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"Nightmarish financial numbers

Following up my last post here are some more economic numbers.

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Jun 24, 2009
 
"Nightmarish financial numbers
By The Mogambo Guru
Source Asia Times Online via SteveQuayle.com

"Minyanville.com had the headline, "Velocity of Money Comes to a Standstill." The report starts off with the news that "Current consumption, which at $8.2 trillion is around 70% of GDP, has fallen US$150 billion from last year," and that investment, which represents things like building factories, is $1.3 trillion or 11% of GDP, and down 23.3% from last year."

This is certainly bad news, although I am always leery of the concept of velocity, as it is just the plug number that makes Irving Fisher's famous equation (MV = PQ) work out, namely that the Money supply times the turnover of the money (Velocity) equals the Quantity of things sold times the Price of those things that were sold. Simple.

So since the Money supply (as measured by M2) is growing at almost 9%, Prices overall (as measured by the broad CPI) are not growing very much, and the Quantity of goods sold is way down as consumers stop consuming since they are out of money and credit, then Velocity must, by arithmetical necessity, be going down. Now do you know something that you didn't already know?

But perhaps this seeming fascination with velocity has something to do with why Bloomberg.com reports that "US household wealth fell in the first quarter by $1.3 trillion, extending the biggest slump on record, as home and stock prices dropped." Yikes! And in just the first three months of the year!

You may be thinking to yourself, "Well, since the Worthless Mogambo Idiot (WMI) goes ballistic at the drop of a hat these days, probably as a result of his having such a tenuous and apparently transitory grasp of reality, maybe he is just over-reacting, and this is not so much."

If you are one of those people who thinks such things, then I laugh - Hahaha! - in your face, and in response to the quizzical look on your face at my sudden rude arrogance, I hold up the rest of the article where it says, "Net worth for households and non-profit groups" is a nice, tidy $50.4 trillion, which seems like a lot of money, but which is actually the "lowest level since 2004," and which was down from $51.7 trillion in the fourth quarter.

For some reason, they add, "The government began keeping quarterly records in 1952," probably as a reassuring way of saying, "If you ignore the staggering loss of buying power of the dollar, which one experiences as a rise in prices, and you ignore the costs of all the taxes, fees and expenses of the cost of holding and accumulating all this net worth, and you only look at nominal prices then and now, then it looks like you are a lot better off than you were in 1952, and we have records to prove it, no matter what that Stupid Mogambo Loudmouth (SML) has to say about it!"

For homeowners, the bad news is that the report showed that "Owners' equity as a share of their total real-estate holdings decreased to 41.4% last quarter from 42.9% in the fourth quarter," which is bad news from the perspective of The Bad Old Days (TBOD) when Mortgage Equity Withdrawal (where homeowners were stupidly borrowing the increased "equity" that resulted from their houses going up in value so that they could spend it on sex, drug and rock & roll), was running in the hundreds of billions of dollars a year, fantastically super-charging the economy.

The ugly bottom line is that "The economy contracted at a 5.7% annual pace in the first quarter and consumer spending rose at a 1.5% pace."

Thus, the habit is engrained, as "Total borrowing by consumers, businesses and government agencies increased at an annual rate of 4.1% last quarter compared with a 6.2% gain the prior quarter. The gain was paced by a 23% surge in borrowing by the federal government, reflecting spending linked to the stimulus plan."

And this doesn't even count, of course, "Borrowing by state and local governments increased at a 4.9% rate", as they continue their habit of spending more than they can take in.

Bill Bonner here at The Daily Reckoning notes that, as we see, "some habits are hard to break. The habit of getting something for nothing is one of them," and at this rate, "The official US debt is exploding. Bill Gross says it will be 100% of US GDP within 5 years."

Instantly, my mind goes into some kind of weird dream and all I can see is three numbers floating around, bumping into one another. One of them is $14 trillion (which is GDP), and the other two are the number $11.3 trillion (which is the current national debt), and the last one is the number $3 trillion (which is how much MORE national debt will accrue this year alone) because of the sheer staggering amount of irresponsible deficit-spending the federal government will almost certainly commit this year, including the already-announced eye-popping $1.84 trillion in budget deficits and Another Freaking Trillion (AFT) or so in "surprise!" emergency supplemental appropriations as the year goes along, as is Congress's habit, altogether an insane amount of new money that guarantees ruinous inflation in consumer prices, which is the outward manifestation of the purchasing power of the dollar going down due to unprecedented creations of more and more money diluting the money stock, a devastating process which leads to social upheavals, a prospect which scares me so much that statistical analysis shows I usually pee in my pants in fear.

That is why I usually wear an adult-sized diaper when reading economics news, a habit I suggest that you get into, too, if you are going to keep up with the economics stuff, because you are going to get some nasty shocks, such as Bonner saying that national debt exceeding GDP in 5 years is actually optimistic, and that his "guess is that it will reach that level even sooner" which is one of those dense oracular announcements that could mean anything, such as "We're all freaking doomed because the <snip>ed GDP may go down by a lousy 20%, making existing federal debt equal 100% of the economy Right Freaking There (RFT)!"

Or he could mean that "We're all freaking doomed because the <snip>ed economy will remain at a standstill, at best, while the debt grows like a cancer, resulting in a debt-to-GDP exceeding 100%."

Either way, the news is bad, except for those who have been buying gold, silver and oil, and for them the news will be good! Whee! This investing stuff is easy!"

Richard Daughty is general partner and COO for <snip>, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

(Republished with permission from The Daily Reckoning. Copyright 2009, The Daily Reckoning.)"

http://www.atimes.com/atimes/Global_Economy/KF24Dj02.html

Entry #1,194

"Ron Paul: Obama's 'goal' is economic collapse

"Ron Paul: Obama’s ‘goal’ is economic collapse

Posts by David Edwards and Stephen Webster

Source The Raw Story

Published: June 23, 2009 Updated 2 days ago

"Ron Paul, the popular Republican Congressman from Texas, is ripping into the president and Congress for what he sees as their “goal” with round after round of stimulus: complete economic collapse.

“From their spending habits, an economic collapse seems to be the goal of Congress and this administration,” he said in his June 22, 2009, weekly address.

He added that Democrats who voted for the president’s war funding request, which gave an additional $106 billion to military operations in Afghanistan and Iraq — among other, unrelated items — were actually voting in favor of the wars, not just authorization of the president’s agenda.

He called it an affront to everyone who believed a vote for Obama was a vote for a peace candidate.

The president’s insistence on including an additional $108 billion in asset exchange with the International Monetary Fund is merely “buying global oppression,” he said.

Paul added that, “this [bill sent] $660 million to Gaza, $555 million to Israel, $310 million to Egypt, $300 million to Jordan and $420 million to Mexico; and some $889 million will be sent to the United Nations for so-called peace keeping missions.”

In other words, the latest U.S. war funding was an “International bailout,” he said.

The legislation’s provisions for the IMF included 100 billion dollars for the New Arrangements to Borrow (NAB), a credit instrument providing the multilateral institution with additional resources to deal with exceptional risks to the stability of the international monetary system.

They also include an expansion of the nation’s special drawing rights by five billion SDRs, adding roughly eight billion dollars to the IMF’s financial firepower.

The 100 billion dollars for the NAB acts as a credit line for the IMF in case member countries need emergency loans that exceed the institution’s resources. As such, the money is not considered an immediate budget expense.

Sen. Jim DeMint (R-SC) had proposed to strip out the IMF funds, but his measure was defeated in May by a vote of 64-30.

“Not only does sending money to the IMF hurt citizens here, evidence shows that it even hurts those it pretends to help,” Paul said. “Along with IMF loans come IMF required policy changes called ’structural adjustment programs,’ which amount to forced Keynesianism. This is the very fantasy-infused economic model that brought our own country to its knees.”

This audio is from Congressman Ron Paul’s weekly address, released June 22, 2009. "

http://rawstory.com/08/news/2009/06/23/ron-paul-obamas-goal-is-economic-collapse/

Entry #1,193

Slow motion implementation to bankrupt a nation

I've posted this before and probably will again.  Played in slow motion over many years it's brought us to where we are today.  Add some legislation which has allowed chaos in the banking system (gutting Glass-Steagall Act) and lack of oversight in 'naked short selling', spending like there's no tomorrow by the current administration with no real accounting to date  ..... easy to see why we're plunging head first into an abyss.

BTW as the yoke of taxation smothers us, we should be happy to learn "Goldman Sachs to make record bonus payout

http://www.guardian.co.uk/business/2009/jun/21/goldman-sachs-bonus-payments

Live links, other articles on the page this article is quoted from.
___________

"CLOWARD-PIVEN STRATEGY 
  • Strategy for forcing political change through orchestrated crisis
Source Discoverthenetworks.org

"First proposed in 1966 and named after Columbia University sociologists Richard Andrew Cloward and Frances Fox Piven, the "Cloward-Piven Strategy" seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.

