If you are a Christian and have had discussions on the ‘mark of the beast’ and how only those with the ‘mark’ will be able to buy and sell at some point in the future, you have probably wondered how this could happen.  How could anyone really gain financial control of the entire world?  If you are not a Christian, chances are that you have heard about this ‘mark’ and its control over the world’s financial system and have rejected this as being completely ridiculous – how could anyone control the world’s financial system?  If you throw in the popular Christian interpretations of end time prophecies – that one future ruler of the world will somehow unite the world’s government, the world’s religion and the world’s financial system – all within a period of 7 years – it becomes almost unbelievable.  How could someone – anyone – do all of this within a 7 year time period?  If I were not a Christian and had never heard about these things and someone told me that all of these things will happen within 7 years – I would find it very difficult to believe – if not impossible – the world simply does not cooperate this easily.  As you’ve seen in previous posts, Satan’s control of the world’s government and religion is not taking place during 7 years – and financial control of the world is no different. What you will find as you read this post, is that a few men have already gained worldwide financial control – and they did it before you and I were born.  It didn’t take 7 years – it took hundreds of years.  You and I rely on an economic system that has placed us in financial bondage – and most of us don’t even know it.  What you will find, once again, is that our spiritual enemy is much more cunning and deceptive than you have been led to believe.

 

Let’s start this with a simple question – do you know how our money is created?  Whether you are wealthy or poor, highly educated or not – chances are this question causes you some concern – because you really don’t know the answer.  Most people (and I was included) would say that the United States creates our own money through the U.S. Treasury – correct?  No.  It did until the early 20^th Century.  It is correct that the U.S. Mint and the Bureau of Engraving and Printing (agencies of the U.S. Government) create the hard currency we use, but the U.S. Treasury is not responsible for creating and managing our money supply.  Who then, is responsible for creating and managing our money supply?  A private corporation - The Federal Reserve Banking System.

 

If the U.S. Government needs $20 billion in hard currency (paper and coins), the Federal Reserve creates this $20 billion out of nothing (there is nothing of value that backs our currency), the U.S. Mint and the Bureau of Engraving and Printing creates the paper and coin currency and the U.S. Government gives the Federal Reserve an IOU for $20 billion in exchange.  The U.S. Government then pays interest on this $20 billion.  On the surface, it may seem to you that this is logical – what’s wrong with the U.S. Government paying a private bank/corporation to print our money?  Actually, there is a whole lot wrong with it.  This is what I’m going to explain in this post. 

 

We’ve seen how physical currency is created and added to our economy, but physical currency – coins and paper – makes up less than 5% of the overall dollars in circulation in the world.  The other 95% is made up of all of the electronic dollars in checking accounts, savings accounts, CD’s, money market accounts, etc.  How is this money created?  The majority of our money is created by private banks.  This is where things get interesting.

 

If you have purchased a home, then you know that you apply for and receive a mortgage to pay for your home.  The question then becomes – where does the bank get the money to pay for your home?  If you are like most Americans (and I was certainly included in this group), you assume that this money somehow comes out of the bank’s profits or from deposits made at the bank.  It seems logical, but this isn’t what happens.  By authority of the bank’s charter, it has the ability to create the dollars needed for your home.  In the same manner that the Federal Reserve creates money out of nothing, your bank once again creates money out of nothing and places the dollars needed into your account.  The funds are then used to pay for your home.  I know what you’re thinking – this is the most ridiculous thing you’ve ever heard, there’s no way this is what happens.  You’d be wrong.  In our current monetary system (commonly referred to as a Fractional Reserve System), your act of signing for debt - creates money.  Every time someone signs for an auto loan, home loan, home equity loan, etc. – money is created.  This is how money is created in our system.  In our current monetary system, money is not created from value, money is created from debt.  It doesn’t matter if our money is created because the U.S. Government needs hard currency or if it is created through bank loans, the only way money is created in our current system is through debt.  Get ready - because this leads to some very interesting analysis.

 

If you’re thinking this through, then you’re beginning to feel very uncomfortable – and you should.  Even though it may seem strange to you that our money is created by debt, it might initially seem like this could work – that our economy has – and will continue to – function under this system.  There’s one very big problem inherent in this system.  If you’ve seen the movie ‘The Matrix’, then you remember that the massive computer simulation in the movie had a flaw in the program – an anomaly that over a long period of time would eventually crash the system.  We have the same type of ‘anomaly’ in our current economic system that over time – will have the same result.  What is the ‘anomaly’ in our system?  Interest.  When you take out a loan for $200,000 to pay for your home, is this all you need to pay back?  Of course not.  You must pay the $200,000 plus interest.  The total amount of money you will pay back with interest will be more than $400,000 if you have a 30 year fixed rate (around 6%) and don’t pay it off early.  Remember, our money is created from the principle, not the principle plus interest.  So, you bought a house for $200,000, and as a result, added $200,000 to our total money supply of dollars.  Do you see the problem?  If our money is only created from the principle payment, where do we get the money to pay interest?  This is where things really start to get interesting.

 

Let’s look at another example. Let’s say that the total debt (new debt – retired debt) created in a given year in the United States is $1 trillion dollars.  Based on our current system, $1 trillion dollars would then be added to our money supply.  As I mentioned above, because this is debt, the total actually owed is much higher – let’s say the total debt actually owed is $2 trillion.  So, we have created $2 trillion in liabilities that must be repaid, but we’ve only created $1 trillion dollars in the system to pay this debt.  Do you see the problem?  We never add enough money into our economy to pay for the debt. Our debt continues to rise and our money supply continues to rise – but the money supply can never equal the total amount owed.  What this means is that we can never pay off our debt under our current monetary system.

 

Let’s make it really simple.  If you and I each owe $100 and there’s only $150 in currency available to us – one of us isn’t going to have enough to pay our debts.  It’s a catch-22 that we cannot get out of.  In our current system, there will always be a certain percentage of people and businesses that cannot get enough money to pay their bills, debts, etc.  It’s mathematically impossible for everyone to have enough money to pay what they owe.  We can talk all day about why certain businesses fail (poor management, supply and demand, changing markets, etc), why businesses and people go bankrupt, but the bottom line is this - if there’s not enough money in our economy to pay for all outstanding debts, it doesn’t matter what we do, how we manage our budgets, we will never pay off our debts as a nation – never.  Of course I’m talking about our nation as a whole.  Individually, we can make good financial decisions and manage our money in a prudent manner, but on a national level, we are in a never ending cycle of ever increasing debt – personal debt, corporate debt, government debt, etc.  If our system never changes, it is mathematically impossible for us to ever pay off our national debt. 

 

I now find it interesting when I hear our President or members of Congress debating ‘fiscal irresponsibility’ or when I hear our leaders talking about reducing our national debt.  The truth is that all of us – our Government included – must continue to create debt in order to keep our economy from crashing.  The meter is always running on the current interest (which is now enormous). In order to keep creating additional money to pay for our ever increasing debt, we must create more debt to create more money.  I know what you’re thinking – this has to be the most ridiculous economic system ever devised.  It’s actually quite ingenious – when you realize why it exists.  We’ll examine this more later.

 

Since our money is created from debt, as our debts increase – our money supply increases.  The only thing that has prevented this system from collapsing years ago is due to the lag time we have to pay back the interest on our loans.  We are not required to immediately pay back the principle plus interest.  Although this system seems to have worked for a very long time, we’re going to see that it cannot continue forever.  You will see that it’s mathematically impossible for our economic system to continue without eventually collapsing.

 

If this hasn’t blown your mind yet, consider what would happen if we paid off all of our debt – personal debt (home loans, auto loans, etc), corporate debt and Government debt.  Since debt equals money in our system, if there is no debt, there would be no money!  I know – it keeps getting more ridiculous.  Your mind wants to reject this outright.  This is crazy!  Unfortunately, it’s the truth.  Our entire economy is based on the creation of debt.  Without debt, our economy would crash completely.  You now know the real reasons why we are all always fighting to get enough money to pay our bills and debts (there’s not enough money in the system for all of us).  You now know why we consistently have a steady stream of people and businesses that file for bankruptcy (there’s never enough money in our economy), why inflation has dramatically reduced the buying power of the dollar in the past few decades (our money supply is always increasing – it never stabilizes), why the total volume of dollars in the world economy has sky-rocketed in recent decades (leading to a decline in the value of the dollar – worldwide) and why we’re always being bombarded with loan offers (home, auto, home equity, etc), credit cards, etc.  Without debt, we have no economy.  How is this possible you ask?  Why would anyone allow this to happen?  How did this happen?  The most important question that you should be asking yourself is this – if we are creating so much debt, who are we indebted to?  What you will find later in this post is that this is all very deliberate – it’s not by chance.  There is a plan at work here – and it’s evil.  The honest truth is that every person in the United States has been placed in financial bondage since 1913 – and most don’t even know it.  Have I mentioned how deceptive our spiritual enemy is?  Keep reading.

 

I mentioned earlier that our current banking system is referred to as a Fractional Reserve System.  Basically, this means that banks can issue loans for much more money than they have on hand.  It depends on the type of account, but as an example, let’s say that the Federal Reserve sets the reserve requirement at 9:1 (or a 10% reserve ratio).  The Federal Reserve Board of Governors also has the power to change this ratio within limits set by law.  This means that for every dollar that a bank has held in ‘reserve’ at the Federal Reserve, it can lend out 9 times that amount.  Let’s say that a new bank holds approximately $1,111 dollars at the Federal Reserve.  It can then lend up to $10,000 dollars (9 x $1111 = $10,000). Money on reserve at the Fed is sometimes referred to as ‘super’ money – since the banks get to multiply its volume. The bank then loans this $10,000 to you for a new car.  You pay the car seller who then deposits the money in their checking account.  Their bank (this is a closed loop system – it doesn’t matter which bank receives the deposit) then takes the $10,000 – adds $1,000 of it to their reserves (the same 9:1 reserve ratio – reversed) – and loans out $9,000 to someone else who then deposits the money in their checking account.  Their bank takes the $9,000 – adds $900 to their reserves (9:1 reserve ratio) – and loans out $8,100 to someone else.  At this point, the original reserve of $1,111 has generated $27,100 in new money ($10,000 + $9,000 + $8,100).  If we do the math and continue to carry this through (and everyone deposits their money in a bank – not in a mattress), then this original reserve of $1,111 generates just under $100,000 of currency in our economy.  It’s like a huge game of musical chairs – as long as we’re creating money from debt, the music doesn’t stop playing.  Also remember – the original reserve deposit at the Fed ($1,111) was money created by debt – it has no value.  Some types of accounts in this system only require a 20:1 or 30:1 reserve ratio and some accounts do not require a reserve at all.  Should anyone be surprised that we always have inflation? 

 

What happens when the Federal Reserve changes the reserve ratio?  Is this significant?  Absolutely.  Let’s examine this more closely.  If the current ratio is 9:1 and the Fed changes this to 5:1 – what impact does this have?  If you’re a bank that has loaned millions of dollars at a ratio of 9:1, and have planned future loans around this ratio, what happens to you if the ratio changes to 5:1 (the reserve requirement increases)?  If you don’t have additional reserves to meet the new requirement - you instantly become under-capitalized.  Here’s a simple example: if a bank has a reserve of $1,000 and plans to make a loan of $9,000 – it can no longer make the loan if the reserve ratio is reduced to 5:1.  At 5:1, the reserve requirement on $9,000 would be $1800.  The real world result is – the bank must generate significantly more capital to increase its reserves or stop lending in order to meet the new reserve requirement. 

 

What should we learn from this?  Most of us know that the Federal Reserve has the power to raise and lower interest rates and therefore, has the power to raise and lower overall prices within our economy.  What most people don’t realize is that they also have the power to raise and lower the total volume of dollars in our economy.  If they raise the reserve requirement (requiring banks to have more reserves at the Fed), banks will lend less money and since our money is based on the creation of debt, less money is created.  If this happens, the gap between the amount owed within our economy (interest never stops accumulating) and the amount of money to pay the debt – widens.  We are often told that this is used to fight inflation – inflation that is caused by this system of money creation through debt.  The truth is that an increase in the reserve requirement results in even less money in the overall economy to pay back debt – which could easily lead to a recession or depression.  This is the continual game central banks around the world play every day – more money in the economy means economic growth, but higher inflation – reducing the money supply reduces inflation, but will also cause economic growth to slow or contract. 

 

The following chart shows the impact of the reserve ratio on our money supply.  It’s easy to see that as the reserve amount required is lowered, the amount of money generated increases significantly.  The reverse is also true – as the reserve required by the Fed is raised, the amount of money generated decreases.

 

 

 

What really happens when our money supply contracts?  Periods of recession or depression.  What we’re consistently told is that periods of economic growth and periods of economic contraction are unavoidable, when the truth tells us something different.  The Federal Reserve has the power to create periods of growth (increased money supply coupled with low interest rates) and periods of contraction (reduced money supply coupled with higher interest rates).  How are we told to categorize these periods of growth and contraction?  This is the ‘business cycle’.  While everyday business transactions certainly affect our overall economy – there is nothing that private business or individuals can do that will overcome the debt based economic system we’ve been placed under. 

 

You have also learned why the current credit ‘crunch’ is being referred to as a ‘crisis’.  What happens if banks reduce lending and consumers reduce taking on more debt?  Less money is created in the system – and a vicious cycle starts.  Wall Street refers to this as ‘de-leveraging’.  We’re going to explore the real reasons this happens.  Before we look closely at what is going on today, let’s examine another problem with our current economic system.  We have discussed how our economy must continue to grow in order for debt creation to continue in order to create additional money in order to pay the debt – a never-ending cycle of debt creation.  The question becomes – can this continue forever?

