37 posts tagged “federal reserve”
The following article was printed today in the Wall Street Journal (August 7, 2007). It does an excellent job of describing what has happened to credit markets over the past decade as a result of decisions made by the Federal Reserve and Wall Street investment banks.
ASSETS: Gold certificate account 11,037 Special drawing rights certificate acct. 2,200 Coin 932 Securities, repos and loans 812,372 Securities held outright 790,439 U.S. Treasury 790,439 Bills 277,019 Notes and bonds 513,420 Repurchase agreements 21,000 Loans 933 Items in process of collection 4,524 Bank premises 2,036 Other assets 37,767 Total Assets 870,868 Analyzing the Federal Reserve's Balance Sheet reveals many interesting things: "Whoever controls the volume of money in any country is absolute master of all industry and commerce."(Paul Warburg, drafter of the Federal Reserve Act) "Permit me to issue and control the money of a nation and I care not who makes its laws."(Mayer Amschel Rothschild) By GREG IP and JON E. HILSENRATH An extraordinary credit boom that created many first-time homeowners and financed a wave of corporate takeovers seems to be waning. Home buyers with poor credit are having trouble borrowing. Institutional investors from Milwaukee to Düsseldorf to Sydney are reporting losses. Banks are stuck with corporate debt that investors won't buy. Stocks are on a roller coaster, with financial powerhouses like Bear Stearns Cos. and Blackstone Group coming under intense pressure. The origins of the boom and this unfolding reversal predate last year's mistakes. They trace to changes in the banking system provoked by the collapse of the savings-and-loan industry in the 1980s, the reaction of governments to the Asian financial crisis of the late 1990s, and the Federal Reserve's response to the 2000-01 bursting of the tech-stock bubble. When the Fed cut interest rates to the lowest level in a generation to avoid a severe downturn, then-Chairman Alan Greenspan anticipated that making short-term credit so cheap would have unintended consequences. "I don't know what it is, but we're doing some damage because this is not the way credit markets should operate," he and a colleague recall him saying at the time. Now the consequences of moves the Fed and others made are becoming clearer.
Fourth in a series • Page One: Mortgage Mess Shines Light on Brokers' Role • Page One: How Wall Street Stoked The Mortgage Meltdown Low interest rates engineered by central banks and reinforced by a tidal wave of overseas savings fueled home prices and leveraged buyouts. Pension funds and endowments, unhappy with skimpy returns, shoved cash at hedge funds and private-equity firms, which borrowed heavily to make big bets. The investments of choice were opaque financial instruments that shifted default risk from lenders to global investors. The question now: When the dust settles, will the world be better off? "These adverse periods are very painful, but they're inevitable if we choose to maintain a system in which people are free to take risks, a necessary condition for maximum sustainable economic growth," Mr. Greenspan says today. The evolving financial architecture is distributing risks away from highly leveraged banks toward investors better able to handle them, keeping the banks and economy more stable than in the past, he says. Economic growth, particularly outside the U.S., is strong, and even in the U.S., unemployment remains low. The financial system has absorbed the latest shock. So far. But credit problems once seen as isolated to a few subprime-mortgage lenders are beginning to propagate across markets and borders in unpredicted ways and degrees. A system designed to distribute and absorb risk might, instead, have bred it, by making it so easy for investors to buy complex securities they didn't fully understand. And the interconnectedness of markets could mean that a sudden change in sentiment by investors in all sorts of markets could destabilize the financial system and hurt economic growth. Side Effects of Deflation Fight When a technology stock and investment plunge and the Sept. 11 terrorist attacks pushed the economy into recession in 2001, the Fed slashed interest rates. But even by mid-2003, job creation and business investment were still anemic, and the inflation rate was slipping toward 1%. The Fed began to study Japan's unhappy bout with deflation -- generally declining prices -- which made it harder to repay debts and left the central bank seemingly powerless to stimulate growth. "Even though we perceive the risks [of deflation] as minor, the potential consequences are very substantial and could be quite negative," Mr. Greenspan said in May 2003. A month later, the Fed cut the target for its key federal-funds interest rate, a benchmark for all short-term rates, to 1%. It said the rate would stay there as long as necessary, figuring low rates would bolster housing and consumer spending until business investment and exports recovered. The rate stayed at 1% for a year. Mr. Greenspan raised vague fears with colleagues over the possibility this policy could create distortions in the economy, but he says today that such risks were an acceptable price for insuring against deflation. "Central banks cannot avoid taking risks. Such trade-offs are an integral part of policy. We were always confronted with choices." Fed officials who were there at the time generally maintain their policy was right, even in hindsight. The economy has grown steadily, avoiding both deflation and serious inflation. Yet some say they may have planted seeds of excess in the housing and subprime-loan markets. Robert Eisenbeis, retired research director at the Federal Reserve Bank of Atlanta, says the Fed overreacted to the threat of deflation and kept rates low for too long. As a result, it "overstimulated the housing market, and now we're dealing with the consequences." Edward Gramlich, a Fed governor in Washington from 1997 to 2005, says he failed to realize at the time that low rates were making it so easy for lenders to market subprime mortgages with low introductory rates. The Fed and other regulators could have prevented some of the resulting pain with more rigorous supervision of mortgage lenders besides banks, he says. "We didn't have that, and we're paying for it now." In June 2004, the Fed began to raise the short-term target rate, eventually taking it to 5.25%, where it has been for the past year. Such a boost usually leads to a rise, as well, in long-term rates, which are important to rates on 30-year conventional mortgages and corporate bonds. This time, it didn't. Mr. Greenspan expressed concern that investors were willing to accept low returns for taking on risk. "What they perceive as newly abundant liquidity can readily disappear," he said in August 2005, six months before retiring. "History has not dealt kindly with the aftermath of protracted periods of low risk premiums." Looking back, he says today: "We tried in 2004 to move long-term rates higher in order to get mortgage interest rates up and take some of the fizz out of the housing market. But we failed." Something besides Fed policy was at work. Both Mr. Greenspan and his successor, Ben Bernanke, point to an unanticipated surge in capital pouring into the U.S. from overseas. 'Global Saving Glut' In June 1998, U.S. Treasury officials made a plea to China that they would be reminded of repeatedly in the following years. Thailand had devalued its currency in 1997, touching off a crisis in the region that led other countries to devalue and in some cases default on foreign debt. The yen was sliding. Chinese officials, who pegged their currency to the U.S. dollar, "let it be known...that if things kept going this way they'd have no choice but to devalue," recalls Ted Truman, a Treasury official at the time. The U.S., fearing such a move would trigger another round of devaluations, urged the Chinese to hold their peg, and praised them when they did so. The Journal's Jon Hilsenrath discusses the origins of the credit boom and some of the lessons to be learned from its demise. But times changed. As recessions and depressed currencies held down imports and goosed exports in other Asian countries, the countries ran trade surpluses that replenished foreign-exchange reserves. Determined never to be so tied to the onerous conditions of the International Monetary Fund, they have kept those policies in place. Thai reserves, effectively exhausted in 1997, now stand at $73 billion. Long after the crisis passed, China's economic fundamentals suggested its currency should rise against the dollar. China let it rise only slowly, continuing to juice exports and produce trade surpluses that pushed China's foreign-exchange reserves above $1 trillion. When the U.S. pressed China to let its currency float, China reminded the U.S. of the fixed exchange rate's stabilizing role in 1998. China put much of its cash -- part of what Mr. Bernanke has called a "global saving glut" -- into U.S. Treasurys, helping hold down long-term U.S. interest rates. Chinese government entities also recently poured $3 billion into U.S. private-equity firm Blackstone. Mortgages for All Lou Barnes, co-owner of a small Colorado mortgage bank called Boulder West Inc., has been in the mortgage business since the late 1970s. For most of that time, a borrower had to fully document his income. Lenders offered the first no-documentation loans in the mid-1990s, but for no more than 70% of the value of the house being purchased. A few years back, he says, that began to change as Wall Street investment banks and wholesalers demanded ever more mortgages from even the least creditworthy -- or "subprime" -- customers. "All of us felt the suction from Wall Street. One day you would get an email saying, 'We will buy no-doc loans at 95% loan-to-value,' and an old-timer like me had never seen one," says Mr. Barnes. "It wasn't long before the no-doc emails said 100%." Until the late 1990s, the subprime market was dominated by home-equity lines used by borrowers to consolidate debt and by loans on mobile homes. But when the Fed held rates down after 2001, lenders could offer borrowers with sketchy credit histories adjustable-rate mortgages with introductory rates that seemed affordable. Mr. Barnes says customers were asking about "2/28" subprime loans. These offered a low starter rate for two years, then adjusted for the remaining 28 to a rate that was often three percentage points higher than a prime customer normally paid. Customers, he says, seldom appreciated how high that rate could be once the Fed returned rates to normal levels. Demand from consumers, on one side, and Wall Street and its customers on the other side prompted lenders to make more and more subprime loans. Originations rose to $600 billion or more in both 2005 and 2006 from $160 billion in 2001, according to Inside Mortgage Finance, an industry publication. At first, delinquencies were surprisingly low. As a result, the credit ratings for bonds backed by the mortgages assumed a modest default rate. Standards for getting a mortgage fell. About 45% of all subprime loans in 2006 went to borrowers who didn't fully document their income, making it easier for them to overstate their creditworthiness. The delinquency rate was a mirage: It was low mainly because home prices were rising so much that borrowers who fell behind could easily refinance. When home prices stopped rising in 2006, and fell in some regions, that game ended. Borrowers with subprime loans made in 2006 fell behind on monthly payments much more quickly than mortgages made a year or two earlier. When banks get in trouble, federal deposit insurance encourages depositors not to flee, and in extreme circumstances, banks can borrow directly from the Fed. But banks are no longer the dominant lenders. After the S&L crisis in the 1980s and early 1990s, regulators insisted banks and thrifts hold more capital against risky loans. This tipped the playing field in favor of unregulated lenders. They financed themselves not by deposits but by Wall Street credit lines and by "securitization" of their loans -- in effect, the sale of the loans to investors. The consequences proved painful. New Century Financial Corp., founded in 1995 by three former S&L