Monetary and Fiscal Failure, Fraud, and Fear of What's Next

by Stephen Lendman

Even the powerful are worried with the IMF on February 7 saying advanced economies are in "depression (and) the worst cannot be ruled out." Forecasting a 2010 recovery is "very uncertain" at this time as further financial turmoil may disrupt it regardless of policies adopted, and trouble is outpacing resources to alleviate it.

On March 10, its Managing Director Dominique Strauss-Kahn forecast "below zero" 2009 global growth - what he termed "the worst performance in most of our lifetimes."

In a March 8, report, the World Bank expressed similar gloom saying:

-- "developing countries face a financing shortfall of $270 - 700 billion this year, as private sector creditors shun emerging markets, and only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty;"

-- international financial institutions alone can't cover the (public, private and trade deficit) shortfalls for these 129 countries, so other help is needed - a "global solution" to prevent an economic catastrophe;

-- the global economy "is likely to shrink this year for the first time since World War Two, with growth at least 5 percentage points below potential;"

-- by mid-2009, global industrial production may be 15% lower than 2008 levels, a shocking differential reminiscent of the 1930s;

-- 2009 "world trade is on track to record its largest decline in 80 years, with the sharpest losses in East Asia;"

-- "the financial crisis will have long-term implications for developing countries" (and developed ones as well); they face higher borrowing costs, lower capital flows, weaker investment, and slower future growth at a very grim time globally.

At the same time, the Asian Development Bank (ADB) reported 2008 shrinkage of over $50 trillion in investor wealth, a shocking decline reflecting financial asset losses in stocks, bonds, currencies, real estate, and various other investments as well as a "surprising run" to the dollar in search of a safe-haven.

ADB said world's financial markets experienced "the most violent shock" since the Great Depression and global economies have rapidly deteriorated. Bank president Haruhiko Kuroda stated: "I'm afraid things may get worse before they get any better," maybe much worse. Yet his solution (like the IMF's and World Bank) is worse than the problem by proposing more debt on top of today's burden. He wants a 200% ADB capitalization increase, similar to though not as extreme as Fed policy, so instead of reducing Asian debt, he wants to increase it, make heavily-indebted nations more indebted, and let taxes, borrowing, and fewer social services bear the burden of a growing calamity the way America is doing it.

The solution to over-indebtedness, of course, is get free of it, but that doesn't work well for bankers, and in the end they generally get what they want, so the rest of us lose out and today's crisis will continue to worsen.

Warren Buffett to the Rescue - Again

It's so bad that Wall Street rolled out Warren Buffett for the second time to do what he rarely does - last October in a New York Times op-ed to calm investors and affirm his faith in "the long-term prosperity of the nation's many sound companies."

On CNBC March 9, he wasn't as sanguine saying the economy has "fallen off a cliff. (It's) in a shambles. Not only has (it) slowed down, people have changed their behavior like nothing I have ever seen (and government policy or at least its message has been) muddled." Then commenting on the importance of personal housing wealth and how much of it's been lost, he went the old adage one better about "the emperor ha(ving) no clothes."

"On top of that," he said, "the emperor doesn't have any underwear either." As a result, "We are in a very, very vicious negative feedback cycle" because people are scared to death and with good reason.

But Buffett didn't do a lengthy Q & A to scare people. He was there as a pitchman, a hawker like in a carnival, and his product is his own company, Berkshire-Hathaway, and America. When asked "Will everything be all right," he responded:

"Everything will be all right. We do have the greatest economic machine that man has ever created....(It's because) we ha(ve) a system that work(s). (It's gotten us through) six panics in the 19th century (and) in the 20th century we had the Great Depression and World Wars, all kinds of things. But we have a system, largely free market, rule of law, equality of opportunity (unleashing) human potential (so) your grandchildren will live better than your kids."

"The machine works (and buying) equities (is) the way to (profit from it). If (you) buy the right businesses, (you'll) do very well....American business will be worth more over time....Stocks will be worth more over time. I guarantee you that the Dow will be a lot higher."

Last October in his New York Times op-ed, Buffett said he's "buying American stocks." On March 9, he repeated the message even though the economy "is a shambles." Serious enough to need "the Oracle of Omaha" to save it, or at least try by making a public spectacle of himself on TV, and it wasn't the first time although others were more focused on his business or general view of things.

This time, stressing America's long-term strength, he ignored its fundamental weaknesses and systemic failure at the root of today's problems:

-- a system so unstable, crisis-prone, exploitive, unfair, self-destructive, and corrupted it can't endure;

-- Keynes warning about the consequences of "enterprise becom(ing) the bubble on a whirlpool of speculation;"

-- the inevitable decay that Marx and others predicted;

-- the untenability of great wealth disparities with few having too much and many too little - something untenable in the long run;

-- Lincoln's June 16, 1858 message to the Illinois Republican State Convention - that "A house divided against itself cannot stand;" slavery was the issue then; today it's inequality, human need, and growing poverty under a fundamentally unworkable system favoring wealth over public welfare.

Something else bothered Buffett as well - that Berkshire Hathaway (B-H) stock lost half its value, and the company had its worst ever year in 2008 since Buffett took it over in 1965 when it was a family-run textile maker. He's also not immune to credit default swap (CDS) problems, having increased his position to $14 billion as of year end 2008, and last year took hundreds of millions in write-offs as a result.

Further, some question B-H's health going forward given the current environment, insurance being his main business, and the worrisome CDS spreads on his debt. According to Merrill Lynch's Michaels Hartnett and Penn, they trade at wider spreads than those for Vietnam. They point out that GE is no better off as their swaps are wider than Russia's at a time its economy is reeling like many others.

Through March 11, B-H and GE were two of the six remaining companies rated AAA by S & P, according to CreditGuru.com. The others are ExxonMobil, Toyota, J & J, and ADP. In the late 1970s, 58 companies had the rating. That was then. This is now as two more of the mighty have fallen.

On March 12, the Wall Street Journal online reported that "General Electric Co. and its finance arm (GE Capital) have lost their coveted AAA long-term credit rating from Standard & Poors Ratings Service" when the agency cut it to AA+ in a move many analysts think was long overdue but not enough given the company's troubled state.

On the same day, Bloomberg reported that Fitch Ratings "cited concern about (B-H's) potential for losses on (its) equity and derivatives holdings" in cutting it to AA+ and its senior unsecured debt to AA." Bloomberg added: "Some investors (believe) the derivatives may saddle (B-H) with billions of (future) losses."

Economists and Financial Writers on The Global Research News Hour

Notable ones like F. William Engdahl, Michael Hudson, Ellen Brown, Jack Rasmus, Richard Wolff, John Bellamy Foster, and John Williams continue explaining the nature and consequences of the global economic crisis, and how it affects ordinary people. For example, Rasmus and Williams believe that the economy lost from 800,000 - 1,000,000 jobs for the past four months (not the Labor Department's lower figures) on top of all those lost earlier, and no end to the carnage is in sight.

According to the Economic Policy Institute (EPI), over 23 million Americans were either out of work or underemployed in February, and the numbers are growing. In addition, 60.3% of the population has some form of employment, down from 63.4% in December 2006. EPI reported that BLS figures show job openings fell 7.2% in January to three million, down 32% from year end 2007. Currently there are over four unemployed workers for every job, and seekers "are seeing their chances of finding (employment) grow ever dimmer."

Reports are that jobs are being lost at the rate of one every five seconds, and according to Manpower International's US employer survey, hiring plans are the lowest since the company began polling in 1982. A slim 1% of firms expect to hire in Q 2, down from 10% in Q 1 and off 15% from Q 2, 2008. A company official said: "That's about as bad as it gets with our survey," but it looks like worse is still ahead.

