The Flight of Reason

By Simon Davies and Donald Hunt
SOTT.net

The Enlightenment brought with it the idea that Reason should govern the affairs of man thereby ensuring Liberty. That Reason and Liberty have been hijacked by the banking and corporate elites who engage in open war and genocide with impunity has never been clearer than today.

Reason has fled, all rationality is gone, we are therefore called to act in defiance of the genocidal murderers in Palestine. In just the same way as the economy is being used to control us, we can exert similar pressure on Israel by boycotting all Israeli goods, all Israeli services and any company that does business with Israel however small.

Reason was held to be the supreme guiding principle of man in the age of Enlightenment, sweeping aside superstition, ignorance and tyranny.

This period [the Enlightenment] is also known as the Age of Reason.

The intellectual and philosophical developments of that age (and their impact in moral, social, and political reform) aspired towards greater rights & liberties for common people based on Self-governance, Natural Rights, Natural Law, central emphasis on Liberty, Individual rights, Reason, common sense, and the principles of Deism. These principles were a revolutionary departure from Theocracy, Autocracy, Oligarchy, Aristocracy, and the Divine Right of Kings. [1]

Reason was meant to guide man into the future to a better world, a world free of Totalitarianism; reason was meant to rid the world of the clear and present evils of tyranny; reason was meant to prevail.

No sooner did the human spirit grasp the idea of Liberty through Reason than another force was hard at work subverting and perverting it - 'free market capitalism', the wealthy tradesmen, skilled artisans, merchants and small industrialists of the bourgeoisie, dominated from behind the scenes by the bankers, the true Money Power. The bourgeoisie manipulated the common people of the 18th century into supporting political reforms which solely benefited the bourgeoisie and the Money Power at the expense of the monarchy and the landed aristocracy. Instead of delivering the liberty so dearly sought by all men and women the bourgeoisie and the Money Power used the common people to challenge and subvert the power of the British monarchy and the landed aristocracy ushering in the age of industrial servitude.

Thus began the destruction of true Reason and the dream of true Liberty. The words were retained, their meaning annulled, such that today freedom and liberty are but hollow parodies. We find ourselves in an age where Reason has fled leaving diseased minds and hearts bereft of all humanity; an age where the bestiality of Israel is supported by those unable to think with Reason or feel with compassion and empathy.

We feel the anger and frustration felt by many at the genocide of the Palestinians, the connivance of our politicians and our inability to stop the slaughter. In seeking some small redress of the evils being perpetrated by Israel, a friend ventured into a supermarket last week, picked up a basket full of items from Israel, took them to the Information and Help desk and politely asked that these items be removed from the shelves and that the company cease to trade in Israeli goods. The receptionist said she would pass the message to her management but that the company didn't take political positions. Our friend responded that genocide is not a political but a moral matter.

When genocide becomes 'political' we have to face the fact that our societies have lost their moral compass, that most people regard politics as boring or irrelevant, something that they "don't follow". The mind control machine has worked its pernicious magic to wipe the minds of most people clean of all reason, all rationality, all balance, all common sense. In the resulting void, bereft of real education and the ability to think, endless loops of propaganda and meaningless drivel are played.

It is no wonder that people are left confused and either retreat into believing whatever they are told to believe or switch off completely. Being in the UK this week, it is staggering to see that the big issues of the week are the politically incorrect terms used by members of the royal family in relation to their Pakistani friends and colleagues; whether an atheist advertisement stating that there is probably no god is legal; whether a police force with already existing draconian powers have sufficient powers to protect the Olympic venues being constructed in London for 2012; and the mathematics of Gordon Brown's job creation scheme which seeks to create 100,000 new jobs each year in a country welcoming 130,000 migrants a year in addition to EU immigration.