executives, was the nation's second largest subprime lender by 2006. When its borrowers began falling behind, Wall Street cut off its lines of credit and forced it to buy back some of its poorly performing loans. New Century couldn't fall back on deposit insurance or the Fed. It filed for bankruptcy protection in April, wiping out shareholders and triggering market-wide fears about the health of the subprime business. LBO Boom Home buyers were not alone. In August 2002, Qwest Communications International Inc. -- heavily indebted, beaten down by the telecom bust and under investigation by the Securities and Exchange Commission -- decided to sell its Yellow Pages business. Private-equity firms Carlyle Group and Welsh, Carson, Anderson & Stowe agreed to buy it for $7 billion, about $5.5 billion of it borrowed. The business produced steady cash flow that could be used to pay down the debt. The buyers were worried they might not be able to borrow as much as they needed. "We were coming out of a pretty bad credit cycle," says Daniel Toscano, managing director at Deutsche Bank, which helped to manage the fund-raising. Instead, they tapped into a gusher. Within a year, Dex Media Inc., as the business became known, was back in the market. It borrowed $889 million to pay a dividend to Carlyle and Welsh Carson, and then $250 million more to pay another dividend. In just 15 months, the private-equity buyers made back most of their investment and still owned the company. By 2006, the volume of such leveraged buyouts was smashing records from the 1980s. Generous credit markets enabled private-equity firms to do larger deals and pay themselves bigger dividends. They boosted returns -- and attracted more investors, which enabled even bigger deals. As in subprime mortgages, lenders began to ease borrowing requirements. They agreed, for instance, to "covenant-lite debt," which dropped once-standard performance requirements, and "PIK-toggle" notes, which allowed borrowers to toggle interest payments on and off like a faucet. Bankers began marketing debt deals for companies that, unlike Yellow Pages, didn't have comfortable cash flow. There was Chrysler, burning cash rather than producing it. And there was First Data Corp., whose post-takeover cash flow would barely cover interest payments and capital spending, according to Standard & Poor's LCD, a unit of S&P which tracks the high-yield market. Last month, investors began to balk. Now many banks find themselves having committed to lend about $200 billion that they had intended to turn over to investors, but can't. Let's All Look Like Yale The subprime and LBO booms required willing lenders. The stock-market collapse and low interest rates of 2001 to 2004 nurtured a class of investors and products to fill that role. Managers of pension and endowment funds long had divided their assets among domestic stocks, bonds and cash. The funds saw their performance suffer when the stock market and then bond yields tumbled. A few endowments, most notably at Yale and Harvard, had for years been spreading their investments more broadly, going into hedge funds, real estate, foreign stocks, even timberland. The goal was holdings that wouldn't suffer in sync with stocks in a bear market. Sure enough, in 2000 and 2001, even as stocks tumbled, Harvard Management Co. earned returns of 32.2% and -2.7% respectively. Yale's returns were 41% and 9.2%. Other institutions wanted their money managed the same way, seeding a flood of hedge funds that bought other untraditional investments such as credit derivatives. University endowments poured roughly $40 billion into hedge funds between 2000 and 2006, according to Hedge Fund Intelligence, a newsletter. "I call it the 'Let's all look like Yale effect,'" says Jeremy Grantham, chairman of Boston money manager GMO LLC. Low interest rates made many investors willing to buy exotic securities in an effort to boost returns. Wall Street had just the vehicle: securitization, or turning loans that once sat quietly on banks' books into securities that can be sold in global markets. Securitization, long common in conventional mortgages, had been supercharged in the early 1990s when the federal Resolution Trust Corp. took over S&Ls that held more than $400 billion of assets. Though some thought it would take the RTC a century to unload them, it took only a few years. The agency successfully securitized new classes of assets, such as delinquent home loans or commercial loans. In the late 1990s, Wall Street went a step further, packaging bigger pools of securities into collateralized debt obligations, or CDOs, and carving them into "tranches," each with a different level of risk and return. Riskier tranches suffered the first losses if some underlying loans defaulted. Other tranches offered lower returns because riskier tranches would take the first hits if the business went sour. Because of the way they were structured, some CDO tranches got triple-A ratings from Moody's Investors Service and Standard & Poor's even though they contained subprime loans. That lured traditionally conservative investors such as commercial banks, insurance companies and pension funds. The upside was evident: Many borrowers got loans they wouldn't otherwise have had. The taxpayer-backed deposit fund was less likely to bear the cost of sloppy lending practices. Banks shifted risks to investors more willing to bear them -- leaving the banks able to make more loans. Investors could pick either more-risky or less-risky slices. And Wall Street middlemen made handsome profits. Now the downside, too, is painfully evident. Final investors were so many steps removed from the original loans that it became hard for them to know the true value and risk of securities they bought. Some were satisfied with a triple-A rating on a CDO -- seemingly as safe as a U.S. Treasury bond but with more yield. Yet as defaults ate through the cushion of lower-rated tranches with unexpected speed, rating agencies were forced to rethink their models -- and lower the ratings on many of these investments. Some structures were so opaque that markets couldn't value them. But ratings cuts sometimes forced an acknowledgment that securities owned weren't worth as much as thought. In May, Swiss bank UBS AG shut down a hedge fund after a $124 million loss. In June, two Bear Stearns hedge funds saw as much as $1.6 billion of investor capital wiped out by bad mortgage bets and pulled credit lines. The trouble spread to hedge funds in Sydney, Australia, a mortgage insurer in Milwaukee and a bank in Düsseldorf, Germany. Even Harvard has been hit. The university lost about $350 million through an investment in Sowood Capital Management, a hedge-fund firm founded by one of the university's former in-house money managers. Casino Night Recent events show that financial innovations meant to distribute risk can end up multiplying it instead, in ways neither regulators nor investors fully understand. Mr. Grantham, the Boston money manager, says his portfolios are behaving in ways he hadn't expected. Fed officials believe that even if their policies led to housing and debt bubbles, the strength of the overall economy shows that the policy was, on balance, the right one. Of course, that assumes the current problems don't culminate in a recession. Market veterans predict the most egregious underwriting practices and products will disappear, but the benefits of innovation will continue. Lessons have been learned -- the hard way. "The structures are here to stay," says Glenn Reynolds, chief executive of research firm CreditSights. "But you have to run it like a prudent risk-taking venture, not like it's casino night and you're on a bender." Write to Greg Ip at greg.ip@wsj.com and Jon E. Hilsenrath at jon.hilsenrath@wsj.com Wall St. Journal
It's obvious what is driving Wall Street - greed. Why else would you push mortgage companies for loans (that could be repackaged as securities) with no income documentation from the borrower that covered 100% of the purchase price? There has been no regard for the people who borrowed this money. No consideration of what would happen when these 'introductory' rates reset at higher interest rates. The only consideration was - how much money can I make? I'm sure that there were people within Wall Street who probably sounded an alarm - but it's obvious that any objections were silenced by the people at the top. What is the root of all evil?
We are led to believe that no one truly understands how our economy works (from the world's perspective) - it's simply too complicated. If you only listen to the media and economic ‘experts’ and never study economic and monetary policy yourself, you’ll never understand the truth of the economic system you rely on. I now believe that there are a few men in the world today who do understand and control much of the world’s economic activity. Because this certainly relates to Biblical end time events – we’ll review the truth of our monetary system in the next post.
We have many ways to measure our economy and economic growth, but what really causes periods of growth and periods of recession? What triggers a recession or a depression? If the leaders of our nation really understood our economy and really cared about our livelihood, we'd obviously never have recessions or depressions. Over the past few years, I've read many who believed we finally had it all figured out. Now, uncertainty reigns again. Derivatives, CLO's, CDO's & SIV’s supposedly spread risk around and protect investors....now it appears that everything is much more closely interconnected than anyone thought. Based on what we've learned about wealth from the Bible, do you really want to align yourself with such greed by investing in Wall Street? Take note of the section below entitled 'Casino Night'. Do you really want to place your life savings on black and have someone spin the wheel? At least in Vegas, you know your odds.
The actions of the Federal Reserve are more curious. Let's disregard for a moment that the Federal Reserve is a private corporation with private owners and take a quick look at their actions over the past few years. After Sept 11, 2001, the Fed reduced the Federal Funds Rate (rate charged to banks) to 1%. This is what has contributed to the 'easy money' or liquidity flowing throughout the world (see article below for details). As the economy has strengthened in recent years, the Federal Funds rate has steadily climbed to 5.25%. This, in effect, has raised the cost of everything in this country. The reason we are consistently given for this increase is that the Fed is concerned about inflation. We are always told that inflation is the enemy and must be contained at all costs. I agree, from an economic standpoint, inflation can destroy economic growth. But the question we must ask is this - is the Fed truly concerned about inflation?
Economists measure inflation in a couple of ways - the Consumer Price Index (CPI) and the Producer Price indexes (PPI) are two of the most prominent measures of inflation. Both measure the change in prices (for consumers and businesses) over time. What is something else that impacts the rate of inflation that doesn't get mentioned much in the media? The money supply. It stands to reason that as the supply of money in a nation increases, the chance of inflation increases. If you place more money in the hands of consumers and businesses, then there is a very high probability that everyone will buy more and invest more and drive up the prices of everything from consumer goods and services to stocks. Not sure whether this is an acceptable way to measure inflation? It used to be a very accurate measure of inflation – by the Federal Reserve. The following was taken from Wikipedia:
“In January 1987, with C.P.I. inflation down to only 1%, the Federal Reserve announced it was no longer going to use money supply aggregates, such as M2, as guidelines to control inflation, even though this method had been in use from 1979, apparently with great success. Previous to 1980, interest rates were used as guidelines; inflation was heavy. The Fed complained that the aggregates were confusing; Volcker was still chairman until August 1987, whereupon Alan Greenspan assumed the mantle, seven months after monetary aggregate policy had changed.”