 

If you were to ask people about economic growth, some will know that our economic (GDP – Gross Domestic Product) growth rate typically averages about 3% (annually) in recent years.  Most of us assume this is a linear growth rate.  A linear growth rate looks like this:

 

 

 

The problem is that our economic growth rate is not linear.  As an example, let’s assume that the current overall value of our economy is $100.  If our economy grows 3% this year, then the overall value at the end of this year is $103.  If our economy grows an additional 3% next year, will the overall value of our economy be $106 at the end of next year?  No.  Since we grew our economy 3% this year, next year’s growth will be 3% of $103 and the total value of our economy at the end of next year will be $106.09 ($103*.03 + $103).  Our economy does not grow linearly, it grows exponentially.  What this means is that 3% growth this year is actually more growth than 3% last year since our growth is compounded annually.  This is what exponential growth looks like:

 

 

You are probably starting to feel uncomfortable, because you are beginning to see where this is going.  In theory, this growth rate remains relatively low for a given period of time – but as you can see, as each year’s growth compounds on the previous year, overall growth begins to accelerate rapidly at a given point in time.  A simple example of this phenomenon can be seen in the growth of a company.  A company that plans to grow 10% with annual revenues of $10 million only needs to grow $1 million.  A company that plans to grow 10% with annual revenues of $10 billion needs to grow $1 billion.  As growth compounds upon itself, the system requires ever more resources to grow the same amount (%).

 

In our current economic system that relies on continual growth to stave off a collapse, we must continually burn through more and more natural resources to keep the system going.  In a theoretical world, this exponential curve continues on to infinity.  Is this possible in a finite world with finite resources?  Of course not.  If we take a logical look at our economic system, mathematics tells us one of two things must happen to our current system.  The first scenario is that we burn through all of our resources and the system collapses.  We can certainly see the beginning of this from a global perspective.  As more economies around the world have instituted the same economic system as ours, we are seeing more and more concern that natural resources (oil, forests, water, etc.) are being depleted at an alarming rate – demand is outstripping supply – adding to inflationary pressures.  Although this is certainly possible in our distant future, since we are much farther along the exponential curve than other economies in the world, there is a much more likely scenario for the United States. 

 

The second scenario is that our current system collapses under the weight of the debt it has created.  If the rate of debt increases much more quickly than the rate of the supply of money in the system, eventually the amount of money in the system will not be able to support the increased debt.  There will not be enough money to make interest payments, pay utilities, buy consumer goods and create additional money.  As the exponential curve gets steeper and steeper – it will be more and more difficult to grow our economy, while supporting the existing debt in the system.  At some point, since we live in the real world, our monetary system will collapse under the weight of its debt – long before we burn through all of our resources. 

 

Before we get too far into this – let’s ask a question.  Where are we on this exponential curve?  If we look at trends of some of the most widely used economic indicators, can we determine if we should be worried about imminent collapse?   As you will see, we have reason to be concerned.

 

Let’s start by looking at our debt.  The following is a graph of our nation’s federal debt:

 

 

 

Does this look linear or exponential?  You don’t have to be a mathematician to see the answer.

 

The following is a different look at our national debt that calculates the debt as a percentage of GDP:

 

 

We hear politicians and economists talk about how there’s nothing to worry about since our debt remains in line with past years - as a percentage of GDP.  The problem is that they are only focusing on the amount of debt as a % of GDP in a given year and not the effect of our cumulative debt. As we’ll soon see, what is even more important is the ratio of debt to the money supply.

 

We also have much more debt than just the federal debt.  The following chart shows total debt over time (state, federal, personal, corporate).  Once again, we see an exponential curve.

 

 

What about our money supply?  We should expect to see the same trend – and we do.

 

 

 

 

 

Hard currency appears to be somewhat linear, but it’s an illusion.  If we reduce the scale (since hard currency is such a small percentage of the total money supply), we see the same trend:

 

 

Since the Federal Reserve stopped publishing M3 (total amount of dollars in circulation) money supply data in 2006, a couple of economists have worked to re-create it.  The next graph was created by John Williams at shadowstats.com.  Take note of how the year over year growth of our money supply has steadily increased since early 2005.  Also note how the rate of growth is beginning to slow since the beginning of 2008. (I originally wrote this post in early 2008 - I have updated the graph below to show money supply growth through the first few months of 2009 - you can see how the current credit 'crisis' is affecting money supply growth).

 

 

I believe we’re going to see our money supply growth continue to slow since we are now at the point that we cannot create enough new money (through debt) to support the existing debt. If we’re not able to create enough new money (through debt) each year to service the interest on the existing debt – the system begins to collapse (loan defaults & bankruptcies begin to increase).  The world tells us that our economy is ‘maturing’, which is why our economy’s growth is slowing.  The truth, as you see, is much different.  We are beginning to see the very real signs of an economy on the brink of collapse under the weight of its monetary system.  We’ll talk about these signs later in this post.

 

Let’s continue by viewing inflation.  Once again, we hear the world tell us that inflation is running at a rate of 3% a year and we all accept this as normal – and we forget that this rate is compounded year after year.  If we see our money supply increase at such a fast pace, we should expect to see inflation also rise at an exponential rate – and we do.

 

 

Now you know why cars that once cost $3,000 now cost $30,000 or a loaf of bread that once cost $0.25 now costs $2.50.  Prices increase as the volume of money in the system increases.  More people with more money to spend places upward pressure on prices for everything – cars, fuel, food, natural resources, etc.  As money supplies throughout the world increase at an exponential rate, we see inflation skyrocketing across the globe.  More on this below.

 

What about other economic indicators?  We see the same trend.

 

Government Spending:

 

Government Revenues:

 

 

 

Commercial Bank Credit:

 

 

 

 

Total Revolving Credit:

 

 

Total Consumer Credit:

 

 

These are all interesting, but the most important graph will show us the rate of increase of our debt and the rate of increase of our money supply.  If we see a widening gap between the two, then we know that the system is beginning to break down as the rate of increase in debt (new debt – retired debt + interest) is outpacing the money supply used to create and service the debt.

 

 

 

 Sobering isn’t it?  What you are seeing is a system on the brink of total collapse.  With no way to pay our debts (since money is created by debt), this was inevitable at some point.  Even though our money supply is also on an exponential curve, it cannot (mathematically) keep up with the runaway debt.  We are nearing the end of an inevitable cycle.  A cycle that ends with the economic collapse of the United States.  As I mentioned earlier, this would not be a surprise to the men who created the system in the U.S. in 1913, nor is it a surprise to the men who are controlling the system today.

 

What about the rest of the world?  Can’t they continue to finance our debt?  Won’t this help delay our collapse?  What you are about to see is that every major world economy also has a Central Bank – and therefore is on the same exponential curve as us.  At some point, the entire world system will be unable to sustain itself unless the entire system changes.  We’ll just take a look at money supplies of some of the world’s biggest economies.  As you view these graphs, also take note of the total amount of Euros (European Union) in circulation compared to the amount of dollars in circulation.  If you consider that there are trillions more dollars in circulation throughout the world compared to pounds and euros and also consider the massive amount of U.S. debt – it shouldn’t surprise anyone that the overall value of the dollar is declining against the world’s major currencies.

 

Global Money Supply:

 

 

 

European Union:

 

 

Australia:

 

 

New Zealand:

 

 

India:

 

 

In addition, in recent months China’s money supply (M1+M2) has been growing at a 16-18% annualized rate.  So, it’s easy to see that the same insane economic/monetary system has been instituted the world over.  The question is – why?  Before we answer this, let’s take a look at what is going on in the U.S. economy today.

 

Let’s think about what we would expect to see if the economic system of the United States begins to collapse due to this monetary system.  As the amount of total debt continues to increase faster than the money supply, we would expect the number of personal and corporate bankruptcies to continue to increase.  As global inflation also continues to increase prices on a broad range of products and commodities (due to increases in money supplies the world over), we would expect this to also negatively affect individuals and corporations in America.  We would also expect to see those of us with the lowest cash reserves to be affected first.  Are we seeing these things?  Absolutely.  We see them everyday in our news.  The current ‘credit crisis’ began when subprime borrowers began defaulting on their home loans.  Now, we see that the number of Alt-A and Prime borrowers falling behind on their mortgages is also increasing.  Home prices are now decreasing across the nation as a result.  How does this affect the money supply?  If a homeowner defaults on a loan, the bank must ‘foreclose’ and take a loss on its books.  The bank then must sell the home – but sell it in a depressed housing market.  If the home was originally purchased for $100,000; and the bank can only get $75,000 now - based on what we now know about how money is created - you can see how the money supply will begin to be affected in a very big way.  As home prices decline, the amount of money generated from the home loans from consumers also declines.  As banks tighten credit due to the rising defaults, the vicious cycle continues – fewer loans and lower prices equals less money created (thanks to this debt based monetary system).  Less money created means less money to loan and less money to buy things – and the exponential money creation cycle from debt begins to reverse itself. It’s also easy to see that falling housing prices and falling housing sales are not the only problem here – all of the suppliers, subcontractors, etc. are also affected.  The rapid increase in the money supply generated by private banks that we’ve seen over the past decade is beginning to slow significantly.  But as you know, this isn’t all that’s happening.

 

You’ve watched as the value of CDO’s (Collateralized Debt Obligations), CLO’s (Collateralized Loan Obligations), SIV’s (Structured Investment Vehicles) and other derivatives are now plunging in value resulting in huge write-offs for banks.  As foreclosures have risen, the value of the bonds created from these mortgages have plunged in value – even those bonds based on ‘prime’ mortgages.  All of these things are reducing the money supply.  If you have an investment that you thought was worth $100, but now is only worth $60 on the open market, your access to money has been substantially reduced.  Auction rate securities, once thought as safe as cash, now can’t be sold – there are no buyers.  What you are seeing are the cracks beginning to form in the dam. 

 

What is the Federal Reserve doing?  Basically, they are trying to plug the holes by injecting money into our economy to delay the inevitable.  Money creation through the private banking system is faltering, so someone has to step in or something catastrophic is going to happen.  As the process has accelerated, not only are banks slowing their lending to consumers, they have also significantly reduced lending to each other.  In order to get the capital they need, many banks are now borrowing more money directly from the Federal Reserve discount window.  Remember, the Fed isn’t giving the money away; banks are borrowing this money from a private corporation.  We can see the impact from the current credit crisis from the graph below.

 

 

(Courtesy of Bloomberg)

 

We see this problem developing with the money supply, but there is one area of our financial system that has yet to suffer a significant drop in value – the stock market.  It’s been very volatile, but has not really suffered a prolonged decrease in value.  Think about this – what happens when financial conditions worsen, people can’t pay their bills/debts, all other investments have significantly declined in value and there’s only one remaining large source of wealth remaining?  People will sell their stocks to survive.  There’s an obvious problem with this – if a large number of people start selling – what happens?  Prices drop significantly.  Since stocks are one of the most volatile investments in the world, the coming decline in the stock market will, in all probability, be much worse than the current decline in value of CDOs/SIVs, Auction Rate Securities and other bonds.  One thing is for certain, it’s not a matter of if, but when this will happen.

 

 

 

 

Take a look at the above graph of the Dow Jones Industrial Average (Share volume is also shown).  Look familiar?  Once again, we see an exponential curve.  The DJIA is shadowing both our debt and our money supply.  Why?  Think about how the world tells us to invest.  We’re constantly told that stocks offer the best long term returns.  If you only look at stock returns over the past 30 years – this would appear to be good advice (if you ignore the possibility of something negative happening tomorrow).  The problem is that there are two very good reasons why the stock market has continued to increase over this time period – and they have nothing to do with the stock market itself.  As money has increased exponentially over the past 30 years – more and more liquidity has been placed in the hands of investors.  What is another consequence of this exponential money growth?  Inflation has also increased exponentially.  We have more and more money in a system where inflation is eroding the value of this money.  In this situation, everyone is trying to at least maintain the value of their money – by trying to earn a return higher than the inflation rate.  So, we see more and more people investing more and more money into risky investments (stocks, hedge funds, CDO’s, SIV’s, Auction-Rate Securities, etc.) in an attempt to outrun the inflation rate. 

 

There’s also another problem that no one in the mainstream media is discussing.  We assume that our inflation rate has been approximately 1%-5% in recent years because this is what our government tells us.  The problem is that since the early 1980’s, the government has changed the way it measures inflation.  I won’t go into details here (please watch Chris Martenson’s video for further information on how our government has changed how it calculates inflation and other economic data:  http://www.chrismartenson.com/fuzzy_numbers).  The truth is that the actual annual consumer inflation rate has been between 8%-12% over the past 10 years – which means that you would need to average an annual return of around 10% over the past 10 years just to break even.  The current rate of inflation is closer to 13% and increasing - not 5% as we’ve been told (I have updated the graph in 2009 to show how the current crisis is causing deflationary pressures).

 

 

 

If we also consider the impact that the actual inflation rate has on real GDP (inflation is subtracted from nominal GDP to calculate real GDP) – we see why businesses and consumers are telling us that we’re in a recession – while our government tells us that our economy is still growing.  The current state of our economy starts to make sense when we see inflation in double digits and negative GDP for several quarters.

