The Unravelling Continues As More People Suffer

By Donald Hunt and Simon Davies
SOTT.net

World stock indexes fell sharply again the week ending 23rd February, down 6-7% on average.

Gold bumped up against the $1000 barrier on Friday as it became clear that all countries are prepared to go deeply in debt to stimulate their economies and to bail out their banks.

In the background of the economic news there have been some significant moves on the world chessboard. The United States is moving closer to Russia and Iran while escalating the war in Pakistan and Afghanistan. Russia will now formally allow the United States to resupply their forces in Afghanistan through Russian controlled territory. US diplomatic overtures to Iran continue although the UK Financial Times and other mainstream sources continued to bang the Zionist inspired nuclear weapons drum.

China and the United States are as close as can be economically and neither side seem to need to deny it. China has the productive capacity and the money and the United States has the borrowers, the consumers, and the international police force. The United States, with Secretary of State Hillary Clinton's visit to China, has stopped the hypocritical ritual of "denouncing" Chinese human rights violations. It look like the world powers are joining forces to institute the next step of the plan. Meanwhile a new overtly fascist government has been formed in Israel by the right-wing schemer, Netanyahu; an event that does not bode well for humanity.

Africa

The South African economy shrank by 1.4% in the fourth quarter of 2008. It's currency, the rand, fell last week. South Africa has been hit hard by falling commodity prices. Platinum, for example, South Africa's biggest export, is worth less than half what it was a year ago. This has led to the announcement of job cuts and dividend suspensions at the largest platinum producer, Anglo American, Plc.

Asia

U.S. Secretary of State Hillary Clinton was in China this past weekend urging China to keep buying U.S. Treasury bonds.

Clinton Urges China to Keep Buying U.S. Treasury Securities

Secretary of State Hillary Clinton urged China to continue buying U.S. Treasury bonds to help finance President Barack Obama's stimulus plan, saying "we are truly going to rise or fall together."

"Our economies are so intertwined," Clinton said in an interview today in Beijing with Shanghai-based Dragon Television. "It would not be in China's interest" if the U.S. were unable to finance deficit spending to stimulate its stalled economy.

The U.S. is the single largest buyer of the exports that drive growth in China, the world's third-largest economy. China in turn invests surplus earnings from shipments of goods such as toys, clothing and steel primarily in Treasury securities, making it the world's largest holder of U.S. government debt at the end of last year with $696.2 billion.

China's leaders understand that "the United States has to take some very drastic measures with the stimulus package, which means we have to incur debt," Clinton said. The Chinese are "making a very smart decision by continuing to invest in Treasury bonds," which she called a "safe investment," because a speedy U.S. recovery will fuel China's growth as well.

China boosted purchases of U.S. debt by 46 percent last year to a record. The Chinese government said last week it plans to keep buying Treasuries, adding that future purchases will depend on the preservation of their value and the safety of the investment. China's currency reserves of $1.95 trillion are about 29 percent of the world total.

'No Viable Alternative'

JPMorgan Chase & Co. predicted in a Feb. 6 report that China will keep buying Treasuries "not only for the near-term stability of the global financial system, but also because there is no viable and liquid alternative market in which to invest China's massive and still growing reserves."

Chinese attempts to diversify from [US] Treasuries into more risk-oriented assets have not fared well. It has lost at least half of the $10.5 billion it invested in New York-based Blackstone, Morgan Stanley and TPG Inc. since mid-2007.

Asian nations also announced broader agreement on a currency pool to defend their currencies.

The fund is aimed at ensuring central banks have enough to shield their currencies from speculative attacks such as those that depleted the reserves of Indonesia, Thailand and South Korea during financial crisis a decade ago. Many Asian currencies have tumbled in the past year, threatening regional stability, as the global downturn spreads through their export- dependent economies...

Large reversals "of capital flows, which have affected the financial markets, could undermine growth prospects," they said. "This can be a significant downside risk to regional growth, which has already been dragged down by the global economic downturn."

A decade ago, Indonesia, Thailand and South Korea spent much of their foreign reserves attempting to prop up their exchange rates. The three nations were forced to turn to the International Monetary Fund for more than $100 billion of loans. In return, the governments had to cut spending, raise interest rates and sell state-owned companies.

In the years since, Japan, China and South Korea together with the Asean economies have amassed more than $3.6 trillion of foreign-exchange reserves, about half of the global total.

South Korea's finance minister stated they will act to prop up its banks and currency, if necessary.

No doubt the Asian countries learned their lessons from the 1997/98 crisis which was engineered and was designed to pry open their financial markets to Anglo-American firms. The western bankers' agent, the IMF, forced the east Asian countries to "reform" their economies and financial systems, changing what had been a nationalistic, state-led capitalism, to the so-called "Washington consensus" of privatized, free-market capitalism. The accumulation of foreign exchange reserves since then has resulted from their experiences during that crisis and has therefore prevented money from being re-injected into their economies and particularly into their social infrastructure. No doubt these hard earned funds will in due course be wasted in a meaningless defense of their currencies against forces which are far stronger than they seem to anticipate.

Eastern Europe

The Baltic nations of Latvia, Lithuania and Estonia are also banding together to defend their currencies' euro peg. This is causing a lot of economic pain but is needed if they wish to adopt the Euro. It is another sign of the fragility of the whole concept of the Euro in a time of worldwide economic collapse and also the price paid by ordinary people when monetary sovereignty is sacrificed for the benefit of corporate and banking interests. In order to 'balance budgets' and maintain their currency pegs to the Euro all three nations, with Latvia in the lead, will have to take the standard IMF 'medicine' which always pushes austerity onto the middle and working classes, slashes social spending and results in social unrest, the classic "IMF riot."

Baltic Currency-Peg Defense Cuts Reserves Amid Regional Slump

Latvia, Estonia and Lithuania, facing a prolonged recession, say they will protect their currency pegs whatever the cost. That strategy may be as crippling as the alternative, economists say.

