first time in 1991. The enablers have included a majority of the members of the U.S. Congress. (See the conclusion of Patrick Buchanan’s new book, Churchill, Hitler, and the Unnecessary War for an account of how the U.S. since the Bush I presidency has replicated the catastrophic errors of failed British imperialism.)

The American people are not entirely innocent. We have been so lulled to sleep by the financier-owned media that we have allowed these disasters to take place and are now reaping the consequences. We have been the fodder for their wars and the signers of their loans. We have tried to carve out our own piece of the pie which is now crumbling.

What is taking place is not just the collapse of the U.S. , but more than likely the final crash of Western civilization, since we are the last of the world empires to go down the drain. World War I saw the end of the German, Austro-Hungarian, Russian, and Ottoman empires. World War II saw the disappearance of the French, British, Japanese, and Italian empires, along with Nazi Germany. The Soviet empire collapsed in 1991. The American is next. The danger is that we may lash out and start a nuclear World War III out of frustration and to appease the elitists of the world who see war and famine as their pathway to world control. Such a war would also mean a military takeover domestically to manage the pathetically weak nation that we are becoming.

The bankers and financiers do not care if nations and empires destroy themselves and each other, because they are internationalists. In fact, the more war and mass starvation there is the better off they feel. All they need is a base from which to operate. London has been their main base of operations since the Bank of England was founded in 1694, though they have a strong presence in other nations. They have been especially influential in northwest Europe , where elitism in the form of Freemasonry endeavored since the time of the French Revolution to destroy the authority of the Catholic Church.

In fact, World War I was a project of the Freemasons in dismembering Germany and the Austro-Hungarian Empire, both largely Catholic. This destruction allowed the masters of usury to flourish within the atheistic and materialistic culture that Freemasonry fostered across Europe. World War I also resulted in the virus of Communism, largely egged on by the internationalists and Freemasons, though it had such a tragic impact on Russia and Central Europe before spreading to China and East Asia.

It is theoretically possible that the US as a nation could still save itself through an internal revolution, while playing a much reduced role in the world. After all, England, France, and Italy still exist as shadows of their past greatness. But, realistically, all ordinary people can do today is try to survive, perhaps by working with friends and neighbors in planting food and living within the underground economy. At least people might not then have to starve to death, because hard as it is to believe that “it could happen here,” widespread famine in the U.S. seems a real possibility over the next several years. Nations take such risks when they allow capitalist agribusiness to destroy local agriculture.

On a national level, it is likely that as a response to the economic crisis some attempt will be made by desperate politicians to try to replicate the New Deal, but to do this effectively would require political control by a nationalistic reform party. Even then, additional reform measures such as control of credit as a public utility, a basic income guarantee, and a national dividend would be needed for real economic security to replace the current madness that could soon make the U.S. a relic of history.

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared on numerous websites and in Eurasia Critic magazine. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will be published soon by Tendril Press. He is also the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is at www.richardccook.com.

Phil Gramm’s Mental Depression

Source: The International Forecaster.

Sen. Phil Gramm and some of his trite ideas on the economy, his enron loophole law that is still in effect and driving oil speculation, and other blunders and folly of economists in power, credit default swaps, Fed grabs more power, get out of the markets or get ready to experience the consequence, G8 gastronomic orgy served while discussing food crisis, America no longer any kind of model citezen in the world.

From former Senator Phil Gramm’s mouth to God’s ears:
As quoted from the Washington Times:

“You’ve heard of mental depression; this is a mental recession,” Gramm told the Times. He noted that growth has held up at about 1 percent despite all the publicity over losing jobs to India, China, illegal immigration, housing and credit problems and record oil prices. “We may have a recession; we haven’t had one yet.

“We have sort of become a nation of whiners,” Gramm said. “You just hear this constant whining, complaining about a loss of competitiveness, America in decline” despite a major export boom that is the primary reason that growth continues in the economy, he said.

“We’ve never been more dominant; we’ve never had more natural advantages than we have today,” he said. “We have benefited greatly” from the globalization of the economy in the last 30 years.

These quotes from former Senator Gramm, who is one of the most corrupt personalities of Washington politics and who we can only describe as the penultimate example of both a reprobate and a sociopath, will go down as the most false, crass and callous remarks in the history of American politics. This may well have cost Dumbo Presidential candidate, John McCain, who Gramm advises on economic matters, the presidential election this November. We are left stunned and speechless at the unmitigated arrogance and gall of this miscreant. Under what rock, we ask, did the elitists ever find this ball of slime and detritus?

Now mind you that this is the man who helped push through The Financial Modernization Act of 1999, also known as the “Gramm-Leach-Bliley Act,” which effectively repealed the Glass-Steagall Act which was passed during the Depression Era as a measure intended to avoid a repeat of the 1929 Stock Market Crash. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking and insurance services, or from consolidating with other companies providing such services. The ill-advised, spurious and egregious repeal of the Glass-Steagall Act is the single most important factor driving the subprime and credit-crunch debacles because it allowed rampant fraud and outrageous conflicts of interest to develop between different financial sectors, resulting in a complete breakdown of confidence and trust in our system of finance which has been destroyed right before your eyes. “Gramm’s Blunder” and “Greenspan’s Folly” together have powered the fraud and deceit that made the subprime debacle possible. The passage of the Gramm-Leach-Bliley Act, more than any other causal factor, destroyed the due diligence and integrity of the entire financial sector, and paved the way for rampant and outrageous fraud by dismantling the usual system of checks and balances.

And then there was the Commodity Futures Modernization Act which reprobate Gramm snuck through on an unsuspecting and uncomprehending Congress in the year 2000. This piece of work allowed the so-called Enron loophole which is currently being exploited by insolvent banks and other large financial institutions to speculate in oil futures. This speculation is now driving oil prices into the ozone so that these insolvent Illuminist banksters can save their balance sheets while what is left of our hapless economy is destroyed in the process, a process that will ultimately destroy the world economy as well. Mr. Gramm and his wife, Wendy, a former CFTC Chairwoman who later served on Enron’s board of directors, were involved in the infamous Enron scandal up to their eyebrows. They are the ones who should have been on trial by the US government.