On top of this the people of Britain have to contend with evermore invasive powers being granted to the petty tyrants in local, regional and national government; powers that are being used to link databases, read emails, listen to phone calls and monitor web usage. The ancient protections once considered the bedrock of liberty have been swept aside including the one against forced entry into the home. The rights that Pitt the Elder declared, in 1760, thus:-

"The poorest man may in his cottage bid defiance to all the force of the Crown. It may be frail, its roof may shake, the wind may blow through it. The rain may enter. The storms may enter. But the king of England may not enter. All his forces dare not cross the threshold of the ruined tenement."

Like much of the draconian legislation enacted in Britain under the Blair governments, the provisions that swept away this fundamental protection against tyranny were slipped into unrelated legislation, the Domestic Violence, Crime and Victims Bill 2004, at the very last stage of its progress through the parliamentary process. The contempt in which the people of Britain are held by their government is not new, although it is becoming starkly obvious to many who did not acknowledge it previously. If the British feel the contempt in which they are held by their political leaders it is difficult to perceive, for they act like the victims of Trans-Marginal Inhibition, too confused and shocked to be of any threat to the established order. The same contempt and flight of Reason is exhibited throughout the world and in no case more clearly than in relation to the actions of the elite in contrast to the worldwide disgust at Israel whose daily war crimes go unpunished and unremarked by the supposed leaders of the world.

The Israeli propaganda machine was well prepared months in advance of the slaughter in Gaza with a five day TV show of Anne Frank on British TV last week plus another holocaust documentary and numerous flattering articles on Tzipi Livni the Israeli foreign minister. Of course no airtime or column inches were devoted to the Palestinians or to examining the truth of the history of the state of Israel.

Perhaps it is no wonder then that ordinary people are not able to apply Reason and compassion to their daily lives and raise themselves above their own concerns to rail against genocide. Ordinary people in Britain and the US haven't had the courage to fight for their own rights, so it should not surprise us that they cannot be brought to fight for the rights of the victims of genocide in Palestine.

A recently released CD by Thievery Corporation, Radio Retaliation, which we can recommend for the timeliness and sharpness of the political and moral message of its lyrics and album artwork has this to say:-

The Apocalypse is not something which is coming. The Apocalypse has arrived in major portions of the planet and its only because we live in a bubble of incredible privilege and social insulation that we still have the luxury of anticipating the Apocalypse. If you go to much of the Third World then it appears that the Apocalypse has already arrived. (Terence McKenna.)

and

Modern man likes to pretend that his thinking is wide-awake. But this wide-awake thinking has led us into the mazes of a nightmare in which the torture chambers are endlessly repeated in the mirrors of reason. (Octavio Paz.)

It is this same wide-awake thinking, this total absence of Reason, that is driving the current economic phase, commonly called the Financial Crisis. We know that this is not a crisis for the ruling elite but a carefully engineered Shock; a shock to the global economy to achieve global ends.

While we may feel powerless to resist we can in fact make a substantial difference. If we are to have any right to hope for a better future for ourselves and our children we must stand up for the people of Gaza, we must stand up for them today. We must continue to protest where possible but just as importantly we must implement our own sanctions against Israel, we can fight back with our economic power. Naomi Klein has called for us all to boycott Israeli goods and force divestment and sanctions upon all those who deal with Israel, these are the small ways in which we can all isolate Israel just as we need to educate people to isolate psychopaths the world over. The sum of the parts of our individual action is a potent force, a force whose power is acknowledged by the extent to which the ruling elite fear it and the tyranny to which they have stooped in seeking to neutralise it.

In taking individual action against psychopathy and pathocracy we have the power to change the course of history.

Germany has buckled under the mounting pressure to join the bailout approach to the 'crisis', announcing a €50 billion 'stimulus package' which Gordon Brown the UK Prime Minister, himself an avid spender of other people's money, praised. Brown's praise comes after months of pressure on Germany. Quite why Brown felt the need to apply such heavy pressure for Germany to do as he has in the UK is not clear on economic grounds but is clear when one considers the UK Defense Minister's comments that NATO countries that did not join in the Afghan and Iraq wars were hiding behind the 'security' provided by Britain, the US and France. It is the same tactic, create a lie and have those that refuse to believe it cast by your media as cowards, irresponsible, not showing solidarity or seeking a free ride.