The three-nation Baltic region is in its deepest crisis since breaking from the Soviet Union in 1991. Latvia, which spent $1.26 billion in 11 weeks defending the Lats last year, was forced to turn to an International Monetary Fund-led group for a $9.6 billion bailout. Its economy may contract 12 percent this year, while Estonian gross domestic product may shrink by as much as 9 percent and Lithuania's GDP by 4.9 percent.

Latvian Premier Ivars Godmanis resigned on Feb. 20 and Lithuania's two-month-old cabinet is struggling to win over a skeptical electorate after the two nations suffered the largest street riots since independence last month.

Keeping the peg "will likely mean a number of years of very low economic growth," said Lars Christensen, chief economist at Danske Bank AS in Copenhagen. "Wages and prices will have to fall to reestablish competitiveness."

Central bankers and government officials in the three countries, across the Baltic Sea from Sweden and Finland, say they will stick to their course toward adoption of the euro. The exchange rates of the Lithuanian Litas and the Estonian Kroon were pegged to the euro in 2004, just after the nations joined the European Union. The Latvian Lats was linked a year later...

Retaining Euro Peg

Latvia, the only of the three countries to have gotten a bailout, got a bad deal from the IMF, said New York University's Nouriel Roubini. The terms retained the euro peg as long as the government reduced wages, raised taxes and slashed spending.

"The IMF made a mistake with the Latvia program of allowing them to keep the peg," Roubini said in an interview on Feb. 4. "It doesn't make any sense because the currency is overvalued."

That view is shared by Paul Krugman, a Nobel prize-winning economist who in a Dec. 15 commentary in the New York Times warned that Latvia may become "the new Argentina." That country had a currency board and saw its peso plunge even after receiving an IMF loan.

The Latvian government fell on Feb. 20 after members of Godmanis's party said they lost confidence in his leadership, which was shaken after riots broke out on Jan. 13 in the capital Riga. Police arrested 106 people. Two days later in Lithuania, another 86 arrests were made after violence erupted in the capital, Vilnius.

Declining Polls

Two months after the government assumed power and introduced austerity measures, support for the Prime Minister Andrius Kubilius's Homeland Union fell to 11.6 percent in January from 21 percent the previous month, a survey by Vilmorus for Lietuvos Rytas showed. The margin of error was 1.9 percent.

"Although the implementation of these tough measures could lead to a significant erosion in popular support, we think that their political cost will still be much smaller than the cost of a currency devaluation," said Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul.

Devaluation also may push corporations and mortgages into default: About 80 percent of total loans in Latvia and 84 percent in Estonia are in euros.

Latvia's "banks and legal system are at this point not prepared for such a shock," said Christoph Rosenberg, head of the IMF's mission to the Baltic state, in a Jan. 6 opinion on the RGE Monitor, defending the agreement. "It's questionable whether devaluation would quickly boost exports, given the global environment and the structure of its exports."

Estonia is now considering wage cuts of 10 percent for state employees, excluding police and teachers. Latvia and Lithuania have already cut state public wages by 15 percent and 12 percent respectively.

"Essentially, it'll be a political decision that the pain of holding these regimes is just too heavy a cross to bear," said Timothy Ash, head of emerging-market economics at Royal Bank of Scotland Plc in London. "Their positions are just becoming more unsustainable because everyone around them is just letting their currencies adjust."

Western Europe

Problems in Central and Eastern Europe continued to threaten the financial stability of Western Europe last week. The euro fell to its lowest level in three months against the dollar last week on concerns about Central and Eastern Europe. It is estimated that Western European banks have loan exposures to Central and Eastern Europe of between €1.4 trillion and €1.6 trillion. The trouble is that this magnitude of loan exposure is the tip of the iceberg. A secret EU analysis that up to €16 trillion of EU bank assets may be 'impaired' (i.e., they may be less than their face value); chief among these are the 'family' of structured securities including Mortgage Backed Securities (MBS), Collateralised Debt Obligations (CDO) and Synthetic Collateralised Debt Obligations and the derivatives whose value is determined on their market price. How many of these are based on Eastern European risk is anybody's guess.

What we are seeing is akin to musical chairs; everybody knows that there are very few or possible no chairs but as long as the music can be kept going then nobody has to acknowledge this. Nouriel Roubini has suggested that a region-wide rescue will be required.

"The banking problem in Europe is becoming more severe," Roubini said in a Bloomberg Television interview. "You have a series of countries that are really in trouble," Roubini said, citing Latvia, Estonia, Lithuania, Hungary, Belarus and Ukraine.

German and French officials this week expressed concern about a slide in investor confidence in smaller European economies. The cost of insuring Irish, Greek and Spanish debt against default has climbed to records, and mounting losses in eastern Europe among Austrian banks sent that nation's bond-yield premiums to an unprecedented level.

European lenders are taking steps that could increase state control of banks as the recession deepens. German Chancellor Angela Merkel's cabinet approved draft legislation this week that allows for the takeover of Hypo Real Estate Holding AG, which would be the first German bank nationalization since the 1930s.

The continent's largest financial companies have reported $316 billion in writedowns and credit-related losses since the collapse of the U.S. subprime mortgage market in 2007 spread to other asset classes and continents. The market turmoil has forced European lenders to raise $370 billion in fresh capital and government-led bailouts from London to Zurich to Berlin, according to Bloomberg data.

EU Aid

Roubini said European nations may go further and assist member states that are unable to rescue their own banks. "Even the European Union now is thinking of helping those sovereigns and their banking systems," he said.

"There are significant problems in terms of debt and also banking problems in places like Ireland, for example," Roubini said. "But also a country like Greece has a huge amount of stock of public debt."