Consider the latest initial jobless claim filings for the week ending March 6 - a record 654,000 following the previous week's upwardly revised 645,000. People getting benefits for more than a week increased by 193,000 to 5.3 million, another record high, and it's the sixth time in the past seven weeks that new records have been set. The proportion of the work force getting unemployment benefits is the highest since June 1983 when the economy began emerging from a deep recession. One year ago, only 2.8 million got benefits. Today the numbers are skyrocketing with no end of it in sight. It shows in the monthly payroll data.

In his latest ShadowStats report, Williams said February's payroll loss was 899,999 and unemployment reached 19.1%, when discouraged and involuntary part-time workers are included. He compared it to Great Depression 25% levels but noted then they may have been higher because measures included only non-farm workers at a time agriculture was over one-fourth of the economy and farm labor much greater in numbers than today. According to the US Department of Agriculture, it's now less than 2% of all workers so its impact on employment is marginal.

Challenger, Gray & Christmas (CG&C) tracks monthly announced job cuts, now making grim reading. On February 4, it reported:

"Company layoff announcements were unusually heavy in January, indicating that the shock to the labor force is increasing in intensity and pointing to severely depressed readings in Friday's employment report." CG&C cited 241,749 compared to 166,348 in December, or the highest figure since the end of the last recession. By comparison, January layoffs a year ago were only 74,986. Of great concern is how much higher numbers will go and for how many more months.

CG&C's February total slipped to 186,350, but it cautioned to "distinguish between layoffs scheduled for the short-term or the long-term, or whether job cuts are handled through attrition or actual layoffs." Most important is the trend, not monthly blips up or down that obscure it, and the latest home foreclosure data aren't reassuring.

On March 11, Dow Jones Newswires reported that completed US foreclosures soared 67% in February over January, putting them at their highest since the start of the crisis, according to Foreclosures.com.

Most worrisome is that they came in spite of Fannie, Freddie, and several major banks putting a temporary halt to the process, yet it persists at severely high levels. In addition, pre-foreclosure filings (an indicator of future foreclosures) jumped 27% to 207,703, topping December's highest ever number by 9%. Three of the hardest-hit states continued impacted with California soaring 67% from January, Florida 42%, and Arizona more than doubling. The data suggest more of the same ahead with perhaps millions more homeowners facing loss of their most valued asset and little in the way of government help to prevent it.

Citigroup on the Ropes, or Are They?

Believe the former despite its CEO saying that January and February were profitable. Take it with a grain of salt given its $37 trillion derivatives portfolio, much of it toxic, and its stock price at a buck - until The New York Times published a "leaked" confidential memo from Vikram Pandit to employees saying the company was on track for its best quarter since late 2007 when the market started to implode.

Left out was how numbers are calculated - based on operating, not reported earnings, excluding lots of write-offs but mostly ones left undeclared hoping investors won't notice and think the bank healthy again. On March 10, the market responded positively with Citi and other financials doing best, but for how long. Nothing changed in a very weak economy, and Citi is among the sickest banks in it, insolvent and on the edge of bankruptcy or being nationalized.

The McKinsey & Company consulting firm may agree in its recent bank profitability forecast. It states "2009 will be unprofitable (and) net investment income "drops dramatically in 2009 as deposit spreads compress (reflecting consumer and commercial), then (begin to recover) going forward. Yet by 2013, McKinsey sees revenues at $142 - 153 billion compared to $156 billion in 2008 with profits beginning to pick up after up after $53 billion in 2009 operating losses. For 2008, McKinsey said banks posted a $1 billion profit, excluding all taken and untaken write-offs. It affirms a very sick industry with no prospect of profits if they're included.

Institutional Risk Analytics co-founder and managing director Chris Whalen agrees in his March 13 analysis titled: "Stress Test Zombies - Not Too Big to Fail? Tough Tootsies Little Banks!" He refers to Bernanke and Geithner "cowardly feed(ing) the zombies." It's "not sustainable financially" nor workable politically and must eventually be changed. At some point, "the Obama administration may need to choose between our (banks and) foreign creditors and American voters."

"The Bernanke/Geithner approach to not dealing with the financial crisis amounts to a hideous public subsidy, a transfer of wealth from American taxpayers to the institutional investors who hold the bonds and derivative obligations tied to the zombie banks, AIG and the GSEs." All these companies will need continued cash subsidies in the trillions of dollars to keep them out of bankruptcy.

Yet imagine, Bernanke and Geithner are proceeding on their own. "No legislation has been passed and no meaningful debate has occurred. The biggest danger facing the markets is that Ben and Tim still do not seem to have a clue what to do about the big banks -- other than to write more checks against the public trust. The conflict over this decision to pass the cost to the taxpayer, between the Fed, Treasury and the Congress, on the one hand, and the Wall Street dealer banks is staggering, yet nothing is said in the Big Media."

The fact is that "bailing out toxic waste sites....could cost trillions of dollars....The only issue is whether we recognize it directly, via a public resolution, or hide (it) via public subsidies and future inflation."

The right strategy is to break up or close down zombie banks, keep taxpayers out of it, and let bond and equity holders absorb the cost of "marking (their) assets to market" and ending the charade that they're profitable or heading toward it.

On March 10, the Wall Street Journal's front page reported that repeated Citi bailouts haven't helped so "US officials are examining what fresh steps they might need to take to stabilize the bank if its problems mount, according to people familiar with the matter....(called) 'contingency planning.' " Weekend discussions were held with Citi officials downplaying their seriousness. But given the bank's condition, profitability claims (the next day) are deceptive, so how long can the charade continue.

Further, on March 12 according to Bloomberg.com, there's more. "Four Citigroup Inc. executives who bought the bank's stock last week have already generated a $2.2 million paper profit, regulatory filings show." Insiders included:

-- director Roberto Hernandez bought six million shares on March 2 at an average $1.25 price; after briefly dipping below $1, it closed on March 5 at $1.52 for a paper profit of $1.7 million;

-- Latin America CEO Manuel Medina-Mora bought 1.5 million shares on March 3 at an average $1.24; and

-- other buyers included vice-chairman Lewis Kaden buying 100,000 shares and controller and chief accounting officer John Gerspach 65,000 shares - in each case ahead of Pandit's profitability claim and the day earlier Wall Street Journal front page story saying Citi is in trouble.

Another key point is that the US Securities Exchange Act of 1934 "prohibit(s) the making of false or misleading statements to a public company's auditors." It's also "a crime to knowingly and willfully make a false or fraudulent statement in any matter within the jurisdiction of the executive, legislative, or judicial branch of the US government" (18 U.S.C. 1001, January 2007). Further, it's unlawful to mislead investors or violate any provision of the 1934 act. True or false, Pandit's memo was internal and only covered a two-month period, not the full Q 1 filing for after March 31, so likely no violation occurred.

That aside, there's the issue of stock manipulation and insider trading with the above-cited evidence casting suspicion. It's illegal for anyone to buy or sell securities based on non-public information, and those doing it face prosecution if caught. A high-profile case was against former Qwest CEO Joseph Nacchio - indicted in December 2005 on 42 insider trading counts involving $100 million worth of his company's stock, then convicted on 19 counts in April 2007. He was sentenced to six years in prison and ordered to forfeit $52 million in fraudulently earned profits plus a $19 million fine, $1 million for each count.

The Wages of Reckless Spending

They're painful, costly and, according to Michel Chossudovsky, heading the country for "fiscal collapse" in an analysis that's stunning but unsurprising. A "Second New Deal?" Quite the contrary to:

-- continue the most massive wealth transfer in history;

-- achieve it by looting the Treasury;

-- build a crushing debt burden;

-- undertake "the most drastic curtailment in public spending in American history;"

-- govern under a war budget directing most revenues for defense, militarism, and foreign wars; trillions for "the Wall Street bank bailout;" and servicing the enormous public debt - in 2008 an astonishing $451 billion;

-- provide no fiscal stimulus for the economy; in fact, do the opposite by requiring no mandate that banks lend; instead, let them speculate and use hundreds of billions to buy real assets (the "real economy") on the cheap after their stock prices have been manipulated to crash;

-- impoverish tens of millions of Americans through reduced social services when they're losing jobs, homes, savings, pensions and futures; and at the same time

-- privatize America to pay for reckless spending - everything: "public services," infrastructure, highways, national parks, various other state assets, the entire State sold on the cheap to plunderers for profit - "the State is being taken over by the banks, the State is being privatized;" the public has no idea what's happening or that their government is betraying them.