All those still possessing Reason know the truth about Afghanistan and Iraq just as they should know the truth about the banking and other economic bailouts; they are a scam, planned and executed for the benefit of parties hidden in the shadows. Brown's insistence that Germany provide the €50 billion 'stimulus package' illustrates the central importance of these bailouts, not in their stated aim, in which they will fail, of rescuing the banking system and small and medium size businesses but in the other effects they will have.

Quite what these other far more important but unspoken of effects will be is of course a matter of speculation. What is apparent is that governments that use bailouts and fiscal stimulus will end up with immense mountains of debt. This will leave each of these nations in the same position vis-à-vis their bankers as developing countries have found themselves vis-à-vis the IMF. Just as IMF debtor nations have found that all domestic political power has been ceded to the IMF and those that dictate the Washington Consensus, so too will the governments of the world that are currently piling on the debt find that domestic political power has been ceded to the bankers.

These bankers will determine, by virtue of the economic reins that they hold, the entire activity of government of every nation. They have in fact been in this position since at least the end of the 19th century but now their power will be even greater, if that is possible to believe. It is these same bankers that constitute the modern Money Power that has its direct inheritance from the Money Power of the 18th century.

This Money Power controls men such as Gordon Brown, Barack Obama, Nicolas Sarkozy, Vladimir Putin and Hu Jintao. These men will do exactly as they are told by the Money Power. The financial bailouts are no exception. They may even believe that the actions they are taking are needed to save us from the 'crisis' so inured are they in the illusion of their own power and importance.

However, the actions being taken today by world leaders are wholly antithetical to the needs of the majority of the people of this planet.

With this in mind it is staggering to see the explosion in US government borrowing as calculated by the St Louis Fed:-




As many have pointed out, the various bank bailout plans haven't worked because they are essentially pushing on a string. However, such commentators miss the point that the bank bailouts are not intended to 'work' in the way proposed; the property and other asset values that have been inflated by the supply of excessive credit are unsustainable so pumping cash and quasi-capital into the system in an attempt to sustain these values is unworkable.

The unworkable nature of the bailouts is illustrated by Karl Denninger's analysis of the 'velocity of money' in the US which has precipitously dropped below "1" as shown in this graph:-



The importance of the 'velocity of money' or the M1 Multiplier is that it is the measure of how much economic benefit is obtained by adding new money to the system. A ratio of "1" means that for every $1 of new money added you get $1 of benefit. Normally, as can be seen on the graph, each new dollar has an effect of 2 to 3 times. However, under the Bush administration this effect has fallen below 1 which means that the effect of each new dollar is less than a dollar. All the new money that is being pumped into the system is therefore being wasted as it is no longer achieving even its own face value in economic benefit.

However, it is creating vast government debt and making governments the bankers of the world thus concentrating vast amounts of direct economic power in these governments - governments that are controlled by the bankers. It seems to us that the scheme is amazingly simple in this respect, the bankers are using the economic rescue to consolidate unprecedented power that is absolute.

The bad news is that when the multiplier is less than one the more money you spew into the economy the worse the impact, as you get less for each additional dollar.

If you remember the "GDP for each dollar of debt" graph....



M1's multiplier going below 1 strongly implies (but does not yet prove) that we have reached that "zero hour".

Why? Because all money is in fact debt; this is inherent in all modern monetary systems.

When Bernanke "creates" money he is doing so against an asset - that is, he is issuing debt. A Federal Reserve Note (whether electronic or paper) is in fact effectively a bond of zero maturity and indefinite expiration against the future tax collection capacity of The United States.

That is, it's a treasury bond (via a circuitous route).

The paradox that Bernanke is in danger of discovering (the hard way) is the paradox of a pilot who finds himself in a flat spin. As the ground approaches he wants to pull back on the stick but if he does so, the spin simply tightens as the wings are not producing lift - the angle of attack is too high, not too low. As such if he does what his brain screams at him to do instinctively, he dies.