Moody's Investors Service Inc. on Feb. 17 said some of Europe's largest banks may be downgraded because of loans to eastern Europe, sending Italy's UniCredit SpA, which has aggressively expanded in the region, to its lowest in 12 years.

'Pressure' on Ratings

Moody's sees "continuous downward rating pressure" in the region as a result of worsening asset quality and western banks' reliance on short-term funding, the ratings company said in a report.

The International Monetary Fund has offered aid worth about $52 billion to Latvia, Hungary, Serbia and Ukraine.

Roubini, who predicted the global credit crisis, also discussed the need for plans to revive growth. The best approach in the euro zone is "fiscal stimulus in the short term but fiscal consolidation over the medium term," he said.

He noted that while the $787 billion U.S. fiscal stimulus package, signed into law this week by President Barack Obama, is necessary, it may not be sufficient and will put the country deeper into debt.

"We're going to add $4 trillion to $5 trillion to the public debt over the next few years," he said. "Down the line, maybe two or four years, there may be a downgrade of even the United States."

Still, he said, the U.S. is taking appropriate steps compared with other economies. He said the European Central Bank and Japan are "behind the curve."

Ireland, which some commentators are comparing with Iceland, saw large protests in Dublin against austerity measures. Like Iceland, much of Ireland's resurgent economy was built on the back of a banking and financial services boom. Now that bubble has turned to bust the Irish economy is looking decidedly vulnerable and hollow. The Irish government have responded in much the same way as the Eastern Europeans with the resulting discontent being peacefully, although understandably angrily, demonstrated on the streets of Dublin:-

Thousands March in Dublin Against Tax Increases, Spending Cuts

Tens of thousands of people marched in Dublin today in what labor unions say is the first of a series of demonstrations by workers to protest against government spending cuts and tax increases.

The Irish Congress of Trade Unions described the march as the "first step in a rolling campaign of action." The Impact labor union, which represents public workers, estimated the number of protesters at 100,000 in an e-mailed statement.

Ireland's government this month announced it will introduce a pension levy for public workers and cut spending to plug a deepening hole in public finances and stave off a downgrade of the nation's debt rating. Unions say lower-paid workers are taking the brunt of the cutbacks.

"The government recognizes that the measures which it is taking are difficult and, in some cases, painful," the office of Prime Minister Brian Cowen said in a statement today. "It is also convinced, however, that they are both necessary and fair."

Ireland's economy may shrink by 10 percent between 2008 and 2010, Cowen has said, while European Commission forecasts that the country's budget deficit will reach 11 percent of gross domestic product this year, almost three times the EU limit.

Markets

The markets this week (to Feb 23rd)

	Previous week's close	This week's close	Change	% change
Gold (USD)	942.70	994.90	52.20	5.54%
Gold (EUR)	732.59	775.57	42.98	5.87%
Oil (USD)	37.95	39.80	1.85	4.87%
Oil (EUR)	29.49	31.03	1.53	5.20%
Gold:Oil	24.84	25.00	0.16	0.63%
USD / EUR	0.7771 / 1.2868	0.7796 / 1.2828	0.0025 / 0.0040	0.32% / 0.31%
USD / GBP	0.7008 / 1.4270	0.6929 / 1.4432	0.0079 / 0.0162	1.13% / 1.14%
USD / JPY	90.750/ 0.0110	93.345/ 0.0107	2.595 / 0.0003	2.86% / 2.73%
DOW	7,850	7,366	485	6.17%
FTSE	4,190	3,889	301	7.17%
DAX	4,413	4,015	399	9.03%
NIKKEI	7,779	7,416	363	4.67%
BOVESPA	41,674	38,715	2,959	7.10%
HANG SENG	13,555	12,699	856	6.31%
US Fed Funds	0.25%	0.15%	0.10	n/a
$ 3month	0.29%	0.27%	0.02	n/a
$ 10 year	2.89%	2.79%	0.10	n/a

Middle East

After a massive building spree, Dubai is having trouble paying its debts as foreigners flee the country simply dumping luxury cars at the airport.

U.A.E. Central Bank Steps In to Support Dubai Debt, Spending

The United Arab Emirates' central bank stepped in to support Dubai after concern increased the emirate will struggle to repay its debt as global financial turmoil pushed up credit costs and burst a real-estate bubble.

The central bank bought half of an unsecured, $20 billion, 5-year notes issue at an annual interest rate of 4 percent, Dubai's Department of Finance said in an e-mailed statement yesterday.

Home to the world's tallest building, most expensive hotel suite and largest manmade islands, Dubai borrowed $80 billion to turn itself into a regional financial and tourism hub. Moody's Investors Service said in October that Dubai may need help from Abu Dhabi to pay for its debt. The emirate may have to refinance $15 billion this year in maturing loans and bonds, Moody's said...

Latin America

Brazil's unemployment rate rose to the highest levels in seven years. President Lula has accused companies of overreacting by laying off too many people before it is necessary.

United States and Canada

We had to chuckle this week as both sides of Congress danced around the concept of 'nationalization' of major US banks as if such an admission would open the gates of hell and the US would be consumed in the fire of communism as a result. It is pretty obvious that if Congress wishes to go about saving the US banking system in its current form, itself a highly dubious proposition, it will have to take sizeable and probably controlling stakes in the banks in the form of ordinary/common shares. It seems bound to happen yet to see the ideological squirming you'd be forgiven for thinking that it's not a forgone conclusion. In fact it makes us wonder if the ideological squirming is just for show so that Congress can uphold the 'free market' mantra while not allowing the free market to exact its inevitable price upon the system of greed to which they owe their very existence.

In a sign that Asian investors understand just how dire the predicament of the US is, the rescue of Freddie Mac and Fannie Mae, the US government linked mortgage lenders, looks unlikely to succeed without explicit US government guarantees of their mortgage backed securities as Asian investors simply won't buy them otherwise.

