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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

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

 

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

 

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

 

 

 

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

 

 

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

 

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

 

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

 

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

 

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

 

 

 

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

 

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

 

 

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

 

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

 

 

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

 

 

 

 

 

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

 

 

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

 

 

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

 

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

 

 

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

 

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

 

Government Spending:

 

Government Revenues:

 

 

 

Commercial Bank Credit:

 

 

 

 

Total Revolving Credit:

 

 

Total Consumer Credit:

 

 

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

 

 

 

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

 

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

 

Global Money Supply:

 

 

 

European Union:

 

 

Australia:

 

 

New Zealand:

 

 

India:

 

 

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

 

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

 

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

 

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

 

 

(Courtesy of Bloomberg)

 

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

 

 

 

 

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

 

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

 

 

 

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

 

 

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

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Abraham Lincoln

James Garfield

John F. Kennedy

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

http://johngilmore.org/

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

 

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

 

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

 

VIX: 6 Months

 

 

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

 

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

 

DJIA – 2 Months (includes Volume & Volatility)

 

 

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

 

NASDAQ Composite – 2 Months (includes Volatility)

 

 

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

 

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

 

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

 

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

 

NIKKEI Index – 2 Months (includes Volatility)

 

 

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

 

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

 

 

….and the same trends in Australia.

 

Australia ASX Index – 2 Months (includes Volatility)

 

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

 

DJ World Index – 2 Months (includes Volatility)

 

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

 

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

 

10 Year Treasury Yield – 2 Months

 

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

 

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

 

10 Year Treasury Yield – 1 Year

 

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

 

3 Month Treasury Yield – 3 Months

 

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

 

Bond Buyer Muni Index – 3 Months

 

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

 

DJ Corporate Bond – 3 Months

 

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

 

DJ CBOT Corporate Treasury – 3 Months

 

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

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

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

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

 

We see more volatility and more wealth evaporating.

 

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

 

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

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

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

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

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

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

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

 

Crude Oil – 3 Months

 

 

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

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

 

Copper – 3 Months

 

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

 

Gold – 3 months

 

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

 

Corn – 3 Months

 

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

 

Soybeans – 3 Months

 

Wheat prices are down almost 40% in three months.

 

Wheat – 3 Months

 

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

 

Lean Hogs – 3 Months

 

 

Cattle prices are down over 15% in three months.

 

Live Cattle – 3 Months

 

 

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

 

 

 

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

 

 

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

 

US_Federal_Debt

 

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

 

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

 

 

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

 

This is why we see abysmal economic data like this:

 

 

 

 

 

 

 

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

 

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

 

World Stock Index (DJ World Index):

 

U.S. Stocks (DJIA):

 

European Stocks (DJ Stoxx 50) :

 

 

Japanese Stocks (NIKKEI):

 

 

 

Latin America (DJ Americas):

 

 

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

 

 U.S. Housing Prices:

 UK Housing Prices:

 

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

 

 

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

 

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

 

Energy prices have certainly been through a bubble:

 

Crude Oil:

 

Natural Gas Henry Hub Pit (Nymex):

 

Food prices across the board have gone through a bubble:

 

Corn:

 

Wheat:

 

 

Cattle:

 

 

 

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

 

 

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

 

 

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

 

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

 

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

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

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

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

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

Link to original article at Gold-Eagle.com

 

Number 7:

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

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

- Business Week, November 2, 1929

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

Number 8:

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

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

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

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

Number 9:

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

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

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

Number 10:

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

Number 11:

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

Number 12:

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

Number 13:  

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

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

Number 14: 

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

Number 15: 

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

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

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

Number 16:  

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

Number 17:  

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

Number 18:  

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

Number 19:  

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

Number 20:   

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

 

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.

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

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

 

 

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 (rate of inflation)
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 U.S. Federal Income Tax Rates Since 1913
Applicable Year	Income brackets	First bracket	Top bracket	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 version of the final Federal Reserve Act) had passed the House on September 18, 1913 by 287 to 85. On December 19, 1913, the Senate passed their version by a vote of 54-34. More than forty important differences in the House and Senate versions remained to be settled, and the opponents of the bill in both houses of Congress were led to believe that many weeks would elapse before the Conference bill would be taken up. The Congressmen prepared to leave Washington for the annual Christmas recess, assured that the Conference bill would not be brought up until the following year. The creators of the bill then pulled the ultimate scam on the American public. In a single day, they ironed out all forty of the disputed passages in the bill and quickly brought it to a vote. On Monday, December 22, 1913, the bill was passed by the House 282-60 and the Senate 43-23. This meant that the single most important piece of legislation ever passed by the Senate was missing the votes of 26 Senators because it was passed during the Christmas recess. President Wilson, at the urging of Bernard Baruch, signed the bill on December 23, 1913. A few years later, President Wilson had second thoughts:

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world--no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men."

There were some brave Americans who did oppose this legislation and foresaw the devastation that it would lead to.

“Throughout my public life I have supported all measures designed to take the Government out of the banking business. This bill puts the Government into the banking business as never before in our history. The powers vested in the Federal Reserve Board seen to me highly dangerous especially where there is political control of the Board. I should be sorry to hold stock in a bank subject to such dominations. The bill as it stands seems to me to open the way to a vast inflation of the currency. I had hoped to support this bill, but I cannot vote for it cause it seems to me to contain features and to rest upon principles in the highest degree menacing to our prosperity, to stability in business, and to the general welfare of the people of the United States.”

                                                            Senator Henry Cabot Lodge – Dec 17, 1913

“From now on, depressions will be scientifically created.”

 

Congressman Charles A. Lindbergh Sr. - 1913

 

John Maynard Keynes, the current hero of the Obama administration and Paul Krugman, had this to say about the Federal Reserve in 1920.

“Should government refrain from regulation (taxation), the worthlessness of the money become apparent and the fraud can no longer be concealed. By this means government may secretly and unobserved, confiscate the wealth of the people and not one man in a million will detect the theft."

Mandate from Hell

According to the Federal Reserve’s own website, their duties fall into four general areas:

1. Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
3. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
4. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

The American public was told that the Federal Reserve would eliminate any future bank panics. From 1913 through 1920, inflation increased at more than 10% per year as Wilson spent vast sums during World War I and its aftermath. From the early 1920s to 1929, the monetary supply expanded at a rapid pace and the nation experienced tremendous economic growth. Benjamin Strong, one of the participants at the secret conference on Jekyll Island, was the Federal Reserve head. By the end of the 1920s, speculation and loose money had propelled asset and equity prices to unsustainable levels.  The stock market crashed in 1929, and as the banks struggled with liquidity problems, the Federal Reserve cut the money supply.  This was the greatest financial panic and economic collapse in American history so far - and it never could have happened  without the Fed's intervention.  The Fed caused the bubble with loose monetary policy. The Depression did not become Great until the Smoot Hawley Act in 1930 destroyed world trade and the raising of the top income tax rates from 25% to 63% in 1932 destroyed the incentive to earn money. Over 9,000 banks failed and a few of the old robber barons' banks managed to swoop in and grab up thousands of competitors for pennies on the dollar. 

 

 

 

The Federal Reserve’s primary mandates were maximum employment, stable prices and moderate long-term interest rates. Their other chief function was to supervise and regulate banks to ensure the banking system is safe. Lets assess their success regarding their mandates:

 

• Unemployment reached 25% during the Great Depression; attained levels above 10% in 1982; and will breach 10% in the next year. Grade: Failure

 

• Based on the chart above and the CPI data since the Federal Reserve’s inception, the dollar has lost 95% of its purchasing power. Grade: Failure

 

• Based on the chart below interest rates have been anything but moderate since the inception of the Federal Reserve. They have consistently caused booms and busts by setting rates too low or too high. Grade: Failure

 

• The Federal Reserve was supposed to supervise the activities of banks. Instead, under Alan Greenspan, they stepped aside and let banks take preposterous risks while giving an unspoken assurance that the Fed would clean up any messes that they caused. This total dereliction of duty gross negligence has led the greatest financial collapse in history. Grade: Failure

 

 

Voices of Reason

The Chairman of the House banking & Currency Committee Louis T. McFadden fought a lonely battle against the Federal Reserve in the early 1930s. He was swept out of office when his opponent in the next election received thousands of dollars in campaign contributions.