America is for sale as a commodity. Serfdom is planned for most people, and Obama is as much at fault as Bush so let's be clear. He's either a consenting co-conspirator in the looting of the country or a willing dupe letting it happen in his name. Either way, he's part of a crime syndicate driving world economies and most people everywhere to ruin to enrich and further empower a select Wall Street elite - the same ones and their lobbyists that provided millions for his campaign.

On March 12 at the Business Roundtable, Obama assured attending CEOs that serving corporate America is Priority One, especially the financial elite with as much of the nation's resources as they need. He said that the "only way we can truly unlock credit and heal our financial system for good is to address the state of our banking system. And I know that this crisis is at the top of your immediate concerns - and I promise you, it is at the top of mine as well." He means that he'll continue to:

-- stiff-arm the public with empty rhetoric, hollow promises, and little in the way of real help;

-- strip-mine the nation's wealth for Wall Street and the rest of the FIRE sector (finance, insurance and real estate); and

-- provide smaller amounts for other business sectors at his discretion but not enough to keep bankers and vulture investors from buying much of it on the cheap.

Follow the data as the plot unfolds. On March 12, the Fed reported that American household net worth plunged by the largest amount in over half a century during 2008 Q 4 - a record 9% from Q 3 and the sixth quarterly drop in a row. Net worth represents total consumer wealth - homes, savings, pensions, investments, and other material assets minus liabilities.

It hit an all-time high of $64.36 trillion in 2007 Q 2, then fell every quarter ever since. Through 2008 Q 4, it's at $51.48, or a drop of 20% from its peak and declining. At the same time, US credit quality is deteriorating as measured by the cost of buying default insurance (CDSs) on government debt - it's soaring as it is for private companies like GE and Berkshire-Hathaway.

It costs US bond investors 98 basis points for protection, up from 7 basis points in late 2007, or a 14-fold increase, and it's no surprise why. Debt creation has skyrocketed to unimaginable levels raising the specter that today's deflation will become tomorrow's inflation, perhaps hyperinflation, and that's bearish for bonds, stocks, the economy, and ordinary people losing purchasing power.

It's got China worried according to a March 13 New York Times report. As the largest US debt holder, Premier Wen Jiabao wants assurance that the investment is safe at a time he has reason to have doubts. "To be honest," he said, "I am definitely a little worried," and why not. Money creation has been excessive. Interest rates are rock bottom, and America is reeling under a mountain of unsustainable debt as it continues to add more of it. According to some, interest rates have only one way to go - up, although it's likely to be a while before it happens.

Bond expert Henry Kaufman (the original "Dr. Doom" for his 1970s and early 1980s bearish bond forecasts) believes the secular bond bull market is over. In a February 14 Wall Street Journal op-ed, he tracked the rise in the cost of long-term government debt from 1946 to its 1981 peak, then down to around 2.5% early this year, "which probably marks the end of this extended wave." Yet conditions today compared to 1946 are "strikingly different" and very worrisome given the private sector debt overload, the federal government issuing an unprecedented volume of new obligations, and the Fed printing money like confetti.

In 1946, "the nation stood on the brink of an unprecedented boom (whereas) today wealth is contracting massively and the economy" teeters on the edge of depression. "Which raises (serious) questions: Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunications? Why can we land men on the moon with pinpoint accuracy, yet fail to steer our economy away from the rocks? Why do our computers work so well - except when we use them to manage derivatives and hedge funds?"

Securitization, globalization and the explosion of debt changed everything for the worst and "altered financial behavior in ways that econometric models miss....Let's hope that is about to change. A central goal of new financial legislation should be to rein in extreme financial behavior."

What Kaufman left out is that none of this was happenstance. It could never go on without high-level government-institutional complicity, so a good place to start would be to clean out the corruption in Washington. Fire and punish those in charge of running it, and establish a legislative mandate henceforth to serve all Americans, not just Wall Street's criminal class.

For the latter, Philip Stephens, in a March 9 Financial Times op-ed, proposed: "Fix the banks first - and then shoot the bankers" in commenting on the collapsed UK banking system and lack of decisive action to correct it. Sounds like a sensible way to address America's problems as well.

The Thud of More Shoes Dropping

Deteriorating commercial real estate is another with experts saying it resembles the housing decline with about a one-year lag, so right now it's increasingly apparent. Look at the signs.

On January 12, Financial Week headlined: "Banks gird for commercial property collapse (as a) spike in loan defaults batter balance sheets," and it's just beginning. According to Fitch Ratings managing director Eric Rothfeld:

"Loans originated at market peaks experienced from 2005 - 2007 will face increasing defaults as real estate performance declines during the stressed economic climate of 2009 and beyond." More defaults mean greater losses for exposed banks, already reeling from the housing collapse and trillions of toxic debt on their books.

Developers are also hard hit given empty buildings, vacant shopping malls, and for-sale signs everywhere. On March 5, the Washington Post said "Not a single office building has been started in (D.C) since October, a sign that the slowdown that began in the far-out suburbs has now reached prime city locations." According to Gerry Widdicombe, director of economic development for the city's Downtown D.C. Business Improvement District, "Things are frozen. Nobody's doing anything." It's the same most everywhere across the country except for occasional small deals that are owner and investor-financed.

More signs include idle cranes, empty lots, few new tenants, rising evictions, falling rents, a 95% year-over-year drop in commercial mortgage backed securities (CMBS) issuance, and soaring CMBS delinquencies. The American Institute of Architects reported that its Architecture Billings Index (ABI) hit a historic 33.3 low in January, reflecting the worst conditions seen since the index's 1995 inception.

On March 10, Moody's reported that corporate bond defaults will triple their 2008 level, be 15 times more than in 2007, and said bankruptcies usually follow. They placed 283 companies on its bottom-rung listing, up from 157 last year, and added 73 companies since last reporting.

Well-known companies made the list, including General Motors, Chrysler, Eastman-Kodak, AMR (parent of American Airlines), UAL (parent of United Airlines), AirTran, Advanced Micro Devices, R.H. Donnelly, Rite-Aid, Reader's Digest Association, and numerous top retailers because of reduced consumer spending.

According to experts, many, perhaps all, large US banks are zombies. They're insolvent "dead men walking" and should be on the list as well. So is the US economy suggests Nouriel Roubini in a March 5 Forbes.com article headlined: "The US Financial System is Effectively Insolvent." In it he explains the "grave risk of a global L-shaped depression, (much) worse than the current, painful U-shaped global recession" that's deepening as conditions continue to deteriorate. "Shoot(ing) the bankers" may indeed be a good start to fix it.

Perhaps also help the "1 in 50 children in America (who) are homeless each year" also, according to a new National Center on Family Homelessness report titled: "America's Youngest Outcasts - State Report Card on Child Homelessness." It calls it "unacceptable for one child in the United States to be homeless for even one day, (and says) children without homes are on the frontline of the nation's economic crisis." The problem continues to worsen as foreclosures increase, yet the administration and Congress aren't helping.

"The year 2008 will long be remembered....as a time when grossly overpaid bankers (and) captains of industry....hobbled to Washington (asking) for bailouts (in the billions of dollars). Ignored by....Congress and the media were (many thousands) of children - many still infants and toddlers - who were (and still are) homeless in the midst of this economic (calamity). Without a voice, more than 1.5 million (of them) go to sleep (each night) without a home each year....they endure (too little food), a lack of safety, comfort, privacy....adequate health care, uninterrupted schooling, sustaining relationships, and a sense of community." Their deprivation is inflicting "profound and lasting scars," yet public discourse excludes them from consideration and consigns them to be another lost generation - unwanted, unnoticed and ignored by an uncaring government.

