Do We Understand How Far We Have Come?

As the issues of the world continue to unfold, it can look like a glass half empty or a glass half full.  I think we suffer from several classes of amnesia.  In its shortest frame it called the 30 second average attention span that many from marketing and politics count on, or it is generational type, where none of the current generation remember the JFK assassination or the Vietnam War or dial phones for that matter.  At the long end of the spectrum there is the ERA gap.  You have to be a scholar to appreciate where we are now as compared to say 18^th or 19^th century is any terms you would like to measure. I think we can all agree on these points.

However, events unfolding here and now globally are not entering our consciousness by deliberate efforts of MSM to not report them, as they faithfully obey orders.  The truth is people all over the world are beginning to free themselves from their economic bonds in the most miraculous ways.  Isn’t strange that you are not hearing what is transpiring in Iceland, and are barely aware of the importance of what has happened with the elections in Greece and France?

As we begin the political debates in the US, in the most generalized of terms, the debate seems to be the arguments of AUSTERITY vs. SOCIALISTIC government.  The inference is we need to cut deficits vs. spending on infrastructure and social programs that will generate jobs and much needed tax revenue.  On its surface, that seems to be a logical argument, but when examined closely it is somewhat comparing apples to oranges.  Isn’t it odd that you don’t seem at this moment to understand why not?

What has actually happened in the world after the 2008 crash was both philosophies were applied by various governments.  So it seems also logical to look at the results so far.  The EU and the UK applied severe austerity programs.  These programs brought Ireland, Greece, Spain, Italy and Portugal nearly to anarchy.  Unemployment sky-rocketed, growth stagnated and even went negative.  The austerity programs did not result in deficit reduction.  Quite the contrary, deficits increased because tax revenue contracted dramatically.  One only has to ask, who benefits from austerity programs?

Then, within the last year a revolution began. Not a revolution in the street, although riots in Greece, Spain, UK, Italy, Ireland, and the US with the Occupy Movement did occur, but within the political and governmental institutions.  Iceland led the way.

In Iceland, the people have made the government resign, the primary banks have been nationalized, and by referendum, it was decided to not pay the debt that these political criminals created with Great Britain and Holland due to their bad financial policies.  Further, a public assembly has been created to rewrite the constitution, and all of this was accomplished in a peaceful way. A whole country revolution against the powers that  created the current global crisis in the first place. This is why there hasn’t been any publicity concerning this during the last two years.

This was accomplished by 25 citizens being chosen, with no political affiliation, out of the 522 candidates. For candidacy all that was needed was to be an adult and have the support of 30 people. The constitutional assembly started in February of 2011 to present the ‘carta magna’ from the recommendations given by the different assemblies happening throughout the country. It must be approved by the current Parliament and by the one constituted through the next legislative elections.

So in summary here are the accomplishments of the Icelandic revolution:
-resignation of the whole government
-nationalization of the bank.
-referendum so that the people can make the economic decisions of the country.
-incarcerating the responsible parties
-rewriting of the constitution by its people

WOW! Isn’t strange you hear nothing of this?  Really if there is anything of reality left, one must at minimum begin to suspect we are “being managed”.  However, enough people were following what was happening in Iceland and these past elections in Greece and France, the “Managers” were handed their heads.  I think these ideas will spread to the rest of the EU and the UK this summer.

In the US, the debate seems more about empowering women and the LGBT population, or is that the distraction?  All freedom and opportunity extends from economic freedom.  THIS IS THEN THE DEBATE that needs to occur.  While the US response so far to the collapse has been a mixed bag of spending and austerity, the gains have been better than going the other direction, but they are far from being enough.

What the Austerity camp says we have to respond to the reality of debt versus federal income and they would show a chart like this:

What that really means is this trend continuing:

 Again, you have to ask the question “who benefits from federal deficits the most? You have to kind of link this concept to a seemingly disconnected reality.  That reality is the question of who did the banks lose all those trillions of dollars to that WE made good?  Who was the beneficiary of those loses? The money just doesn’t evaporate.  When a JPM Chase says it “lost” $3 trillion in 6 weeks, it means they had to PAY someone $3 trillion dollars.  Who was that?  Hmmm.

It is all a rathole that is siphoning our money.  We all know who the rats are and maybe it is time to look again at what has been accomplished in Iceland and adopt those kinds of approaches.

What Goes Up….! Where is the Down?

A lot of people lament the lack of upward mobility in the U.S. right now and I share those sentiments. However, equally important is downward mobility. What makes the concept of America unique is not merely the concept that the poor can become rich but that the rich can become poor. It is this second part that is the most dangerous to social cohesion when it disappears. Unfortunately, the system that we have today of an unholy alliance between Wall Street, Washington D.C. and the multi-national corporations (including the military industrial complex of course) stands there holding onto all the levers of power to serve as gatekeepers of their own empires.

Consider this when we think about how the game is “rigged” right now.  From Matthew Cardinale of the
Inter Press Service on  28 Aug 2011.

Atlanta, Georga: The first-ever audit of the U.S. Federal Reserve has revealed 16 trillion dollars in secret bank bailouts and has raised more questions about the quasi-private agency’s opaque operations.   “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else,” U.S. Senator Bernie Sanders, an Independent from Vermont, said in a statement.   The majority of loans were issues by the Federal Reserve Bank of New York (FRBNY).

“From late 2007 through mid-2010, Reserve Banks provided more than a trillion dollars… in emergency loans to the financial sector to address strains in credit markets and to avert failures of individual institutions believed to be a threat to the stability of the financial system,” the audit report states.  “The scale and nature of this assistance amounted to an unprecedented expansion of the Federal Reserve System’s traditional role as lender-of-last-resort to depository institutions,” according to the report.   The report notes that all the short-term, emergency loans were repaid, or are expected to be repaid.

The emergency loans included eight broad-based programs, and also provided assistance for certain individual financial institutions. The Fed provided loans to JP Morgan Chase bank to acquire Bear Stearns, a failed investment firm; provided loans to keep American International Group (AIG), a multinational insurance corporation, afloat; extended lending commitments to Bank of America and Citigroup; and purchased risky mortgage-backed securities to get them off private banks’ books.

Overall, the greatest borrowing was done by a small number of institutions. Over the three years, Citigroup borrowed a total of 2.5 trillion dollars, Morgan Stanley borrowed two trillion; Merryll Lynch, which was acquired by Bank of America, borrowed 1.9 trillion; and Bank of America borrowed 1.3 trillion.  Banks based in counties other than the U.S. also received money from the Fed, including Barclays of the United Kingdom, the Royal Bank of Scotland Group (UK), Deutsche Bank (Germany), UBS (Switzerland), Credit Suisse Group (Switzerland), Bank of Scotland (UK), BNP Paribas (France), Dexia (Belgium), Dresdner Bank (Germany), and Societe General (France).

“No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the President,” Sanders wrote.   In recent days, Bloomberg News obtained 29,346 pages of documentation from the Federal Reserve about some of these secret loans, after months of fighting in court for access to the records under the Freedom of Information Act.  Some of the financial institutions secretly receiving loans were meanwhile claiming in their public reports to have ample cash reserves, Bloomberg noted.   The Federal Reserve has neither explained how they legally justified several of the emergency loans, nor how they decided to provide assistance to certain firms but not others.

“The main problem is the lack of Congressional oversight, and the way the Fed seemed to pick winners who would be protected at any cost,” Randall Wray, professor of economics at University of Missouri- Kansas City, told IPS.   ”If such lending is not illegal, it should be. Our nation really did go through a liquidity crisis – a run on the short-term liabilities of financial institutions. There is only one way to stop a run: lend reserves without limit to all qualifying institutions. The Fed bumbled around before it finally sort of did that,” Wray said.

“But then it turned to phase two, which was to try to resolve problems of insolvency by increasing Uncle Sam’s stake in the banksters’ fiasco. That never should have been done. You close down fraudsters, period. The Fed and FDIC (Federal Deposit Insurance Commission) should have gone into the biggest banks immediately, replaced all top management, and should have started to resolve them,” Wray said.

For many years conventional wisdom has said that the whole world is controlled by the monied elite, or more recently by the huge multi-national corporations that seem to sometime control the very air we breathe. Now, new research by a team based in ETH-Zurich, Switzerland, has shown that what we’ve suspected all along, is apparently true. The team has uploaded their results onto the preprint server arXiv.

