Richard Cook on “The End of Money and the Future of Civilization,” credit clearing and setting up alternative currency and trading systems

This is long, so I’ve bolded the highlights of the essay. I’m glad to see that there may be a solution out of our current economic debacle.

Thomas Greco’s “The End of Money and the Future of Civilization”: A Review by Richard C. Cook

It’s too late for anyone to pretend that the U.S. government, whether under President Barack Obama or anyone else, can divert our nation from long-term economic decline. The U.S. is increasingly in a state of political, economic, and moral paralysis, caught as it were between the “rock” of protracted recession and the “hard place” of terminal government debt.

Even if the stock market can be shored up by more government borrowing for “stimulus” spending, it’s a temporary reprieve, because nothing can bring back the consumer purchasing power that was lost when the banks stopped pumping money into the economy through out-of-control mortgage lending. We simply no longer have the job base for people to earn the income they need to live.

The underlying cause of the crisis is in fact the debt-based monetary system, whereby the U.S. ruling class long ago sold out our nation and its people to the international banking cartel of which the Rockefeller and Morgan interests have been the chief representatives for over a century. It was lending on a previously unheard of scale for overpriced assets to people and businesses unable to repay that created the bubbles that burst in 2008, not only in the housing market but also in such areas as commercial real estate, equities, commodities, and derivatives. It was an explosion that reverberated throughout the world.

The Obama administration’s response to the crisis has been to print Treasury bonds both for the financial system bailouts and the sputtering Keynesian stimulus that so far has gone substantially into military infrastructure. This bond bubble is what I have referred to as “Obama’s Last Picture Show.” http://www.globalresearch.ca/index.php?context=va&aid=12512

Government debt is fundamentally inflationary. For a generation, the U.S. dollar has been inflating at an increasing rate, with the economy being kept in a growth posture by selling our debt instruments abroad or allowing foreigners holding dollars to purchase property and other assets on our own soil. The website EconomyinCrisis.org reports that in 2007, the most recent year for which data are available, “foreign entities spent $267.8 billion to acquire or establish U.S. businesses.” http://www.economyincrisis.org/articles/show/2801

Foreigners are spending their dollars as fast as possible, because they are now plummeting in value. It’s increasingly clear that sooner rather than later, the dollar will be dumped by foreign purchasers of bonds, particularly China, and possibly even the oil-producing nations.

These nations know full well that bonds denominated in dollars can never be completely repaid, even if the bonds can be rolled over into fresh debt. It’s this dynamic that is dragging the U.S. economy to the cliff, because real economic growth stopped long ago when our manufacturing jobs were exported. This is because most of the growth since Ronald Reagan was elected president in 1980 has been only on paper through financial bubbles. This included the dot.com bubble of the Clinton years that blew up in 2000-2001.

Now, after the Treasury bond bubble of 2009, there is nothing left in America to inflate. With so many jobs gone, the American family home was the last thing of value we owned.

So the air is going out of the tires. Americans who are struggling to work for a living are passive spectators as their jobs, savings, health insurance, pensions, and homes continue to erode in value or even disappear. Last Sunday the Washington Post reported a massive crisis in state and local government pensions. Reporter David Cho wrote, “The financial crisis has blown a hole in the rosy forecasts of pension funds that cover teachers, police officers and other government employees, casting into doubt as never before whether these public systems will be able to keep their promises to future generations of retirees.”

So what, if anything, can be done about it?

Well, the first thing an intelligent physician does is diagnose the disease. Thomas Greco, in his new book The End of Money and the Future of Civilization (Chelsea Green: 2009) , outlines the increasingly familiar story of how things got so bad, and he tells it as well as anyone has ever done. His style is precise and sometimes academic. Behind it, though, is a passion for truth and the type of rock-solid integrity that refuses to sugar-coat a very bitter pill.

More than that, Greco writes about how to change what has gone wrong. His credentials as an engineer, college professor, author, and consultant are impeccable. His book is among the most important written in this decade. It is truly a book that can alter the world and, if taken seriously, give large numbers of people a practical way to survive the gathering catastrophe.

But unlike most commentators, what Greco offers is not another phony prescription for what the financiers and government should do for us, whether through “restarting” lending or another round of stimulus spending. Rather it’s what we should do for ourselves, and could do much better, if we understood what to do and if big banking and big government just got out of the way.

As I said, at the root is the monetary system, whose failure cannot be understood without a history lesson. So Greco writes about the struggle between banking and democracy that took place in the 1790s when the ink on our new national constitution was barely dry.

It was Alexander Hamilton, the first secretary of the treasury, who compromised the new nation, through what he admitted was “corruption,” by giving the wealthy speculators in Revolutionary War bonds the benefit of federally-sponsored redemption and then by establishing the First Bank of the United States. This early drift toward elitist rule was opposed by Thomas Jefferson, James Madison, and others who figured in the creation of what later became the Democratic Party.

Greco writes: “While Jefferson favored a stronger union than that which emerged under the Articles of Confederation, he was vehemently opposed to the reconstruction of monarchic government on the American continent.” Hamilton had said frankly that the British monarchy was the best system of government known to man. Part of the monarchic system was the Bank of England, which Hamilton copied when setting up the First Bank.

But Jefferson, who repudiated Hamilton’s elitist platform, was elected president in what was then called “The Revolution of 1800.” Congress refused to renew the Bank’s charter by a single vote when it was up for renewal in 1811.

But the Second Bank of the United States was chartered in 1816 due to the government debt left behind from the War of 1812 against Great Britain. Thus was set up what became known as the “Bank War.”

It was President Andrew Jackson who dethroned the bankers from power by pulling government funds out of the Second Bank in 1833. Greco writes that in Jackson’s view: “The ‘Bank War’ was a contest for rulership—would the United States be governed by the people through their elected president and representatives, or by an unelected financial elite through their central bank instrument?”

The modern takeover began in earnest during the Civil War when Congress passed the National Banking Acts in 1863-64 which mandated use of government bonds as bank lending reserves, thereby creating a direct linkage between bank profits and the debt the government was starting to load on the shoulders of taxpayers.

The nation’s fate was sealed with the passage of the Federal Reserve Act in 1913. The deal was that the bankers would control the currency, and thereby the nation’s economy, while the government would be provided with an unlimited amount of inflated dollars to fight its wars.

The bookkeeper’s trick of creating money out of thin air, charging interest for its use, then forcing it down the throats of weaker nations by threat of violence, is what has allowed the Anglo-American empire, since the founding of the Bank of England in 1696, gradually to conquer the world. Though President Woodrow Wilson signed the Federal Reserve Act into law, he saw what that action meant. Greco cites Wilson as writing: “There has come about an extraordinary and very sinister concentration in the control of business in the country….The great monopoly in this country is the monopoly of big credits.”

Among other ill effects, the system has ruined the value of the currency. The inflation caused by large issues of bank-created loans is seized upon by the government which goes along because inflation reduces the cost of its deficits. Investors buy Treasury bonds denominated in Federal Reserve Notes then watch their value evaporate over time. In fact Federal Reserve Notes have lost over 95 percent of their value since they were first introduced.

Moreover, it’s additional inflation caused by bank-generated interest that drives up the costs of goods and services, forcing everyone in the economy to try to defend themselves by raising their prices to the max. Greco spells this out too, which almost every economist in the world, with the exception perhaps of Australia’s James Cumes, overlooks.

Bank interest has other tragic effects. It was high interest rates, for instance, that destroyed the Idaho potato industry. A farmer from that region told me at a conference a few years ago that when interest rates skyrocketed in the early 1980s, he asked the president of one of the Federal Reserve Banks why they did it. The answer was they were “ordered” to raise interest rates by the international banking system.

Make no mistake, it’s the banking system, facilitated by the Fed, not unwary borrowers, who brought on the collapse of 2008.

Now, in 2009, the bankers, mainly those in the U.S., have so shattered the world economy by debt mounted on debt that there may be no reprieve except the creation of a slave society based on rule by the rich over the masses of whatever peons should happen to survive the downturn and its tragic effects on employment, health, the food and water supply, and even our ability to cope with climate change.

The political establishment, expressing itself in pronouncements by organizations like the Council on Foreign Relations, see a future, not of economic democracy or increased financial pluralism, but consolidation of world currencies into a small number overseen at the top by the world’s financial oligarchy. Citing the writings of Benn Steil, the CFR’s Director of International Economics, Greco writes: “The ostensible plan is to reduce global exchange media to three—one each for Europe, the Americas, and Asia. One might reasonably suppose that at a later stage, those three would be combined into one currency also under the control of the global banking elite.”

Greco concludes: “The New World Order is upon us.”

With ample justification, he even goes apocalyptic, citing The Book of Revelation in demonstrating the import on a spiritual plane of the elitist takeover: And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand or in their foreheads: And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name. (Revelation 13: 16-17)

But is it really the end, or is there a new world waiting to be born? Greco thinks so. He speaks of the end of an era when unlimited economic growth fed by massive influxes of debt-based money is no longer sustainable. He writes: “That our global civilization cannot continue on its current path seems evident….But I think our collective consciousness is beginning to change. We are becoming aware of limits and are reaching that part of our evolutionary program that says, ‘Stop!’”

Part of the awareness of how to stop must focus on the institutions responsible for the crisis. Greco praises Ron Paul for calling out the Federal Reserve in the 2008 presidential campaign. He cites a statement Paul made to Federal Reserve Chairman Alan Greenspan in a 2004 hearing where Paul told Greenspan that the power of the Fed “challenges the whole concept of freedom and liberty and sound money.” Thus Paul and other monetary reformers, though largely ignored by the mainstream media and political establishment, have made it clear that change must start with what really lies at the bottom of elite control: how money is made and who makes it.

Unfortunately, few progressive economists, including Paul Krugman, Joseph Stiglitz, and Robert Reich comprehend the monetary causes of today’s disasters. Instead of demanding reforms that would make money the proper servant of a sustainable economy, most call for more stimulus spending; i.e., more government debt, along with “reform” of a financial system that is corrupt down to its very DNA.

So do we really need the bankers’ fake currency, today backed by nothing but a federal deficit of $12 trillion and growing by the day?

Greco says we don’t, and this is what his book about. But it’s not about doing without the necessities of life, or heading for the hills with a gun and backpack. Nor is it about important efforts at macro-level monetary reform like those of the American Monetary Institute, Congressman Dennis Kucinich, or advocates for a basic income guarantee. Rather it’s about individuals, groups, and communities taking control of the monetary system at the grassroots level and creating an entirely new basis for trade than bank-owed debt.