Militarizing America for Business and All Contingencies

Since WW II, America has had contingency plans in case of large-scale disasters or attacks. However, since the late 1960s, at the height of anti-Vietnam war protests, focus has been mainly on controlling dissent.

On October 30, 1969, Richard Nixon signed Executive Order (EO) 11490, "Assigning Emergency Preparedness Functions to Federal Departments and Agencies." It consolidated 21 previous emergency preparedness EOs and two Defense Mobilization Orders issued between 1951 - 1966.

In 1976, Gerald Ford signed EO 11921 ordering the Federal Emergency Preparedness Agency (FEPA) to let government take over all essential functions in case of an undefined "national emergency." In other words, to give government dictatorial powers by simply seizing them.

In 1979, Jimmie Carter signed EO 12148 establishing the Federal Emergency Management Agency (FEMA) to replace FEPA. Clinton later made its director a cabinet position, and Bush gave DHS control under its Emergency Preparedness and Response Directorate.

On inception, FEMA mandated an interface with the Defense Department (DOD), appointed an "emergency czar," and authorized the strategic relocation of industries, services, government, and other essential economic activities should conditions warrant. Little known is that FEMA spends most of its budget for "black operations," not disaster relief, although the latter makes headlines. Further, the president has emergency powers to declare martial law, activate FEMA's extraordinary powers, and run the country with other agencies like a police state for no other reason than to quell legitimate dissent - against war, abusive federal power, or an economic depression.

In 1988, Ronald Regan signed EO 12656 empowering the National Security Council as the principal body in charge of emergency powers and let the government increase domestic intelligence and surveillance of US citizens. It also restricted free movement, authorized the seizure of property, construction of detention camps, and isolation of US civilians in them.

Numerous other EOs followed to let government control:

-- all forms of transportation, including highways, airports, rail, seaports, inland waterways, and more;

-- the media and all forms of communication;

-- all forms of energy;

-- food and farms;

-- brigades in which civilians would be placed under government supervision;

-- health, education, and welfare functions;

-- the registration of all persons into a national database;

-- the relocation of communities, areas to be abandoned, and building of new housing in designated places;

-- implementation of all emergency measures in times of international tensions and economic or financial crises; and

-- empowering the Justice Department (DOJ) to operate penal and correctional institutions along with FEMA for its own camps.

The Bush administration funded FEMA with hundreds of millions of dollars to retrofit former military bases and construct other facilities as detention camps. According to a November 2008 Wall Street Journal article, "Intelligence Policy (will) Stay Largely Intact" under Obama who recognized and legitimized its existence for use in case of a "national emergency" declarable for any reason, real or contrived.

Currently, over 800 camps are in every state, ready for use if ordered, with enough capacity for many tens of thousands of internees. They're not ordinary in any sense. They're concentration prison camps in the true sense of the term for dissidents or whomever is to be interned for whatever reason, at any time, and for any designated period on command of the president, others he directs, and FEMA as a police state operational arm. Some may turn into Guantanamo on the Mississippi, the Chesapeake Bay, the Lake Michigan lakefront outside Chicago, or neighborhoods anywhere or close by.

Local police have been militarized to help and much more, according to a March 13 Paul Joseph Watson Prison Planet.com article headlined: "Police Trained Nationwide That Informed Americans Are Domestic Terrorists." In other words, enemies of the state are people who know their rights and demand them, who support progressive issues, who want more from government than betrayal, and who believe democracy and the rule of law are sacred and must be defended.

Prison Planet got a copy of a Missouri Information Analysis Center (MIAC) report it described as "outlandish (and) shocking," and most likely it's replicated throughout the country. It concentrated mostly on a so-called "militia movement" but "conflate(d) it with supporters of Ron Paul, Constitution Party presidential nominee Chuck Baldwin, and former congressman Bob Barr as 'militia' influenced terrorists and instructs the Missouri police to be on the lookout for supporters" of libertarian parties, issues, and people opposed to the North American Union and New World Order.

The MIAC report is similar to a Phoenix FBI and Joint Terrorism Task Force one under Clinton that designated constitutional defenders as "right-wing extremists." The MIAC document "expands significantly on the earlier" one and represents the latest example of police state plans under Democrat as well as Republican administrations - a very disturbing prospect at a very grim time for most people.

A Final Comment

Everything discussed above is real and worrisome at a time the greatest ever economic crisis is deepening, government policies are corrupted, broken, and uncaring for deprived millions, so sooner or later public anger will erupt, but when it does severe crackdowns await it.

Obama promised change. Few understood that he meant abandoning the millions who elected him, looting the national wealth for fraudsters, and crushing public dissent should it erupt. Given growing impoverishment and pain, it's hard imagining it won't. It's only a matter of when and how much - but then what.

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net .

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday through Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.

http://www.globalresearch.ca/index.php?context=va&aid=12698

 

http://sjlendman.blogspot.com/2009/03/monetary-and-fiscal-failure-fraud-and.html

The Rothschilds, LBMA, and Gold

In case you missed it:

A MUST READ for anyone who wants to see more clearly the reason for the wrodl monetary crisis and who is behind it...

It has been said that "the wealth of Rothschild consists of the bankruptcy of nations"

The Rothschilds, LBMA, and Gold

"It would be insufficient to sum up the (Rothschild) family as still very wealthy. ..(their fortunes are as) ineffable as always....today the family grooms the inaudibility and invisibility of its presence as a result, some believe that little is left apart from a great legend -- and the Rothschilds are quite content to let legend be their public relations." (The Rothschilds, Frederick Morton, 1962)

Gold-Eagle analysts, including the Red Baron's The Grand LBMA Exposés (http://www.gold-eagle.com/gold_digest/baron1110.html) and the Oracle of Alberta's Novus Ordo Seclorum and China (http://www.gold-eagle.com/gold_digest/alberta1030.html), have drawn attention to the role of the London Bullion Marketing Association (LBMA) and to the House of Rothschild, as a key player at the LBMA and global gold markets. The intention of this essay is to provide an in-depth forensic historical and geopolitical assessment of key issues and players in today's markets. For this purpose, an historical analysis is a good teacher. To understand today's currency and gold markets requires a study of the House of Rothschild; undoubtedly the world's most influential merchant banking power for over 200 years.

When a Rothschild Falls in the Forest, Does Anyone Hear It?

Most people would have overlooked the Globe and Mail's (Canada's national newspaper) news clip announcing the very recent death of Baron Edmond de Rothschild in the newspaper's International Business section. The Baron's death is no small event when considering the importance of the Rothschild's in European and global financial history. When a Rothschild dies, does anybody hear it or understand the significance? It is ironic that while days of attention were devoted to the deaths of Princess Diana and Mother Theresa, virtually no attention is given to the death of a member of one of the wealthiest families in the world.

The following description of the Baron's demise appeared in the Globe and Mail under his picture:

"Baron Edmond de Rothschild, philanthropist, international financier and member of the banking dynasty, died Monday in Geneva, of a respiratory illness at age 71, a spokesman said. Mr. Rothschild was president of his Geneva-based bank and financial companies as well as the Luxembourg-based Leicom Fund. He was believed to be the richest family member (of the House of Rothschild) that has played a major role in French business and culture for nearly two centuries. The Rothschilds are widely known for their wineries in the Bourdeaux region of France, including the Baron's Chateau Clarke, where he is to be buried this week in a private ceremony. Mr. Rothschild was named an officer of France's legion of honour in 1994, and its order of arts and letters in 1990. Throughout his life, he donated the equivalent of tens of millions of dollars to hospitals, museums, and the State of Israel. An avid art collector, he gave works to the Louvre museum in Paris. Mr. Rothschild's son Benjamin, 34, will succeed him as president of Paris-based Cie Financiere Holding Benjamin et Edmond de Rothschild."