Using data obtained (circa 2007) from the Orbis database (a global database containing financial information on public and private companies) the team, in what is being heralded as the first of its kind, analyzed data from over 43,000 corporations, looking at both upstream and downstream connections between them all and found that when graphed, the data represented a bowtie of sorts, with the knot, or core representing just 147 entities who control nearly 40 percent of all of monetary value of transnational corporations (TNCs).

When we look to the East and watch our Arab brothers struggle against tyranny, I don’t think we connect their struggle to us.  However, I assure you that the roots of that struggle was economic slavery, not unlike we, both in the US and the EU, are rapidly marching (or is it being herded?) toward at this very minute.

As we awaken to these facts, it is apparent that the PTB, who wish to continue their “project”, are having more and more of a difficult time unfolding “their solutions” to our problems.  You know “solutions’ like raiding retirement and pension funds, eliminating worker’s unions, ending any “social programs” of any kind.

Probably the most important news story of September 7^th won’t be reported by International MSM.  No, it won’t be Obama’s speech on Jobs, nor will it be the outcome of the first games in the NFL.  It will be this.

Seething discontent in Germany over Europe’s debt crisis has spread to all the key institutions.  German Chancellor Angela Merkel no longer has enough coalition votes in the Bundestag to secure backing for Europe’s revamped rescue machinery, threatening a constitutional crisis in Germany and a fresh eruption of the euro debt saga.

Mrs. Merkel has cancelled a high-profile trip to Russia on September 7, the crucial day when the package goes to the Bundestag and the country’s constitutional court rules on the legality of the EU’s bail-out machinery.   If the court rules that the €440bn rescue fund (EFSF) breaches Treaty law or undermines German fiscal sovereignty, it risks setting off an instant brushfire across monetary union.

The seething discontent in Germany over Europe’s debt crisis has spread to all the key institutions of the state. “Hysteria is sweeping Germany ” said Klaus Regling, the EFSF’s director.  German media reported that the latest tally of votes in the Bundestag shows that 23 members from Mrs Merkel’s own coalition plan to vote against the package, including twelve of the 44 members of Bavaria’s Social Christians (CSU). This may force the Chancellor to rely on opposition votes, risking a government collapse.

Christian Wulff, Germany’s president, stunned the country last week by accusing the European Central Bank of going “far beyond its mandate” with mass purchases of Spanish and Italian debt, and warning that the Europe’s headlong rush towards fiscal union strikes at the “very core” of democracy. “Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies,” he said.

A day earlier the Bundesbank had fired its own volley, condemning the ECB’s bond purchases and warning the EU is drifting towards debt union without “democratic legitimacy” or treaty backing.  Joahannes Singhammer, leader of the CSU’s Bundestag group, accused the ECB of acting “dangerously” by jumping the gun before parliaments had voted. The ECB is implicitly acting on behalf of the rescue fund until it is ratified.

Mrs. Merkel faces mutiny even within her own Christian Democrat (CDU) family. Wolfgang Bossbach, the spokesman for internal affairs, said he would oppose the package. “I can’t vote against my own conviction,” he said.   The Bundestag is expected to decide late next month on the package, which empowers the EFSF to buy bonds pre-emptively and recapitalize banks. While the bill is likely to pass, the furious debate leaves no doubt that Germany will resist moves to boost the EFSF’s firepower yet further. Most City banks say the fund needs €2 trillion to stop the crisis engulfing Spain and Italy.   Mrs. Merkel’s aides say she is facing “war on every front”. The next month will decide her future, Germany’s destiny, and the fate of monetary union.

I make all these points because we must think clearly and precisely now.  No politics, nor economic religion, just fix this now, and we can.  We start by taking some people DOWN.  Start to put some balance back into the equation.  I think the audit of the FED would be an excellent place to start that quest.

Secondly, we must be informed voters and place candidates that understand clearly the goals of restoring balance into our global economy through prudent but thorough regulatory changes.  That must, by its nature, start with the political process elements of our societies.   I cannot think of anything more important to you on a personal basis than this.

 

For the Sake of Kids Now!

We hear politicians hell bent on destroying any governmental “social” programs saying that we have to make these drastic cuts for the sake of our children or grandchildren.  Hinting that we are placing a burden on their future, “mortgaging” the future is the term most stated.

I think they and us need to be grounded to the reality of the “Right Now” when it comes to children in America.   Let us consider facts and not rhetoric.

There are 314 counties in the United States where at least 30% of the children are facing food insecurity.  Food insecurity is the household-level economic and social condition of limited or uncertain access to adequate food. Food insecurity rates among households with children are substantially higher than those found in the general population, reports Feeding America, which along with network members supplies food to more than 37 million Americans each year, including 14 million children and 3 million seniors.  In Washington D.C., the “child food insecurity rate” is 32.3%.

Children in the United States are three times more likely to be prescribed antidepressants than children in Europe are.

It is estimated that up to half a million children may currently be homeless in the United States.  Perhaps the greatest victims of the economic nightmare that is unfolding right in front of our eyes are our children.  The overall economic numbers are really bad, but when you examine the impact that this economy is having on children things get really horrifying.  Today, 1 in 5 American children live in poverty and 1 in 4 American children are on food stamps.  Experts tell us that about 50 percent of all U.S. children will be on food stamps at some point before they reach the age of 18.  Up to half a million American children are homeless even as you read this.  And yet we continue to insist that we are the wealthiest nation in the world.  Well, if we are so wealthy, then why are so many millions of our children suffering so desperately?  More than 20 million U.S. children rely on school meal programs to keep from going hungry.

There are more than 3 million reports of child abuse in the United States every single year.  A report of child abuse is made every ten seconds.  Almost five children die every day as a result of child abuse. More than three out of four are under the age of 4.  It is estimated that between 60-85% of child fatalities due to maltreatment are not recorded as such on death certificates.

90% of child sexual abuse victims know the perpetrator in some way; 68% are abused by family members.  Child abuse occurs at every socioeconomic level, across ethnic and cultural lines, within all religions and at all levels of education. 31% percent of women in prison in the United States were abused as children.  Over 60% of people in drug rehabilitation centers report being abused or neglected as a child.

About 30% of abused and neglected children will later abuse their own children, continuing the horrible cycle of abuse.  About 80% of 21 year olds that were abused as children met criteria for at least one psychological disorder.  The estimated annual cost of child abuse and neglect in the United States for 2007 is $104 billion.  Abused children are 25% more likely to experience teen pregnancy.  Abused teens are 3 times less likely to practice safe sex, putting them at greater risk for STDs.

How can we even consider ourselves “civilized”, let alone thinking we are the “best” in the world as a civilization when we currently face realities like we now face?    In fact, we should be doing the exact opposite of cutting programs, and instead should be heavily investing in our CHILDREN NOW!!

How long do we remain silent as the education system, Medicaid, and school nutritional programs are being slashed beyond bare bones?  How long do we allow the imbeciles to dictate the current and future course of the very foundations of the principles that made America…. America?

It is my strongest hope that the next election cycle, each and everyone of us will step up to the full responsibility of being a citizen.  That means we will all vote and we will all vote based on being truly informed.

Budgets Lies, Manipulation, and Other Criminal Distortions

As the US faces massive deficits and the wealthy continue to raid both the Federal and State coffers unchecked.  As the social “safety net” is ripped to shreds and the assault continues on the middle class globally.  The most defenseless and poor of the world are bearing the brunt of this unchecked greed, power, and hubris, the facts are most grossly distorted.

In the US, but in other countries as well, the mantra is the social programs will be the downfall of the fiscal equation and are the cause of the current financial crisis.  In the US, it is Social Security, Medicaid, and Medicare will be the ruin of life as we know it.  That is the biggest lie of all!

Consider this from Sherwood Ross who heads a public relations firm “for good causes” and also runs the Anti-War News Service.  You can reach him at sherwoodross10@gmail.com if you would like more details.

“As long as the $1.2-trillion annual budget for the military-security complex is off limits (to cutting), nothing can be done about the US budget deficit except to renege on obligations to the elderly, confiscate private assets (which includes the physical gold and silver hoarding that is afoot)or print enough money to inflate away all debts,” Paul Craig Roberts, former Assistant Treasury Secretary under President Reagan warns.