Greco writes about “a new paradigm approach to the exchange function.” The solution, he says, “is to provide interest-free credit to producers within the process of mutual credit clearing. That is the process of offsetting purchases against sales within an association of merchants, manufacturers, and workers. It will eventually include everyone who buys and sells, or makes and receives disbursements of any kind.”

Greco is one of the world’s leading experts in describing alternative or complementary currencies. These are self-regulating systems that facilitate “reciprocal exchange,” not using government legal tender but which are still allowed under the currency laws so long as taxes are not evaded.

Greco discusses the large and growing worldwide “LETS” movement—Local Exchange Trading Systems, like the Ithaca HOURS system in Ithaca, New York.  He describes the Swiss WIR Bank, the longest-running credit clearing system in the world, with over 70,000 members. He writes about the national and international barter exchanges that involve over 400,000 businesses trading at an annual level of $10 billion.

Greco also describes the world-famous Mondragon Cooperatives from the Basque region of Northern Spain. Started by a Roman Catholic priest in 1941, the Mondragon system, he says, is “the hub of what is probably the most successful and progressive social cooperative economy in modern history.”

He also tells the inspiring story of the Argentine trading clubs—the trueques—which, when used with “provincial bonds” issued by regional governments, rescued that country during the 2001 economic collapse brought on by the collusion between the Argentine government and the International Monetary Fund.

Credit clearing is not new. Greco traces it to the medieval European fairs. These exchanges are like banking clearing houses. The world’s largest is the automated clearing house—ACH—operated by the Federal Reserve.

But as Greco points out: “The clearing process need not be restricted to banks; it can be applied directly to transactions between buyers and sellers of goods and services. The LETS systems that have proliferated in communities around the world use the credit clearing process, as do commercial trade exchanges. Credit clearing systems are, in essence, clearing houses—but their members are businesses and individuals instead of banks.”

Alternative currency and trading systems, says Greco, are the wave of the future. Even though most only mount up to partial local successes, they show what can be done. Greco likens these efforts to the Wright Brothers’ first flight that covered 120 feet. They show, he says, that the potential exists for local, regional, then national and international money-free exchanges that eventually could be joined by a single web-based trading platform. This could eventually get rid of the corruption of debt-money altogether.

Chapter 16 of the book is about “A Regional Economic Development Plan Based on Credit Clearing” that shows the potential. Greco writes, “The credit clearing exchange is the key element that enables a community to develop a sustainable economy under local control and to maintain a high standard of living and quality of life.”

This would be a real revolution. What can governments do to help? Perhaps only by removing, as Greco recommends, the privileged position of bank debt-money as legal tender. Instead, let bank money compete with market-based alternative currencies and credit exchanges, if it can.

Greco’s book is a how-to-do-it manual that updates and expands on his previous books, Money and Debt: A Solution to the Global Crisis, New Money for Healthy Communities, and Money: Understanding and Creating Alternatives to Legal Tender. Greco also operates a website that offers advice and support to worthwhile community initiatives. See http://circ2.home.mindspring.com/

My own view is that no one should wait to see who takes the lead in creating the monetary and credit-clearing systems of the future. The time is now. There is no more reason to delay. If the people of the world do not join together in this kind of action, they can likely kiss their economic future and perhaps their livelihoods good-bye. The controllers of the world, those with the big money, the ones who run the banking systems, who own the global corporations, and who finance politicians like Obama, the Bushes, and the Clintons, are now poised in their blindness to extinguish the light of democracy on the planet for good.

Greco is implying that the power of the elite is not only dated but illusory. Thus the way to proceed is not just to oppose them. If they are opposed, they’ll do what they always do, which is to roll out the SWAT teams, the military in the streets, the tear gas, the sound cannon, the concentration camps, the Patriot Acts, the torture chambers, because that is all they know, and it’s what they do best.

The money monopoly translates into a monopoly on violence on an ascending scale. We know that the U.S. sells more weapons abroad than any other nation, and we know that it is war above all that makes the bankers rich.

So let them have their weapons and wars. With all due respect to those brave enough to protest, it’s time for people simply to walk away and set up their own economic and monetary systems as a prelude to a rebirth of humanity as ethical beings in sustainable communities of choice.

The keys, says Greco, are simple: “Promote the establishment of private complementary exchange systems—and use them. Buy from your friends and neighbors wherever possible. Contribute your time, energy, and money to whatever moves things in the right direction.”

Greco also recommends that the unit of exchange for alternative currencies be based on the value of commodities—not necessarily gold or silver, which bankers and governments manipulate, but those commodities readily available within a trading system. State and local governments should do everything possible to protect, encourage, nourish, and participate in these systems.

The irony is that what may appear on the surface to be technical changes in how the exchange of goods and services takes place can have such profound effects. The answer is that systems of exchange reflect entirely different perceptions of the world. Bank-money exchange reflects and creates a system of elite control and human slavery. Reciprocal credit exchange reflects and creates a democratic system on a level monetary playing field.

The difference points to the fact that such reform is, above all, a spiritual endeavor. Thomas Greco has devoted decades to this quest and is one of its foremost visionaries. In an Epilogue he writes: “We will either learn to put aside sectarian differences, to recognize all life as one life, to cooperate in sharing earth’s bounty, and yield control to a higher power—or we will find ourselves embroiled in ever-more destructive conflicts that will leave the planet in ruins and avail only the meanest form of existence for the few, if any, who survive.”

It’s a vision we can all strive to embrace.

Jim Kunstler: Legitimacy Dwindles

From his blog, Clusterfuck Nation. Pretty humorous, although I disagree that any kind of revolution is on the horizon.

Zounds! Public sentiment toward the accelerating economic fiasco has shifted, seemingly overnight, from a mood of nauseated amazement to one of panicked grievance as the United States moves closer to an apparent comprehensive collapse — and so ill-timed, wouldn’t you know it, to coincide with the annual rigors of Santa Claus. The tipping point seems to be the Bernie Madoff $50 billion Ponzi scandal, which represents the grossest failure of authority and hence legitimacy in finance to date in as much as Mr. Madoff was a former chairman of the NASDAQ, for godsake. It’s like discovering that Ben Bernanke is running a meth lab inside the Federal Reserve. And out in the heartland, of course, there is the spectacle of Illinois governor Rod Blagojevich trying to desperately dodge a racketeering rap behind an implausible hairdo.

What seems to spook people now is the possibility that everybody in charge of everything is a fraud or a crook. Legitimacy has left the system. Not even the the legions of Obama are immune as his reliance on Wall Street capos Robert Rubin, Tim Geithner, and Larry Summers seem tainted by the same reckless thinking that brought on the fiasco. His pick last week for chief of the SEC, Mary Shapiro, is already being dissed as a shill for the Big Bank status quo. In a few days we’ll discover what kind of bonuses are being ladled out by the remaining Wall Street banks with TARP money and a new chorus of howls will ring out.

This is very dangerous territory. In dollar terms, the numbers being applied to the various problems are so colossal — trillions! — that the death of our currency seems assured. And in defiance of congress’s express intentions, none of the TARP “money” has been applied to its targeted purpose of buying up “toxic” (i.e. fraudulent) securities hidden in the vaults of banks, pension funds, and municipal portfolios.

George W, Bush’s personal bailout of General Motors and Chrysler is designed solely to postpone their bankruptcy and mass job layoffs until after the holidays. Otherwise, the $17.4 billion will probably be used by the companies to underwrite the extensive legal work required for the moment they must declare bankruptcy — when Mr. Obama is in the White House. Meanwhile, the President-elect has ramped up his job-creation target overnight from two to three million, and some observers are catching a whiff of Soviet-style economic engineering (“…we pretend to work and they pretend to pay us….”).

The years since Jimmy Carter have produced an astoundingly flaccid public, sunk in various addictions and distractions, but this is about to change. The darkling mood of political protest and violent activism that saturated my own young adult years is scudding up again on the horizon. Mr. Obama’s pick for attorney general, the mild-looking Eric Holder, may be the key figure in the early months of the new government. If he doesn’t commence some aggressive investigations and prosecutions — beginning with Henry Paulson for insider trading when he was in charge of Goldman Sachs and shorting his own company’s mortgage-backed securities — then the whole Obama enterprise could fall under suspicion of illegitimacy. The bums who ran the US banking sector into a ditch have to account for their turpitudes. They can’t be allowed to hide under a TARP.

Unfortunately, the legal system, and probably the legislative system, will be so buried in procedural bullshit from the unwind of countless enterprises and institutions, and the sorting out of the remnants, that it remains to be seen whether this generation of people-in-charge can even embark on a fresh start of anything connected to real everyday life in America. All this is starting to alarm the tattered residue of the middle classes, and from here it’s a very short path to them being really pissed off.

When legitimacy erodes, anything goes. Nothing is respected including rules and personalities. The center doesn’t hold and the new vacuum there is a tumultuous place. The same crisis of authority and legitimacy is spreading from nation to nation now. Soon, China will contend with a discontented army of the unemployed. Greece has been in an uproar for two weeks. Belgium’s government just collapsed. Trade barriers are going up. Exports are falling away. The world’s energy markets are not immune to these disorders. I would expect problems with the currently seamless supply lines that bring America two-thirds of the oil we use. Even a mild disruption of oil supplies could attach an anvil to the ankle of an economy already falling off a cliff.

Right now, the overwhelming sentiment is to get this country back to where we were, say, ten years ago, when everything was humming nicely: Clinton nostalgia. We’re definitely not gong back there, though. It’s an idle wish. And any set of policies designed to lead in that direction will prove very disappointing. Our destination is a land of much smaller-scaled local economies. We could retain our federal ties if the federal government can scale back appropriately from the bloated, feckless enterprise it has become. Otherwise, it might only get in the way and make matters worse, and the public in one region or another of North America might reach a decision that they are better off without it. That would be what’s called a revolution.

Federal Reserve sets Stage for Weimar-style Hyperinflation

By F. William Engdahl, 15 December 2008.

The Federal Reserve has bluntly refused a request by a major US financial news service to disclose the recipients of more than $2 trillion of emergency loans from US taxpayers and to reveal the assets the central bank is accepting as collateral. Their lawyers resorted to the bizarre argument that they did so to protect ‘trade secrets.’ Is the secret that the US financial system is de facto bankrupt? The latest Fed move is further indication of the degree of panic and lack of clear strategy within the highest ranks of the US financial institutions. Unprecedented Federal Reserve expansion of the Monetary Base in recent weeks sets the stage for a future Weimar-style hyperinflation perhaps before 2010.