In a July 1997 edition of the Globe and Mail another rare report of another important Rothschild enterprise was made (see Rothschilds holding company fiscal year profit up 66%): The article referred to the Rothschilds Continuation Holdings AG, parent of N.M. Rothschild & Sons Ltd, "a Swiss holding company for the Rothschild merchant banking business worldwide ...(with) operating profits rising to 179 million Swiss francs ($122.4 million U.S.) in the year ended March 31 from 108 million francs the previous years." A 66% profit increase is no small feat especially when you consider their line of business. In the article, Sir Evelyn de Rothschild, chairman of Rothschild's Continuation, noted "We've got a good balance of businesses and on the whole we've had a pretty good run." Sir Evelyn also noted that the company has three global business lines "treasury and bullion trading; resource banking, or banking for the mining industry; and investment banking." Such stupendous returns on a supposedly barbarous relic, gold, make even George Soros's Quantum Fund returns seem meagre. It is important to note that this rare exposure of the family business coincides with the recent rare exposé by the LBMA that the equivalent of between 30-42 million ounces of gold per day are traded in London.

The more significant cousin of RCH AG is in fact N.M. Rothschild and Sons Ltd, named after Nathan Mayer Rothschild, one of the five sons of Mayer Amschel Rothschild, who operated the London-based house of the family merchant banking enterprise in the latter part of the 18th and early 19th century. The Rothschild business enterprise has changed little in over 200 years. But why change a good thing when such large and sustained profits can be made by trading currency, treasuries, and gold plus gold leasing, financing of gold mining operations, and investment banking?

So what is the significance of the death of one of the richest and greatest philanthropers in the world, and the connection to the London Bullion Marketing Association?

The House of Rothschild: Roots in Germany

To understand the importance of the Rothschild's in world financial markets, one must study the history of the House of Rothschild. Ironically, despite their enormous influence on European finance and banking for over 200 years, there are few references to the House of Rothschild in history books. There are a few exceptions including the exhaustive financial historical account of the House of Rothschild between 1770-1830 entitled the "The Rise of the House of Rothschild" by Count Egon Caesar Corti (1928) and "The Rothschilds" by Frederic Morton (1962 ), undoubtedly a family-commissioned auto-biographical account of two hundred years of the House.

The House of Rothschild was founded in 1776 in Frankfurt, Germany by Mayer Amschel Rothschild - (born 1743 in Frankfurt, Germany). Mayer fathered five boys who would establish the most successful merchant banking network in England (Nathan), France (James), Austria (Salomon), Prussia (Amschel) and Italy (Carl).

From humble beginnings as a rare coin trader, Mayer quickly built a private merchant banking empire which was the choice of not only the German Prince William, but also the financier of choice of the major powers of Europe. The Rothschild name became synonymous with merchant banking quality and safety. The financial acumen of Mayer and his five sons became legendary. The acumen and the accumulated wealth of Mayer has been continually passed down to the next male generation of Rothschilds, without dilution. Their market worth has never been audited or accounted for, following from Mayer's clever accounting practices and the keeping secret books and subterranean vaults which were never the privy of auditor, legal counsel or state taxmen. Their mastery in financing both economic growth and war in Europe with both gold and fiat currencies undoubtedly continues unabated into the 20th century, though romantic auto-biographical accounts might lead you to believe that "that was history."

Their financial hand has been in virtually every major European event, including financing the Duke of Wellington defeat of Napoleon at Waterloo, to financial aid to Prince Metternich of Prussia. The Rothschilds were the first to build the railways of Europe. Studying the Rothschild family acumen for stock markets, gold trade, and financing of nations provides an insight into how 'Smart Money' survives. The Rothschild name is also associated with philanthropy, horticulture, and fine wines (the French house). While romantic autobiographical accounts of the family suggest that their empire has dwindled since World War II, all this may be a clever illusion to avoid publicity and attention. In the words of the autobiographer Frederic Morton "the family grooms the inaudibility and invisibility of its presence as a result, some believe that little is left apart from a great legend - and the Rothschilds are quite content to let legend be their public relation"

Today, their historical ingenuity and financial acumen is undoubtedly at work building new wealth regardless of a bear or bull stock, bond, or gold market. They undoubtedly revolve in circles that include the LBMA, and possibly every important central bank board of directors, including the IMF. While even by conservative accounting, they are undoubtedly the wealthiest family in the world, though you will never see them listed in Fortune magazine.

Through the involvement of N.M. Rothschild and Sons Ltd. in the LBMA in London, I believe they benefit from virtually every transaction in financial trading, whether treasuries or gold bullion, negotiating gold lease terms for central banks and mining companies, or simply purchasing their own share of gold and gold real estate. One could even imagine that they are involved in the trading of oil for gold and dollars (as per ANOTHER's hypothesis), given their family's interests in Royal Dutch Shell, the world's largest oil company. As Count Corti in 1926, we shall examine the "reported" evidence of their past and current influence in world financial events.

The English House of Rothschild (N.M. Rothschild & Sons)

Of the two major Rothschild Houses (French and English), the London House (New Court ), founded by Nathan Mayer Rothschild and operating today as N.M. Rothschild and Sons, is undoubtedly the most influential, especially as it pertains to gold and currency trading. Twice daily a Rothschild agent sits in a cloistered room "fixing" the price of gold in the world's largest bullion trading market: the London Bullion Market Association ( LBMA ). Historically, N.M. Rothschild was owner and operator of England's Royal Mint Refinery and was the primary gold agent to the Bank of England.

Nathan helped finance Britain's conquest of Napoleon at Waterloo, and benefited in London's stock market from advanced knowledge (from his superb courier service using pigeons) of Napoleons defeat at Waterloo. Nathan helped finance the Duke of Wellington's army having bought 800,000 pounds of gold from the East Indian Company for $8 million then selling the gold to the Duke to help defeat Napoleon. Hence, Nathan became chief broker and pay master general to England's most important army; the Rothschilds were England's lifeline for getting paycheques to the English army. Nathan could single handily wipe out savings of many a competitor by dumping "consols" in London driving down their share prices, as he did with the advance news of Napoleon's defeat. Nathan eventually switched businesses to "buying and selling money only."

On a daily basis, Nathan was legendary in London's markets for jumping in and out of the market with tens of thousands of princely rounds, never too early and never too late. Eventually Nathan would become richer than Prince William, his father Mayer's German client. It is said that the Rothschilds were the inventors of the courier service using passenger pigeons to relay news amongst the family and to their client beneficiaries. Nathan's ability to depress stock prices, then buy them up after people panicked was legendary.. He would use Rothschild agents to send false news which would be used by observers falsely leading the crowd astray, then he would buy up the same stock at ridiculous low prices. One of the Rothschild's first victims was the legendary Barings and Ouvard Bank which Nathan almost destroyed after their competitor attempted to wrestle merchant banking business from the House. Ironically, Barings Bank recently suffered an untimely death at the hands of a rouge derivatives trader in Singapore!

More than any other family, the Rothschilds have built and maintained an empire unparalleled by any monarchy in history. Their acumen as money changers and financier to the leaders of Europe over the past 200 years is unparalleled. No single corporation or business entity has survived with so much accumulated wealth intact.

To this day, N.M. Rothschild & Sons of London still lists as its primary business the selling and buying of treasuries and gold bullion. N.M. Rothschild helps fix the price of gold in London each day through the LBMA. A recent London Times articles explained that the gold price fix ceremony where five men (including a Rothschild) talk on their phones for 10 minutes, then lower tiny Union Jacks sitting on their desks, thereby fixing London's gold price each day. This ceremony takes place at 10:30 a.m. and 3 p.m., like clockwork, the same way, in the same place, and with mostly the same firms participating since the first gold fixing was enacted at Rothschild in St. Swithin's Lane on Friday Sept. 12, 1919. The company's name is also associated with many gold mining companies (e.g. Trillion Resources Ltd. and other Canadian mining companies).