In an article titled “Stealing from Social Security to Pay for Wars and Bailouts,” published in the April issue of the “Rock Creek Free Press” of Washington, D.C., Roberts says that Republicans are calling Social Security and Medicare “entitlements”—making them sound like welfare—when, in fact, workers over their lifetimes have contributed 15 percent of all their earnings to the payroll tax that funds these benefits and have every right to them.

And far from Social Security being in the red, between 1984 and 2009, Roberts writes, “the American people contributed $2-trillion…more to Social Security and Medicare in payroll taxes than was paid out in benefits” but “the government stole” that sum to fund wars and pork-barrel projects!

What’s more, under one realistic estimate, far from crashing into the red, “Social Security (OASDI) will have produced surplus revenues of $31.6-trillion by 2085, Roberts says.

Americans, apparently, are unaware of how the federal government’s illegal, foreign wars sap the economy and rob every household. The Iraq war cost alone is 20 percent of the size of last year’s entire U.S. economy. Instead of investing that sum at home, “which would have produced income and jobs growth and solvency for state and local governments, the US government wasted the equivalent of 20% of the economy in 2010 in blowing up infrastructure and people in foreign lands,” Roberts says.

“The US government spent a huge sum of money committing war crimes, while millions of Americans were thrown out of their jobs and foreclosed out of their homes,” he added. Viewed another way, the Pentagon continues to expand and put people to work to modernize its 700-800 bases abroad in order to dominate every corner of the globe while public works and public employment in America are going into the toilet.

“When short-term and long-term discouraged workers are added …the US has an unemployment rate of 22%,” Robert says. A country with that large a percentage out of work “has a shrunken tax base and feeble consumer purchasing power.”

The U.S. media, he claims, is only reporting one-third of the real cost of the wars, leaving out the sums needed for “lifelong care for the wounded and maimed, the cost of lifelong military pensions of those who fought in the wars, the replacement costs of the destroyed equipment, the opportunity cost of the resources wasted in war, and other costs.”

President Obama’s budget, if passed, doesn’t reduce the deficit over the next 10 years by enough to cover the projected deficit in the fiscal year 2012 budget alone, the financial authority writes. “Indeed, the deficits are likely to be substantially larger than forecast,” as the military-industrial complex “is more powerful than ever and shows no inclination to halt the wars for US hegemony,” Roberts says.

Add to this the fact that the FED is sitting on its largest excess reserve in history Federal Reserve Aggregate Reserves, over $1.4 Trillion dollars and corporate cash reserves are at historical levels, one really must start questioning what is really afoot here.

Understanding this reality exposes the PTB and their political hacks for what they really are up to in this effort to strip governments and make them appear inept.  Don’t buy it.

If you look at the so-called “budget crisis” in Wisconsin, New Jersey, etc, these so-called large deficits are equal to the tax breaks passed into law for corporations and the wealthy.  Just do the math. Just do the math.

There is no question the US government will have ongoing deficits of $1.3 to $2.2 trillion annually for some time to come. If this is the case there is no chance of the debt of government ever being paid. That means official devaluation and default, although it will be done jointly by many countries. The US debt limit will be raised. The Republicans are playing politics and remember the same group of thieves overwhelmingly controls both parties. It will also be interesting to see how, before the end of the year, the Treasury places more than $2 trillion in bonds. We bet the Fed buys about $1.7 trillion. This has to push up real interest rates by ½% to ¾% by the end of the year and the same should happen in 2012. Foreigners and even PIMCO does not want to purchase Treasury bonds, notes and bills. In order to entice such buyers, yields will have to move up a point now and a point later. As part of that sequence of actions by buyers quantitative easing would have to end, as well as stimulus, and budget deficits would have to be cut realistically, not by $33 billion paltry dollars. Incidentally GDP growth under those circumstances would be minus 3 to minus 6 percent. The Fed has little trouble holding up and manipulating the short end of the bond market, but the long end is another matter. It is not only QE2 and manipulation, but also the Fed’s continuing to purchase CDO’s and MBS, which are toxic waste from banks to get the debt off of banks’ books and to liquefy them. The purchase of US dollar denominated bonds, especially Treasuries, is coming to an end. We cannot expect the Fed to continue indefinitely to do what it is doing. It can only end in hyperinflation. We might add that JPMorgan Chase soon will forge a civil settlement concerning fraud relating to CDOs and MBS. Again no jail time; it is a national disgrace. Those people should have been prosecuted criminally. As you can see money buys everything. If QE3 is implemented, and we believe it will be, classical economics says the result, hyperinflation, is inevitable.

I would contend hyperinflation is already here, given the price of oil and food commodities.  These are the factors that is flaming the fire of global revolution, which will soon be in a town near you.  There is an ancient saying that states, “if a man cannot choose the manner of his living, he will choose the manner and time of his death.”

There is time, very little time, but still time to wake up as a people and demand fiscal responsibility and regulations; time to legislate a re-distribution of the wealth that has been illegally taken from the people.  The time has come to begin the criminal investigation of those banksters, politicians and lobbyists who have perpetrated this fraud and corruption on the people of the world.

Global Revolution Must Occur

Some are looking the phenomena occurring in the Middle East as if somehow it is unique to that region and we would like to believe it is related to monarchies or religion.  I assure you nothing would be further from the truth and the facts.  I just returned from the region.  I was in fact in the streets the night Mubarak stepped down.  It is about a dignified living.

Now, in the US we have stirrings in Wisconsin, Indiana, New York, and Ohio.  We witnessed the “in-your-face” fake David Koch call to Governor Walker of Wisconsin.  What is happening in Wisconsin will spread everywhere.  Governors are meeting in Washington today to discuss the overwhelming $175 Billion budget shortfalls collectively facing the states.

However, attempting to bust unions and collective bargaining in the face of the enormous tax cuts given to the ultra wealthy is just not going to sit here as it has not been accepted globally.  There is a moment when the masses do their own math and guess what doesn’t add up?  Distribution of wealth in the society is the problem.  It is that simple and it has reached the event horizon.

The PTB and their political hacks actually still believe they can maintain their power structure and as a result they move forward with the methodical destruction of the world’s middle class as the “cost” to maintain their position.  Their solution: just print more money everywhere! Consider this great reporting by Michael Snyder – BLN Contributing Writer.

“If the U.S. dollar is being devalued so rapidly, then why does it sometimes increase in value against other global currencies?  Well, it is because everybody is recklessly printing money now.  The 6 charts which you are about to see below prove this.  The truth is that it is not just the U.S. Federal Reserve which has been printing money like there is no tomorrow.  Out of control money printing has also been happening in the UK, in the EU, in Japan, in China and in India.  There are times when one particular global currency will fall faster than the others, but the reality is that they are all being rapidly devalued.  Unfortunately, this is a recipe for a global economic nightmare.

Right now you can almost smell the panic as it rises in global financial markets.  Investors all over the world are racing to get out of paper and to get into hard assets.  Just about anything that is “real” and “tangible” is hot right now.  Gold hit a record high last year and it is on the rise again.  In fact, it just hit a new five-week high.  Demand for silver is becoming absolutely ridiculous right now.  Oil is marching up towards $100 a barrel again.  Agricultural commodities have exploded in price over the past year.  Many investors are even gobbling up art and other collectibles.

Paper money is no longer considered to be safe.  All over the globe investors are watching all of the reckless money printing that has been going on and they are becoming alarmed.  An increasing number of investors and financial institutions are putting their wealth into hard assets that are real and tangible in an effort to preserve their wealth.

The other day, a reader of this column named James sent me some charts that he had put together.  I thought they were so good that I asked him if I could include them in an article.  These charts show how central banks all over the globe have been recklessly printing money.  Over the last 30 years virtually the entire world has developed a great love affair with fiat currency….

So is everyone printing money?

The U.S. is printing lots of money…..

Source, The St. Louis Fed

The Bank of England is printing lots of money…..

Source: The BoE

The EU is printing lots of money….

Source: The ECB

Japan is printing lots of money…..

Source: The BoJ

China is printing lots of money…..

Source: The People’s Bank of China

India is printing lots of money…..

Source: Reserve Bank of India

Of course anyone with half a brain can see where all of this is ultimately headed.  In the end, inflation is going to spiral out of control and we are going to witness financial implosion on a global scale. So why don’t these nations just adopt sound money?

Well, it turns out that if you are a member of the IMF, you are specifically prohibited from having gold-backed currency.  Yes, you read that correctly.