 

 

Do you know people who have lost their jobs recently?  Wonder why it’s difficult to find a job right now?  It’s because the current unemployment rate is closer to 13% - not the 5% that we’ve been told (I have updated the graph in 2009 to show the continuing impact of the current recession/depression - real unemployment is now approaching 20%).   The government selectively removes ‘discouraged workers’ from total unemployment in order to calculate the lower rate.  It’s simply a way for our government to manipulate the data to show more favorable percentages.

 

 

 

What is going to happen to the stock market as our money supply growth continues to slow, GDP continues to contract, inflation continues to increase, housing prices continue to fall and more people lose their jobs?  The stock market will, once again, shadow our money supply straight down as the system collapses.  We’re beginning to see how this is affecting the stock market today.  The market has been extremely volatile as earnings reports from companies seem to contradict government economic data.  When it becomes clear to everyone that we’re in serious trouble – we’re going to see a mass exodus from stock markets worldwide.

 

If you’re wealthy, you may feel somewhat secure that you’ve got a nice nest egg to see this through.  Where is your money?  It’s most likely in dollar currency in the system – checking/savings accounts, money market funds, stocks, bonds, 401(k)’s, retirement accounts, etc.  What happens if it’s not just a segment of the system that collapses, but the entire system?  It won’t matter what you have - $5 or $5 million – your wealth will vanish before your eyes.  We are facing a far worse scenario than 1929.  From 1929 through 1933, our money supply contracted approximately 30% after a period of money supply expansion in the 1920’s.  As you can see from the money supply trends in previous charts, we have also been through a period of significant money supply expansion from 1995 until 2007.  It appears that 1929 was a trial run for what will happen in the near future to us. 

 

Was wealth destroyed during the Great Depression?  No.  Wealth was transferred.  If you read the biographies of some of the great bankers of that era (J.P. Morgan and others), you will see that the majority of them did not have their money in stocks.  Earlier in 1929, they moved their investment holdings to cash and gold.  For them, the crash of 1929 was not a catastrophe, it was a buying opportunity. A buying opportunity they created.  The price of assets dropped dramatically during this time - and guess who happened to have the cash on hand to buy assets at depressed values? 

 

Until now, you’ve probably thought that we’re all playing by the same rules – we’re not.  This really isn’t about money – it’s about power and control of the world.  It’s about a ruling elite enslaving humanity on a worldwide scale.  A ruling elite given power by the world’s spiritual ruler.  Now you know a little more about why the Lord has warned us.  He warned us that this beast would be deceptive and would deceive the whole world – and you’re beginning to see why.  When God tells us in His Word that something in our future will be deceptive on a worldwide scale – it’s a warning we should heed.

 

This leads us to why our monetary system exists.  In 1913, the battle for the control of the United States banking system was lost – and the Federal Reserve Bank was created.  The name of this private corporation should tell us all we need to know – it’s a lie.  It’s a bank that is not Federal and there are no reserves.    The truth is that this ingenious monetary system was created by some highly intelligent men for one purpose – global power.  Whoever controls interest rates and the volume of money in a nation controls the nation (and ultimately the world).  In a world focused on money and the pursuit of money, whoever controls our money has the power – absolute power.  These men created a monetary system that forever places our nation in debt and one that can be manipulated by them for their purposes.  What is going to happen when markets collapse? Guess who, once again, will be there to acquire depressed assets? 

 

As I’ve said before, this was inevitable.  If you give a banking system, in our evil world, the ability to control the money supply and the ability to charge interest on the money they create, the bankers will slowly, over time, exchange worthless money (paper and electronic fiat currency) for real assets – gold, silver, land and property.  If you view this from a spiritual standpoint, you begin to understand why Jesus told us that building the foundation of your life on the things of this world is not wise.  As has happened before, and will happen again, wealthy people of this world will see the foundation of their lives (money) slowly sift away through their fingers.  Our wealth is an illusion.  Satan has offered wealth and power to many in this nation and they have gladly accepted.  They are about to witness what happens when you do a deal with the devil.  Take him on by yourself and sooner or later – he’s going to find a way to get his tentacles into you.  What happens when wealth is taken away from people who are focused on wealth?  It’s not pretty.  How do we overcome?  As I’ve said before, and will continue to say until I leave this world – you will not overcome this world and its ruler until you humbly ask forgiveness from God.  Until you acknowledge your sins and truly believe the Lord’s promise of salvation through His Son, you will never get free of the world.  You will always be susceptible to the world’s many disappointments.  When you truly repent and are born again, what happens in the world no longer matters because you know the Lord and the Lord stands with you – until the end.

 

At some point you’ve probably wondered how on earth this monetary system has survived until now.  If you read the many quotes throughout recent history from bankers, world leaders, economists and tycoons about central banks – and really pay attention to what they’re saying - it’s no secret that those in power knew what was happening (I have listed many of these quotes on my website).  Why hasn’t anyone stopped this madness?  It’s not hard to figure out – fear.  If you attain a position of power and are told to look the other way or face the consequences – what do you do?  Most people in the world will gladly take the money and power….and look the other way.  Why place my life at risk when I can continue living this nice lifestyle by not rocking the boat?  Yes – I said that by standing against this beast – you place your life at risk.  I’m not saying this merely to make a hypothetical point.  Take a look at this list.  These men had three things in common.

 

Abraham Lincoln

James Garfield

John F. Kennedy

 

All were Presidents of the United States.  Each man spoke out against the issuance of money by anyone other than our Government and made it clear who they were targeting with these comments – and all were assassinated.  Lincoln refused to attain loans from the European banks to finance the Civil War (he was offered loans at 24%+ interest) and instead had the U.S. Treasury issue its own money.  JFK gave a speech in 1961 about a worldwide ‘monolithic and ruthless conspiracy’ which is ‘a system that has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific and political operations’.  I have added a link to the speech on my website. (Here’s the link:  http://www.youtube.com/watch?v=C4cqSXtj9ak)  JFK even had the audacity in the summer of 1963 to give the U.S. Government the authority to, once again, create its own money via Executive Order 11110 (based on a Silver standard).  The U.S. Treasury actually began to print its own money in 1963….but as we all know, this didn’t last long. 

 

As you read the quotes below, notice carefully what these men are telling us.  They didn’t realize it at the time they made these statements, but each one of them learned about and then commented on – one of the beasts of Revelation 13.  Some of them paid the ultimate price for doing so.  The Lord doesn’t arbitrarily label something a ‘beast’ without reason.  He uses the term ‘beast’ to tell us who and what we’re dealing with – an organization that will kill, steal and destroy anyone and anything in its path – anything that opposes it.  This beast obeys its father – the father of lies and deceit who walks in complete darkness.  There is only one way in this world that you and I can oppose this beast and survive – by standing with and obeying the Lord. 

 

“The very word secrecy is repugnant in a free and open society – and we are, as a people, inherently and historically, opposed to secret societies, to secret oaths and to secret proceedings.” –JFK

 

 

“We are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covet means for expanding its sphere of influence – on infiltration instead of invasion – on subversion instead of elections – on intimidation instead of free choice.  It is a system that has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine - that combines military, diplomatic, intelligence, economic, scientific and political operations. Its preparations are concealed, not published.  Its mistakes are buried, not headlined.  Its dissenters are silenced, not praised.  No expenditure is questioned, no secret is revealed.”  -JFK

 

“I am asking your help in the tremendous task of informing and alerting the American people.” –JFK referring to the worldwide conspiracy mentioned above

 

“Whoever controls the volume of money in our country is absolute master of all industry and commerce….and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”  -James A. Garfield

 

“The Government should create, issue and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers.  By the adoption of these principles, the taxpayers will be saved immense sums of interest.  The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity.” -Abraham Lincoln

 

“We are grateful to the Washington Post, the New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected the promises of discretion for almost forty years.  It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years.  But, the world is now more sophisticated and prepared to march towards a world government.  The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the National auto-determination practiced in past centuries.” –David Rockefeller in an address to Trilateral Commission Meeting, 1991

 

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will
grow up around them (around the banks), will deprive the people of their property
until their children will wake up homeless on the continent their fathers conquered." –Thomas Jefferson

 

"Capital must protect itself in every way... Debts must be collected and loans and mortgages foreclosed as soon as possible. When, through a process of law, the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principle men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd." -J.P. Morgan

 

"We shall have World Government, whether or not we like it. The only question is whether World Government will be achieved by conquest or consent." –James Paul Warburg (Chairman of the Council on Foreign Relations, speaking before the U.S. Senate, 1950)

 

"The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson. History depicts Andrew Jackson as the last truly honorable and incorruptible American president." –Franklin D. Roosevelt

 

"[The task is to] covertly lower the standard of living, the whole social
structure, of America so that we can be merged with all other nations." –Rowan Gaither (President of the Ford Foundation, 1954)

 

“I am myself persuaded, on the basis of extensive study of the historical evidence, that... the severity of each of the contractions - 1920-21, 1929-33, and 1937-38 - is directly attributable to acts of commission and omission by the Reserve authorities and would not have occurred under earlier monetary and banking arrangements.'' –Milton Friedman (Nobel Prize-winning economist, economic advisor to President Ronald Reagan)

 

"Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the U.S., in the field of commerce and manufacturing, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it." –Woodrow Wilson

 

"A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men who, even if their action be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who necessarily, by very reason of their own limitations, chill and check and destroy genuine economic freedom."  -Woodrow Wilson

 

"We have restricted credit, we have restricted opportunity, we have controlled development, and we have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world--no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men." –Woodrow Wilson

 

"This Act (the Federal Reserve Act, Dec. 23rd 1913) establishes the most gigantic trust on earth. When the President (Woodrow Wilson) signs the Bill, the invisible government of the Monetary Power will be legalized... The worst legislative crime of the ages is perpetrated by this banking and currency Bill." –Charles A. Lindbergh Sr. (Congressman and father of the famous aviator)

 

"The most wonderful thing of all is that the distinguished Lutheran and
Calvinist theologians who belong to our order really believe that they see in it (Illuminati) the true and genuine sense of Christian Religion. Oh mortal man, is there anything you cannot be made to believe?" - Adam Weishophf upon establishing his "Order of the Illuminati", on May 1, 1776

 

"It is ironical that the only nation which affirmatively expresses a dependence upon and belief in Almighty God in its birth certificate, should now be in mortal combat for its very existence with a godless conspiracy intent upon conquering the world, and reverting human society to the hazards and indignities of the Dark Ages." –Loyd Wright (Former President of the American Bar Association, 1961)

 

"From the days of Spartacus, Weishophf, Karl Marx, Trotski, Belacoon, Rosa Luxenburg, and Ema Goldman, this world conspiracy has been steadily growing. This conspiracy played a definite recognizable role in the tragedy of the French revolution. It has been the mainspring of every subversive movement during the 19th Century. And now at last this band of extraordinary personalities from the underworld of the great cities of Europe and America have gripped the Russian people by the hair of their head and have become the undisputed masters of that enormous empire." –Winston Churchill, 1920

 

"The real menace of our Republic is the invisible government which like a giant octopus sprawls its slimy legs over our cities, states and nation. At the head is a small group of banking houses generally referred to as 'international bankers.' This little coterie... run our government for their own selfish ends. It operates under cover of a self-created screen...[and] seizes...our executive officers... legislative bodies... schools... courts... newspapers and every agency created for the public protection." –John Hylan (Mayor of New York, 1918-1925)

 

"The sovereignty fetish is still so strong in the public mind, that there would appear to be little chance of winning popular assent to American membership in anything approaching a super-state organization. Much will depend on the kind of approach which is used in further popular education." (Council on Foreign Relations, 1944)

 

If you spend some time studying these international bankers who have instituted this debt based monetary system worldwide, you will find that at the top echelon of power there are approximately 300 names.  These are the same 300 families who own stock in the Federal Reserve of the United States and all of the other central banks the world over. These are the people who wield the world’s real power from the shadows and provide the wealth and power needed to infiltrate the world’s monetary and political systems.  These are the people the Lord describes in Revelation 13 – this ‘beast out of the earth’.   

 

If you continue to study how they have gained this power, you will be led back in time to the early 1690’s to the founding of the Bank of England – the world’s first central bank.  And if you continue to search for the truth, you will find that all roads on this journey eventually lead to one name – Rothschild.  The world will tell you that the Rothschild’s banking empire has been reduced to a ‘niche’ bank – catering mainly to very wealthy investors.  The truth is that they control approximately 70%-80% of the world’s wealth from the shadows.  If I had told you this at the beginning of this post, you would have probably rejected this statement outright.  Now you know how it’s possible – they print the world’s money and exchange it for the world’s real assets.  As I mentioned at the beginning, it’s really an ingenious plan – when you realize why it was created.  It’s evil, but ingenious.  The Rothschilds and every member of these ‘elite’ families would tell you that this plan was devised by them for their purposes – but we know the truth.  The Lord has told us Satan’s plans – they’re simply obeying the one they serve.

 

We now see how the world’s financial system has been overtaken by a few very powerful men.  If we take what we know and think about the ‘mark of the beast’, we realize that control of the world’s financial system isn’t enough to satisfy the prophecies about the ‘mark’.  Controlling the world’s financial system is one piece of the puzzle, but something else is needed – enforcement.  Everyone throughout the world will be ‘forced’ to accept the mark. These powerful men need a way in which to deceive us into believing that humanity needs protecting – and now we know why the Lord tells us in the book of Revelation about ‘miraculous signs’ used by this beast.  The beast creates these ‘signs’ to strike fear among us – fear that will eventually drive humanity to give over its freedom to the beast – and Satan.  We’ve seen many of these ‘signs’ already, but they are only the beginning.

