Tuesday, November 25, 2008

Sleepwalking our way to hell

Sleepwalking our way to hell

By Simon Davies and Donald Hunt

We are at present working discreetly with all our might to wrest this mysterious force called sovereignty out of the clutches of the local nation states of the world. - Professor Arnold Toynbee, 1931 Institute for the Study of International Affairs.

What a week; world stock indexes took another serious beating while J P Morgan fired 3,000 amid speculation that total Wall Street job losses will reach 225,000 and Citibank was bailed out to the tune of $27 billion of new equity and in excess of $300 billion blanket guarantee of some of its toxic assets.

The Dow got off better than most, only falling 5% after rising 6.5% on Friday with reports that Obama would name Timothy Geithner Treasury Secretary.

Oil was down sharply again last week, falling 12% to close under $50 a barrel. Gold, on the other hand, rose more than 6.6% last week. The gold/oil ratio hit heights not seen in recent years, rising 22% to almost 16 barrels of oil per ounce of gold. The ratio has averaged less than 9 over the past four years.

This in the week after the G20 meeting in Washington.


The markets this week
Previous week's close This week's close Change% change
Gold ($) 742.50791.8049.306.64%
Gold (€)589.01628.9639.966.78%
Oil ($) 57.0449.937.1112.46%
Oil (€)45.2539.665.5912.35%
$ / €0.7933 / 1.26060.7943 / 1.2589 0.001 / 0.00170.13% / 0.13%
$ / ₤0.6784 / 1.47410.6700 / 1.4925 0.0084 / 0.0185 1.24% / 1.25%
$ / ¥97.038 / 0.0103 95.938 / 0.0104 1.100 / 0.00011.13% / 0.97%
HANG SENG 13,54312,6598836.52%
US Fed Funds 0.25%0.50%0.25100%
$ 3month 0.13%0.01%0.1292.31%
$ 10 year 3.73%3.20%0.5314.21%

US Recession

Consumer spending in the U.S. is dropping like a stone, fueling new fears of deflation.

Recession Probably Deepened in October: U.S. Economy Preview

Shobhana Chandra

The U.S. recession probably deepened as consumer spending plunged in October by the most since the 2001 downturn and businesses slashed investment, government reports may show this week.
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The credit crisis has forced cash-strapped consumers to pull back on purchases and companies to cut spending and step up firings. Housing and manufacturing also are deteriorating, a sign the economy is sinking further into what may be the most severe slump in decades.
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The projected decline in spending, which accounts for two- thirds of the economy, foreshadows a holiday season that may be the worst in six years, according to industry projections. A record two-decade expansion in consumer spending ended in the third quarter, causing the economy to contract.
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Inflation figures in Commerce's spending report may show price pressures have waned, giving way to the risk of deflation, or a prolonged slide in prices. The Federal Reserve's preferred gauge of inflation, which excludes food and energy costs, was unchanged in October after rising 0.2 percent in September.

........an index of home prices in 20 U.S. cities slumped in September at the fastest pace on record, the survey median shows...

Holiday retail sales figures look to be the worst in a long time, if trends from October and early November continue. Many retail sectors are seeing drops of 20% compared to the same period a year ago.

Demand is contracting so quickly worldwide that the only hope to avoid collapse is for the spender of last resorts, governments, to throw massive amounts of money into the economy. Asian governments announced their plans as did President-elect Obama. First the money went to prop up the banks, next come the industrial companies with hat in hand. Finally, laid-off workers are getting extension of unemployment benefits and, most likely, more checks. Government-funded jobs rebuilding infrastructure are also in the works. Most worrisome are hints of "military Keynsianism" as some right-wing economists are popping up in the U.S. media claiming that Roosevelt's New Deal did not pull the country out of the Great Depression, World War II did. True or not, the implication is clear.

Furthermore, there was more to public works projects in the 1930s than an attempt to restart economic growth. It was also a way to keep people productive and eating while the economy corrected itself. And, from the point of view of the elite, it kept revolutionary impulses under control. The following piece by Satyajit Das outlines what probably has to, and will, take place, but omits the human cost and the political and social cost. Given that, printing more money to pay people to build bridges and roads is better than printing money to pay them to kill each other.

De-leveraging - Fairy Tale Endings

Satyajit Das

In the "Arabian Nights," the beautiful princess Scheherazade buys one day of life at a time by recounting fantastic fables that enchant the King who has condemned her to die. Investors and traders are currently telling each other fairy tales to buy one day at a time to stave off the inevitable.

The drama and tumult of recent events are not symptoms of the disease but the cure. The "disease" is the excessive debt and leverage in the financial system, especially in the US, Great Britain, Spain and Australia. In the lyrics of the Bruce Springsteen song - many have "debts that no honest man could pay".

The "cure" is the reduction of the level of debt (the great "de-leveraging"). In 1931, Treasury Secretary Andrew Mellon explained the process to President Herbert Hoover: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system. High costs of living and high living will come down. ... enterprising people will pick up the wrecks from less competent people."

The initial phase of the cure is the reduction in debt within the financial system.
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The second phase of the cure is the higher cost and lower availability of debt to the real economy. This forces corporations to reduce leverage by selling assets, reducing investment and raising equity (for example, as GE has done). This also forces consumers to reduce debt by selling assets (where available) and reducing consumption.
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Within the financial sector, de-leveraging is well advanced. In the real economy it is in the early stages.

Fairy tales in financial markets focus on the "superhuman" abilities of regulators and governments to avoid the de-leveraging under way. Central banks and governments have taken progressively more aggressive actions to try to influence events.
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Central bank guarantees of all major borrowings and other transactions to reduce solvency risk for banks are designed to enable normal transactions between parties in the financial markets to resume. The necessary coordinated global action appears at last to be under way.

The initiatives are sensible short-term measures to stablise markets. In the longer run, they transfer the problem onto the government and taxpayer balance sheet. For example, US Government support for financial institutions in this financial crisis is already approaching 6% of GDP (compared to less than 4% for the Savings and Loans crisis). The bailout of Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) has almost doubled US national debt. This will ultimately place increasing pressure on the US sovereign debt rating and vitally the ability of US to finance its requirements from foreign creditors.

Government and central bank initiatives to date have been ineffective. Money markets remain dysfunctional and inter-bank lending rates have reached record levels relative to government rates. The failures are unsurprising.

At the height of the boom, banks used a variety of techniques to increase the velocity of money. As the system de-leverages, the velocity of money has sharply decreased.

Money being supplied to the banks is not being lent through. Banks are parking the money in short dated government securities in anticipation of their own funding requirements. Around $3-4 trillion of assets are returning to bank balance sheets from the "shadow" banking system - off-balance sheet structures - that can no longer finance themselves. In addition, banks have large amount of maturing debt (estimates suggest $1.5 trillion by the end of 2008) that they must fund.
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The risk of a severe dislocation in global capital flows remains a real risk in the present environment.
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Ultimately, "all the king's horses and king's men" cannot prevent the de-leveraging of the financial system under way. The extent of de-leveraging is substantial and likely to take time. In recent years, money was cheap and other assets were expensive. As each of the global economy's credit creation engines breaks down and systemic leverage reduces, money becomes scarce and more expensive triggering substantial adjustments in asset prices in a reversal of the process.
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Like a giant forest fire the de-leveraging process cannot be extinguished. Thoughtful actions can create firebreaks that limit preventable damage to the economy and the international financial system until the fire burns itself out.

The Arabian Nights had a happy ending. The King after 1,001 night of enchantment and three sons pardons the beautiful Princess Scheherazade who becomes his queen. Despite the fairy tales that investors are putting their faith in currently, the de-leveraging that is at the heart of the current financial crisis may not have such a happy ending.
Inflation or deflation?