 "Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation's debt. The depredations and iniquities of the Fed have cost enough money to pay the National debt several times over. This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Fed and through the corrupt practices of the moneyed vultures who control it.”

                  Louis T. McFadden – Representative from PA 1934

Mr. McFadden has a soul mate in Representative Ron Paul from Texas. Mr. Paul has been on a one man mission to abolish the Federal Reserve for over a decade. He seems to be the only person in Congress with the courage, fortitude and intellect to understand the damage that has been caused by the Federal Reserve and call for its abolition. The entrenched political class, despise Mr. Paul because his call to abolish the Federal Reserve would destroy their ill begotten wealth and power.

Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

 

From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts. In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.

                                                                        Ron Paul – Sept 10, 2002

Representative Paul sized up his colleagues in Congress and the Federal Reserve perfectly in 2006 when they were oblivious to the impending disaster that was about to befall the nation. He was belittled by the mainstream press and fellow Congressmen.

The coming dollar crisis is not likely to be “fixed” by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government.

Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available – and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad.

The irony is that many of the Fed’s biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed’s easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It’s the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability – and certainly no legal or moral right – to decide how much money should exist and what the cost of borrowing money should be.

                                                                        Ron Paul – July 11, 2006

 

Before he became a tool of the political ruling elite and the bankers who truly control the country, Alan Greenspan actually understood and supported a currency backed by gold which couldn’t be manipulated by corrupt politicians. The confiscation of middle class wealth through the insidious use of inflation has proceeded unchecked for 96 years.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

                                                                        Alan Greenspan – 1966

 

 I’m Mad as Hell & I’m Not Going to Take it Anymore

Howard Beale, the news anchor in the movie Network, could have spoken the same lines today that he was speaking in 1976. He describes our current financial crisis to a tee.

 

 I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody's out of work or scared of losing their job. The dollar buys a nickel's worth; banks are going bust; shopkeepers keep a gun under the counter; punks are running wild in the street, and there's nobody anywhere who seems to know what to do, and there's no end to it.

 

I want you to get mad!

 

I don't want you to protest. I don't want you to riot. I don't want you to write to your Congressman, because I wouldn't know what to tell you to write. I don't know what to do about the depression and the inflation and the Russians and the crime in the street.

 

All I know is that first, you've got to get mad.

 

You've gotta say, "I'm a human being, My life has value!"

 

So, I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window, open it, and stick your head out and yell,

 

"I'm as mad as hell, and I'm not going to take this anymore!!"

 

Anyone who is not mad as hell at this point is not paying attention. Your tax and spend corrupted politician leaders and your banker controlled Federal Reserve have borrowed and spent your tax dollars, your children’s tax dollars, and their children’s tax dollars desperately attempting to prop up this bankrupt system. The unleashing of a never ending tsunami of printed dollars by the Federal Reserve makes every dollar worth less. They have systematically created inflation that has slowly but surely reduced your standard of living. Politicians in the pocket of lobbyists, corporate interests, and bankers have used their power to tax in order to spend trillions on worthless projects in their districts to insure re-election. The combination of taxing and printing has led to a National Debt of $11 trillion.

 

 

Bankers love debt. The more debt, the more interest they collect. Issuing credit cards and collecting 21% interest and billions in late fees seemed like a can’t miss proposition. It was until people couldn’t pay the debt back. Now the unwinding of the greatest debt bubble in history has created a 2nd Great Depression. Instead of learning from the past, the Federal Reserve has chosen to do exactly what led to the crisis. They have lowered rates to 0% and have printed money at prodigious rates. The Fed has doubled their balance sheet in the last 12 months.

 

They have loaned billions to the bankrupt banks that inhabit our financial system while accepting worthless pieces of paper as collateral. They have hailed back to Jekyll Island and the cloak of secrecy. They will not reveal to the public the banks they have loaned money to or the collateral that backs up those loans. The arrogance of Ben Bernanke proves that the Federal Reserve answers to bankers, and not to the American public. The books and records of the Federal Reserve are not open to scrutiny by the General Accounting Office. Ron Paul has introduced the Federal Reserve Transparency Act which would open their books to the public. No organization with as much power as the Federal Reserve should be permitted to operate in the shadows.

 

 

 

A recent article by David Galland from Casey Research pointed out the insidious methods by which the government extracts our money for their self serving schemes:

 

 Accounts Receivable Tax                                       Building Permit Tax

CDL License Tax                                                     Cigarette Tax

Corporate Income Tax                                             Dog License Tax

Excise Tax                                                                 Federal Income Tax 

Federal Unemployment Tax (FUTA)                       Fishing License Tax

Food License Tax                                                     Fuel Permit Tax

Gasoline Tax                                                             Gross Receipts Tax

Hunting License Tax                                                 Inheritance Tax

 Inventory Tax                                                             IRS Interest /IRS Penalties

Liquor Tax                                                                  Luxury Taxes

Marriage License Tax                                               Medicare Tax

Personal Property Tax                                              Property Tax

Real Estate Tax                                                         Service Charge Tax

Social Security Tax                                                   Road Usage Tax

Sales Tax                                                                   Recreational Vehicle Tax

School Tax                                                                 State Income Tax

State Unemployment Tax (SUTA)                           Telephone Federal Excise Tax

Utility Taxes                                                               Vehicle Sales Tax

Watercraft Registration Tax                                     Well Permit Tax

Telephone State and Local Tax                              Telephone Usage Charge Tax       

Vehicle License Registration Tax                           Workers Compensation Tax.
Telephone Federal Universal Service Fee Tax

Telephone Federal, State and Local Surcharge Taxes

Telephone Minimum Usage Surcharge Tax

Telephone Recurring and Non-recurring Charges Tax

 After digesting this disgusting list, do you feel under taxed?

  Depression, Collapse & Revival

 The future is cloudy but the direction is clear. Government will spend trillions of dollars. Congress will increase taxes on the rich and secretly raise taxes on the masses by calling them cap and trade fees. The Federal Reserve will pull out all stops to create inflation. When you owe the rest of the world $11 trillion, inflation makes the debt less burdensome. The dollar will decline versus gold. With the enormous amount of currency creation and spending by the government, the economy will eventually pull out of this depression. The acceleration will take the Federal Reserve by surprise. They will be hesitant to raise interest rates. The inflation genie will get out of the bottle and will not go back. The hyperinflation that takes hold will lead to social unrest, rioting, and a drastic reduction in the American standard of living.

 There is no solution that will not be painful to everyone in the United States. The only solution that would put America back on a path of sustainable prosperity would be a gold/precious metals backed currency that would force government and its citizens to live within its means. Congress would need to vote for something that would take away its power. With our current political system, this is impossible. Money is power. This leads to only one conclusion. The existing Ponzi scheme will have to collapse before we can adopt a rational financial system for America. It may take decades, or it may happen in 2010. No one knows. If the country can be convinced to follow the wisdom of Ron Paul, we still have a chance to avoid this fate.

 When the Federal government spends more each year than it collects in tax revenues, it has three choices: It can raise taxes, print money, or borrow money. While these actions may benefit politicians, all three options are bad for average Americans.

To discuss ways to take back our country from corrupt politicians and criminal bankers join me at TheBurningPlatform.com.

I mentioned a few months ago that we’ll enter a new phase of this crisis if/when the Fed begins buying U.S. Treasury Bonds (monetizing U.S. debt).  That phase started yesterday when the Federal Reserve announced it would begin buying Treasurys and mortgage-backed securities.  What does this mean?  It means that the Fed will begin creating trillions of dollars to buy these securities – essentially flooding the system with dollars.

 

If there’s one thing we’ve learned over the past few months - when we’re given a number – in this case $1.5 trillion dollars (amount of securities to be bought by the Fed) – the actual number will be much bigger.  $1.5 trillion is an astronomical number – but I believe it’s only the beginning.