 

When it comes to spiritual deception, you are beginning to see just how blind we really are in this world when we walk away from our Creator.  We focus on the things in the world – money, careers, cars, houses, addictions, stuff, etc. – and we forget about the subtle things that are missing from our lives.  Some of these things are big picture – How did we come into being?  Why are we here?  Does God really exist?  If He exists, why can’t I see Him?  Can I really know God - personally?  Where do I go when I die?  Am I really alone in this fallen world?  How can I get free of this mess?  Other questions are smaller picture, but would also lead us to the truth if we would just slow down for awhile and think about what we’re consistently told in this world and compare it to God’s truth – could someone really consolidate the world’s government, world’s religion and world’s financial system within 7 years?  If God has allowed His children to experience pain and suffering throughout human history in order to strengthen them in this world, why would He change now? Sometimes it’s a very simple question that leads us to some very important answers – how is our money created?  Think about how many times in your life – friends, parents, teachers, professors – someone has explained our monetary system to you.  Never?  You’re not alone – and there’s a reason it’s being hidden.  If I were to ask 1000 Americans today what is the greatest threat to our nation’s sovereignty – how many do you think would respond - ‘the war on terror’?  My guess is that 99% of us would agree that ‘the war on terror’ is our greatest threat.  Our spiritual enemy has created a perceived threat – while his true ‘beasts’ gain control of the world through deceptive means – subversion, infiltration and intimidation.  Again, an ingenious plan – and not of this world.  The only way to overcome it is to obey the One spiritual being that Satan cannot deceive, intimidate or overcome – our Father in heaven. 

 

The truth is that never before, in the history of the United States, have we faced a greater threat to our national sovereignty as we do now – never.  We are facing an enemy that is much more intelligent and powerful than you and I - an enemy that has not used brute force against us, but works in the shadows to deceive and infiltrate.  At times in the past I would think about the book of Revelation and wonder how the people of the world could ever allow themselves to be subjected to an evil world government.  I simply didn’t want to believe it was possible and I, like most people today, disregarded the Lord’s warnings about how this beast would deceive the whole world.  Now that I’ve humbled myself and know the truth, I listen to this beast talk to us everyday through corporate, governmental, banking and religious leaders – leaders of the United States.  It’s no longer a mystery.  Their plan has almost come to fruition.  At some point, you might think that all hope is lost – that they are too powerful and the plan is too far along.  How can we possible stop this?  I’m not fearful of these things because I know that God could see this coming since the creation of the world – and I don’t need to figure out what to do on my own.  I will simply continue to seek the Lord’s will for me – His plan, not mine.  What you are about to see throughout the world is that God is going to go on the offensive – and he’s going to do it with you and me.  Now is not the time for weak people with weak ministries to proclaim a weak message.  Now is the time to allow ourselves to be strengthened spiritually.  Now is the time to stand in the face of overwhelming odds – and succeed. 

 

At different times in your life you have probably felt that something wasn’t quite right.  You could ‘sense’ it, but you couldn’t ‘see’ it.  You couldn’t really explain it, but you knew that there was something not quite right about the world you live in.  The economy is up – the economy is down.  Life is good – life is not so good.  Chaos seems to rule the world.  It’s like we’re walking on very thin ice that is constantly cracking – about to give way.  You are now beginning to understand that there is a method to the madness.  When the world chose death over life, sin over righteousness – when we chose to believe lies instead of the Truth – this was the inevitable result.  What gets the true Christian through all of this is that this isn’t the end – it’s only the beginning – and we’re not alone.  The end is glorious for us – end of story.

 

You’ve seen me reference the movie ‘The Matrix’ and how many aspects of the movie are similar to the spiritual battle being waged in the world.  I’m going to end this post with some dialog from the movie because it certainly relates to most of us.  The following scene takes place right before Neo learns the truth about his world.

 

Morpheus: I imagine that right now, you're feeling a bit like Alice. Hmm? Tumbling  

down the rabbit hole?
Neo: You could say that.
Morpheus: I see it in your eyes. You have the look of a man who accepts what he sees because he is expecting to wake up. Ironically, that's not far from the truth. Do you believe in fate, Neo?
Neo: No.
Morpheus: Why not?
Neo: Because I don't like the idea that I'm not in control of my life.
Morpheus: I know *exactly* what you mean. Let me tell you why you're here. You're here because you know something. What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. Do you know what I'm talking about?
Neo: The Matrix.
Morpheus: Do you want to know what it is?
Neo: Yes.
Morpheus: The Matrix is everywhere. It is all around us. Even now, in this very room. You can see it when you look out your window or when you turn on your television. You can feel it when you go to work... when you go to church... when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.
Neo: What truth?
Morpheus: That you are a slave, Neo. Like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind.

 

I finally found a video that does an excellent job of explaining our monetary system in simple terms.  I recommend that you watch it to get a better understanding of what I have discussed here.  The video was created by Paul Grignon and is only 47 minutes long.  It’s available on Google Video at:  http://video.google.com/videoplay?docid=-9050474362583451279&q=paul+grignon&ei=kmAsSL70C5CUrgL0r72aCg .  I have used a couple of Paul’s examples in this post.

 

http://johngilmore.org/

It’s been about eight months since I wrote the post on our monetary system (Our Monetary System – How Central Banks Control the World’s Economy).  Obviously, a lot has happened since that first article.  Over the past two months (September and October), we’ve seen the U.S. economy begin to contract and we’ve also seen extreme volatility in stock markets around the world.  In this post, we’re going to review how our monetary system is currently impacting the world’s financial system and why we are seeing such extreme volatility in the world’s markets.

 

Let’s start by reviewing the Chicago Board Options Exchange Volatility Index (VIX).  This is a widely used measure of stock market volatility.  It is a measure of the implied volatility of S&P 500 index options. A higher VIX value reflects more volatility in the market.  As a baseline to what we’re seeing today – the VIX index briefly moved above 40 a couple of times in 2001 and 2002 during the dot com bust – reflecting high volatility as technology stocks declined.  From 2003 through 2007, a value of 30 indicated a fairly volatile market – it typically moved in a range between 10 and 20.  High volatility typically corresponds with stocks moving significantly lower as many investors issue sell orders.  As you can see from the chart below, the index has not moved below 30 since the middle of September (2008) and briefly moved above 80 around October 27^th.  Obviously, it’s not hard to see that stock markets have been extremely volatile.  It hasn’t been uncommon for the Dow Jones Industrial Average to swing 500, 600, 700 – even 1000 points in one day.  I’m guessing that there are stock traders around the world eating a lot of antacid these days.

 

So, the 64,000 dollar question is – what is causing this volatility?  Is it just the economy showing signs of weakness or is something more ominous at work here?  Before we answer this question, let’s take a look at a couple of other things happening within the world’s financial system.

 

VIX: 6 Months

 

 

As in previous years where volatility has been high, we again see that stocks are also showing significant declines.  As we see from the chart below – the Dow Jones Industrial Average (DJIA) has declined as volatility has increased.  This really shouldn’t be surprising – as prices become more volatile, people begin to lose confidence that their investments are stable/safe – so they move more of their money into investments that are perceived to be safer and less volatile – leading stocks lower.  As we’re going to see – what the world perceives as ‘stable’ or ‘safe’ – isn’t safe at all.  Take note of what the DJIA chart of the past 2 months looks like (below) – because you’re going to see the same pattern again and again. 

 

Also note that the DJIA tracks 30 ‘blue-chip’ stocks – large companies like American Express and Bank of America (Banking & Finance), IBM and Intel (Technology) and Chevron and ExxonMobil (Energy) – a wide range of companies and industries.

 

DJIA – 2 Months (includes Volume & Volatility)

 

 

Let’s now look at the NASDAQ composite index.  This is an index of all the stocks listed on the NASDAQ stock market. These are typically technology companies - companies like Apple Computer, Microsoft and Oracle.  As you view the graph below – notice anything similar to the DJIA graph above?  Although the values are different – they are both moving in the same direction, by approximately the same percentage - at the same time.  So, an index that encompasses a wide range of large companies in many different industries (DJIA) is moving in tandem with an index (NASDAQ Composite) that is comprised of almost 3,000 technology companies.  Is this a coincidence or will we see the same pattern continue across other stock markets?

 

NASDAQ Composite – 2 Months (includes Volatility)

 

 

Let’s take a look at the S&P 500 stock index.  The S&P 500 includes 500 large cap U.S. stocks – and like the DJIA – includes companies across many different industries.  3M, AllState, Amazon, Monsanto are a few of the companies included in the S&P 500. 

 

S&P 500 Index – 2 Months (includes Volatility)

 

At first glance, it appears that I’ve copied either the DJIA or NASDAQ graph above – because all three look almost exactly the same.  The values of each index are different (reflecting the different overall dollar values of each index), but they are all moving in the same direction, by the same percentage – at the same time.  You’ve probably noticed this yourself at times, but didn’t think much about it.  We should pay close attention – because this is indicating another fundamental flaw inherent in the world’s financial system.  We’ll get to this after a few more graphs.

 

Let’s look at the NIKKEI Index – an index that tracks the Tokyo Stock Exchange.  Once again we see that although the values are different – Japanese stocks are moving in the same direction, by approximately the same percentage – at the same time as their American counterparts.

 

NIKKEI Index – 2 Months (includes Volatility)

 

 

We see the same trends in European stocks.  The following is a Dow Jones stock index for European companies.

 

DJ Stoxx 50 – 2 Months (Europe – includes Volatility)

 

 

….and the same trends in Australia.

 

Australia ASX Index – 2 Months (includes Volatility)

 

The Dow Jones World Index (a composite of the world’s stock markets) looks almost identical to all of the stock indexes above.  What do these graphs show you?  Are you diversifying your portfolio by investing in different stock markets around the world?  No – you’re not.  The world’s financial system is now so closely interconnected – that all of the world’s stock exchanges are moving in tandem - acting like one big stock exchange.  Stocks around the world are moving up together and moving down together - and are all very volatile and declining in value.  Is stock market volatility a good thing?  Absolutely not.  Stocks are the most volatile investments on the planet and continued volatility can cause panics – which we’ve already seen in October.  When the stampede out of stocks begins sometime in the near future – it’s going to be a worldwide stampede. 

 

DJ World Index – 2 Months (includes Volatility)

 

If stocks are going to significantly decline in value, where do we invest our money?  The next investment option is usually bonds.  Bonds are less volatile – right?  Not in this current crisis.  Let’s look at one of the most widely purchased bonds – the 10 year U.S. Treasury bond.

 

The graph below shows the yield on the 10 year T-bill over the past 2 months.

 

10 Year Treasury Yield – 2 Months

 

Stock market volatility is spilling over into bonds (even bonds considered safe – U.S. T-bills) because investors have gotten into and out of bonds as stock markets have gone on a rollercoaster ride.  When stock market volatility rises – investors will tend to move to ‘safer’ investments – which is why you see the swings in the 10 year t-bill above.  Prices for T-bills have also been volatile – they move inversely to yields.

 

10 year Treasury Yields over the past year look just as volatile.

 

10 Year Treasury Yield – 1 Year

 

Look at the 3 month Treasury yield below.  When stock market volatility began to rise significantly in September, investors fled to T-bills – driving the yields to almost nothing.  This means that investors were willing to buy t-bills with no yield in exchange for safety.  Investors were investing their money in something that paid them nothing in return.  This would be like parking all of your money in a checking account with no interest – simply because you trust the bank and fear any of the alternatives.  What would cause the world’s investors to do such a thing?  One word – fear.  Not a good thing for financial/stock markets.

 

3 Month Treasury Yield – 3 Months

 

The index below tracks municipal bond prices (comprised of 40 municipal bonds rated A or better). Once again, we see more volatility.

 

Bond Buyer Muni Index – 3 Months

 

The Dow Jones Corporate Bond Index is an equally weighted basket of 96 investment grade corporate bonds.  Do you see any stability here?  Nope.

 

DJ Corporate Bond – 3 Months

 

The Dow Jones Chicago Board of Trade Treasury Index (DJ CBOT) is made up of CBOT 5-year, 10-year and bond futures contracts.  See any stability here?  Again, the answer is no. 

 

DJ CBOT Corporate Treasury – 3 Months

 

What about the convertible bond market?  You may have heard about convertible bonds recently in the news – corporations and hedge funds often use this market for short term financing needs.  What is a convertible bond?  As stated by the Wall St. Journal:

“Convertible bonds are part stocks, part bonds. They act like bonds and usually pay interest. But, as an added kicker, they give holders the right to convert the securities into stocks at a certain price. The market is normally less volatile than stocks, but the securities can have the same upside if a company rebounds.”

How has this market fared this year?  The following excerpt from the Wall St. Journal says it all.

“Overall, the $200 billion convertible-bond market has lost 36% so far this year, a bit more than the stock market, according to Merrill Lynch. But the average convertible-bond hedge fund has lost about 50% in that time, including a 35% plunge in October, according to Hedge Fund Research Inc.”

 

We see more volatility and more wealth evaporating.

 

So, we now see that both stocks and bonds have been extremely volatile and we see both stocks and bonds declining significantly in value.  If you add up the declines in the graphs above – you see trillions of dollars vanishing.