The inflationary consequences of massive government deficit spending on bailouts are obvious, so why the worry about deflation? The "deleveraging" of the excessive debt of the last two decades embodied by the failure of massive financial institutions like Lehman Brothers means the disappearance of massive amounts of money; less money chasing too many goods that can't be sold equals deflation.

In some ways governments are trying to throw the exact right amount of money into the pit to counteract the loss of money from deleveraging; not an easy target to hit. If the deleveraging process is disorderly, deflation can turn into hyperinflation. In that regard Friday's sharp rise in gold prices is not reassuring.

Bizarre Gold

We and many others have commented on the obvious fact that the official gold price is a manipulated joke. This week reports of brokers being unable to fulfill physical orders only confirms what we have been saying. If the official price of gold were reflective of real supply and demand then it would be going through the roof. Another anomaly is the subdued price of gold mining company stock. The price of stock, particularly in the medium sized companies, has hardly moved these few years despite the rise in price and increasing demand of their sole product. We can only speculate as to why this might be. It did occur to us that this might be in order to limit those companies ability to mine their underground gold holdings thereby controlling the availability of physical gold in the market.

Timothy Geithner

With Obama's economic team coming together we have to return to the question of "Change" or the lack of it. Timothy Geithner has been named as Secretary of the Treasury while Lawrence Summers is likely to be the head of the National Economic Council and Peter Orszag (currently director of the Congressional Budget Office) will head the White House Office of Management and Budget.

Timothy F. Geithner started out working for Henry Kissinger's Kissinger and Associates in 1985 In 1988 he moved to the International Affairs division of the U.S. Treasury Department where he moved up the ladder with impressive speed. From 1998 to 2001 he was Under-Secretary of the Treasury for International Affairs (1998 - 2001) under Treasury Secretaries Robert Rubin and Lawrence Summers. Summers was his mentor.

As a Treasury official, he is credited with "helping manage" multiple international crises of the 1990s in Brazil, Mexico, Indonesia, South Korea and Thailand. From February to August 2001, he was a senior fellow in International Economics at the Council on Foreign Relations following which he joined the Policy Development and Review Department (PDR) of the International Monetary Fund (IMF). In 2003 he was named as president of the Federal Reserve Bank of New York. In 2006, he also became a member of the financial advisory body, the Group of Thirty. He is a trustee of the Economic Club of New York (trustee), a member of the Council on Foreign Relations, on the advisory committee of the Center for Global Development and chairman of the Committee on Payment and Settlement systems of the Bank for International Settlements.

His informal group of advisers includes E. Gerald Corrigan (also a CFR member), a managing director of Goldman Sachs and a former New York Fed president; Treasury Secretary Henry M. Paulson Jr.; John Thain, the CEO of Merrill Lynch; Paul A. Volcker, the former Fed chairman; and Peter G. Peterson, the former U.S. secretary of commerce. James "Jamie" L. Dimon, the CEO and chairman of J.P. Morgan Chase, is a Geithner ally and a member of the board of the New York Fed.

To say that Mr Geithner is an insider would be somewhat of an understatement. He is a excellent example of a man working his way upwards through the Circles of Power that we discussed a couple of weeks ago. We named six organizations as the core of the public face of world power, among them the Council on Foreign Relations and the Bank for International Settlements; Mr Geithner is a member of both.

While at the IMF, Mr Geithner was involved in the imposition of Washington Consensus polices on five countries. The standard Washington Consensus model is to ensure that a target country is able to borrow relatively liberally to finance it's growth. This debt should be in US dollars although Euro is now acceptable. The terms are reasonable so the country borrows, spends and grows. A crisis is then initiated such that the country becomes unable to pay its debts or indeed the interest on its debts. Such a crisis might be the sudden and precipitous drop in the price of its exports leading to a substantial decline in its US dollar or Euro earnings. At the same time the currency also falls, exacerbating the problem. No finance is available except from the IMF and/or World Bank which imposes severe terms including a substantial reduction in public spending with the adoption of austere budget constraints, opening of the countries markets to foreign investment without conditions, reduction or complete removal of any barrier to foreign imports and privatisation of state enterprises.

Coupled with the demand that interest rates be set at 'market' levels, the target country is set up for an explosion of unemployment coupled with a collapse in real wages leading to poverty, misery and suffering for millions. The nation's assets are essentially stolen through privatisation in a repeat of what Hannah Arendt called the "original theft" that allowed the establishment of free market capitalism in the European economies. Local products are forced out of the market which is flooded with foreign imports driving local business either into foreign arms or bankruptcy. In order to enforce this new order the target nation is required to reform its legal system to provide for stringent laws protecting private property.

The pattern has been repeated many times globally with great success for the winners, US and European banks and corporations.

The Council on Foreign Relations "sponsored" an Independent Task Force "Building Support for More Open Trade", co-chaired by Kenneth Duberstein (Reagan's Chief of Staff) & Robert Rubin (Clinton Treasury Secretary) for which Mr Geithner was Project Director. The Task Forces final report strongly endorses trade expansion, "trade expansion is not only vital to economic growth in the US and abroad, but when combined with complementary policies, can actually help address the problems cited by labor, environmentalists and others concerned with social equality" " Given the increase in employment, wages and wage equality in the 1990's, when the US expanded free trade, the Task Force holds it would be economically and socially irresponsible for the US not to pursue further trade expansion". From what we understand to be the real global effects of trade expansion it seems pretty clear where Timothy Geithner stands and for whose benefit he will be acting while Secretary of the Treasury.

You'll find that the positions held by Lawrence Summers and Peter Orszag speak of similar affiliations, associations and loyalties. We are left with a heavy heart in the acknowledgment that it looks most unlikely that there will be anything other than business as usual at the White House from 20th January 2009. The only things changing will be the bed linen and the dog.

In Mr Geithner's own words he shows the upside down way in which the current 'crisis' is presented to the world:-

The world experienced a financial boom. The boom fed demand for risk. Products were created to meet that demand, including risky, complicated mortgages.
As we discussed last week the boom was in fact engineered through the injection of massive amounts of "liquidity" (i.e. money) into the system. This money needed a home. It was this need that drove the demand for 'risk'. What Mr Geithner calls 'risk' would be better termed as money needing a home that pays as much as possible in return; wholly immoral home mortgages, excessive consumer and corporate debt packaged neatly into Mortgaged Backed Securities (MBS), Asset Backed Securities (ABS), Collateralised Debt Obligations (CDO) and Collateralised Loan Obligations (CLO) met the criteria. They created the illusion of low risk high paying investments coupled with low capital requirements.

It was the Fed that fueled the fire. No mention is made in the US of the reduced standards of what qualified as bank capital, nor the changes to the capital requirements of banks under Basel II, nor the changed accounting rules. Neither is the emasculation of large parts of the regulatory framework brought to public attention - in one department of the Securities and Exchange Commission a team of one hundred was reduced to one. Rather we are have been treated to a steady rollout of the mantra for a new programme of regulation.

UK Regulation

Similarly in the UK, Gordon Brown is receiving waves of adulation from the credulous as the saviour of the financial system when in fact he was one the chief architects of it's failure. In 1998, within days of taking office Brown changed the entire edifice of UK financial regulation removing the regulation and oversight of banks from the Bank of England to the newly formed Financial Services Authority (FSA). Having personally dealt directly with both the Bank of England and the FSA on both regulatory and product matters one of the present writers has direct experience of the effects of this change; for whatever its structural and control failing might be, the Bank of England was staffed by intelligent, experienced and shrewd people whereas the same cannot be said of the FSA which was regularly steamrolled by the banks it was charged with regulating. In fact, we would go so far as to say that the FSA was deliberately set up to fail despite Gordon Brown's statement to Parliament on 13th December 2001:-

" I propose to use my legislative powers so that we can all be satisfied that the FSA is meeting its objectives and that the accountability process works as effectively as possible.