Inspired by the August 1965 riots in the black district of Watts in Los Angeles (which erupted after police had used batons to subdue a black man suspected of drunk driving), Cloward and Piven published an article titled "The Weight of the Poor: A Strategy to End Poverty" in the May 2, 1966 issue of The Nation. Following its publication, The Nation sold an unprecedented 30,000 reprints. Activists were abuzz over the so-called "crisis strategy" or "Cloward-Piven Strategy," as it came to be called. Many were eager to put it into effect.

In their 1966 article, Cloward and Piven charged that the ruling classes used welfare to weaken the poor; that by providing a social safety net, the rich doused the fires of rebellion. Poor people can advance only when "the rest of society is afraid of them," Cloward told The New York Times on September 27, 1970. Rather than placating the poor with government hand-outs, wrote Cloward and Piven, activists should work to sabotage and destroy the welfare system; the collapse of the welfare state would ignite a political and financial crisis that would rock the nation; poor people would rise in revolt; only then would "the rest of society" accept their demands.

The key to sparking this rebellion would be to expose the inadequacy of the welfare state. Cloward-Piven's early promoters cited radical organizer Saul Alinsky as their inspiration. "Make the enemy live up to their (sic) own book of rules," Alinsky wrote in his 1972 book Rules for Radicals. When pressed to honor every word of every law and statute, every Judaeo-Christian moral tenet, and every implicit promise of the liberal social contract, human agencies inevitably fall short. The system's failure to "live up" to its rule book can then be used to discredit it altogether, and to replace the capitalist "rule book" with a socialist one.

The authors noted that the number of Americans subsisting on welfare -- about 8 million, at the time -- probably represented less than half the number who were technically eligible for full benefits. They proposed a "massive drive to recruit the poor onto the welfare rolls."  Cloward and Piven calculated that persuading even a fraction of potential welfare recipients to demand their entitlements would bankrupt the system. The result, they predicted, would be "a profound financial and political crisis" that would unleash "powerful forces … for major economic reform at the national level."

Their article called for "cadres of aggressive organizers" to use "demonstrations to create a climate of militancy." Intimidated by threats of black violence, politicians would appeal to the federal government for help. Carefully orchestrated media campaigns, carried out by friendly, leftwing journalists, would float the idea of "a federal program of income redistribution," in the form of a guaranteed living income for all -- working and non-working people alike. Local officials would clutch at this idea like drowning men to a lifeline. They would apply pressure on Washington to implement it. With every major city erupting into chaos, Washington would have to act.

This was an example of what are commonly called Trojan Horse movements -- mass movements whose outward purpose seems to be providing material help to the downtrodden, but whose real objective is to draft poor people into service as revolutionary foot soldiers; to mobilize poor people en masse to overwhelm government agencies with a flood of demands beyond the capacity of those agencies to meet. The flood of demands was calculated to break the budget, jam the bureaucratic gears into gridlock, and bring the system crashing down. Fear, turmoil, violence and economic collapse would accompany such a breakdown -- providing perfect conditions for fostering radical change. That was the theory.

Cloward and Piven recruited a militant black organizer named George Wiley to lead their new movement. In the summer of 1967, Wiley founded the National Welfare Rights Organization (NWRO). His tactics closely followed the recommendations set out in Cloward and Piven's article. His followers invaded welfare offices across the United States -- often violently -- bullying social workers and loudly demanding every penny to which the law "entitled" them. By 1969, NWRO claimed a dues-paying membership of 22,500 families, with 523 chapters across the nation.

Regarding Wiley's tactics, The New York Times commented on September 27, 1970, "There have been sit-ins in legislative chambers, including a United States Senate committee hearing, mass demonstrations of several thousand welfare recipients, school boycotts, picket lines, mounted police, tear gas, arrests - and, on occasion, rock-throwing, smashed glass doors, overturned desks, scattered papers and ripped-out phones."These methods proved effective. "The flooding succeeded beyond Wiley's wildest dreams," writes Sol Stern in the City Journal.  "From 1965 to 1974, the number of single-parent households on welfare soared from 4.3 million to 10.8 million, despite mostly flush economic times. By the early 1970s, one person was on the welfare rolls in New York City for every two working in the city's private economy."As a direct result of its massive welfare spending, New York City was forced to declare bankruptcy in 1975. The entire state of New York nearly went down with it. The Cloward-Piven strategy had proved its effectiveness.

The Cloward-Piven strategy depended on surprise. Once society recovered from the initial shock, the backlash began. New York's welfare crisis horrified America, giving rise to a reform movement which culminated in "the end of welfare as we know it" -- the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, which imposed time limits on federal welfare, along with strict eligibility and work requirements. Both Cloward and Piven attended the White House signing of the bill as guests of President Clinton.

Most Americans to this day have never heard of Cloward and Piven. But New York City Mayor Rudolph Giuliani attempted to expose them in the late 1990s. As his drive for welfare reform gained momentum, Giuliani accused the militant scholars by name, citing their 1966 manifesto as evidence that they had engaged in deliberate economic sabotage. "This wasn't an accident," Giuliani charged in a 1997 speech. "It wasn't an atmospheric thing, it wasn't supernatural. This is the result of policies and programs designed to have the maximum number of people get on welfare."

Cloward and Piven never again revealed their intentions as candidly as they had in their 1966 article. Even so, their activism in subsequent years continued to rely on the tactic of overloading the system. When the public caught on to their welfare scheme, Cloward and Piven simply moved on, applying pressure to other sectors of the bureaucracy, wherever they detected weakness.

In 1982, partisans of the Cloward-Piven strategy founded a new "voting rights movement," which purported to take up the unfinished work of the Voting Rights Act of 1965. Like ACORN, the organization that spear-headed this campaign, the new "voting rights" movement was led by veterans of George Wiley's welfare rights crusade. Its flagship organizations were Project Vote and Human SERVE, both founded in 1982. Project Vote is an ACORN front group, launched by former NWRO organizer and ACORN co-founder Zach Polett. Human SERVE was founded by Richard A. Cloward and Frances Fox Piven, along with a former NWRO organizer named Hulbert James.

All three of these organizations -- ACORN, Project Vote and Human SERVE -- set to work lobbying energetically for the so-called Motor-Voter law, which Bill Clinton ultimately signed in 1993. The Motor-Voter bill is largely responsible for swamping the voter rolls with "dead  wood" -- invalid registrations signed in the name of deceased, ineligible or non-existent people -- thus opening the door to the unprecedented  levels of voter fraud and "voter disenfranchisement" claims that followed in subsequent elections.

The new "voting rights" coalition combines mass voter registration drives -- typically featuring high levels of fraud -- with systematic intimidation of election officials in the form of frivolous lawsuits, unfounded charges of "racism" and "disenfranchisement," and "direct action" (street protests, violent or otherwise). Just as they swamped America's welfare offices in the 1960s, Cloward-Piven devotees now seek to overwhelm the nation's understaffed and poorly policed electoral system. Their tactics set the stage for the Florida recount crisis of 2000, and have introduced a level of fear, tension and foreboding to U.S. elections heretofore encountered mainly in Third World countries. 

Both the Living Wage and Voting Rights movements depend heavily on financial support from George Soros's Open Society Institute and his "Shadow Party," through whose support the Cloward-Piven strategy continues to provide a blueprint for some of the Left's most ambitious campaigns."
Entry #1,192

"Tens of thousands of Chinese fight the police in Shishou

"Tens of thousands of Chinese fight the police in Shishou

Posted By: Malcolm Moore at Jun 22, 2009

"It was a dramatic weekend in the relatively small city of Shishou in Hubei province.  (  http://en.wikipedia.org/wiki/Hubei  ) Tens of thousands of rioters torched a hotel and overturned police cars, after the authorities allegedly tried to cover up the murder of a 24-year-old man as a suicide.

The deceased, Tu Yuangao, was the chef of the Yong Long hotel. According to the cops, he committed suicide by jumping off the roof of the building and left a note.

Witnesses said there was no blood on the scene and Tu's body was already cold just after it hit the ground. His parents were surprised at the suicide note, since he was allegedly illiterate.

There are plenty of rumours flying around - that two other employees at the hotel had died in the same way, that the boss of the hotel is related to the mayor of Shishou, that the hotel was a centre for the local drug business and Yu was killed for threatening to expose what was going on. There's also a rumour that three further bodies have been found at the hotel.

There are more details and photos here (EastWestNorthSouth).  (my note: photos and video)  ( http://www.zonaeuropa.com/20090621_1.htm )

It's a strange story, and it gets stranger. A huge mob, of anywhere between a few thousand to 70,000 people, depending on which report you read, quickly gathered outside the building. Tu's parents refused to let his body be taken away, and instead placed it inside the hotel on ice.

The crowd defended the body against waves of policemen. However, on Saturday, a fire was lit inside the hotel, but the corpse was saved. Tu's cousin apparently armed himself with two barrels of gasoline and threatened to blow himself up if the body was taken.