 

What are the real world implications?  If you own Treasurys and know you have a guaranteed buyer (creating artificial demand) – what affect would this have on prices?  You would expect prices to increase – and that’s exactly what is happening.  In the world of bonds – if prices increase (due to demand) – yields fall – since the owner of the bonds doesn’t need to offer as much interest to sell them – and we see yields falling for Treasurys across the board – which in turn, drives down interest rates for you and me.

 

There are other consequences.  Everyone is anticipating an additional $1.5 trillion dollars in the system over the next few months.  What affect would you expect this to have on the value of the dollar?  Significantly more dollars in the system should result in a drop in the value of the dollar – and that’s exactly what we’re seeing.  If everyone expects the value of their fiat currency to decrease – where does everyone invest to hedge against this loss of value?  Gold.  Gold prices increased 6% yesterday after the Fed announcement and are up another 8% today.

 

With trillions of additional dollars flooding the system – would you expect inflation to decrease or increase?  You would expect inflation to increase significantly in the coming months with such an increase in dollars.

 

So – in the coming months, we should expect to see the following things happen:

 

1. The value of the dollar will decline – and the decline will be significant.
2. The value of gold will increase – and the increase will be significant.
3. There is a very strong possibility that Inflation will increase significantly – leading to a hyper-inflationary spiral – which will eventually destroy the value of the dollar - completely.
4. When the U.S. is unable to finance its growing budget deficits because the world will no longer purchase our debt (possibly leading to short-term Treasury auction purchases by the Fed) – interest rates will rise – and the rise will be significant.
5. The instability of the world’s financial system will continue – leading to a continuing decline in the world’s stock/bond/derivatives markets.
6. The housing market cannot ‘recover’ from this crisis in this environment – housing prices will continue to decline – and the decline will be significant.
7. We should expect more Central Bank ‘actions’ and more ‘stimulus’ packages from governments around the world – but these actions will only delay the inevitable collapse of the world’s debt-based monetary system.
8. Due to these issues – expect world leaders to eventually offer a final ‘solution’ to the crisis – a solution that will involve a new, heavily regulated, global monetary system.

I believe we’re in a relatively calm period (compared to our future) – before things begin to really head downhill.  So – you need to consider the following now:

 

1. Due to the Fed actions mentioned above – interest rates are temporarily low. If you are in an adjustable rate mortgage of any kind – now is the time to refinance to a 30 year fixed rate – if you can. The current window of low interest rates is going to close very soon.
2. If you believe your home’s value is going to increase at some point in the near future - it’s not going to happen.  Don’t think that your home’s future value is going to solve financial problems – it’s all downhill from here.
3. If you have stocks/bonds/derivatives in any type of portfolio – brokerage, 401(k), etc. – sell them.  Very soon – they will not be worth the paper they’re printed on – and I believe these markets will decline much more rapidly than the value of the dollar.  If you’re worried about penalties – don’t be.  Better to pay a 10% penalty now than to keep letting it ride in the stock market.  Just like Vegas - sooner or later – the house is going to win. 
4. Buy gold if you can – coins, etc. It’s difficult to find at this point. If you can find some – buy it.  As I mentioned above – when the world’s fiat currencies decline significantly – the world will move to gold as its default currency for a period of time – just as it always has.  If you can’t buy physical gold – move your investments into a Gold ETF (Exchange Traded Fund).
5. Imagine a world where prime interest rates are 20+%. With U.S. budget deficits projected in the trillions in coming years - there is a very high probability of this happening – and soon.  If you are considering purchases that require a loan – keep this in mind.
6. Keep more non-perishable food on hand than normal.  Nothing crazy – just shop every few days – instead of once a week.  If something catastrophic happens (stock market crash, etc.) and people begin to panic – you don’t want to be one of the many people who are going to open their pantry and see 2 cans of soup.  You will want to be able to avoid a mad rush to the supermarket.
7. Keep in mind that taking these precautions will only help you short-term.  When the system collapses – all bets are off. We’re going to go through some chaotic times.  Mentally prepare yourself for seeing things in this country that you never expected to see.  More importantly – as I’ve said many times – you must be prepared spiritually.  Faith is required to stand against what’s coming.

I’m reiterating the points above because things are getting very serious.  If the Federal Reserve feels it necessary to pump $1.5 trillion dollars into the system to keep it going – it’s serious.  If the Federal Government finds it necessary to pump $800 billion dollars into the system – it’s serious. If the Fed and our Government see it necessary to keep ‘bailing out’ large banks and corporations with billions of dollars (AIG, Citigroup, etc.) to prevent a complete collapse of the system – it’s serious.

 

We’ve been lulled into believing that nothing catastrophic could happen to us because of the recent past. The past 30 years have absolutely no bearing on the next 30.  I realize that I’m telling you to do the opposite of what most of our leaders are telling you – which is why I encourage you to research these things on your own. 

 

I don’t like to bring bad news to good people – but I’ve studied this monetary system for over 3 ½ years and the things I spoke about in 2005 – are happening today.  There is one and only one end to this system – be prepared for it.

 

 

MARCH 19, 2009

 

Fed in Bond-Buying Binge to Spur Growth

 

ramatic Plan to Purchase $300 Billion in Treasurys Causes Biggest Drop in Interest Rates Since '87; Perils of Printing Money

 

Wall St. Journal

By JON HILSENRATH

WASHINGTON -- The Federal Reserve ramped up its effort to revive the economy, declaring it would buy as much as $300 billion of long-term U.S. Treasury securities in the next few months and hundreds of billions of dollars more in mortgage-backed securities.

The Fed had already cut its benchmark interest-rate target to near zero. Unable to go lower, the central bank now is essentially printing money to raise the supply of credit and thus push down the longer-term rates paid by families and companies on mortgages and other key loans. The impact was immediately felt.

Jon Hilsenrath explains the impact of the Federal Reserve's decision to buy treasury bonds.

Prices on Treasury debt soared, pushing the yield on 10-year Treasury notes down to 2.53% from above 3% the day before -- the largest one-day drop since the aftermath of the 1987 market crash. The rate on a 30-year fixed-rate mortgage for credit-worthy borrowers fell to about 4.75%. But the value of the dollar sank, a reminder of the risk the Fed is running by printing money to give the economy a jolt.

The show of force follows months of internal debate. Fed Chairman Ben Bernanke had argued for staying focused on lending to troubled parts of the financial markets instead of buying long-term government bonds, an unorthodox step taken recently by the Bank of England. But Fed officials decided they had to do more as the economy deteriorated.

Wednesday's move highlighted the central bank's ability to move aggressively on the financial crisis without approval from Congress. That flexibility is important at a time of growing political hostility toward devoting more taxpayer money to bailouts.

As expected, the Fed policy-making committee voted unanimously to hold its target for the federal-funds rate, at which banks lend to each other overnight, between zero and 0.25%.

"The Fed is living up to its commitment to do everything in its power to deal with the crisis," said Deutsche Bank economist Peter Hooper. "Monetary policy is not going to get us out of this mess by itself. But this is effective life support....keeping things from getting a lot worse."

All told, the Fed will pump as much as an extra $1.15 trillion into the economy via bond purchases. The Fed will buy as much as $300 billion in long-term Treasurys in the next six months. It will increase the ceiling on purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to $1.25 trillion, up from $500 billion. The Fed also is doubling potential purchases of their debt, to $200 billion.

MARCH 20, 2009

Secretary of the Fed

 

Wall St. Journal

In case there was any residual doubt, the Bernanke Fed threw itself all in this week to unlock financial markets and spur the economy. With its announced plan to make a mammoth purchase of Treasury securities, the Fed essentially said that the considerable risks of future inflation and permanent damage to the Fed's political independence are details that can be put off, or cleaned up, at a later date. Whatever else people will say about his chairmanship, Ben Bernanke does not want deflation or Depression on his resume.