"Now that the FSA has assumed its full powers, I and the Chairman of the FSA have set out explicitly how the FSA will keep the Government informed of regulatory cases with serious and wider implications."
The UK Government's powers within the Financial Services and Markets Act enable it to launch a statutory inquiry into possible serious regulatory failure. One wonders if such an inquiry will be launched in the UK or whether the lack of one might be reasonably construed as showing that there was no 'regulatory failure' rather, the system worked exactly as intended.

Mr Geithner's Allegances

Mr Geithner wrote in the Financial Times of the need for a new regulatory programme:-

"... we have to increase the shock absorbers ...this will require more exacting expectations on capital, liquidity and risk management for the largest institutions....we have to improve the capacity of the financial infrastructure to withstand default by a big institution. This will require taking some of the risk out of secured funding markets, ....encouraging more standardisation, automation and central clearing in the derivatives markets.

I do not believe it would be desirable or feasible to extend capital requirements to leveraged institutions such as hedge funds. But supervision has to ensure that .....supervised institutions limit the risk of a rise in overall leverage ........that could threaten the stability of the financial system. And regulatory policy has to induce higher levels of margin and collateral in normal times against derivatives and secured borrowing to cover better the risk of market illiquidity.

..... we need to streamline and simplify the US regulatory framework. Our system has evolved into a confusing mix of diffused accountability, regulatory competition and a complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion. The blueprint by Hank Paulson, Treasury secretary, outlines a sweeping consolidation and realignment of responsibilities.

The institutions that play a central role in money and funding markets - including the main globally active banks and investment banks - need to operate under a unified framework that provides a stronger form of consolidated supervision, with appropriate requirements for capital and liquidity. To complement this, we need to put in place a stronger framework of oversight authority over the critical parts of the payments system - not just the established payments, clearing and settlements systems, but the infrastructure that underpins the decentralised over-the-counter markets.

Because of its primary responsibility for the stability of the overall financial system, the Federal Reserve should play a central role in such a framework, working closely with supervisors in the US and in other countries. At present the Fed has broad responsibility for financial stability not matched by direct authority and the consequences of the actions we have taken in this crisis make it more important that we close that gap.
This is exactly the new regime Henry Paulson planned, as set out in the US Treasury Blueprint announced in June 2007 and further clarified in March 2008. Geithner is credited with being something of a diplomat; one wonders whether he was just toeing the party line in the above article or whether these are his beliefs. Given with whom he associates, his history and who pays his salary, it is probable that the latter is the case.

That the exact same provisions of a June 2007 paper, one that must have been a long while in the planning, now happen to be the terms of the statement issued at the end of the G20 meeting in Washington demonstrates beyond doubt the charade of the financial crisis, it's manipulated origins and purposes.

The G20 statement

It seems to us that there are three principle programmes being advanced with the necessary personnel being positioned to effect them. Under the guise of saving the system and adding sensible and prudent provisions to prevent any future crisis of this nature, a new economic world order is being imposed upon us. The G20 statement reads as if Naomi Klein had added a chapter to Shock Doctrine : The Rise of Disaster Capitalism. It is Machiavellian yet, apart from a few lone voices on the internet, there is no uproar against such audacity.

The statement reminds us that the work of the G20 will "be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment and poverty reduction." This, as regular readers of sott.net will understand, means "business as usual".

Regulation and oversight of the financial system.

A new regulatory regime is to be established that will separate the largest banks, global by nature, from the rest thus creating an elite group of financial institutions with oligopolitical power at the top of the global financial pyramid. These banks will be so large and so "systemically important", as politicians like to remind us regularly, that they will never be allowed to fail; they will control all global finance. The very situation that innumerable commentators including ourselves are warning against in the current crisis, the privatization of profits and the socialization of risks will become a defining feature of the new system. As the G20 have stressed, these mega-banks will continue to operate within a system "grounded in a commitment to free market principles" and thereby able to speculate freely so as to amass even greater fortunes for the financial elite while the risks they take will be borne by us, the ordinary people. The new system will have moral hazard built into it.

The new regulatory framework will be structured so as to ensure that there can be no newcomers to this elite club of banks unless specifically required by those that control the system. Smaller banks will be excluded from the core of the market, being themselves mere pawns of the elite, useful when needed, expendable when not. Banks are failing across the US already and many more will follow across the world. Their assets will be snapped up a pennies on the dollar by the mega-banks thereby further concentrating wealth and power and reducing the options that any of us have.

Of course we are being presented with a quite different story about "sound new regulation" and the need for "new clearing systems" (G20 statement) as if it is the regulators that control the banks when in fact it is the banks that control the regulators. In the case of the Fed it is through the simple fact that the banks own the Fed, nominate all its board members and finance Congress and the White House. Elsewhere variations on the same methodology apply though often more subtly. The appointment of Mr Geithner, a man trusted within the inner circles of power, chairman of a crucial committee within the Bank for International Settlements, suggests that the international cooperation and coordination of regulation referred to in the G20 statement is purely a smokescreen for the consolidation of global banking power to be exercised through the BIS by the primary member central banks. The language of the G20 statement makes it clear that there can be no dissent from the reforms.

Free Trade, the IMF and other Development Banks.

Free Trade has been the mantra by which the rapacious progress of imperialism (aka Free Market Capitalism) has been promoted to the world. In the recent Doha round of trade talks many countries baulked at what was being asked of them. These included France where governments can fall at the suggestion that a free market in agricultural products be opened to the world and Brasil. Yet without more countries opening up to free trade, the Free Market Capitalist machine will have nothing to devour so 'free trade' simply has to be forced upon the dissenters. Never mind that the true effects of 'free trade' have been the destitution, impoverishment, starvation and death of millions. Never mind that not one single shred of evidence exists to even remotely suggest that the current crisis is due to the few remaining barriers to imperial rape. Never mind any of the facts or truth whatsoever, these plans were laid long ago before the details of the crisis that would be used to justify them was known, so if the facts don't fit the 'crisis' this is to be expected. It hardly matters as the mainstream media won't be pointing out these glaring inconsistencies to the huddled masses.

The IMF has been used as a weapon of economic war since its inception. It's methods have been well documented as we discussed above in relation to Timothy Geithner and the Washington Consensus. Its sudden elevation to centre stage, along with the World Bank and other Multilateral Development Banks suggests that similar tactics will be brought to bear against those countries that are forced to borrow from them. It is a perfect set up as we noted above: encourage growth through debt, inflate the economy then suddenly withdraw access to money forcing your target country to borrow from the IMF or World Bank under onerous and rapacious terms, enforce those terms bringing said country to its knees while acquiring anything of value at a knock down price. In order to enforce this new order the target nation is required to reform its legal system to provide for stringent laws protecting private property. It is therefore worthy of note that the G20 statement stressed a "commitment to....the rule of law [and] respect for private property".

Information and Taxation.

While the big headlines have been about regulation and to some extent free trade there were, in the G20 statement, other measures that will effect each of us greatly. We may not feel the effects for some time yet and indeed when they come they will be part of incremental changes already well established and ongoing. Not only may we not feel the effects keenly for some time but for many they will be regarded as part of their moral duty to society. The issue is that of personal taxation.