Think about home equity loans. Low interest rates coupled with a hot housing market (again, this is inflation) has enabled many people to cash out equity in their homes. What have they done with this money? From what I've read, many have bought more stuff. This increases prices (supply and demand comes into play) and therefore, the rate of inflation increases.
So, does the Federal Reserve measure the overall money supply in the U.S.? It did until March 23, 2006. On this date, the Fed stopped publishing data on the M3 money supply (total measurement of our money supply). The following information was taken from Wikipedia:
"The most common measures are named M0 (narrowest), M1, M2, and M3. In the United States they are defined by the Federal Reserve as follows:
M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
M1: M0 - those portions of M0 held as reserves or vault cash + the amount in demand accounts ("checking" or "current" accounts).
M2: M1 + most savings accounts, money market accounts, small denomination time deposits and certificate of deposit accounts (CDs) of under $100,000.
M3: M2 + all other CDs, deposits of eurodollars and repurchase agreements.
As of March 23, 2006, information regarding M3 will no longer be published by the Federal Reserve, ostensibly because it costs a lot to collect the data but doesn't provide significantly useful data[1]. The other three money supply measures will continue to be provided in detail.
In an effort to reverse this change, Congressman Ron Paul introduced the now expired H.R.4892[2] on March 7th, 2006, and subsequently sponsored H.R.2754[3][4] on June 15th, 2007 which has been referred to the House Committee on Financial Services."
The Fed has said that M3 data is not significant. Really? Apparently, it was important from 1979 to 1987 when they used the money supply to measure inflation very effectively. Why is it now not important? By not publishing this data, we don't know how many dollars are in circulation throughout the world (coins, bills, checking accounts, foreign accounts, etc). Theoretically, you could estimate M3 from the other measures, but it would take alot of time and would only be an approximation. How much money are we talking about? At the time the Fed stopped publishing M3 data (March 2006), the total amount of our money supply equaled 10 trillion dollars. M3 data represented 3 trillion additional dollars in addition to M2. Not reporting 30% of our money supply is not significant? It is also interesting to note that the total value of our money supply has increased to 10 trillion dollars in 2006 from 4 trillion in 1990. So, our total 'supply' of dollars has more than doubled in only 16 years. Should it surprise us that the dollar is weakening against other currencies throughout the world? If the Fed was really concerned about inflation, why have they flooded the world's markets with dollars and stopped publishing this data?
The final question we need to ask is this - is the Federal Reserve acting in our best interests (the nation) or is it acting in the interests of its owners? Do private companies act in the best interests of everyone or do they act in the best interests of their shareholders? What if the shareholders of the Fed have another motive for their actions? Remember, we are not talking about Godly people. If you are still not convinced that the Federal Reserve system is privately controlled, the following was taken from Wikipedia:
“In Lewis v. United States, the United States Court of Appeals for the Ninth Circuit stated that "the Reserve Banks are not federal instrumentalities for purposes of the FTCA [the Federal Tort Claims Act], but are independent, privately owned and locally controlled corporations."”
Let’s take a look at the Federal Reserve’s balance sheet. This information is taken from Wikipedia. The dollar amounts are in millions.
So, the Federal Reserve has over $870 Billion dollars in assets.
The following analysis is also taken from Wikipedia. The figure that stands out to me is the amount of money the Federal Government (that’s you and me included) owes the Federal Reserve banking system. At the time this article was written (June 2007), the United States Government owes the Federal Reserve $790 Billion dollars. This represents 9% of our national debt. That’s the price we pay to the Fed to create our currency and manage the banking system. When the media discusses our national debt, why is this never mentioned? People in high places would prefer that we didn’t know.
The question becomes – should the United States Government pay a private corporation to manage its money? I believe what we have all forgotten is that our money has no real value. Since 1971, our money is no longer, in any way, tied to the value of gold. So, our paper money is only good to use as long as everyone accepts it as money. If the dollar crashes on world markets, what will happen to our banking system? It won’t be good.
Starting to feel uncomfortable?
What if the private owners of the Federal Reserve are the same people who control much of our government behind the scenes? If you study all of the events of 9/11/2001, you will find that there were many suspicious financial transactions taking place before the event. Many 'puts' (bets that a stock will fall) were placed on airline stocks (including Boeing). The number of puts placed before the attacks were many times higher than the norm. Harddrives were recovered from ground zero that showed many millions of dollars in financial transactions related to the event that someone apparently thought would be 'covered up' and destroyed. Where are the billions of dollars worth of gold that was stored in the vaults of the World Trade Center? It seems to have vanished. Why doesn't our mainstream media investigate these things? Whether you want to believe it or not, many people had prior knowledge of this event. It's hard to believe, but it's the truth.
So, what if this event was planned as a 'false flag' operation that would be used against us in order to slowly remove our freedoms in the name of the 'war on terror'? Whether you want to believe it, this is exactly what is happening (Patriot and Military Commissions Act, the various 'executive orders' from President Bush). Don't forget, we are dealing with very intelligent, deceptive people who place no value on your life or mine - they use our patriotism against us. What if, in connection with this event, the Federal Reserve lowered interest rates for a long time to give the appearance that they were helping us, but were, in effect, setting up the world for a major financial crisis? Is it a coincidence that at a time we are worrying about a future terrorist event, financial markets are experiencing a very high level of volatility? It's as if we have been directed to the edge of a cliff, but we think that there's no way we're going over. It won't happen - we're America after all! We think we're invincible. We're being setup on many fronts - but are spiritually blind and can't see our enemy. The world is going to tell us who can save us from these 'terrorists'. The world will tell us who can restore financial stability. As Jesus told us - the father of lies is ruler of this world. Don't trust the world. Place your faith in God and His truth.
Also keep in mind that President Bush has signed many executive orders that give him what amounts to dictatorship powers in the event of another 'terrorist' event. I wonder why mainstream media never reports on these things? Do you see where this is going? This 'event' will trigger not only the loss of our freedom, but could very well be the trigger for a worldwide financial collapse. Based on what is at stake, who do you think will be behind this event? What do you think will emerge from this event? There are people walking around today that could tell you exactly what is planned.
Still not convinced? What do some of the men who helped created the Federal Reserve have to say on the subject?
It's time to stop focusing on our pursuit of worldly things. God is giving us signs everywhere - we're simply not paying any attention. This is going to change.
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How Credit Got So Easy
And Why It's Tightening
August 7, 2007; Page A1
7/5/07
6/27/07
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 27th. 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.
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 3rd 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.
I’ll finish this with one of Chris Martenson’s blog posts. Pay close attention – because we’re watching history repeat itself – once again.
jg – Nov 5, 2008
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
It has been a very eventful couple of days. It shows you just how bad things are becoming. It appears (as Aesop said – appearances are often deceiving) that our Government and the Federal Reserve are doing everything they can to prevent a collapse of our financial system. Let’s think about what is really happening. Remember – who caused this mess? The Federal Reserve – by its monetary policy. Who is solving this mess? The Federal Reserve – by printing money to buy real assets. Where did the Federal Reserve get this $85 billion? As Chris mentions below – out of thin air. They create this money.
Wouldn’t it be nice if you could print your own money to pay your bills or buy things? Not really – think it through. What would happen if everyone had their own printing presses and printed as much money as they wanted? You guessed it – money would quickly become worthless. This is exactly what is happening to the dollar. The Fed is printing vast amounts of money to prop up our failing monetary/economic system. What is going to happen to our money? The same thing will happen as we described above – inflation will skyrocket and our money will become worthless. It’s inevitable.
I’m sure that the stock market will rise tomorrow as people hail this move – we’re saved! Unfortunately, this bailout does nothing to solve the massive underlying problems that are causing all of this. This is simply another symptom of the much bigger problem our monetary system has created. What will the government do with Washington Mutual? When will we reach the point that we can’t bailout any more of these banks/corporations? We are rapidly approaching a cliff – much more quickly than anyone anticipated. When we fall off the cliff – you can bet that there is a plan waiting in the wings to somehow rescue us – which is what this is all about.
What is also very interesting is that you will never hear in the mainstream media how the Federal Reserve gets the money to bailout these institutions. Ever wonder why?
John Gilmore – 9/16/2008
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.
It’s nice to see something that makes sense printed in the mainstream press. I don’t agree with everything Mr. O’Driscoll mentions below – but I certainly agree that the Fed (and all other Central Banks) have created the current crisis.
jg – Nov 19, 2008
NOVEMBER 17, 2008
To Prevent Bubbles, Restrain the Fed
Obama would be a fool to trust his economy to the discretion of central bankers.
By GERALD P. O'DRISCOLL JR.
Wall St. Journal
On Nov. 14, 2008, the Dow Jones Industrial Average closed at 8497.31. On Nov. 13, 1998, the adjusted (for dividends and split) close was 8919.59. There has been great volatility, but no net capital accumulation as measured by the Dow in a decade. Other indexes, such as the Nasdaq, tell a similar story. Capital has been invested but as much value has been destroyed as created.
The U.S. cannot afford to have another lost decade. Or to see the dreams of another generation of Americans who had been told to take responsibility for their financial health by investing in the stock market dashed by failed monetary and fiscal polices.
Today, the most urgent task facing President-elect Barack Obama is stabilizing financial markets by instituting policies that foster economic growth and prevent the type of boom and bust cycle that has just wiped out a decade's worth of wealth accumulation.
Mr. Obama's task is made all the more difficult because there has been a perfect storm of bad policies and practices. Laudable goals, such as fostering more homeownership, went terribly awry. Financial services regulation has failed at its most basic task, protecting the soundness of the system. And a dysfunctional compensation system has given corporate managers incentives to take excessive risks with investors' money.
None of the policies and practices that are now widely criticized suddenly appeared in the past decade. But they were kindling for a financial firestorm that needed only an accelerant and a spark. Both were provided by a policy of easy money that came in response to the bursting of the dot-com bubble in 2000-01, the ensuing recession, and the Sept. 11 attacks.
At first Fed easing was in order. The central bank needed to counter the "irrational exuberance" of the dot-com bubble. And by May of 2000 the Fed had done that by raising the fed-funds target to 6.5%. That needed to come down when the bubble burst. Aggressive cutting brought it to 2% in November 2001.