On November 7 Bloomberg filed suit under the US Freedom of Information Act (FOIA) requesting details about the terms of eleven new Federal Reserve lending programs created during the deepening financial crisis.

The Fed responded on December 8 claiming it’s allowed to withhold internal memos as well as information about ‘trade secrets’ and ‘commercial information.’ The central bank did confirm that a records search found 231 pages of documents pertaining to the requests.

The Bernanke Fed in recent weeks has stepped in to take a role that was the original purpose of the Treasury’s $700 billion Troubled Asset Relief Program (TARP). The difference between a Fed bailout of troubled financial institutions and a Treasury bailout is that central bank loans do not have the oversight safeguards that Congress imposed upon the TARP. Perhaps those are the ‘trade secrets the hapless Fed Chairman,Ben Bernanke, is so jealously guarding from the public.

Coming hyperinflation?

The total of such emergency Fed lending exceeded $2 trillion on Nov. 6. It had risen by an astonishing 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren’t rated AAA. They did so knowing that on the following day a dramatic shock to the financial system would occur because they, in concert with the Bush Administration, had decided to let it occur.

On September 15 Bernanke, New York Federal Reserve President, Tim Geithner, the new Obama Treasury Secretary-designate, along with the Bush Administration, agreed to let the fourth largest investment bank, Lehman Brothers, go bankrupt, defaulting on untold billions worth of derivatives and other obligations held by investors around the world. That event, as is now widely accepted , triggered a global systemic financial panic as it was no longer clear to anyone what standards the US Government was using to decide which institutions were ‘too big to fail’ and which not. Since then the US Treasury Secretary has reversed his policies on bank bailouts repeatedly leading many to believe Henry Paulson and the Washington Administration along with the Fed have lost control.

In response to the deepening crisis, the Bernanke Fed has decided to expand what is technically called the Monetary Base, defined as total bank reserves plus cash in circulation, the basis for potential further high-powered bank lending into the economy. Since the Lehman Bros. default, this money expansion rose dramatically by end October at a year-year rate of growth of 38%, has been without precedent in the 95 year history of the Federal Reserve since its creation in 1913. The previous high growth rate, according to US Federal Reserve data, was 28% in September 1939, as the US was building up industry for the evolving war in Europe.

By the first week of December, that expansion of the monetary base had jumped to a staggering 76% rate in just 3 months. It has gone from $836 billion in December 2007 when the crisis appeared contained, to $1,479 billion in December 2008, an explosion of 76% year-on-year. Moreover, until September 2008, the month of the Lehman Brothers collapse, the Federal Reserve had held the expansion of the Monetary Base virtually flat. The 76% expansion has almost entirely taken place within the past three months, which implies an annualized expansion rate of more than 300%.

Despite this, banks do not lend further, meaning the US economy is in a depression free-fall of a scale not seen since the 1930′s. Banks do not lend in large part because under Basle BIS lending rules, they must set aside 8% of their capital against the value of any new commercial loans. Yet the banks have no idea how much of the mortgage and other troubled securities they own are likely to default in the coming months, forcing them to raise huge new sums of capital to remain solvent. It’s far ‘safer’ as they reason to pass on their toxic waste assets to the Fed in return for earning interest on the acquired Treasury paper they now hold. Bank lending is risky in a depression.

Hence the banks exchange $2 trillion of presumed toxic waste securities consisting of Asset-Backed Securities in sub-prime mortgages, stocks and other high-risk credits in exchange for Federal Reserve cash and US Treasury bonds or other Government securities rated (still) AAA, i.e. risk-free. The result is that the Federal Reserve is holding some $2 trillion in largely junk paper from the financial system. Borrowers include Lehman Brothers, Citigroup and JPMorgan Chase, the US’s largest bank by assets. Banks oppose any release of information because that might signal ‘weakness’ and spur short-selling or a run by depositors.

Making the situation even more drastic is the banking model used first by US banks beginning in the late 1970′s for raising deposits, namely the acquiring of ‘wholesale deposits’ by borrowing from other banks on the overnight interbank market. The collapse in confidence since the Lehman Bros. default is so extreme that no bank anywhere, dares trust any other bank enough to borrow. That leaves only traditional retail deposits from private and corporate savings or checking accounts.

To replace wholesale deposits with retail deposits is a process that in the best of times will take years, not weeks. Understandably, the Federal Reserve does not want to discuss this. That is clearly also behind their blunt refusal to reveal the nature of their $2 trillion assets acquired from member banks and other financial institutions. Simply put, were the Fed to reveal to the public precisely what ‘collateral’ they held from the banks, the public would know the potential losses that the government may take.

Congress is demanding more transparency from the Federal Reserve and US Treasury on its bailout lending. On December 10 in Congressional hearings by the House Financial Services Committee , Representative David Scott, a Georgia Democrat, said Americans had ‘been bamboozled,’ slang for defrauded.

Hiccups and Hurricanes

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system. The Freedom of Information Act obliges federal agencies to make government documents available to the press and public.

In early December the Congress oversight agency, GAO, issued its first mandated review of the lending of the US Treasury’s $700 billion TARP program (Troubled Asset Relief Program). The review noted that in 30 days since the program began, Henry Paulson’s office had handed out $150 billion of taxpayer money to financial institutions with no effective accountability of how the money is being used. It seems Henry Paulson’s Treasury has indeed thrown a giant ‘tarp’ over the entire taxpayer bailout.

Further adding to the troubles in the world’s former financial Mecca, the US Congress, acting on largely ideological grounds, shocked the financial system when it refused to give even a meager $14 billion emergency loan to the Big Three automakers-General Motors, Chrysler and Ford.

While it is likely that the Treasury will extend emergency credit to the companies until January 20 or until the newly elected Congress can consider a new plan, the prospect of a chain -reaction bankruptcy collapse of the three giant companies is very near. What is being left out of the debate is that those three companies account for a combined 25% of all US corporate bonds outstanding. They are held by private pension funds, mutual funds, banks and others. If the auto parts suppliers of the Big Three are included, an estimated $1 trillion of corporate bonds are now at risk of chain-reaction default. Such a bankruptcy failure could trigger a financial catastrophe which would make what has happened since Lehman Bros. appear as a mere hiccup in a hurricane.

As well, the Federal Reserve’s panic actions since September, by their explosive expansion of the monetary base, has set the stage for a Zimbabwe-style hyperinflation. The new money is not being ‘sterilized’ by offsetting actions by the Fed, a highly unusual move indicating their desperation. Prior to September the Fed’s infusions of money were sterilized, making the potential inflation effect ‘neutral.’

Defining a Very Great Depression

That means once banks begin finally to lend again, perhaps in a year or so, that will flood the US economy with liquidity in the midst of a deflationary depression. At that point or perhaps well before, the dollar will collapse as foreign holders of US Treasury bonds and other assets run. That will not be pleasant as the result would be a sharp appreciation in the Euro and a crippling effect on exports in Germany and elsewhere should the nations of the EU and other non-dollar countries such as Russia, OPEC members and, above all, China not have arranged a new zone of stabilization apart from the dollar.

The world faces the greatest financial and economic challenges in history in coming months. The incoming Obama Administration faces a choice of literally nationalizing the credit system to insure a flow of credit to the real economy over the next 5 to 10 years, or face an economic Armageddon that will make the 1930′s appear a mild recession by comparison.

Leaving aside what appears to have been blatant political manipulation by the present US Administration of key economic data prior to the November election in a vain attempt to downplay the scale of the economic crisis in progress, the figures are unprecedented. For the week ended December 6 initial jobless claims rose to the highest level since November 1982. More than four million workers remained on unemployment, also the most since 1982 and in November US companies cut jobs at the fastest rate in 34 years. Some 1,900,000 US jobs have vanished so far in 2008.

As a matter of relevance, 1982, for those with long memories, was the depth of what was then called the Volcker Recession. Paul Volcker, a Chase Manhattan appendage of the Rockefeller family, had been brought down from New York to apply his interest rate ‘shock therapy’ to the US economy in order as he put it, ‘to squeeze inflation out of the economy.’ He squeezed far more as the economy went into severe recession, and his high interest rate policy detonated what came to be called the Third World Debt Crisis. The same Paul Volcker has just been named by Barack Obama as chairman-designate of the newly formed President’s Economic Recovery Advisory Board, hardly grounds for cheer.

The present economic collapse across the United States is driven by the collapse of the $3 trillion market for high-risk sub-prime and Alt-A home mortgages. Fed Chairman Bernanke is on record stating that the worst should be over by end of December. Nothing could be farther from the truth, as he well knows. The same Bernanke stated in October 2005 that there was ‘no housing bubble to go bust.’ So much for the predictive quality of that Princeton economist. The widely-used S&P Schiller-Case US National Home Price Index showed a 17% year-year drop in the third Quarter, trend rising. By some estimates it will take another five to seven years to see US home prices reach bottom. In 2009 as interest rate resets on some $1 trillion worth of Alt-A US home mortgages begin to kick in, the rate of home abandonments and foreclosures will explode. Little in any of the so-called mortgage amelioration programs offered to date reach the vast majority affected. That process in turn will accelerate as millions of Americans lose their jobs in the coming months.

John Williams of the widely-respected Shadow Government Statistics report, recently published a definition of Depression, a term that was deliberately dropped after World War II from the economic lexicon as an event not repeatable. Since then all downturns have been termed ‘recessions.’ Williams explained to me that some years ago he went to great lengths interviewing the respective US economic authorities at the Commerce Department’s Bureau of Economic Analysis and at the National Bureau of Economic Research (NBER), as well as numerous private sector economists, to come up with a more precise definition of ‘recession,’ ‘depression’ and ‘great depression.’ His is pretty much the only attempt to give a more precise definition to these terms.

What he came up with was first the official NBER definition of recession: Two or more consecutive quarters of contracting real GDP, or measures of payroll employment and industrial production. A depression is a recession in which the peak-to-bottom growth contraction is greater than 10% of the GDP. A Great Depression is one in which the peak-to-bottom contraction, according to Williams, exceeds 25% of GDP.

