Finally, The Banksters Are Being Exposed By a Brave Member of the Senate

It is all too often easy to look at the political process and feel the deck is so stacked against the regular guy that we must resign ourselves to the fact our democratic process has been bought and sold to the highest bidder.  The Citizens United ruling by the Supreme Court seemed to “seal the deal” for the banksters. Now we get a breath of fresh air from at least one senator who has had the balls to call them out in the light.

Bernie Sanders from Vermont released this  roadmap of  how the banksters stole our money yesterday and it is a must read!  Here is the highlights.

“1. Jamie Dimon, the Chairman and CEO of JP Morgan Chase, has served on the Board of Directors at the Federal Reserve Bank of New York since 2007. During the financial crisis, the Fed provided JP Morgan Chase with $391 billion in total financial assistance. JP Morgan Chase was also used by the Fed as a clearinghouse for the Fed’s emergency lending programs. In March of 2008, the Fed provided JP Morgan Chase with $29 billion in financing to acquire Bear Stearns. During the financial crisis, the Fed provided JP Morgan Chase with an 18-month exemption from risk-based leverage and capital requirements. The Fed also agreed to take risky mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired this troubled investment bank.

2. Jeffrey Immelt, the CEO of General Electric, served on the New York Fed’s Board of Directors from 2006-2011. General Electric received $16 billion in low-interest financing from the Federal Reserve’s Commercial Paper Funding Facility during this time period.

3. Stephen Friedman. In 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap Fed loans. During the same period, Friedman, who was chairman of the New York Fed at the time, sat on the Goldman Sachs board of directors and owned Goldman stock, something the Fed’s rules prohibited. He received a waiver in late 2008 that was not made public. After Friedman received the waiver, he continued to purchase stock in Goldman from November 2008 through January of 2009 unbeknownst to the Fed, according to the GAO. During the financial crisis, Goldman Sachs received $814 billion in total financial assistance from the Fed.

4. Sanford Weill, the former CEO of Citigroup, served on the Fed’s Board of Directors in New York in 2006. During the financial crisis, Citigroup received over $2.5 trillion in total financial assistance from the Fed.

5. Richard Fuld, Jr, the former CEO of Lehman Brothers, served on the Fed’s Board of Directors in New York from 2006 to 2008. During the financial crisis, the Fed provided $183 billion in total financial assistance to Lehman before it collapsed.

6. James M. Wells, the Chairman and CEO of SunTrust Banks, has served on the Board of Directors at the Federal Reserve Bank in Atlanta since 2008. During the financial crisis, SunTrust received $7.5 billion in total financial assistance from the Fed.

7. Richard Carrion, the head of Popular Inc. in Puerto Rico, has served on the Board of Directors of the Federal Reserve Bank of New York since 2008. Popular received $1.2 billion in total financing from the Fed’s Term Auction Facility during the financial crisis.

8. James Smith, the Chairman and CEO of Webster Bank, served on the Federal Reserve’s Board of Directors in Boston from 2008-2010. Webster Bank received $550 million in total financing from the Federal Reserve’s Term Auction Facility during the financial crisis.

9. Ted Cecala, the former Chairman and CEO of Wilmington Trust, served on the Fed’s Board of Directors in Philadelphia from 2008-2010. Wilmington Trust received $3.2 billion in total financial assistance from the Federal Reserve during the financial crisis.

10. Robert Jones, the President and CEO of Old National Bancorp, has served on the Fed’s Board of Directors in St. Louis since 2008. Old National Bancorp received a total of $550 million in low-interest loans from the Federal Reserve’s Term Auction Facility during the financial crisis.

11. James Rohr, the Chairman and CEO of PNC Financial Services Group, served on the Fed’s Board of Directors in Cleveland from 2008-2010. PNC received $6.5 billion in low-interest loans from the Federal Reserve during the financial crisis.

12. George Fisk, the CEO of LegacyTexas Group, was a director at the Dallas Federal Reserve in 2009. During the financial crisis, his firm received a $5 million low-interest loan from the Federal Reserve’s Term Auction Facility.

13. Dennis Kuester, the former CEO of Marshall & Ilsley, served as a board director on the Chicago Federal Reserve from 2007-2008. During the financial crisis, his bank received over $21 billion in low-interest loans from the Fed.