The police restored order yesterday, imposed a curfew and took the body to a funeral parlour. Today, the website of the local government has been defaced by hackers.

What's extraordinary is the speed in which the riot blew up, and the venom directed against the local authorities. Whatever was behind Tu's death, there's clearly something rotten in Shishou.

But after months of calm, there have been a spate of reported riots recently. Is this because media restrictions have been lifted, allowing news of riots to spread, or has there been a genuine increase in social tension in the countryside?

It is impossible to tell. China no longer publishes the figures for how many riots take place each year, but most people put the figure at around 80,000 and the vast majority go totally unnoticed.

The fact that there have been a dozen riots reported in the last couple of months may not demonstrate anything out of the ordinary. There is no theme that connects the recent protests - some are about property, some have been triggered by work disputes, some are because of corruption.

But then again, a huge number of migrant workers are still out of work because their factories have not recovered from the economic crisis, the harvest is finished and people's savings may be running low. Perhaps the tinderbox is drier than usual."

http://blogs.telegraph.co.uk/malcolmmoore/blog/2009/06/22/tens_of_thousands_of_chinese_fight_the_police_in_shishou

Entry #1,191

Banking reform 3 articles

Three articles with live links.  First what they say they're trying to do which should have never been have happened in the first place had Lawrece (Larry) Summers not been in the middle of gutting the Glass-Steagall Act which Jarasan has mentioned several times in his blog.  Everyone has seen this on the news.

Second an in depth commentary by a well respected financial adviser who point by point refutes the current proposal.  Couple of his quotes are cited .... recommend reading the whole article.

Third is about Larry Summers a current White House Financial Advisor, architect of our current banking insolvency .... now in charge of "fixing" the problem.  Sure it's going to be great when he's done.    Or are we done ... for???

_____________________


Single US regulator for big banks under reform plan: Obama - Yahoo! News
" ......US Treasury Secretary Timothy Geithner and chief White House economic adviser Lawrence Summers gave a broad outline of their plan to better regulate the finance industry in an op-ed piece in The Washington Post on Monday. ........"

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"Obama's Financial Regulatory Reform
The Market Ticker
Thursday, June 18. 2009
Posted by Karl Denninger in Regulatory at 08:33

"........Fraud hid thegrowing leverage and weak underwriting standards.  The fact that creditraters and issuers failed to disclose clearly, for example, thatmissing data was literally guessed at when models were runwas part of the problem.  "Shopped" ratings were another.  Grossoverstatement of income was another issue - half of all "stated income"loans had overstatements of 50% or more.  But despite HUD knowing about this in 2007, nothing was done. Fraud was not just found in the lenders and securitizers, it was alsofound in the government's intentional blindness and misconduct. ........"
"........Finally, thereare the items that are just flat-out missing.  Most-glaring among themis the lack of a ban on off-balance-sheet vehicles such as conduits andSIVs.  If there is one thing that ENRON taught us it is that thesevehicles are the hiding places for fraud, abuse, and mis-markedassets where investors, auditors and regulators cannot easily findthem......." 

http://market-ticker.org/archives/1132-Obamas-Financial-Regulatory-Reform.html
__________

"Eight reasons to dump Larry Summers

By Jerry MazzaOnline Journal Associate Editor

Apr 3, 2009, 00:26

onlinejournal.com

"I mentioned in my article Bankrupting the world that Tim Geithner was just the face, the voice, behind the PPPIP giveaway to America’s top commercial banks to restore what amounts to $200 trillion in their cumulative derivative debt. I can say today that it’s even more apparent that Larry Summers is the corrupt brain behind the give-away and should go.

First, Summers and his backers persuaded Obama they had the best way to solve the worst financial crisis in history, that is, hand the keys to the banking system to a gang of hedge fund thieves. Nevertheless, a number of “real” economists, like professor and noted author James Galbraith (son of FDR’s economic adviser John Galbraith), and Nobel Laureate Paul Krugman, warned that the bailout schemes would make things go from bad to worse.

They argued that to save the US banking system, it needed reorganization under bankruptcy protection, a view, as I mentioned, shared by Lyndon LaRouche as well. Additionally, Former Federal Reserve Chairman Paul Volker, who heads the President’s Economic Recovery Advisory Board, reiterated even more resolutely in a speech in New York City that the current system had to be reorganized in a Glass-Steagall framework, no ifs, ands, or buts.

Apparently, Summer’s notorious ego blew and his penchant for job-losing got the better of him. He actually had the chutzpah to tell President Obama he wasn’t going to continue working in the same arena with Volcker. In the army, you get shot for that or spend a long time looking at brick walls. Yet the novice president, perhaps intimidated or brainwashed, feeling he needed Summers and Geithner to make things happen, quietly charged Volcker instead to head a tax-code review to close corporate loopholes, and streamline tax laws to generate revenue.

This was announced by OMB Director Peter Orszag, who said the review had a December 4 deadline, and the code, some 96 years old, needed simplifying to reduce tax evasion and what he termed “corporate welfare.” This is like being two touchdowns behind in the fourth quarter and you put your second-string quarterback in because the first one isn’t hacking it and is having a fit on the sidelines. Not good.

It didn’t take a rocket scientist to figure out that as soon as Volcker butted heads with Summers, first over timing of regulatory reform, second, over the larger question of bringing back the Glass-Steagall Act, there would be major conflict. After all, Summers spent all of 1999 wrecking the act as Bill Clinton’s Treasury secretary, replacing it with his fellow free-marketer friends’ Gramm-Leach-Bileley Act. The latter killed the parts of The Glass-Steagall Act that prohibited commercial banks from getting into the mortgage-backed securities and collateralized debt obligations game.

The Gramm-Leach-Bileley Act also split supervision of banking conglomerates among a host of different government agencies, creating an oversight disaster. The Glass-Steagall Act would have allowed Congress to simply break down the US’s five largest banking conglomerates into their smaller components, and to determine which were solvent enough to continue, and which were too broke to live. So a lot was on the table. Yet, Obama, like a Manchurian Candidate gave the nod to Summers, not Volcker to proceed with “Summers plan.”

Second, consider Summers infamous comments at the World Bank. In December of 1999, Summers as Chief Economist for the World Bank wrote in a memo that bore his signature and was leaked to the press that though free-trade wouldn’t much benefit the environment in developing countries, there was a clear economic logic in dumping toxic waste in them. This gives you a sense of the man’s character, or lack of it.

Summers actually wrote, “I think the economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable and we should face up to that . . . I’ve always thought that under-populated countries in Africa are also vastly under-polluted.” I wonder how that would have sat with President Obama’s late father who was Kenyan. It’s patronizing beyond insult. And if that’s how Summers calculates human value, we are in big trouble.

Third, back in 1998, Summers testified in Congress against regulating the derivatives market. He actually said we could trust Wall Street. “The parties to these kinds of contracts,” Summers pronounced, “are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws.” Is this our Wall Streeters he’s talking about? Bernie Madoff? Goldman’s Lloyd Blankfein? AIG FC’s, Joseph Cassano? You’re kidding?

Summers ladled even more praise on over-the-counter derivatives, blocking all moves to regulate them right up through 2000. He waxed patriotic, calling them “an important component of the American capital markets and a powerful symbol of the kind of innovation and technology that has made the American financial system as strong as it is today.” And as strong as it is today, as I write, April Fool’s Day, 2009. Of course, after he retired from the Treasury, he took a high level management position at D.E. Shaw, a hedge fund famous for its omerta (Mafia for code of silence).

Fourth, Summers backed the awful Commodity Futures Modernization Act of 2000, the flip-side of Glass-Steagall. The CFM ACT stopped the highly effective government regulatory agency, the Commodity Futures Trading Corporation (CFTC), from any oversight over trade of financial derivatives. As of 2000, they could not touch a one. So the door was wide open to disaster, again thanks to Summers.

Fifth, Summers ganged up with ex-Fed Chairman Greenspan and Enron’s corpse, “Kenny boy” Lay. This was during the California energy crisis of 2000 when the boyz beat up on then Governor Grey Davis, lecturing Davis that the reason for their energy crisis was excessive government regulation. Believe that? Summers even browbeat Davis into additional deregulation of California’s utilities and even relaxing California’s environmental standards in order to “reassure the markets.” Reassure them, that is, that they were going to make a bundle bankrupting California.

Sixth, Summers proclaimed in a New York Times Op-Ed “we’re all Friedmanites.” This was on the death of radical libertarian economist Milton Friedman, in which Summers confessed Friedman was “his hero,” “The Great Liberator,” and that “any honest Democrat will admit that we are now all Friedmanites,” adding that the old free-marketer made enormous contributions to monetary policy, and even greater contributions “in convincing people of the importance of allowing free markets to operate unencumbered.” That concept is in total contradiction to Obama’s platform of regulating markets to keep them safe and healthy for all concerned.