In case anyone doubted that 'self-regulation' really means NO-regulation or, even worse, criminal collusion, it emerged that:-

Two employees of Allen Stanford's financial business, which U.S. regulators have accused of massive fraud, held advisory roles at a watchdog group overseeing U.S. broker-dealers aimed at preventing abuses.

Lena Stinson, director of global compliance at Stanford Financial Group, served on the membership committee of the Financial Industry Regulatory Authority, or FINRA, which describes itself as the largest independent regulator of U.S. securities firms.

Frederick Fram, the chief operating officer of Stanford Group Holdings, served on the FINRA continuing education content committee, "where he participates in creating material for the Regulatory Element continuing education program," according to a biography on Stanford's website.

It seems that the self-regulatory body FINRA is heavily implicated as being a fraud as regards regulation as well as permitting fraud among the organizations that it purports to regulate. Harry Markopolos who repeatedly sounded the alarm on Bernard Madoff to the SEC has said that he doesn't think the SEC was corrupt but that FINRA definitely was. Whether he'd be able to say the same about the SEC (US Securities and Exchange Commission) in future seems doubtful as Mary Schapiro, the newly confirmed chairman of the SEC, used to be the chief executive of FINRA.

In the United States, as in Brazil, corporations are taking advantage of public fear of layoffs and economic collapse to use their increased power over workers. Many companies and public institutions that are not experiencing drops in business are cutting jobs, pay and benefits just to get ahead of the curve and improve the bottom line. It is a self-fulfilling prophecy, since it is now job losses that are driving downturn in general and in corporate profits.

Using the Crash to Hit Workers

Whatever the truth is about where this economy is heading, one thing is clear: employers are taking every opportunity to slash employment and, if they are unionized, to hammer unions for pay cuts, even when there is no justification for these actions.

Take Safeway Inc., a large national supermarket chain. The company, which had $44 billion in sales in 2007, and which, based upon third quarter figures for 2008 was well on the way to show record sales for 2008, appears to be using the economic downturn as a justification for laying off employees and making remaining employees work harder.

I can only give anecdotal information on this, but the Genuardi's Family Market store (a Safeway subsidiary) where I live, in Upper Dublin, PA, an upper middle-class suburb north of Philadelphia, according to its employees, has been laying off cashiers, and slashing its night work force - the people who restock the shelves and unload the delivery trucks when the store is closed. The management is doing this not because sales have slumped. They haven't. People may not be buying new cars, but they are still buying food, and in fact, if they are cutting back on eating out, as restaurant chains are reporting, they are probably actually buying more groceries, not less. Management is making these cuts simply because they can get away with it.

The layoffs, in the face of continued heavy business, means that cashiers are working harder. It means that the night staff, cut by half, is working twice as hard. But with jobs getting scarce, what is their option? If they don't like the speed-up, where are they going to go in the current environment? Meanwhile, if service gets worse, customers will accept the decline because they'll blame it on the economy, not noticing that there is really no justification for employee cutbacks at the supermarket.

Temple University, which is a major public higher education institution in Philadelphia, is reportedly telling all departments to make substantial cuts in their budgets . This will inevitably lead to layoffs of faculty and support staff critical to the education mission. And yet, what is the justification for such draconian measures? The governor initially announced plans to cut the state's contribution to the university's annual budget for next year by a few million dollars, but the new Economic Recovery Act stimulus package includes huge grants to the states, including Pennsylvania, more than compensating for those cuts. Furthermore, state-funded universities across the country, including Temple, are reporting increased applications and enrollments, as students whose parents cannot afford to send them to private colleges, send them instead to public institutions, and as workers who lose their jobs decide that the economic downturn is a good time to go to college and get an education. That means more tuition revenues coming in. Moreover, student aid, including Pell Grants for lower-income students, have been substantially increased in the stimulus package, meaning more money for public colleges. Money might be marginally tighter at places like Temple (while, as with most public institutions, the university's endowment is not a significant contributor to the operating budget, small as it is it is certainly significantly reduced because of the market collapse), but it's certainly not down by enough to put universities in crisis. It may not even be down at all.

It might be understandable that state and local governments would be considering layoffs, or reduced pay and hours for public employees, given the slump in tax revenues from property taxes, sales taxes and income taxes. It is certainly necessary for the auto industry, which has seen sales plummet, to lay off workers. Luxury stores like Circuit City are going bust. But not all employers are hurting alike. Health care industries are still booming. Public colleges are doing fine. Supermarkets are doing well. Energy companies are okay.

Criticism of the nationwide wave of layoffs by companies and employers that really don't need to beggar their workers or push them out onto the street came from an unusual quarter recently, when Steve Korman, chief executive of a privately held Philadelphia-area company called Korman Communities, blasted corporate executives for laying off workers when they don't really need to. Korman had gotten upset when he saw Pfizer Inc.'s CEO Jeff Kinder say, on a television business program, that he planned to lay off 8000 workers in anticipation of a merger with Wyeth, another drug company. The layoffs were not being made because Pfizer was losing money or in trouble financially, but rather to improve profits. Korman, who owns stock in Pfizer, got angry and spent $16,000 to run ads in the Philadelphia Inquirer and the New York Times, saying:

"I have listened to the executives of many companies say that they are eliminating thousands of jobs to 'improve the bottom line,' I own stock in many of these companies and would prefer that the company make a smaller profit and [that] the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.

"Please join me in reminding all CEOs that we are not just dealing with numbers and profit, but with real people and real families who need to keep their jobs."

Korman sent individual letters saying much the same thing to 16 companies in which he is an investor, including Federal Express, Google, Cisco Systems, Caterpillar, General Electric, ExxonMobil, Kraft, Nokia, Intel, Johnson&Johnson, Apple, EMC, Chevron, DuPont, Coca-Cola, Oracle and Dow.

If this phenomenon is bad enough that it has upset a prominent capitalist like Korman, it is clearly a major problem.