The French House (Baron Edmond de Rothschild et.al.)

The French House, which was most recently headed by the Baron Edmond de Rothschild, was the most powerful private merchanting banking arm and the richest of all the Rothschilds and ran the Compaigne Fincanciere, a world wide organization which builds villas, hotels, pipelines, and finances other banks. Rothschild Freres, run by cousing Baron Guy Eduoard, was the largest private bank in France. The French House also controlled mining companies ( De Beers and gold mines in South Africa ) , metal plants ( Rio Tinto ), oil interests ( Royal Dutch Shell ) , and chemical industries (Morton, 1962). The Baron was estimated to be the richest Rothschild and probably the most multiple millionaire/billionaire in Europe. That wealth is now passed on to his son, in Rothschild tradition always to the males, Benjamin ( 34 years of age ) . Edmonds cousin Baron Guy Eduoard was director of the Bank of France. Baron Guy, who owned the Compagnie du Nord railway network in France, was known to use participants to join in ventures serving as initiator and packager as well as guarantor with very deep pockets of cash.

As Morton (1962) notes, the two banks in London and Paris are still probably the largest private institutions in the world. "Although the French house controls scores of industrial, commercial, mining, and tourist corporations, NOT ONE bears the family name." In the 1920s the banks of England and France were organized under the French House into a noisless international syndicate that reached from J.P. Morgan in New York to their cousin Baron Louis' Creditanstallt in Vienna, Austria.

To appreciate the Rothschild's ability to sustain and increase their wealth and avoid the scrutiny of both the public, the markets, and the state taxation system, consider the story of the death of Edouard Rothschild, of the French House. Anticipating the death of Eduoard in 1949, Rothschild agents began to sell their majority stock holdings of Royal Dutch Shell, Rio Tinto and Le Nickel ( giant mining corporation ) to drive down the price of shares just prior to his death to reduce the value of the estate that was subject to taxation by the French Government. This selling created a panic in the world markets depressing stock prices further. A few days following the death of Eduoard, Rothschild agents bought the volume of stock back at depressed prices, and his reported estate wealth was taxed at the depressed price on the day of his death. One should never underestimate the capacity of a Rothschild to influence markets, even today.

Rothschild interests touch virtually every aspect of our lives. They helped found and finance Royal Dutch Shell and De Beers. Following World War II they invested in vast areas of resource rich properties in Canada, possibly gold rich deposits. Joey Smallwood, premier of Newfoundland, Canada, described the 50,000 square mile land purchase by Rothschild as the biggest land deal in Canadian history. Their influence extends to the Bank of England, Bank of France and most likely the U.S. Federal Reserve, and possibly the IMF. They thus have enormous influence on the world's monetary policy.

We shall never have a full accounting of their wealth. All we can go on is Morton's (1962) comment that their wealth is "ineffable as always." Even our conservative estimates suggest a family with staggering wealth and thus influence. In a world awash in debt and unsustainable fiat currencies subject to implosion, the power of gold and the preference of the Rothschilds to gold cannot be easily ignored.

The Rothschilds and the LBMA: The World's Central Bank?

Consider the Rothschild's profound position of influence in the LBMA and the transaction fees they are earning on each and every transaction of treasuries and 42 million ounces of gold transactions DAILY (recently reported volumes of physical, leased, forward sales). . The Rothschild business earns income from "transactions" (including transfers, calls, puts, trades, leases) and one can only begin to imagine the transaction costs associated with last reported trading of over 42 million ounces of gold per day through the LBMA (more than twice South Africa's annual gold production).

Also consider their involvement and influence over monetary policies exercised by the Bank of England and the Bank of France (and possibly the US Federal Reserve System) and in Geneva. Consider the world's above ground gold reserves is roughly 120,000 tons -- with roughly 40,000 tons or 33% held by central banks. How is the remaining "private" gold holdings distributed? Does anyone have such an account? Certainly not the World Gold Council and their statistics. If a single private owner held 5% of world's remaining gold, would that not constitute majority share holdings? If any player could have accumulated, and could afford a 5% holding of the world's gold supply over the last 200 years, it would be the Rothschilds. Could it be that the Rothschilds through their involvement in daily London gold trades are quietly amasing more of the precious metals in their private vaults, while the confidence game of the Central Banks tries desperately to avoid what Soros calls "unsustainable" fiat currency built on unsustainable debt? It was Mayer Amschel Rothschild who kept a secret subterranean vault full of gold beneath the House of Rothschild in Frankfurt in the 1770s (Morton, 1962) .

While the world is led to believe that gold is a barbaric relic of the past, a huge confidence game is being played out in fiat currency markets, illustrated by the events in Asia. In order to maintain confidence in inherently unsustainable fiat currencies and unsustainable debt, confidence in gold must be depressed, given that it is the only alternative store of value. The increasing volume of gold transacted through LBMA reflects the crescendo this confidence game has reached. These large volumes also suggest that gold is trading as currency and not as a barbaric commodity, as the press is apt to suggest. Could it be that the LBMA is being used as a testing ground for the establishment of a new gold-backed world currency system? If so, the Rothschilds are in a position of enormous influence over such a genesis process.

Consider these words of Stanley Fisher (WSJ, Nov. 12, 1997), IMF's Deputy Managing Director: "What is needed at this point in the world's economic affairs is leadership in setting up a SYSTEM more dependable than using IMF bailouts as a guide to the future value of money. Where that leadership comes from is a tough question."

Indeed, will the leadership and system Fisher is speaking come from the House of Rothschild through the central institution of the LBMA? Only time will tell.

If the Rothschilds, through the LBMA operations, are effectively cornering the world's gold supply they would undoubtedly be in a prime position to benefit from a currency crisis - which they and Soros undoubtedly expect, given Soro's claims that the Asian, and thus by implication all fiat currencies, are inherently unsustainable. This crisis of sustainability is already engaged in Asia and will undoubtedly wash over Europe, England and the U.S. And who recently announced another bailout package? The IMF, of course.

The Houses of Rothschild, more than any other players, knows the historical power of gold and importance of a gold-backed currency system. The English system they helped engineer remained resilient and sustainable for over 200 years until the early 1900s. The Rothschilds believe in gold as the ultimate store of value; always have and always will. Undoubtedly they do not consider the metal a barbarous relic of the past.

Epilogue

We are reminded of Morton's words, "today the family grooms the inaudibility and invisibility of its presence as a result, some believe that little is left apart from a great legend - and the Rothschilds are quite content to let legend be their public relations."

What is unique about old power and money of the Rothschilds is their uncanny ability to sustain their power and wealth, and keep it within the family. While it is a tribute to the power of family, the danger is their ability to control and influence the daily lives of average human beings, with fewer resources and less power. Such power can lead to the temptation of becoming as powerful as the gods. Control over such important forms of value such as gold, as an instrument of liberty, may lead to the temptation of exercising dominion over such liberty. The maintenance of power and wealth is ultimately motivated by an anxiety of losing the security that such power has provided. The power and wealth of the Rothschilds carries with it enormous privileges and hopefully a sense of responsibility for the welfare of others. While the Rothschilds and Rockefellers have exercised philanthropy to the benefit of many, even this exercise has benefited their corporations through a tax system which rewards such "charitable" and "atruistic" organisations. What distinguishes the Rothschilds from other world power brokers, like Soros, is their diminutive "presence" in the world, in spite of their untold influence on almost every aspect of our economic existence. Their continued bullishness on gold exhibited through their activities in the LBMA and gold trading suggests that we maintain our confidence in the this barbaric relic. Ultimately, however, one must be keenly aware of the potential controlling influence over gold which the Rothschilds and their merchant banking brethren can exercise, and thus placing our liberty in their hands.