The problem is the rate remained at 2% or less for three years (for a year it was at 1%). During most of this period, the real (inflation-adjusted) fed-funds rate was negative. People were being paid to borrow and they responded by often borrowing irresponsibly.
Consider subprime mortgages. In 2001, there was $190 billion worth of subprime loan originations -- 8.6% of total mortgage originations. In 2005, there was $625 billion worth of subprime originations -- 20% of the total. In the same period, the percentage of subprime mortgages securitized -- loans that were packaged and sold to investors -- rose from just about 50% to a little more than 81%. (These numbers all trailed off slightly in 2006.) The great easing in monetary policy ended (with a lag) when the Fed began raising rates in June 2004.
The subprime saga follows a familiar pattern. Easy credit begets a boom and then the inevitable tightening of credit bursts the bubble. What is not familiar is the scale of the devastation wrought in this boom-bust cycle.
Never before had financial markets evolved such a complex superstructure of interlinked securities, derivatives of all kinds, and special-purpose investment vehicles. Professor Gary Gorton of the Yale School of Management has best described that complexity in his paper "The Panic of 2007," published by the National Bureau of Economic Research. He makes clear that as this system evolved there was not a sufficient guard against systemic risk.
No president could want these events to repeat themselves on his watch. But they could be repeated.
The economy now confronts deflationary forces. If past is prologue the Fed will concentrate on those deflationary forces for too long and rekindle an asset boom of some kind. The fiscal "stimulus" being contemplated by Congress could be another economic accelerant. If both the fiscal and money stimulus efforts kick in just as market forces also kick in, we're likely to see another unsustainable boom that will be followed by a bust.
The incoming administration must think about that possibility because the timing of boom and bust cycles seems to be shortening. The next bust could come five or six years from now -- or about in the middle of an Obama second term. Should that happen, Mr. Obama would be unable to blame Republicans for the mess and would be tagged as the second coming of Jimmy Charter.
To avoid such a fate, Mr. Obama needs to stop the next asset bubble from being inflated by imposing a commodity standard on the Fed. A commodity standard (such as a gold standard) imposes discipline on a central bank because it forces it to acquire commodity reserves in order to increase the money supply. Today the government can inflate asset bubbles without paying a cost for it because the currency isn't linked to the price of a commodity.
With a commodity standard in place, the government would also have price signals that would alert it to the formation of a bubble. Why? Because the price of the commodity would be continuously traded in spot and futures markets. Excessive easing by the Fed would be signaled by rising prices for the commodity. In recent years, Fed officials have claimed that they cannot know when an asset bubble is developing. With a commodity standard in place, it would be clear to anyone watching spot markets whether a bubble is forming. What's more, if Fed officials ignored price signals, outflows of commodity reserves would force them to act against the bubble.
The point is not to deflate asset bubbles, but to avoid them in the first place. Imposing a commodity standard is a practical response to the repeated failures of central banks to maintain sound money and financial stability. What would be impractical is to believe that the next time central banks will get it right on their own.
Mr. O'Driscoll, a senior fellow at the Cato Institute, was formerly a vice president at the Federal Reserve Bank of Dallas.
People who understand economics are saying the same thing – it would be nice if someone at the Fed or the Treasury would tell us the truth. The problem is that you’re not going to get the truth from people who are consumed by lying. This is really getting old – the same rhetoric – day after day – until the financial markets suffer a catastrophic meltdown. Then, I suppose, the story will change. It will change to something like - ‘we tried everything possible’, ‘things were just too messed up’, etc. ,etc. Of course, we’ll then be told about a new financial ‘system’ that will probably work much better. I wonder if Bush, Bernanke, Paulson, etc….are actually given a script about what to say or not to say. It wouldn’t surprise me.
Not everyone in the world is so easily deceived. I’m watching and waiting – for the script to change.
The following is a blog post by Chris Martenson.
jg – Dec 1, 2008
Bernanke - Still speaking as though to children
Monday, December 1, 2008, 3:45 pm, by cmartenson
Bernanke's remarks today did little to soothe this ruffled observer. His remarks struck me as practically dishonest in their inability to speak directly to our actual problems.
Bernanke says Fed still has arrows in quiver
WASHINGTON (MarketWatch) - The Federal Reserve has lowered interest rates just about as far as they can go, but the U.S. central bank still has plenty of available firepower it could deploy to restore financial markets to normal, Fed Chairman Ben Bernanke said Monday.
I wish that we could just get some straight talk about our actual condition instead of this weird insistence on "restoring our financial markets to normal." This ignores the fact that they were completely abnormal. Why would we want to return there? I guess it's this strange insistence on continually repeating the mantra that things can be "restored to normal" that's got me unsettled.
The way I see it, there's no "normal" to return to. Things were hopelessly out of whack before and now they will settle into some new, different level of activity.
George Soros refers to this same process in his Theory of Reflexivity arguing that the mainstream economic insistence that there is some sort of magic equilibrium is utterly without merit. Instead markets reflect the interplay between human perceptions and reality. Hence, there's no such thing as "equilibrium". Everything is constantly in flux.
Hence, any efforts to "restore normality" are destined to fail because there's really nothing to return to. "Normal" doesn't exist. If you ascribe to this theory, as I do, then Bernanke's efforts are not just destined to be fruitless, but horribly expensive mistakes that are compounding the prior mistakes.
The Fed could buy Treasury notes and bonds or agency bonds in a bid to drive yields lower and "spur aggregate demand," Bernanke said. Many analysts refer to such a policy as "quantitative easing," because the Fed would target a specific amount of money to flood into the economy.
"Could"? The Fed balance sheet is already loaded with both agency and Treasury debt and they just announced a $600 billion program for more agency debt last week. So I guess what they meant to say here was that the Fed could buy more government debt than usual.
The U.S. economy is under "considerable stress," Bernanke said, and is likely to remain weak for some time. The economy "downshifted further" after the financial crisis of September, he said.
The economy won't be able to fully recover unless and until financial markets resume normal functioning, he said. The economic outlook is unusually uncertain, he said, because it's difficult to know when financial markets will be healthy again. He noted some tentative signs of improvement, but other signs were worsening.
Again, this economic talk is so far wide of the mark that it makes me feel like I am being talked down to, as though I were a small child. This is not "considerable stress". 9/11 was "considerable stress". This is the worst economic crisis ever in our history if the record breaking and record setting across-the-board declines are any indication.
I advocate a bit of honesty and truth. We can handle it. In fact, it might even be refreshing and in an odd sort of way allow some people to conclude that we've turned a critical corner. As long as we attempt to sugar-coat every bit of language in an attempt to "soothe the markets" I think we will continue to find a real bottom to be elusive.
Bernanke spoke at the Greater Austin Chamber of Commerce in the Texas capital, just hours after the private National Bureau of Economic Affairs announced that the economy had entered a recession nearly a year ago.
Thanks NBER! Right on top of things, as usual. That's a very helpful service you've got there telling us we started a recession a year ago. Perhaps GM can use that information in their planning process.
Further rate cuts are "certainly feasible," but the ability of traditional monetary policy to further stimulate the economy is limited, the Fed chairman said.
Additional rate cuts? To what? 3 month T-bills are yielding 0.00% currently. Hard to imagine going much lower than that. The Fed has a long history of following the market on rates and the market is already at 0.00%.
The Fed could also expand its efforts to supply liquidity directly to markets and investors, bypassing banks and other reluctant institutions, he said.
Uh oh. This is a very ominous statement. Let's imagine what mechanisms he might be envisioning to "supply liquidity directly to markets and investors". All I can think of is a wire transfer or check directly from the Fed to these "markets and investors". In the case of "markets" I suspect Bernanke is talking about buying stocks. The Fed granted itself the right to perform this function about 3 months ago and I guess Bernanke is reminding us that they may yet directly buy equities in an effort to support stock prices.
But directly to investors? All I can say there is that if you receive a check from the Fed spend it as fast as you possibly can as that will mark a turning point for our currency. If you don't believe me, then we should take a road trip to Zimbabwe together because that is exactly what their Central Bank did early on in their current inflationary crisis.
At first glance, this seems like good news - Americans are actually reducing their debt. In a sane world with a sane monetary system – it would be. The problem – as we’ve discussed many times – is that debt creation is required in our current monetary system. We must continue to create debt each year equal to the aggregate rate of interest on all outstanding debts (as Chris mentions below) – or serious problems will begin rippling throughout the system – which we see happening everyday now. The debt required each year is now a very big number – and it’s getting bigger. So, when we see that debt is actually being reduced, it’s a very bad thing for a debt-based monetary system. This is the opposite of what we’d expect. We would like to think that paying off our debts would be a good thing – but it’s not a good thing in this system. The Federal Reserve obviously knows this – which is why we see them ‘injecting’ more and more money into the system by various means. Someone must pickup the slack in debt creation – it is required for the system to function.
This illustrates just how backwards our nation and the world has become. While God warns against becoming indebted to a lender, the world rewards us for taking on more debt. The reason? Because someday your debts are going to come due – and when you can’t pay – what you have will be taken from you – just as the Bible tells us. So, we are living in a monetary/economic system that rewards us for choosing the world’s ways over God’s ways – even though this will eventually lead to economic ruin. Surprised? You shouldn’t be. When we follow the world instead of God – this is the type of deception that we should expect.
Satan is the source of all deception and opposes God and His ways – on everything. Never forget – our spiritual enemy does not have a 75 year time horizon. He instituted systems within the world years ago that will allow him to gain worldwide control – over generations. How did he deceive us this long? We have focused on the here and now – on our wealth and power – and we have been blinded to the long term effects of what this will do to us. We have been tempted – and have given ourselves over to these temptations.