The irony is that as all these companies slash their workforces, and force remaining workers to work harder, and as public institutions like Temple University and other colleges cut their faculties and increase class sizes for remaining teaching staff, they are undermining any stimulus that taxpayers are subsidizing in the massive stimulus bill, and thus making the recession worse, not to mention wasting the huge deficit-spending measure itself.

Nobody would argue with a company's laying off of workers when sales collapse and there is no money coming in, but in many cases this is not what has been happening.

One reason there is a tidal wave of layoffs even at viable businesses and institutions across the country is simply the lack of or weakness of labor unions. With workers at most employers unorganized (unions represent only some 8 percent of private employees), it is easy for managers to engender an attitude of fear and passivity among employees, which makes it easier to pick them off, and to make those on the job work ever harder. Furthermore, without labor contracts, there is little workers can do to resist speedups that can seriously threaten their health, safety and well-being.

Only a new militancy and sense of solidarity among American workers, and a revitalization of the nearly moribund labor movement, can rescue this situation, which will only get worse as the economy continues to sink.

----------

1. Iran is reported to have one tonne of low enriched uranium hexafluoride, the fuel needed for a nuclear reactor. However, in a typical twisting of facts this is being promoted as "enough material to build a bomb" when it is impossible to build a bomb from such material. If the one tonne of low enriched uranium hexafluoride were further enriched it would produce about 20 kilos of weapons grade uranium. Iran does not have the facilities to achieve such further enrichment but these details are of course careful glossed over in the unending lies that spew from the mainstream media.

One giant Ponzi scheme and the Obama Illusion

By Donald Hunt and Simon Davies, SOTT.net

The big news this week was the sudden exposure of a massive $50 billion Ponzi Scheme run it seems singlehandedly by Bernard Madoff a prominent New York Zionist, financier and philanthropist. The exposure is somewhat surreal while the resulting financial waves seem likely to hit, so we are told, many of the leading names in banking together with many of the most wealthy individuals in the US. There is certainly ample reason to believe that there is much more to the story than meets the eye.

In the same week the surreal dominated the news with US Treasuries briefly touching negative interest rates, the US automaker bailout descending into political farce, Marc Dreier the highly successful New York lawyer is caught trying to con hedge funds out of $380 million and Obama's team talk of which nations the US will leave to collapse in 2009. Of course silence echoes through the corridors of power in relation to the Israeli perpetrated holocaust in Palestine.

Gold and oil rebounded last week from the previous week's lows. The dollar fell last week as the reality of the U.S. budgetary situation sinks in. Most world stock indexes rebounded as well, except the Dow which was virtually unchanged. That in itself seems miraculous given some of the news coming out of the United States last week.

East Asia

China and Japan's economies are sinking fast. No surprise there, as they have been excessively dependent on demand from the United States.

In Japan, confidence among manufacturers dropped more than it has in 34 years.

In China, officials admitted plunging demand has created overcapacity, meaning unemployment is rising. Exports fell last month while domestic retail sales grew at the slowest pace for nine months. Similarly, Chinese energy consumption per unit of GDP fell by 3.46% in the first quarter 2008.

China central bank governor, Zhou Xiaochuan said companies and consumers should be encouraged to upgrade technology to boost domestic demand. He also added that financial institutions should provide sufficient funding. Interestingly this has echoes of the work of Herman Daly who said that developed economies should focus their efforts on technical progress rather than economic growth in order to create a steady state economy.

With a refreshing breath of fresh air and candour, the Chinese banking regulator cautioned Chinese banks against foreign acquisitions as "more losses at financial companies around the world remain to be exposed".

Europe

French business confidence, like that in Japan, fell to a 21-year low in November.

Ambrose Evans-Pritchard at the UK Daily Telegraph said that Switzerland may have to print money to stave off deflation as it dropped interest rates to nearly zero. The headline was eye catching but the reality is much less dramatic; although printing money and spending it might be a good idea to create genuine economic activity, the Swiss option is to engage in quantitative easing meaning that it will ensure a sufficient supply of money is available to counteract deflationary pressures. This is essentially the policy being pursued by the US, UK and the Eurozone in their bids to "ensure sufficient liquidity".

The woes of the British Pound continued as it dropped to an all time low against the Euro, with bureaux de change in London paying less than parity for sterling cash in Euros, prompting many to wonder if there is a plan afoot to have the UK enter the Eurozone. Continuing differences of opinion between Britain and Germany as to the appropriate structure and targeting of an economic stimulus package became more public this week. British Prime Minister Gordon Brown seeming to become ever more overbearing towards Angela Merkel and the German finance team. We wonder why Brown is so keen to push this agenda in such brazen style. One can only speculate if it is connected to his announcement that he is working on the Second Stage of the UK bank bailout - forgive us Mr Brown but how do you know there will need to be a Second Stage?

In a statement of unrivaled cynicism UK credit card companies were reported to have bowed to pressure from the Prime Minister when they agreed to limit interest rate increases to twice a year. It is that sort of cynicism that exemplifies the attitude of capitalism to its victims. Credit card interest rates are undoubtedly usurious and would have been treated as criminal not so very long ago yet now the companies are considered to be reasonable when they limit increases in their usury.

In one of those ironic pieces of news, the European Engineering company Siemens agreed to pay $800 million to settle U.S. charges that it violated anti-corruption laws by funding $1.36 billion in bribes to government officials worldwide. The irony of course being that the US is waging wars and running the world's biggest weapons dealing operation, torturing and imprisoning thousands, and protecting the genocidal maniacs in Jerusalem and Tel Aviv with impunity yet their economic hegemony remains unchallenged. The Siemens money will no doubt vanish into government coffers never to be seen again.

South America

Interesting news out of Ecuador, where with plunging oil prices cutting into government revenue, President Rafael Correa announced the intention to default on government bonds, fulfilling a promise to spend money on the poor rather than paying interest to global investors. A decade or two ago, this would have brought in the "jackals" so it will be interesting to see if he can get away with it during the present crisis.