 

Until the recent crisis – money market funds have been considered as safe as cash.  Not now – the following excerpt from an article on CNN sums up the risks with money market funds:

“A soured investment in Lehman Brothers Holdings Inc. debt slashed two-thirds of the asset value of the oldest money-market fund in the United States, exposing clients to losses despite investments in a financial product seen as a safe haven even in volatile markets.

The sudden setback at the Reserve Primary Fund caused it to "break the buck" -- leaving investors unlikely to get back all the cash they put in because the fund failed to maintain assets of at least $1 for every dollar invested.”

In a previous post I discussed how the market for Auction Rate securities has also collapsed – commercial and investment banks have recently agreed to pay billions to investors who felt they were misled into believing these securities were as safe as cash.

If we also consider that banks are struggling with rising loan defaults (17 U.S. banks have failed to date this year), it is becoming clear that even our checking and savings accounts are at risk.  You may think that the FDIC will insure your deposits – but the FDIC has funding for approximately 1% of current bank deposits.  Not exactly reassuring.

It is becoming increasingly clear that there are no safe havens in the world’s financial system – except maybe your mattress – and it’s not really part of the financial system.

The next stop on this journey is commodities.  Let’s take a look at prices of some of the most widely traded commodities.  Let’s start with oil.  The following shows the price of oil over the past 3 months.  After climbing above $140 a barrel this summer, the price has now dropped rapidly below $70.  In approximately two weeks, the price of a gallon of gasoline in Atlanta has dropped from $4 to $2.  It’s easy to cheer such a drop in gas prices – until you study why it’s dropping so dramatically.

 

Crude Oil – 3 Months

 

 

It’s easy to see that market volatility is not isolated to stocks, bonds and financial derivatives – it’s also present within commodity prices.  We’re going to see that this volatility and price deflation present in oil also exists across all types of commodities.   The question we’re going to explore is – why?

Let’s take a look at metals.  Copper prices have dropped over 40% in three months as demand has declined dramatically.

 

Copper – 3 Months

 

Even gold has been volatile – as investors buy and sell gold to cover margins in other investments and diversify their holdings.  I believe that although gold has been somewhat volatile – it’s still the best investment in an uncertain financial system since its value is not tied to interest rates and it can always be used as money.  Try buying some actual gold – it’s hard to find.  The U.S. mint has even stopped minting certain gold coins since demand is far exceeding supply.

 

Gold – 3 months

 

What about agriculture?  We see the same trends.  Corn prices have declined over 30% in three months.

 

Corn – 3 Months

 

Same situation with Soybeans – prices have declined over 30% in three months.

 

Soybeans – 3 Months

 

Wheat prices are down almost 40% in three months.

 

Wheat – 3 Months

 

What about livestock?  The same trends are present everywhere.  Hog prices are down over 25% in three months.

 

Lean Hogs – 3 Months

 

 

Cattle prices are down over 15% in three months.

 

Live Cattle – 3 Months

 

 

The obvious question is – why are we seeing such widespread price deflation in the world’s financial markets?  If you read my first article on our monetary system, then you know that I initially believed we would probably see some type of hyper-inflation as Central Banks pumped more and more money into the system.  If you’ve been following the crisis – then you know that inflation has been a concern for Central Banks for some time as prices increased dramatically for a wide range of products and services.  We can see this in the chart below.  If we measure inflation using the standard measure used by our government until the early 80’s – we see inflation approached almost 14% before beginning to decline recently.

 

 

 

So, what is happening to tame inflation?  Why are prices declining at such a rapid pace?  The biggest pieces of the puzzle are (once again) our money supply and debt.  Take a look at our money supply growth rates.

 

 

We are seeing money supply growth slow considerably.  Why is this happening?  Because the world’s private banking system is failing.  Banks have dramatically reduced lending due to rising defaults and borrowers have dramatically reduced taking on more debt – because their debt levels are already at unmanageable levels.  The current debt of governments, corporations and individuals is crushing the world’s economy.  Central banks are now attempting to revive the world’s economy by lowering interest rates (again), lowering reserve requirements and recommending that governments continue with economic ‘stimulus’ packages.  Someone must continue creating debt (and therefore – money) or the system will begin a freefall collapse.  As I’ve said before – they are only delaying the inevitable.  You can only service debt at these levels for so long – before something catastrophic happens.

 

US_Federal_Debt

 

What happens when a debt-based monetary system begins to collapse?  You’re watching it happen everyday now – extreme volatility ripples throughout the financial system as the entire system shudders under the weight of the debt it has created.  The world simply can’t sustain the debt creation necessary to keep the system going.  Very few people understand what is happening – so we’re seeing wild swings in prices and volumes as people are blindly looking to somehow save their money from vanishing.

 

Prices for everything are now rapidly declining because we don’t have the money – or access to needed credit - to buy things.  Our economy actually began contracting in 2004 (when viewing real data) – but as you can see – it appears that we are now falling off the cliff.

 

 

This is why auto-makers the world over are now reporting drastically reduced sales numbers (and financial results) and why 3^rd quarter earnings from all kinds of companies in all kinds of industries around the world are showing serious declines and/or issuing guidance warnings.  We simply don’t have the money and/or access to credit to keep the system running.

 

This is why we see abysmal economic data like this:

 

 

 

 

 

 

 

We hear economists talk a lot about ‘bubbles’ – asset bubbles, stock bubbles, housing bubbles, etc.  As you will see below – the world’s financial system has created one, very big bubble across the entire system – and it’s about to pop.

 

It’s easy to see that stocks are on the way down from the top of the mountain.

 

World Stock Index (DJ World Index):

 

U.S. Stocks (DJIA):

 

European Stocks (DJ Stoxx 50) :

 

 

Japanese Stocks (NIKKEI):

 

 

 

Latin America (DJ Americas):

 

 

Much of the blame for the current crisis has been placed on the U.S. and U.K. housing market collapse.  A housing bubble has certainly been created in both countries, but as you will see – this is a worldwide problem.

 

 U.S. Housing Prices:

 UK Housing Prices:

 

The following excerpt is taken from the Economist.com website:

 

 

“WHERE are house prices most overvalued? As the rest of the world watches the bursting of America's housing bubble, that question should be at the top of everyone's mind. The answer is not comforting: many countries have had far hotter housing markets than America and are also suffering from tightening lending conditions thanks to the credit crisis.

 

In the latest World Economic Outlook, Roberto Cardarelli of the IMF calculates the share of the increase in real house prices between 1997 and 2007 that cannot be accounted for by fundamental factors such as lower interest rates and rising incomes. This “house-price gap” is greatest for Ireland, the Netherlands and Britain, where prices are about 30% higher than can be justified by fundamentals. France, Australia and Spain have house-price gaps of around 20%. In America, where prices were already falling in 2007, the gap is just over 10%.” –Economist.com

 

Energy prices have certainly been through a bubble:

 

Crude Oil:

 

Natural Gas Henry Hub Pit (Nymex):

 

Food prices across the board have gone through a bubble:

 

Corn:

 

Wheat:

 

 

Cattle:

 

 

 

Let’s look again at what is behind all of this: our money supply.

 

 

Our total money supply (M3 - dollars) is now approximately $14 trillion, but the rate of growth is now slowing.  If we see a dramatic decrease in lending from banks, what is sustaining the money supply growth?  Here’s the answer:

 

 

 

The total amount of money (dollars) controlled by the Fed & Treasury has now grown over the past year to approximately $8 trillion dollars.  As I’ve said before – someone has to keep the supply of money growing – which is why we see Central Banks pumping billions of dollars into the system and telling governments to provide additional economic stimulus packages.

 

Is there anything else that has contributed to these bubbles and all of this volatility?  The Federal Reserve (and mainstream media) tells us that they adjust the Fed Funds Rate in response to economic conditions.  The truth is that the Fed drives the economy (and behavior) with interest rates (coupled with reserve requirements).  The Fed isn’t responding to a rollercoaster ride – it created the rollercoaster. 

 

 

What happens when volatility finally cause the bubbles to burst completely?  We’ll need a new, heavily regulated, worldwide financial system. 

 

If you were wondering if the Fed really does own a large portion of our debt – this pie chart should answer the question.  The Federal Reserve owns over 50% of the U.S. Federal debt.  Remember – this is a cartel of private international bankers. I wonder why we never hear this on the nightly news? 

 

What does the Bible say about the relationship between a lender and a borrower?

 

‘the borrower is servant to the lender’ (Proverbs 22:7)

 

“Do not be a man who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.”  (Proverbs 22:26-27)

 

And here we see the impact on the Fed’s balance sheet from all the recent ‘bailout’ activity.  Notice that their ‘assets’ are increasing substantially.

 

The Lord has warned humanity for thousands of years about the very thing happening to us today – and our nation has joined a growing list of nations throughout history - that have ignored His warnings. 

 

Here’s a good analogy to summarize what is happening. Our Father tells us that He will build us a nice house – not too big, not too fancy – but it will shelter us and provide us all that we need – a good, stable house that will last.  It won’t cost us anything – we only need to believe that He will provide for us and to trust Him.  Our Father also warns us about other builders in the world.  While we’re thinking about this, another builder makes us an offer.  We don’t know this builder – but He promises to build us the nicest house the world has ever seen.  It will require a little bit of debt, but it will be far nicer than the home our Father said He would build for us.  We begin thinking about how nice it would be to have the nicest house in the world – so we reject our Father’s offer, we choose not to heed His warnings - and we hire the builder. We think this new mansion is complete with everything we could ever ask for – built with the finest fixtures, the finest furniture, the most beautiful lawn – the nicest looking house in the world.  The world envies our home because it’s so big and beautiful.  There’s only one problem – we didn’t lay a good foundation for our house.  Unbeknownst to us – the builder of our home built it on sand – because he is devious and we weren’t paying attention.  We noticed after moving in – that every once in awhile – the whole house shakes.  We pause – wondering what is causing the problem – but the shaking subsides and we don’t take the time to find out what is causing the problem – we’re too enamored with the beauty of our home.  Eventually, one day the whole house comes crashing down – and we all look around – wondering what could have caused such a thing.  Now – we don’t even have a roof over our head.  Now - we no longer care about how beautiful our home is – we just want some shelter.  The same devious builder then tells us that he’ll build us a better, more secure house this time – just trust him.  It will only cost us a little bit more than the first home.  Even though we rejected our Father the first time – He comes to us again – and again offers to build us a house with a solid foundation that is not too big, not too fancy – but will last our entire lives.  He only asks that we humble ourselves, ask for forgiveness for following the world – and to trust Him.  Who will we choose to build our next house?

What does all of this mean?  It means we better not put our faith and hope in the world – because the world is lying to us.

 

 

Tuesday, October 28, 2008, 3:06 pm, by cmartenson

 

Below, I've liberally excerpted from an article I read a couple years back that always stuck with me.

Since our challenge today is to know whom to trust and which story to believe, I thought I'd bring this one back to the forefront, because the parallels are so striking between the late 1920's and now.

Below is a graph of the Dow Jones during the years of the 1920's bubble, the stock market crash of 1929, and the onset of the Great Depression. The numbers in bubbles indicate when one or more quotes from a famous expert were captured.

I happen to believe that we are somewhere between points #8 and #18.

I get chills every time I re-read them...

Link to original article at Gold-Eagle.com

 

Number 7:

"The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin." - Stuart Chase , NY Herald Tribune, November 1, 1929 "Hysteria has now disappeared from Wall Street."
- The Times of London, November 2, 1929

"The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before."

- Business Week, November 2, 1929

"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..."
- Harvard Economic Society (HES), November 2, 1929

Number 8:

"... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
- HES, November 10, 1929

"The end of the decline of the Stock Market will probably not be long, only a few more days at most."
- Irving Fisher, Professor of Economics at Yale University, November 14, 1929

"In most of the cities and towns of this country, this Wall Street panic will have no effect."
- Paul Block (Pres. of the Block newspaper chain), editorial, November 15, 1929

"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

Number 9:

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"I am convinced that through these measures we have reestablished confidence."
- Herbert Hoover, December 1929

"[1930 will be] a splendid employment year."
- U.S. Dept. of Labor, New Year's Forecast, December 1929

Number 10:

"For the immediate future, at least, the outlook (stocks) is bright."
- Irving Fisher, Ph.D. in Economics, in early 1930

Number 11:

"...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930

Number 12:

"There is nothing in the situation to be disturbed about."
- Secretary of the Treasury Andrew Mellon, Feb 1930

Number 13:  

"The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity."
- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930

"... the outlook continues favorable..."
- HES Mar 29, 1930

Number 14: 

"... the outlook is favorable..."
- HES Apr 19, 1930

Number 15: 

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930

"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
- HES May 17, 1930

"Gentleman, you have come sixty days too late. The depression is over."
- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

Number 16:  

"... irregular and conflicting movements of business should soon give way to a sustained recovery..."
- HES June 28, 1930

Number 17:  

"... the present depression has about spent its force..."
- HES, Aug 30, 1930

Number 18:  

"We are now near the end of the declining phase of the depression."
- HES Nov 15, 1930

Number 19:  

"Stabilization at [present] levels is clearly possible."
- HES Oct 31, 1931

Number 20:   

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."
- President F.D. Roosevelt, 1933

 

 

September 12, 2008, 5:29 pm

Lehman Employees and the Wall Street Compensation Model

Posted by Heidi N. Moore

Wall St. Journal

Lehman Brothers Holdings has so much phone volume right now that callers are being warned to prepare for long delays. The same goes for many of the securities firm’s 24,000 employees, whose hard work the past five years is being wiped out by Lehman’s plummeting stock price.