It has been said that "the wealth of Rothschild consists of the bankruptcy of nations"

 

References:

The Globe and Mail (various issues)

The Wall Street Journal

Morton, Frederic (1962). The Rothschilds.

Corti, Baron Egon Caesar (1928). The Rise of the House of Rothschild.

Soros, George (1994). The Alchemy of Finance

http://www.gwb.com.au/gwb/news/banking/rothchild.html

MUST READ! How to stop the Depression

An interview with Antal E. Fekete

Professor of Money and Banking, School of Economics

Asking questions is Jorge Nascimento Rodrigues,
Executive Editor, Portuguese and Brazilian Management Review

Q.: What are the main roots of the present economic and financial crisis?

A.: There is only one main root, the same as that for the Great Depression in the 1930’s: destruction of capital. Erosion or consumption of capital has been going on unnoticed for decades. The process ends when there is no more capital left to consume. After the seven fat years, a period of seven lean years must commence.

Capital erosion is not natural nor is it inevitable. Rather, it has been inflicted upon the world economy by the unmindful and irresponsible monetary policy of the United States in deliberately driving the rate of interest to zero.

Falling interest rates, which are lethal, must be carefully distinguished from low but stable interest rates, which are salutary. A falling interest rate structure, foisted upon the world by the Americans obsessed with the idea of preserving the hegemony of the dollar, works insidiously and unobserved. As the rate of interest falls, the liquidation value of debt rises. Far from decreasing it, falling interest rates increase the burden of debt. Economists, chartered accountants, and bank examiners do not recognize the concept of liquidation value of debt, let alone its inverse relationship to the rate of interest, although it is exactly the same inverse relationship that is well-recognized to exist between the market value of a bond and the rate of interest. As the interest rate falls, creditors refuse to accept the face value of the bond in settlement of debt. At the lower rate the income stream of coupons falls short of amortizing the face value of the bond. To compensate for the shortfall the market value of the bond must be increased. Accordingly, creditors bid up the market price of the bond. If debtors want to get out of debt before it matures, then they will have to pay the market price exceeding the face value of the bond. This conclusively proves that the fall in the rate of interest increases the liquidation value of debt.

As soon as the liquidation value of liabilities less assets surpasses capital, the firm becomes insolvent. Its capital is gone. It can no longer attract credit. This is what has happened to the banks in the U.S. and the U.K. This is what has also happened to the American auto industry, and all the other American industries now extinct.

Those who dismiss my analysis of the present crisis in terms of capital destruction as an improbable single-cause explanation of a complex phenomenon must answer the following question. What are the statistical odds that the banks, financial institutions, as well as the three big automakers go bankrupt all at the same time? Well, the odds are virtually zero, unless they fail due to a single cause.

Q.: Has Japan served as a ‘testing ground’ to combat stagnation-deflation or as a ‘lab’ experimenting with the cure for stop-and- go economic growth for the last two decades?

A.: Your suggestion that Japan has been used as a ‘lab-experiment’ how to combat deflation through suppressing interest rates all the way to zero is interesting. But as the results of this experiment convincingly show, lowering interest rates is no cure for deflation, but poison for the economy. Lower interest rates reinforce deflation, making it worse. Japan should have ignored advice from the American money-doctors and follow independent monetary and fiscal policies. Instead, Japan embraced the prevailing blend of Keynesian and Friedmanite bunk and plunged headlong into a sea of deficits and debt. As a result, the plight of the country is prolonged. It is highly doubtful that the American money-doctors will learn from the failure of their Japanese experiment. But then, as Poor Richard’s Almanach says, experience runs an expensive school, but fools will learn in no other.

Q.: Are credit bubbles and busts typical of the capitalistic system of production? Has the manipulation of the money supply and the rate of interest by central banks been around since early times, or it is a more recent innovation of policy-makers?

A.: Credit bubbles and busts have nothing to do with the capitalistic system of production; they have everything to do with the suppression of the rate of interest by the government through its agent, the central bank. In the beginning the central bank was a relatively tame institution. It even denied that it is equipped or called upon to manipulate the money supply or tamper with the rate of interest except, perhaps, the overnight rate. Later unscrupulous politicians emboldened the central bank to grab unlimited power under the regime of irredeemable currency. To be sure, the power to print currency is unlimited power.

The real turn of events came with the clandestine and illegal introduction of ‘open market operations’ by the Federal Reserve banks (Fed) in the early 1920’s. The 1913 Charter of the Fed disallowed the monetization of the government debt and penalized violations by levying heavy and progressive fines. But as time went on, the Treasury ‘forgot’ to collect the fine and, in the end, the fait accompli forced Congress to legalize the Fed’s practice of purchasing Treasury bonds in the open market and using them as collateral for its note and deposit liabilities ex post facto.

With this Act the principle of limited government was thrown out of the window. Equally serious was an unintended consequence that remained hidden for half a century but burst upon the scene with full force after 1971 when the gold standard was finally overthrown. Bond speculation that resulted from this measure was confined to a playing field that was far from level. It gave a bias to bull as opposed to bear speculation. Bull speculators, armed with the knowledge that the Fed was in need of buying more bonds preempt the purchase in buying the bonds first, dumping them into the lap of the Fed later, thus pocketing risk-free profits. Now the sky was the limit to which speculators could bid up bond prices. The gates to the black hole of zero interest were thrown wide open, as shown by events of the past thirty years. As I have already explained, the main root of depressions is not vanishing demand as suggested by Keynes, but vanishing capital caused by the deliberate suppression of interest rates.

Q.: Are ‘quantitative easing’ and the regime of near-zero interest rates a good medicine? Or will they fail to solve the credit crisis as it turns out that their impact on the real economy is nil?

A.: ‘Quantitative easing’ is an empty slogan designed to cover up the black hole of zero interest gobbling up the world economy. Consider that the total outstanding debt is in fact perpetual debt, because under the regime of irredeemable currency total debt can only grow but never contract. Even if all debtors could repay their loans, debt would still not be extinguished. It would be merely transferred to the banks and, ultimately, to the government.

Consider also the fact that the liquidation value of perpetual debt doubles every time the rate of interest is halved. So when under the slogan ‘quantitative easing’ the rate of interest is serially cut in half from 4% to 2, then from 2% to 1, then from 1% to ½, then from ½ % to ¼ , and so on, the liquidation value of debt will double from $1 trillion to 2, then from $2 trillion to 4, then from $4 trillion to 8, then from $8 trillion to 16, and so on. Soon you will be talking real money in the quadrillions of dollars. Mind you, this is just increase due to falling interest rates; additional debt assumed through bailouts would be extra.

The world has already passed the point where one more straw breaks the back of the camel, as witnessed by the collapse of the banking system. The next step is breaking the back of the dollar. ‘Quantitative easing’ is guaranteed to accomplish that, although it is impossible to say when.

The whole idea that the government can keep halving interest rates serially with impunity is insane. Bernanke and Geithner don’t know what they are doing and saying. ‘Quantitative easing’ has another arm, ‘quantitative backlash’, operating with a high leverage. Not only will ‘quantitative easing’ have zero impact on the real economy; it will bankrupt the U.S. government due to the serial doubling of the liquidation value of government debt.

You need gold in the world’s monetary and payments system because gold is the only ultimate extinguisher of debt, without which total debt becomes perpetual debt and the fast breeder of debt starts spinning out of control. As a consequence, the world will be sucked into one or the other of the two black holes: that of zero interest (deflation) or that of infinite interest (hyperinflation).

A.: Are we witnessing a repetition of the Weimar policy madness? Can we have deflation first, followed by the surprise of a hyperinflationary period?