Seventh, economists and Democrats like Peter DeFazio (D.–Or.) stated President Obama was “ill-advised by Larry Summers.” In January 2009, as the administration tried to pass its stimulus bill, DeFazio, James Galbraith, Paul Krugman, and economist Joseph Stiglitz argued that more of the stimulus money should be spent on infrastructure projects. But Summers favored more tax cuts.

DeFazio said, “Larry Summers HATES infrastructure.” After all, what did infrastructure ever do for him, except get him to work, pump water and power into his home, and build the city he made his fortune in? So, if he hates infrastructure, he doesn’t want a consumer driven recovery. He thinks we need an investment and productivity driven recovery (read financial give-away to banks recovery) for this county. Good luck.

But this is the Summers who has the ear of President Obama who ran on the need to overhaul infrastructure and reregulate the nation’s financial and banking system. Who’s on first? I thought it was Obama, who wants to push through a major social agenda and be known as the president who built a cross-country, high-speed, maglev transportation system and also led the US out of the biggest economic crisis ever. You have to put your foot down, Mr. President.

Eighth, Summers fired a derivatives whistleblower at Harvard. After suffering Enron’s collapse, Iris Mack, a derivatives researcher, sought a quieter life. Mack joined Harvard Management Co., a privatized company which managed the university’s endowment fund in 2002. To her surprise, she found the Harvard endowment fund was not so staid. In fact, it was involved in the same speculative trading as her former employer, Enron. Worse, after she spoke up about it to Harvard President Larry Summers’ chief of staff, Marne Levine, she was fired four months later for raising the subject. No academic freedom in finance, I guess.

Mack eventually sued (and won out of court) saying she was “shocked at the inexperience of her co-workers,” some not even licensed securities dealers. “The group I was working for had no background whatsoever to be working on [complex derivatives trades],” she told the Harvard Crimson. Traders were also using discredited variants of Black-Scholes statistical modeling, now acknowledged as having been at the heart of the 1998 collapse of Long Term Capital Management.

Bottom line: “When the bottom fell out” in 2007, Harvard’s endowment went with it. Her former boss, Jeffrey Larson, lost $350 million of Harvard’s cash in a hedge fund he’d started in 2005. Overall, the endowment plunged 22 percent in four months, with a projected collapse of 30 percent for the year. Iris Mack adds, “I’m not trying to pretend I’m omniscient or anything, but a lot of people who were quantitative traders . . . we knew a lot of those models were just that: guestimates . . . I wasn’t crazy, I knew what I was talking about. But maybe if more and more people had spoken up, the economy wouldn’t be the way it is now.” How prescient!

And so it goes. There is also the terrible story about what Summers did to the Russian economy in 1999, but let’s save that for another day and hope he doesn’t do it to America in 2009. If you’re not convinced this guy’s not only a free-market loose-cannon, dangerous to and heedless of anyone around him, read as well Debra Hanania-Freeman’s President Obama Must Dump Summers To Save His Presidency at LaRouche’s Executive Intelligence Review. Summers should not be advising Obama. Summers should be looking for new employment. It’s that simple. Sack him, President Obama. And give America, yourself and your vision a chance to survive."

Entry #1,190

"US Banks Operating Without Reserve Requirements

"US Banks Operating Without Reserve Requirements

Source Market Skeptics
Sunday March 29, 2009

"Banks typically have 3% of their assets in cash in order to meet customer needs. Since 1960, banks have been allowed to use this “vault cash” to satisfy their reserve requirements. Today, bank reserve requirements have fallen to the point where they are now exceeded by vault cash, which means lowering reserve requirements to zero would have virtually no impact on the banking system. US banks are already operating free of any reserve constraints. The graph below shows reserve requirements falling to zero over the last fifty years.



Although, under current regulations, all depository institutions are required to maintain reserves against transaction (checking) deposits, the reality is they don't. The purpose of bank reserves is to absorb losses and add stability/liquidity to the financial system in times of crisis. The “vault cash” banks use to satisfy reserve requirements is useless in absorbing losses because they are indispencable for banking operations (think ATM cash).

In summary, today most depository institutions are satisfying their entire reserve requirement with this vault cash, which they hold to meet the liquidity needs of their customers and would hold even in the absence of reserve requirements. For these institutions, reserve requirements are effectively non-existent.



The numbers used to create these charts come directly from the Federal Reserve. The image below shows where they can be found on the current Federal Reserve release.





How did we get to the point where US banks are satisfying their “reserve requirements” with ATM cash?

First, the Federal Reserve has cut reserve requirements to the bone over the last thirty years. Below are two images from a 1993 Federal Reserve release exploring the history reserve requirements that show how much these requirements have changed.







In 1990, the reserve requirement on all nontransaction accounts (savings, CDs, money markets, etc…) was reduced to zero. Removing all reserve requirements on non-checking accounts has never happened before in over a hundred years. Meanwhile, the requirement on transaction deposits (checking accounts) is 10 percent, which is near the legal minimum.

However, the lowering of reserve requirements by the fed doesn’t explain how reserve requirement fell below “vault cash” (less than 3% of a banks assets). Something more was needed.


Deposit Reclassification

Deposit reclassification is an accounting trick, used by virtually the entire financial sector, which allows banks to eliminate nearly all their reserve requirements. Deposit Reclassification splits a checking account into two separate subaccounts, a transaction (checking) subaccount and a non-transaction (savings) subaccount. This distinction only exists on the bank’s books: you will never see these subaccounts on your bank statements.

Deposit reclassification means that, at any point in time, most of the money in American checking accounts sits in invisible savings subaccounts. These savings subaccounts pay no interest, but allow banks to avoid reserve requirements. The public is completely unaware of this financial engineering.

The slide below, part of a presentation on deposit reclassification, should make it obvious that even if the congress lowers reserve requirements to 0%, there would be no impact on the banking system.



By using deposit reclassification, the entire financial sector is already operating without any reserve requirements.

There is only one restriction on deposit reclassification: banks must disclose it to their customers. These disclosures could be in the form of a statement stuffer or buried in the terms and conditions when opening a checking account. As an example of a disclosure about deposit reclassification, Citibank explains how its checking accounts are maintained

How Checking Accounts are Maintained

For accounting purposes, all Citibank consumer checking accounts (Regular Checking, Citigold Interest Checking, Interest Checking and Basic Banking Account) consist of two sub-accounts; a transaction sub-account to which all financial transactions are posted; and a holding sub-account into which available balances above a pre-set level are transferred daily. Funds will be transferred to your transaction sub-account to meet your transactional needs. For Regular Checking and Basic Banking Account, both sub-accounts are non-interest bearing. For Citigold Interest Checking and Interest Checking, both sub-accounts pay the same interest rate.

Transfers can occur on any business day. Transfers to the holding sub-account will be made whenever available balances in the transaction sub-account exceed a preset level. Transfers from the holding sub-account to the transaction sub-account will be made whenever transaction sub-account balances fall below a predetermined level. Because banking regulations limit the number of transfers between these types of sub-accounts, all balances in the holding sub-account will be transferred to the transaction sub-account in the sixth transfer in any calendar month.

Both sub-accounts are treated as a single account for purposes of the client’s deposits and withdrawals, access and information [ie: your statements], tax reporting, fees, etc.

JPMorgan, Bank of America, and the rest of the banking sector are also big users of deposit reclassification. Check the terms and conditions of your checking account. Odds are 99 percent that you too have one of these "two sub-accounts" Frankenstein monstrosities.

Systematic Risk

In a banking system with no reserve requirements, everything becomes a systematic risk because financial institutions do not have any buffer to absorb losses. Even the failure of a small bank becomes enough to bring down the entire financial system.

Impact on the Taxpayer

If you look at the charts above again, you will realize that the savings and loan crisis of the 1980s and 1990s was absorbed in a large part by bank reserves. The buffer provided reserves helped limit the cost of bailouts to 105 billion. Today, no such buffer exists, and the entire brunt of the bank losses is being transferred to taxpayer. The lack of any reserve requirements helps explain why current bailouts seem so enormous compared to those of prior banking crisis.

The Federal Reserve

The Federal Reserve is completely aware and complicit in this scheme. In order for a bank to begin using deposit reclassification, it first has to obtain Federal Reserve’s "no objection." So the Federal Reserve not only knows of the practice, but has also OKed every single deposit reclassification program.

The FDIC is aware of the practice too. Below is an extract from the FDIC’s Temporary Liquidity Guarantee Program Frequently Asked Questions which it explains that “swept”, “transferred”, and “reclassified” accounts are guaranteed.

What if the funds in a guaranteed low-interest NOW account (with interest rate no higher than 0.50 percent through December 31, 2009) are swept or transferred into (or reclassified as) a low-interest savings deposit account (with interest rate no higher than 0.50 percent through December 31, 2009)? Will the funds lose the benefit of the guarantee?