Even more toxic and mega-destructive than the Enron loophole is this act’s deregulation of credit default swaps, which are essentially insurance policies against bond losses. Normally insurance products are regulated by the states, and this act keeps both the states and federal regulatory agencies such as the SEC and CFTC out of this arena. These swaps are what powered the subprime debacle by providing insurance to cover what might otherwise have proven to be risky investments and such insurance was used to justify the bogus AAA ratings, which lured in the unsuspecting sucker-dupes. The notional value of these swaps is in the tens of trillions of dollars and they are currently imploding as failing subprime borrowers, banks and business corporations default on their debts, adding to our current financial woes in spectacular fashion. Mr. Gramm now works for Illuminist bank UBS, which has become the biggest victim of this toxic legislation. No matter, performance is not an issue if you are an Illuminist piece of scum.

Apparently, at least according to Mr. Gramm, the destruction of our economy by profligate financial policies, powered by his toxic legislation, an out-of-control Fed and the elitist free trade-globalization agenda, is all a figment of your imagination. You’re really not experiencing hyper-stagflation and runaway oil and food prices. Never mind all the silly talk about negative GDP and severe recession, which our totally truthful and infallible government statistics prove do not exist. Never mind the increasing trade deficits and lopsided balance of payments, as it is quite clear we are experiencing an export boom in our virtually nonexistent manufacturing sector. And never mind that minimum wage service job you had to take after your previous lucrative job was off-shored or given to an illegal alien for a fraction of what you were paid, as it is clear that you are now a proud participant in our dynamic service sector whose slave labor now produces 80% of our GDP.

By the way, you know that seemingly real unemployment line you are standing in right now due to off-shoring and outsourcing by Illuminist transnational conglomerates, well, that is just another phantasm. So stop whining, pop another valium to drive away your thoughts of mental recession, and plug yourself into the electrodes of your Goldilocks Matrix pod. Don’t worry, and be happy that people like Mr. Gramm are in charge of your financial well-being and security. Oh, and incidentally, on that note, may we strongly suggest that you don’t take any Prozac, since you might become suicidal.
Phil Gramm and Alan Greenspan should be tarred and feathered and put on a boat that is never allowed to return to shore as “men without a country.” Mr. Gramm’s wife, Wendy, can man the oars.

The fact that John McCain uses Grimy Gramm as an economic advisor tells you everything you need to know about John McCain – none of it good.

This transpires as Benron Bernanke and Hanky Panky Paulson recommend to Congress that the Fed be given sweeping regulatory power over our entire financial sector which the Fed’s profligate and ill-advised monetary policies and Grimy Gramm’s legislation have completely and utterly destroyed, leaving nothing but burning embers which will later be poured into a funerary urn labeled: “US Financial System – R. I. P.” You just can’t make this stuff up. It is nothing short of surreal. We recoil in disgust at the shear arrogance of these slime-balls.

Well, the meltdown continues. Men of “Chaos,” better quickly get those two dark liquidity bourses, Project Turquoise and Baikal, up and running while you can still get out of the markets behind everyone’s backs -while we still have markets, that is. The Dow on Friday dropped below 11,000 before closing at 11,100.54, the lowest close since August 14, 2006, some 23 months ago. On August 14, 2006, spot gold closed at 626.60, while this Friday spot gold closed at 958.85. Dow: Zippo – Gold: +53% – GET THE PICTURE?!

When the yen was at 96.88 yen per dollar and 152.731 yen per euro on March 17, 2008, Saint Patrick’s Day, the Dow closed at 11,972.25. Now with the yen at 106.14 and 168.741, the Dow has been pile-driven down to 11,100.54, despite a vastly weaker yen and support from the PPT. What does this tell you? We’ll tell you what this tells you – GET OUT OF THE FREAKING STOCK MARKETS – NOW!!! The carry trade is no longer relevant to market support. Worse yet, as the dollar continues its descent, the yen will become ever stronger against the dollar, thus destroying both the carry trade and the stock markets.

The Night of the Living Dead, meaning dead, bankrupt and insolvent banks, will soon be upon us. Their deadly losses are going to rise up and destroy us. It’s time to flee in terror! According to Fortis, a banking, insurance, and investment company, based in Belgium, the zombies could be 6,000 strong. Try not to scream!

Well, since the recent oil takedown barely made gold and silver hiccup, probably due to profits from oil shorts and stock index puts carried by large specs as protection against the cartel’s PPT manipulations, the cartel went back to destroying the stock markets, immediately cashing in on recent point gains from the oil takedown.

They do this to chase money out of stocks into bonds and money markets, which supports the dollar and bond principal while reducing bond yields and hopefully interest rates. Remember, treasuries are a large part of the bond market. Despite Friday’s crash and end-of-day PPT miracle, gold and silver went ballistic anyway, and the dollar plummeted. The cartel is fighting a losing battle as gold is preferred as a safe-haven when stock markets fall, and as a hedge when increased liquidity from the PPT and support from carry traders takes markets higher, if that is even possible now.

We love to listen to the rumors they make up to justify manipulations like the recent oil liquidations. First, we hear about the potential Iranian cooperation with Washington that was jawboned to take oil down and to suppress precious metals.

After the suppression of gold and silver mainly failed, off went the missiles and the renewed jaw-boning about the never ending story of an Israeli attack on Iran to push oil back up to save the Wall Street bankster fraudsters, who are exploiting the oil markets using Grimy Gramm’s despicable Enron loophole.

They managed to set a new high for oil in the process, sending oil to $147.27 before it closed at $145.08. And never mind the stock markets, which can drop into the depths of hell for all the cartel cares. The cartel is intent on only two things, namely, the suppression of precious metals and the maintenance of the bond market’s viability. Unfortunately for the cartel, the launch of the ballistic missiles made gold go ballistic also, which had to tick them off to no end.

On Friday, gold blew past $950 like it wasn’t even there and went as high as $967.85, resulting in big gains for the week just as we predicted. Silver went up big also.

By saving the bond market, the cartel is attempting to give the fraudster banks a temporary reprieve from the complete and utter destruction, which many of them will likely suffer. They want to keep the system going long enough so they can bail and leave everyone else holding the bag just like they did in 1929. Just before the Fed pulls the plug, the word will go out to the Illuminist insiders who will bail out through the dark pools of liquidity while pouring the proceeds into commodities and other hard assets, especially precious metals, of which the chiefs of the Illuminati own tens of thousands of metric tons. Their bullion hoards are kept in Swiss vaults and off-shore locations where they can’t be confiscated by angry mobs seeking revenge for the destruction of markets worldwide, or by governments looking for some easy gold to cover their losses.