It's important to understand the historic nature of what the Fed is doing. In buying $300 billion worth of long-end Treasurys, it is directly monetizing U.S. government debt. This is what the Federal Reserve did during World War II to finance U.S. government borrowing, before the Fed broke the pattern in a very public spat with the Truman Administration during the Korean War. Now the Bernanke Fed is once again making itself a debt agent of the Treasury, using its balance sheet to finance Congressional spending.

It is also monetizing U.S. debt indirectly with the huge expansion of its direct purchase program of mortgage-backed securities (MBS). It was $500 billion, and now it will add $750 billion more "this year." Foreign governments have been getting out of Fannie and Freddie MBSs in recent months and going into Treasurys. Thus the Fed is essentially substituting as these foreign governments finance U.S. debt by buying presumably safer Treasurys.

 

The purpose of these actions is to keep rates low on both Treasurys and MBSs, and to keep the cost of funds low for banks and especially for home buyers. It worked on Tuesday; long bond and mortgage rates fell.

The case for doing all this is that the Fed needs to supply dollars at a time when money velocity is low and the world demand for dollars is high amid the global recession. As long as the world keeps demanding dollars, the Fed can get away with this extraordinary credit creation. That said, bear in mind that the Fed's balance sheet has more than doubled since September -- to $1.9 trillion from $900 billion. These latest commitments mean it may more than double again, close to $4 trillion. That would be about 30% of GDP, up from about 7%.

The market reaction clearly showed the implied risks, with gold leaping and the dollar taking a dive the past two days. As the economy improves, and thus as the velocity of money increases, the risk of inflation will soar. Mr. Bernanke says the Fed can remove the money fast, but central bankers always say that and rarely do. The Fed statement isn't reassuring on that point. It says, "the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term." The Fed seems to be saying it wants a little inflation, which we know from history can easily become a big inflation or another asset bubble. The last time the Fed cut rates to very low levels to fight "deflation," we ended up with the housing bubble and mortgage mania.

The other great, and less appreciated, danger is political. The Bernanke Fed has now dropped even the pretense of independence and has made itself an agent of the Treasury, which means of politicians. With its many new credit facilities -- the TALF and the others -- it is making credit allocation decisions across the economy. If a business borrower qualifies for one of these facilities, it gets cheaper money. If it doesn't, it's out of luck. Thus the scramble by so many nonbanks to become bank holding companies, so they can tap the Fed's well of cheap credit.

The question is how the Fed will withdraw from all of this unchartered territory now that it has moved into it. How will it wean companies off easy credit, especially since some companies may need it to survive? What happens when Members of Congress lobby the Fed to keep credit loose for auto loans to help Detroit, or credit cards to help Amex? House Speaker Pelosi yesterday gave a taste, saying the AIG bailout was the Fed's idea "without any prior notification to us." Mr. Bernanke, meet your new partners.

Above all, the Treasury and Congress won't be happy if the Fed decides to stop buying Treasurys and the result is a big increase in government borrowing costs. This was the source of the dispute between the Federal Reserve and the Truman Treasury. The Fed wanted to raise rates amid rising inflation, while the Truman Treasury wanted cheap financing for Korea and its domestic priorities. The Fed prevailed in the famous "Accord" of 1951, thanks to a young assistant secretary of the Treasury named William McChesney Martin. He would go on to become Fed Chairman and create the modern era of Fed independence. The U.S. and the Fed are going to need another Martin, sooner rather than later.

Please add your comments to the Opinion Journal forum.

 

A few months ago I posted an article by South Carolina Governor Mark Sanford.  I added his article to this blog because he is one of the few leaders in our nation that is applying common sense to this crisis.  

 

I’m adding a 2^nd letter from Mr. Sanford because his experiences tell a very important story.  Our monetary system does not reward fiscal responsibility – it rewards those that take on more and more debt – regardless of future consequences.  It rewards those who disregard the impact of debt and interest on our future – while at the same time – penalizing those who preach accountability.  We not only see this by the way the system works (debt creation is required by the system) – we also see it from the leaders of our nation who support the system.  Why do I say this?  Take a look below at the White House’s response to Mr. Sanford’s proposal of using stimulus funds to pay down existing debt.  President Obama campaigned on a platform of change – but when it comes to fiscal responsibility – he’s no different than George W. Bush.  Based on these ‘stimulus’ packages and his recent $3 trillion dollar federal budget – I’d say he’s worse.

 

 

Governor Sanford sees the danger inherit in the current ‘stimulus’.  He understands the future implications of what these ‘stimulus’ packages will bring us.

 

“Here's the background: Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn't spend money we don't have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.”

“But many people do not realize that the stimulus money runs out in 24 months -- at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I'll be safely out of office. But it would be irresponsible.”

 

Governor Sanford proposed using his Federal stimulus money to pay down South Carolina’s debt thereby reducing future interest payments – a very intelligent, reasonable request.  The reduction in debt and interest payments would free up millions of dollars in coming years.  How did the White House respond?

 

“Last week I reached out to the president, asking for a federal waiver from restrictions on stimulus money. I got a most unusual response. Before I even received an acknowledgment of the request from the White House, I got word that the Democratic National Committee was launching campaign-style TV attack-ads against me for making it.”

 

Politics as usual in Washington D.C. – nothing has ‘changed’. 

 

 

MARCH 20, 2009, 11:14 P.M. ET

 

Why South Carolina Doesn't Want 'Stimulus'

 By MARK SANFORD

Columbia, S.C.

 

America's states are laboratories of democracy. They are both affected by, and relevant to, the larger national debate. What we've found in our own corner of the country is that carrying a substantial debt load limits our options when it comes to running government.

A recent report by the American Legislative Exchange Council ranked us 47th worst in the nation for annual debt service as a percentage of tax revenue. Our state dedicates nearly 11% of its annual tax revenue to paying debt. On top of that, South Carolina has another $20 billion in unfunded, long-term political promises for pensions and other liabilities. The state budget has already been cut four times in recent months as the national economic downturn has impacted South Carolina and driven down tax revenue.

President Barack Obama recently signed a "stimulus" bill that will spend about $2 billion through "programmatic means" in South Carolina. In other words, the federal government will put this money directly into existing funding formulas and programs such as Medicaid. But there is an additional $700 million that I as governor have influence over, and it is the disposition of this money that has drawn the national spotlight to South Carolina.

Here's the background: Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn't spend money we don't have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.

If we're going to spend money we don't have at the federal level, it becomes all the more important that our state balance sheet is in good order -- particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months -- at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I'll be safely out of office. But it would be irresponsible.

If South Carolina could use stimulus money to pay down debt, in two years we will be able to spend, cut taxes or invest even if the federal government can no longer provide more money -- not a remote possibility. In fact, paying debt related to education would free up over $162 million in debt service in the first two years and save roughly $125 million in interest payments over the next 13 years -- just as paying off a family's mortgage early frees up money for other uses.

When you're in a hole, the first order of business is stop digging. South Carolina is in a hole, and it's not a shallow one. Spending stimulus money on ongoing programs would mean 10% of our entire state budget would be paid for with one-time federal funds -- the largest recorded level in state history.

Also, spending stimulus money will delay needed state restructuring. General Motors recently found itself in a similar spot. It needs to be restructured if it is to prosper, but a federal bailout enabled it to put off hard decisions. Likewise, taking federal stimulus money will only postpone changes essential to South Carolina's prosperity. Though well-intended, it forestalls hard choices we must make.

One of Mr. Obama's central campaign themes was his pledge to do away with politics of the past. In his inaugural address, he proclaimed "an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics."

This idea connected with millions of voters, myself included. I've always believed ideas should rise and fall on their merits. In fact, I saw such historical significance in his candidacy and the change he spoke of that I published an op-ed on it before South Carolina's presidential primary last year. It was not an endorsement, but it did note the historic nature of his candidacy and the potential positive change in tone it represented. That potential may now be disappearing.

Last week I reached out to the president, asking for a federal waiver from restrictions on stimulus money. I got a most unusual response. Before I even received an acknowledgment of the request from the White House, I got word that the Democratic National Committee was launching campaign-style TV attack-ads against me for making it.