In the period from August 1929 until he left office President Herbert Hoover oversaw a 43-month long contraction of the US economy of 33%. Barack Obama looks set to break that record, to preside over what historians could likely call the Very Great Depression of 2008-2014, unless he finds a new cast of financial advisers before Inauguration Day, January 20. Required are not recycled New York Fed presidents, Paul Volckers or Larry Summers types. Needed is a radically new strategy to put virtually the entire United States economy into some form of an emergency ‘Chapter 11′ bankruptcy reorganization where banks take write-offs of up to 90% on their toxic assets, that, in order to save the real economy for the American population and the rest of the world. Paper money can be shredded easily. Not human lives. In the process it might be time for Congress to consider retaking the Federal Reserve into the Federal Government as the Constitution originally specified, and make the entire process easier for all. If this sounds extreme, perhaps revisit this article in six months again.

Congressman Ron Paul: The Neo-Alchemy of the Federal Reserve

From his weekly column, Texas Straight Talk. Will Congress grow a set and abolish the Fed? Highly unlikely, but extremely necessary at this point.

As the printing presses for the bailouts run at full speed, those in power are no longer even pretending that the new giveaways will fix our problems. Now that we are used to rewarding failure with taxpayer-funded bailouts, we are being told that this is “just a start,” more funds will inevitably be needed for more industries, and that things would be much worse had we done nothing.

The updated total bailout commitments add up to over $8 trillion now. This translates into a monetary base increase of 75 percent over the last two months. This money does not come from some rainy day fund tucked away in the budget somewhere – it is created from thin air, and devalues every dollar in circulation. Dumping money on an economy, as they have been doing, is not the same as dumping wealth. In fact, it has quite the opposite effect.

One key attribute that gives money value is scarcity. If something that is used as money becomes too plentiful, it loses value. That is how inflation and hyperinflation happens. Giving a central bank the power to create fiat money out of thin air creates the tremendous risk of eventual hyperinflation. Most of the founding fathers did not want a central bank. Having just experienced the hyperinflation of the Continental dollar, they understood the power and the temptations inherent in that type of system. It gives one entity far too much power to control and destabilize the economy.

Our central bankers have had a tremendous amount of hubris over the years, believing that they could actually manage a paper money system in such a way as to replicate the behavior and benefits of a gold standard. In fact, back in 2004 then Fed Chairman Alan Greenspan told me as much. People talk about toxic assets, but the real toxicity in our economy comes from the neo-alchemy practiced by the Federal Reserve System. Just as alchemists of the past frequently poisoned themselves with the lead or mercury they were trying to turn to gold, today’s bankers are poisoning the economy with accelerated fiat money creation.

the ages, gold has stood the test of time as a consistently reliable medium of exchange, and has frequently been referred to as “God’s money”, as only God can make more of it. Seeking superhuman power over money in the way alchemists did in ancient times caused society to shun them as charlatans. In much the same way, free people today should be sending the message that this power and control over our money is no longer acceptable.

The irony is that even had the ancient practice of alchemy been successful, and gold was suddenly, magically made abundant, alchemists still would have failed to create real wealth. Creating gold from lead would have cheapened its status to that of rhinestones or cubic zirconia. It is unnatural and dangerous for paper to be considered as precious as a precious metal. Our fiat currency system is crumbling and coming to an end, as all fiat currencies eventually do.

Congress should reject the central bank as a failure for its manipulations of money that have brought our economy to its knees. I am hoping that in the 111^th Congress my legislation to abolish the Federal Reserve System gains traction so that the central bank can no longer destroy our money.

Obama’s Change.org site Censoring ALL Ideas Related to Ending the Federal Reserve

Source: http://www.abolishthefederalreserve.com/?p=437

Yesterday I posted an “Idea” to Change.org in an attempt to promote the issue of ending the Federal Reserve System. There were already about 5 other similar proposals, some with almost 100 votes, but I posted mine anyway. Today, ALL of those Ideas are gone.

For those who aren’t familiar with this website, Change.org “aims to serve as the central platform informing and empowering movements for social change around the most important issues of our time.”

Ideas for Change in America, a project in partnership with MySpace and dozens of other nonprofits, GOTV groups, and advocacy organizations. We couldn’t be more excited.

President-Elect Obama recently said that “I will open the doors of government and ask you to be involved in your own democracy again.” We’re taking him at his word, and opening the doors of Change.org to you. Go to the site to post an idea for what Barack Obama should do to change America, and vote on your favorites.

The project is actually contest in two rounds. When the first round of voting ends on December 31, the top three ideas in each category … will carry over to the second round. Then, we’ll take the top 10 ideas from across the site and present them to the Obama Administration on Inauguration Day.

Sounds good, right?

If you want to propose an Idea, you go to this page, which has this friendly message: “President-Elect Obama says he wants to hear ideas from all Americans, so we’re taking him up on his offer. Here’s your chance to pose innovative solutions to the major problems we face and to get them heard.” Wow, Obama wants to hear about our ideas!

I posted a quick and informative video on how the Federal Reserve perpetuates rather than fights inflation and suggested that Obama urge Congress to pass Ron Paul’s legislation, H.R. 2755, which would repeal the Federal Reserve Act of 1913.

Today, I received an email saying this idea “lies outside the scope of the Ideas for Change in America project, which is focused on identifying solutions that we believe can, through a grassroots lobbying effort, receive serious consideration from the Obama administration and/or Congress.”

Needless to say, last night my idea was completely deleted from the site.

So what ideas lie inside the scope of the Ideas for Change in America? Monumental movements like taxing plastic bags and setting up a “National Do Not Mail Registry” to stop junk mail. Whoa, those ideas are HUGE! They would certainly stop the collapse of our economy, right?

The moral of the story is — if you propose anything that would bring about REAL CHANGE and address the serious issues our country is facing, like abolishing the Federal Reserve, you WILL be censored. End of story, no exceptions.

At this point, those of us in the liberty movement have two options:

1. We can keep posting the ideas until they decide to stop hitting the delete button and leave it up, at which point it would blow the other Economy ideas out of the water and get some much-deserved attention.
2. We can stop wasting our time fighting with people who are obviously opposed to real change and are just putting up a front to look like they care. If we do this, they will get what they ask for. More inflation. More debt. More falling dollar. And we’ll say “I told you so.”

My reason for posting this is to expose the blatant censorship that takes place, especially (and most disappointingly) within the so-called social change community. It’s up to you whether you choose to fight it or move on to more inviting communities. It’s another instance of asking ourselves whether we want to work within the system or outside of it. It depends on how badly you want to save your country. Personally, I know that most Americans still think and operate within the system, so I generally choose to try and break down its walls and throw wrenches in its gears whenever possible. I think both tactics are needed, so for those who decide to fight this disgusting censorship — here is your rallying cry!

2pm UPDATE:

Somebody suggested that I frame this idea as others on the site have done, where the end-result is presented, rather than the uncomfortable cure that turns people off. So, here is attempt #2, vote it up while you can, tomorrow it may be gone!
http://www.change.org/ideas/view/return_to_a_constitutional_and_sound_monetary_policy

6:30pm UPDATE:

Censorship in record time. Idea #2 is gone, and I have a fresh new email from Change.org:

We wanted to send you a note about an idea you recently submitted on in the Ideas for Change in America competition titled “Return to a Constitutional and Sound Monetary Policy.”

We welcome you to directly petition the Obama Administration about this matter, which you can do at http://change.gov/page/s/ofthepeople. However, this unfortunately lies outside the scope of the Ideas for Change in America project, which is focused on identifying solutions that can, through a grassroots lobbying effort, receive serious consideration from the Obama administration and/or Congress. Regardless of its merits, it is our judgment that this idea will not be seriously considered by the administration or the 111th Congress regardless of the intensity of our lobbying effort, and it is therefore not eligible to enter the second round of the competition.

We understand that good people may disagree with our vision. But this is a private effort not connected to the Obama campaign or transition team, and we reserve the right to keep the competition and its content aligned with the stated mission and overall spirit of the project.

12/03/08 UPDATE:

Somebody on Digg said they have now set up a filter so you can no longer even submit an Idea with the phrase “Federal Reserve” in it. If anybody wants to test it, please let me know what happens. I would test it myself, but they’ve deleted my entire account (very classy.)

The Last Thanksgiving Before GD2?

By David Chu.

What the Heck is GD2?

Simply, “Great Depression 2.”

But as the famous physicist, Neil Bohr, once remarked, “Prediction is very difficult, especially about the future.”

However, just because something is difficult does not mean that we shouldn’t try to get a handle on it, especially on something dire that concerns our future, or attempt to read the “handwriting on the wall” to use an old Biblical expression.

Using my long ago analogy by calling the ship of state (financial and economic affairs) of the U.S. as the U.S.S. Titanic, America has already scrapped that massive iceberg: there is a huge gaping hole on the starboard side of the U.S.S. Titanic!

The U.S.S. Titanic encountered this iceburg during the week of October 6, 2008. Everything that happens afterwards and in the immediate days, weeks, months, and even years following is just governments and their corrupt, criminal fiends on Wall Street and elsewhere going through the motions. Like the band that kept playing aboard the real R.M.S. Titanic, the politicians and the “captains of industry” will paint a bright and rosy picture for the third-class passengers aboard the U.S.S. Titanic, while they all don on their financial life jackets and run like hell for the very few financial lifeboats!

What do you think the $850 billion TARP (“Troubled Asset Recovery Program”) was for?

Then visualize life jackets embossed with the letters “TARP” on the back!

Buried in a report from Biz.yahoo.com on November 12 titled “Stocks plunge for third straight session” was the following incredible statement: “According to the Dow Jones Wilshire 5000 index [which reflects the value of almost all U.S. stocks], Wednesday’s [November 12] paper losses amounted to about $600 billion. By that measure, the [U.S.] stock market has shed $9.1 trillion since the index’s Oct. 9, 2007, peak.” The bolded emphasis in mine. The Dow Industrial Average or Dow, which is comprised of 30 “blue chip” stocks, closed out at 8,262 on November 12, and was at 8,046 at the close on November 21, so the estimate of $9.1 trillion of financial losses since October 9 is a pretty close guess, if not a conservative one.

More than $9 trillion has been wiped out since October 9, 2008!

Last year around this time, Citigroup, one of the few mega insider banks still left standing (well at least as of when this article was being written on Sunday, October 23), was worth around $180 billion, but by last Friday (October 21) it was valued only around $21 billion. A momentous loss of almost 90 percent! And Citigroup recently announced that it was going to kill over 50,000 jobs. Looks like that number might be wishful thinking.