If there is a confiscation, the ETF’s will be first in line, while individual investors in possession of their metals will most likely be left alone, as they would not be worth the bother. You should invest in gold and silver accordingly. Don’t worry, be happy. It’s all just a bad dream like Grimy Gramm suggested. Fannie and Freddie, and the 5 trillion worth of heavily toxic-waste-type real estate loans they insure, are too big to fail, we are told. They will simply be bailed out with more equity injections and life will go on as usual in the real estate markets, which would be totally frozen in a cryogenic state without them. If you believe this latest fantasy from the cartel’s dream weavers, can we simply suggest that you are incredibly naive? These two bankrupt quasi-governmental agencies will be bailed all right, but at your expense. No one in their right mind would give either of these losers any more capital to vaporize and blow out of their anal sphincters. Whether they go into some type of resolution trust company, get bailed out by the Fed ala the Bear Stearns bailout or something like the Term Securities Lending Facility, or are absorbed directly by the government based on the inferred guaranty of bad loans becoming an actual guarantee, you the taxpayer will be screwed.

Someone has to pay for all the losses, and we can assure you that unless you do something about it, that someone will not be the fraudsters who caused the losses in the first place. Any of these bailouts will result in much higher taxes, even more hyperinflation, or, most likely, both. Treasury bonds will be created and monetized out of thin air, and will take us on a historical journey to Revolutionary France, Weimar Germany and Zimbabwe. The higher taxes and monetization of bonds created out of thin air will destroy the economy and the real estate markets will lock up anyway, as real estate losses continue to mount from job losses, from frozen markets caused by double digit interest rates based on higher risk and wildly higher inflation, as well as from the drastic reduction of purchasing power as the whole system collapses. Gold and silver are the only safe-havens from the total certainty of this coming destruction. THIS DESTRUCTION IS A LOCK!!!

After the end of this year, you will never see three figure gold again in your lifetime, and five figure gold is a distinct possibility.

You are not powerless to prevent the losses you are experiencing. By staying in the general stock market, or in dollar-denominated bonds, or in any kind of fiat currency-denominated bonds for that matter, you are not in it for the long term as Charles Schwa, Gven to their nominal levels. When it comes to preeminent disasters, this is the real McCoy. This is not a drill. Instead, those who do not prepare are going to get drilled.

One month gold lease rates and one, two and three month silver lease rates are now all negative, which means they will pay you to lease both their gold and silver short term. So much for earning a return on non-income producing assets, which is the usual excuse given for leasing. The leasing of precious metals is really all about gold and silver suppression, and little else. The longer term rates are ludicrously low as well. But of course we have free markets. Yep, just keep pumping money into the ETF’s so the bullion banks can lease your gold and silver from the ETF’s against you whenever the PPT demands it, AND GET PAID FOR DOING IT!!!

We don’t normally cover gourmet dining, but with a global food crisis in full swing we thought we would bring the eating habits of the G-8 attendees to your attention.

Over the past few weeks’ politicians have been urging us to stop wasting food and to combat rising prices during the current shortages.

By way of an example world leaders sat down to an 18-course gastronomic extravaganza at the G-8 summit in Japan, where they focused on the food crisis.

At dinner, or a six-course lunch the Illuminists had caviar, milk fed lamb, sea urchin and tuna, with champagne and wines flown in from Europe and the US.

This points out how hypocritical these elitists are. As they wolf down this sumptuous repast they concluded that householders were wasting 4.1 million tons of food.

What this cross action does is betray the hopes of a generation of children. It was just three years since the G-8 meeting in Scotland where these heads of state promised $50 billion a year by 2010 for Africa. They have only supplied 14% of that. They are too busy stuffing themselves with caviar and milk forced fed veal. Just think you suckers get to pay for all this.

The good news is that the Japanese are paying for the 40,000 police that have sealed off Toyako, Lake Toya and the Windsor Hotel.

Congressional approval has fallen to 9% for the first time in history; 52% of those surveyed say Congress is doing a terrible job. Congress has not received higher than a 15% rating since January.

Democrats who gave Congress positive ratings fell from 17% to 13% this month. Republicans gave an 8% rating, up from 7% last month; 65% of GOP voters said Congress is doing a poor job.

Of independents, 3% gave Congress a positive rating, down from 6% last month; 63% believe Congress is doing a poor job, up from 57% last month.

Just 12% of voters think Congress has passed any legislation to improve life in America over the past six months.

Seventy-two percent think most members of Congress are more interested in furthering their own political careers and only 14% are genuinely interested in helping people.

Fannie Mae and Freddie Mac, ranked Aaa by the world’s largest credit rating companies, are being treated by derivatives traders as if they were five levels lower.

Credit-default swaps tied to $1.45 trillion of debt sold by the pair imply the bonds should be rated A2.
The MBA says their index of mortgage applications increased 7.5% in the week ended 7/4/08. Refi apps rose 8.7% – the 30-year fixed rate mortgage rose 10 bps from 6.33% to 6.43%.

Dump those dollars. Buy up America cheap. New York’s Chrysler Building, the art deco icon, has been bought by ABU Dhabi Sovereign Wealth Fund. Last month they bought the GM Building for $2.8 billion.

The damning unpublished assessment is based on the most detailed analysis of the crisis so far. The figure emphatically contradicts the US government’s claims that plant derived fuels contribute less than 3% to food prices. This should add pressure on governments in Washington and across Europe to end the process.

The British Gallagher Report on the impact of biofuels will be released soon and it will state that plant fuels have played a significant part in pushing up food prices.

Rising food prices have pushed 100 million people worldwide below the poverty line, estimates the World Bank. The biofuels is the first real economic crisis of globalization. Over the past six years biofuels have been responsible for an increase of 140% in food prices.

The US has 5% of the world’s population and almost 25% of the world’s prisoners. There are 2.3 million criminals behind bars, the most in the world. China with 4 times the population has 1.6 million in prison. If you count only adults you have one in 100 Americans locked up. Russia has .63, England .15, Germany .9 and Japan .6.

Far from serving as a model for the world, contemporary America is viewed with horror. Even though record numbers are in jail the US has relatively low rates of non-violent crimes. The key is drug related crimes. In 1980 there were 40,000 people in American jails for drug crimes. Today, there are about 500,000.