Last week we talked about the fact that governments do not, for the most part, need to borrow. They can simply issue money into the system through paying for much needed infrastructure, education and health care. One effect of the system we have where, instead of this simple and economic approach, vast sums are borrowed, is that there is an immense interest bill to be paid. In his excellent film, From Freedom to Fascism Aaron Russo revealed, as have others, that US personal income tax receipts equaled interest payments on US government debt. In principle therefore, the absence of government debt in the US would negate the need for anybody to pay income tax.

There are numerous other aspects to taxation that need to be addressed. Taxation as a percentage of income sounds reasonable but is not applied reasonably. The level of income at which personal income tax starts in most countries is far too low. Everybody should be able to save a good proportion of their income and not have it taxed out of their hands. This is truer for the poor than any other members of society. A fair tax system would ensure that everybody was able to save. Not only that but the people that gained most from the provision of government, the wealthy, would pay the most. For example in matters of defense, it is the wealthy who have the greatest amount to lose so they should be paying the greatest 'insurance premium'.

A further aspect of unjust tax systems, of which the US is the prime example, is the relative burden of tax borne by the rich and super-rich. The burden of tax on these people has been dropping steadily since the 1980's as a matter of deliberate and sustained policy. This drop has been achieved by legislative changes lowering tax on capital (the greatest source of income for the rich and super-rich) relative to taxes on wages, by lack of enforcement and by the provision and tolerance of numerous 'tax shelters' (schemes by which the rich and super-rich avoid paying taxes). We hope to write more on this topic in due course; for the present however it suffices to stress that tax on personal income means that for some percentage of every working day you are working for the puppet masters.

These statements from the G20 need to be seen in this light:-

"We will promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency".

Tax authorities, drawing upon the work of relevant bodies such as the Organisation for Economic Cooperation and Development (OECD), should continue efforts to promote tax information exchange. Lack of transparency and a failure to exchange tax information should be vigorously addressed.

They aren't talking about you and I being able to see what is going in behind their walls of secrets; rather they refer to banks having to disclose all the details of their customers accounts and financial dealings to regulators abroad. This means that any of the world's major governments can see your bank records and you will never know about it. Those countries that do not agree to the disclosure of customer information are black-listed and their banks excluded from much of the choicest banking business. There is only one reason they want access to that information, to tax you and to track you. The system that is being aimed for will be all encompassing. No financial transaction will be able to take place anywhere without being recorded in their system and tax being levied against you, eventually, just like the current income tax. The tax that they deem to be due will be taken 'at source' which for any income outside your wages will mean a direct deduction from your bank account.

If you think this can't happen, think again, the laws for governments to take taxes directly from your bank account have been put in place over the last five years. All the government or any of it's departments, agencies or sub-agencies need do is inform your bank that you have a debt outstanding to them, should your bank have "reason to believe" that you may seek to withdraw any funds before that debt is paid then your account is liable to be legally frozen. In a world without cash that is a frightening prospect. In fact, in a world without cash, they can destitute you at the push of a button.

It is probably not unconnected that this week it was announced by the IRS:-

Internal Revenue Service Commissioner Douglas Shulman today announced the appointment of Terence (Terry) V. Milholland as the agency's new Chief Technology Officer (CTO).

As the CTO, Milholland will be responsible for all aspects of the systems that operate the nation's tax infrastructure. He will oversee a multi-billon dollar budget and the 7,000-person organization that maintains over 400 systems that enable the processing of over 200 million tax returns each year.

Milholland brings almost 30 years of technology leadership to the IRS. Most recently, he was the Executive Vice President and CTO for Visa International.
Control of information has always been essential for any totalitarian power as has the ability to enslave the masses. The appointment by the IRS of the man who oversaw the implementation of systems that pry into your private life (see below) while at Visa has an ominous feel to it.

We have witnessed the initially slow but now hasty removal of our liberties coupled with the establishment of a surveillance state in which we are all numbered, recorded, monitored and tracked. There are vehicle, mobile phone and GPS tracking systems that combine with credit card, gas station, subway, train and bus system data and camera systems to give those that track us every detail of our daily movements. Every electronic purchase we make is tracked and any deviation now causes us to be "red flagged", a term most people had never heard of at the turn of the millennium. In fact we are so closely watched that any one of the faceless people who exert power over us can know the most intimate details of our lives at the click of a mouse. The real situation is so far beyond anything most people have ever dreamed of - and way beyond anything that you have seen in the movies - that it boggles the mind. Back in 1977, Steve Wright a British academic was researching the means by which the state exerted covert control upon us as part of his PhD thesis. He stumbled upon the beginning of ECHELON, a system for monitoring hundreds of thousands of telephone calls all the time (now millions). His work caused what is said to be the first raid by the British political police, the Special Branch, on a British university; a raid conducted at the behest of the US National Security Agency. Ironically the motto of the university is Omnibus Patet Veritas - Truth Lies Open to All.

We strongly advise you to research ECHELON for yourselves so that you can fully appreciate the extent of the surveillance net in which you are now caught. The NSA, MI5, Mossad and countless other intelligence agencies can listen to every phone call you make, read every email and track every webpage you visit. That means they are in your head, they know how you think, they know how you construct your sentences, how you frame your speech, every inflection in your voice and everybody you know and they will use this against you. This is not how a world should be - it is just plain wrong.

Why do they need all this access to data, this unlimited ability to be inside the heads of millions of people?

They need it because they fear you and they fear you because they know that if enough of you realise how badly you've been screwed and by whom then you might just set aside your differences to challenge the puppet masters and they know that if you do that they will fall.

You're being screwed to the wall at the moment and you probably know it but you also know that there are millions out there who haven't worked it out yet which is one of the reasons why nothing changes. There is a race on between all of us and the puppet masters - pathological deviants. They are seeking to exert more control while we must seek to inform people, to give them knowledge which they then must share to generate understanding. They need to know what is happening and they need to know the real deal, that it's all about psychopaths and how they have twisted everything we take as normal into a pathological hell. We can see evidence of this race in the G20 statement.

They are not finished, they are racing towards a goal and they seem to be under some sort of time pressure; there seems to be a timetable to be met. While the puppet masters have set the world rushing headlong towards their New World Order, the vast majority of people are sleep-walking their way to Hell.

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Monday, November 17, 2008

Money Supply, Debt Slavery and other Manipulations

By Simon Davies and Donald Hunt

From SOTT.net:

"The few who can understand the System (Cheque Money and Credits) will either be so interested in its profits, or so dependent on its favours, that there will be no 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 its burdens without complaint and perhaps without even suspecting that the system is inimical* to their interests." - Extract from a letter written by Rothschild Bros of London to a New York firm of bankers on 25 June 1863
* (hostile, hurtful)


Retail sales dropped 2.8% in the U.S. in October (compared to October of 2007), the worst monthly drop on record. That sent stocks tumbling again, with the Dow falling 5% for the week. Since the whole global economy depends on U.S. consumer spending, the other major national stock exchanges also fell for the week.

The U.K. seems to be entering the "capital flight" stage that used to happen only to developing nations. The pound dropped 6% against the dollar last week.

With the world economy officially in what economists call "crash and burn" mode (no, we made that up, they actually euphemistically call it a "serious recession"), governments, finance ministers, and central bankers are scrambling for more actions to take. Trillions of dollars have been pumped in to the financial system, interest rates have been lowered to almost zero, and checks have been mailed to U.S. citizens (and already spent).