I have heard many Economists and ‘experts’ say that the current economic problems in the world today (U.S. negative account balance, world’s debt levels, etc.) cannot be sustained forever – and will need to be corrected at some point ‘in the future’. It’s much easier to push the hard choices into the future instead of seeking solutions today. We see this behavior inherent in our leaders – there has been no fiscal responsibility – and there still isn’t. In fact, it’s getting much worse with all of the ‘bailouts’ and ‘stimulus’ packages. Each generation has passed the problem on to the next – and as this problem has been passed – it has gotten worse with every subsequent generation. Now – our generation stands at the brink of the abyss. Now – our generation cannot simply pass along the problem because the system is collapsing. We – you and me – must now face the music for all of the sins of past generations.
We have been given the responsibility to find a way out of this mess. Can we do it alone? Can we take on the world and it’s deception by ourselves and somehow find a way to succeed against what appears to be insurmountable odds? We need to somehow find a monetary system that does not rely on exponential growth – that is stable and sustainable. At the same time, we must outsmart an evil spiritual being that will do everything possible to prevent our success. He will bring those he controls in the world against us at every turn. So, can we do all of this on our own? Not a chance. We only need to look at past generations and the decisions they have made to see the answer is no. Follow worldly intelligence and logic – and we will fail. I’m sure that there will seem to be many possible solutions – and all but one will lead to our destruction. There is only one way for us to succeed – God’s way.
jg – Dec 12, 2008
Households pay down debts for first time
Thursday, December 11, 2008, 4:03 pm, by cmartenson
Chris Martenson
Mayday! Mayday!
This next story outlines a dire condition for a debt-based monetary system:
WASHINGTON (MarketWatch) - Stung by the loss of $2.81 trillion in their net wealth, U.S. households paid down their debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday.
As of Sept. 30, households' total outstanding debt shrank at an annual rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report.
Consumer debt actually reversed. This strange behavior has never before been observed in this data series and it goes back to 1952.
Whether we use an "outside-in" empirical approach to observe that debt and money have been created in exponential amounts over the past six decades, or an "inside-out" approach to demonstrate a mathematical requirement for the exponential creation of money/debt, we come to the same conclusion: We live in an exponential money system.
For this reason, the failure of consumer debt to expand at the required rate is very big news. What's "the required rate"? Roughly the aggregate rate of interest on all outstanding debts.
It seems that the hit came from the first ever recorded drop in mortgage debt:
Households paid off more mortgage debt than they took on for the first time on record. Mortgage debt fell at a 2.4% annual rate to $10.54 trillion. Other consumer debts, such as credit cards and auto loans, increased at a 1.2% annual rate in the quarter to $2.6 trillion.
I am not certain if the mortgages were paid down or defaulted upon, but the article implies that they were paid down. I am less sure of that given the massive foreclosure rates that are plastered all over the news.
Given that consumers are not pulling their weight, how is the system being held together? Readers of the last two Martenson Reports will not be surprised by the answer:
Total U.S. domestic nonfinancial debt increased at a 7.2% annual rate, boosted by a postwar record 39.2% increase in debt taken on by the federal government.
You can try and understand all the confusing alphabet soup lending facilities offered by the Fed, and try to track details of all the new borrowing by the government, but it is all really very simple to understand if we back up a bit.
New borrowing and lending is being undertaken by the Fed-government axis at a rate sufficient to equal all the outstanding interest payments on prior debts.
Without this new money creation defaults by somebody somewhere in the system is guaranteed.
Compounding the difficulties of the monetary and fiscal authorities is the fact that debts are already defaulting at a horrific clip.
All in all this leads me to conclude that when it comes to borrowing and new money creation, we haven't seen anything yet.
And still, even in the face of overwhelming evidence that there is an illness that lurks within the very design of the money system itself, there is precious little commentary on that subject in main stream media or the dominant political parties.
It's time to change that.
DECEMBER 12, 2008
Debt Shows First Drop as Slump Squeezes Consumers
By PHIL IZZO, BRENDA CRONIN and SUDEEP REDDY
Wall St. Journal
The U.S. economy is deteriorating more rapidly than expected just weeks ago, indicating the recession will be deeper and longer than feared as households and businesses struggle with the most stress they have faced in decades.
New Federal Reserve data revealed that U.S. households paid down debt for the first time since the central bank started collecting the information in 1952. While a positive longer-term trend, the higher savings rate means that consumers are spending less. That is a punishing turn for an economy in which consumer spending accounts for 70% of gross domestic product.
The Commerce Department said exports, which had helped sustain the economy through midyear, fell 2.2% in October from a month earlier as foreign demand for U.S. goods continued to fall. The nation's trade deficit rose in October to $57.2 billion from $56.6 billion in September, despite a considerable drop in oil prices during the month.
WSJ's Phil Izzo talks with Kelsey Hubbard about the results of the latest survey showing economists believe the current recession will last into June 2009, making it the longest since the Great Depression.
Another government report indicated that initial unemployment claims in the first week of December surged 58,000 from a week earlier to 573,000, a 26-year high, as companies slash payrolls before the end of the year. The number of workers continuing to collect jobless benefits jumped 338,000 to 4.43 million in the week ending Nov. 29 from the prior week -- matching the largest weekly increase on record, in November 1974 -- with little relief in sight as businesses brace for a lengthy downturn.
The government data spurred forecasters to update their expectations for the depth of the contraction, which is now expected to continue through the first half of next year. The increasingly grim news is likely to give a push to President-elect Barack Obama's plans for massive government spending to jolt the economy.
Citing the weak trade figures and other signs of a business slowdown, the forecasting firm Macroeconomic Advisers downgraded its estimate of GDP in the current quarter by a full percentage point on Thursday, to a 6.6% annualized decline. If that comes to pass, the quarter would rival the two worst periods in the recessions of the early 1980s. The economy declined by 7.8% in the second quarter of 1980 and 6.4% in the first quarter of 1982.
The final GDP number could turn out to be less dire, of course. Some economic consulting firms continue to estimate a slightly smaller 5% GDP decline this quarter followed by a 4% contraction in the first three months of next year.
Economists in the latest Wall Street Journal forecasting survey projected, on average, that the decline in GDP, which started in July, would continue through the first two quarters of 2009. If those predictions bear out, it would mark the first time GDP has contracted in four consecutive quarters during the postwar period.
On average, economists expect June 2009 to mark the end of the recession, which began in December 2007. That would put the downturn at 18 months, the longest period of decline since the Great Depression. The recessions of 1973-75 and 1981-82 each lasted 16 months.
The 54 economists in the latest Wall Street Journal survey predicted, on average, that GDP would contract at an annual rate of 4.3% in the fourth quarter of 2008, and 2.5% and 0.5% in the first two quarters of 2009. The Commerce Department's preliminary estimate showed a 0.5% decline in quarterly GDP for the third quarter of 2008. The economists were surveyed Dec. 5-8.
The expansion of the U.S. trade gap in October came as the plunging cost of oil imports was more than offset by a surge in the volume of oil that was imported. September's hurricanes, which disrupted activities at the port of Houston, partly caused the October import surge.
Exports of goods and services fell to $151.7 billion in October from $155.1 billion the prior month, as trading partners felt the effects of the worsening slowdown -- and a strengthening U.S. dollar. Total imports edged down to $208.9 billion from $211.6 billion, largely because of the drop in oil prices.
The broad-based decline in exports showed how a key engine of GDP growth earlier this year is sputtering. Trade represented as much as 2.9 percentage points of GDP growth in the second quarter, and 1.1 percentage points of growth in the third.
Through much of the first half of 2008, "the only thing that was keeping the economy from technically showing a reduction in GDP was trade," said IHS Global Insight economist Brian Bethune. "Even though we saw weak growth, it was strong enough to more or less keep factories busy and help absorb the shock of a weak domestic economy."
Now, "there's probably going to be little or no contribution from those exports," Mr. Bethune said.
The financial turmoil over the past year has taken a deep toll on consumers and businesses. The Federal Reserve said Thursday that U.S. household net worth fell 4.7% to $56.5 trillion in the third quarter, marking the fourth-straight quarterly decline, as home values, stocks and other assets lost value. Household net worth was down 11% from a year earlier.
The Fed's quarterly flow-of-funds report, the most comprehensive snapshot of the household sector available, showed that household debt contracted at a 0.8% rate, the first drop on record. Growth in consumer credit slowed to 1.2% at an annual rate in the July-September period, the Fed said, far lower than the 3.9% pace in the prior quarter. Borrowing for home mortgages fell at a 2.4% annual rate, the largest decline since the Fed began keeping the figure.
Consumers are being hit by falling home prices and job losses. The economists in the Journal survey on average said the unemployment rate will peak at 8.4% next year. While that rate was surpassed in both the 1970s and 1980s, it would mark a four-percentage-point increase from the low of 4.4% in March 2007. Only the 1973-75 recession, with a 4.1 percentage-point increase, had a larger jump in the postwar period.
Adding to consumers' pain: The end of the recession isn't likely to mark the end of job losses. In past recessions, labor-market contraction has continued for months after a downturn's official end. The economists surveyed, on average, forecast just an 8.1% rate for December 2009 as job cuts continue into 2010.
"The job market is ugly and is going to stay that way," said Allen Sinai at Decision Economics. "The economy is going through the heart of reductions in the work force now."
Many economists in the Wall Street Journal poll cited a major expected fiscal stimulus package as the key to pulling the U.S. out of recession, even though the structure of the package remains uncertain.
Write to Phil Izzo at philip.izzo@wsj.com, Brenda Cronin at brenda.cronin@wsj.com and Sudeep Reddy at sudeep.reddy@wsj.com
Let’s think about a hypothetical situation for a moment. Let’s say that today it was announced that a privately owned bank – let’s call it the Federal Bank and Trust – was given authority to print the money of the United States Government and charge our government interest on this money for a period of 20 years. This bank would be given the authority to manage our money supply – by adjusting interest rates and the volume of money in circulation. It would be loosely regulated – but would exert immense power over not just our economy – but the world’s economy as well.