I call this phenomenal with what’s happening to Citigroup and all the rest of the insider banks and many of the Fortune 500 companies, the “Bear Sterns Syndrome,” as the following stock chart for Bear Stearns shows graphically what happens when a company suddenly falls into the financial gutter and just dies:

See Bear Sterns Chart.

Take a look at Citigroup’s chart over a 12-months period:

See Citigroup Chart.

Here is General Motors’s chart over a 2-year period (What is that saying? As GM goes, so does . . .?):

See GM Chart.

And finally the Dow Jones Industrial Average or Dow over a 12-months period:

See Dow Chart.

Ten Thousand Words, 30 Reasons, and One Final Shoe

They say that a picture is worth a thousand words. The above fotos should qualify for at least ten thousands!

But if you still can’t get your thinking wrapped around the fact that we are headed for a great depression the likes of which no man or woman has ever experience in history, perhaps Paul B. Farrell’s article called “30 Reasons for Great Depression 2 by 2011” might provide you with that sobering, wake-up, cold shower.

This is one more, the elephant standing in the room that only a very few are talking about. The final shoe that will drop concerns the very likely great bond collapse in 2009.

Blogger “rich2010” probably wrote the best warning about this in Depression2.tv on November 21. His post is called “What’s The Next Big Thing For 2009?” and he talks about how the U.S. has been able to finance its trillions of dollars of debt without having to print all the money to do so (bolded emphasis is mine):

The Federal Reserve created $1 Trillion USD from 1913 until Sept 18, 2008 since then they have created another 1 Trillion in two months and are on track to create another 1 Trillion before the end of 2008. All of this debt has to be sold into the bond market in 2009 which frankly I doubt can happen.

About five years back I began scrutinizing US T-bill holdings. Three years ago to my great surprise it appeared that both China and Japan had stopped accumulating US debt. Out of nowhere came a new category of buyers referred to as “Carribean Banks” [sic]. My understanding is that this is a nice euphemism for FED-owned hedge funds who serve as a shill buyer to keep up the appearance of demand for US debt. This practice represents monetarization of US debt. Simply put, the money gets printed in the absence of a real live bond buyer.

In the years since Richard Nixon closed the FED’s gold window in 1971 the US government has convinced foreigners to accept more bonds to roll over the debt, and more bonds in “payment” of the interest owed. The question is what happens when the foreigners want to be paid in something other than more US debt. This tipping point should usher in the Great Bond Market Collapse of 2009. Most writers worth reading identify this as a signal of the coming hyperinflation.

I came to the exact same conclusion when I saw this data in mid 2005 that the U.S. was buying some of its own debt through the secretive hedge funds located in the Caribbeans including the Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama. But I also concluded that the U.K. was lending a helping hand through the British hedge funds located in the Channel Islands and Isle of Man: their numbers are all lumped into those of the U.K.’s purchases of U.S. Treasuries.

To be 100% clear: the United States of America is buying its own debt–the U.S. Treasuries or bonds that it dumps to the world to finance all the trillions of dollars of deficit spending–with its fake money through the secretive hedge funds it controls in the Caribbeans.

When this colossal financial con game is up, i.e., when the world learns about this and stops buying U.S. debt and starts to unload the U.S. bonds that they are currently holding (of the $1.82 trillion total of U.S. Treasuries outstanding at the end of September, 2008, China holds $585.0 billion, Japan holds 573.2 billion, U.K. holds 338.4 billion, “Caribbean Banking Centers” hold 185.3 billion, “Oil Exporters” hold 182.2 billion, and Brasil holds $141.9 billion), the U.S. will be forced to resort to printing all the money to buy its own debt, and hyperinflation like that of Weimar Germany in the 1920s will result.

The Master of Trends

Gerald Celente of the Trends Research Institute is a master of trend forecasting with a proven track record. He has literally appeared on every television and radio program in the U.S. So accurate are his forecasts that CNN Headline News had this to say, “When CNN wants to know about the Top Trends, we ask Gerald Celente.”

The Wall Street Journal, not to be outdone, said this about his institute, “Those who take their predictions seriously … consider the Trends Research Institute.”

Mr. Celente successfully predicted the 1997 Asian currency crisis, the current subprime mortgage mess, the collapse of the Dot Com bubble to within one month of when it happened, the ensuing quagmire of the Iraq War (before the war started), and the “Panic of 2008” in November, 2007.

He had the following to say on the Jeff Rense Radio Program recently. I am paraphrasing the gist of his warning concerning the huge difference and severity between the Great Depression of the 1930s and GD2 (“the deepest depression that we have ever seen in living times”): why this time around, it is a lot worse.

Back then, most people did not own homes. There were no such things as home equity loans. If you has a second mortgage, you were considered a loser.

Back then, people didn’t have credit cards.

Back then, they weren’t $14 trillion in debt.

Back then, the U.S. had trade surpluses, not $700 billion trade deficits each year.

Back then, the U.S. wasn’t fighting two losing wars that cost already over $2 trillion.

Back then, the U.S. wasn’t running budget deficits approaching $1 trillion each year.

Back then, when the U.S. did get out of the depression with WW II, there was a manufacturing base to build the U.S. out.

And back then, people did not see their entire life savings eaten up in their worthless IRAs and 401k’s.

Enjoy Thanksgiving 2008

To provide further evidence, as if the evidence given above and from what you can glean from the corporate mass media are not sufficient, as to the extreme dire straits that is facing the U.S. and the very likelihood of GD2 occurring very soon, I have taken liberty to include an extensive excerpt from my ebook, NO Foreclosures!, that was written in July 2008 (I have also taken the license to forgo most of the footnotes that are included in the ebook). As you probably will realize after reading this excerpt, that even in the short 3 or 4 months since those words were written, with the exception of the temporary rise of the USD and the temporary drop in gas and food prices, everything else have accelerated for the worse.

So America, on this Thanksgiving 2008 which may be the last one before GD2 becomes a cold reality, I have one suggestion:

Be grateful.

That you are still living in your homes. For those who lost their homes, be grateful that you have a roof over your head.

That the banks have not declared “bank holidays” like they did in Argentina and stole all their savings overnight.

That you still have food on the table and a big juice turkey to boot!

That you still have your good health, and family and friends to celebrate this Thanksgiving.

That there is peace and quiet on your streets, and your crime is not out of control as it is in many so-called Third World countries.

That your USD is still worth something.

That countries like China, Japan and others from the Middle East are still willing to hold and even buy your worthless government bonds called U.S. Treasuries. Otherwise, your country would go straight to bankruptcy like another Bear Stearns and Lehman Brothers.

That there is no war on your soils–yet. Maybe be so grateful that you would say a prayer or two for the Afghans and Iraqis who are not so lucky.

That there is still time to get some storage or survival food–at least 3 months worth for each member of your family.*

That there is still time to buy and take physical possession of some gold and silver bullion coins to safeguard your life savings.**

That there is still time to get your money out of your losing 401k’s, IRAs, ETFs, stocks, mutual funds, money markets accounts, bonds, variable life insurance policies, and all the rest of the paper investments.

And, in conclusion, as one of my American friends emailed me last week:

May your stuffing be tasty. May your turkey be plump.

May your potatoes ‘n gravy have nary a lump.

May your yams be delicious. May your pies take the prize.

May your Thanksgiving dinner stay off of your thighs.

MAY YOU ALL HAVE A BLESSED THANKSGIVING!

What’s The Next Big Thing For 2009?

From The Second Great Depression blog.

Fri, 11/21/2008 – 13:26 — rich2010

Prediction is very difficult, especially about the future – Niels Bohr

The Grin Reaper has spent the last week puzzling about the future and remains puzzled about what is coming next. The Federal Reserve created $1 Trillion USD from 1913 until Sept 18, 2008 since then they have created another 1 Trillion in two months and are on track to create another 1 Trillion before the end of 2008. All of this debt has to be sold into the bond market in 2009 which frankly I doubt can happen.

About five years back I began scrutinizing US T-bill holdings. Three years ago to my great surprise it appeared that both China and Japan had stopped accumulating US debt. Out of nowhere came a new category of buyers referred to as “Carribean Banks”. My understanding is that this is a nice euphemism for FED-owned hedge funds who serve as a shill buyer to keep up the appearance of demand for US debt. This practice represents monetarization of US debt. Simply put, the money gets printed in the absence of a real live bond buyer.

In the years since Richard Nixon closed the FED’s gold window in 1971 the US government has convinced foreigners to accept more bonds to roll over the debt, and more bonds in “payment” of the interest owed. The question is what happens when the foreigners want to be paid in something other than more US debt. This tipping point should usher in the Great Bond Market Collapse of 2009. Most writers worth reading identify this as a signal of the coming hyperinflation.

Meanwhile everywhere assets appear to be deflating, house, automobiles, commodities, gold, silver. Meanwhile the US Treasury 30 year bond rose to 127.19 and the 10 year finished at 120.71. The USD closed above 88 and the spot price for crude oil fell over 10% settling at $48.63/bbl.

Yesterday the Dow hit a six year low, closing below 8000 at 7997: Citigroup Inc shares fall as much as 25.5 percent to $4.77; Bank of America Corp shares fell a 10.6 percent to $11.68. JPMorgan Chase & Co share fell 18.5 percent to $23.21; the S&P financials index .GSPF falls as much as 8.5 percent; and Goldman Sachs Group Inc shares fall as much as 11.1 percent to $49.00. Today the DOW dropped another 4 percent to 7552. So much for the vaunted effect of buying bankster stock shares with TARP (Troubled Asset Relief Program) funds promoted by Benny and Hanky.

Citibank will probably be the first “too big to fail” bank to fail given the increasing cost of the credit default swaps on it’s debt. This failure will come with a twist. The majority of Citibank’s deposits are contained overseas and thus not covered under the FDIC’s revised insured limit of $250,000 USD. This will probably come as a surprise to Citibank’s depositors, who overnight will morph into Citibank’s creditors.

How far the stock market will fall is anyone’s guess, the next support on the charts is roughly around today’s close. So we may expect an engineered Xmas rally by the Plunge Protection Team. But I’m on the lookout for the coming day when both the stock and bond markets head down together. That’s when we know that the Great Bond Collapse of 2009 will be underway. After that I suspect that the 2009 bond collapse will eventually transmogrify into a global fiat currency collapse, given that the only thing backing the world’s currencies is hot air issuing from the collective mouths of the world’s central bankers. From every indication they are going to need to blow a lot more smoke up bondholders skirts to give them a warm feeling about the pile of fiat paper.