That is because Lehman, like many other investment banks, lavished stock on its employees for two reasons: to align employees’ interests with those of other shareholders and to keep them in their seats while paying less cash, which would deplete balance sheets. (Compensation is by far the biggest cost for Wall Street firms, typically 45% to 55% of revenue).

Most of Lehman’s top bankers receive their stock in restricted stock units, about one-third of which vest after three years and two-thirds of which cliff-vest after five years. For 10 years, such RSUs have helped build and preserve Lehman’s tight-knit culture of employee ownership–they hold roughly 30% of the company’s stock. A headhunter said a few years ago: “Anyone who has been at Lehman since at least 1998 is basically unhireable by another firm, because they have something like $20 million in stock.” As Lehman itself pointed out in this filing: “The vesting provisions….mean that a Managing Director at Lehman Brothers, on average, holds more than two times their annual total compensation in the form of equity at any point in time. This creates a strong incentive for the firm’s employees to preserve and grow shareholder value.”

But now, Lehman’s plunging stock price is wiping out a fairly large part of the pay employees got for the record profits earned in the boom years of 2004-2007. Then again, the record losses being posted now have wiped out those boom-year profits and then some.

It is the same across Wall Street. Bear Stearns’ bankers and traders had their net worth slashed by the plunging stock price of their firm. Bankers at Merrill Lynch and Morgan Stanley bemoan the falling value of their company’s stock, too. At J.P. Morgan Chase and Citigroup, the highest-earning bankers received 5% to 10% more of their pay in stock this year than last year. That means a J.P. Morgan banker earning $1.5 million will receive 60% of his pay in cash and 40% in stock this year. J.P. Morgan’s stock packages for its top bankers call for half to vest after two years and the remainder after three years. Merrill Lynch, which used to pay bonuses to investment bankers that were about 75% cash and 25% stock, this year paid 60% cash and 40% stock.

Paying large amounts of employee bonuses in stock is based on the idea that employees would refrain from taking oversize risks if their own net worth was tied up in long-term stock. But, as the credit crunch shows, that alignment hasn’t exactly worked. Some employees, particularly those involved in mortgage securities, took huge risks that have weighed down Lehman.

In the end, there is the irony of a Wall Street that preaches diversification to its clients, but whose employees are concentrated in a single stock.

WOW(!!) - Fed to Give A.I.G. $85 Billion Loan and Take 80% Stake

Dr. Chris Martenson

9/16/2008

This is an incredible turn of events.  This is the biggest news of the decade.

I was not expecting this sort of activity for another year or two yet.

The Federal Reserve has bought a majority stake in a private company in exchange for cash.  Where did the Fed get this cash?  It was created out of thin air.

In just in the past five days the Fed has vastly expanded its Treasuries for Trash(tm) program,begun accepting equities from stricken companies in exchange for cash or higher quality assets, and now  has actually bought a gigantic insurance company. 

I'll let this article from the NYT fill in the details.

Quote:

In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people with knowledge of the negotiations.

The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.

Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.

The need for the loans became necessary after the major credit ratings agencies downgraded A.I.G. late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.

Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.

But with the prospect of a giant bankruptcy looming — one with unpredictable consequences for the world financial system — the Fed abandoned precedent and agreed to let the money flow.

Link to Article (no additional content, I posted the whole thing) 

Here's my very direct and simple thought; the US dollar is toast.

The other central banks are doing what they can to stem the tide but, mark my words, sooner or later reality will catch up and the dollar will plummet.  How can it not?

Think about it...the dollar is indirectly the obligation of the US but more directly the obligation of the Federal Reserve. 

The Federal Reserve now sports a completely ruined balance sheet.  So you would be right in asking yourself "what does a dollar represent, after all?"

If you find yourself stumped, you will be in the company of the rest of the world.  Let me put it this way, if I were a Saudi Prince I'd be asking myself, "what exactly is the long-term direction of a currency that is backed by defective loans, unsaleable assets, and positions in failed companies?"

Indeed, that now describes the balance sheet of the Federal Reserve.

I cannot state this strongly enough - the stage is now set for a major dollar collapse and whether it does or not depends completely on the behavior of non-US financial entities.  The die are cast and it remains to be seen if they turn up snake-eyes or not. 

SEPTEMBER 24, 2008, 9:32 P.M. ET

Bush Tries to Build Support for Plan

WASHINGTON -- President George W. Bush on Wednesday warned Americans and legislators reluctant to pass a historic financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs, closed business and "a long and painful recession."

Associated Press

In this video image from APTN, President Bush speaks in a prime-time address from the Cross Hall of the White House in Washington, Wednesday.

He spoke just after inviting Democrat Sen. Barack Obama and Republican Sen. John McCain, one of whom will inherit the mess in four months, and key congressional leaders to an extraordinary White House meeting Thursday to hammer out a compromise.

"Without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold," Mr. Bush said in a prime-time address from the White House East Room that he hoped would help rescue his tough-sell bailout package.

Mr. Bush explicitly endorsed several of the changes that have been demanded in recent days from the right and left. But he warned that he would draw the line at regulations he determined would hamper economic growth.

"It should be enacted as soon as possible," the president said.

The president's high-stakes speech reflects the difficulties he is experiencing in selling the plan, which would benefit large financial institutions – and their executives – at a time when ordinary Americans are feeling their own pain from the weak economy, high energy prices and rising unemployment.

So far, the White House has relied largely on the credibility of Treasury Secretary Henry Paulson – a former Goldman Sachs CEO – and Federal Reserve Chairman Ben Bernanke to convince a skeptical Congress.

But many lawmakers are hesitating, as they're being deluged with complaints about the plan from voters just weeks before the November election.

The White House now is playing its top card – a presidential address to the nation – to persuade the public that the plan is really needed, and that everyone will suffer if the government doesn't act. The administration's hope is that Congress still can pass the plan within days to prevent more dangerous lockups in credit markets. But the risk is that Mr. Bush, with his popularity near its lowest point and less than four months left to go in his term, won't be able to seal the deal either, and the administration will have to alter the plan dramatically.

In particular, Mr. Bush is seeking to sell the plan to many members of his own party, who've been among its most prominent critics so far. Republican support has been so soft that some Democrats worry they'll have to take on most of the responsibility for passing it, exposing themselves to big political risk. Alternatively, Democrats worry they would be blamed for the financial fallout if they reject the bill. So some Democrats on Tuesday specifically called on Mr. Bush to give the address to the nation, hoping to spread the political risk.

White House press secretary Dana Perino said the administration chose tonight for the speech because Congress is getting closer to a solution, and the president feels he should speak directly to the American people. "Everyone will tune in tonight because we are facing a once-in-a-century crisis in our financial markets," she said.

 

NOVEMBER 5, 2008, 4:43 P.M. ET

 

U.S. Debt Could Tie Obama's Hands

By JON HILSENRATH

Wall St. Journal

The U.S. government is on course for an unprecedented borrowing binge in coming months, a development that could constrain President-elect Barack Obama's economic agenda.

The Treasury Department laid out near-term borrowing plans Wednesday, saying it expects to tap financial markets for $550 billion in the final three months of 2008 and another $368 billion in the first three months of next year through issuing Treasury securities with a wide range of maturities.

Economists project that total government borrowing could pass $1.5 trillion in the fiscal year, which ends next September, in one year pushing up the government's total debt burden by more than 25%, a large and possibly jolting increase.

The sharp rise poses a potential dilemma for Mr. Obama's activist agenda. Few economists believe the Treasury will be constrained in the next year in its ability to manage its rising borrowing needs or in advancing another fiscal stimulus program. But in the long run, rising government debt could make it harder for Mr. Obama to pursue new spending and tax-cut programs aggressively.

"I don't think that anything on the stimulus end will be constrained by these deficits," said David Greenlaw, a Morgan Stanley economist. "But if you're talking about health care reform and some of these longer-term programs, there is some constraint there."

A range of factors are behind the mammoth borrowing increase. The recession has slowed individual income and corporate income tax receipts. Outlays are rising for unemployment insurance, food stamps and other programs meant to be an economic stabilizer.

Meantime, the Treasury is embarking on a $700 billion program to buy distressed assets from Wall Street and invest in financial firms and has already increased borrowing in support of Federal Reserve financial rescue efforts.

Furthermore, Congress is likely to pass a new economic stimulus plan in the weeks ahead that could run well over $150 billion.

"We're really expecting private, foreign, domestic investors and foreign government investors to increase their Treasury debt holdings by a huge proportion," said Rudy Penner, a budget expert at the Urban Institute.

In theory, such a sharp increase in new supply of Treasury bonds and notes might jolt investors, pushing up interest rates. That hasn't happened so far, in large part because investors have been reluctant to hold riskier assets.

Yields on 10-year Treasury bonds, at 3.7%, are well below levels reached in mid-2007, when they briefly moved above 5%. Yields on 1-month Treasury bills, at less than .2%, represent almost costless borrowing for the U.S. government, and have served as a green light to policy makers for a new economic stimulus plan.

"A large fiscal stimulus package of $300-$500 billion appears to be required to prevent an even deeper economic slump than the one we are now forecasting," Goldman Sachs economists said in a recent report on the fiscal outlook.

Economists break into two camps on the longer-term threat of mounting budget deficits.

One camp sees the debt as manageable compared to other countries and compared to the past. Even with $1.5 trillion of new borrowing this year, the U.S. government's publicly held debt would amount to about 49% of gross domestic product, according to Morgan Stanley.

That's much lower than Japan's government debt, which exceeds 100% of GDP. It is also below the U.S. peak of more than 100% reached after World War II. As the economy improves and the government's borrowing needs diminish, this camp holds, the deficit picture should improve.

But others warn that the current increase in borrowing is coming at the worst possible time, because the budget picture is on track to darken amid spending on Medicare, Medicaid and Social Security with the aging of the population.

"The problem is that over the next number of years, the long-run budget pressures are going to become more and more apparent," Mr. Penner says. "That is going to make it more and more difficult to reverse the deficits."

Write to Jon Hilsenrath at jon.hilsenrath@wsj.com

 

The looting operation (con't)

Wednesday, November 5, 2008, 9:13 pm, by cmartenson

At the time, some thought that my characterization of the bailout as a "looting operation" was too strong, and told me so.

I am more certain of that language than ever.

By the time you read this, America will have a new President. I hope he’s better with money than the last resident of the White House. Just look at how the Bush gang is spending the $700 billion bailout package for banks — throwing it at financial institutions with few strings attached.

As a result, many Wall Street institutions are using billions and billions of taxpayer dollars to pay for fat cats’ bonuses.

·                                 Goldman Sachs, which is getting $10 billion from the bailout plan, is paying out $6.85 billion in bonuses, according to media reports. That’s $210,000 per employee. And that’s despite a 47% drop in its profit and 53% drop in its share price.

·                                 Morgan Stanley, which is also getting $10 billion from our government, is doling out $6.44 billion in bonuses or $138,700 per employee, even though its profits tumbled 41% and its shares are off by 69%.

·                                 And even the failures at Lehman Brothers are collectively getting over $1 billion in bonuses.

Some conservatives have been bemoaning the “nationalization” of America’s big banks. Yet we didn’t nationalize anything — we don’t control those banks. They’re free to spend the bailout money as they please.

And we got hosed.

Link

Bonuses for Lehman employees?  More than 65% of the bailout money to GS and MS being spent on bonuses?

I guess I am confused by what the word "bonus" means in the context of business performance.

It's okay if you are, too.

I guess it’s easy to label people like myself as ‘conspiracy theorists’.  It’s much easier to ignore what is happening in the world than to face the truth – and then actually do something about it.  When Karen and I first moved to Knoxville in 2000 – I got to know someone I worked with who occasionally mentioned that I should look into an organization he referred to as the ‘Illuminati’.  It sounded too far-fetched to be real – so for almost 5 years – I ignored the information he occasionally talked about. Then, on a random Saturday in May of 2005 – I was sitting in an MBA class bored out of my mind – and I decided to do some research into the things he mentioned.  I fully expected to spend 30 minutes looking at a few things, prove that he was crazy, and get on with my life.  I ended up spending weeks studying what these people are doing – because once I started researching – it became clear that I was staring at something truly evil.  My friend didn’t have much Biblical knowledge – he only knew that there was a global organization that had somehow infiltrated the world’s government and the world’s financial system.  Since I did have some knowledge of Bible prophecies – I turned my attention to the Bible and what it really had to say about end time events – antichrist, the beasts, the mark, etc.  It was then – once I could see God’s prophecies lining up perfectly with current events – that my life changed.  I could see that almost everyone (Christians included), had allowed our spiritual enemy to deceive them – just like the Bible tells us would happen.  I asked God for His plan for me – because I was ready to lead a nice, quiet life - but the answer had nothing to do with a nice, quiet life.

 

The article below by Chris shows us the true character of our political and corporate leaders.  I guess it doesn’t surprise me that people with almost absolute power – have been corrupted to such a degree.  What does surprise me is how fast all of this is happening.  I mentioned a couple of months ago that we’d start seeing world leaders talking about a ‘global’ solution to this financial crisis.  I think that the degree to which the world’s economy is failing has startled even them – so the rhetoric regarding a global financial solution and a new international order is speeding up (see the Reuters article at the bottom of this email).

 

For me – it’s a little like Frodo in the Lord of the Rings movie.  Everything is nice in the shire – until one day you’re given a glimpse of evil overtaking and destroying everything.  Suddenly, you’re faced with a choice – stay in the shire and pretend evil doesn’t exist – knowing that you’ll be overtaken someday – or arm yourself and do something about it.  Three years ago I chose to get in the game and do something about it.  It’s a decision that all of us will be faced with in the very near future.