United States

New unemployment claims hit a 26-year high last week in the United States as companies laid more than fifty thousand people off in one week. In a reflection of how Goldman Sachs see the economy in the first quarter of 2009, they predicted that oil prices would fall to $30 a barrel as the global recession bites even harder. Also perhaps predictive of future events, Goldman is advising lenders to 11 US states to purchase credit insurance against those states defaulting on their debt.

Hedge Fund woes continued to mount as Citadel halted investor redemption from its two biggest funds and the Bernard Madoff Ponzi Scheme was exposed causing panic as the extent of potential losses to hedge fund and other investors became apparent.

The US Congress rejected proposals to provide bailout funding to the US auto industry causing the dollar to fall to a thirteen year low against the Yen and oil to drop. Bush immediately countered with a proposal to use funds allocated by Congress for bank bailouts for the car-makers.

An unsettling milestone was reached early last week in the United States, with the news Tuesday that the yield on three-month U. S. Treasury bills briefly dipped below zero. That's right, people were willing to pay the Treasury to keep their money, a frightening sign of deflation. In other words, cash, stocks, commodities, nothing, was seen to be worth holding. If people are willing to get negative interest from lending money, they must be expecting the money to be worth more in the future. Another way of putting it is that they think everything will be worth less in the future. Since the time frame for this debt is three months, one wonders what's in store later this winter.

As the New York Times put it,

In these times, it seems, the abnormal has now become acceptable. As America's debt and deficit spiral from a parade of billion dollar bailouts and stimulus packages, fund managers, foreign governments and big retail investors reckon they will get more peace of mind by stashing their cash, rather than putting it toward any of the higher-yielding risk that is entailed in stocks, corporate bonds and consumer debt.

The rapid decline in Treasury yields - which since summer have headed toward lows not seen since the end of the World War II - also renders the Federal Reserve less effective, as investors and banks stuff the money that the central bank is pumping into the financial system into Treasuries, rather than fanning it out across the broader economy.

"The last time this happened was the Great Depression, when people are willing to accept no return on their money, or possibly even a negative return," said Edward Yardeni, an independent analyst. "If people are so busy during the day just protecting the cash they have, it's not a good sign."

That is one sign that people in the know think things are a lot worse then they are letting on. Another may be the blatant and clumsier than usual political and financial corruption in the United States. While political graft and financial con games have always gone on, Trey Ellis sees the haste and lack of subtlety as a sign that those in power know that time is short, and that if they want to make the cut in the coming crisis, they had better get all the wealth they can right now:

It seemed like a funny joke back when folks were saying that in the movies the only time America elects a black president is either pre-apocalyptic (Morgan Freeman in Deep Impact) or post-apocalyptic (Terry Alan Crews in Idiocracy). It's maybe not so funny anymore.

Wherever you look, people whom you'd hope would have some inside knowledge of the American near future, seem to be losing their minds.

Sure, Governor Blago might have always been a hoodlum numbskull but how else to explain super lawyer Marc Dreier suddenly gambling an insanely lucrative legitimate career to try to con hedge funds out of as much as $380 million? And just yesterday seventy-year-old Wall Street legend Bernard L. Madoff stands accused of one of the most egregious white collar crimes in history -- bilking his investors of as much as $50 billion.

Do they know something we don't know? It's as if the risk of getting caught was outweighed by their panicked desire to get as much as they could before it's all gone.

It's as if the architect of the Titanic, minutes after they brushed the iceberg, said, "Don't mind me, I'm just going out for a smoke," when really, knowing what he knew about the ship's chances, stole into a lifeboat and set off alone into the dark cold waters.

What do the Blagojevich scandal and the Madoff scandal have in common? For one thing, both took common practices too far. For that reason, they will both be convenient scapegoats. The U.S. political system has basically legalized bribery; to be indicted for it is therefore something of an accomplishment. Madoff, the former chairman of the NASDAQ exchange, ran a classic Ponzi Scheme which collapsed, as such schemes inevitably will. Yet the global financial system is a glorified Ponzi scheme which is in the process of inevitable collapse. It is still surprising how many top-level banks around the world, including BNP Paribas and HSBC, gave Madoff their money. That alone tells us that they are all running Ponzi schemes. How different are many hedge funds? There is also the smell of psychopathy about their brazenness and stupid lack of caution. But pure psychopathic behavior differs little from standard practice at the apex of the world financial and political pyramids.

To Trey Ellis's point that those at the top seem to know that time is short and fear getting left behind, Marc Ambinder sees economic fear in the pit of the stomach in Obama's team as well:

It's quite unsettling to talk to members of Barack Obama's transition teams these days, especially those who are helping with the economics portfolio. Without going into details, the sense I get from them is that they are very worried that the economy will get a lot worse before it gets better. Not just worse... a lot worse. As in -- double digit unemployment without the wiggle factors. Huge declines in aggregate demand. Significant, persistent deficits. That's one reason why the Obama administration seems to be open to listening to every economist with an idea and is stocking the staff with the leading lights of the field. In one sense, the general level of concern among Obama advisers and transition staffers is reassuring; they get the magnitude of the problems, and they're not going to assume that, just because the bottom has never dropped out before -- certainly not in the lifetimes of most people doing policy these days, the bottom will never drop out.

Where the discussion isn't going, at least in public, (or the PR level), is the possibility that the first foreign policy crisis the administration will face will be the complete economic collapse of a large, unstable nation.

Like maybe the United States?

To be sure, Pakistan is nearly broke, and U.S. policy makers seem to be aware of that; but a worldwide demand crisis could lead to social unrest in countries like Indonesia and Malaysia, Singapore, the Ukraine, Japan, Turkey or Egypt (which is facing an internal political crisis of epic proportions already). The U.S. won't have the resources to, say, engineer the rescue of the peso again, or intervene in Asia as in 1997.