The only thing left to do is invest in infrastructure improvements and reinvigorate heavy industry. In the United States, the auto industry is in dire need of a bailout, but they are an easy industry to hate, so politically, there is some selling to do. The Democrats in Congress are pushing for an auto industry bailout but Bush is trying to sneak a free-trade agreement with the narco-terrorist regime of Colombia into the bill - nothing like a last favour for your friends. One estimate claims that if General Motors is allowed to fail, the cost to the government could be as high as $200 billion, while the bailout would cost only $25 billion. GM may be the Lehman Brothers of the industrial sector and letting the market run its course could prove disastrous. Josh Marshall challenges those who would let the industry die arguing that the priority of keeping jobs means the industry should be taken into federal receivership. Once in receivership the need for new technology and especially cleaner technology can be imposed; a much shrewder move then letting this giant industry collapse. Everyone seems to have advice, because everyone drives and buys cars. Even aging rock stars such as Neil Young have creative advice for the auto industry.

That fact that "everyone drives cars" (which isn't true of course) should be a major wake up call. What staggers Europeans is the lack of quality public transport infrastructure and services in the US. Perhaps what is needed for the US is a greatly improved rail, subway, tramway and bus system not more cars.

All this at a time when the United States is in a strange interregnum, with Obama already elected president but not scheduled to take office until January 20th. Having such a long time between the election and the inauguration is dangerous in a time of economic crisis. Josh Marshall examines the notoriously perilous interlude between the election and inauguration:-

The normal calculus of power and responsibility is upended. In recent decades there was seldom enough occurring for it to matter all that much. But that's not the case now...

First, the management of the almost trillion dollars of bailout money. [ ].... there's a lot of hundreds of billions of dollars being assigned by people who will be able to wash their hands of the whole matter in about two months. And that's a problem.

Next, the auto industry. Could GM really go under in the next couple months because the Democrats who'd bail the company out are currently at the mercy of the electorally discredited Republicans who want to use the crisis to crush one of the last major manufacturing unions? [ ]

Moments of national crisis require experimentation and open minds. But more than anything they demand energy and direction, a plan -- one where the different moving parts interlock together in some rational way. But this feels like drift.

The situation is eerily similar to the 1932-33 transition, when banks were failing before Franklin Roosevelt was inaugurated. Herbert Hoover disagreed strongly with Roosevelt's approach, but wanted Roosevelt to cooperate in joint action. Roosevelt refused, not wanting to be tied to Hoover's policies and also feeling that the worse things got the more power he would have to act once inaugurated.

But what will Obama's policies be? The conventional way to get an idea is to look at his advisors . As a commentor on Postman Patel's blog wrote,
What happens when you replace a sociopathic lunatic with an eloquent, sane man who espouses the exact same policies? I think it will become even more apparent to the world that America is helplessly in the grip of corrupt corporations and a hopelessly corrupt Congress...
While Jonathan Weil calls it as it is; in relation to Obama's advisors he says, "It's hard to believe that Barack Obama would even think of calling this change."

It may be, however, that events may push things far beyond the control of the putative leaders. As things get worse, public anger may push more radical solutions that would normally be considered (the 1930s again offer a parallel). Here is a warning to U.S. corporate leaders from Shoshana Zuboff, a Harvard Business School professor. Zubhoff identifies the almost total lack of trust in business that holds sway across the US (and the UK and Europe if she did but know it) as having its roots in the time when businesses ceased to have any humanity and became solely money making machines; the process of ponerization pushed through by free-market economics that we discussed last week. The problem is that she makes the process seem way more accidental than it is. Naomi Klein in Shock Doctrine argues that the process was deliberate and well thought-out.

The Markets

The markets this week
Previous week's close This week's close Change% change
Gold ($) 736.10742.506.400.87%
Gold (€)578.79589.0110.221.76%
Oil ($) 61.0457.044.006.55%
Oil (€)47.8847.882.635.50%
$ / €0.7863 / 1.27180.7933 / 1.2606 0.007 / 0.01120.89% / 0.88%
$ / ₤0.6393 / 1.56420.6784 / 1.4741 0.0391 / 0.0901 6.12% / 5.76%
$ / ¥98.235 / 0.0102 97.038 / 0.0103 1.197 / 0.00011.22% / 0.98%
HANG SENG 14,24313,5437014.92%
US Fed Funds 0.25%0.25%0.000.00%
$ 3month 0.28%0.13%0.1553.57%
$ 10 year 3.79%3.73%0.061.58%

A Solution looking for a Problem

As we sit to write, the leaders of the G20 nations are due to meet in a few hours somewhere near Washington. From the rhetoric leading up to this meeting they are seeking to build a "New Bretton Woods", a new system for the management of the global economy. The meeting, as we all know, has been brought on by the 'financial crisis' gripping the entire globe; a crisis that no nation is immune from and therefore one which every nation is seeking a 'solution'.

Solutions are sought when there are problems so we would be safe to assume that there is a problem, wouldn't we? So what is the problem for which a solution is sought? Perhaps some of the G20 leaders see the problem encapsulating a lack of liquidity in the banking system which has led to banks refusing to make new loans or refresh old loans to businesses, but that one has already been addressed; there is now unlimited central bank liquidity available. Perhaps they see it as a lack of banking capital causing banks to cease to lend; but this too has been addressed for the largest banks which now have so much capital that they are holding it in reserve so as to be able to buy up other banks when the opportunity arises; as they surely know it will.

With their financial paymasters always at hand they might also see part of the problem as excess debt for individuals, businesses, regions and nations which they are now unable to refinance or indeed even pay all the interest. Maybe it's extreme volatility in the financial markets - some politicians will see the loss in value to peoples savings due to stock market collapse, others will see the drop in commodity prices causing losses of real revenue, others see food prices rocketing beyond the reach of ordinary people or recession in manufacturing causing loss of jobs. Certainly for the ordinary people the latter are very real problems for which solutions are desperately needed.

However, these are not problems for the puppet masters of the world economic system; they are not facing disaster, ruin or starvation. They are sitting pretty pulling the levers of the global economy and thereby directing the show exactly as planned.

What we have in fact for the puppet masters is a solution, a global central bank, looking for a problem.

Does it have to be this way?

Last week we said that there are alternatives, summarizing the ideas of Herman Daly among which was, "Abolish fractional reserve banking. Give the control of money back to governments and away from banks". Two very simple statements but ones that certainly won't be on the agenda in Washington this weekend, for these two simple ideas go to the root of the issue and to the root of global power.

We are all agreed that the current banking bailout is larceny on a grand scale but does everybody know quite how unbelievable we have all been screwed all of our lives?

We were all born into this system, it didn't come upon us; we have nothing to compare it to. For the most part we are unaware that there might be alternatives and if so what those alternative might look like. We take certain attributes of the system to be fixed, immutable, but are they?

We assume that money has to be the way it is because it just does. We assume the same for the way we use money, where it comes from, for the fact that money has a time value associated with it which necessitates interest being charged. Fear grips our minds and constrains our actions but what is it that we have to be afraid of? Is this system so perfect so irreproachable that we cannot face to change it?

We are all slaves so why are we so afraid of the alternatives to our slavery that we are not actively seeking new ways of doing things.

The basic answer seems to us that we are afraid of the unknown, we are simply afraid of the dark; which isn't very impressive when you think about it, is it? Fear originates in the most primitive and deepest part of our brain. This should give us pause for thought about the nature of the beings - psychopaths - that control us and keep that fear always there, always pressing in upon us, always stalking us. They have been playing our fear for all it's worth for generation after generation. Back when religion truly was the opium of the masses, when widespread ignorance and superstition and limited travel and communication were the standard, it is understandable that human's seemingly innate fears were used against them. But in today's world of high speed internet, lightning fast communication, and global travel we would have thought that the ignorance would have been dispelled and along with it the fear. But that is not the case.