In fact, U.S. Representative Ron Paul once sent an open letter to the U.S. Treasury and the Federal Reserve asking about this and he received no response.  The following is the content of that letter….

Dear Sirs:

I am writing regarding Article 4, Section 2b of the International Monetary Fund (IMF)’s Articles of Agreement. As you may be aware, this language prohibits countries who are members of the IMF from linking their currency to gold. Thus, the IMF is forbidding countries suffering from an erratic monetary policy from adopting the most effective means of stabilizing their currency. This policy could delay a country’s recovery from an economic crisis and retard economic growth, thus furthering economic and political instability.

I would greatly appreciate an explanation from both the Treasury and the Federal Reserve of the reasons the United States has continued to acquiesce in this misguided policy. Please contact Mr. Norman Singleton, my legislative director, if you require any further information regarding this request. Thank you for your cooperation in this matter.

Ron Paul
U.S. House of Representatives

Sadly, the truth is that the global elite don’t want nations to start adopting gold-backed currencies.  They want countries to use fiat currencies that they can openly manipulate for their own benefit.

At this point, every nation on earth (to the best of my knowledge) uses a fiat currency.  All of the major global currencies are being continually devalued.  In fact, there are times when counties will purposely devalue their currencies even more rapidly in order to gain a competitive advantage in world trade.

This is why so many investors now have such an aversion to paper currency.  It starts losing value the moment you take possession of it.  In some areas of the world, “gold fever” is absolutely exploding.  For example, China imported five times as much gold in 2010 as it did in 2009.  On the Shanghai Gold Exchange, trading volume soared 43 percent during the first 10 months of 2010.

And while these reckless monetary policies continue, consider the fact that NOT ONE individual has faced any kind of criminal charges in the 2008 collapse, NOT ONE.  However, the “Baby Ruth” always floats to the top of the pool.  Consider this just out over at the Huffington Post.

Source: Huffington Post

Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.

The fact that a significant slice of the proceeds secured by Goldman through the AIG bailout landed in its own account–as opposed to those of its clients or business partners– has not been previously disclosed. These details about the workings of the controversial AIG bailout, which eventually swelled to $182 billion, are among the more eye-catching revelations in the report to be released Thursday by the bipartisan Financial Crisis Inquiry Commission.

The details underscore the degree to which Goldman–the most profitable securities firm in Wall Street history–benefited directly from the massive emergency bailout of the nation’s financial system, a deal crafted on the watch of then-Treasury Secretary Henry Paulson, who had previously headed the bank.

“If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman’s shareholders,” said Joshua Rosner, a bond analyst and managing director at independent research consultancy Graham Fisher & Co., after he was read the relevant section of the report. “The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public.”

Goldman and AIG both declined to comment.

When news first broke in 2009 that Goldman had been an indirect beneficiary of the AIG bailout, collecting the full value of some $14 billion in outstanding insurance polices it held with the firm, the officials who brokered the deal justified these terms as a necessary stabilizer for the broader financial system. As the world’s largest insurance company, AIG’s inability to cover its outstanding obligations could have threatened the solvency of the institutions holding its policies, asserted the Federal Reserve Bank of New York, which oversaw the deal.

Goldman fended off claims that the arrangement amounted to a backdoor bailout by asserting that none of the money from the AIG rescue landed in its own coffers. Rather, those funds went to compensate clients or institutions on the other side of its trades, Goldman said.

Many times in past posts, I have both predicted and worried over what a violent reaction would look like in say the US or the UK.  Now more than ever, I see the kindling for such a fire is about to be lit.  I only hope that the people, when they do stand up, do so peacefully.  If there is any lesson we can learn from Tahrir Square was the dignified and resolute manner in which the people imposed their will.

Is Hyperinflation Just Around the Corner? Update from the Currency Wars

As I have provided many times in this blog, one of the key factors to preventing a full economic collapse in the US has been the fact that the US Dollar has been the world’s reserve currency.  The impacts of the dollar NOT being the world’s reserve currency has impacts world-wide, but nowhere more significant than in the US itself.

This fact (dollar is world’s reserve currency) has allowed the FED to continue with its “quantitative easing” (QE) policies unabated (read print more money).   Indeed the Fed has ignored warnings from financial experts world-wide that if the FED continued these policies, they would be jeopardizing the entire financial stability of global trade and could set off hyperinflation which could kill any hopes of recovery.

This QE policy combined with the US government’s lack of control of the deficit spending (now over $14 Trillion) could trigger a global collapse.  Both the FED and the US Congress have down played the impacts of the QE1,2,3 citing the very fact that the Dollar was the world’s reserve currency and therefore, the impacts of both spending and printing money was not going to significantly impact world economics and in fact, they contend that getting the US Economy going was the most import element of stabilizing the world’s economy.

This may be reasonable IF the US Dollar remains the world’s reserve currency, but I also have stated that recent efforts by both Russia and China to push the dollar off the world reserve status could have a disastrous effect both in the US and the world.  My concerns centered on the hyperinflation effect that would be created both domestically in the US and the effects on most of the world’s economy as well.

It appears that my fears for a world-wide push to “bump” the US Dollar as the world’s reserve currency are now being manifested in fact and ahead of the timeline I though it may happen. Consider this article that appeared in CNN Money yesterday.

NEW YORK (CNNMoney) — The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world’s reserve currency. The IMF said Special Drawing Rights, or SDRs, could help stabilize the global financial system.

SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends countries funds denominated in SDRs

While they are not a tangible currency, some economists argue that SDRs could be used as a less volatile alternative to the U.S. dollar.  Dominique Strauss-Kahn, managing director of the IMF, acknowledged there are some “technical hurdles” involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system. “Over time, there may also be a role for the SDR to contribute to a more stable international monetary system,” he said.

The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.  In addition to serving as a reserve currency, the IMF also proposed creating SDR-denominated bonds, which could reduce central banks’ dependence on U.S. Treasuries. The Fund also suggested that certain assets, such as oil and gold, which are traded in U.S. dollars, could be priced using SDRs.

Oil prices usually go up when the dollar depreciates. Supporters say using SDRs to price oil on the global market could help prevent spikes in energy prices that often occur when the dollar weakens significantly.

The dollar alternatives

Fred Bergsten, director of the Peterson Institute for International Economics, said at a conference in Washington that IMF member nations should agree to create $2 trillion worth of SDRs over the next few years.  SDRs, he said, “will further diversify the system.”

Dollar firms after starting 2011 weak

The dollar has been drifting lower so far this year as the global economy improves and investors regain their appetite for more risky assets such as stocks and commodities.  After rising above 81 in early January, the dollar index, which measures the U.S. currency against a basket of other international currencies, eased below 77 earlier this week.

However, the dollar was higher Thursday against the euro, pound and yen as disappointing corporate results weighed on stock prices following several days of gains on Wall Street. The rally in the commodities market also cooled, with the price of oil and metals backing off recent highs.

0:00 /4:40Bernanke vs. Ryan: Inflation wars

In addition, renewed concerns about the debt problems facing troubled European economies put pressure on the euro and supported the dollar. The yield on Portugal’s benchmark bond rose to a record high Wednesday, and borrowing costs for Ireland, Spain and Greece remain elevated.

“The market is shedding risk, with equities and commodities weakening and the U.S. dollar broadly stronger” said Camilla Sutton, currency strategist at Scotia Capital.

Traders were also digesting comments from Federal Reserve chairman Ben Bernanke, who told Congress Wednesday that despite a strengthening economic recovery, the unemployment rate remains high while inflation is “still quite low.”

Those remarks reaffirmed the view that “the Fed would be very slow to tighten policy given its dual mandate of price stability and employment,” analysts at Sucden Financial wrote in a research report.  Bernanke also urged lawmakers to come up with a “credible plan” to bring down “unsustainable” federal budget deficits.

“We expect that the outlook for the U.S. fiscal position will weigh heavily on the U.S. dollar in the quarters ahead,” said Sutton. In the near-term, however, she said “a strengthening growth profile” could help provide “a temporary period of dollar strength.”

As we have watched middle eastern  governments implode over the last few weeks, primarily due to inflation of basic commodity prices and large percentages of unemployment, we see the harbinger of days to come in the EU, Russia, and yes the US.  If we stay on this same course the effects of hyperinflation, followed by significant deflation would end the world’s economic system as we know it. Does that sound like an over reaction?  We will see, we will see.  How’s your food stocks?  Judging from Egypt, it looks like you need a minimum of 18 days, no?