This is an interesting point when one considers that the Asian economies under the aegis of APEC recently established a $80 billion fund to be available to protect their currencies should the need arise. It would seem the Asia central bankers are aware of situation and have made contingencies.

The public rhetoric from Team Obama seems to treat history as having ended in early October, which is understandable; the priority right now is on the liquidity crisis, the structure of government and the peopling of the administration and the domestic economy. Most of the administration's major policy voices don't have the luxury of time to game out scenarios. Now -- it can fairly be said that Treasury nominee Tim Geithner, himself an assistant secretary for international economic affairs during the Clinton administration, is aware of the precarious state demand in certain critical countries, as is Larry Summers. The question: what's the administration's policy in this area? Which countries can we afford to let fail? Which unstable states would concern us the most? Is there something the U.S. can do, in advance, should do, in advance, to forestall the collapse of other economies?

How nice that they are deciding what countries "we" can "allow to fail." Or that the United States can prevent any other country from economic collapse when it can't prevent its own collapse. The level of hubris is almost beyond comprehension.

Because things are so precarious, those in charge don't want us to know the full extent of the problem, but are having a hard time concealing their fear. Last week, for example, the U.S. Federal Reserve Board continued to refuse to reveal who they lent $2 trillion to or what they got as collateral. Mark Oitmas at Bloomberg:-

The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it's allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.

"If they told us what they held, we would know the potential losses that the government may take and that's what they don't want us to know," said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.

The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program. The central bank loans don't have the oversight safeguards that Congress imposed upon the TARP.

Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA.

'Been Bamboozled'

Congress is demanding more transparency from the Fed and Treasury on bailout, most recently during Dec. 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had "been bamboozled."

Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn't receive a formal response that would let it file an appeal within the legal time limit.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.

In response to Bloomberg's request, the Fed said the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects..."

'Dangerous Step'

"In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information," she wrote.

New York-based Citigroup Inc., which is shrinking its global workforce of 35,200 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn't seek money damages.

'Right to Know'

"There has to be something they can tell the public because we have a right to know what they are doing," said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press.

"It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed," she said.

The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.

Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country's biggest bank by assets...

'Complete Truth'

"Americans don't want to get blindsided anymore," Mendez said in an interview. "They don't want it sugarcoated or whitewashed. They want the complete truth. The truth is we can't take all the pain right now..."

Markets

The markets this week

	Previous week's close	This week's close	Change	% change
Gold ($)	757.10	820.50	63.40	8.37%
Gold (€)	594.64	613.60	18.95	3.19%
Oil ($)	41.76	46.28	4.52	10.82%
Oil (€)	32.80	34.61	1.81	5.52%
Gold:Oil	18.13	17.73	0.40	2.21%
$ / €	0.7855 / 1.2732	0.7478 / 1.3372	0.0377 / 0.0640	4.80% / 5.03%
$ / ₤	0.6779 / 1.4751	0.6693 / 1.4941	0.0086 / 0.0190	1.27% / 1.28%
$ / ¥	92.870 / 0.0108	91.125 / 0.0110	1.745 / 0.0002	1.88% / 1.85%
DOW	8,635	8,630	6	0.07%
FTSE	4,049	4,280	231	5.70%
DAX	4,381	4,663	282	6.43%
NIKKEI	7,918	8,236	318	4.02%
BOVESPA	35,347	39,374	4,026	11.39%
HANG SENG	13,846	14,758	912	6.59%
US Fed Funds	0.06%	0.12%	0.06	100%
$ 3month	0.01%	0.01%	0.00	0.00%
$ 10 year	2.71%	2.58%	0.13	4.80%

Bernard Madoff and his Ponzi Scheme

The story of the week, and no doubt for months to come, is the exposure of Bernard Lawrence Madoff and his $50 billion 'Ponzi' scheme. Just how one goes about losing $50 billion is intriguing, we've been looking for ways to make that sort of money for a long time, it looks as if Bernie Madoff had found the answer - get people to give it to you then "lose" it.

The scheme was incredibly simple; Madoff owned and ran a legitimate New York securities brokerage, he made a name for himself pioneering electronic trading and became a pillar of the financial community, he was a political donor, advisor to the Securities and Exchange Commission and noted philanthropist. This gave him his front from which he established and ran what amounted to an unincorporated hedge fund. He attracted investors because he presented an aura of success, of wealth, of confidence and of being an insider; all the classic attributes that draw people like moths to a flame.

These are in fact that same attributes that make the entire investment market work. In admitting that his investment advisory business was a Ponzi Scheme Bernie Madoff was at least more honest that anybody else on Wall Street today. The entire market is a Ponzi Scheme.

Bernie Madoff founded Bernard L. Madoff Investment Securities LLC in 1960. He pioneered electronic trading growing his firm to be one of the principle developers of the NASDAQ (National Association of Securities Dealers Automated Quotations) exchange where he served as chairman of the Board of Directors and on its Board of Governors

Bernard L. Madoff Investment Securities LLC website presents the company as "a leading international market maker" with an "uninterrupted record of growth" and capital of $700 million ranking it in the" top 1% of US Securities firms". The key is said to be the firm's "sophisticated proprietary automation and unparalleled client service delivers an enhanced execution that is virtually unmatched in our industry" enabling deal execution in seconds at fine pricing. The firms big selling point is its "highly automated clearing and settlement systems" which interface with all the major custodian, clearing and settlement systems. The firm stresses that, "Madoff Securities' computerized transaction processing means that the firm can customize client reports and deliver them electronically in whatever format best meets the needs of clients."