The reason is that as a species we remain woefully ignorant of our real predicament and sinfully lacking in resolve to remedy that ignorance; generally preferring convenient fairy tales to truth.

One of the greatest fairy tales has to be the illusion that is our economic system. As we quoted above from a Rothschild letter in 1863, "The few who can understand the system (check money and credits) will either be so interested in its profits, or so dependent on its favor, that there will be no opposition from that class, while on the other hand, the great body of the people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."

It simply doesn't have to be this way. Money does not need to be borrowed by government from privately controlled central banks, interest does not need to be charged and banks do not need to be run as they are. The 'laws' that govern the economic system are not natural 'laws', they are mechanical laws and can change if we change the mechanism.

Our Money system

Imagine a community based on agriculture. There are farmers, laborers, merchants, storehouse owners and the various people who supply goods and services to the community built around these people. The farmers need seed to plant in spring so they borrow it from the merchants who have some stored from the previous year. It is planted and grows. Harvest arrives, the farmers hire laborers, the crop is gathered in and a large volume of seeds are sent by the farmers to the storehouses. The laborers are all paid in seeds, the merchants are repaid their seed plus some extra ('interest') and the storehouse fees are paid in seed. The remaining seed is then available for purchase as food for the community. For each crop there is a value agreed in terms of the other crops and services that all the community needs, the seeds being physically exchanged in each transaction.

Many societies have existed that used just such a system. Many soon developed the idea that rather than exchange the physical seeds for every transaction, a token that represented a certain amount of seeds (in the storehouse) could be used. So the storehouse owners issued the tokens and the people used them to effect day to day transactions. Eventually somebody in the chain would want some seeds to either eat or plant and would go to the storehouse to exchange the token for the seeds; a simple and effective system.

Money in the such forms is referred to as "Representative Money". The token could be presented to the issuer at any time and 'demand' for the underlying commodity made. The system relied upon the issuer being able to deliver the specified commodity upon such 'demand'.

Aristotle remarks in relation to the ancient world, "as the benefits of commerce were more widely extended the use of a currency was an indispensable device. As the [products] of nature were not all easily portable, people agreed for purposes of barter mutually to give and receive some article, which, while it was itself a commodity, was practically easy to handle in the business of life, some such article as iron or silver, which was at first defined simply by size and weight; although finally they went further and set a stamp upon every coin to relieve them from the trouble of weighing it...". Money therefore is a convenient and acceptable expression for the exchange ratio between various goods.

The problems began when the principles of repaying loans with "interest" of the same material as the loan, seeds or animals, was transferred to non-reproductive commodities such as metals; for while seeds and animals can reproduce and yield a greater amount than at commencement of a loan, metals cannot. So loans in metal, with interest and principal payable in metal, are inherently flawed as they require the conversion of things that can reproduce into metals.

This then leaves the borrower at the mercy of the fluctuating value of the thing they produce. A value that can be easily manipulated by increasing or decreasing the supply of money.

We were discussing this at the kitchen table the other day. Imagine you are at the table with a friend, you each have a coffee mug, these are the only two tradeable items in your economic system. Your system has $1 in it. By definition therefore, each mug must be worth 50 cents - the mugs being the only things that can be exchanged in your system and money, the $1, being the only medium of exchange. Now let us imagine that another $1 is introduced into the system, nothing else has changed other than this addition yet the worth of each mug has increased to $1 (2 mugs/$2 = $1). For every dollar introduced into the system the value of each mug will increase by 50 cents. Inflation, the rise in price or value of things within the system, is directly linked to the supply of money - this is the Quantity Theory of Money.

Let's look next at how the dollars got into your simple 2 mug $2 economic system. There are just the two of you so you have 2 choices; you can take 2 pieces of paper, write "$1" on each and agree that you will both respect that piece of paper as being a dollar or one of you could do the writing and give one dollar to the other, it really doesn't matter because the dollars are being given. They have no value in themselves, they just represent value by agreement. Now imagine that 8 friends come round and you need 8 more mugs. One of your friends makes mugs so agrees to make 8 more for $1 each; but you only have $2 in your system. So you agree among you that you will get 8 more pieces of paper, write "$1" on each, and give them to the mug maker with the assurance that you will all accept the paper as being a dollar. Now you have 10 mugs and $10 in the system. Should you wish to sell your mug you know it is worth $1 and you will accept a piece of paper with "$1" written on it in exchange for it. The supply of money grows along with the supply of goods. As long as there are new goods in the system matching the increase in the supply of money then the price or value of each item (in our case, mugs) remains the same.

If however more money is added to the system than goods then the price or value of those goods goes up, there is inflation. Conversely, if the supply of money is reduced then the price or value of the mugs goes down. This is one of the games that bankers play; they increase and then decrease the supply of money in the system.

As James Garfield, 20th President of the United States said, ""Whosoever controls the volume of money in any country is absolute master of all industry and commerce.... And when you realize 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."

Money Supply

Most of us think of money as being the coins and notes that we traditionally use to pay for things and receive as payment for our labor and items we sell. But this is only the smallest part of what constitutes money today. By far the largest part of today's money is created by banks, literally, out of thin air.

Under the fractional reserve banking system, banks can lend ten times the amount of cash or its equivalent that they have available, their reserves. This means that if you go into your bank today with $100 dollars which you put into your account your bank can immediately legally lend $1,000. It does this by crediting a borrower's account with $1,000. The borrower takes their cheque (check in the US) book and, Hey Presto another increase in the money supply goes off to shop; or if you prefer, the bank by creating credit has added to the money supply. It is as simple as that. If you are interested in the numbers a good summary is here.

Money Supply is generally considered to have four components, M0, M1, M2 and M3 although the UK now uses just M0 and M4. Broadly, M0 is physical currency plus accounts held at the central bank that can become currency very quickly. The remaining measures are various forms of bank accounts and other debt instruments. This graph shows M1, M2 and M3 for the US since 1959. The green sector at the bottom is currency, the remainder are the aggregates of various forms of money account and debt instrument. The graph graphically illustrates the explosion in US money supply from $1 trillion dollars in 1974 to $10 trillion in March 2006.

It is important to be aware here that the reason the graph runs out in 2006 is that the Bush administration ceased to publish the M3 number after March that year. At the time Congressman Ron Paul stated that, "M3 is the best description of how quickly the Fed is creating new money and credit". Given where we are today one might be forgiven for thinking that that change in US government policy seems a mite convenient to say the least.

The Federal Reserve can increase bank reserves and reduce them at will. Because of the multiplier effect of the fractional reserve system the Fed therefore has a powerful tool for a $1,000 increase in reserves will result in additional money supply of $10,000.

Back to Mortgaged Backed Securities

Not only do bankers control the supply of money but they can also direct where that supply goes - a recent example being that bankers wished to direct money to mortgages to inflate the property market. Under the current banking system banks would generally be constrained by their capital to be able to lend 12 ½ times their capital or in the case of home mortgages 25 times their capital. [Note that this is a different restriction from the requirement for banks to hold, typically 10% of the value of made with them in reserve.] But banks came up with a far better idea than that, they packaged up the mortgages and 'sold' them to newly created companies (Structured Investment Vehicles or SIVs) which the banks controlled but were able to treat as if they didn't own them.

The next innovation was the rise of the Credit Rating Agencies; companies that are legally independent from the banks and which assess the risks involved in lending to a bank or corporation. These Credit Rating Agencies issue a Credit Rating based on their assessment of the risk of default - the highest rating AAA suggests that there will be a default by the borrower once in 10,000 years.