Is this the new brand of politics we were promised? Instead of engaging with me and other governors on the merits of our dissent, I am to be attacked in television ads? In the end, I just don't believe a problem created by too much debt will be solved by piling on more debt. This doesn't strike me as an unreasonable or extremist position.

Nevertheless, the White House declined my request for a waiver yesterday afternoon. That's unfortunate. But in coming months we'll continue advancing the debate at the state level about the merits of debt repayment. The fact remains that while we'd all like to spend unlimited dollars on the very real needs that exist in our state, we must spend in the context of what is sustainable.

Mr. Sanford, a Republican, is the governor of South Carolina.

Please add your comments to the Opinion Journal forum.

 

Take the time to read this when you get a chance.  Chris Martenson reviews in this article many of the things I've talked about over the past year.  It seems that most people who are really paying attention to this crisis - are all waiting on the next shoe to drop - a rapid decline in the dollar coupled with a spike in interest rates. 

 

If you were paying attention last week - then you noticed that there was significant turmoil in the mortgage loan business as 30 year fixed rates increased roughly 1% in one day (roughly 4.5% to 5.5%).  Things got so bad at one point on Thursday that many loan originators refused to 'lock-in' rates for mortgages due to mortgage interest rate fluctuations. The turmoil was caused by a spike in U.S. Treasury yields (caused by runaway deficit spending).  From an article on Friday:

 

"Yesterday (Thurs - May 28), the mortgage market was so volatile that banks and mortgage bankers across the nation issued multiple midday price changes for the worse, leading many to ultimately shut down the ability to lock loans around 1pm PST."

 

Imagine being approved for a home loan or refinance at 4.6% - but you didn't 'lock' the rate either because you thought interest rates might go a little lower or because your lender could not fund the loan in time.  Many mortgage brokers had a very rough day on Friday explaining to people why their rates increased significantly or why they no longer qualified for a loan at all based on the higher interest rate. 

 

"A significant percentage of loan applications (refis particularly) in the pipeline are submitted to the lenders without a rate lock. This is because consumers are incented by much better pricing to lock for a short period of time…12-30 day rate locks carry the best rates by a long shot. But to get this short-term rate lock, the loan has to be complete enough to draw loan documents, which has been taking 45-75 days over the past several months depending upon the lender’s time line. Therefore, millions of refi applications presently in the pipeline, on which lenders already spent a considerably amount of time and money processing, will never fund."

 

There is nothing in the underlying economic data that tells me anything is 'stabilizing'.

 

 

The Five Horsemen 

 

Sunday, May 31, 2009, 5:12 pm, by cmartenson

Executive Summary:

·                                 What can we expect next, and how will we recognize it?

·                                 A series of sharp, interrupted shocks is more likely than a major sudden collapse.

·                                 Five game-changing events, what I call The Five Horsemen, will indicate that the rules have changed and a new reality is about to take over:

o                                The First Horseman: New credit growth falls below interest payments

o                                The Second Horseman: The Fed monetizes debt

o                                 The Third Horseman: Government deficit spending exceeds 10% of GDP

o                                  The Fourth Horseman: The dollar goes down, while interest rates go up

o                                  The Fifth (and final) Horseman: US debt becomes denominated in foreign currencies

 

  Severe structural damage has already been inflicted on our economy. As I wrote two weeks ago in It Has Hit the Fan:

If you have been waiting for further confirmation about the direction of the economy, or waiting for a sign that it's now time to get serious about preparing for a future filled with less, this report is written for you.

You are living in the midst of the collapse of western economies, which are moving from a more complicated state to a less complicated one. This is it.  Keep a journal, because it's happening right now.

After the Great Depression, many people remarked that it was only obvious in retrospect. While it was unfolding, things steadily eroded. But 75% of the workforce remained employed, while hopeful signs of progress were constantly trotted out by various politicians, private economists, and official-sounding government agencies. It is often quite difficult to appreciate the true magnitude of sweeping change while it is occurring.

The most pressing question now is this:  What can we expect next, and when? 

In this report, I will give you the precise combination of macro-events that will cause me to issue an alert and kick my thinking and actions into new orbits.

The Path

I do not expect a major sudden collapse to be the most likely path, although it is a possibility. Instead, I anticipate a series of sharp shocks, followed by periods of relative tranquility. 

Here's how I described the various paths in May of 2008, in a report entitled Charting a Course Through the Recession:

While it is possible, I do not anticipate a one-way slide to the bottom, wherever and whenever that may be. I lean towards the ‘stair-step’ model, where a series of sequential shocks and relatively placid periods mark the path to the future. The three scenarios around which I tend to form my thinking (and actions) are:

·                                 No change. The future looks just like today, only bigger, and no major upheavals, shocks, or recessions happen. The Fed and Congress are successful in fighting off the deleterious effects of the bursting of the housing bubble, and everybody carries on without any major changes or adjustments. This is not a very likely outcome.  Probability: 1%.

·                                 A series of short, sharp shocks. Moments of relative calm and seeming recovery are punctuated by rapid and unsettling market plunges and marked changes in social perspective. Think of the food scarcity and riots, and you know what this looks like. One day there was low awareness about food scarcity and the next day shortages and prices spikes were making the news. Soon enough, relative calm returns, prices fall, and order is restored, but prices somehow do not recover to their previous levels, leaving people primed and alert for the next leg of the process. I see this as the most likely path forward.  Probability: 80%.

·                                 A sudden major collapse. Under this scenario, some sort of a tipping point causes a light-speed reaction in the global economic system that requires shutting down cross-border capital flows. Banks would no longer be able to clear transfers and accounts, which would wreak all sorts of havoc upon our just-in-time society. Food and fuel distribution would be the most immediate concerns. There's enough of a chance of this scenario occurring, and the impacts are potentially so severe, that you should take actions to minimize the impacts to yourselves and your loved ones.  Probability: ~20%.

Based on the odds, the most likely outcome that I see is a series of short, sharp shocks (#2, above) as being the most likely to define the path forward. So far this has been our exact pattern with the first shock occurring in 2007, the second between October 2008 to March 2009 and now a period of stability between March and June of 2009. I invite you to re-read the piece linked above as a means of assessing my information,gathering abilities, and my ability to connect the dots, and shine a light on the future.

In the grand sweep of the trajectory that will deliver the United States, and many other western countries, to a lower standard of living (although not necessarily a lower quality of life, but that's another story), there are several discrete elements that I think of as The Five Horsemen.

The Five Horsemen

I believe that a diminished standard of living is in the future for each of the major economies across the world especially those where the inhabitants have been living beyond their means.

Another belief I hold is that any period of living beyond one's means must certainly be followed by an equivalent trough of living below one's means. For example, if you produce 100 but consume 110, then at some point you will need to produce 100 but only consume 90. 

There are two ways that we might expect this period of adjustment to unfold economically. I laid out the basic elements in Crash Course: Chapter 12 - Debt. When too many claims (debts) are laid upon the future the only question is whether those debts will be defaulted upon or paid back (with "inflated away" being a form of default). If all those claims are destroyed by default, then the reduction in future living standard falls to the holder of the debt(s). If the debts are paid back, then the debtor must accept that they will have less money to spend on consumption.  Either way, somebody has less coming to them in the future than they either expect or currently enjoy.

Stretched across an entire nation, too much debt becomes an unsolvable problem, a predicament, due to the fact that no benefit accrues from shifting the burden of bearing the impact of default from one sector to another.  Shifting a promisory note from one pocket to the other does not change the net worth of the individual and this tactic is equally ineffective for an entire country.

Thus the fact that the US government is assuming massive piles of bad debt from stricken financial corporations does nothing to solve the underlying problem, which sprouts from a nation that has overconsumed for decades. But this is exactly what the government is doing, and the goal seems to be to preserve the status quo at all costs. 

Assuming this view is correct, there are signs we can read along the way to confirm if our fiscal and monetary authoritites have selected the right path or the wrong path.  This report details the signposts that will tell us when certain thresholds have been crossed that will mark that the current strategy is failing and that a new leg of the journey has begun.