14. George Jones, Jr., the CEO of Texas Capital Bank, has served as a board director at the Dallas Federal Reserve since 2009. During the financial crisis, his bank received $2.3 billion in total financing from the Fed’s Term Auction Facility.

15. Douglas Morrison, was the Chief Financial Officer at CitiBank in Sioux Falls, South Dakota, while he served as a board director at the Minneapolis Federal Reserve Bank in 2006. During the financial crisis, CitiBank in Sioux Falls, South Dakota received over $21 billion in total financing from the Federal Reserve.

16. L. Phillip Humann, the former CEO of SunTrust Banks, served on the Board of Directors at the Federal Reserve Bank in Atlanta from 2006-2008. During the financial crisis, SunTrust received $7.5 billion in total financial assistance from the Fed.

17. Henry Meyer, III, the former CEO of KeyCorp, served on the Board of Directors at the Federal Reserve Bank in Cleveland from 2006-2007. During the financial crisis, KeyBank (owned by KeyCorp) received over $40 billion in total financing from the Federal Reserve.

18. Ronald Logue, the former CEO of State Street Corporation, served as a board member of the Boston Federal Reserve Bank from 2006-2007. During the financial crisis, State Street Corporation received a total of $42 billion in financing from the Federal Reserve. ”

{end press release quote}

We need to support this courageous effort by being totally outraged and begin demanding that a criminal investigation begin immediately.  We should also demand that Congress does not renew the Federal Reserve Charter to “handle” the job the US Treasury should be doing.  That charter is up for a vote in 2013. Everyone who reads this should inform everyone they know about these facts and ask them not only to read it but to pass it on to everyone they know and then we all should put our representatives on notice that we absolutely want our financial system back.

There is no single issue more important to each and everyone of us, literally.  Get informed, wake up, and act. Forget the clown circus that is the presidential campaigns and get to the REAL Chains that bind us.  Let’s set ourselves free and here are the keys to the cuffs.

The European Union Has Entered Final Meltdown Phase

As we have outlined in previous articles, The EU will collapse, it was a matter of time.  Well, that time has arrived.  The falsely placed hope was that Greece would go silently into the night and then the politicos in Germany and France then could consolidate any impacts from the rest of the PIIGS and somehow manage the overwhelming debt over time. It was a fool’s dream from the onset.

It was so because first there is no way the German and French People would settle with being saddled with the cost of that bailout. The big secret is that both Germany and France are not in that good a shape themselves.  France’s external debt to GDP is 208% and Germany’s external debt to GDP is 163%.  Here is what the house of cards really looks like:

 

It is deceptive, at least, to use the Public Debt to GDP to honestly evaluate the situation, given the enormous exposure of the German and French banks are facing in the derivatives market float that currently exists. Keep it in your mind always that is the banks behind all of this and the ECB would have to bail them out when the final wheel falls off the joy wagon.

There is no way that German and French banks can cover their exposure and the ECB cannot possibly print that much money without setting off massive hyperinflation that would follow any effort to try and print that many Euros. The hope was that Greece would accept the draconian austerity demanded by the bankers to cover the 220% external debt (ED) to GDP.

Where it gets really crazy is that IF Greece went silently into what can only be described as a deep depression, somehow the EU could then manage the Italian ED (135%), the Irish ED 1098%, the Portuguese ED 239%, and the Spanish ED of 173%, basically on the backs of the French and Germans.  See how crazy it gets.

Well it just got a whole lot crazier in the last 72 hours.  The country that invented drama and democracy is not disappointing the world on either front. Greek Prime Minister George Papandreou on Monday called for two high- stakes votes.  The first asks parliament to say by the end of this week whether it has confidence in his leadership. The second is a referendum in which Greek voters would approve or reject, possibly by year’s end, Europe’s latest debt-crisis workout. The move blindsided European leaders on the eve of a global summit and rocked lawmakers in Papandreou’s party, some of whom are now calling for him to step down. The next day, stocks tumbled worldwide, the euro declined and Italian bonds plunged.