 

John

 

 

US Taxpayers are Violated - the Looting Operation Continues

Monday, November 10, 2008, 5:31 pm, by cmartenson

I am trying to maintain a very level-headed approach to the changes that we are seeing. However, from time to time the looting operation becomes just a bit too obvious, a bit too overt, and I find my level of cool slipping.

This is one of those times. 

Here are the dots that I am connecting that have me concerned, if not angry.

Remember, even prior to its passage, I called the bailout the greatest looting operation of our time. I did so because the language of the Bailout Act, as originally proposed by the former CEO of Goldman Sachs, er, I mean the Treasury Secretary, requested three things: unitary power, no review, and no limits.

Frankly, it was the most plainly-worded document of theft that I had ever seen, and probably ever will see, in my life (because it was too blatant and such mistakes are rarely made again).

After that draft was defeated in the House, the Senate immediately attached a much denser 300+ page version of the bailout bill to an existing piece of legislation and passed it. The house caved after an intense week of lobbying by both banks and the people of the land, who were diametrically opposed on the issue. Naturally, they caved to the banking interests.

But We The People won some symbolic victories in that battle, including the explicit promise of complete transparency in the use of that money.

Now it turns out that We The Payers won nothing at all, and that we are not even being afforded the most basic right of being able to view how that money is being spent.

Fed Defies Transparency Aim in Refusal to Disclose 

Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

This is a complete outrage. Here we have been told that we cannot see how our money is being spent, and that we cannot have insight into whether this money is being used to enrich cronies of the system.

So far, the data is not encouraging.  Failed institutions have been spared (at great expense), lies and prevarications have been our signposts along the way, and each new "program" has been an affront to common sense and decency.

The common element has always been 'telling the public the least amount possible.' 

I wish there were a second currency in operation in this country, so that I could vote on this plan by dishoarding every single Federal Reserve Note and piling into a better-run currency.

And here’s your second lesson in “why larger bills with more pages are better for looting than small bills.” It turns out that the Treasury quietly slipped in a bit of language that handed a massive, unprecedented $140 billion tax give-away to major banks.

A quiet windfall for U.S. banks

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

I just want you to think of this when Congress agonizes over and finally determines that the nation “cannot afford” to undo the $85 billion in middle class AMT tax hikes later this year.

I want you to also think of the amount of time that Congress agonized over $14 billion in alternative energy tax credits before grudgingly passing them. Ten times that amount was handed to big banks without, to my knowledge, even a single open-floor comment or objection from a single congressperson.

Simply outrageous. We’ve been looted.

Next, as this article in The Nation makes clear, the “deals” that the Treasury department has been making on your behalf under the mandate to “protect the taxpayer” have been running roughly 100% over fair market value. In other words, a gigantic handout to the biggest banks at the worst possible price (for taxpayers), with practically no strings attached.

Paulson's Swindle Revealed 

The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm.

But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.

But that’s okay – there’s a big G20 meeting coming up. Perhaps the world’s leaders will come up with a sensible plan for returning some of the power back to We The People?

UK's Brown: Now is the time to build global society

LONDON (Reuters) - The international financial crisis has given world leaders a unique opportunity to create a truly global society, Britain's Prime Minister Gordon Brown will say in a keynote foreign policy speech on Monday.

In his annual speech at the Lord Mayor's Banquet, Brown -- who has spearheaded calls for the reform of international financial institutions -- will say Britain, the United States and Europe are key to forging a new world order.

"The alliance between Britain and the U.S. -- and more broadly between Europe and the U.S. -- can and must provide leadership, not in order to make the rules ourselves, but to lead the global effort to build a stronger and more just international order," an excerpt from the speech says.

According to a summary of the speech released by his office, Brown will set out five great challenges the world faces.

These are: terrorism and extremism and the need to reassert faith in democracy; the global economy; climate change; conflict and mechanisms for rebuilding states after conflict; and meeting goals on tackling poverty and disease.

Brown will also identify five stages for tackling the economy, starting with recapitalizing banks so they can resume lending to families and businesses, and better international co-ordination of fiscal and monetary policy.

Whoa. Hold on there! Lots of warning signals are flashing for me here. First, rather than a new world order, I think we need to understand how we can return to the old world order – you know, where international trade is balanced, and people save, and debt growth matches economic growth. .

I definitely think it's way too early to be proclaiming that now is the right time to set off on a big building project.

From my vantage point, it rather looks like our McMansion has fallen to the ground in a jumble, and now the same architect is trying to sell us on a bigger design.

Second, I am deeply uncomfortable with the language and intent expressed by “the need to reassert faith in democracy.” What in the heck does that mean?  Seriously. What exactly is he trying to imply?

I was not aware that democracy was in need of additional faith. I rather thought it ran on such things as laws, fairness, and its own merits.

This line smacks of demagoguery, and I am deeply cautious of the messenger who hails from the country with the most security cameras and intrusive domestic government spying policies of any “democracy” out there. If Gordon Brown is selling democracy, I am suddenly no longer buying.

Worse, it is the financial crisis that is being used to peddle this tripe. A crisis that has been used to advance the power and reach of the banks, using the most overt looting and legalized theft ever seen or envisaged.

Now I am more than a little concerned about what is coming next. The decisions emanating from this G20 meeting deserve more than a little scrutiny.

Oddly, Obama is not attending, only Bush (and by extension Cheney). All the more curious.

UK's Brown: Now is the time to build global society

 

Sun, Nov 09 19:03 PM EST

 

LONDON (Reuters) - The international financial crisis has given world leaders a unique opportunity to create a truly global society, Britain's Prime Minister Gordon Brown will say in a keynote foreign policy speech on Monday.

 

In his annual speech at the Lord Mayor's Banquet, Brown -- who has spearheaded calls for the reform of international financial institutions -- will say Britain, the United States and Europe are key to forging a new world order.

 

"The alliance between Britain and the U.S. -- and more broadly between Europe and the U.S. -- can and must provide leadership, not in order to make the rules ourselves, but to lead the global effort to build a stronger and more just international order," an excerpt from the speech says.

Brown and other leaders meet in Washington next weekend to discuss longer term solutions for dealing with economic issues following a series of coordinated moves on interest rates and to recapitalize banks in the wake of the financial crisis.

 

"Uniquely in this global age, it is now in our power to come together so that 2008 is remembered not just for the failure of a financial crash that engulfed the world but for the resilience and optimism with which we faced the storm, endured it and prevailed," Brown will say in his speech on Monday evening.

 

"...And if we learn from our experience of turning unity of purpose into unity of action, we can together seize this moment of change in our world to create a truly global society."

According to a summary of the speech released by his office, Brown will set out five great challenges the world faces.

 

These are: terrorism and extremism and the need to reassert faith in democracy; the global economy; climate change; conflict and mechanisms for rebuilding states after conflict; and meeting goals on tackling poverty and disease.

 

Brown will also identify five stages for tackling the economy, starting with recapitalizing banks so they can resume lending to families and businesses, and better international co-ordination of fiscal and monetary policy.

 

He also wants immediate action to stop the spread of the financial crisis to middle-income countries, with a new facility for the International Monetary Fund, and agreement on a global trade deal, as well as reform of the global financial system.

 

"My message is that we must be: internationalist not protectionist; interventionist not neutral; progressive not reactive; and forward looking not frozen by events. We can seize the moment and in doing so build a truly global society."

 

(Reporting by Jodie Ginsberg; Editing by Janet Lawrence)

I have found that when it comes to understanding what is really going on with the economy, it is much better to let companies tell the tale.  Governments and politicians will always try to ‘spin’ results – good or bad.  If we focus on the actual results of companies, we get a much clearer picture of what is happening.  All of the excerpts below were taken from articles published in the Wall St. Journal over the past two days.  The message here is that things are not good (in any industry that I can see) and the future looks to be worse.  I have searched for good news or signs of any type of recovery – but I don’t see anything that says this will end soon.

 

jg – Nov 11, 2008

WASHINGTON -- The U.S. government's financial-system rescue plans are coming under pressure as a growing array of distressed companies signal the need for assistance.  On Monday, mortgage giant Fannie Mae said it is losing money so rapidly it may need a cash infusion from the Treasury Department by year's end. The funds would come from a special $100 billion pool Treasury set aside back in September to aid the company. Fannie Mae had a loss of $29 billion for the third quarter.

With a less-onerous government bailout plan in hand, American International Group Inc. (AIG) reported a $24.5 billion quarterly loss Monday due to big investment losses and another $7.1 billion in write-downs on its portfolio of credit derivatives. The new $150 billion rescue package for AIG -- the largest government loan to a single company -- that also was announced Monday eases the terms of the previous deal, and officials portrayed it as helping the company get some of its most serious problems under control.

Starbucks Corp. said it will open fewer stores internationally than planned and offered a more pessimistic earnings forecast for the coming year as the coffee chain said fiscal fourth-quarter earnings plummeted 97%.

Goldman Sachs Group Inc. shares fell to a 5½-year low as doubts deepened that the firm widely regarded as the smartest on Wall Street can find a way to return near the profit level it had during its heyday.

American Express Co. won fast approval to become a bank-holding company, helping the credit-card giant gain access to a chunk of the $700 billion in federal funds being pumped into financial firms.  The move shows how quickly financial-services firms that have long relied on the capital markets are racing to shore up their funding sources as the credit crisis drags on and economic turmoil spreads around the world.

Circuit City Stores Inc.'s bankruptcy-court filing Monday underscores how this economic downturn may differ from others in recent memory: The U.S. retail sector is losing its place as the employer of last resort for the newly unemployed.

Toll Brothers Inc. on Tuesday reported a 41% plunge in building revenue for its latest quarter, as the luxury-home builder said the recent worsening of the financial crisis wreaked havoc on its business. "Unfortunately, the preliminary signs of stability we had discussed in early September ... were upended by the past month's financial crisis," said Chairman and Chief Executive Robert Toll. The Horsham, Pa., company said the resulting blowback -- including job-loss fears, slumping consumer spending and the stock-market plunge -- pushed cancellations up sharply and resulted in record-low traffic and demand.

A strong sale of three-year Treasury notes and renewed worries about the health of the banking system propelled prices higher in a holiday-shortened session Monday.  The 10-year benchmark note rose 5/32 point, or $1.5625 for each $1,000 invested, pushing the yield down to 3.760%, as yields and prices move inversely.

It is a testament to the sour mood on Wall Street that even the announcement of a stimulus package from China did little to lift the spirits of investors for more than a few hours. One of the hardest-hit sectors in 2008 has been the shipping industry, which has declined as investors have reacted to the downturn in key economic indicators by shunning those companies.  The most popular measure of the industry's state is the Baltic Dry Index, which fell to 820 Monday. This index, which measures the cost of shipping raw materials around the world, hit 11793 in May and has lost 93%. Shares of shipping companies have been beaten down as a result, with most down by more than 60% on the year.

LONDON -- HSBC Holdings PLC said more U.S. consumers fell behind on their credit-card, home-equity and other loans in the third quarter, in a fresh sign of the troubles facing big lenders already handling collapsing mortgages.

LONDON -- European economies are sliding deeper into recession, with retail sales falling in Britain and factory output declining in Italy and France.  Europe's central banks are already cutting interest rates in an effort to support growth. As the economic outlook worsens, a growing number of governments are also considering fiscal stimulus packages like those the U.S. and China have announced.

TOKYO -- Japanese machinery orders posted their largest drop in a decade in the third quarter, the government said. Japan also said it expects a modest pickup in the near-term, reinforcing fears that capital spending won't be able to rescue the economy from its current situation.

As Iceland continued to await an international bailout package, a Finnish finance-ministry official said Iceland will need to provide more details before Nordic governments can support it.  Iceland, whose economy has been ravaged by the financial crisis, has requested a $2.1 billion loan from the International Monetary Fund to help it restore financial stability. It is looking for about $4 billion on top of that to back up its effort.

Amid all the noise of the markets, it is the relative silence of the corporate-bond market that may be most troubling. Since August there have been just seven U.S. junk-bond deals, according to Dealogic, and 83 deals for all of 2008. Not only is that total a fraction of the number of deals done last year, it is just one-third the number done in 2002, the last time that market struggled. Without the ability to sell debt, companies will be fighting for their lives. And even those that can borrow could be hurt by usurious interest rates.

Signs of a slowdown in China are spreading, with weak economic data for October illustrating why the government hurried to announce its massive stimulus plan. New data announced Tuesday show slowing imports, weakening home prices and a drop in export orders, all pointing to a sharp decline in activity that will take time to reverse.

LONDON -- Vodafone Group PLC on Tuesday reported a 35% drop in first-half net income, hurt by an impairment loss on its Turkish unit, and warned that full-year sales would fall short of guidance.

Nortel Networks Corp. posted a $3.41 billion quarterly loss and said it plans to lay off 1,300 more workers, raising questions about its chief's turnaround strategy and fueling demands to break up the troubled company.

Sirius XM Radio Inc. reported a $4.88 billion net loss for the third quarter, reflecting a big impairment charge stemming from the decline of the company's share price since the 2007 agreement to merge satellite-radio operators Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc.

Dish Network Corp. reported a 54% decline in third-quarter net income as the satellite-television provider continued to lose subscribers.  The Englewood, Colo., company is in a precarious position. Dish serves a lower-end segment of consumers compared with rival DirecTV Group Inc., and has been hammered by the economic downturn. More pressure is expected next year when Dish Network's largest partner, AT&T Inc., switches to DirecTV.