Or the scuba diver who sucks on the regulator and gets nothing. Your instinct is to hold your breath and kick for the surface. If you do it you die.

In both cases your only hope of survival is to do exactly the opposite of your instinct. In the case of the pilot you must not only give counter-rudder (to stop the rotation) but also push the stick forward. In the case of the diver you must exhale that last breath you have in your lungs, knowing there are no more in the tank, while you kick to ascend.

If you succumb to instinct you are dead. Really dead, as in splat (or exploded lungs.)

Bernanke is effectively in the same box. The foundation of his entire thesis as a banker is that a central bank can always reverse a deflation by printing money. Unfortunately, as he has done so velocity has fallen and the multiplier has now gone below 1. If this induces him to do even more of what caused this decrease there is a very real risk that the actual market reaction will be to tighten the monetary flat spin.

This is because the underlying problem in the economy isn't the lack of debt (money) in the system. It is that there is too much debt of all sorts, and since money is in fact a form of debt, you can't fix the problem by playing helicopter drop!

As I have said for more than a year the only way out is to force the bad debt out into the open and default it. Yes, this will produce bankruptcies - lots of them, including some for "inconvenient" people like Paulson's buddies on Wall Street.

But until and unless that happens adding more debt to the system depresses the multiplier effect of that debt on circulation further, and harms, rather than helps the situation.

I don't expect our government officials to understand the math on this, nor would trying to go through it help 99% of the readers, but unfortunately, mathematics is the only true science - and you can't twist it, no matter how hard you try.

Bernanke knows this at an intellectual level, just as the diver - or pilot - knows that if he holds his breath (or pulls the stick) he is going to die.

The question now becomes whether Bernanke can overcome not only instinct but also political pressure to do the wrong thing and instead use his intellect - and the math - to do the right thing.

What is the right thing? Paradoxially, it is to withdraw liquidity and by doing so force the bad debt into the open where it does (and must) default.

How far can the above ratio contract before we cross an "event horizon" from which there is no escape?

I don't know.

But I do know that there is a "too late" point, as there is for all such things, and that we are approaching it, as I have been saying for months.

BTW, evidence that Bernanke's Monetary Flat Spin is already impacting the economy in ways that may do critical (if not fatal) damage was found this morning in the Case-Schiller numbers. Everyone, including Bernanke, was expecting the rate of home price declines to start to slow in the second half of the year. Instead, they accelerated.

We're in uncharted territory folks, and the forecast is for dark-and-stinky storms.

Buckle up.

The broader economic news paints the picture of a world unable to save itself from the trap it has fallen into.

Markets

The markets this week (to Jan 9th)

	Previous week's close	This week's close	Change	% change
Gold (USD)	876.80	854.00	22.80	2.60%
Gold (EUR)	629.79	634.71	4.91	0.78%
Oil (USD)	46.35	40.62	5.73	12.36%
Oil (EUR)	33.29	30.19	3.10	9.32%
Gold:Oil	18.92	21.02	2.11	11.14%
USD / EUR	0.7183 / 1.3922	0.7432 / 1.3455	0.0249 / 0.0467	3.47% / 3.35%
USD / GBP	0.6874 / 1.4548	0.6593 / 1.5168	0.0281 / 0.0620	4.09% / 4.26%
USD / JPY	91.830 / 0.0109	90.359 / 0.0111	1.471 / 0.0002	1.60% / 1.83%
DOW	9,035	8,599	436	4.82%
FTSE	4,562	4,449	113	2.48%
DAX	4,973	4,784	189	3.80%
NIKKEI	8,860	8,837	23	0.26%
BOVESPA	40,244	41,583	1,339	3.33%
HANG SENG	15,043	14,377	665	4.42%
US Fed Funds	0.06%	0.07%	0.01	16.67%
$ 3month	0.08%	0.06%	0.02	25%
$ 10 year	2.37%	2.39%	0.02	0.84%

United States

The big news last week in the United States was the release of December job numbers. They were bad. The U.S. lost more than half a million jobs in December, the biggest loss since 1945.