The most positive effect for gold and silver investors is that the PPT is providing us with historical bargains in preparation for the biggest event in the history of fiat money…it’s own demise.

Happy New Year.

Grinz!

End The Fed Rally Draws Thousands Around the Country, Few Seem to Notice

Google News has very few links. The best coverage is from Russia Today.

http://www.campaignforliberty.com/blog.php?view=4931

You would think that a 39 city protest involving thousands of people might warrant a national wire story, maybe a mention on cable news, but no. Reporters don’t understand the issue and therefore they ignore it. Of course this can be said for most of the important issues that affect people’s lives. Hence we get wall-to-wall coverage of the Obama daughter’s educational preferences. Fiddling while Rome burns seems almost understated.

There was some local coverage (1, 2, 3, 4, 5, 6) and the Russians were all over it. Most of it misses the point, but what are you going to do? A few months ago this wasn’t even an issue and many of us owe Ron Paul a considered debt of gratitude for raising it to prominence. Maybe one day, some reporter might even realize he’s sitting on the biggest story of the last hundred years; the looting of the American people to the tune of 95% of our money’s value.

Maybe that industrious reporter will open a history book and learn that the dangers of central banking were well understood by such radical fringe players as Thomas Jefferson and John F. Kennedy. He might learn that Woodrow Wilson realized that he had enabled the eventual destruction of America with the signing of the Federal Reserve Act writing, “I am a most unhappy man. I have unwittingly ruined my country.”

He might even figure out that this system impoverishes our most vulnerable citizen’s by destroying their purchasing power and enslaving them in unnecessary welfare systems that need naught ever to have existed. He might learn that inflation is a means of paying for aggressive wars indirectly and therefore avoiding the direct cost of taxation which would raise opposition among the people.

He might also discover that the Constitution demands that our government control our nation’s money supply and that the Federal Reserve is a private bank that not even members of congress are allowed to oversee.

If he is really sharp, he might also figure out that fractional reserve banking and fiat money systems must necessarily fail over time and we have reached the end of the line. With a little evaluation, he may conclude that central banking has led us to the point of the complete collapse of the international economic order and the end of the dollar and our way of life with it.

How To Deal With Pirates (American, not Somalian)

By Rob Kall, OpEd News.

The Wall Street Journal offered an article yesterday on How to Fight pirates. It reported how, in the late 18th century and early 19th Century, Moroccan pirates– Barbary pirates– were attacking American ships and kidnapping their crews, holding the crews and the goods on board for ransom. In 1785, the Pasha of Morocco demanded a million bucks, ten percent of the fledgling USA’s national budget, for protection. Samuel Adams and Thomas Jefferson had no alternative. For at least a decade, for lack of a navy and support from other nations to fight back, the US paid those ransoms.

The Wall street journal article goes on to talk about the current Somalian pirate affliction off the coast of Somalia.

But what about the pirates in the USA? I’m talking about the finance company and hedge fund execs who have hijacked our economy and run off with billions in booty, at the cost of tens of millions of citizens’ homes and life savings.

These criminals are destroying lives at a much larger scale. And the American people have no champion to rescue them. Bush appointed Hank Paulson, the equivalent of Blackbeard, to suggest the “bailout” which looks more and more like a massive keelhauling of the economy. And Obama has appointed another fellow pirate– Geithner– to take the treasury and swing the citizenry by the yardarm.

The fact is, the financial system throughout the world has been taken over by pirates– rip-off artists who have invented new ways to finagle billions out of the hands of the people and into the hands of the few.

It seems Democrats AND Republicans are equally eager to help THESE pirates to come up with new ways to maintain their pirate ways, to keep the pirate “system” going.

The solution is no simple matter. It took more than a decade of pirate depredations, in spite of the protection monies charged, for the US, under Jefferson’s (a liberal) leadership to get the guts to build an armada that would go to the Mediterranean and wipe out the pirates and their home bases. Once Jefferson got things going and showed it could be done, the rest of the world followed his footsteps.

We can’t wait that long. The US must face the fact that we have the worst pirates in history right in our nation, filthy rich, hobnobbing with politicians, treated with honor, given power. They must be reframed as the pirates– as the criminals they are. Their practices– derivatives, etc., must be defined as criminal endeavors, and they must be brought down– all the way down, with fines that take away their massive salaries and bonuses, for what- for failure. No. They’ve been paid booty for their successful plundering of the USA’s families and national resources.

I’m not just speaking metaphorically. These men are not brilliant leaders. They are no better than the pirates holding the Saudi oil tanker. They deserve the same treatment– capture– alive or dead. And destruction of their tools of destruction– and that, my friends, includes the Federal Reserve Banks, the WTO and most of the other current globalism tools that have been used to lay waste to democratically established democracies.

America needs a lot more than Obama is setting up between Geithner and Summers. This start is a bad beginning. We don’t need people who are masters at the pirate system. We need people who can tear it down and replace it with something that works for Americans.

Missing The Point? The End of Prosperity

Signs of the Times‘ editors comment on Stephen Lendman’s article in the Dissident Voice.

From too much of a good thing. From the 1980s and 1990s excesses. From the longest ever US bull market. Heavily manipulated to keep it levitating. From August 1982 to January 2000. An illusory reprieve from October 2002 to October 2007. Fluctuations aside, all lost in the past 12 months. The wages of sin are now due, and payment is being painfully extracted. From all nations globally. Affecting ordinary people the most who had nothing to do with creating booms and busts. They got little on the upside but are paying dearly for the down.

Even “free-market” champions are unnerved. Arthur Laffer for one in his October 27 Wall Street Journal op-ed headlined: “The Age of Prosperity Is Over.” He states that “This administration and Congress will be remembered like Herbert Hoover,” but not for the right reasons. He continued: “what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity.”

Comment: On the contrary, the decision makers are not at all panicked, the steps we see unfolding before us are entirely and callously pre-calculated in cold blood, for maximum effect, and that the only people to be panicked are its victims: the general population.

Readers will remember Laffer from the Reagan era. The “supply side trickle down” guru. More popularly called “Reaganomics.” GHW Bush’s “voodoo economics.” The faux theory that tax cuts for the rich grow the economy and benefit everyone. By encouraging well-off recipients to earn more money. For more tax revenue. For the greater good of everyone.

Comment: This has been the Neo-liberal/Friedmanite economic mantra since both Reagan in the US and Thatcher in the UK – the idea that if the rich are made super wealthy then that will cause a trickle down into the rest of the economy. That such an insulting theory ever became economic doctrine speaks volumes for the way in which we are viewed by the elite – we are fit for the crumbs from their table. Tables that were already heaving with wealth back then.

This mindset, meticulously described by Naomi Klein in ‘The Shock Doctrine‘ is deliberately engineered to benefit the rich; full stop.

What Reagan’s budget director, David Stockman, called a “Trojan Horse.” To con Congress into accepting “Republican orthodoxy (and pave the way for) the greed level, the level of opportunism, (to get) out of control.” From tax cuts for the rich. Loopholes for special interests. Tax increases on low and middle-income households. Taking from the many for the few. What Laffer and others championed and still do. Along with believing markets work best so let them. Government is the problem, not the solution.

The results weren’t encouraging. Macroeconomic growth for sure until it ended. The rich got much richer. The top 1%. Another 9% to some extent. Not the rest, however. Their well-being either stagnated or declined and now are in free-fall. Their savings and futures erased by rampant deleveraging. Market manipulation. Massive fraud. Leaving millions of households in trouble. With the worst likely yet to come. All Laffer can do is resurrect Hoover. The real villains are present and among us. Some active. Others not. Their venom corrosive and harmful. Hurting economies and people everywhere.

From boom now bust. Rampant speculation and fraud. In most asset classes. Especially equities, housing, commercial real estate, commodities, currencies, and huge leveraged debt for levitation.

As a consequence, world economies are reeling and leaders scrambling to contain them. With the most ambitious/outrageous rescue plans ever. Likely mindful, or they should be, that all their grand schemes can’t undue nearly three decades of excess. The most extreme financial sins. The age of levitation is over. As financial expert and investor safety advocate Martin Weiss puts it:

Here’s the “inescapable reality: Now that the global debt bubble has burst, all the world’s leaders and all their radical new measures can’t” contain, let alone undo, all the damage. They can’t “turn back the clock or reverse decades” of excess and greed. “They cannot repeal the law of gravity or prevent investors from selling. Even as they sweep piles of bad debts under the carpet with bailouts and buyouts, mountains of new debts will go bad – another flood of mortgages that can’t be paid, a new raft of credit cards falling behind, an avalanche of companies defaulting on their bonds.”

Comment: Unfortunately, it seems that the world’s leaders do not want to undo all the damage, whatever their rhetoric might be. They are only interested in following the bidding of their financial masters, the cost to humanity is irrelevant to them.

No matter how many billions they throw at the problem, “trillions more in wealth will be wiped out in market declines. For a while longer, our leaders may try to play their last cards in a herculean effort to stop the fall.” They may commit good money to save bad. “Inject more money into bankrupt banks, broken brokerage firms, endangered insurers and any company they deem essential to the economy.”

Comment: The manouevres used recently, to bail out the banks, do not throw billions at the problem, rather they constitute wholesale theft on a garguantuan scale, squeezing every last possibly drop of juice out of the hands of the general population and into the hands of the elite. Evidently it is not designed to be a cure,as for the elite there is no illness.

It won’t work. “It will be a blood transfusion with a failing heartbeat.” Soon enough they’d better learn that “it’s impossible to save the entire world.” The right choice is to “accept the (inevitable) decline, manage it proactively,” and avoid the perilous alternative. An “open floodgate (of) climatic selling. A crash producing “the final phase of the decline.” Erasing “anywhere from 50% to 90% of (stocks, corporate bonds, real estate, foreign currencies and commodities valuations) in a matter of months or even weeks.”

“As many as one-fourth (of S&P 500 companies) could go bankrupt.” The entire index “flip(ing) from the black to the red.” Around 20% of US workers could lose their jobs. The standard of living of American households seriously harmed. The potential for big trouble ahead is real and growing. The effect on world economies serious and spreading.

Weiss called the Fed’s latest rate cut a “DUD,” and said the big news was “the Fed’s latest cockamamie effort to save the world.” With $120 billion to Brazil, South Korea, Singapore and Mexico ($30 billion each). This is besides committed IMF funds for Hungary ($25.5 billion), Ukraine ($16.5 billion), and Iceland ($2.5 billion) and a new $100 billion Short-Term Liquidity Facility offering short-term loans.