Why 2011 Could Be the Year of Economic Collapse

What could cause an economic collapse in 2011? Well, unfortunately there are quite a few “nightmare scenarios” that could plunge the entire globe into another massive financial crisis.  The United States, Japan and most of the nations in Europe are absolutely drowning in debt.  The Federal Reserve continues to play reckless games with the U.S. dollar.  The price of oil is skyrocketing and the global price of food just hit a new record high.  Food riots are already breaking out all over the world.  Meanwhile, the rampant fraud and corruption going on in world financial markets is starting to be exposed and the whole house of cards could come crashing down at any time.  Most Americans have no idea that a horrific economic collapse could happen at literally any time.  There is no way that all of this debt and all of this financial corruption is sustainable.  At some point we are going to reach a moment of “total system failure”.

The whole system is currently standing on one wobbly leg, China’s willingness to buy paper.  If we do not consider the lesson we were just exposed to of when is big too big, then we are doomed to repeat the lesson.  China has become too big of a financial partner.  Consider this:

Source: BBC

Two Chinese state controlled banks have lent more to developing countries than the World Bank, according to a report.

The China Development Bank and the China Export Import Bank offered loans of at least $110 bn (£69.2 bn) to governments and firms in developing countries in 2009 and 2010.  The research was undertaken by the Financial Times newspaper.  Between mid-2008 and mid-2010, the World Bank’s lending arm issued loans of just over $100bn (£63bn).

The two Chinese banks do not publish a detailed breakdown of their overseas loans, so this research is based on public announcements about specific deals from them, their borrowers or the Chinese government. That means the figure arrived at for the amount of Chinese lending is more likely an underestimate than an overestimate because some – more sensitive – loans will not have been made public.

The Chinese lenders are so-called policy banks – they have a mandate to further whatever Beijing sees as its national interest. One of China Development Bank’s specific tasks is to try to alleviate and, where possible, eliminate bottlenecks in supplies of raw materials or land for China’s economy.

It also tries to open up foreign markets for Chinese companies. The period looked at by the researchers included the worst of the global financial crisis. Chinese banks were offering loans to producers of raw materials at a time when it was hard for them to attract financing from elsewhere.

That helped secure long-term energy deals, including oil supplies from Russia, Venezuela and Brazil. The Chinese government, which is sitting on $2 trillion (£1.26 trillion) of foreign exchange reserves, has ample amounts of cash to fund loans which help promote its strategic objectives.

But what is interesting is that in the private sector, it is a different story.  Outward Foreign Direct Investment (FDI) by Chinese companies (not including banks) was around $50bn (£31.5bn) last year – around half the FDI that flowed from foreign companies into China.

As Niall Ferguson, MA, D.Phil., who is Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor of Business Administration at Harvard Business School warned us.  The collapse of an empire can come suddenly and is almost always related to financial crises that occur when debt service exceeds 50% of tax revenue.

Consider this report by  Emily Flitter of Reuters.

NEW YORK (Reuters) – When borrowing money it’s always good to have a Plan B in case a big creditor pulls the plug. That should be true whether the sum is a few thousand dollars or about a trillion, the size of the United States government’s debt to China.

China is officially the United States’ biggest foreign creditor, with roughly $900 billion in Treasury holdings — or over $1 trillion with Hong Kong’s holdings included.  That means it could do severe damage to U.S. debt markets if it suddenly started selling large amounts.

Most experts say if there were signs of this happening, the U.S. government would go for a combination of persuading Americans to buy more U.S. debt, the same way they did in World War II, and finding friendly foreign governments to make additional purchases.

Banks could be called on to increase their holdings of treasuries, and as a last resort, the Federal Reserve could also be called on to fill the gap, though this could risk turning any dollar weakness into a slump.

“The U.S. government should have and maybe still could call on the people of the U.S. to invest in U.S. debt,” said David Walker, a former U.S. comptroller general who heads an advocacy group calling on the government to curb the U.S. budget deficit and borrowings.

To be sure, the idea that China would suddenly sell its U.S. debt holdings is almost unimaginable to some.  After all, any weakening in the U.S. debt markets and the resulting global markets turmoil, including likely weakness in the dollar, would bounce back on China and could hurt its economy badly, especially as the United States is such a huge Chinese export market.

It likely would take something like a massive rise in tensions over an issue like Taiwan or oil exploration in disputed areas of the South China Sea, including possible military confrontation between the two nations. Such a confrontation would also make it easier for Washington to appeal to the American public to buy its debt for patriotic reasons.

But Beijing could also justify pulling back sharply from U.S. Treasuries if the dollar were to plunge, perhaps because of Washington’s failure to curb its budget deficit and debt. “I worry that we could be at a tipping point,” said Eswar Prasad, a Brookings Institution economist and former International Monetary Fund official with responsibility for China.

“If the Chinese say ‘We’re not buying any more Treasuries,’ this could act as a trigger around which nervous market sentiment coalesces,” he said. “People could start wondering how the U.S. is going to finance its deficit.”

So we had all better be getting prepared for hard times.  The following are 12 economic collapse scenarios that we could potentially see in 2011….

Source: The Economic Collapse

#1 U.S. debt could become a massive crisis at any moment.  China is saying all of the right things at the moment, but many analysts are openly worried about what could happen if China suddenly decides to start dumping all of the U.S. debt that they have accumulated.  Right now about the only thing keeping U.S. government finances going is the ability to borrow gigantic amounts of money at extremely low interest rates.  If anything upsets that paradigm, it could potentially have enormous consequences for the entire world financial system.

#2 Speaking of threats to the global financial system, it turns out that “quantitative easing 2″ has had the exact opposite effect that Ben Bernanke planned for it to have.  Bernanke insisted that the main goal of QE2 was to lower interest rates, but instead all it has done is cause interest rates to go up substantially.  Is Bernanke this incompetent or is he trying to mess everything up on purpose?

#3 The debt bubble that the entire global economy is based on could burst at any time and throw the whole planet into chaos.  According to a new report from the World Economic Forum, the total amount of credit in the world increased from $57 trillion in 2000 to $109 trillion in 2009.  The WEF says that now the world is going to need another $100 trillion in credit to support projected “economic growth” over the next decade.  So is this how the new “global economy” works?  We just keep doubling the total amount of debt every decade?

#4 As the U.S. government and the Federal Reserve continue to pump massive amounts of new dollars into the system, the floor could fall out from underneath the U.S. dollar at any time.  The truth is that we are already starting to see inflation really accelerate and everyone pretty much acknowledges that official U.S. governments figures for inflation are an absolute joke.  According to one new study, the cost of college tuition has risen 286% over the last 20 years, and the cost of “hospital, nursing-home and adult-day-care services” rose 269% during those same two decades.  All of this happened during a period of supposedly “low” inflation.  So what are price increases going to look like when we actually have “high” inflation?

#5 One of the primary drivers of global inflation during 2011 could be the price of oil.  A large number of economists are now projecting that the price of oil could surge well past $100 dollars a barrel in 2011.  If that happens, it is going to put significant pressure on the price of almost everything else in the entire global economy.  In fact, as I have explained previously, the higher the price of oil goes, the faster the U.S. economy will decline.

#6 Food inflation is already so bad in some areas of the globe that it is setting off massive food riots in nations such as Tunisia and Algeria.  In fact, there have been reports of people setting themselves on fire all over the Middle East as a way to draw attention to how desperate they are.  So what is going to happen if global food prices go up another 10 or 20 percent and food riots spread literally all over the globe during 2011?

#7 There are persistent rumors that simply will not go away of massive physical gold and silver shortages.  Demand for precious metals has never been higher.  So what is going to happen when many investors begin to absolutely insist on physical delivery of their precious metals?  What is going to happen when the fact that far, far, far more “paper gold” and “paper silver” has been sold than has ever actually physically existed in the history of the planet starts to come out?  What would that do to the price of gold and silver?

#8 The U.S. housing industry could plunge the U.S. economy into another recession at any time.  The real estate market is absolutely flooded with homes and virtually nobody is buying.  This massive oversupply of homes means that the construction of new homes has fallen off a cliff.  In 2010, only 703,000 single family, multi-family and manufactured homes were completed.  This was a new record low, and it was down 17% from the previous all-time record which had just been set in 2009.