Many have pointed out that the financial system of the past generation works like Madoff's Ponzi scheme. The cartoonist Ruben Bolling makes the point that the United States has worked that way since its founding:



Canada

Canadian unemployment rose to 6.6% and its dollar slumped as it is being hit lower demand from the United States and lower commodity prices. Alberta, for example, previously booming from oil and gas development, lost the most jobs of all Canadian provinces (15, 800).

Western Europe

Industrial output is collapsing throughout Europe.

...Industrial output in Germany, the euro area's largest economy, fell a seasonally adjusted 3.1 percent from October, extending the worst decline since data for a reunified Germany was first compiled in 1991, the Economy Ministry in Berlin said today. In France, production tumbled 2.4 percent in November, the fourth monthly decline, the statistics office in Paris said.

Companies are scaling back production and cutting jobs after the global financial crisis pushed Europe into a recession last year. Interest-rate cuts of 175 basis points and billions of euros in stimulus measures have failed to reverse a slide in consumption and confidence. The 16-nation euro area will shrink in 2009 for the first time since the single currency began a decade ago, according to forecasts from ECB staff and the International Monetary Fund.

"The ECB still has room for maneuver," said Dominic Bryant, an economist at BNP Paribas in London. "There's not much point in waiting when you know that you'll get bad data. It doesn't take a genius to work out that the fourth quarter will be extremely weak in the eurozone."

Industrial production in November also declined in Spain, Greece, Slovenia and the euro area's newest member, Slovakia, reports released today show. It also fell in Britain, which has resisted pressure to ditch sterling for the euro...

Such numbers helped the Euro fall against the dollar which is pressuring the European Central Bank to lower interest rates. Prospects of interest rate declines in the Euro Zone prompted the Euro to fall against the dollar last week.

In the U.K., Prime Minister Gordon Brown announced a half trillion pound stimulus plan while Spain, Ireland and Portugal have been threatened with having their credit ratings downgraded and Greece has already suffered this fate.

It is interesting to note that Greece has seen the beginning of what is likely to become widespread social unrest as a result of the financial crisis and the methods of oppression of the ruling elites. The reduced credit rating has pushed up the cost of borrowing for Greece which is holding off refinancing in the hope of the situation improving. Greece is at the mercy of its creditors who, as we stated above, will now dictate the domestic political agenda. The Greek government can now be squeezed so as to implement the policies of the Money Power. If the money power wishes there to be widespread civil unrest in Greece it will prevent refinancing and steadily push up the cost of what finance there is until the Greek government has no choice other than to cut back on essential public services, people will take to the streets after which the politically isolated and generally right wing police can be relied upon to inflame the situation and 'do the rest'. It is all in the hands of the Money Power.

Every sovereign nation in the Eurozone is in the same position having lost economic power to the bankers as soon as the Euro was introduced.

Eastern Europe

The dispute between Russia and Ukraine on natural gas shipments was resolved last week, with Ukraine agreeing to European monitors of gas pipeline flows through the country. This led to a rise in Russian stock prices. Despite the fact that the resolution of the dispute seems to support Russia's contention that Ukraine was stealing gas you'd be forgiven for thinking otherwise if you rely on the British press for your news. In the UK the propaganda machine has been in full anti-Putin and anti-Russia mode.

Africa

Rand Posts Biggest 5-Day Drop Since October on Growth Concern

South Africa's rand posted its biggest weekly drop in 2 1/2 months after manufacturing sank the most in nine years and house prices grew the least in 12 years, more signs the continent's largest economy is slowing.

[ ]

"The declining global growth story and the negative impact it's having on the domestic economy is what's driving rand negativity," said Natheem Alexander, a bond and currency trader at Peregrine Quant, a hedge fund in Cape Town. "Poor growth tends to translate into currency weakness."