The FDIC’s regulations include the following rule: “[I]n the case of funds swept from a noninterest-bearing transaction account to a noninterest-bearing savings deposit account, the FDIC will treat the swept funds as being in a noninterest-bearing transaction account.” This rule is based upon the premise that the sweep or reclassification of the funds for reserve purposes does not change the basic nature of the funds for other purposes. Thus, if the funds are guaranteed prior to the sweep, the funds should be guaranteed after the sweep.

How could the Federal Reserve knowingly allow deposit reclassification to happen?

The quote below from June 1993’s Federal Reserve Bulletin should help make clear why the fed allowed backs to avoid any reserve requirements through financial engineering.

Laws requiring banks and other depository institutions to hold a certain fraction of their deposits in reserve, in very safe, secure assets, have been a part of our nation’s banking history for many years. The rationale for these requirements has changed over time, however, as the country’s financial system has evolved and as knowledge about how reserve requirements affect this system has grown. Before the establishment of the Federal Reserve System, reserve requirements were thought to help ensure the liquidity of bank notes and deposits, particularly during times of financial strains. As bank runs and financial panics continued periodically to plague the banking system despite the presence of reserve requirements, it became apparent that these requirements really had limited usefulness as a guarantor of liquidity. Since the creation of the Federal Reserve System as a lender of last resort, capable of meeting the liquidity needs of the entire banking system, the notion of and need for reserve requirements as a source of liquidity has all but vanished. Instead, reserve requirements have evolved into a supplemental tool of monetary policy, a tool that reinforces the effects of open market operations and discount policy on overall monetary and credit conditions and thereby helps the Federal Reserve to achieve its objectives.

According to the fed, “the notion of and need for reserve requirements” has “all but vanished”, because the Federal Reserve stands ready "as a lender of last resort, capable of meeting the liquidity needs of the entire banking system.” Sigh… Did it ever occur to anyone at the fed that having to prop up “the entire banking system” with liquidity (as it is doing today) wasn’t a good idea?

Why didn’t the Federal Reserve just lower reserve requirements instead of allowing checking accounts to be turned into an accounting freak show?

Because it couldn’t. The Federal Reserve would have needed an act of congress to lower reserve requirements below 8%.

Why did the Federal Reserve bend the rules so far to allow banks to escape reserve requirements?

June 1993’s Federal Reserve Bulletin explains the benefits which the fed was looking for by eliminating reserve requirements.

Requiring depositories to hold idle, non-interest-bearing balances is essentially like taxing these institutions in an amount equal to the interest they could have earned on these balances in the absence of reserve requirements.

There you go. The fed let reserve requirements become a joke to eliminate the unfair “tax” on depositories (ie: the banks now receiving trillions in taxpayer bailouts). It is SUCH a good thing that the fed was on the ball and had its priorities strait about protecting the American people.

Reserve Requirements should be lowered to zero

Congress should pass a bill officially lowering reserve requirements to zero. This would end the farce of deposit reclassification (and hopefully deal a deathblow to this industry which has profited by weakening our financial system). Furthermore, there would be no adverse impact to eliminating reserve requirements of US banks, as they already don’t exist. "

http://www.marketskeptics.com/2009/03/us-banks-operate-without-reserve.html

Entry #1,189

"Fiat Money In Death Throes

One of the best articles I've ever read.  If the gold standard for currency is so bad then why are so many of the other world governments backing up their currency with gold?  At the current rate of inflation, world devaluation of our fiat money (Money that the government declares to be legal tender although it cannot be converted into standard specie) our US$ will be cheaper to use than toilet paper.

_______

"FIAT MONEY IN DEATH THROES
Antal E. Fekete
Source TheTreeOfLiberty.com

"Banking was conceived in iniquity and born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. If you wish to remain the slaves of Bankers and pay the cost of your own slavery, then let them continue to create deposits.”
-Sir Joshua Stamp (1880-1941) (One time governor of the Bank of England, in his Commencement Address at the University of Texas in 1927. Reportedly he was the second wealthiest individual in Britain.)

 

Make no mistake about it: in this credit collapse we are witnessing the death throes of irredeemable currency. In vain have governments and their client banks tried, for hundreds of years, to graft this repulsive and degenerate <snip> on the living organism of society. The result was always the same: the healthy organism rejected the unnatural implant in its own good time.

 

The present episode is no different from earlier ones except, perhaps, in the degree of the conceitedness of the perpetrators, and in their contempt for the native intelligence of man.

 

When on August 15, 1971, Richard Nixon defaulted on the gold obligations of the United States and declared the irredeemable dollar the “ultimate” means of payments and liquidator of debt, he was relying on the expert advice of Chicago economist Milton Friedman. Five years later the world’s oldest central bank, the Swedish Riksbank would bestow upon Friedman the prize it established in memory of Alfred Nobel. The reward would be in recognition of the brilliance of Friedman’s idea that if a central bank robs the people piecemeal (read: it dilutes the currency at a fixed rate of, say, 3 percent per annum) then the victims would not cry “we wuz robbed!” They would never notice the robbery.

 

In all previous episodes shame and disgrace were part and parcel of the government’s default on its promises to pay. Not so in 1971. In this latest experiment with irredeemable currency there was a new feature: far from being a disgrace, the default was presented as a scientific breakthrough; conquering “monetary superstition” epitomized by gold; a triumph of progress. Sycophant governments and central banks overseas that were victimized by it and had to swallow unprecedented losses due to the devaluation of the dollar were not even allowed to say “ouch!” They were forced to celebrate their own undoing and hail the advent of the New Age of synthetic credit, irredeemable currencies and irredeemable debts.

 

The regime of the irredeemable dollar was put to the test soon enough. In 1979 the genie escaped from the bottle. The price of oil, silver, and gold were quoted at twenty times that prior to 1971; in the case of sugar the rate of increase was more like forty times. Interest rates were quoted in double digits well past the teens. There was panic across the land and the globe. Hoarding of goods became a way of life. Everybody was expecting the worst. It was at this time that the notion of “targeting inflation” was invented.

 

Previously the claims of central bank power were rather modest. Central banks were supposed to target shortterm interest rates. Later they graduated to targeting the money supply. Now they were claiming supernatural powers of micromanaging price increases. It was apparently working, and the genie was put back in the bottle.

 

In the intervening three decades policymakers and mainstream economists became ever more confident that in inflation-targeting they have found the holy grail of irredeemable currency.

 

Ironically, disaster struck just at the time when the prophets of inflation-targeting became <snip>y beyond any measure of modesty. They actually had a whole debate going on in American journals, but also English ones.

 

Ben Bernanke, who in the meantime was made the chairman of the Federal Reserve, contributed the keynote address and the title to the debate: “The Great Moderation”. Their description, up to and including the beginning of 2007 of what was happening in the macro economy, was a reduction in the volatility in the trade cycle: more consistent growth, less bouts of inflation, more stability.

 

The London Times published a jubilant piece as recently as early 2007 with the title “The Great Moderation” which began with the line: “History will marvel at the stability of our era.” It was not meant to be a joke. It was meant to be believed. Complacency about the almighty nature of monetary policy reached its peak. They celebrated the success of inflation targeting just when it started to unravel.

 

Policymakers, central bankers, and their lackeys in academia and journalism, felt inordinately proud of themselves. They thought they held the whole world in their hands.

 

The celebration and self-congratulation was premature. Bernanke & Co. did not know that they were about to be humbled by the markets. Blinded by the glare of their own glory, none of them foresaw the coming disaster.

 

Martin Wolf in his column on May 7 talks about “this unforeseen crisis” as an unmitigated disaster for monetary policy. It leaves fiat money with just one last chance to put its act together and save its hide. He says: “The holy grail turned out to be a mirage. If fiat money is not made to work better than it has, who knows what our children might decide to do in desperation. They might even decide to bring back and embrace gold”. Oh horror of horrors! Wolf still considers the gold standard an absurdity.

 

It’s kind of strange. It is not the regime of irredeemable currency, whereby governments are supposed to create wealth by sprinkling some ink on little scraps of paper, that is considered an absurdity. Of course, Mr. Wolf has the right of wanting to be pilfered and plundered. But he has no right to advocate that the rest of us be cheated through this crudest form of plunder forever and ever.

 

Quote:

 

He is also mistaken when he assumes that Bernanke & Co. still has one more chance. The chance they just blew was the last. We are witnessing the closing of the regime of irredeemable currency and irredeemable debt. We may not know how long its death throes will take, but there will be no other chance.

Financial journalists and mainstream economists, in their blind stupor acting as cheerleaders for the disastrous monetary policy of the government and the insane credit policy of the banks, have exhausted and destroyed their own credibility for once and all.

 

* * *

 

Martin Wolf, like most of his colleagues, is a victim of brainwashing inspired by Keynes that has been going on to discredit the gold standard for some 75 years, but which got a new lift after Friedman inspired Nixon to default.

 

Yet here are the facts about the gold dollar that should be made available to the world through the opening of the Mint to gold, as demanded by the U.S. Constitution.