It’s an illusion to think Bernanke can play “Santa Claus, the Pied Piper and the Fairy Godmother all in one act.” In fact, he’s “desperate” and resorting to “the most radical measures of all time. Playing his last cards.” Knowing that if he fails, “it’s game over. Taking huge risks – that his rescue-the-whole-world schemes will backfire in the form of falling confidence in the US government as a whole.” Besides there’s no way make banks lend. Consumers borrow. Continue to spend. Have the means to do it. Reverse decades of excess or repeal the law of gravity to keep markets levitating.

Comment: Not only is it an illusion, it is wishful thinking to imagine that Bernanke even wants to “play Santa Claus”.

On October 28, more evidence of what he’s up against from the Washington Post. In an article headlined: “Downturn Clobbers Public Pension Funds.” According to staff writer Peter Whoriskey, they’re being ravaged across the country, “with many state and local governments (losing) more than 20% of their retirements pools.” Even worse because they were inadequately funded before the crisis, according to the Government Accountability Office. And the 20% figure is conservative given the severity of the October selloff.

According to Chicago-based Northern Trust Investment Risk and Analytical Services’ William Frieske, “We expect this (will) be the worst year we’ve seen since we’ve been tracking the funds.” They service 27 million people. Supported by taxpayer money, investment returns and employee contributions. The bear market “played havoc on” actuarial calculations to ensure enough is available for future retirees. Because about 60% of fund assets are in common stocks, according to the National Association of State Retirement Administrators.

What’s ahead depends on economic prospects. Whether markets will continue to contract. How deep and for how long. When recovery will occur. Will it be sustainable, and is there enough time to make up the shortfall for retirees expecting their pensions. After the Dow bottomed in 1932, it took a generation to recoup losses. What investors hope won’t repeat today.

Comment: What’s ahead depends on whether people will finally wake up to the reality of the situation, and how much pain they need to go through before they do so. In the absence of such a widespread awakening, what lies ahead will certainly not be for the benefit of the ordinary people of the world.

Much will given the raft of bad news:

- spreading layoffs across the country; on October 29, the New York Times reporting their painful impact in New York; spreading “well beyond Wall Street;” expected to “drive up the city’s unemployment rate and strain the state’s unemployment insurance fund;” hitting everywhere, including service firms; professional ones – law firms, banks, other financial services, publishers, tourism, besides tens of thousands on Wall Street;

- official unemployment heading for the high single digits; the true number far higher and growing; real pain is being felt as a result;

- the worst housing crisis since the 1930s; continued record home price declines, according to the S&P Case-Shiller Index; 16.6% in its latest (20 major metropolitan areas) reading; compounded by a glut of unsold homes;

- in an October 28 news release, the Center for Economic and Policy Research (CEPR) reported grim findings; a comparison of ownership vs. rental costs “points to negative equity accruals in many markets over the next 4 years” even as prices keep falling; many homeowners won’t ever accrue equity with many going under water; in the most inflated markets, homeownership costs outpace rents by as much as 300% placing enormous stress on household income, especially for middle and lower-income families;

- declining production; autos especially hard hit; Chrysler sacking 25% of its salaried force; GM suspending employee benefits; all three auto makers closing or idling plants; steel affected as a result; 17 of the nation’s 29 blast furnaces shut down; other industries also under stress;

- economists lowering their GDP forecasts; many saying we’re well into recession; fourth quarter results will be the worst since the severe 1981-82 one, and 2009 also looks even bleaker; third quarter ones out show an annualized .3% decline; most disturbing a minus 3.1% PCE (personal consumption expenditure) reading, the first drop since 1991; private investment also shrunk 1.9%;

- against this backdrop, little relief is being proposed; where it’s most needed; so beleaguered homeowners can keep their properties; to struggling households to stimulate demand; not for toxic assets or to fund giant bank acquisitions; what Alan Nasser reported in his article titled “The Bailout Lie Exposed;” that big banks won’t lend out their windfall; that New York Times economics reporter Joe Nocera confirmed from an employee-only recording of a JP Morgan Chase conference he secured; that the bank will use bailout funds for acquisitions; leveraged buyouts; with public money; for assets at fire sale prices; courtesy of US taxpayers; for further consolidation; a multi-generational tradition; to crush competition and grow monopolies; with both presidential candidates on board; assuring reduced social spending and no return to enlightened New Deal policies when they’re most needed.

In Times of Crisis, Bring Out the Heavy Artillery

It’s a common tactic and the one used in 1929. Following Black Thursday (October 24), Black Monday (October 28) and Black Tuesday (October 29). Popularly called the Great Crash of 1929. After which the publication Variety headlined: “Wall Street Lays an Egg.” A much larger one than at first realized but serious enough for the establishment to get John D. Rockefeller to state (on Black Tuesday):

“Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week, my son and I have for some days been purchasing sound common stocks.” Fast forward to the present. History is again repeating. At another crisis time. No garden variety one. The most serious since the 1930s. With investor and public confidence severely shaken. Enough for a repeat of Rockefeller’s bravado.

Dire enough to get Warren Buffett to do what he rarely if ever does. Pen an op-ed. On October 16 in the New York Times. To sound like John D. and say in spite of gloom and doom, he’s “buying American stocks.” To affirm his faith in “the long-term prosperity of the nation’s many sound companies.” To predict “most major companies will be setting new profit records 5, 10 and 20 years from now.” At age 78, he may not be around to confront critics if he’s wrong.

On October 27, the Wall Street Journal took aim at him. A very uncharacteristic gesture toward a large (and successful) investor. Let alone the most famous individual one and one of the richest. “Even the Oracle Didn’t Time It Perfectly” headlined the Journal. His class A Berkshire Hathaway shares have taken a hit like most others year to date, but that’s a side issue for the Journal.

It’s troubled because “the Oracle of Omaha failed to see how bad the market was going to get.” And he’s even exposed to credit default swaps (CDSs). Increased his position to $8.8 billion from mid-2006-mid-2008. Already took a $490 million loss in the first quarter. Another $136 million in the second, and likely much more unreported so far for the third and beyond.

These positions show he “was relatively comfortable about the prospects for US corporations and global stocks at a time when (other observers) were predicting a bust.” Maybe it’s “time for the Oracle to get a new crystal ball.”

Warnings from Abroad

Overseas comments differ greatly from more optimistic ones here. Germany’s finance minister, Peer Steinbruck, for example. On October 26, the Financial Times reported his fears about global financial markets collapsing. At least through 2009. He said: “The danger of a collapse is far from over. Any attempt to give the all clear would be wrong.”

His government committed $635 billion to rescue troubled banks. A “financial market stabilization fund.” With most of it in credit guarantees and a smaller portion to recapitalize banks and buy toxic assets. But unlike the Paulson plan, Germany won’t compel banks to take it and many so far haven’t. For fear investors will punish them for admitting they’re in trouble and also over concerns that conditions imposed are too stringent. Steinbruck is working through this and said banks eschewing state aid are “irresponsible.”

Leaders in Europe fear the financial crisis will tip the continent into serious recession. And cause a currency meltdown in the East. Across former Soviet bloc nations. Testing currency pegs “on the fringes of Europe’s monetary union in a traumatic upheaval” reminiscent of the 1992 Exchange Rate Mechanism collapse. Bank of New York strategist Neil Mellor called it “the biggest currency crisis the world has ever seen.”

On October 26, Ambrose Evans-Pritchard wrote about it in the UK Telegraph. He cites what experts fear. A “chain reaction within the eurozone itself.” A surge in capital flight from Austria. The latest Bank of International Settlements data aren’t encouraging. They show Western European banks in trouble. With the most exposure “to the emerging market bubble, now bursting with spectacular effect.”

The amount involved is huge. Around three-fourths of “the total $4.7 trillion in cross-border bank loans to Eastern Europe, Latin America and emerging Asia.” Much greater than America’s subprime lending. Iceland was at the leading edge of the problem. Hungary and other states may follow. In a Paul Krugman New York Times op-ed, he discussed currency crises and said he “never anticipated anything like what’s happening now.”

He cited Morgan Stanley’s chief currency strategist Stephen Jen (his former student) saying since Lehman’s demise, we’ve seen world emerging market currency crises. “So far, the US financial sector has been (at) the epicentre of the global crisis. I fear that a hard landing in EM assets and economies (unfolding in Europe) will become the second epicentre in the coming months, with very damaging feedback effects on the developed world.”

Already Austria, Hungary, Ukraine, Serbia, Belarus “queuing up for” IMF rescue packages. Jumping from the frying pan into the fire unless they can arrange no-strings loans. Given the gravity of the crisis and danger of its contagion, maybe so or at least escape the worst type IMF demands. They’ve swallowed enough neoliberalism already. It exacerbates their dire condition.

Europe is now reeling under stress. Heavily pressured by emerging market debt. The Eastern bloc borrowed heavily in dollars, euros and Swiss francs. Some in Hungary and Latvia in Yen. An unpublished 2006 IMF report warned about their most dangerous excesses in the world. Nothing was done to curb them, and finally its authors “had their moment of vindication as Eastern Europe went haywire.” It hit Hungary, Romania and put Russia “in the eye of the storm, despite its energy wealth. The cost of insuring Russian sovereign debt (through CDSs) surged to 1200 basis points last week.” More than Iceland “before Gotterdammerung struck Reykjavik.”

With oil prices plunging, markets no longer believe that Russian state spending is viable, and the fear is that peripheral contagion will invade the eurozone’s core. Yield spreads between German and Italian 10-year bonds are being watched. “They reached a post-EMU (European Economic and Monetary Union)” high of 93 in late October. No one knows the “snapping point” but it’s feared that anything above 100 is cause for alarm.

BNP Paribas’ chief currency strategist Hans Redeker cites “an imminent danger that East Europe’s currency pegs will be smashed unless EU authorities wake up to the full gravity of the threat, and that in turn will trigger a dangerous crisis for EMU itself.”

“The system is paralyzed,” he said, “and starting to look like Black Wednesday 1992.” He fears a very deflationary effect across Western Europe. One “almost guaranteed” to implode the euroland money supply. As for UK banks, they’re lightly exposed to the former Soviet bloc. But not to emerging Asia. In the amount of $329 billion. Almost as much and America and Japan combined. Evan-Pritchard concludes with a sobering note for his UK readers. “Whether you realise it or not, your pension fund is sunk in Vietnamese bonds and loans to Indian steel magnates.” Like for many other investments, that money’s safety is far from secure.