Q.: Weimar Germany was hit by hyperinflation in 1923; then it was hit again by deflation seven years later, in 1930, when 8 million workers, or about one half of organized labor, were laid off. You may say that it is typical for deflation to follow hyperinflation. The world is ill-prepared for what may be unfolding before our eyes, namely, as you suggest, in a reversal of the typical order, deflation is followed by hyperinflation. Most observers’ forecast is that the dollar will soon succumb to hyperinflation ignited by the bailouts. Put me down in the deflation column. My forecast is: deflation now, hyperinflation later.

The important thing is not the trillions spent on bailouts, but the quadrillions in increase in the liquidation value of outstanding debt, thanks to the serial halving of interest rates. There are actually two camels: the banking system and the dollar. The last straw has already broken the back of the first camel. Straw is still being loaded on the second.

Q.: In Europe, and also in the U.S., analysts are pruning the idea of the nationalization of the banking system as a measure to prevent its complete meltdown. Even the Russian President is making jokes at the expense of the West about ‘financial socialism’. What do you think about nationalization, the creation of ‘good banks’ and ‘bad banks’, and the ‘reverse securitization’ of toxic assets?

A.: Nationalization is no solution to the banking crisis. It would do no more good than shuffling deck chairs on the sinking Titanic. The meltdown of the banks was not caused by the banks per se. It was caused by government sabotage of the gold standard. The idea of separating the assets of failing banks and dumping the toxic part on a ‘bad bank’ is utterly imbecile. Toxic assets should be written off outright and their securitization should be cancelled, not reversed. Securitization of mortgages and other bank loans was fraudulent in the first place as it was based on the false premise that the strength of a chain is determined by its strongest link.

As every child knows, it is determined by its weakest link.

There can be no ‘good bank’ under the regime of irredeemable currency. If you want to have good banks around, then you will have to reintroduce cancer-fighting gold corpuscles into the monetary bloodstream. A diseased monetary bloodstream, which irredeemable currency is, will contaminate even the best of ‘good banks’.

Q.: What is your recommendation for an emergency package?

A.: The emergency package pushed by the Obama administration is going to fail. It consists of the same nostrums that have landed the world in the present depression in the first place: the relentless pumping of money into the economy in order to drive down the rate of interest.

To be sure, the banks and industrial enterprise must be recapitalized. But to accomplish this something more substantial is needed than the irredeemable promises of a government that is the largest debtor in the world, let alone the fact that it is bankrupt itself, whose future tax receipts on the present scale become ever more illusory. The banks and industry must be recapitalized through the remobilization of the world’s monetary gold that has been lying idle for the past 35 years.This feat can be accomplished through a plan that may be put into effect unilaterally even by a smaller country such as Portugal, which I shall use here as an example. Suppose the Mint of Portugal is opened to the unlimited coinage of gold. The standard gold coin weighing one ounce, 9999 fine (bearing no denomination) would be paid out by the Mint to the bearer of the same quantity and quality of gold (a modest seigniorage charge may be made to cover the cost of minting).

The Bank of Portugal must by law tariff the standard gold coin at a value no lower than that of its gold content as determined in the open market. In other words, the monetary value of the standard gold coin must be adjusted upwards every time the gold price makes a new high. As an aside I note that at present the Federal Reserve still tariffs gold at $42.22, while in the market gold fetches more than twenty times that amount. This idiotic policy is one of the chief causes of deflation in the world today.

In case the gold price falls, the Bank of Portugal may leave the monetary value of the standard gold coin unchanged, or it may adjust it downwards with a lag. In either case there would be a gold flow to the Mint, and ever more standard gold coins would get into circulation as businessmen take advantage of profit opportunities presented by the favorable valuation of gold in Portugal. The effect of my plan is that capital will start flowing to Portugal in the form of monetary gold from the rest of the world, but without suppressing the rate of interest. Portugal will be a most attractive place where to invest. It will escape deflation and the disastrous unemployment hitting other countries – except, of course, countries that follow Portugal’s monetary leadership and open their Mint to gold.

If an oil-producing country adopted my plan, then competition will force all the others to follow suit. Trade in crude oil would be billed and financed through gold devices. That would stabilize the price of oil, as well as the price of other world-class goods. At present these prices are unstable precisely because the value of the irredeemable dollar financing world trade is increasingly uncertain.

The new payments system emerging in this way would fall short of a fully-fledged international gold standard, as central banks would retain their power to tariff the standard gold coin according to their own national priorities. If a country wanted to increase domestic employment, it would raise; if it wanted to curtail capital inflows, it would lower the tariff. In either case gold would serve as an outside currency against which the domestic currency could be devalued or revalued without triggering competitive currency devaluations.

Later, when the dust settled, leading countries could come together and agree on a new international gold standard in abrogating the power of their central banks to change their tariffs on the standard gold coin. This would mean a return to the system of fixed exchange rates which the world so foolishly abandoned in 1931 and, again, in 1971.

One objection to my plan, that the scheme is inflationary because of the remonetization of gold involved, can be safely dismissed as disingenuous. Policy-makers at the Federal Reserve have been desperately trying to induce inflation, only to make deflation getting ever more entrenched.

Another possible objection is that in paying for imported gold the real wealth of the country would pass into the hands of foreigners. While there is a grain of truth in this to the extent that exports reduce the wealth of a country, Portugal could show something for it in the form of increased gold reserves and a decline in unemployment. What can China show for its immense transfer of wealth to countries absorbing its exports? A pile of I.O.U.’s, that’s what, that may ultimately be worth no more than the paper it is printed on. Under my plan it could show an increase in its gold reserves that China needs and badly wants. Incidentally China, by the logic of its position as one of the world’s great exporting countries, is a likely candidate to adopt my plan. Otherwise it would face a horrendous unemployment and social unrest which the Chinese Wall may no longer be able to contain.

Continuing ostracism of monetary gold may mean plunging the world into a new Dark Age, the crumbling of civilization, vanishing law and order, mass starvation, the impoverishment of rich and poor alike. It may trigger an uncontrollable mass migration from East to West and from South to North of unruly millions in search of a place underneath the Sun.

The Obama White House has been hijacked by a reactionary clique of Keynesians and Friedmanites before the new president even had a chance to take stock. They are doctrinaires who would never admit that they have made a fatal mistake when they promised permanent prosperity, a world free of bank runs, panics, domino-style bankruptcies, mass unemployment and depressions, provided that they were allowed to quarantine gold and to manage the rationing of synthetic credit as they see fit. Now they want to be in charge of salvaging the train-wreck, the result of their sabotaging the natural monetary order based on a positive value, gold, rather than a negative value, debt.

Unless the world can extricate itself from the murderous grip of these unscrupulous saboteurs by putting gold back into monetary circulation, we are all doomed.

Antal E. Feketewww.professorfekete.com

Professor, Intermountain Institute of Science and Applied Mathematics Missoula, MT 59806, U.S.A.

DISCLAIMER AND CONFLICTS

THE PUBLICATION OF THIS LETTER IS FOR YOUR INFORMATION AND AMUSEMENT ONLY. THE AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON IT, NOR IS HE SUGGESTING THAT IT REPRESENTS, UNDER ANY CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL ANY SECURITY. THE CONTENT OF THIS LETTER IS DERIVED FROM INFORMATION AND SOURCES BELIEVED TO BE RELIABLE, BUT THE AUTHOR MAKES NO REPRESENTATION THAT IT IS COMPLETE OR ERROR-FREE, AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS TO BE TAKEN AS THE AUTHORS OPINION AS SHAPED BY HIS EXPERIENCE, RATHER THAN A STATEMENT OF FACTS. THE AUTHOR MAY HAVE INVESTMENT POSITIONS, LONG OR SHORT, IN ANY SECURITIES MENTIONED, WHICH MAY BE CHANGED AT ANY TIME FOR ANY REASON.

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