French banks and other lenders exposed to Greece and other weak euro zone countries slumped on Tuesday after Greece’s leader said he would put a bailout plan to a referendum, raising the risk of a disorderly default.  Papandreou knew all along he could not force the Greek people to accept the austerity plan proposed by the ECB and IMF.  Europe’s latest bailout proposal falls far short of what’s needed. Under the deal, private banks holding Greek debt would voluntarily accept a 50 percent write-off on their returns; the European Financial Stability Facility, the EU’s bailout fund, would be leveraged to 1 trillion euros ($1.37 trillion) from 400 billion euros; and European banks would raise 106 billion euros ($145 billion) in new capital by June 2012. As for Greece, it is due to receive 130 billion euros ($180 billion) in public funds on top of 110 billion euros pledged in 2010.

Writedowns of Greece’s sovereign debt should be much steeper. Greek bonds held by the European Central Bank would not be covered, so the writedown is really less than 50 percent. It needs to be closer to 70 percent to make Greece’s debt burden bearable. In addition, the EFSF needs a war chest of at least 3 trillion euros to make sure Europe’s banks are recapitalized and to guarantee the financing needs of Italy and other struggling governments.

Greeks know that this latest bailout proposal will also come with many unpopular strings attached, including further austerity measures. In an Oct. 27 poll for the Greek weekly To Vima, the majority said the deal should be put to a national vote, with 58 percent calling it “negative” or “probably negative.” Deep budget cuts, broken pension promises and heavy government job losses have already led to strikes, street protests and violence.

Then Monday’s surprise was, as Greek politics grew ever more chaotic, strong political protests erupted as the government moved to replace military chiefs with officers seen as more supportive of George Papandreou, the prime minister.  In a surprise development, Panos Beglitis, Defence Minister, a close confidante of Mr. Papandreou, summoned the chiefs of the army, navy and air-force and announced that they were being replaced by other senior officers.

Neither the minister nor any government spokesman offered an explanation for the sudden, sweeping changes, which were scheduled to be considered on November 7 as part of a regular annual review of military leadership retirements and promotions. Usually the annual changes do not affect the entire leadership. “Under no circumstances will these changes be accepted, at a time when the government is collapsing and has not even secured a vote of confidence,” said an official announcement by the opposition conservative New Democracy party.

Add to this Greece’s government looked on the verge of implosion on Tuesday ahead of a Friday confidence vote as a socialist deputy defected and another cadre called for early elections after the prime minister called a referendum on his EU debt rescue. Greek Prime Minister George Papandreou called the referendum late Monday in a bid to secure approval of his disputed economic policies without early elections. But the gambit backfired when a former deputy minister defected, reducing the ruling party’s majority in the 300-seat parliament to 152 deputies. Moments later, the head of parliament’s economic affairs committee Vasso Papandreou called for an early ballot and a temporary unity government to “safeguard” the EU deal agreed last week to slash Greece’s huge debt by nearly a third.

This “popular revolutionary” move is going to spread rapidly to the rest of the PIIGS. The unraveling will be rapid.  The exposure of the American banks is significant and they have already been slammed this week with MF Global filing for bankruptcy on Monday, investors pummeled many financial stocks, fearful that problems were lurking on the books of other Wall Street firms. It was a crisis of confidence, not unlike in 2008 when the markets punished stocks on mere speculation of trouble.  An interesting note is that Jon Corazine, the ex-head of Goldman Sachs, was at the helm at MF Global.  Imagine that! A leopard doesn’t change its spots!

We are going to witness the largest transfer of wealth in the history of the world within the next few weeks and the citizens of Germany, France, US, and Britain are NOT the winners, and neither is the 1%.  The winners are the 1/4%.  Are we catching on yet?

The Fox is in the Henhouse Again, and We are not Watching!

We watched as the banks were bailed out after ripping off nearly $5 trillion dollars of America’s wealth.  We are on the hook for their loses.  They were too big to fail, we were told.  It would be a disaster for the world’s economy.  The same story was then foisted on our European brothers, and again with the same “chicken little” reasoning.

Well, here we are 3 years later and the economy is still in the dumpster and we have not done one thing to correct the major problem of banks being investment firms ponied up to the roulette table wildly playing with OUR money unchecked.  Now the drunken bankers are at it again.  I have written many articles concerning this crazy derivatives market that is the banker’s hedge for the downside of this slow motion crash of the world’s economy.