Bank risk and mortgage default models were built on historical performance over a time when mortgage defaults were extremely low and mortgage lending was relatively conservative. These models therefore showed there being very low risks inherent in home mortgages. The Ratings Agencies used the same models and statistics.

The SIVs had to raise money to be able to pay the banks for the mortgages so they issued Mortgage Backed Securities (MBS). Now the neat thing about these MBS was that unlike the individual mortgages themselves, the Ratings Agencies would provide Credit Ratings for them. Typically, an SIV would issue 2 groups of MBS; one group for about 95% of the money needed would be rated AAA and the remaining group for 5% of the money needed, which carried the greatest risk, would be BBB or similar.

Numerous investment funds, whether hedge funds, mutual funds or pension funds are only allowed to invest in debt, for this is what MBS is, that is both rated and has a rating of BBB or above. Thus armed with a rating for the MBS banks could sell them to the funds, funds not constrained by limits on bank capital or in many cases by regulation. Not only that but the banks would lend money to hedge funds to allow them to buy the MBS! This meant that in moving the mortgages out of the banks an almost limitless ability to provide mortgages was created.
However, the funds were not stupid so they often insisted that banks hold some of the MBS as well. This led to the next trick.

The Bank for International Settlements's Basel Committee on Banking Supervision that we mentioned in a previous article established the system which dictates what multiple of its capital a bank can lend. Under the old system introduced in 1988 the credit rating of a debt was irrelevant. Lending on a mortgage required a bank to hold a certain amount of capital such that it could lend, in theory, up to 25 times that capital in the form of domestic mortgages. However, a new system came into operation in the last few years for the biggest banks based on ratings, and guess what, it requires banks to have even less capital especially for AAA rated debt.

The upshot of this was that banks were more than happy to hold MBS as the amount they could invest in MBS was far greater than the amount they could lend directly in domestic mortgages.
Finally, the risk models used by the Rating Agencies and the banks were never properly adjusted to reflect changes in the mortgages that were being busily packed up and stuffed into SIVs; in effect hiding the fact that increasingly large volumes of these mortgages were 'sub-prime' and were completely inappropriate to be packaged into MBS in the first place, let alone into MBS that carried a AAA rating.

The upshot was that banks got to direct far more money into domestic mortgages than would otherwise have been possible by using these various tricks; every one of which was marketed as being a new innovation and every one of which went unopposed by the regulators.

Forgive the rather long tangent but we wanted to illustrate just how easy it was for the banks to increase the money supply and direct a large part of that increase towards housing. Hopefully this will have dispelled any doubts you had as to the manipulated nature of the situation.

The effects of the manipulation go back to the Quantity Theory of Money. There was an increase in the general money supply within which was an even greater increase in the money supply going towards housing. As a result the cost of goods generally rose and the cost of housing rose even more.

Debt Slavery

The trap has now been sprung, the massive rise in the cost of housing has left millions with debts that they have almost no hope of ever paying off while the homes they bought are now worth a fraction of what they were. This is the asset price deflation side of the Quantity Theory of Money; there is now less money available in the housing system so the value of housing is falling.
What is not falling though is the value of the debt that was used to buy the homes that are now worth much less than a couple of years ago. You might consider that in a just society the people that caused the rise in prices through their control of the money supply, and therefore essentially forced you to borrow so much money, might be required to share in the pain. But we do not live in just societies we live in societies where the usurer is given the protection of the law while the victim is criminalised.

The last law that protected the victims of usury in the US was repealed in 1981 under Reagan. The raft of laws that deal with the enforcement of debt, with the seizing of assets, with bankruptcy and all the other aspects of being unable to pay your debts is too long to list here and keeps growing. The Bush administration even made it harder to seek protection in bankruptcy in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005; yet another piece of remarkably prescient legislation. When signing this new law Bush commented, "The act of Congress I sign today will protect those who legitimately need help, stop those who try to commit fraud and bring greater stability and fairness to our financial system,".

How Machiavellian can you get? Debt Slavery has been achieved and Bush calls it fair!
The Power of Compound Interest

Interest is evil because it enslaves people. It also enslaves entire nations for the power of compounded interest is extraordinary and usually not appreciated, especially by borrowers.
As a very brief illustration, $10 borrowed at 5% annual interest, if the interest is never paid will have grown to a total debt of $16 in ten years, $1,315 dollars in one hundred years and $15,000,000,000,000,000,000,000 in one thousand years. On a more personal basis, a typical credit card debt of $1,000, if you pay the minimum payments every months will have risen to $12,700 in ten years.

Aristotle, in Politics, had this to say about wealth and the accumulation of money, ""There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural."

Interest is not a necessity, the entire Islamic banking system is proof of that. The absence of interest does not mean that a lender should not have a return for the use of their money; rather that return should be linked directly to the use. If a business does well then it is reasonable to share the benefits with the lender of the money that facilitated that success in part. Similarly, if a business does badly or a crop fails then the lender should share in that risk.

The destitution and suicides amongst Indian farmers would not be happening if the lenders were at risk for the success of the crop. If they were at risk then they would not be so keen to force the farmers to use genetically modified crops which are designed to fail. Aligning the interests of the borrower and lender would change many of the world's most dreadful practices.

National Debt

There need be no national debt. That's a radical statement but it's also true. So why is it that all our nations labor under such large debt burdens? The answer was provided by Mayer Amschel Rothschild (1744 - 1812), "Permit me to issue and control the money of the nation and I care not who makes its laws."

The Bank of England was established in 1694 as a private bank in exchange for an initial loan to the government of William III (William of Orange) of ₤1,200,000. Needless to say, the events surrounding the granting of the Royal Charter do not speak of straight dealing. Similarly, the events surrounding the establishment of the Federal Reserve have a highly conspiratorial nature to them. Not surprising when the entire venture is in breach of the Constitution and against the interests of the American people.

Article 1, Section 8 of the US Constitution reads, "Congress shall coin money and regulate the value thereof and of foreign coin" while the Tenth Amendment clearly states, "The Powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people". To be clear, only Congress has the power to issue money and that power is not able to be delegated.

The grant by Congress, under the Federal Reserve Act 1913, of the power to issue money to the Federal Reserve is a breach of the US Constitution. Similarly the powers exercised by the Federal Reserve in regulating the supply of money through the operation of the fractional reserve banking system is a breach of the US Constitution.

In delegating these two crucial powers of issue and regulation to the Federal Reserve, Congress handed over the keys of America to the private shareholders of the Federal Reserve banks and their powerful friends behind the scenes. Remarkably, the Fed persuaded Congress that rather than issue money itself the US government would have the Fed issue money and the US government would incur a debt to the Fed for that amount. That debt would then carry interest of course.

Had Congress not enacted the Federal Reserve Act of 1913 and instead learned the lessons from its own national history, it could have done what Guernsey did from 1817 onwards. Rather than borrow to finance much needed public expenditure on infrastructure, Guernsey printed its own money and put the bulk of it into circulation in paying for the works that needed doing. Some Guernsey money was sold in exchange for existing English money also. The resulting infrastructure development transformed much of the island. Additionally, and no less importantly, there was no interest to pay. So successful was the issue of the initial money that more was issued in due course so that in the end Guernsey was able to repay all its previous debt and use its tax revenues to help the people of the island rather than pay interest. Guernsey is still a very prosperous island with very low taxes.

Abraham Lincoln: "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."

The Money Power

It is worthy of note that James Garfield, Abraham Lincoln and John Kennedy all held views that opposed the interests of bankers and that all three men were assassinated while President of the US.