Neither is Britain according to a Mail Online October 27 article headlined: The country “may need 0% interest rate to avoid a depression, leading economist warns.” He’s Charles Goodhart. A founding member of the Bank of England’s Monetary Policy Committee (MPC). Now a professor emeritus of banking and finance at the London School of Economics.

He told Channel 4′s Dispatches program: “Interest rates will go down from now, by how far and how fast nobody knows. They could go to zero” like in Japan. And may have to. Yet other experts warn that at this stage big cuts are “too little, too late” because the country already faces a long severe recession.

On October 29, more confirmation from a UK Independent article headlined: “Repossessions soar by 70 per cent as joblessness rises.” From new Financial Services Authority figures. Some 11,054 second quarter foreclosures. Up from under 6500 last year. Numbers expected to keep rising, and new Land Registry data revealed continuing house price declines. Around 8% in the past 12 months.

A gloomy picture, according to Howard Archer. Global Insight‘s chief UK economist. In his view, “The fundamentals continue to be largely stacked against the housing market, and it seems odds-on that prices will fall considerably further.” Especially given “accelerating unemployment set to pick up significantly… recession (and) wages (held) down.” Add to this a 167% rise in calls to the housing charity Shelter helpline. Its chief executive, Adam Sampson, said: “These figures are not only shocking and worse than expected, they highlight the crippling severity of the credit crunch on ordinary homeowners.” It’s hit Britain especially hard, but economic woes are little different throughout the continent.

In Japan as well after the benchmark Nikkei index hit a 26 year low and a scant 18% of its 1989 high. Despite a few days of rebound, it made front page (October 28) Wall Street Journal news in an article headlined: “Crisis Deals New Blow to Japan” in a feature story about the nation’s largest bank. Mitsubishi UFJ Financial Group. On October 27, it said it would raise $10.7 billion in new capital. The result of its own vulnerabilities and Japan’s economic turmoil. According to Kristine Li of Tokyo’s KBC Securities: Mitsubishi’s announcement was a “big blow” to investors’ confidence. Its share price reflected it. Plunging 15% on October 27. Other banks hit as well. Major ones. They, too, need more capital and will have to raise it from investors.

Some in Tokyo believe the country can do little to reverse the downward trend. According to Credit Suisse’s Toyko-based chief equity strategist, Shinichi Ichikawa, “The Japanese government alone can’t fix” the nation’s export woes or the deepening global crisis. “The factors hurting the market are beyond Japan’s control.”

Comment: They most certainly are. The global fiat currency and inflationary fractional reserve banking system is designed to allow periodic collapses, transferring ownership of a large proportion of monetised assets to the financial elite in the process. This is a feature of the system’s design, one that has been callously manipulated a numbers of times in the past as well as now.

The Financial Times paints a similar picture. The Nikkei down 53% through late October and has “the dubious honour of having been the worst performing leading developed country market last year.” The current crisis hit Japan in several ways. Its banking and financial sectors “in spite of having relatively less exposure to toxic assets.” Nonetheless, investors worry about their underlying strength or lack of it.

Japan is heavily export dependent. For most of its economic growth and health. It’s hurt by a surging Yen. At a 13 year high against the dollar. In addition, hedge funds and foreign investors are bailing out. The way they’re doing everywhere, but it’s hurting Japan more than most because it relies so heavily on outside capital.

So does China in the form of foreign investment that doesn’t affect how it manages its banks. At least in what they can invest in non-Chinese securities. Very little and why the government is spending nothing to bail them out. There’s no need because they own scant amounts of toxic assets and use their own to fuel internal growth. What China needs badly for its large and growing population.

It’s not insulated from the global crisis and will feel it in slower growth. Still expected to be impressively high although certain to drop from its 9.9% in the first nine months of 2008. Down from 12% last year. Amidst a deepening global slump. It’s helped by strong domestic demand and its exports. Up an impressive 21.5% over last year. Heavily to Asia to make up for slumping Western demand.

It’s affected China’s toy manufacturers. China’s customs agency reported that 52.7% of them shut down in the first seven months of 2008. Mass layoffs resulted. Other industries are also affected. Textiles, shoes, clothing, home appliances and electronics because of slumping Western markets. Millions of workers are at risk and why China announced an economic stimulus plan to keep growth as high as possible. A targeted minimum 8%. If achieved will be impressive by any standard.

A potential glimmer of light amidst a dismal global outlook with China determined to keep it that way although there’s no assurance it can. The reason its stock market slumped like most others. However, it may rebound sooner given the government’s commitment to big infrastructure spending increases. With its “embarrassment of riches” according to The Economist. Growing “at a staggering rate” says its Intelligence Unit. Its huge $1.75 trillion in foreign currency reserves. Likely to top $2 trillion by yearend. That can be used for roads, airports, nuclear power plants, hydro power stations, and more. To create new jobs for laid off workers. As many as possible. What America should do to stimulate growth. Not commit billions for corporate acquisitions. Bailouts that won’t work. That will harm the economy, not heal it. The reason even in today’s climate China’s star is rising. In the US, it’s growing dim.

The Worst Is Yet to Come

According to economist Nouriel Roubini. Called Dr. Doom for his gloomy views that today command worldwide respect. Opinions once dismissed now widely sought. He believes recession began in early 2008. Will last throughout 2009. Will be severe and painful with GDP contracting 4-5%. On October 29, he told Bloomberg: “We’re entering a vicious circle where economies are spinning down, financial markets are spinning lower, and policy makers in my view – and that’s my biggest fear – have lost control of what’s going on in the financial markets.”

In London in late October, he predicted that hundreds of hedge funds will close down and given the extent of panic selling markets may have to suspend trading. Perhaps for a week or more before resuming. In September, Russia’s stock exchanges shut down after their steepest ever one day fall. They did again in late October after falling nearly as much. Perhaps Wall Street is next. Maybe Europe.

If the latest (October 28 reported) consumer confidence report is an indication, it may happen sooner, not later. It was dismal by any standard. From the Conference Board. An all-time low and far below expectations. Surveyed economists forecast a reading of 52. It came in woefully short at 38 from an upwardly revised 61.4 September figure. Results were “significantly more pessimistic” on future business prospects and jobs. It signals trouble if translated into spending that, in turn, means lower profits and share prices already crushed over the past 12 months. With no end of pain in sight.

Yet markets remain volatile because of heavy insider manipulation for big profits up or down. The “not-so-invisible hand” working its magic. Killing the “free-market” according to author Ellen Brown. Making it hazardous for ordinary investors to risk anything in this climate. Casino capitalism with the odds heavily favoring the house. Getting Brown to quote a talk show commentator saying: “I’m fully diversified; some under the mattress; some under the floor boards; and some in the backyard.” Better that than lose everything.

Because world economies are “at a breaking point” according to Roubini. “Essentially in free fall (and near) sheer panic.” Played out in markets that reflect future expectations. Despite relief rallies, very much pointing down and signaling no end of crisis in sight. It got Roubini to state:

“Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom.” Every time so far they were wrong. “They said it after Bear Stearns, after Fannie and Freddie, after AIG, and after” the $700 billion bailout plan. “Each time they have called the bottom, and the bottom has not been reached.”

Despite everything world governments throw at their problems, Roubini thinks investors no longer trust them or believe they’ll do the right things. For good reason. Because so far they haven’t and what they’re now doing is mostly woefully misdirected and inadequate. “Even using the nuclear option of guaranteeing everything, providing unlimited liquidity, nationalising the banks, making clear that nobody of importance is going to fail, even that has not helped.” Economic fundamentals no longer apply. “We are reaching a breaking point frankly.”

From his Hong Kong base, long-time investment advisor and fund manager Marc Faber publishes the “Gloom Boom and Doom” report. On how he views economic and financial prospects and investment opportunities worldwide. Given today’s climate, he’s more than ever in demand and shows up often in the financial press and on business channels like Bloomberg and CNBC. But not with good cheer.

He thinks that government interventions may be partially responsible for world market selloffs. Not least because in the current climate guaranteeing bank deposits leaves investors with no incentive to take risks. And other measures have been counterproductive as well. “They have increased volatility. It’s impossible to forecast market movements when you have interventions.”

Downward readjustments of company book values may be next in his view as happened in previous bear markets. That revealed overstated estimates. “If the global economy slows down as much as I think,” he said, “then a lot of book values will have to be adjusted downward quite substantially.” And rate cuts will create their own headache. “I think first we’ll have a bout of deflation that will actually be quite substantial, but then the budget deficits will go through the roof and the Fed will print even more money (so that) later on we’ll have very high inflation.”

Morgan Stanley (“perennial bear”) economist and chairman of the company’s Asia operations Stephen Roach was extremely critical of Fed policy in an October 27 Financial Times op-ed titled: “Add ‘financial stability’ to the Fed’s mandate.” He called “the era of excess as much about policy blunders and regulatory negligence as about mistakes by financial institutions.” We need a new system and new role for the Fed in his judgment. Explicitly to reference “financial stability.”

Something critically needed for a “post-bubble, crisis-torn US economy.” To make the Fed “tougher in its neglected regulatory oversight capacity.” To counter “bubble denialists (like) Alan Greenspan.” To mandate Fed policy “err on the side of caution.” To expose the “fatal mistake” in trusting “ideology” over “objective metrics. Like all crises, this one is a wake-up call. The Fed made policy blunders of historic proportions that must be avoided in the future.”

However, dealing with today’s crisis requires an even bigger international rescue according to Roubini. And whatever’s done, America faces “year(s) of economic stagnation.” After a deep protracted downturn. If as true as he forecasts, it signals the end of prosperity. A new age of austerity and world economies in extreme disrepair and needing an alternative model in lieu of a clearly failed one. Hugely corrupted as well.

Will world leaders seize the challenge and act? Only if mass outrage demands it and even then change at best may be minimalist and short-lived. If history is a guide. What better time to prove history wrong. If not now, when? If not by us, who? If not soon, maybe never. If that’s not incentive enough, what is?

Comment: What is notable about this article, is that although the author goes into some detail, and seems to nearly go there, he consistently misses an absolutely vital point, that this collapse is entirely engineered, has been planned and documented for some considerable time (at least a century). Readers would benefit from a knowledge of psychopathy, Political Ponerology and the Protocols of the Pathocrats and of course the sott.net weekly economic commentaries. Until such knowledge becomes commonplace, there will be no solution to these problems.