#9 A combination of extreme weather and disease could make this an absolutely brutal year for U.S. farmers.  This winter we have already seen thousands of new cold weather and snowfall records set across the United States.  Now there is some very disturbing news emerging out of Florida of an “incurable bacteria” that is ravaging citrus crops all over Florida.  Is there a reason why so many bad things are happening all of a sudden?

#10 The municipal bond crisis could go “supernova” at any time.  Already, investors are bailing out of bonds at a frightening pace.  State and local government debt is now sitting at an all-time high of 22 percent of U.S. GDP.  According to Meredith Whitney, the municipal bond crisis that we are facing is a gigantic threat to our financial system….

“It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States and certainly the largest threat to the U.S. economy.”

Former Los Angeles mayor Richard Riordan is convinced that things are so bad that literally 90% of our states and cities could go bankrupt over the next five years.

So do not buy the “Happy Talk” that is flying around.  The financial facts and realities simply do not support it.  In fact, it already appears that 2011 is going to be much worse than 2010.  In the US I think this will primarily be set off by the financial crisis facing municipalities, counties, and states.  The reality is the collapse will be caused by some small event that creates a panic perception in the financial markets or the social condition.

I am not saying this is inevitable, in 2011, but I am suggesting you might want to go over those survival plans one more time to make sure everything is up to snuff.

Trends For 2011

As we begin 2011, I want to thank my readers for their support and their inputs for the site during 2010.  It appears that more and more folks are interested in knowing “the rest of the story”.  Traffic on the site expanded seven fold during the year.  Interestingly, there were also a numerous amounts of inquiries asking to “buy ad space” on my site.  Just for the record, this site is and always will be 100% sponsor free.  It is a simple philosophy. This site is responsible to everyone and beholding to none.  As the jackboots start attacking the web this year in earnest, and they will, we will try to stay visible as long as possible.

As we face the beginning of 2011we wonder “what next”.  When we look back at 2010, it played out much like we anticipated.  Last spring, we said look out for the summer of hell.  Between the weather and the economy, I think my European readers, especially, would agree it could have been called “hellish”. I believe the lack of economic recovery has created hellish situations in more than 150,000,000 families globally who lost their homes and jobs.

So what is next?  Let’s start with what the Trends Research Institute has published.

By Gerald Celente – Trends Research Institute

KINGSTON, NY, 28 December 2010 — After the tumultuous years of the Great Recession, a battered people may wish that 2011 will bring a return to kinder, gentler times.  But that is not what we are predicting:

1.  Wake-Up Call  The people of all nations, having become convinced of the inability of leaders and know-it-all “arbiters of everything” to fulfill their promises, will do more than just question authority, they will defy it.  The seeds of revolution will be sown….

2.  Crack-Up 2011  In 2011, with the bailout funds and arsenal of other schemes to prop up the economy depleted, teetering economies will collapse, currency wars will ensue, trade barriers will be erected, economic unions will splinter, and the onset of the “Greatest Depression” (a trend we forecasted before the massive bailouts existed) will be recognized by everyone….

3.  Screw the People  As times get even tougher and people get even poorer, the “authorities” will intensify their efforts to extract the funds needed to meet fiscal obligations.  While there will be variations on the theme, the governments’ song will be the same: cut what you give, raise what you take….

4.  Crime Waves  No job + no money + compounding debt = high stress, strained relations, short fuses.  In 2011, with the fuse lit, it will be prime time for Crime Time.  As Gerald Celente says, “When people lose everything and they have nothing left to lose, they lose it.”  And “lose it” they will….

5.  Crackdown on Liberty  As crime rates rise, so will the voices demanding a crackdown.  A national crusade to “Get Tough on Crime” will be waged against the citizenry.  And just as in the “War on Terror,” where “suspected terrorists” are killed before proven guilty or jailed without trial, in the “War on Crime” everyone is a suspect until proven innocent….

6.  Alternative Energy  In laboratories and workshops unnoticed by mainstream analysts, scientific visionaries and entrepreneurs are forging a new physics incorporating principles once thought impossible, working to create devices that liberate more energy than they consume.  What are they, and how long will it be before they can be brought to market?

7.  Journalism 2.0   2011 will mark the year that new methods of news and information distribution will render the 20th century model obsolete.  With its unparalleled reach across borders and language barriers, “Journalism 2.0” has the potential to influence and educate citizens in a way that governments and corporate media moguls would never permit….

8.  Cyberwars   In 2010, every major government acknowledged that Cyberwar was a clear and present danger and, in fact, had already begun.  The demonstrable effects of Cyberwar and its companion, Cybercrime, are already significant – and will come of age in 2011.  Equally disruptive will be the harsh measures taken by global governments to control free access to the web, identify its users, and literally shut down computers that it considers a threat to national security….

9.  Youth of the World Unite  University degrees in hand yet out of work, in debt and with no prospects on the horizon, feeling betrayed and angry, young adults and 20-somethings are mad as hell, and they’re not going to take it anymore.   Not mature enough to control their impulses, the confrontations they engage in will escalate disproportionately….

10.  End of The World!  The closer we get to 2012, the louder the calls will be that “The End is near!”  Among Armageddonites the actual end of the world, and annihilation of the Earth in 2012, is a matter of certainty.  Even the rational and informed may sometimes feel the world is in a perilous state.  Both streams of thought are leading many to reevaluate their chances for personal survival, be it in heaven or on earth….

Gonzalo Lira, one of the most prolific bloggers on the EU economy, thinks as I do that Europe is in deep shit—there’s really no polite way to say it. Back in the spring of 2010, Greece went down the tubes, as its sovereign debt collapsed in price, and its ability to borrow money from the open markets—and thereby continue to operate—for all intents and purposes ceased.

Then in November/December of 2010, the Irish sovereign debt also began to tumble, as it became increasingly clear that Ireland simply does not have the wherewithal to backstop it’s disproportionately large—and insolvent—banking sector. Angela Merkel’s less than clever words in an interview (to the effect that Irish debt holders might have to take a haircut) sparked a rise in Irish debt yields, squeezing Ireland’s ability to borrow fresh cash to keep its insolvent banks afloat—thereby creating the need for a rescue package from the IMF, the UK, the European Union, and the European Central Bank. What was painfully apparent in 2010 was that the Eurozone and the European Union had no mechanism to handle a crisis in one of its member states. Nor is it moving forward to correct the single biggest weakness of the euro scheme—namely, the ability of each member state to issue its own debt.

Possible EMU Collapse: What To Pay Attention To In 2011. After the Greek and Irish bailouts, it looks like Portugal and possibly Belgium are up next in this perverse game of musical chairs played to the tune of sovereign debt, but these smaller countries are dwarfed by Spain: Spain is where the European game is really at.

As Lira pointed out, Spain is twice the size of Greece, Ireland and Portugal combined—Spain is roughly half the size of Germany—Spain has a fiscal deficit of over 11% of GDP for 2010, and a total debt of over 80% of GDP, data here (I am counting the accumulated debt of comunidades autónomas, which is so far 10.2% of GDP and steadily rising; data here)—Spain has an unemployment of over 20%—in short, Spain is trouble. Not “Spain is in trouble”—that’s obvious, but that’s not my point: Spain is trouble, trouble for the German banks that own so much of the Spanish debt. Trouble for Germany, which is propping up its insolvent banks (What, you think German politicians are any less craven than American politicians?). Spain is trouble for the European Union, for what a German banking crisis might mean for the EU as a whole and as an institution.  More than anything, Spain is trouble for the European Financial Stability Facility, because Spain is too big to be saved—and there’s really no way to finesse that hard fact.

Do you know what a lynchpin is? According to the dictionary, a lynchpin is “a pin passed through the end of an axle to keep the wheel in position”. Hence the figure of speech: Without a lynchpin, the wheel comes off, and the whole vehicle crashes. In the case of Europe, the lynchpin can come off awfully fast—think of Ireland. A few impolitic words from Angela Merkel, and suddenly the Irish bond market panics. Suddenly, Ireland is teetering on the brink of insolvency, unable to meet its funding needs. And that was Ireland—all due respect to those wonderful people, but we’re talking a GDP of a paltry $227 billion. Ben Bernanke takes a morning dump bigger than that. What’s Ireland’s $227 billion when compared to Spain’s economy of $1.5 trillion?