 

The gold standard is an indispensable prerequisite of freedom. Without it individuals are helpless in facing the constant and ongoing encroachment of their property rights by the government and the banks. The right to demand gold in exchange for bank notes and bank deposits far transcends the mere exchange of one form of money for another. It is the only way to check the unlimited power of the government manifested by the unlimited creation of bank deposits.

 

The combination of governmental power and the power of the banks to create deposits is especially dangerous for the freedom of the individual, because of the double standard involved. The government exempts banks from the effects of contract law in exchange for the banks’ special treatment accorded to government debt. Gold hoarding is not a blemish on the gold standard; it is its main excellence. When a sufficient number of individuals are disturbed by the encroachment of this combination of powers, or disapprove the monetary policy of the government and the credit policy of the banks, they are not helpless under a gold standard.

 

They can withdraw gold from the banking system, thereby putting the government and the banks on notice that unless they mend their ways, and stop their adventures in debt creation, they will find themselves insolvent and out of power. The gold standard gives people the upper hand. It is no accident that all dictatorships set out by limiting the people’s access to gold. It makes no difference whether they march under the banner of national or international socialism.

 

All totalitarian regimes inflict irredeemable currency on the people as an instrument of servitude and bondage. Martin Wolf should know this. The ideal of limited government is meaningless unless reinforced by a gold standard denying to the government the power of issuing unlimited amounts of currency. There is no other way of doing this than making the promises of the government redeemable in something other than more promises of the samekind.

 

Once the government makes the currency irredeemable, it puts itself in the position to curtail the rights and freedoms of the people as it sees fit.

 

Constitutional government is effectively overthrown. Once the government usurps the public purse, its power becomes uncontrollable. Budget debate in Parliament or in Congress becomes an annual farce. Nothing stands in the way of unscrupulous politicians to undermine constitutional government.

 

The purchasing power of the currency is constantly undermined year in, year out. The banks are freed from constraints on them exercised by the people under the gold standard. Pandora’s box of corruption is opened and its contents contaminate the nation’s economic, political, and social system.

 

Governments which employ irredeemable currency grab unconditional control over foreign trade, exchange rates, foreign investments and travel, even the amount of currency an individual can take in or out of the country. The more powerful governments will buy the allegiance of the less powerful. Out of this feudalistic web of allegiances financed by irredeemable currency come various adventures in fomenting and waging wars in far-away lands, spilling the blood of the young people of the nation for causes alien to them.

 

Under a gold standard prolonged budget deficits and prolonged unfavorable balance of payments cannot occur. There are forces limiting persistent losses of gold which tend to correct the underlying distortion. By contrast, under the regime of irredeemable currency economic distortions can persist indefinitely. They ultimately become destructive. This is so because government bureaucrats cannot possibly provide the same level of wisdom that a people free to act in their own interest can.

 

As problems in foreign trade mount, governments will find ever more excuses for ever more controls. There is no end to the expansion of government power over the individual until the nation regains the benefits of a gold standard, requiring that the government retire to its proper role of umpire and relinquish its role as dominant partner and dictator.

 

Quote:
A government can take total control of the people either by the use of military force, or by the use of irredeemable currency. The former is readily understood, while the latter is a subtle national drug that is not generally recognized as such. Rather, it is readily embraced by its victims. For these and similar reasons irredeemable currency is the favorite device of modern governments that want to bring people under total control.

Indeed, it enables the government to succeed in controlling the masses while, at the same time, earning their approval and even their
enthusiastic support. Irredeemable currency must be seen as the habit-forming drug that the government uses to intoxicate people. Under this intoxication people will want more and more national spending, more and more government control, and more and more debt.
This intoxication obscures the sad end that arrives when the merry-go-round is coming to a jerky halt, when credit is exhausted or withdrawn, and the kitty is found empty. The nation is facing a most serious economic disaster followed by prolonged economic pain. Unfortunately government economists, university professors, and financial journalists have taken their share of the fun and they failed miserably in their duty to forewarn people of the coming disaster. It is useless to expect a mass movement on behalf of a sound currency.

 

The daily experiences of people provide them with a warped outlook. They confirm in their minds the alleged virtues and benefits of an infinitely inflatable currency. People lack sufficient understanding of monetary science to see that no currency can be made infinitely inflatable without inviting disaster. Like a drug addict, people exposed to irredeemable currency do not regard it as a dangerous and undermining narcotic agent. Even the loss of purchasing power does not disturb them to any great extent. Their response is to demand more money, and they take pride in the fact that the government listens sympathetically to their demand.

 

They welcome the soaring stock indexes and real estate prices, and put great stores on them. Heavy taxes and burgeoning debt are not regarded with anxiety. A frequent and common agitation is for ever more government spending.
* * *

 

Quote:
If we are to be saved from the ultimate evil consequences of the regime of irredeemable currency, needed action must come from the leadership of the opposition party when it is its turn to take over government. The new President and his Secretary of the Treasury must be statesmen. They must act as informed and tough monetary surgeons, men who can and will persuade Congress or Parliament to reinstate redeemable currency.

Once that step is taken, the people should experience a breath of fresh air. Government would once more be subordinated to the Constitution, bringing greater freedom to the people. Optimism should be wide-spread, because the currency of the people would once more had integrity.

Business should prosper, domestic and foreign trade expand. Imbalances in foreign trade should rectify themselves. Gold should start to circulate and flow in from abroad. The control of the public purse would be returned to the people where it belongs if human freedom is to be preserved and responsible government is to be obtained.
But as the last presidential election in the United States has shown, the needed leadership is lacking. The party of the opposition is just as much in thrall to the same toxic ideology as the governing party. The last change of guards took place in the middle of a financial and economic crisis involving the destruction of quantities of wealth unprecedented in all history, with more destruction coming. Yet when the new president appointed officials at the Treasury, confirmed others at the Federal Reserve, and named economic advisors, they turned out to be the same men who were responsible for the credit collapse in the first place.

 

Not only do these officials continue the dangerous course of the previous administration; they increase the stakes by several orders of magnitude in announcing more government spending, more government debt, and more fiat money creation.

 

When the economic pain inflicted on the people reaches unbearable heights, anarchy and chaos will ensue. This is precisely what the great monetary tradition of the English-speaking countries, in ruling out irredeemable currency and mandating a metallic monetary standard, was designed to prevent.

 

June 10, 2009. "


http://www.drschoon.com/



http://www.thetreeofliberty.com/vb/showthread.php?t=65621

Entry #1,188

leaked 'Amero' currency photos

From SteveQuayle.com.  Their photos are stunning but don't remain up for long so check these out while still available.

 
"leaked Amero photos
 
ORIGINAL CAPTION: (FEDERALJACK) These pictures were sent to me a little over two weeks ago. Before posting them I made sure that I looked them over with extreme prejudice. I have seen other photos of supposed Ameros before so I wanted to make sure these weren’t some crappy homemade hoax. I have to tell you, after hours of checking them over, they look like the real deal. A few examples of why I came to this conclusion are the water marks and the special light reactive paper they use to make the bills. There are some shots of the money in natural light and you can see, under close inspection that the security features on our new 20’s and 5’s match up with the security features on the Amero’s. You will notice the world bank in print and used as a watermark. You will also notice the logo of the “North American Union”. Don’t take my word for it, check them out yourself. Take the time to look at them very carefully. You can decide for yourself, but as for me, I believed they were real enough to post the photos. More photos here. (Popeye)

http://www.stevequayle.com/News.alert/09_Photo_of_Day/090618.photo.of.day.html
Entry #1,187

Swine Flu Vaccine

Found this article as a link from SteveQuayle.com. I personally know nothing about the site it appears on.  However found the informtion about squaline being used in some vaccines to be highly interesting.  Live link to entire article at the bottom of excerpts below.

________

"Swine Flu Vaccination Poses Serious Threat to Your Health

Posted by Anders  June 15, 2009

Source Euro-Med.DK


 Global Research 13 June: It looks like governments around the world will either force these vaccinations on the public or launch a massive propaganda campaign to trick you into submitting to a jab. If they attempt to force these untested and essentially experimental vaccinations on you, cite the Nuremberg Code, which states: “The voluntary consent of the human subject is essential.” No experimental vaccine should be “conducted where there is an a priori reason to believe that death or disabling injury will occur, except, perhaps, in those experiments where the experimental physicians also serve as a subjects. ..........."

 

"..........ATTENTION, Please: The WHO has declared swine flu (N1H1) pandemic. This will probably imply governmental demands for universal mass vaccinations under penalty for not complying.  Flu vaccine contains squalene oil as an adjuvant.