What if this fictitious bank then began to use it’s authority to wreak all kinds of havoc within our economy? What if it caused recessions and depressions due to its monetary policy, caused varying degrees of inflation which would systematically devalue the currency of the U.S. Government over time and repeatedly caused asset bubbles that were unsustainable – leading to crashes every few years? What if its monetary system required us to grow our money and economy exponentially – which would eventually lead us to economic collapse at the end of the 20 year period of time? What if this system enriched its private owners – while taking away the wealth of the citizens of the United States through foreclosures and loan defaults? What if this ‘Federal’ bank then began buying U.S. assets by printing money – but would not disclose the assets that were being purchased?
What do you think would happen today if our government made an announcement like this? I have a very good idea – outrage. Our political leaders would be inundated with phone calls and letters demanding that this be stopped. If our political leaders refused to stop it – there would be marches on Washington D.C. demanding the system be changed. Current political leaders would be replaced with leaders who would do what was in the best interests of the United States – regardless of what it might cost them. You and I would demand that this monetary system be changed to something else completely – because the U.S. Constitution is clear – government should be ruled by the people of the United States for the people – it should not be ruled by a small group of powerful interests.
All of the things mentioned above have been happening to us. One problem is that this new monetary system isn’t being announced today – it was announced in 1913. The other problem is that this scenario is not playing out over 20 years – it’s playing out over 100 years. Because this system was created in the U.S. in 1913 before most of us were born and because the owners of this bank have been patiently working behind the scenes for almost 100 years – we are blind to what is happening to us. We accept this system because – it’s the way it’s always been. We don’t know anything else.
The biggest problem of all is that the people behind this monetary system have now gained worldwide control. They not only control our financial system – they have infiltrated our governments. The obvious reason is this – banks do not exert this kind of power – unless it is given to them. Governments around the world gave Central Banks this power. The U.S. Government could at any time decide to rescind the Federal Reserve Act – kick out the Federal Reserve – and begin printing it’s own money – interest free. This has been the biggest fear of the powerful international banking cartel behind the world’s central banking system – which is why they have infiltrated our governments. You can play in the game all you want – just don’t threaten the game itself. It will take real leaders to overcome and remove this cancer that has grown within us.
It’s not hard to see what happens when someone in power opposes this beast – JFK was the most recent example of what happens when you threaten their game. He tried to do what I proposed above – kick out the Federal Reserve and give the U.S. government the power to print its own money. This cartel ended that little experiment within 6 months and sent a very loud message to anyone else who might get the same idea. When was the last time you heard a powerful political leader speak out against the Fed and their fiat currency? I have heard only one – Ron Paul – and it became clear that the mainstream media tried to reduce his exposure at every turn. I assure you – the cartel was watching his campaign closely.
If it doesn’t bother you that the Fed isn’t disclosing where it’s spending this money – it should – for a couple of reasons. The first being that they are not above the law – if they are using government money – the taxpayers have a right to know where it’s being spent and what our potential losses will be. The second reason is that we’re not talking about a small amount of money - $2 trillion is significant. A trillion here and a trillion there and pretty soon you’re talking about real money. The truth is that they do believe they are above the law and can do whatever they want. This would change if the American people ever stood up and demanded they account for their actions.
jg – Dec 15, 2008
Fed Refuses to Disclose Recipients of $2 Trillion in Lending
Friday, December 12, 2008, 9:50 pm, by cmartenson
In a foxhole there are no atheists. But well before the praying begins, you find out what people are really made of. Perhaps the big, muscled kid who was unstoppable in basic training goes all to pieces while the skinny guy with the thick glasses saves everyone’s bacon. Or vice versa. The point being that prior to a crisis everything rests on appearances. During a crisis it is actions that matter. That’s when we find out what people, and institutions, are really made of.
Today the Federal Reserve effectively freaked out in the foxhole and declared the spirit of democracy, if not the rule of law, to be disposable conveniences of better times.
In response to a freedom of information act request by Bloomberg News for the names of the institutions receiving public money, the Fed invoked an obscure rule to block the release of this information.
Dec. 12 (Bloomberg) -- The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.
Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.
The Fed responded Dec. 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information.
Trade secrets? A trade secret is something like the formula for Coke. A trade secret is an unpatented business process the release of which would harm the competitive position of the holder. I am really at a complete loss to understand what sort of “trade secrets” might apply to the acquisition of bad debt from poorly managed financial institutions.
If anybody can supply one that might make sense in this situation I am all ears.
The important principle here is that democracy cannot operate under the cover of darkness. If every emergency, no matter how slight, results in the immediate suspension of our right to know, then one might reasonably question whether it is a right at all and whether this is a democracy.
This is not an esoteric debate over some fine point of the law, this is a foundational matter. Either rules and laws matter or they don’t. Either they need to be followed by everybody or they can be ignored by everybody. There is no place in our legal system for each interested party to self-interpret laws in whatever manner fits them best.
If the Fed can unilaterally decide to follow some rules and not others, then why not anybody else? Would it be unreasonable for an individual to decide that their mortgage does not need to be repaid because they suddenly interpret their contract differently and to their benefit? Are they really “speed limits” or are they more like “speed guidelines?”
I am being quite serious here, the rule of law is not something to be trifled with. Either we are a nation of laws or we are not. It is no small point that our rule of law is one of the most essential components of our social contract and which separates us from other countries where I would not willingly choose to live.
The Freedom of Information Act requires federal agencies to make government documents available to the press and the public. The suit, filed in New York, doesn’t seek money damages.
“There has to be something they can tell the public because we have a right to know what they are doing,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press. “It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed.”
Did you catch those words and phrases? “Requires” and “right to know” are pretty straightforward. Requirements and rights are not really negotiable. They either exist or they don’t.
Predictably, the Fed claimed that this crisis is serious enough to trump our assumed (but rarely tested) right to know.
In its response to Bloomberg’s request, the Fed said the U.S. is facing “an unprecedented crisis” when the “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”
But some are starting to catch on and noting that it is really not acceptable that a supposedly public institution is refusing to operate in a manner consistent with their charter.
“If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, who oversees about $14 billion at New York-based ICP Capital LLC.
Congress is demanding more transparency from the Fed and Treasury on the bailout efforts, most recently during Dec. 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had “been bamboozled.”
But now that the Fed has decided, unilaterally, to operate under the cover of secrecy I think they should be allowed to do so.
Of course I would also require that their operating charter be revoked and that a parallel currency be stood up so that we the people could decide for ourselves whether the Fed’s arguments for secrecy were worth risking our entire economic future upon.
Said another way, I am willing to let the Fed take all the primary risks it wants but not with my money. Let the Fed either swim or sink depending on how it plays its hand. Taxpayers should not be forced to shoulder whatever these risks are that the Fed feels are too dangerous to even name.
Otherwise people might begin to wonder about that “requirement” to pay back their credit card bills….
As you can probably guess – I spend a lot of time reading about current events. Of all the things I read - I probably enjoy Chris Martenson’s website the most because it’s easy to see that he is an honest man who has a very firm grasp of what is really going on – and he tells the truth. It’s refreshing to listen to someone who does not have an agenda, but is simply analyzing data and then writing honestly about his findings.
In contrast, it seems to me that most of the mainstream media (CNN, Fox News, Wall St. Journal, newspapers, magazines, etc.) report only what they’re given to report. The government comes out with an economic plan and data – and most mainstream media outlets trumpet the news. There’s usually very little additional analysis to verify what they’re told. The government tells us this is good – so we report that it’s good. You don’t see a whole lot of in-depth analysis by the major media outlets. Most of the time – they simply regurgitate what they’re told.
It’s not hard to see that there are all kinds of political agendas at work within mainstream media. Because of this – I read mainstream media – not to learn the truth of what is happening – but to keep tabs on what the enemies of our nation (global elite) are doing. If you know the truth and pay attention – the mainstream media will tell you exactly what the global elite are doing and planning. You’ve seen me quote many world leaders over the past several months – all of the articles and quotes were obviously taken from mainstream media articles. They are telling you exactly what is being planned for your future.
Occasionally, I will see something in the mainstream media that catches my eye because it will be honest and speak to the true problems within our economy. Today I read one of those articles. I don’t know Judy Shelton nor have I read any of her work – but I do know this – the article she wrote for the Wall St. Journal is dead-on. She identifies the underlying problem inherent in our system. It’s a thoroughly researched article – and her analysis is right on the money (no pun intended). Of course, she’s not a reporter or analyst for the WSJ – she’s an economist who understands. This article was published in the Opinion section of the paper.
As things get progressively worse – expect more actions like what has been proposed in Indiana (see article below) – money based on a gold or silver standard. People are beginning to understand what is at the base of all this. Also expect that our Federal Government (and other World Governments) will eventually oppose such actions – and will forcefully respond. I have read recently where there are now over 60 local currencies throughout Europe – created by people fed up with the Euro. This will probably be allowed for a short time – then expect a proposed world currency once the world’s economy collapses. At some point, world governments will not allow anything other than their currency. This will be the time when things rapidly begin to deteriorate.
jg – February 12, 2009
FEBRUARY 11, 2009, 11:02 P.M. ET
Capitalism Needs a Sound Money Foundation
Let's give the Fed some competition. Abolish legal tender laws and see whose money people trust.
By JUDY SHELTON
Let's go back to the gold standard.
If the very idea seems at odds with what is currently happening in our country -- with Congress preparing to pass a massive economic stimulus bill that will push the fiscal deficit to triple the size of last year's record budget gap -- it's because a gold standard stands in the way of runaway government spending.
Under a gold standard, if people think the paper money printed by government is losing value, they have the right to switch to gold. Fiat money -- i.e., currency with no intrinsic worth that government has decreed legal tender -- loses its value when government creates more than can be absorbed by the productive real economy. Too much fiat money results in inflation -- which pools in certain sectors at first, such as housing or financial assets, but ultimately raises prices in general.
Inflation is the enemy of capitalism, chiseling away at the foundation of free markets and the laws of supply and demand. It distorts price signals, making retailers look like profiteers and deceiving workers into thinking their wages have gone up. It pushes families into higher income tax brackets without increasing their real consumption opportunities.
In short, inflation undermines capitalism by destroying the rationale for dedicating a portion of today's earnings to savings. Accumulated savings provide the capital that finances projects that generate higher future returns; it's how an economy grows, how a society reaches higher levels of prosperity. But inflation makes suckers out of savers.