How the EU and the ECB handle an eventual Spanish sovereign debt crisis will determine the very future of the European Union.  If the EU and the ECB are clever, and brave, and humble in the face of failure, then they’ll expel Greece, Ireland, Portugal, Spain and Italy from the European Monetary Union. The euro will remain the currency of the stronger economies—France, Holland, Germany—while the weaker economies will go back to their original currencies, and immediately devalue so as to kickstart their economies.

In the US, I believe we are going to see the dollar fail three times in 2011.  First, the dollar is going to be challenged against the Euro.  It will fail, but shortly there after, the Euro will begin its  final demise.  Then the dollar will be challenged as the world’s reserve currency, and once again it will fail and about this time everyone in mainstream media will introduce the world to the Bancor.  Finally,  the federal reserve note will be challenged as the US currency.  Already we are seeing many areas and communities developing alternative currencies in the US.

Commodities rose drastically all throughout 2010: Every single commodity class, every single one of them rising by double digit percentage points—at least.  The winter weather globally will cause huge impacts to food supplies and hyperinflation will rear its ugly head everywhere.

However, I think the most serious stories and realities of 2011 will be civil unrest.  People all over the world have lost faith in their governmental bodies and hungry, homeless, hopeless people are really going to start taking actions, and most of those actions will be violent and irrational.  This is going to invoke governmental response and things are going to escalate quickly.

So, bottom line, if you haven’t followed my advice in 2010, I ask you to reconsider this one question.  If you wake tomorrow morning and there is no job, no food, no utilities, and soldiers on your street to maintain order, are you ready to survive for the next three months without leaving your home?  Are you? I want to wish you all a Happy New Year, but this year, I hope you accept my sincerest wishes to have a safe and secure New Year.

The Insanity on the Currency Warfront

As I have chronicled the global financial meltdown, I have been amazed at the number of economists, traders, and politicians that seem to be in complete denial of the facts of the current crisis and at each step either they have reacted in exactly the opposite manner required to respond to the crisis, or they have failed to act at all for self-centered political reasons.  Some examples include banks sitting on huge cash reserves instead of stimulating the economy, the US CONgress adding $1.3 trillion in new debt with tax cuts, central banks everywhere printing money willy-nilly without regard to the consequences. But most of all, we, as citizens and the main participants in the economy merrily skipping down the road without a care in the world.  That is until you are homeless and hungry, then the feelings are anger and despair.

Then the other day, I had a conversation with an old friend who was a forensic psychologist for one of the US Government alphabet agencies.  He is retired now, but his job was a “profiler”.  He would investigate crimes and other “stuff” to help the agents understand the make-up of the criminal or spy and maybe predict “next” moves.  When I lamented about those around me who I love and respect being in complete denial as to the grave nature of the current economic situation, he explained that this is a very natural response to extreme crisis and distress.  It is called Normalcy Bias.

In short, when humans are faced with natural disasters or a man-made crisis that overwhelms them, they simply slip into complete denial.  Logic and intelligence functions stop.  He pointed out some startling examples.  Consider this.  In Germany in 1937 there were nearly 550,000 Jews.  Long established the Jewish German community was rift with businessmen, intelligentsia, professional people who were just beginning to enjoy a good life again after recovering from World War One.

As Hitler rose to power with his hate mongering and obsession with the Jewish community, it became very apparent that the Jewish community was facing more and more injustices.  Property seizures, business taxed at 100%, lose of civil rights, street beatings by the Brown Shirts, still they did not understand the danger they were in and believed being rational and calm would weather them through the storm.  Only about 100,000 Jews fled in time.  We know the tragic end to that story.

However, things are heating up on the currency warfront.  This week saw many assaults on the US Dollar.  Let me stop here and talk some basics.  Currently the US policy and the FED policy simply has been to print more money.  The US enjoys a unique position when it comes to currency because the US dollar is the world’s transactional currency.  For example, if Germany wishes to buy oil, it must first convert Euros to Dollars to purchase the oil.

However, keeping the dollar as the global transactional currency only lasts as long in the faith of the value of the dollar remains in the rest of the world.  The US actions of the last week, both at the FED and CONgress have gone a long way to weaken that faith.  What is happening is both countries and companies are choosing to use other methods to transact business.

So we are beginning to see news items like this. In spite of its infancy, interest in the offshore renminbi market is growing quickly. Caterpillar, the US-based maker of earth-moving equipment, launched a Rmb1bn ($150m) bond issue last month, making it the second multinational to tap the market, following an August issue by McDonald’s, the fast-food chain.

What makes these bond issues important is that the offshore renminbi market is much more than just a new avenue for debt financing – it is one of the core components in a plan to internationalize the Chinese currency. The process will be a slow one, with more baby steps than giant leaps, and it is by no means assured that the renminbi – also known as the yuan – will forge a decisive international role. But it is one that could have a huge long-term impact on trade, the global financial system and even international politics.

If the plan works, the renminbi could become the main currency for doing business in Asia, the world’s most economically dynamic region, and in the long run it could become a significant part of the reserves of the world’s central banks. Indeed, some Chinese officials have already called for the renminbi to be included in the International Monetary Fund’s basket The timing is also full of portents. The renminbi is starting to go global just as the future of the euro and the dollar is looking increasingly uncertain. Eventually the shift could have an impact on the ability of the US to borrow overseas in its own currency. In China, some have taken to calling their currency the hongbi, or “redback”, to rival America’s greenback – a moniker that gives a flavour of the geopolitical undercurrents.

“We may be on the verge of a financial revolution of truly epic proportions,” says Qu Hongbin, China economist at HSBC, one of the banks pushing the renminbi to its corporate clients. “The world economy is, slowly but surely, moving from greenbacks to redbacks.”of main currencies.

So even though the Fed has flooded the credit markets with cash, spreads haven’t budged because banks don’t know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is “the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue.”

Today, the banks have a problem on the asset side of their ledgers — “all these exotic securities that the market does not know how to value.” “Why are they ‘toxic’?” Ms. Schwartz asks. “They’re toxic because you cannot sell them, you don’t know what they’re worth, your balance sheet is not credible and the whole market freezes up. We don’t know whom to lend to because we don’t know who is sound. So if you could get rid of them, that would be an improvement.”

And economics professor and former Secretary of Labor Robert Reich wrote in 2008:

The underlying problem isn’t a liquidity problem. As I’ve noted elsewhere, the problem is that lenders and investors don’t trust they’ll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years — the derivatives, credit default swaps, collateralized debt instruments, and so on — has undermined all notion of true value.

What everyone here is cryptically referring to is the credit derivatives and credit swap facilities which no one knows the value of when conducting a transaction.  Indeed only nine major banks control this $1 quadrillion market.  No I didn’t make a mistake, I said $1 quadrillion! We were just getting our heads around what a trillion really meant.  Here is the fundamental problem with this situation. $1 quadrillion represents about 20 times the Global GDP!  This is pure insanity.  There is no other way to describe what is going on right now.

Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”

Indeed, polls show that people no longer trust our economic “leaders”. See this and this. A psychologist wrote an essay published by the Wharton School of Business arguing that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable.

Government regulators know this – or at least pay lip service to it – as well. For example, as the Director of the Securities and Exchange Commission’s enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

If people don’t trust their government to enforce the law, government will become more and more impotent in addressing our economic problems. If government leaders take action, the market will not necessarily respond as expected. When government leaders make optimistic statements about the economy, people will no longer believe them.

Then also on the warfront, China and Russia announced they will trade in their own currencies.  In addition, the IMF recently released a report suggesting that given the weakness of the Euro and the Dollar, we should be moving toward a global central bank and a single global currency, which they are calling the Bancor. Several banks no longer are accepting deposits in dollars.

What does this really mean and why should you care about it.  I have one word for you, hyperinflation.  The world is currently pushing back on US policies and are demanding that either the US deal effectively with the deficit or devalue the dollar.  When the pressure gets strong enough, and I believe that could be as soon as the next three months, the US will acquiesce and devalue the dollar by as much as 40%.

This will happen suddenly and overnight!  You will wake up to $8 gas, $5 bread, a 4000 point dip in the Dow and events will rapidly cascade from there to riots in the streets of the US just as we have riots now in Ireland, Greece, Italy, France, and Britain.  The war is reaching fever pitch.  Pay close attention now because bunker time may not be far off.