American prison stays are much longer. Burglars in the US serve an average of 16 months in prison versus 5 months in Canada and 7 months in England.

Experts in the US say locking up criminals for longer periods reduces the level of crime. Canada’s crime rates have closely paralleled America’s for 40 years, but its imprisonment rate has remained stable. The bottom line is America has a highly politicized criminal justice system.

America for Sale: Belgian brewer InBev buys Anheuser-Busch

Source: AFP.

WASHINGTON (AFP) — A US senator said Monday the weak dollar was to blame for the takeover by Belgian-Brazilian brewer InBev of rival Anheuser-Busch for 52 billion dollars (33 billion euros).

“I’m disappointed,” Senator Claire McCaskill of Missouri said after the deal was announced creating the world’s biggest brewer.

McCaskill and others from the home state of Anheuser-Busch had opposed the sale to the Belgian-based firm, claiming the 150-year-old American icon and maker of Budweiser would be lost to foreign investors.

“Anheuser-Busch’s Missouri workforce will continue to make the company one of the best in the world, and I am going to do everything I can to make this new arrangement work for Missouri and the millions of Americans who love Budweiser,” said McCaskill.

“We need to remember that InBev could afford this All-American company because of the weak dollar created by the economic policies of the last seven years. It’s time for a change in our nation’s economic priorities.”

After having resisted offers from InBev for a month, the Anheuser-Busch board finally agreed on Sunday to accept a sweetened bid that had been raised to 70 dollars a share in cash from 65 dollars.

While ending Anheuser’s roughly 150 years of independence as a premier American brewer, the deal creates not only the world’s largest beer company but one of the top five consumer goods groups in the world.

The new company will have net sales of about 36 billion dollars a year, offering consumers about 300 brands, including Anheuser’s Budweiser and Bud Light, and InBev’s Stella Artois and Beck’s.

Is the GOP cooking the books to avoid recession till after Election Day?

Source: James K. Galbraith, Mother Jones.

©Unknown

Is the worst over? Are we on the road to recovery? Will the next president take office against a backdrop of economic improvement, as Bill Clinton did in 1993? Or has something deeper and more intractable gone wrong?

Early this year, the optimists, including Citigroup chairman Bob Rubin and Treasury secretary Hank Paulson, argued that the slowdown was short-term and that a “stimulus” package should be “targeted and temporary.” This with rare haste the Democratic Congress enacted. As a result, most taxpayers got one-time $600 checks in May, prefigured by bubbly messages touting “Good News!” if you filed your taxes electronically.

The rebate isn’t the only little Dutch boy thrown headlong at the dike this election year. Government spending, especially for defense, will be up: Military spending as a share of gdp is expected to grow by $75 billion in fiscal 2008, enough to neutralize a 0.3 percent decline in gdp. Dick Cheney was secretary of defense for Bush 41; just before the 1992 election he engineered a big run-up in outlays, as the military restocked following the first Gulf War. (It was exposed in the first Clinton “Economic Report.”) Is the Pentagon up to that trick again? I’d be astonished if it were not.

©Galbraith et al

How Fed’s election-year rates varied from nonelection years.

Under intense pressure from panicky bankers, Ben Bernanke cut interest rates relentlessly from August 2007 through the spring of 2008. I don’t accuse Bernanke of playing politics. But it’s worth noting that this is what usually happens. In presidential election years when Republicans are in office, the Fed regularly and predictably pursues a more expansionary policy than when Democrats rule – after controlling for differences in the rates of inflation and unemployment. (I made these calculations myself; see the chart.) Maybe they just can’t help themselves.

But much of the ordinary effect of interest cuts on new lending – like a rebound in construction and automobile sales – didn’t happen this time. That’s because the fall in home prices (and therefore the value of collateral) overwhelmed the benefit of cheaper money to the banks. And the banks barely cut mortgage rates, so consumers saw no benefits at all. Lower interest rates did cut the value of the dollar, however, and that promotes exports and foreign investment. (These days New York Times real estate listings come with a currency converter.) It also boosts the stock market, since multinational firms can report their (unchanged) foreign income as higher dollar earnings.

Possibly all this stimulus will ward off the two-quarter decline that has historically defined a recession. Don’t be surprised: Republicans haven’t had an election-year slump since 1960. On the other hand, the National Bureau of Economic Research, which has the official call, may describe the early spring as a recession anyway. Republicans will welcome that, too, so long as they can plausibly call the summer a “recovery.” Even if they can’t stop a recession, they may be able to make it short and shallow enough, this year, to put John McCain in the White House. But all this brings up an important question – what of next year?

No matter how effective the stimulus, two enormous clouds remain for whoever becomes president: the housing slump and the banking crisis. Both are far from being finished yet.

The problem with a housing slump is inventory. Unlike factories and Internet startups, shuttered houses don’t go away. No one declares them obsolete. They aren’t boxed up and sent to China. They remain, a drag on the market, decaying and pulling down property values for years. Here in Texas, housing values slumped with the S&L crisis and the oil bust of 1985 and did not recover until around 1993. That slump clobbered the oil patch but was barely felt anywhere else. This slump is the reverse – it’s driving down housing prices just about everywhere except Texas, where the scars of the last bubble helped keep the recent one under control.

Nationally, the subprime debacle is blowing away the homeownership gains of the last few years. Those abusive mortgages were deliberately targeted at vulnerable, even desperate, people who could be steered into financial death traps. Lenders didn’t care, because with the help of fraudulent appraisals, the loans could be off-loaded quickly in packages bought by greedy or gullible investors, including your pension fund. Poor people got hit on the front end; 1.5 million homes entered foreclosure last year. Middle-class people got it on the return volley.

And middle-class homeowners are now getting hit a second way: in the declining value of their homes. You don’t have to be holding a subprime to find yourself underwater. That means that home-equity loans will dry up. (As of April, California homeowners in default were already a median of eight months behind on those loans.) Many people will be tempted to walk on their houses and mail the keys to the bank. Incidents of the foreclosed expressing themselves to their lenders by yanking the plumbing and the wires on the way out the door are on the rise, as is arson by desperate homeowners, according to the Los Angeles Times. Will students, small businesses, and other borrowers still be able to get credit when this is over? God only knows.