Woodrow Wilson in 1913 spoke thus, "Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, 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 better not speak above their breath when they speak in condemnation of it."

Just three years later, with the Federal Reserve Act not even three years old he stated: A great industrial Nation is controlled by its system of credit. Our system of credit is concentrated (in the Federal Reserve System). The growth of the Nation and an our activities are 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."

Congressman Oscar Callaway speaking in 1917 as to the manipulation of the media explained: "In March, 1915, the J.P. Morgan interests, the steel, shipbuilding, and powder interest, and their subsidiary organizations, got together 12 men high up in the newspaper world and employed them to select the most influential newspapers in the United States and sufficient number of them to control generally the policy of the daily press... They found it was only necessary to purchase the control of 25 of the greatest papers... An agreement was reached; the policy of the papers was bought, to be paid for by the month; an editor was furnished for each paper to properly supervise and edit information regarding the questions of preparedness, militarism, financial policies, and other things of national and international nature considered vital to the interests of the purchasers".

All these men either opposed or spoke up against the Money Power, a term coined by L.B. Woolfolk in his book The Great Red Dragon. Woolfolk laid the entire blame upon the people amongst whose number were found the bankers who held the Money Power. It is very tempting to lay the blame for all financial matters today at the feet of that same group of people but it is not truthful to do so. The blame lies with the psychopaths and sociopaths. That the most successful of these psychopaths in the financial sphere come in large proportion from one group of people is primarily a matter for that group; for, in hiding under the skirts of Judaism, the evils of the Money Power, Zionism and Bolshevism have harmed Jews as much if not more than non-Jews. The issue for all of us is psychopathy and its pathology. How to identify it, isolate it and neutralize it is a matter for all normal people and not one of race, creed or colour.

The modern preeminence of Jews in the money business may have its roots in the ban imposed upon Christians until the early 16th century on usury and the extant ban on the same practice for all Muslims. In the western world that pretty much just left the Jews. It wouldn't have mattered who was left with such a monopoly for it is in the very nature of modern money that it provides a means to predate upon people like no other instrument in history. It's very structure is the product of an evil genius for it is so incredibly simple yet incredibly powerful and plays on man's weaknesses of greed, avarice and jealousy.

Three steps have to be taken to break the Money Power:-

The Federal Reserve, and all similar central banks that are not owned by the nation, should be taken into public ownership and become part of the national treasury. The power to issue money must vest in the national treasury only.

Abolish fractional reserve banking.

The government of the US should stop the bailout theft and instead direct new money, created not through debt but using the power vested in Congress by the Constitution, towards rebuilding America's crumbling physical and social infrastructure.

These are incidentally the proposals advanced by the American Monetary Institute - a group that on the face of it has some very interesting ideas on how to move forward for the US.
Imagine what could be achieved in the US and Europe with $4 trillion (about the current banking bailout number) in new environmentally responsible infrastructure; new and improved schools, colleges and universities with will paid teachers in the classrooms and lecture theaters; new and improved medical facilities with access for all, and the real worthwhile jobs for people that would flow from such programmes.

Jim Rogers addressed this issue in a CNBC interview in October when he decried the inevitable inflationary effect of the governments of the world bailing out the banks. The effect is inevitably inflationary because pumping money into banks, money that isn't reaching the real economy, will not produce one iota of additional goods in the economy. Even if some of that money if forced into the real economy, coming via banks as debt with the inevitable interest burden, it will be detrimental to the overall health of the system. In fact it can only harm the economy in the current system through both the inflationary effect and the expansion in government debt.

The same money spent in the real economy would produce an increase in real goods, benefiting ordinary people through job creation, while being broadly non-inflationary if not created as government debt.

The effect across the globe if all governments took the same steps would literally change the world.

Once again, when they tell you they have to save the banks THIS way - they are lying. When they tell you there is no alternative way to run the economy, to issue money and to run banks - that it just has to be THIS way - they are lying.

Stef Zucconi summed it up marvellously:-

Sure, the majority of mid-level contributors to this mess were daft fools driven by greed and fear; with no comprehension of where they were headed. But to believe that only Nassim Taleb [who developed the Black Swan concept, "large-impact, hard-to-predict, random, unplanned and rare events beyond the realm of normal expectations."], and some net based Loons, were the only people who could see a crash coming is nonsense - and more than a little arrogant.

It's also worth remembering that, at the same time the seeds for the current crash were being sown, the key components of a fully-blown surveillance and detention state were being rushed into place in the same countries that were inflating the bubble.

It's also worth asking yourself just how much, or little, wealth the people responsible for inflating the bubble have lost personally.

The fact that history is littered with, admittedly simpler, smaller scale, occurrences of the same kind of kleptocratic economic terrorism is also a bit of a give away.
No doubt any non Loons passing through this blog would, if they could be bothered, dismiss my outpourings as being those of a deranged paranoid lunatic. But then there's the small matter of my blog, and countless others out there, detailing quite specifically what lay ahead.

So, sorry, claims that what is happening was inherently unpredictable don't impress me much at all. And shame on all those [people] out there in cyberspace and the mainstream media who devoted their time to sticking the knife into us 'tinfoil hatters' when the infrastructure for chaos-driven rape and pillage was being laid down piece by piece.

Taleb's almost certainly correct when he argues that the specific outcomes of this crash can't be predicted with any degree of certainty

But, there again, if you control all the guns, money and food would you need to?

(Something which dawned on me whilst pondering the Conspiraloon vs the Non Conspiraloon mental models for comprehending how the world of high finance works is that the Loon looks upon the financial markets as being a means of waging war on ordinary people. And, in war, any successful general makes provision for the unexpected, engages in contingency planning, retains reserves, and makes cold-blooded calculations about what proportion of his own forces he is willing to expend. In warfare, chaos and Black Swan events are pretty much a given and positively encouraged. Your objective is to comprehensively f*** up your enemy's ability to comprehend and respond to what you are doing, and then kill him. Non Loons who simply take the markets at face value will probably lose me totally at this point...)

Zucconi argues that Black Swan events, such as 9/11, Katrina, or the financial crisis, far from being random unforeseen event were in fact planned and very well foreseen by the planners.
Taleb quotes events like the 9/11 attacks and stock market crashes as being examples of unpredictable, Black Swan events, when there's copious evidence that they were anything but. One person's Black Swan; be it due to deceit, dissonance, indoctrination, or plain incompetence, is very often another person's Bleeding Obvious.
According to Zucconi, the problem with most economic commentary is that it is not "loony" enough.

A lot of people have heard the famous Jefferson quote...

"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."

...but don't seem to have understood its implications.

The process Jefferson was talking about 200 years ago is deliberate and managed. Switches between inflation and deflation are only nurtured when it suits the people doing the managing and they are not in the business of telegraphing when that would be.

Years of inflation have already ensnared the bulk of people in debt. All that remains is to mop up the minority of people, mostly Baby Boomers who until a few months ago were expecting a nice, cushy retirement, who actually put money aside over that time.

And those who placed their money in the markets have just lost 40-50% of their savings.

Those who've kept away from the markets and are holding cash instead can look forward to a 0% interest rate, whilst prices are rising 10%+, as their reward
Once the savers have been screwed over good and proper, that's everyone in the bottom 99.99% of society accounted for, then all the money our governments have released to the shadow banking system can be unleashed to buy everything that's worth buying unopposed.

A massive transfer of real wealth will then take place and a glittering future of supercharged debt-serfdom secured.

And even if some ordinary people manage to avoid mortgaging their lives away and actually retain some savings, there will still be plenty of tricks left in the toy box to deal with them.

None of this is too far off now but we won't be picking any dates just yet.

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