Further Posts from the Currency Warfront

The assault on the EU and the Euro is in full force now.  It was nearly a year ago that I predicted that some of the final fronts in the Great Economic War was the assault on pension funds and the profound effects the fallout from those raids would have on the general population.  Nearly every major G20 member nation is now in full on raids of their pension funds as we speak.  We can expect several million causalities, mostly the elderly and most vulnerable citizens, or as the PTBs say “culling of the herd has begun”.

Source: Zero Hedge
“If the recent Hungarian “appropriation” of pension funds, and today’s laughable Irish bailout courtesy of domestic pension funds sourcing 20% of the “new” money was not enough to convince the world just how bankrupt the entire European experiment has become, enter France. Financial News explains how France has “seized” €36 billion worth of pension assets: “Asset managers will have the chance to get billions of euros in mandates in the next few months for the €36bn Fonds de Réserve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system. The assets have been transferred into the state’s social debt sinking fund Cades. The FRR will continue to control the assets, but as a third-party manager on behalf of Cades.” FN condemns the action as follows: “The move reflects a willingness by governments to use long-term assets to fill short-term deficits, including Ireland’s announcement last week that it would use the country’s €24bn National Pensions  Reserve Fund “to support the exchequer’s funding programme” and Hungary’s bid to claw $15bn of private pension funds back to the state system.” In other words, with the ECB still unwilling to go into full fiat printing overdrive mode, insolvent governments, France most certainly included, are resorting to whatever piggybanks they can find. Hopefully this is not a harbinger of what Tim Geithner plans to do with the trillions in various 401(k) funds on this side of the Atlantic.More from FN on how first France, and soon every other socalized pension regime, will continue to plunder a nation’s life saving to fund short-term deficits.

And elsewhere, in the UK, things in the pension arena are also starting to heat up as the country is preparing to launch an “auto enrolment” feature for workers, whereby up to 11 million will be eligible for automatic enrolment.  Trades Union Congress general secretary Brendan Barber hailed it as an “historic advance”: a minimum pension to go with the UK’s minimum wage. Pensions Minister Steve Webb confirmed last month that all employers would have to enroll staff into a company scheme. As a result, up to 11 million people will be eligible for automatic enrolment in a workplace scheme, with up to eight million of them saving for the first time. However, there is little evidence that employers are ready for it.

And judging by the Hungarian, Irish and French case studies, all monies auto deposited will soon find a new mandate: one of bidding up sovereign European bonds (More from Financial News).  Staff can opt out to avoid mandatory contributions that will eventually account for half of the minimum of 8% of salary, with employers contributing 3% of salary, and 1% coming from tax relief.

It is impossible to predict how many people might opt out, but Colin Tipping, head of institutional wholesale at asset manager BlackRock, points to an 80% take-up at US companies that have introduced auto-enrolment compared with less than half of that before the mechanism was introduced. The latest annual review of New Zealand’s national KiwiSaver scheme has an opt-out rate of 18%.

The European experience is less encouraging. Italy tried to boost private pensions saving in 2007 with reforms to the Trattamento di Fine Rapporto, a fund traditionally paid to workers on leaving an employer.  However, its policy of “silent consent”, which had the money transferred into a pension unless workers objected, saw only about a quarter participate. Tito Boeri, director of the country’s social policy reform group Fondazione Rodolfo Debenedetti, said: “It was a great opportunity to develop private pension schemes here, but to a large extent it failed.”

Our only question: how soon before the US administration takes this hint of what every proper socialist country does with funds apportioned to it by a gullible public and ends up investing trillions in the worst possible asset classes (while in Europe this obviously means sovereign bonds, in the US by and far the proceeds will be used to make further purchases of such equities as Apple, Amazon and Netflix, in whose continued successful ponziness lies the fate of a vast majority of US-based hedge funds, whose LPs may at some point, in the distant future, actually pay domestic income tax.”

And in the US there are respected individuals who are now beginning to sound the alarm, but no one is listening.  The recent upward movement of the dollar is taunted by conventional wisdom as proof against such alarmists.  However consider this article.

By Paul Craig Roberts – BLN Contributing Writer

“On Thanksgiving eve the English language China Daily and People’s Daily Online reported that Russia and China have concluded an agreement to abandon the use of the US dollar in their bilateral trade and to use their own currencies in its place. The Russians and Chinese said that they had taken this step in order to insulate their economies from the risks that have undermined their confidence in the US dollar as world reserve currency.

This is big news, especially for the news dead Thanksgiving holiday period. But I did not see it reported on Bloomberg, CNN, New York Times or anywhere in the US print or TV media. The ostrich’s head remains in the sand.  Previously, China concluded the same agreement with Brazil.

As China has a large and growing supply of dollars from trade surpluses with which to conduct trade, China is signaling that she prefers Russian rubles and Brazilian reals to more US dollars.  The American financial press finds solace in the episodes when sovereign debt scares in the EU send the dollar up against the euro and UK pound. But these currency movements are just measures of financial players shorting troubled EU-denominated debt. They are not a measure of dollar strength.

The dollar’s role as world reserve currency is one of the main instruments of American financial hegemony. We haven’t been told how much damage Wall Street fraud has inflicted on EU financial institutions, but the EU countries no longer need the US dollar for trade between themselves as they share a common currency. Once the OPEC countries cease to hold the dollars that they are paid for oil, dollar hegemony will have faded away.

Another instrument of American financial hegemony is the IMF. Whenever a country cannot make good on its debts and pay back the American banks, in steps the IMF with an austerity package that squeezes the country’s population with higher taxes and cuts in education, medical and income support programs until the bankers get their money back.

This is now happening to Ireland and is likely to spread to Portugal, Spain, and perhaps even to France. After the American-caused financial crisis, the IMF’s role as a tool of US imperialism is less and less acceptable. The point could come when governments can no longer sell out their people for the sake of the American banks.

There are other signs that some countries are tiring of America’s irresponsible use of power. Turkey’s civilian governments have long been under the thumb of the American-influenced Turkish military. However, recently the civilian government moved against two top generals and an admiral suspected of involvement in planning a coup. The civilian government further asserted itself when the prime minister announced on Thanksgiving Day that Turkey is prepared to react to any Israeli offensive against Lebanon. Here is an American NATO ally freeing itself from American suzerainty exercised through the Turkish military. Who knows, Germany could be next.

Meanwhile in America, the sheeple remain content with, or blind to, their role as sheep to be slaughtered to feed the rich. The Obama Administration has managed to come up with a Deficit Commission whose members want to pay for the multi-trillion dollar wars that are enriching the military/security complex and the multi-trillion dollar bailouts of the financial system by reducing annual cost-of-living increases for Social Security, raising the retirement age to 69, ending the mortgage interest deduction, ending the tax deduction for employer-provided health insurance, imposing a 6.5% federal sales tax, while cutting the top tax rate for the rich. Even the Federal Reserve’s low interest rates are aimed at helping the banksters.

The low interest rates deprive retirees and those living on their savings of interest income. The low interest rates have also deprived corporate pensions of funding. To fill the gap, corporations are issuing billions of dollars in corporate bonds in order to fund their pensions. Corporate debt is increasing, but not plant and equipment that would produce earnings to service the debt. As the economy worsens, servicing the additional debt will be a problem.

In addition, America’s elderly are finding that fewer and fewer doctors will accept them as patients as a 23% cut looms in the already low Medicare payments to doctors. The American government only has resources for wars of aggression, police state intrusions, and bailouts of rich banksters. The American citizen has become a mere subject to be bled for the ruling oligarchies.

The police state attitude of the TSA toward airline travelers is a clear indication that Americans are no longer citizens with rights but subjects without rights. Perhaps the day will come when oppressed Americans will take to the streets like the French, the Greeks, the Irish, and the British.”

What is so interesting about the above OpEd is to know who Paul Craig Roberts is and what he is known for in the world.  Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously an editor for the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.

The next Wikileaks is supposedly centered on a large New York Bank.  When these documents are released, I am afraid the real backlash will start in earnest.  If Congress fails to extend unemployment benefits in the US and does so while extending the Bush tax cuts, I think we see in America what has already started in Europe.  What is so sad about this scenario is that “mob” reaction is predicted and contingencies are developed to “deal” with “those” kinds of situations.  What people should be realizing is that politicians and banksters can be prosecuted and replaced.  This should be the rebellious effort.  Make the administrative side of government work.  I can dream can’t I?