The mechanisms of mortgage finance and home-equity drawdown haven’t simply been damaged. That well has been poisoned. Having largely outsourced mortgage originations to companies like Countrywide who didn’t care whether the borrowers had good credit, the banking system cannot easily go back to its old method of making loans to creditworthy people and contenting itself with the interest paid back over many years. And who would trust them, anyway, if that’s what they claimed they wanted to do?

Then there’s another problem: The banks no longer trust each other. Last August, as mortgage-backed securities unraveled, finances froze up worldwide. Why? Because banks knew how much undisclosed junk they had on their own books. Who could say what the next fellow had? Overnight lending between banks – the process that ensures that every bank has funds when it needs them – fell apart. This is a very big deal. If banks will not lend money to each other, why (except for the blessings of federal insurance) should anyone else leave their money to them? Economists like me wait entire careers to study events such as these – which should provide no comfort to anyone else.

Since August, America’s big banks have been wards of the Fed, and those in Europe equally so of the Bank of England and the European Central Bank. The system survives because central banks keep the lending windows open, and the result is that – except for one instance in Britain – the public has not pulled out of the banks. Let’s be clear. The private financial markets did actually fail. It’s only the fact that the public trusts government that keeps the system from dissolving in panic. But even if the Fed and its counterparts can hold the line, the problem of mistrust among the big bankers won’t go away soon. And that means we’re at the end of the age of credit expansions, for now.

As for next year, good luck. No matter who becomes president, there probably won’t be another tax cut. Instead, cries for “fiscal responsibility” will be heard. States and localities, hit in 2008 on their property taxes, will cut their spending. Consumers, hit hard on their home equity, will cut back on new borrowing (which they probably couldn’t get anyway) and pinch pennies however they can. Businesses won’t even think about new investments.

In this situation, more cuts to interest rates – the only applicable tool the Fed has – don’t work well. And they weaken the dollar, which raises inflation. What is gained by cheaper money will be lost in higher gas and food prices. But if the Fed reverses field and defends the dollar, exports will slump and the housing crisis will get worse. There’s no easy way out.

Thus far the dollar has fallen, but it hasn’t collapsed. Will it? There are two big threats. The first is the financial crisis itself, which is a problem of trust not only in the ordinary borrower, and not only in the banks, but in the American dollar. Why is the rest of the world nervous? Because the fundamental trust that they have always had – that the United States was a safe place to put your money – has come into question.

The second threat, not often mentioned, is our reckless foreign policy, including the invasion of Iraq, bellicosity toward Iran, and the ongoing subtext of hostility toward China. Since the Middle East has the oil and China holds our debts, all this is spitting in the soup, big time. It may not by itself wreck the financial system. But it doesn’t exactly build up the reserve of good will that we may need when the financial going gets tough.

For half a century much of the world believed that we provided security under which they too could prosper; many no longer think so. Today, our country, like our banks, has a problem of global trust. Unlike the banks, we have no higher power to keep things going if we screw up.

Welcome to the Biggest Transfer of Wealth in History

By Bill Bonner, The Daily Reckoning, via Contrarian Profits.

Bill Bonner thinks we are witnessing the biggest transfer of wealth in history. Once a true global leader, America is now forced to borrow billions of dollars just to pay for its food and energy needs. And as the dollar heads downhill rapidly, things are going to get much worse…

Americans earn dollars. But the “almighty dollar no longer exists,” says the Associated Press. They have a currency without purchasing power…or staying power. Americans are all set – for a world that no longer exists. They have home equity lines and credit cards – but the easy credit is disappearing. They have their suburban palaces and their land barges – but they can no longer afford the energy required to run them. Even their eating habits evolved for a different world. Real wages failed to rise, so families put more people to work…and gave up home-cooked meals and backyard gardens in favor of dining out. Restaurants – in an era of cheap food and cheap energy – competed for customers by offering bigger and bigger portions. Everything got supersized – people too.

Now Americans are getting their supersized desserts. Not because they haven’t been nice. But because they haven’t been good. That’s how free enterprise really works; it rewards virtue – hard work, saving, investing, learning, taking risks, etc. As for those who spend too much and save too little – it kicks them in the derriere.

Today, they need to borrow almost $3 billion per day simply to make ends meet. And half the national debt – about $5 trillion – is owed to foreigners. Much of that money is in the hands of central banks, as part of their $4.8 trillion in foreign reserves. Then, there is a mountain of dollars in the hands of Sovereign Wealth Funds.

It’s the biggest transfer of wealth the world has ever seen. And it comes in many different forms. Billions are transferred from American motorists to oil-exporting countries. There’s also the billions transferred to the auto-exporters. When Americans buy cars today they’re more likely to buy one made by a foreign company than one made by the Big Three. And there are the billions shipped over to food exporters too. America used to be the biggest exporter of food in the world. Even today, we’ve seen estimates that the entire world’s population could be fed on what America COULD produce. But when the United States got squeezed by high energy prices, Americans decided to squeeze energy out of their own food crops. Result: they pay record prices for energy AND food.

Of course, it wasn’t just money the U.S. was sending abroad. It was also know-how, technology, and habits. The habit of saving, for example, packed its bags in the early ’90s – and moved to Asia. And foreign students filled America’s best universities and then often went back to Korea, or China, or Vietnam – taking their equations with them. Back at home, they set up newer, better factories – and ate America’s lunch! Back in the late ’90s, this loss of manufacturing seemed not to matter. Americans came to believe they could do something better than making things – we could create, invent and finance. “They sweat; we think,” was the conceit.

But how do you like those foreigners? It turned out, they could think too. Not only that, but the combination of thinking and making things proved hard to beat. Like Japan before them, the exporting nations soon equaled U.S. quality…and then surpassed it. The United States is now a net importer – of energy…of food…and even technology. At least, that’s what we hear. And finance? It’s collapsing…and will probably return to where it was before the credit bubble. Historically, the financial industry provided only about 10% of U.S. corporate profits. In the bubble, the percentage rose to 40%…and is now headed back down.

Wages are rising in China, India, Russia and Brazil…but they are stagnant or falling in the U.S. of A. We reported the staggering fact in these reckonings last week: Since ‘67, consumer prices are, officially, up seven times. Wages in America are up exactly the same amount. In other words, during your editor’s entire adult lifetime Americans’ per hour earnings have not increased a single penny.

Funny none of the presidential candidates mentioned it.

Party Games: ‘Pass the Parcel’ of Collapsing Dollars

Source: Sam Mathid, 321 Gold.