Micropaleontologist Dr. Viera Scheibner conducted research into the adverse effects of adjuvants in vaccines and wrote: Squalene “contributed to the cascade of reactions called “ Gulf War syndrome. GIs developed arthritis, fibromyalgia, lymphadenopathy, rashes, photosensitive rashes, malar rashes, chronic fatigue, chronic headaches, abnormal body hair loss, non-healing skin lesions, aphthous ulcers, dizziness, weakness, memory loss, seizures, mood changes, neuropsychiatric problems, anti-thyroid effects, anaemia, elevated ESR (erythrocyte sedimentation rate), systemic lupus erythematosus, multiple sclerosis, deadly Amyotrophic Lateral Sclerosis, Raynaud’s phenomenon with paroxysms of lack of blood in fingers and toes in fingers and toes, Sjorgren’s syndrome with blurred vision, chronic diarrhea, night sweats and low-grade fever.”

Wikipedia    A study linking squalene, as experimental vaccine adjuvant, to individuals with the clinical signs of Gulf War syndrome was published in 2002.A U.S. Federal Judge ruled that there was good cause to believe aqualene to be harmful, and he ordered the Pentagon to stop administering it in October 2004. .............."

http://euro-med.dk/?p=9152

Entry #1,185

"That worrying wall of debt

"That worrying wall of debt
By Vipal Monga
Source TheDeal.com
Published June 5, 2009 at 11:59 AM

"The leveraged loan market got accustomed to big numbers over the past decade. There's $3.6 trillion, the amount of leveraged loans made since 2000, according to Thomson Reuters' Loan Pricing Corp. There's 735-fold, the amount of growth between 2003 and 2007 in the volume of collateralized loan obligations -- the funds that helped fuel the loan market's surge after the tech and telecom bust of 2001. And there's $375 billion, the amount of bank debt used to fund leveraged buyouts completed between 2005 and 2007.

But right now, the leveraged loan market is fixated on one number: $430 billion, the amount in leveraged loans due to mature between 2012 and 2014. Despite the big numbers of the past, this might be simply too big. Indeed, the $430 billion figure is already worrying lenders, borrowers and loan-market investors alike as they struggle with the possibility that a large portion of those loans will neither be repaid nor refinanced, raising the specter of a wave of defaults among the debt-fueled LBO borrowers of 2005 through 2007.

"People are in a panic about it right now," says one lawyer who specializes in corporate finance. "There's not enough capacity to refinance this."

Is the panic justified?

Standing where we are today, it certainly seems as though the looming maturities will break upon an already fragile market, causing further damage and potentially extending the crisis. But just how serious a threat the maturities pose is an open question. Markets are dynamic, ever-evolving systems, and it's virtually certain the conditions that exist today will have changed substantially, even fundamentally, tomorrow. As Alexander Gendzier, capital markets lawyer at Jones Day, says, "2012 is a couple of lifetimes from where we are today."

The problem, in perspective: According to Standard & Poor's Leveraged Commentary & Data unit, about $10.8 billion worth of loans will mature in 2010. In 2011, the total more than doubles, to $26.5 billion, and almost triples in 2012, when it reaches $73.6 billion.

Given that the Loan Syndications and Trading Association estimates that average yearly issuance of leveraged loans totaled $107 billion between 1998 and 2005 (and ignoring for now the fact that the market for risky loans today is frozen and few expect it to regain anything like its recent size when it does thaw), those numbers could be deemed manageable. But in 2013 and 2014, the scale of the problem reveals itself as the volume of maturing loans surges to $152.5 billion, then surges again to $203.1 billion, before falling back to $27.7 billion in 2015.

The $430 billion making up the bulge that begins in 2012 largely consists of debt owed by some of the largest and highest-profile borrowers of the past several years. Private equity firms such as Apollo Management LP, Bain Capital LLC, Blackstone Group LP, Kohlberg Kravis Roberts & Co. and THL Investment Capital Corp. placed billions of senior debt on the balance sheets of companies such as Clear Channel Communications Inc., First Data Corp. and Freescale Semiconductor Inc. to finance their megabuyouts.

There was some concern even then of the amount of debt being piled on to balance sheets. For example, KKR's financing plan for its purchase of credit- and debit-card processor First Data initially met resistance in the summer of 2007 as investors struggled with the company having an Ebitda-to-­interest-payments ratio of 1.2 times, meaning KKR had barely enough cash flow to cover interest on its debt. (The deal was eventually financed, but only after KKR agreed to add some covenants, though very loose ones, to the loan agreement.) Still, the availability of cheap credit served as powerful encouragement for financial sponsors to load more debt onto the balance sheets of portfolio companies.

LCD's data shows this quite clearly. Total equity in leveraged buyouts between 1999 and the first quarter of 2009 dropped from 35.72% to 32.91%. That decline in equity came with an increase in bank debt, which jumped from 47.88% in 1999 to 53.31% in 2007.

As one executive at a private equity firm describes it, the availability of so much cheap debt profoundly affected how sponsors did business because it encouraged them to change their focus. "The PE firms were not investing in specific industries," he says. "They were investing in the capital markets."

This strategy was predicated on faith that loans could be continually refinanced, that exit options in the form of the equity markets or mergers and acquisitions fueled by more financing would be easily available and lead to profits that justified the outsized risk the sponsors were taking. There was also the belief that an ever-expanding economy would allow companies to keep increasing their Ebitda and pay down debt. The strategy had more than a few similarities with the one used by people who borrowed in increasing amounts to finance home purchases and hoped for either a quick flip or continually rising prices that would make debt more manageable.

Seen in that light, the $430 billion maturity bulge represents the bill from the lending surge coming due. But issuers and lenders have clearly been chastened by the crisis atmosphere of the past six months and are not passively waiting for the tidal wave to break upon them. Many are working aggressively to whittle away their debts. Some are using the relatively open high-yield bond markets to refinance some loans or getting bank lenders to amend and extend agreements to push out the maturities and delay the day of reckoning. "You do have evidence in place of how much of [the outstanding loans] will be reasonably refinanced," says a leveraged finance banker.

As LCD notes, the stock of outstanding leveraged finance paper -- including both leveraged loans and high-yield bonds -- has dropped from its peak of $1.15 trillion in October to $1.11 trillion as of April. This was the largest decline since 1997, although in percentage terms the 3.1% decline in outstanding paper was smaller than the 3.4% decline between December 2001 and April 2002.

Much of that decline has been in the high-yield bond market -- where LCD estimates that $372.5 billion will come due between 2012 and 2016 -- either through debt exchanges or through debt buybacks. In terms of exchanges, companies such as TPG Capital and Apollo-owned Harrah's Entertainment Inc. and Blackstone portfolio company Freescale persuaded debtholders to exchange some debt for a lesser amount that carries higher interest or has more seniority, helping to push out the maturity dates.

In the loan market, buybacks have been more popular. Companies such as Ford Motor Co. and Apollo's Berry Plastics Corp. have gained approval to buy back their loans in the secondary market, which in today's climate is a cheaper option than repaying them at par. This has allowed companies to retire about $2.8 billion of loans, according to LCD.

Borrowers have also been taking advantage of a revival in the high-yield-bond markets to repay some of their loans by issuing bonds. The LSTA's vice president of research, Meredith Coffey, says that about $11 billion has been refinanced in this way. Chief among the companies that took this tack is HCA Inc., the hospital operator that KKR, Bain Capital and Merrill Lynch Global Private Equity bought for $33 billion in November 2006.

The sponsors had loaded about $12 billion of bank debt onto HCA's books, but used the resurgent bond market to pay that down by about $1.5 billion.

And, most recently, companies are looking to extend maturities in a bid to make their debt loads more manageable. Blackstone portfolio company Graham Packaging Co. LP did this in May, when it extended $1.1 billion of a term loan to April 2014, from October 2011.

But these strategies aren't exactly free rides, and much uncertainty still surrounds the loan market outlook. "Capital has a tendency to find its way to places that need it," says one leveraged finance banker. "But that doesn't mean it won't cost a lot more."

Refinancing loans for bonds, for example, is an expensive proposition, costing HCA an extra $85 million a year in interest payments, according to LCD. The ability to afford higher interest rates is very much an issue, even with lower interest rates overall, because the struggling economy has put pressure on company balance sheets.

According to LCD, average borrowing costs for leveraged loan issuers fell roughly 8% between the first quarter of 2008 and the first quarter of 2009. Ebitda numbers, however, fell even more during that time period, down 15% on the year, which pushed the ratio of Ebitda to cash interest to 3.1 times, from 3.5 times a year earlier. This suggests companies have little room to take on increased interest expense, even in the face of looming maturities that they might not be able to pay.

Other strategies, such as debt buybacks, also pose problems. In particular, ratings agencies view debt buybacks as a sign of distress and often downgrade companies that choose the route. This is what happened to troubled radio company Emmis Communications Corp. when it announced it was buying back term loans at about 45 cents on the dollar in April. Both Standard & Poor's and Moody's Investors Service reacted by lowering the company's ratings, signaling high default risk.

Graham Packaging, in exchange for its extension, had to agree to increase the price of its loan from LIBOR plus 225 basis points to LIBOR plus 425 with a 2.5% floor.

Then, there is also the difficult problem of rejuvenating loan market demand.