Sprint Nextel Corp. swung to a third-quarter loss as its subscriber base continued to decline, but the wireless carrier sought to reassure investors concerned about its liquidity by announcing an amended credit agreement.

General Motors Corp. stock fell to its lowest level since 1946 as concern intensified that the auto maker could run out of cash and be forced to file for bankruptcy protection.

Four years ago, DHL's parent stormed into the U.S. with an advertising campaign designed to take on FedEx Corp. and United Parcel Service Inc. One television ad showed a freight train loaded with DHL vans rattling UPS and FedEx trucks stopped at a rail crossing. "I didn't see that coming," the UPS driver muttered. Now it's DHL that has been blindsided.  On Monday its parent, Deutsche Post AG, announced a massive retreat. The company said it will pull the plug on domestic U.S. deliveries by the end of January and cut about 9,500 jobs. DHL will continue to deliver and pickup international shipments in the U.S.

Tyson Foods Inc. posted a 50% jump in fiscal fourth-quarter earnings, while warning that it could swing to a loss in the current quarter amid a weakening global economy, a strengthening dollar and volatile commodity markets.

DUBAI -- Emirates Airline announced an 88% drop in six-month net profit, evidence that even carriers in the oil-rich Persian Gulf have been affected by the global economic upheaval.

In response to plummeting demand for steel in China and elsewhere, Rio Tinto, the world's third-largest miner by production, is cutting output by 10% to stem a price freefall.  Iron ore prices have fallen by more than 50% since this summer as demand for such steel-intensive products as appliances, autos and construction girders have tumbled around the world.

Ailing mall owner General Growth Properties Inc. warned Monday in a government filing that its failure to refinance or extend $1 billion in debt due this month could trigger default on billions of dollars in debt and its ability to continue operations would be in "substantial doubt." One of the nation's largest shopping mall owners, General Growth made the warning in a quarterly filing with the U.S. Securities and Exchange Commission. The company, based in Chicago, faces an additional $3.07 billion in debt coming due next year.

Las Vegas Sands Corp. said it has secured more than $2 billion in capital-funding commitments and also will suspend casino developments from Macau to Pennsylvania as it seeks to avoid defaulting on bank covenants that require it to maintain certain levels of cash flow.

Independent fashion boutiques flourished in recent years as young women snapped up the latest designer apparel, no matter the price. But now, in the current crunch, they are among the retail industry's hardest hit.

Now, India is waking up to a new reality. The combination of high fuel costs and taxes and a slowing economy has hit the airline industry hard. The financial crisis has cut carriers off from a lifeline of credit. They are defaulting on payments for fuel and falling behind in dues owed to airports.  The industry, which has emerged in the past five years after the government opened the market to private carriers, is set to lose a record $2 billion this year, analysts estimate, second only in losses to the U.S. industry.

Weak print advertising swung Tribune Co. to a loss in the fiscal third quarter, as the media company continues to be pounded by its debt costs and a deteriorating advertising market.  Tribune, the owner of eight major daily newspapers and a string of local television stations, loaded up with debt to go private last December. With newspaper ad sales in freefall and a credit crunch pressuring debt-laden companies, Tribune's results are being watched closely for signs of strain.

Clear Channel Outdoor Holdings Inc.'s third quarter-net income fell 83% amid an advertising slowdown.

MELBOURNE -- National Australia Bank Ltd. said it raised three billion Australian dollars (US$2.05 billion) through an institutional share placement to help bolster its balance sheet amid increasingly challenging economic conditions globally.

Moody's Investors Service cut its credit ratings on Genworth Financial Inc. after the Richmond, Va., insurer posted a third-quarter loss last week.

 

German insurer Allianz SE said the soured investments at its soon-to-be-sold Dresdner Bank unit cost it €900 million ($1.15 billion) in the third quarter. Chief Financial Officer Helmut Perlet said the group could face an additional €1 billion in impairments on equities in the fourth quarter if stock markets don't recover.

 

Gordon Brown (UK Prime Minister), would-be savior of the ailing global economy, has begun ratcheting down expectations for a speedy global response.

Stocks fell as investors feared that even China's $586 billion stimulus plan couldn't prevent slowing demand for goods and services world-wide, and as worries about auto makers and banks persisted.  The solvency fears on Wall Street have spread to Detroit: Shares of Dow Jones Industrial Average component General Motors fell $1, or 23%, to $3.36 -- the stock's lowest level since just after World War II -- on fears the auto maker's shareholders will be wiped out even in the event of a government bailout.

"The economy is falling faster than interest rates are and as long as that's the case it's going to remain a trader's market," said Bruce Bittles, chief investment strategist for Robert W. Baird.

KKR Financial Holdings LLC withheld its quarterly dividend payment and obtained new financing to shore up its balance sheet, marking the latest struggle for the publicly traded affiliates of Kohlberg Kravis Roberts & Co.

BILLINGS, Mont. -- The Yellowstone Club, an exclusive mountain retreat for the ultra-rich, said it filed for bankruptcy protection Monday after failing to secure new financing, underscoring that even the elite can't escape the country's current economic troubles.

LONDON -- GLG Partners LP, the large London hedge fund, has seen the amount of money it manages fall by almost a third in recent months amid poor investment performance and investor withdrawals. Between March and the end of September, GLG's assets had shrunk by about $7.3 billion to $17.3 billion. The firm, which Monday reported a third-quarter net loss, also said it is struggling with a tougher borrowing environment and is restructuring some of its largest funds to hold onto investor cash.  The disclosures by publicly listed GLG provide an insight into the struggles of asset managers generally.

Banco Santander is piling on the pressure. Rival Spanish banks may protest they don't need to follow its example and raise capital, but that is just what Santander itself said less than two weeks ago.  As recently as the end of October, Santander said it was comfortable with a core Tier 1 ratio of 6.3%. Monday, in an abrupt volte-face, Santander announced a €7.2 billion ($9.2 billion) rights issue, a move that should ensure Santander can avoid state intervention and the restrictions that come with it.

Though inventories of listed homes have been falling, they remain unusually large. Meanwhile, some real-estate agents say sales, after improving in recent months, stalled in late September and October as falling stock prices and worries about the economy rattled potential buyers.

One year ago, just as the credit doors were swinging closed, Blackstone Group LP succeeded in pulling off one last deal and it was a beaut: The $26 billion leveraged buyout of Hilton Hotels Corp., with its 2,900 hotels and 490,000 rooms throughout the world. Hilton's portfolio of hotel brands includes the flagship Hilton chain as well as Embassy Suites, Doubletree, Hampton Inn and the Waldorf Astoria in New York City, pictured here. Today, investors in the private-equity giant, the banks that provided $20 billion to finance the acquisition and -- in a strange twist of events -- U.S. taxpayers, may be wishing the firm hadn't been quite so skillful at getting the deal done. The sharp downturn in the hotel market -- with more hotel owners and operators posting dismal results and giving dour forecasts -- is making that deal look like a burden for Blackstone, which sank $6 billion of equity into the acquisition. That was the biggest equity investment ever made by the 23-year-old firm founded by Stephen A. Schwarzman and Peter G. Peterson, and some analysts believe much, if not all, of that equity has been wiped out, at least on paper.

It seems that most people do not understand how our government funds its budget deficits. Since we don’t have enough revenue (taxes) to pay for all of our expenses (Social Security, defense, Medicare, etc.), the government must borrow the extra money by selling bonds to investors. Investors buy U.S. Treasury Bonds from our government with yields of around 4% (for 10 year bonds) and our Government gets the money it needs to fund its deficits. 

 

The government sells these bonds at auction.  Investors bid for the bonds – and the government chooses the winning bidders.  In recent months, we’ve seen yields drop and prices rise as more and more investors buy Treasury Bonds because they are considered some of the most risk free investments on the planet – since they are backed by the U.S. Government.  Investors include individuals, institutions and foreign governments – to name a few.

 

With the economic problems in the U.S. – there is a growing fear that our government will someday hold a Treasury auction – and there will not be enough buyers.  If you were a foreign nation (or any investor) and took a hard look at the finances of the U.S. – and could see that we are insolvent and that our economy is heading south – you can see that this is an entirely plausible scenario.  The fear is that the Government will eventually go bankrupt – and unable to pay its debts.  This would obviously cause us all kinds of unpleasant problems – including skyrocketing interest rates as the Government offers higher and higher yields to get the money it needs.

 

The dialog below is taken from a forum on Chris Martenson’s website.  Chris explains what we could expect if an auction did fail.

 

I have a suspicion that Chris is right when he says it’s possible the Federal Reserve is the ‘buyer of last resort’ for recent auctions.  This means that auctions are already failing – but the Fed is disguising this problem by buying the Treasury Bonds themselves.  As Chris mentions below – this is a serious problem.  Why?  Because the Fed doesn’t have existing money to buy with – they create money.  They would be printing money and giving it directly to the U.S. (this would be a similar process to the U.S. needing hard currency – but on a much bigger scale) – which could eventually lead to the destruction of our currency (see Zimbabwe: inflation hit 11.2 million percent in August 2008).  Let me put this in perspective – a loaf of bread cost over one trillion Zimbabwe dollars in August.  Anyway – you get the picture – runaway interest rates, runaway inflation – very bad things happening.

 

The following graph shows the assets of the Federal Reserve.  The blue line is labeled ‘other assets’ – this is the asset category Chris references below.  We don’t know what ‘other assets’ refers to – yet.

 

 

 

 

Recent Forum postings:

First this question from LemonyYellowSchwin on the subscriber forum:

 

Chris, I assume you still agree that there is still a risk of what amounts to an "auction failure" of US govt. bonds? If so, I'm wondering if you could sort of help us play it out in our minds:

 

Is this a possibility you put on the near-middle-long term horizon?

 

What would be the warning signs?

 

What would it look like?

 

What would be the consequences and how quickly/slowly would we see it play out?

 

Thank you so much!

 

My Response (Chris Martenson):

 

Great question.

 

This is exactly in line with the piece I am writing for the next Martenson Report.

 

Sooner or later (and I am starting to think 'sooner' at the rate things are hustling along) that there will be an auction failure.

 

The warning signs are simple enough.

 

The "Bid to Cover" ratio slides down in danger territory (below 2:1). This ratio measures the amount of bids that are received at auction for whatever bolus of Treasuries are being offered at that auction. At 1:1 there are exactly as many bids as there are bonds being sold, but trouble starts well before then. Remember, this is an auction where bids are placed on the bonds. So let's imagine the Treasury is offering a bunch of 10 year notes at 4%. Some eager participants might bid 3.95% (over asking price) while others may bid 4.25% (below asking price). The government will, naturally, select the best possible bids and chuck the rest. By the time we get to 1:1 on the offers it is a near certainty that the bids are going to be at worse prices than hoped. So the first warning sign is a falling bid-to-cover ratio.

 

Along with this, everybody is keeping a careful eye on the spread between the offered rate and the actual rate. A slipping yield means the government is not getting its desired price for the offered debt and is a sign of either reduced demand (as also reflected by a falling bid-to-cover ratio) or reduced availability of money for the amount of debt being offered (falling supply of money). So the second warning sign would be auction yields slipping higher and higher.

 

The final part of this act is an actual failed auction where the bid-to-cover ratio falls below 1. That is, fewer bids are received in total than there were bonds offered. An example would be $800 million in bids received for $1 billion in bonds offered. That is a failed auction.

 

At that moment all hell breaks loose. The government cannot afford a failed auction because it needs the money. So it will simply offer the bonds again at a higher, more attractive yield and will keep raising the yields until it attracts enough bids. The impact of an auction failure will be rapidly rising interest rates.

But once that dynamic starts the incentive is there for market participants to "wait and see" if even more attractive yields are in the offing which can start a spiral of higher and higher rates.

 

This is why I am so anxious to find out what is on the Federal Reserve balance sheet. I want to put to rest my uncomfortable suspicion that they've already been the "buyer of last resort" at the past few Treasury auctions.

 

Once a central bank begins making up for funding shortfalls by printing money directly in exchange for government bonds then you are well on the way to destroying the value of the resident currency. Think Zimbabwe and you get the idea.

 

Given the fact that the Fed is refusing to let anybody see exactly how and where it applied that $1.2 trillion over the past 6 weeks, and given the fact that the US government is on track to issue more new debt this quarter than all last year COMBINED, and given the fact that banks are apparently out of capital, I am wondering how it is possible that each auction has managed to go off without a hitch.

 

Fueling this concern of mine is that fact that the Treasury International Capital (TIC) flows have shown a steady erosion of foreign money from our shores over the past 2 months reported (July and August, so we are anxiously awaiting the September data).

IN summary, no money from overseas, impaired capital on our own shores, record government debt issuances and a Fed that is suddenly quite shy about revealing its recent purchases.

 

As I said, it makes me very suspicious that the Fed is directly buying those securities themselves. If true, this is explosive news and could serve to severely undermine faith in the Federal Reserve Note, a.k.a. "the dollar", and so I completely understand why that information would be hidden if it existed.

 

If I were doing this (meaning I was the Fed), I would want to hide my tracks to every extent possible. One way to do that would be to crush commodities as hard as possible and work with my foreign CB friends to assure the dollar looked strong. This would serve to help convince market participants that direct monetization of government debt was not being done because, if it were, the exact opposite would happen.

 

More later...