There is a game of ‘Pass the Parcel’ happening in the world at the moment. The ‘parcel’ is filled with U.S. dollars. Just like little children at a birthday party, the governments who are holding vast reserves in the form of US paper dollars, are full of apprehension and nervous giggling lest they be left holding the ‘parcel’. They are jiggling the parcel up and down and frantically trying to pass it on to the government sitting next to them. The general hubbub is almost drowned by the din of bursting balloons.

The problem in the real world of course is that there are many, many parcels of U.S. dollars in the hands of foreign governments, and they are all trying to pass them to each other. No one wants the parcel they already have, let alone the one in the hands of the government sitting next to them. They all want to avoid being left with a vast wad of cash which they strongly suspect will end up not only worthless, but making them look like complete mugs.

All are hoping against hope that the storm will pass. All fear to be the first to start selling in large amounts, yet simultaneously fear to be the last. Each is regularly divesting itself of tiny amounts. As fast as they do manage to dump a part of their parcel those dollars head back to the U.S.. U.S. exports will start to look good for a while which will reflect the desperate desire to exchange the dollars for something, anything.

All money must eventually head back to the country of its issuance. That is the only way ultimately that value can be realized. Now is the time for that value to be realized, whilst there still is any. The trillions of U.S.$’s in the world are returning home. As that money washes up into the US economy so it will continue to drive U.S. domestic prices higher and higher, placing ever greater strain on the economy, which is already at breaking point.

The period wherein the U.S. dollar was the official reserve currency of the western world is now over. That will neither be announced nor admitted by any government until they have finally dumped the dollars that they own. It is in everyone’s interest to maintain the facade, at the moment. In reality they want almost anything except U.S.$’s in their reserves.

Bernanke must dramatically raise interest rates to strengthen the U.S. dollar, that is a MUST. Of course that will mean the collapse of the whole U.S. real estate market within a month. That would lead to the absurd and sad situation of millions of empty houses within sight of millions of families living in cars and tents. Such an interest rise would take a Volcker on steroids which Bernanke most certainly is not, so of course he hasn’t raised interest rates, and he won’t.

His whole education and training make him more inclined to again drop interest rates in a forlorn attempt to re-start money flow into the asset area of the economy. Too late he has been disabused of some of his Ivory Tower notions and now knows that won’t work any longer either. ‘Fool me once shame on you, fool me twice shame on me’. Dropping interest rates would also precipitate a panicked flight from the U.S. dollar which would see a faster flood of ever more worthless dollars turning up in the supermarket and energy area of the domestic economy. No matter what Bernanke does or doesn’t do, the chickens are coming home to roost.

It is unlikely to be the Chinese or any of the other major holders of U.S. dollars who precipitate mass selling. They have so many that they would crash the currency just by opening their mouths. They also are damned if they do and damned if they don’t. It will more likely come out of left field and be one of the smaller holders. Maybe one of the Arab mini-states will take the chance that they can dump all their dollars without anyone noticing. The likelihood is that it would be immediately noticed. Everyone has their beady eyes on everyone else at the moment. The awareness that the ‘big dump’ had started would lead to a stampede. How would the Fed handle that… print more dollars… tinker with interest rates?

Obviously, not selling at the moment is seen by the major holders of U.S. dollars as an option, albeit an enforced one. Becoming a buyer most definitely is not an option. Along with the game of ‘Pass the Parcel’ there is another concurrent game being played called ‘First to Blink’. The government who blinks first and tries to dump their wad at below market price just might win, immediately followed by everyone else losing. There may be some reservations about being the first seller, but there will be none about the desire to avoid being the last seller.

The unpleasant truth is that the mutually agreed selling truce is occasioned by the fact that there are no buyers of the amounts needing to be sold. All would dump their dollars now if they could, the fact that they would like to, but cannot, speaks loudly and eloquently of the problem.

Thus Bernanke will continue to procrastinate and do nothing with interest rates. It is the sanest approach, as it is the approach most likely to put off the inevitable for a while longer. Procrastination is contagious, which at this point may be a good thing. Any decision to do something will end in complete disaster as it forces the governments playing pass the parcel to blink and also do something. Whatever they do would be very bad for the U.S. dollar and curtains for the U.S. economy. For many decades there has been a very ugly reality underneath the attractive veneer of confidence in the U.S.$ and economy. That veneer of confidence has now completely gone. What lies exposed is not a pretty sight.

The only hope for America is that those governments holding U.S.$’s will continue to hold them even though they are quite aware that they will at best drift down in value, and at worst collapse. It is a conspiracy of silence aimed at maintaining the status quo. I will hold mine and pretend that they are still valuable if you will do the same. All governments are using the borrowed time as best as possible to prepare their economies for the coming collapse of America. The U.S.$ will continue to be a currency for as long as that tacit agreement holds.

The End of the Party

I wonder how Bernanke is sleeping at the moment? I also wonder whether he and Paulson are personally buying gold and silver and secreting it away. Everyone who truly understands the situation has a survival plan. I find it hard to believe that Bernanke and Paulson still do not understand the real situation. Maybe they believe the government will look after them… maybe it will. What is for certain though is that the government will not look after Main Street. As always the common herd is pencilled in to foot the bill for this disaster. The bill is far larger for each household than each household owns in total assets. If it is any consolation the banks will go down as well.

For those who have not already lost everything, there is right now, possibly, one final chance to remove their capital from the cesspit that comprises the U.S. financial markets and exchange pseudo investments for real money… namely gold and silver. Not the paper variety of options or futures, but bullion. All paper is now suspect.

Even stock in mining companies is now suspect due to the vast amounts of naked short selling that has taken place. Many ‘owners’ of mining stock are going to find out, too late, that the statements of stock ownership in their filing cabinet are worthless. There are publicly listed companies on the major U.S. exchanges that have more stock sold than legally exists, a lot more. The situation on the minor boards is even more dire. An unknown at this time number of ‘owners’ of stock are going to find out too late that they in fact own fraudulently printed paper worth precisely zero.

Criminality in the U.S. financial markets is rampant and all pervasive. Corruption exists from the top to the bottom. A blind eye is turned by the regulators because they are afraid that to expose it now would topple the whole system. That gives an indication of how large the corruption is. It is the return of the Wild West (WW2), and at this point, the outlaws are running the show. Marshall Elliot Spitzer was the guy who rode into town on a white horse. He was almost immediately gunned down. Is there anyone else out there who will publicly challenge what is happening… preferably someone who doesn’t mind going home to his wife at the end of the day?