If capitalism is to be preserved, it can't be through the con game of diluting the value of money. People see through such tactics; they recognize the signs of impending inflation. When we see Congress getting ready to pay for 40% of 2009 federal budget expenditures with money created from thin air, there's no getting around it. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account. Our paper currency cannot provide a reliable store of value.
So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies -- and for good reason. A study by two economists at the Federal Reserve Bank of Minneapolis, Arthur Rolnick and Warren Weber, concluded that gold and silver standards consistently outperform fiat standards. Analyzing data over many decades for a large sample of countries, they found that "every country in our sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard."
Given that the driving force of free-market capitalism is competition, it stands to reason that the best way to improve money is through currency competition. Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver.
Legal tender laws currently favor government-issued money, putting private contracts in gold or silver at a distinct disadvantage. Contracts denominated in Federal Reserve notes are enforced by the courts, whereas contracts denominated in gold are not. Gold purchases are subject to taxes, both sales and capital gains. And while the Constitution specifies that only commodity standards are lawful -- "No state shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts" (Art. I, Sec. 10) -- it is fiat money that enjoys legal tender status and its protections.
Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold. The existence of parallel currencies operating side-by-side on an equal legal footing would make it clear whether people had more confidence in fiat money or money redeemable in gold. If the gold-based system is preferred, it means that people fully understand that the purpose of money is to facilitate commerce, not to camouflage fiscal mismanagement.
Private gold currencies have served as the medium of exchange throughout history -- long before kings and governments took over the franchise. The initial justification for government involvement in money was to certify the weight and fineness of private gold coins. That rulers found it all too tempting to debase the money and defraud its users testifies more to the corruptive aspects of sovereign authority than to the viability of gold-based money.
Which is why government officials should not now have the last word in determining the monetary measure, especially when they have abused the privilege.
The same values that will help America regain its economic footing and get back on the path to productive growth -- honesty, reliability, accountability -- should be reflected in our money. Economists who promote the government-knows-best approach of Keynesian economics fail to comprehend the damaging consequences of spurring economic activity through a money illusion. Fiscal "stimulus" at the expense of monetary stability may accommodate the principles of the childless British economist who famously quipped, "In the long run, we're all dead." But it shortchanges future generations by saddling them with undeserved debt obligations.
There is also the argument that gold-linked money deprives the government of needed "flexibility" and could lead to falling prices. But contrary to fears of harmful deflation, the big problem is not that nominal prices might go down as production declines, but rather that dollar prices artificially pumped up by government deficit spending merely paper over the real economic situation. When the output of goods grows faster than the stock of money, benign deflation can occur -- it happened from 1880 to 1900 while the U.S. was on a gold standard. But the total price-level decline was 10% stretched over 20 years. Meanwhile, the gross domestic product more than doubled.
At a moment when the world is questioning the virtues of democratic capitalism, our nation should provide global leadership by focusing on the need for monetary integrity. One of the most serious threats to global economic recovery -- aside from inadequate savings -- is protectionism. An important benefit of developing a parallel currency linked to gold is that other countries could likewise permit their own citizens to utilize it. To the extent they did so, a common currency area would be created not subject to the insidious protectionism of sliding exchange rates.
The fiasco of the G-20 meeting in Washington last November -- it was supposed to usher in "the next Bretton Woods" -- suggests that any move toward a new international monetary system based on gold will more likely take place through the grass-roots efforts of Americans. It may already be happening at the state level. Last month, Indiana state Sen. Greg Walker introduced a bill -- "The Indiana Honest Money Act" -- which would, if enacted, allow citizens the option of paying in or receiving back gold, silver or the equivalent electronic receipt as an alternative to Federal Reserve notes for all transactions conducted with the state of Indiana.
It may turn out to be a bellwether. Certainly, it's a sign of a growing feeling in the heartland that we need to go back to sound money. We need money that works for the legitimate producers and consumers of the world -- the savers and borrowers, the entrepreneurs. Not money that works for the chiselers.
Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).
You've probably wondered at some point after receiving these emails from me - is anyone else looking into this stuff besides Gilmore? Actually, there are many people who are now researching our monetary system - you just won't hear them on CNN or Fox News. It's very rare to hear anyone in mainstream media tell us the truth.
The article below was published recently and does a great job of briefly explaining the history of the Fed. If you haven't taken the time to research the Fed and our monetary system - now is the time to do so. This should be at the top of your list of priorities - it's that important. Why? Because sooner - rather than later - the Fed (and the world's central banking system) is going to lead us into the worst depression in the history of our nation. I hope this gets your attention - because it's the truth. You are watching it happen on the news everyday now.
If I were to point to one piece of information in the article below to focus on - it would be the following quote from the Rothschilds.
"Those few who can understand the system (check book money and credit) will either be so interested in its profits, or so dependent on it favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." -Rothschild’s Bros. of London
What are they telling you? They are telling you that when it comes to this monetary system they created - there are two types of people in the world - and they are not worried about either of them. They are telling you that there are very few people who have the mental ability to understand the system. Are they worried about this minority? No. Why? Because this minority will be so enamored with the wealth and power that the system brings them - they will do nothing to stop it. They will ignore the danger it presents because their focus is on the money, power and prestige the system gives to them. Do you think this might apply to all of the intelligent people on Wall Street today? Even now - the vast majority of the people at the financial epicenter of the world - cannot see the danger.
The quote above also tells us that the Rothschilds believe the vast majority of us do not have the mental ability to understand the system - and therefore will be slaves to the system without knowing it. While most of us are burdened by the system without knowing it (struggling to earn enough to pay our bills, fighting to stay ahead of inflation, paying interest on everything, etc.), I believe that many people can understand the system once it's explained to them. It's actually a relatively simple system when you focus on the basics of how the system works - the problem is all of the deception surrounding it. You will not hear how our monetary system works on CNN, Fox News, CBS, NBC, ABC, etc. Our President is not going to inform you about the dangers of our monetary system during a primetime address. You will not find many (if any) college courses that accurately explain how the Federal Reserve System works. Did you study the history of the Fed at any point in high school? Did your high school economics teacher review the details of our monetary system with you? Did your high school economics text book have a chapter on our monetary system and how our money is created by debt? Did your high school math teacher use our money supply and debt as examples of exponential growth? You get the picture. There is a determined effort to keep the secrets of the system hidden.
Imagine what would happen tomorrow if someone was able to explain this system to every American. What would happen if every American woke up tomorrow morning and instead of watching 'Regis and Kelly' or 'American Idol' highlights - they instead watched a program explaining how the Fed is causing our economy and the financial system to collapse. What if their motives were exposed? What if every American began to ask some very hard questions like - why is our government allowing this to happen? The answers would lead to a very angry population. Ladies and gentlemen, this is the stuff of revolutions. I wish that none of this were true - but the truth is the truth. You either accept it and do something about it - or you do what most people in our nation are doing - and keep your head in the sand. Each of us chooses the path we will take. Each of us chooses who we will follow. Each of us chooses whether to take a stand against evil or succumb to it.
If you've studied what God has to say about the pursuit of money and applied this knowledge to our monetary system - then you've probably got alarms going off in your mind. Our spiritual enemy is very skilled at offering short term gains that deliver long term misery and destruction. Some of us recognize these tactics within our lives and protect ourselves accordingly. If you are a Christian - then you understand what I'm telling you. We are not unaware of the devil's schemes against us personally. The problem is that almost all of us never think about this from a corporate standpoint. Our nation has done a deal with our enemy - and I assure you - this deal will turn out like all the rest. We have experienced relatively short term gains - and now we're about to see the long term consequences.
Take Care,
John
March 12, 2009
The Grand Illusion – The Federal Reserve
The whole world is in a state of complete confusion. Americans are coming to the realization that their lives have been a grand illusion. You thought your neighbor had it made. They were driving a Mercedes, spent $40,000 on a new kitchen with granite countertops and stainless steel appliances, sent their kids to private school, had a second home at the shore, and took exotic vacations all over the world. Now their house is in foreclosure and you are paying to bail them out. The anger and outrage in the country is at the highest level since the Vietnam War. The American public is being misled by government officials, politicians, and the Federal Reserve regarding the causes of this crisis and the solutions needed to solve our economic tribulations.
The average American does not know much about the Federal Reserve. The government and the Federal Reserve prefer to operate in the shadows. If the American public understood what their policies have done to their lives, they would be rioting in the streets. Henry Ford had a similar opinion:
"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Most Americans believe that the Federal Reserve is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States. There are Class A, B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner?
The history of National Banks in the United States has been controversial since the Founding Fathers signed the Declaration of Independence. The Constitution of the United States unequivocally states that only Congress has the authority to coin money, not an independent bank owned by unknown bankers.
The Congress shall have Power to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures
Article 1, Section 8 – US Constitution
Our most recent horrifying experience with an all powerful central bank has led to the current worldwide financial crisis. In less than one century the Federal Reserve Bank of the United States has destroyed our currency and has allowed bankers to gain unwarranted power over the country. They had the ability and opportunity to bring down the worldwide financial system.