The problem and the mindset of the economic elites are neatly revealed in this quote:

May 30 (Bloomberg) -- World Bank President Robert Zoellick warned policy makers that fiscal-stimulus plans are insufficient to turn around the “real economy” and rising joblessness threatens to set off political unrest across the globe.

“While the stimulus has given an impulse, it’s like a sugar high unless you eventually get the credit system working,” Zoellick said in an interview yesterday

I like this quote because it distinguishes between the "real economy" and the economy resulting from excessive government borrowing and spending. Stimulus money is almost by definition wasted money because the probability of it resulting in proper investment is so low. The gains from stimulus money run out the very second the juice is turned off. 

But it is the second part of the quote that is revealing - "...unless you eventually get the credit system working..." - apparently those in charge find it unthinkable that an economy could be built on anything other than credit.

An alternative quote expressing a more fundamental view would read, "While the stimulus has given an impulse, it’s like a sugar high, unless it is followed by growth in wage-based income".

The difference between the real quote and the one I provided is like night and day. The Zoellick quote assumes that our past period of living beyond our means is recoverable and extendible, and mine does not. Mine assumes a long-term relationship exists between what people earn and what they can spend. In order for us to service our past debts, we need to grow our incomes, not our access to easy credit.

There is a mathematical limit to this "game," at which point it cannot be carried on any longer. I think we have reached the outer limits of our debt-fueled fantasy, although I recognize that the extreme efforts to carry it on a bit longer may well produce short-term results.

The most obvious and mathematically-defendable end of a credit economy comes when interest payments exceed all income. However, things rarely progress that far, as the trouble becomes painfully obvious far earlier and creditors withdraw their continued support.

How will I know that the participants in this game have finally caught on to the fact that it's over? Here are the five game-changing events that will indicate that the rules have changed and a new reality is about to take over.  As I mentioned, I have been tracking these for years and, unfortunately, been watching them unfold one by one.

The First Horseman: New credit growth falls below interest payments

Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.

~Kenneth Boulding, economist

In our debt-based monetary and economic system, it is imperative that new credit growth at least equal the interest payments on past debt. If this does not happen, then the entire financial edifice, levered up as it is, immediately begins to wobble and crumble. Of course this imposes an exponential growth "requirement" on our entire debt/money system rendering it a long-term impossibility.

Total credit market debt (chart below) stood at over $52 trillion at the end of 2008 and has fit an exponential curve nearly perfectly over the past 5 decades.

The "getting the credit system working again" quote by Mr. Zoellick refers to keeping the curve of this chart sweeping upwards in an uninterrupted fashion, as nothing less will get us back to "how things were."

Where this chart required ~$1 trillion of new yearly credit growth in 1995, the remorseless math of the exponential function turned that into $2 trillion per year by 2000, $3 trillion by 2005, and more than $4 trillion by 2008.

While the government's $1.8 trillion of deficit spending for 2009 is certainly heroic, it needs to be complemented by more than twice that amount from the private sectors in order to keep this chart on a smooth path. That, I am confident to say, will not be happening this year.

Status of the first horseman: Arrived.

 

The Second Horseman: The Fed monetizes debt

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

~Ludwig Von Mises

My second sign occurs when the Federal Reserve directly "monetizes debt," which is a fancy way of saying "prints money out of thin air and exchanges it for private and/or government debt."  This started in 2007 with the first set of rescues, although at the time the Fed took great pains to stress that it wasn't really monetization because they planned to reverse their actions soon.  Of course, that has not happened yet.  Some of their activity was cleverly concealed with complexity, such as when the Federal Home Loan Board (FHLB) bought up $160 billion in mortgages from failing originators such as Countrywide and then quietly passed them to the Federal Reserve for cash.  Minus the FHLB complexity, this represented nothing less than the Fed printing up some fresh electronic cash and handing it over to Countrywide for some failing mortgage products.

The beginning of the end for nearly every debt-ridden country has always been the attempt to pay for past expenditures with newly-minted money. It always starts innocently enough and seems like the right thing to do, but soon the programs grow and grow, and eventually the currency of the country is destroyed.

Now the Fed is openly and actively buying dodgy debt from the government as well as from the private sector. I covered this in a recent "In Session" posting, where I charted the amount of US Treasury debt that was being purchased by the Federal Reserve on a daily basis. 

Fed_POMO_activity_daily_rate_v2_0

This chart reflects only the Treasury purchases. When we add in agency debt, mortgage-backed securities, and various other corporate debt programs, we find that the Federal Reserve is printing up roughly $15 to $30 billion dollars a day just to keep things limping along.

As for the opening quote by Mises, which I think most accurately reflects how things will turn out, I think it is safe to say this: Any country that is printing up to $30 billion a day just to keep things moving along is not voluntarily abandoning credit expansion.  

This means that we are risking a final catastrophe of the currency system involved. Unfortunately, the currency in question also happens to be the world's reserve currency, so this has enormous, far-reaching implications. 

Status of the second horseman: Arrived.

 

The Third Horseman: Government deficit spending exceeds 10% of GDP

I did not expect to see this one arrive for the US this early in the game and I am quite stumped by the apparent acquiescence by the rest of the world's financial authorities to the US running a fiscal deficit of over more than 13% of GDP.  I would have expected some resistance on their part, such as a refusal to continue buying US Treasury debt, more than a third of which (this year) has been bought by foreign central banks.

I am convinced that this stimulus money, as historical and enormous as it is, will fail to provide any lasting benefit, in part because so little of it is being spent on investments in the future. Promising to cover the losses for bad debts only protects those who financed past malinvestments.  At most, a few measly percent of the total cost of this bailout and stimulus is going towards investments such as beefing up our energy independence or modernizing our transportation infrastructure.  If, instead, 95% was going towards investments, and Wall Street had to fight over the remaining scraps, I would be singing a different tune. 

The inertia of government spending programs assures that these record deficits will recede slowly only under the best of circumstances and will actually grow larger under normal or worsening conditions.  I also want you to recall here that government deficit spending has the strongest correllation with future inflation handily beating out the impact of bank monetary reserves, a common red herring argument trotted out most recently by Paul Krugman who wrote in the NYT:

Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.

Again, inflation correlates most highly with government deficit spending and I remain at a loss as to why this clean, clear fact eludes so many who should, truth be told, know better. 

Status of the third horseman: Arrived.

 

The Fourth Horseman: The dollar goes down, while interest rates go up

As long-time readers know, it is this fourth horseman that I watch on a daily basis. The combination of a failing dollar and a rapidly rising interest rate on US Treasury obligations will signal to me that the "limitless borrowing spree" of the US government is over.

Currently, more than $7 trillion in US Treasury debt is "held by the public." (The other $4 trillion is owed by the government to the government, so it is not on the open market.)  Treasury debt is bought and sold in vast quantities on a daily basis. More than half of it is held by foreigners.  If foreigners sold this debt, rates would rise. If they then took the dollar proceeds from these sales and exchanged them in preference for some other currency, the dollar would fall.

The combination of rising interest rates and a falling dollar will signal (to me) that a final loss of confidence in the US dollar as an international store of value has occurred.  When (not if) this happens, all manner of financial ills will stalk the globe.  Everything priced in dollars will go up in price - in dollars.  That includes basically all commodities.  All holders of US dollars and US debts will be desperate to get out of their holdings, and you can expect wild plunges and gyrations in most markets.  Interest-rate derivatives, which are mainly denominated in dollars and linked to US interest rates, will become toxic destroyers. 

So much hinges on the US dollar retaining its role as the reserve currency of the world that thinking through this scenario would require a report all its own. Suffice it to say, that you cannot overestimate the impact of a rapid decline in the value of the dollar coupled to rising US Treasury interest rates.

Because of this, I am quite perplexed that the other central banks continue to play along and buy US debt, while the Fed monetizes like crazy and the US government sports a 13% of GDP fiscal deficit. 

Here's the latest data. We certainly are seeing a bit of a decline in the dollar and a bit of a rise in interest rates espoecially since mid-March when the Fed announced its intention to buy massive quantities of US Treasury debt. 