[ ]

Factory output, which accounts for 16 percent of South Africa's $278 billion economy, contracted for a second straight month in November, slumping 4.4 percent, Pretoria-based Statistics South Africa said this week. Manufacturers including ArcelorMittal South Africa Ltd., the country's biggest steel producer, are scaling back output on lower demand.

South African house-price growth slid to 3.8 percent in 2008, the slowest in 12 years, as interest rates at a five-year high hurt consumers, mortgage lender Absa Group Ltd. said. Growth in nominal house prices eased from 14.5 percent in 2007, Absa said.

Congo raised interest rates to 40% in an attempt to halt a currency collapse.

The rate was increased from 28 percent after a drop in oil, wood and mineral-export revenue, as well as spending on a war against rebels in the eastern Congo, caused the franc to drop against the dollar, according to a government statement given to Bloomberg News today in the capital, Kinshasa. The currency has fallen about 23 percent to 677 against the U.S. currency since Oct. 1, according to Bloomberg data...

Congo's economy depends on exports of metals and minerals such as copper and cobalt, which slumped last year as the global financial crisis sapped commodity demand. Copper dropped 54 percent on the London Metal Exchange, the most since at least 1987 as recessions in the U.S., Japan and Germany curbed demand for industrial metals. Cobalt, used to make rechargeable batteries, was $18.50 a pound in December, down from a record $52.25 a pound in March, according to the cobalt sales Web site from BHP Billiton Ltd.

Many producers in Congo have stopped operating until prices recover.

Latin America

In a further example of the imbalance of economic power, a U.S. court ordered Argentina to pay holders of bonds that defaulted in 2001 $2.2 billion.

In Conclusion

As Chris Floyd eloquently stated:-

Programs to help ordinary citizens, programs to enhance the quality of life for individuals and the well-being of society, will be the first - perhaps the only - areas to feel the budget axe. Whatever you may think of the efficacy of such programs, this ordering of priorities -- war and profits over people -- bespeaks the same depraved sensibility that has prevailed for generations in Washington. It is the same old rancid swill in a stylish new container.

Anatole Kaletsky writing in The London Times did at least grudgingly admit to being "wrong about so many aspects of this crisis - as have most conventional economists and policymakers". Indeed, "most conventional economists and policymakers" have been spectacularly wrong because they base their opinions and analysis on illusions. As if to illustrate the depth of these illusions Kaletsky continues:-

"Britain and (very soon) the US have decisive governments with clear majorities and proactive economic philosophies, in contrast to the slow-moving, reactive governments of Europe and Japan, where policy changes, if and when they eventually happen, will have little impact until 2010 and beyond.

Finally, there is the flow of ideas across the Atlantic, most of it one way. British public opinion will be strongly swayed by the policies of President Obama - even if no one in Wichita pays any attention to what is happening in the UK."

Meanwhile, the central banks in both countries are trying as hard as they can to make people save less. In the US, interest rates on bank deposits have been cut to zero and the Fed has just announced that it may buy long-term government bonds to squeeze five-year and ten-year rates as close as possible to zero. The result is that US mortgage rates are falling to the lowest level on record and banks, which can no longer earn risk-free returns by placing money with the Government, have no alternative but to lend to businesses and consumers. Britain is pursuing the same monetary logic, if a few months late.

The next logical step, although it may be politically controversial, would be to do the opposite of what the Tories suggest. Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property, shares and other productive assets - or simply to save less and consume more. In either case, the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.

The sheer gall of commentators such as Kaletsky is only dwarfed by their infinite stupidity and perfidy not to mention their reckless irresponsibility.

Matthias Chang, in a well argued article demonstrated that the power behind the political façade is that of the Secret Money Lenders; much as we have just seen in our discussion of Circles of Power and the Money Power. However, Chang said that the abandonment of free market principles by Bush and Brown in seeking to "save" free market capitalism will result in a Socialist, for which he seems to mean Communist, world government. We do not agree, the World Government which is indeed being implemented is no more socialist than Soviet Russia was, it is Pathocratic.

All this in a world that values a football player at £107 million and wishes to pay him £500,000 a week.

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.