According to Dave Preston, a structured products analyst at Wachovia Capital Markets LLC, the surge in the loan market between 2003 and 2007 was prompted by a concurrent surge in the creation of collateralized loan obligations -- structured funds similar to the collateralized debt obligations that bought mortgage-backed securities -- that invested primarily in leveraged loans. Preston estimates the yearly volume of CLO creation jumped from $52 million in 1997 to $85.9 billion in 2007, with the vehicles responsible for about 66% of loan demand at the height of the credit boom.

But that demand will not return. Preston says existing CLOs, which are still returning money to investors, will themselves hit the end of their reinvestment periods between 2011 and 2014, meaning they won't be able to use cash in their vehicles to buy new loans.

And there's little expectation that new CLO creation will be sufficient to replace that lost demand from existing vehicles. The primary investors in the triple-A tranches of the CLOs were foreign banks, the now discredited structured investment vehicles and the monoline insurers, which doesn't exactly bode well for a resumption of investment in these structures.

"As CLOs purchased approximately two-thirds of loans from 2003-2007, these loans may face difficulty refinancing without a CLO market," Preston says. "Just as mortgage defaults rose and recoveries fell due to option ARM borrowers with limited refinancing opportunities, loan cumulative losses could spike if the market is not revived by 2012-2014."

Which brings us to the nuclear option of debt reduction: bankruptcies. S&P estimates that default rates in the loan market hit 8.03% in April and could double as the recession continues. This may, in fact, be the most effective method of reducing maturities. LCD estimated on May 12 that about 15 bankrupt leveraged loan issuers will reduce secured debt by 41%, from $24.6 billion to $14.6 billion.

LSTA suggests that if defaulted loans are taken into account with the other options issuers are using, the loan-maturity bulge could shrink by 40%.

"This is never a good option," says the LSTA's Coffey, adding that bankruptcy is an uncertain process that could inflict broader economic pain by increasing layoffs, not to mention destroy returns for many private equity investors.

But, as one debt markets banker puts it, companies that default because of onerous debt, as opposed to a flawed business model, such as the one that brought down Apollo portfolio company Linens 'n Things Inc., could still emerge as healthier companies on the other side. This may hurt private equity firms and shrink the loan market, but these could be good things in the end.

"It's clear we won't be turning the spigots back on," says the banker, referring to both the loan market and the private equity industry that fed off it. "But the name of the game right now is survival."

http://www.thedeal.com/newsweekly/features/that-worrying-wall-of-debt.php

Entry #1,184

Another Stimulus Analogy

Came in email, sums it up pretty well. 

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Another Stimulus Analogy

It is the month of June, on the shores of the Black Sea . It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town.

He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to thebutcher.

The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplierof his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debtto the town's prostitute that in these hard times, gave her "services" on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism..

And that, ladies and gentlemen, is how the United States Government is doing business today.

Entry #1,183

"A Pretty Stunning Graph of World Cement Production (and China is Certainly Using It)

Read a few years back China was buying most of the world's cement due to their building boom. Now hard data, great article excellent graphs.

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"A Pretty Stunning Graph of World Cement Production (and China is Certainly Using It)

Posted by Prof. Goose on June 20, 2008 - 6:00am
Topic: Economics/Finance
Source The Oil Drum

Annual production of cement by country in billions of metric tons. Click to expand. Source: USGS 2006 report (PDF) and the USGS 2008 report (PDF).

Cement is mainly used to make concrete, and is sort of the "active ingredient" in concrete - it is combined with sand and gravel in roughly fixed proportions. So cement production can be considered a rough proxy for the total amount of construction going on in a country.

This post updates Stuart's post about this two years ago (and yes, it's still a graph that will blow you away!) with two more years of USGS cement data, 2006 and 2007. The growth in China, from 1 GT to 1.3 GT in two years is mindboggling, even India and Russia are interesting...and there's more to think about under the fold.

edited to add: As a couple of folks pointed out--I have interchanged "production" and "usage" in this post incorrectly--however, China's 2007 cement exports were only 33 million tons out of 1.3 billion tons produced. So, at least for China, production is a good proxy for demand/consumption. My apologies for the mistake.

Also interesting is the percentage of the world's production of cement that China took up in 2007 (50%) compared to 2004 (42.5%); some of this can no doubt be due to preparation for the Olympics, but that surely cannot not be all of that growth can it? Also note that other countries (perhaps the "developing world?") seems to be using less of the total proportion of cement used.

 

Percentage of yearly worldwide cement usage. Click to expand. Source: USGS 2006 report and the USGS 2008 report.

 

Some things we learned from the comment thread from Stuart's post a couple of years ago:

Remember, in China, oil isn't used in cement production. In the "clinker" stage, it's all coal. In the blending stage it's electricity (which is generated 80% from coal in China).

And cement production in China is inefficient. There are hundreds of small plants, both wet and dry processes, and the local environmental impact is severe.

Making a pound of cement releases a pound of CO2. And a Gigaton or two?

This also isn't a new phenomenon. This link shows data back to 1999 that illustrated that China has been at this for quite a while, but perhaps not to this extent.

To conclude, here is the percent change of production bar graph from 2005 to 2008. Think about what all that means in terms of energy. Also note the numbers from India, Russia, and the US.

 

Percentage growth in cement consumption 2005-2008. Click to expand. Source: USGS 2006 report and the USGS 2008 report.



http://www.theoildrum.com/node/4162

Entry #1,182

"New Exotic Material Could Revolutionize Electronics

"New Exotic Material Could Revolutionize Electronics

"ScienceDaily (June 16, 2009) — Move over, silicon—it may be time to give the Valley a new name. Physicists at the Department of Energy's (DOE) SLAC National Accelerator Laboratory and Stanford University have confirmed the existence of a type of material that could one day provide dramatically faster, more efficient computer chips.

Recently-predicted and much-sought, the material allows electrons on its surface to travel with no loss of energy at room temperatures and can be fabricated using existing semiconductor technologies. Such material could provide a leap in microchip speeds, and even become the bedrock of an entirely new kind of computing industry based on spintronics, the next evolution of electronics.

Physicists Yulin Chen, Zhi-Xun Shen and their colleagues tested the behavior of electrons in the compound bismuth telluride. The results, published online June 11 in Science Express, show a clear signature of what is called a topological insulator, a material that enables the free flow of electrons across its surface with no loss of energy.

The discovery was the result of teamwork between theoretical and experimental physicists at the Stanford Institute for Materials & Energy Science, a joint SLAC-Stanford institute. In recent months, SIMES theorist Shoucheng Zhang and colleagues predicted that several bismuth and antimony compounds would act as topological insulators at room-temperature. The new paper confirms that prediction in bismuth telluride. "The working style of SIMES is perfect," Chen said. "Theorists, experimentalists, and sample growers can collaborate in a broad sense."

The experimenters examined bismuth telluride samples using X-rays from the Stanford Synchrotron Radiation Lightsource at SLAC and the Advanced Light Source at Lawrence Berkeley National Laboratory. When Chen and his colleagues investigated the electrons' behavior, they saw the clear signature of a topological insulator. Not only that, the group discovered that the reality of bismuth telluride was even better than theory.

"The theorists were very close," Chen said, "but there was a quantitative difference." The experiments showed that bismuth telluride could tolerate even higher temperatures than theorists had predicted. "This means that the material is closer to application than we thought," Chen said.

This magic is possible thanks to surprisingly well-behaved electrons. The quantum spin of each electron is aligned with the electron's motion—a phenomenon called the quantum spin Hall effect. This alignment is a key component in creating spintronics devices, new kinds of devices that go beyond standard electronics. "When you hit something, there's usually scattering, some possibility of bouncing back," explained theorist Xiaoliang Qi. "But the quantum spin Hall effect means that you can't reflect to exactly the reverse path." As a dramatic consequence, electrons flow without resistance. Put a voltage on a topological insulator, and this special spin current will flow without heating the material or dissipating.

Topological insulators aren't conventional superconductors nor fodder for super-efficient power lines, as they can only carry small currents, but they could pave the way for a paradigm shift in microchip development. "This could lead to new applications of spintronics, or using the electron spin to carry information," Qi said. "Whether or not it can build better wires, I'm optimistic it can lead to new devices, transistors, and spintronics devices."

Fortunately for real-world applications, bismuth telluride is fairly simple to grow and work with. Chen said, "It's a three-dimensional material, so it's easy to fabricate with the current mature semiconductor technology. It's also easy to dope—you can tune the properties relatively easily."

"This is already a very exciting thing," he said, adding that the material "could let us make a device with new operating principles."

The high quality bismuth telluride samples were grown at SIMES by James Analytis, Ian Fisher and colleagues.

SIMES, the Stanford Synchrotron Radiation Lightsource at SLAC, and the Advanced Light Source at Lawrence Berkeley National Laboratory are supported by the Office of Basic Energy Sciences within the DOE Office of Science."

http://www.sciencedaily.com/releases/2009/06/090615144431.htm

Entry #1,181
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