TNX_up

 

USD_down

However, these moves are not not yet strong enough to cause me to issue an alert or take personal actions.  They definitely have a big portion of my attention, but are not yet at the top of my list of immediate concerns.

What would make me sit up and take notice?  Right now that would involve the dollar slipping into the low 70's, while the $TNX (ten year bond yield) vaulted up by some massive amount which, for me, would be 50 basis points in a day (which is one half of a percent).

At that point, I would be putting out an alert that it's time for any fence-sitters to hurry up and grab some dollar-decline protection. 

Status of the fourth horseman: Maybe it's here. Maybe. But not yet in full swing.

 

The Fifth (and Final) Horseman: US debt becomes denominated in foreign currencies

For whatever reason, some people still trust the debt-rating agencies, and one of the more farcical practices is that these agencies routinely "rate" the US for credit-worthiness. The good news is that Moody's recently reaffirmed that the US still has a "AAA" rating, which is the highest possible rating. Or is this good news?

The reason this is a farce is captured in a post that I wrote in an "In Session" forum thread on this matter:

This is a bit of a non-issue.  For a country that has 100% of its debt denominated in its own currency there can be no other rating besides AAA.

The idea behind the rating is to answer the question, "What is the probability that this entity can pay off this debt?"

Well, that probability is 100%, when the entity has a printing press.

The only thing that would change this would be if/when that entity has debt denominated in something other than its own currency.

So while we can all be relieved that Moody's has such a high opinion of the US, this is useless information for the purpose of deciding if one wants to hold the debt of that country.  An alternative measure would be, "What's the chance that this country will resort to printing to relieve itself of its debt burden, thereby eroding the claims of the current bondholders?"

Let's call this new rating the "M system."  One M means, "Sort of likely," two Ms means, "Probably will do it," and three Ms means, "No doubt, they will print."  By this system, I rate US government debt as quadruple M, or MMMM.

Off the charts, in other words.

However, the absolute game-changer would be if the US had to pay off borrowed money in a currency other than its own.  Yen, for example. In order to pay off that loan, we'd have to get Yen from somewhere, with the usual source being a positive trade balance. 

If the US could not get the Yen through legitimate trade, then it could always print up dollars and buy Yen off the open market.  But this would serve to drive up the value of Yen and drive down the value of the dollar, so this scheme would rapidly unravel in a currency crisis.  If this sounds familiar, it should.  This is how most developing nations get in trouble and experience severe currency and debt crises.

Having your debt denominated in your own currency is an enormous privilege.  Should that luxury go away, it would become immediately apparent how much the US depends on the kindness of strangers to continue living beyond its means.

So far, only Japan has made some low-level noises about denominating their loans to the US in Yen instead of dollars, but you can be sure other countries are quietly considering it as well.

Status of the fifth horseman: Not here yet.

 

Conclusion

Three out of the five "horsemen," which indicate where we are in the trajectory of our downfall, have already arrived.   A fourth is possibly here; perhaps not quite yet. And the final one will mark an inevitable date with a vastly lower standard of living for US citizens and all countries that are the accidental holders of too many US dollars and debts.

I urge you to begin keeping a close eye on these five horsemen:

• New credit growth falls below interest payments
• The Fed monetizes debt
• Government deficit spending exceeds 10% of GDP
• The dollar goes down while interest rates go up
• US debt becomes denominated in foreign currencies

The current presence of three, or possibly four, of these signs has me thinking very carefully about my assets, my family's needs, and how we will manage the changes ahead.  When the fifth horseman arrives, it will bring a new reality for all of us, and I intend to be as ready as possible.

 

Interesting article.  When you have time – go to the link and read the 22 page study of money by Christopher Weber.

 

jg - July 5, 2009

__________________

 

Tuesday, June 30, 2009

 

Debasing the Currency is Leading to Financial Collapse . . . Just As It Has for Thousands of Years

 

http://thecomingdepression.blogspot.com/2009/06/debasing-currency-is-leading-to.html

 

In a fascinating 22-page study of money and currency, Christopher Weber shows that every government - from Athens, to pre-collapse Rome, to the Islamic countries in the Middle Ages - which stuck to the Greek standard of coins has been stable and prosperous.

 

Specifically, the Athenian Drachma contained 65.6 grains of silver. Even after Greece declined as a superpower, its currency remained stable.

The Roman Denarius, Byzantine Bezant, and Islamic Dinar all copied the Drachma, using around 65.6 grains of gold or silver in their coins.

For the many centuries the Romans, Byzantines, and Islamic rulers left this precious metal content alone, they had stable and prosperous money supplies and nations.

But after the Romans and Byzantines started to whittle down the precious metal content of their coins - and after the Muslims started issuing paper money - their currency went down the drain, their prosperity plummeted and their empires collapsed.

This may all sound like ancient history, except that Weber points out that:

The US dollar has been depreciating for generations. Seventy years ago it was first devalued from $20.67 a gold ounce to $35. Then 35 years ago the devaluation started gaining strength. The dollar has lost over 90% of its gold value since August 15, 1971.

History is repeating . . . Sound money is again being trashed, which is causing the collapse of the American empire.

As I’ve mentioned before – oppose the Federal Reserve and you should expect all kinds of opposition – from politicians, financial leaders, mainstream media – and apparently a host of economists.  The letter below in the Wall St. Journal is a great example.

 

Many people now understand the dangers posed by the Fed. The following comments were posted by readers of the WSJ after the ‘petition’ below appeared on the WSJ website.

 

Liberty_Mike wrote:

 

Let me list off a few of the organizations some of these buffoons represent, and then I may change the mind of the few people that look at this and even begin to take it a little bit seriously. Of the above organizations, I see Wells Fargo, Morgan Stanley, JP Morgan Chase, JP Morgan, and the Federal Reserve Bank of SF to name a few. Of course people from these organizations would want to keep the Federal Reserve’s activities secret. These are some of the banks and financial institutions that are in collusion with the Fed! How can anyone take a list of people who want to keep the Federal Reserve’s activities secret, when it is being represented by the organizations that benefit from the Fed’s secrecy??

 

HR 1207 wrote:

 

175 Signatures? Give me a break!
I received more signatures on my petition in support of HR 1207 to Audit the Fed in just one voting precinct.

 

Ryan - Middle Class wrote:

 

What does the Fed have to hide?

 

Indeed – what does the Fed have to hide?  The Fed deceptively disguises its opposition to an audit by saying that it should remain ‘independent’ and that any intrusion by our government could have serious monetary consequences.

 

Again – according to the Constitution of the United States – who has legal authority to manage our monetary system?  The United States Congress (and therefore, the people of the United States) – not a private cartel of international bankers. 

 

If we cut through the rhetoric – the Federal Reserve is saying that the people of the United States have no right to audit the institution that controls their economy.  Does this really make any sense?  Of course not.  The private bankers behind the Fed (the same bankers who control the world’s largest private banks - JP Morgan Chase, Citibank, Goldman Sachs, Morgan Stanley, etc.) are very deceptively attempting to put an end to any opposition.

 

July 15, 2009, 1:00 PM ET

Petition for Fed Independence

 

Wall St. Journal

By WSJ Staff

The following is a petition calling for a commitment to Fed independence:

Open Letter to Congress and the Executive Branch

Amidst the debate over systemic regulation, the independence of U.S. monetary policy is at risk. We urge Congress and the Executive Branch to reaffirm their support for and defend the independence of the Federal Reserve System as a foundation of U.S. economic stability. There are three specific risks that must be contained.

First, central bank independence has been shown to be essential for controlling inflation. Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation. When the Federal Reserve judges it time to begin tightening monetary conditions, it must be allowed to do so without interference. Second, lender of last resort decisions should not be politicized.

Finally, calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery. The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process. Frequent communication with the public and testimony before Congress ensure Fed accountability.

If the Federal Reserve is given new responsibilities every effort must be made to avoid compromising its ability to manage monetary policy as it sees fit.