Naked short selling is a great example of the type of ‘mal-investment’ created by showering a financial system with cash and credit and calling it economic growth. The past has, and the future will, show a direct parallel between the size of the inflation and the size of the ensuing criminality. What has been exposed so far is just the tip of the iceberg.

The economies of the world are on a knife’s edge and we can but cross our fingers for the ’system’ to hold together a while longer. The best hope is for a long, meandering collapse, much along the lines of the last 37 years, but at a greatly increased pace. It will end up with not just both parents being forced to work to survive, but the children as well. That will probably be spun as ‘Children’s Liberation’.

America no longer has even the appearance of an expanding economy because the world will no longer lend the money to finance it. That is because they know now, as they should have known years ago, that the U.S. cannot hope to ever pay back the money that it has been borrowing.

The worst case scenario is for a sudden and calamitous fall with no time to adjust. The end result over whatever time frame it happens will be very unpleasant. It will be a profound shock for most people who have been conditioned to believe that whatever happens the government will look after them.

A Party Bag For Everyone

The transition from fear to panic when it comes will be remarkably fast. One moment people will be just sitting there eating their Prozac, the next they will have a party bag in their lap. Inside the party bag will be a parcel which has finally found its way to its real home. At that point the contents of the parcel will be exposed for what it really always was under our current banking system… debt… vast, unpayable debt.

***

The brilliant Professor Emeritus Antal Fekete is conducting a seminar in Canberra, Australia from the 11th to the 14th November this year. Meet and hear one of the giants of our age. Bookings for the seminar can be made through:

feketeaustralia@yahoo.com

I attended Professor Fekete’s seminar in Hungary in August of last year and to say that it was memorable is an understatement.

Jul 2, 2008
Sam Mathid
email: sammathid@yahoo.com

Ron Paul: Something Big is Going On

Source: Ron Paul’s Campaign for Liberty.

The following statement is written by Congressman Paul about the pending financial disaster. He will introduce this statement as a special order and insert it into the Congressional Record next week. Fortunately, we have the opportunity to debut it first on the Campaign for Liberty blog. It reads as follows:

I have, for the past 35 years, expressed my grave concern for the future of America. The course we have taken over the past century has threatened our liberties, security and prosperity. In spite of these long-held concerns, I have days—growing more frequent all the time—when I’m convinced the time is now upon us that some Big Events are about to occur. These fast-approaching events will not go unnoticed. They will affect all of us. They will not be limited to just some areas of our country. The world economy and political system will share in the chaos about to be unleashed.

Though the world has long suffered from the senselessness of wars that should have been avoided, my greatest fear is that the course on which we find ourselves will bring even greater conflict and economic suffering to the innocent people of the world—unless we quickly change our ways.

America, with her traditions of free markets and property rights, led the way toward great wealth and progress throughout the world as well as at home. Since we have lost our confidence in the principles of liberty, self reliance, hard work and frugality, and instead took on empire building, financed through inflation and debt, all this has changed. This is indeed frightening and an historic event.

The problem we face is not new in history. Authoritarianism has been around a long time. For centuries, inflation and debt have been used by tyrants to hold power, promote aggression, and provide “bread and circuses” for the people. The notion that a country can afford “guns and butter” with no significant penalty existed even before the 1960s when it became a popular slogan. It was then, though, we were told the Vietnam War and a massive expansion of the welfare state were not problems. The seventies proved that assumption wrong.

Today things are different from even ancient times or the 1970s. There is something to the argument that we are now a global economy. The world has more people and is more integrated due to modern technology, communications, and travel. If modern technology had been used to promote the ideas of liberty, free markets, sound money and trade, it would have ushered in a new golden age—a globalism we could accept.

Instead, the wealth and freedom we now enjoy are shrinking and rest upon a fragile philosophic infrastructure. It is not unlike the levies and bridges in our own country that our system of war and welfare has caused us to ignore.

I’m fearful that my concerns have been legitimate and may even be worse than I first thought. They are now at our doorstep. Time is short for making a course correction before this grand experiment in liberty goes into deep hibernation.

There are reasons to believe this coming crisis is different and bigger than the world has ever experienced. Instead of using globalism in a positive fashion, it’s been used to globalize all of the mistakes of the politicians, bureaucrats and central bankers.

Being an unchallenged sole superpower was never accepted by us with a sense of humility and respect. Our arrogance and aggressiveness have been used to promote a world empire backed by the most powerful army of history. This type of globalist intervention creates problems for all citizens of the world and fails to contribute to the well-being of the world’s populations. Just think how our personal liberties have been trashed here at home in the last decade.

The financial crisis, still in its early stages, is apparent to everyone: gasoline prices over $4 a gallon; skyrocketing education and medical-care costs; the collapse of the housing bubble; the bursting of the NASDAQ bubble; stockmarkets plunging; unemployment rising;, massive underemployment; excessive government debt; and unmanageable personal debt. Little doubt exists as to whether we’ll get stagflation. The question that will soon be asked is: When will the stagflation become an inflationary depression?

There are various reasons that the world economy has been globalized and the problems we face are worldwide. We cannot understand what we’re facing without understanding fiat money and the long-developing dollar bubble.

There were several stages. From the inception of the Federal Reserve System in 1913 to 1933, the Central Bank established itself as the official dollar manager. By 1933, Americans could no longer own gold, thus removing restraint on the Federal Reserve to inflate for war and welfare.

By 1945, further restraints were removed by creating the Bretton-Woods Monetary System making the dollar the reserve currency of the world. This system lasted up until 1971. During the period between 1945 and 1971, some restraints on the Fed remained in place. Foreigners, but not Americans, could convert dollars to gold at $35 an ounce. Due to the excessive dollars being created, that system came to an end in 1971.

It’s the post Bretton-Woods system that was responsible for globalizing inflation and markets and for generating a gigantic worldwide dollar bubble. That bubble is now bursting, and we’re seeing what it’s like to suffer the consequences of the many previous economic errors.

Ironically in these past 35 years, we have benefited from this very flawed system. Because the world accepted dollars as if they were gold, we only had to counterfeit more dollars, spend them overseas (indirectly encouraging our jobs to go overseas as well) and enjoy unearned prosperity. Those who took our dollars and gave us goods and services were only too anxious to loan those dollars back to us. This allowed us to export our inflation and delay the consequences we now are starting to see.