Then the average American is told that the dollar has lost 95% of its purchasing power since the inception of the Federal Reserve in 1913, they look at you with a blank stare and start wondering whether American Idol is on TV tonight. The systematic inflation purposely created by the Federal Reserve silently robs the average American of their standard of living. The CPI figures published by the US government tell the story.
|
Year |
Annual Average |
Annual Percent Change |
|
1913 |
9.9 |
-- |
|
1914 |
10.0 |
1.0 |
|
1915 |
10.1 |
1.0 |
|
1916 |
10.9 |
7.9 |
|
1917 |
12.8 |
17.4 |
|
1918 |
15.1 |
18.0 |
|
1919 |
17.3 |
14.6 |
|
1920 |
20.0 |
15.6 |
|
1971 |
40.5 |
4.4 |
|
1972 |
41.8 |
3.2 |
|
1973 |
44.4 |
6.2 |
|
1974 |
49.3 |
11.0 |
|
1975 |
53.8 |
9.1 |
|
1976 |
56.9 |
5.8 |
|
1977 |
60.6 |
6.5 |
|
1978 |
65.2 |
7.6 |
|
1979 |
72.6 |
11.3 |
|
1980 |
82.4 |
13.5 |
|
1981 |
90.9 |
10.3 |
|
1982 |
96.5 |
6.2 |
|
2000 |
172.2 |
3.4 |
|
2001 |
177.0 |
2.8 |
|
2002 |
179.9 |
1.6 |
|
2003 |
184.0 |
2.3 |
|
2004 |
188.9 |
2.7 |
|
2005 |
195.3 |
3.4 |
|
2006 |
201.6 |
3.2 |
|
2007 |
207.3 |
2.9 |
|
2008 |
215.2 |
3.8 |
|
2009* |
218.4 |
1.5 |
Source: BLS
The government began keeping official track of inflation in 1913, the year the Federal Reserve was created. The CPI on January 1, 1914 was 10.0. The CPI on January 1, 2009 was 211.1. This means that a man’s suit that cost $10 in 1913 would cost $211 today, a 2,111% increase in 96 years. This is a 95% loss in purchasing power of the dollar. For some further perspective here are the prices of some other common items in 1913 per the Morristown Daily Record:
Boy's shoes for school, .98/pair Women's shoes, 2.00-8.00/pair
Bread, .10/3 loaves Butter, fancy, .30/lb
Cereal, Kellogg's Corn Flakes, .09/box Eggs, Fresh Western, .27/dozen
Peanut butter, .09/jar Toilet paper, .26/6 rolls
Daily Record [Morristown NJ], .01/daily paper
Notable on the CPI chart is that in the years following the creation of the Federal Reserve, inflation ran at double digit rates to finance Woodrow Wilson’s foreign intervention into World War I. The other notable period was in the years following President Nixon’s closing of the gold window in 1971. This led to rampant inflation that wasn’t tamed until the early 1980’s by Paul Volcker, the only independent courageous Federal Reserve Chairman in its history. The figures so far in the 21st Century seem modest. This is due partly to the methodical downward manipulation of the calculation by government bureaucrats. The period from 2010 to 2020 will show a dramatic jump caused by all of the money printing and reckless spending that is occurring today. Book it Dano.
The average American might just conclude that prices always go up, so what’s the big deal about inflation. This is where the Federal Reserve and politicians have pulled the wool over your eyes. The CPI was 30.9 in 1964. Today, it is 211.1. This means that prices have risen 683% since 1964. The only problem is that your wages have not risen at the same rate, even using the government manipulated CPI. Using a true CPI figure, average weekly earnings are 64% below what they were in 1964. This explains why a family of five could live well with one parent working in 1964, but even with both parents working and using debt in prodigious amounts, the average family does not live as well today.
Don’t Know Much About History
The First Bank of the United States was created in 1791. Alexander Hamilton, the 1st Secretary of the Treasury, proposed this bank and convinced a hesitant President Washington to agree. John Adams and Thomas Jefferson were against the concept. It favored the moneyed classes of the North versus the agrarian South. The bank was given a 20 year charter and President James Madison let it expire in 1811. He then renewed the charter in 1816. The wise men who took unprecedented risks in declaring independence from England’s tyranny, feared the tyranny of bankers equally:
"All the perplexities, confusion and distress in America rise, not from defects in the Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation."
John Adams, in a letter to Thomas Jefferson, 1787
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs."
Thomas Jefferson, U.S. President -1802
[The] Bank of the United States... is one of the most deadly hostility existing, against the principles and form of our Constitution... An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile?
Thomas Jefferson, U.S. President -1803
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance".
James Madison, U.S. President
President Andrew Jackson was the first and only President in the history to pay off the National Debt. He worked tirelessly to rescind the charter of the Second Bank of the United States. His reasons for abolishing the bank were:
· It concentrated the nation's financial strength in a single institution.
· It exposed the government to control by foreign interests.
· It served mainly to make the rich richer.
· It exercised too much control over members of Congress.
· It favored northeastern states over southern and western states.
President Jackson believed that only Congress should be responsible for the issuance and control of the currency. Delegating that duty to powerful New York bankers was distasteful to him.
"If Congress has the right to issue paper money, it was given to them to be used ... and not to be delegated to individuals or corporations"
President Andrew Jackson, Vetoed Bank Bill of 1836
President Jackson, shown here "driving out the devils and money changers"
with his order to withdraw public money from the central bank
-Edward Clay lithograph, published 1833
President Jackson’s honesty and anger at the bankers should resonate today, as bankers have again brought our country to its knees.
“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”
A President with Jackson’s strength of character would put the blame where it belongs today. He would rout out these criminal bankers, rather than give them more taxpayer money to squander. A President with a moral backbone would put an end to the disastrous 96 year experiment of the Federal Reserve. Instead our last two spineless Presidents have put Goldman Sachs bankers in charge of our national Treasury. An examination of inflation throughout the history of the United States proves that from the beginning of our nation through wars and the Industrial Revolution, the country experienced virtually no inflation as our currency was backed by gold. The creation of the Federal Reserve in 1913 and the closing of the gold window in 1971 unleashed a tsunami of inflation that continues today.
Source: Chartingstocks.net
1913 – A Bad Year for America
Karl Marx published his Communist Manifesto in 1848. It included 10 planks. Two of the ten planks were as follows:
- A heavy progressive or graduated income tax.
- Centralization of credit in the hands of the State by means of a national bank with State capital and an exclusive monopoly.
The dates February 3, 1913 and December 24, 1913 framed a year which placed our country on a downward fiscal spiral. The United States had tinkered with an income tax during the Civil War and the 1890’s, but the Supreme Court declared it unconstitutional. Until 1913, the U.S. government was restrained from overspending because it was completely reliant on tariffs and duties to generate revenue. The Sixteenth Amendment changed the game forever.
“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
When you give a Congressman a dollar, he’ll take a hundred billion. The initial tax rates of 1% to 7% were rather modest. That did not last long. The top tax rate reached 92% during the 1950s and today rates are still 500% to 1,000% higher than they were in 1913. The government is addicted to tax revenue. In 2007, they absconded $1.2 trillion in taxes from American individuals. Does anyone think that the bloated government bureaucracy spent these funds more efficiently or for a more beneficial purpose than its citizens could have?
|
Partial History of | ||||
|
Applicable |
Income |
First |
Top |
Source |
|
1913-1915 |
- |
1% |
7% |
IRS |
|
2003-2009 |
6 brackets |
10% |
35% |
Tax Foundation |
Source: Wikipedia
Without $1.2 trillion in individual tax revenue, Congressmen would not be able to add 9,200 earmarks to the current $400 billion Federal spending bill every year. This is how they waste your money:
· $1.8 million to research “swine odor and manure management” in Ames, Iowa.
· $41.5 million to upgrade presidential libraries of Franklin D. Roosevelt, Lyndon B. Johnson, and John F. Kennedy, according to the Heritage Foundation.
· $2.9 million to study how to breed and raise shrimp on “shrimp farms.” Citizens Against Government Waste (CAGW) reports that since 1985 the federal government has allocated $71 million to the study of shrimp science.
· $209,000 to improve blueberry production in Georgia, according to CAGW.
· $200,000 for a tattoo removal program in Mission Hills, Calif.
· $5.8 million for the Edward M. Kennedy Institute for the Senate in Boston, according to the Heritage Foundation.
· $6.6 million for Formosan subterranean termites, also according to Heritage.
Rothschild, J.P. Morgan & the Federal Reserve
"Those few who can understand the system (check book money and credit) will either be so interested in its profits, or so dependent on it favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."
Rothschild’s Bros. of London
The House of Rothschild had been the dominant banking family in Europe for two centuries. They were known for making fortunes during Panics and War. Some claimed that they would cause Panics in order to take advantage of those who panicked. The Panic of 1907 was the used as the reason for creating the Federal Reserve. The Federal Reserve Bank of Minneapolis attributed the causes of the Panic of 1907 to financial manipulation from the existing banking establishment.
"If Knickerbocker Trust would falter, then Congress and the public would lose faith in all trust companies and banks would stand to gain, the bankers reasoned."
In 1906, Frank Vanderlip Vice President of the Rockefeller owned National City Bank convinced many of New York's banking establishment that they needed a banker-controlled central bank that could serve the nation's financial system. Up to that time, the House of Morgan had filled that role. JP Morgan had initiated previous panics in order to initiate stronger control over the banking system. (Picture slimy Mr. Potter offering the members of the Bailey Building & Loan, 50 cents on the dollar for their shares during a bank panic in the classic movie Its A Wonderful Life). Morgan initiated the Panic of 1907 by circulating rumors that the Knickerbocker Bank and Trust Co. of America was going broke, there was a run on the banks creating a financial crisis which began to solidify support for a central banking system. During this panic Paul Warburg, a Rothschild associate, wrote an essay called "A Plan for a Modified Central Bank" which called for a Central Bank in which 50% would be owned by the government and 50% by the nation's banks.
In November 1910 a secret conference took place on Jekyll Island off the coast of Georgia. Those in attendance were: JP Morgan, Paul Warburg, John D. Rockefeller, Bernard Baruch, Senator Nelson Aldrich, Colonel House, Frank Vanderlip, Benjamin Strong, Charles Norton, Jacob Schiff, and Henry Davison. Out of this meeting of the most powerful bankers and politicians in the country came the plan for a Central Bank. This conference was unknown until 1933. In 1935, Frank Vanderlip wrote in the Saturday Evening Post: "I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System."
Behind the scenes these powerful men were formulating the plan for a Federal Reserve System. There was no outcry from the public to implement this plan. The public knew nothing of this. The Aldrich Plan was renamed the Federal Reserve Act and pushed forward by Paul Warburg and Colonel House. Warburg essentially wrote the Act and pressured Congressmen to see his way or lose the next election. Colonel House, who had socialist leanings, was the top advisor to President Wilson.
The Glass Bill (the House versio