This is where things get interesting as all these computational resources seem to have been dedicated solely to the brokerage and remained entirely separate from the investment advisory operation. The investment advisory operation was essentially a hedge fund but reporst vary as to whether there were in fact properly constituted hedge funds or a series of individual client accounts purportedly inside Bernard L. Madoff Investment Securities LLC. However, while on adjacent floors, the offices of the brokerage and the offices of investment advisory were not physically connected. The impression given in news reports is that investment advisory had a very small staff which did not know or mix with the brokerage staff.

Madoff was clearly a very shrewd operator. He generated consistent returns of around 12 percent per annum, highly attractive but not so crazy as to attract attention, and he had a reputation for paying out whenever investors sought to redeem. It is reported that a number of major investors as well as regulators audited his firm and found nothing amiss. In a classic move of the con-man, Madoff was notoriously hard to see in recent years, only accepting business via other funds with a close existing relationship. He is also reputed to have turned many people down who wished to invest through him. These are all techniques of charlatans since time immemorial.

There were warnings for those with eyes to see. Despite being a pioneer of electronic trading, Madoff refused to provide clients online access to their accounts.

"This was extremely secretive, even for the non-transparent world of hedge funds," said Jake Walthour Jr., head of advisory services for Aksia, a New York consulting firm that advised clients not to invest in Madoff's funds. "It was all done almost in fortress fashion to prevent anyone from knowing what was going on."

The Bramdean hedge fund of Nicola Horlick, the UK 'superwoman' financier whose reputed lack of charm but shrewd money sense is often commented upon, invested through a third party fund having never even met Madoff.

Much of the talk in New York focuses on the losses of numerous Jewish charities. What is not yet clear is whether these charities actually invested with Madoff or whether the investments were in fact donations from Madoff to the charities concerned. The latter seems to be the case; this would have enabled Madoff to seem like a generous benefactor when in reality he was donating non-existent securities, the only requirement being that he have enough cash to pay out the annual income attributed to the imaginary securities, thereby maintaining the illusion.

A substantial list of investors who are said to have "lost everything" is available. This seems remarkable because the nature of these investments and the client lists of managers like Bernie Madoff are extremely confidential. The presence of so many wealthy and particularly Jewish names makes us highly suspicious for it ties in just too conveniently with the Obama phenomena.

In his seminal work on psychopaths and the pathology that they create in political systems, Political Ponerology, Andrew Lobazewski explains a stage in the pathology of the psychopathic nation state, which the US most certainly is, the "dissimulative phase".

Anyone studying this phenomenon... is reminded rather of the dissimulative state of phase of a patient attempting to play the role of a normal person, hiding the pathological reality although he continues to be sick or abnormal. Let us therefore use the term "the dissimulative phase of pathocracy" for the state of affairs wherein a pathocratic system ever more skillfully plays the role of a normal sociopolitical system. In this state, people become resistant and adapt themselves to the situation within a country affected by this phenomenon; outside, however, this phase is marked by outstanding ponerogenic activity.

Meanwhile, in the pathocratic country, the active structure of government rests in the hands of psychopathic individuals, and essential psychopathy plays a starring role. Especially during the dissimulative phase. "

The US would certainly seem to fit the bill. After a period of demonstrably psychopathic behaviour during the Bush presidency we are being treated to the illusion that everything has returned to normal with the election of Obama. It seems that the sudden exposure of Bernard Madoff's Ponzi scheme is part of this illusion; a strategic ploy seeking to convince us that many of the obvious beneficiaries of the insanity of the last 30 years of capitalism are also victims of the financial crisis.

Bernard Madoff is supposed to have pulled off years of financial fraud almost singlehandedly when in reality it would have taken a substantial staff. In the absence of finding his support staff there will be ample reason for speculation as to just who Bernie Madoff worked for and where the money went. Already it is being suggested that he was a Mossad front and that the Obama team are taking real action against the Israel lobby.

We are inclined to speculate slightly differently. It is quite possible and indeed likely that as a wealthy and influential New York Zionist Bernard Madoff has connections with Mossad. It follows that Mossad may have benefited from his Ponzi scheme and may even have provided the resources for him to carry it out for so long. If these speculations are in fact correct then the exposure of Bernard Madoff is part of the same operation; it is, in intelligence parlance, a "limited hang out", designed to deceive.

Such a scenario fits with the "dissimulative phase" of a pathocratic country. There is little doubt that the team Obama is surrounding himself with is as psychopathic as the Bush team and has the same domestic and global agenda. They are seeking to present a normal face to the people of the US while the evidence that they are continuing with the same foreign policy is overwhelming. If Obama and his team had one single ounce of "change" about them, Israel would find itself isolated and pilloried for the holocaust it is perpetrating in Gaza. That it is not points towards the Madoff affair as being far more than it seems and that Israel remains firmly in control in the US.

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 ($)	736.10	742.50	6.40	0.87%
Gold (€)	578.79	589.01	10.22	1.76%
Oil ($)	61.04	57.04	4.00	6.55%
Oil (€)	47.88	47.88	2.63	5.50%
Gold:Oil	12.06	13.02	0.96	7.94%
$ / €	0.7863 / 1.2718	0.7933 / 1.2606	0.007 / 0.0112	0.89% / 0.88%
$ / ₤	0.6393 / 1.5642	0.6784 / 1.4741	0.0391 / 0.0901	6.12% / 5.76%
$ / ¥	98.235 / 0.0102	97.038 / 0.0103	1.197 / 0.0001	1.22% / 0.98%
DOW	8,944	8,497	447	4.99%
FTSE	4,365	4,233	132	3.02%
DAX	4,938	4,710	228	4.62%
NIKKEI	8,583	8,462	121	1.41%
BOVESPA	36,665	35,789	876	2.39%
HANG SENG	14,243	13,543	701	4.92%
US Fed Funds	0.25%	0.25%	0.00	0.00%
$ 3month	0.28%	0.13%	0.15	53.57%
$ 10 year	3.79%	3.73%	0.06	1.58%

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.