But it was never destined to last, and now we have to pay the piper. Our huge foreign debt must be paid or liquidated. Our entitlements are coming due just as the world has become more reluctant to hold dollars. The consequence of that decision is price inflation in this country—and that’s what we are witnessing today. Already price inflation overseas is even higher than here at home as a consequence of foreign central bank’s willingness to monetize our debt.

Printing dollars over long periods of time may not immediately push prices up–yet in time it always does. Now we’re seeing catch-up for past inflating of the monetary supply. As bad as it is today with $4 a gallon gasoline, this is just the beginning. It’s a gross distraction to hound away at “drill, drill, drill” as a solution to the dollar crisis and high gasoline prices. Its okay to let the market increase supplies and drill, but that issue is a gross distraction from the sins of deficits and Federal Reserve monetary shenanigans.

This bubble is different and bigger for another reason. The central banks of the world secretly collude to centrally plan the world economy. I’m convinced that agreements among central banks to “monetize” U.S. debt these past 15 years have existed, although secretly and out of the reach of any oversight of anyone—especially the U.S. Congress that doesn’t care, or just flat doesn’t understand. As this “gift” to us comes to an end, our problems worsen. The central banks and the various governments are very powerful, but eventually the markets overwhelm when the people who get stuck holding the bag (of bad dollars) catch on and spend the dollars into the economy with emotional zeal, thus igniting inflationary fever.

This time—since there are so many dollars and so many countries involved—the Fed has been able to “paper” over every approaching crisis for the past 15 years, especially with Alan Greenspan as Chairman of the Federal Reserve Board, which has allowed the bubble to become history’s greatest.

The mistakes made with excessive credit at artificially low rates are huge, and the market is demanding a correction. This involves excessive debt, misdirected investments, over-investments, and all the other problems caused by the government when spending the money they should never have had. Foreign militarism, welfare handouts and $80 trillion entitlement promises are all coming to an end. We don’t have the money or the wealth-creating capacity to catch up and care for all the needs that now exist because we rejected the market economy, sound money, self reliance and the principles of liberty.

Since the correction of all this misallocation of resources is necessary and must come, one can look for some good that may come as this “Big Even” unfolds.

There are two choices that people can make. The one choice that is unavailable to us is to limp along with the status quo and prop up the system with more debt, inflation and lies. That won’t happen.

One of the two choices, and the one chosen so often by government in the past is that of rejecting the principles of liberty and resorting to even bigger and more authoritarian government. Some argue that giving dictatorial powers to the President, just as we have allowed him to run the American empire, is what we should do. That’s the great danger, and in this post-911 atmosphere, too many Americans are seeking safety over freedom. We have already lost too many of our personal liberties already. Real fear of economic collapse could prompt central planners to act to such a degree that the New Deal of the 30’s might look like Jefferson’s Declaration of Independence.

The more the government is allowed to do in taking over and running the economy, the deeper the depression gets and the longer it lasts. That was the story of the 30ss and the early 40s, and the same mistakes are likely to be made again if we do not wake up.

But the good news is that it need not be so bad if we do the right thing. I saw “Something Big” happening in the past 18 months on the campaign trail. I was encouraged that we are capable of waking up and doing the right thing. I have literally met thousands of high school and college kids who are quite willing to accept the challenge and responsibility of a free society and reject the cradle-to-grave welfare that is promised them by so many do-good politicians.

If more hear the message of liberty, more will join in this effort. The failure of our foreign policy, welfare system, and monetary policies and virtually all government solutions are so readily apparent, it doesn’t take that much convincing. But the positive message of how freedom works and why it’s possible is what is urgently needed.

One of the best parts of accepting self reliance in a free society is that true personal satisfaction with one’s own life can be achieved. This doesn’t happen when the government assumes the role of guardian, parent or provider, because it eliminates a sense of pride. But the real problem is the government can’t provide the safety and economic security that it claims. The so-called good that government claims it can deliver is always achieved at the expense of someone else’s freedom. It’s a failed system and the young people know it.

Restoring a free society doesn’t eliminate the need to get our house in order and to pay for the extravagant spending. But the pain would not be long-lasting if we did the right things, and best of all the empire would have to end for financial reasons. Our wars would stop, the attack on civil liberties would cease, and prosperity would return. The choices are clear: it shouldn’t be difficult, but the big event now unfolding gives us a great opportunity to reverse the tide and resume the truly great American Revolution started in 1776. Opportunity knocks in spite of the urgency and the dangers we face.

Let’s make “Something Big is Happening” be the discovery that freedom works and is popular and the big economic and political event we’re witnessing is a blessing in disguise.

Propaganda Alert: Muslim Terrorists May Be Trying To Sink the Dollar

Don’t waste your time, terrorists, the Bush Crime Syndicate is doing just fine without your help!

Source: Tzvi Ben Gedalyahu, Israel National News.

Mujahideen Muslim terrorists may be behind the sinking American dollar as part of a campaign to cripple the American economy, the Middle East Media Research Institute (MEMRI) reported. The media watch group, which specializes in tracking Arabic language websites, said that postings on websites the past two years reflect a move toward waging an economic war against the United States.

Mujahideen terrorist groups that operate in Afghanistan, Pakistan and other countries “have come to the conclusion that it is financial, rather than military, losses that will prompt the U.S. to change its policies in the Middle East and elsewhere,” according to MEMRI.

An article recently posted in Sada Al-Jihad (Echo of Jihad) magazine and posted on several Muslim websites, discusses the September 11, 2001 attacks on the U.S. as having influenced the decline in the dollar. It also cited the cost of the war in Iraq and Afghanistan as draining the American economy.

Another recent posting stated, “The dollar can expect two additional blows that will break its back… [namely] the announcement of the return of the [religious rule of the] Caliphate…” and the reinstatement of the gold standard in international monetary trade. It urged Mujahideen “to get rid of American dollars” before an “imminent” terrorist attack that “will put an end to the so-called United States of America and destroy its economy completely.”

MEMRI concluded, “Given that it is highly atypical for Al-Qaeda to give prior warning of its attacks, the message is probably an attempt to pressure Muslims to sell dollars, in order to generate pessimism in the dollar market and thus accelerate the drop in its value.”