Ricardo Caballero	MIT
Kenneth French	Dartmouth College
Robert Hall	Stanford
Anil Kashyap	Chicago Booth
Pete Klenow	Stanford
Frederic Mishkin	Columbia
Thomas Sargent	NYU
Michael Woodford	Columbia
Andrew Abel	Wharton School, University of Pennsylvania
Daron Acemoglu	MIT
Michael Adler	Columiba University
Yacine Ait-Sahalia	Princeton University
Fernando Alvarez	University of Chicago
Scott Anderson	Wells Fargo & Co.
Cliff Asness	Managing and Founding Principal, AQR Capital Management LLC
Paul Asquith	Massachusetts Institute of Technology
David Backus	NYU
Dean Baim	Pepperdine University/UCLA
Ravi Bansal	Duke University
David Bates	University of Iowa
Andrew Bernard	Dartmouth College
Richard Berner	Morgan Stanley
George Borts	Brown University
Scott Brown	Raymond James & Associates
Markus K. Brunnermeier	Princeton University
Ralph C. Bryant	Brookings Institution
Michael Carey	Calyon Securities (USA) Inc. Credit Agricole Group
Christopher Carroll	Johns Hopkins University
Martin Cherkes	Columbia University
Diego Comin	Harvard University
Jernej Copic	UCLA
Dora Costa	UCLA
Steven Davis	University of Chicago Booth School of Business
Angus Deaton	Princeton University
Davide Debortoli	University of California, San Diego
Eddie Dekel	Northwestern University
Harold Demsetz	UCLA
Scott Desposato	University of California, San Diego
Douglas Diamond	University of Chicago Booth School of Business
Peter Diamond	MIT
Francis X. Diebold	University of Pennsylvania
Avinash Dixit	Princeton University
Matthias Doepke	Northwestern University
Darrell Duffie	Stanford
Pierre Collin Dufresne	Columbia
Martin Eichenbaum	Northwestern University
Andrea Eisfeldt	Northwestern University Kellogg School of Management
Jeffrey Ely	Northwestern University
Eduardo Engel	Yale University
Eugene Fama	University of Chicago Booth School of Business
Henry Farber	Princeton University
Roger Farmer	UCLA
Jon Faust	Center for Financial Economics, Johns Hopkins U.
Michael Feroli	J.P.Morgan
Wayne Ferson	U.S.C.
Kristin Forbes	MIT-Sloan School of Management
Mark Gertler	New York Univiersity
Marc Giannoni	Columbia University
Simon Gilchrist	Boston University
Robert J. Gordon	Northwestern University
Roger Gordon	UCSD
David Greenlaw	Morgan Stanley
Gene Grossman	Princeton University
Steffen Habermalz	Northwestern University
James Hamilton	University of California, San Diego
Gary Hansen	UCLA
Robert Hansen	Tuck School, Dartmouth College
Gordon Hanson	UC San Diego
Milton Harris	University of Chicago Booth School of Business
Tarek Hassan	University of Chicago Booth School of Business
Zhiguo He	Chicago Booth
John Heaton	University of Chicago
D. Lee Heavner	Analysis Group, Inc.
Christian Hellwig	UCLA
Gailen Hite	Columbia Business School
Yael Hochberg	Kellogg School of Management, Northwestern University
Stuart Hoffman	PNC Financial Services Group
Bengt Holmstrom	MIT
Bo Honore	Princeton University
Peter Hooper	Deutsche Bank
Takeo Hoshi	University of California, San Diego
Christopher House	University of Michigan
Peter Howitt	Brown University
Chang-tai Hsieh	University of Chicago
Ellen Hughes-Cromwick	Chief Economist, Ford Motor Company
John Huizinga	University of Chicago Booth School of Business
Erik Hurst	University of Chicago Booth School of Business
Ravi Jagannathan	Kellogg School of Management, Northwestern University
Dana Johnson	Comerica Bank
Karen Johnson	Federal Reserve Board of Governors (retired)
Charles I. Jones	Stanford University, Graduate School of Business
Paul Joskow	MIT
Matthew Kahn	UCLA
Juno Kang	The Bank of Korea
Steven Kaplan	University of Chicago Booth School of Business
Bruce Kasman	J.P. Morgan Chase
Peter Kenen	Princeton Uniiversity
Ralph Koijen	University of Chicago Booth School of Business
David Kotok	Chariman, Central Banking Series, Global Interdependence Center, Philadelphia, PA.
Arvind Krishnamurthy	Northwestern University
Rafael La Porta	Dartmouth College
David Lake	University of California, San Diego
Bruce Lehman	UCSD
Nan Li	Ohio State University
Hilarie Lieb	Northwestern University
John Liew	AQR Capital Management
Juhani Linnainmaa	University of Chicago Booth School of Business
Andrew Lo	MIT
Kevin Logan	Dresdner Kleinwort
Guido Lorenzoni	MIT
Hanno Lustig	UCLA Anderson
Louis Maccini	Johns Hopkins University
Burton Malkiel	Princeton University
Eric Maskin	The Institute for Advanced Study, Princeton University
Robert McDonald	Kellogg School, Northwestern University
Daniel McFadden	University of California, Berkeley
Doug McMillin	Louisiana State University
Rajnish Mehra	UC Santa Barbara
Robert Mellman	J.P. Morgan
Robert Merton	Harvard University
Laurence Meyer	Macroeconomic Advisers, LLC
Atif Mian	University of Chicago
Gregory Miller	Suntrust Banks, Inc.
Robert Moffitt	Johns Hopkins University
Stephen Morris	Princeton University
Dale Mortensen	Northwestern University
Giuseppe Moscarini	Yale University
Tobias Moskowitz	University of Chicago, Booth School of Business
Stefan Nagel	Stanford
Maurice Obstfeld	University of California, Berkeley
Lee Ohanian	UCLA
Maureen O’Hara	Cornell University
Stavros Panageas	University of Chicago Booth School of Business
Dimitris Papanikolaou	Northwestern University
Robert Parry	President & CEO, Federal Reserve Bank of San Francisco, Retired
Lubos Pastor	University of Chicago Booth School of Business
Lasse H. Pedersen	NYU
Monika Piazzesi	Stanford
Keith Poole	University of California, San Diego
Giorgio Primiceri	Northwestern University
Valerie Ramey	University of California, San Diego
Enrichetta Ravina	Columbia University
Esteban Rossi-Hansberg	Princeton University
Michael Rothschild	Princeton University
Tano Santos	Columbia Business School
Ulrike Schaede	University of California, San Diego
Richard Schmalensee	MIT
Martin Schneider	Stanford
Kermit Schoenholtz	NYU Stern School of Business
Jay Shanken	Emory
Robert Shiller	Yale University
Hyun Shin	Princeton University
Stephen Shore	Johns Hopkins University
Costis Skiadas	Northwestern University
Matthew Slaughter	Dartmouth College
James F. Smith	Kenan-Flagler Business School, UNC-Chapel Hill
Chester Spatt	Carnegie Mellon University
James H. Stock	Harvard
Rene Stulz	The Ohio State University
Amir Sufi	University of Chicago Booth School of Business
Joseph Swanson	Northwestern University
Vefa Tarhan	Loyola University Chicago
Edwin M. Truman	Peterson Institute for International Economics
Harald Uhlig	University of Chicago
Andrey Ukhov	Northwestern University
Sergio Urzua	Northwestern University
Chris Varvares	Macroeconomic Advisers, LLC
Pietro Veronesi	University of Chicago
Paul Wachtel	New York University, Stern School of Business
Richard Walker	Northwestern University
Mark Watson	Princeton
Shang-jin Wei	Columbia
David Weil	Brown University
Pierre-Olivier Weill	UCLA Economics
Burton Weisbrod	Northwestern University
William Wheaton	MIT
Michael Whinston	Northwestern University
Mirko Wiederholt	Northwestern University
Mark Witte	Northwestern University
Tiemen Wouteren	Johns Hopkins University
Jonathan Wright	Johns Hopkins University
Wei Xiong	Princeton University
Stanley Zin	New York University