This WAS one market that the bankers were exposed and WE were not on the hook for bailouts.  Well, that was until last week.  No ONE is MSM National media is even reporting this.  If you aren’t mad as hell when you read this, you are certifiably in a COMA.

Source: Washington’s Blog

Bloomberg reports that Bank of America is dumping derivatives onto a subsidiary which is insured by the government – i.e. taxpayers.

Yves Smith notes:

If you have any doubt that Bank of America is going down, this development should settle it …. Both [professor of economics and law, and former head S&L prosecutor] Bill Black (who I interviewed just now) and I see this as a desperate move by Bank of America’s management, a de facto admission that they know the bank is in serious trouble.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

Now you would expect this move to be driven by adverse selection, that it, that BofA would move its WORST derivatives, that is, the ones that were riskiest or otherwise had high collateral posting requirements, to the sub. Bill Black confirmed that even though the details were sketchy, this is precisely what took place.

And remember, as we have indicated, there are some “derivatives” that should be eliminated, period. We’ve written repeatedly about credit default swaps, which have virtually no legitimate economic uses (no one was complaining about the illiquidity of corporate bonds prior to the introduction of CDS; this was not a perceived need among investors). They are an inherently defective product, since there is no way to margin adequately for “jump to default” risk and have the product be viable economically. CDS are systematically underpriced insurance, with insurers guaranteed to go bust periodically, as AIG and the monolines demonstrated. [Background.]

The reason that commentators like Chris Whalen were relatively sanguine about Bank of America likely becoming insolvent as a result of eventual mortgage and other litigation losses is that it would be a holding company bankruptcy. The operating units, most importantly, the banks, would not be affected and could be spun out to a new entity or sold. Shareholders would be wiped out and holding company creditors (most important, bondholders) would take a hit by having their debt haircut and partly converted to equity.

This changes the picture completely. This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. [Background.] So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. This move is Machiavellian, and just plain evil.

The FDIC is understandably ripshit. Again from Bloomberg:

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Well OF COURSE BofA is gonna try to take the position this is kosher, but the FDIC can and must reject this brazen move. But this is a bit of a fait accompli,and I have NO doubt BofA and the craven, corrupt Fed will argue that moving the derivatives back will upset the markets. Well too bad, maybe it’s time banks learn they can no longer run roughshod over regulators. And if BofA is at that much risk that it can’t survive undoing this brazen move, that would seem to be prima facie evidence that a Dodd Frank resolution is in order.

Bill Black said that the Bloomberg editors toned down his remarks considerably. He said, “Any competent regulator would respond: “No, Hell NO!” It’s time that the public also say no, and loudly, to this new scheme to loot taxpayers and save a criminally destructive bank.

Professor Black provided a “bottom line” summary in a separate email:

1.The bank holding company (BAC) is moving troubled assets held by an entity not insured by the public (Merrill Lynch)  to the Bank of America, which is insured by the public
2. The banking rules are designed to prevent that because they are designed to protect the FDIC insurance fund (which the Treasury guarantees)
3. Any marginally competent regulator would say “No, Hell NO!”
4. The Fed, reportedly, is saying “Sure, no worries” by allowing the sale of an affiliate’s troubled assets to B of A
5. This is a really good “natural experiment” that allows us to test whether the Fed is protects the public or the uninsured and systemically dangerous institutions (the bank holding companies (BHCs))
6. We are all shocked, shocked [sarcasm] that Bernanke responded to the experiment by choosing to protect the BHC at the expense of the public.

Karl Denninger writes:

So let’s see what we have here.

Bank customer initiates a swap position with Bank.  In doing so they intentionally accept the credit risk of the institution they trade with.

Later they get antsy about perhaps not getting paid.  Bank then shifts that risk to a place where people who deposited their money and had no part of this transaction wind up backstopping it.

This effectively makes the depositor the “guarantor” of the swap ex-post-facto.

That the regulators are allowing this is an outrage.

If you’re a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.

Stand Up to the Coup

Bank of America has repeatedly become insolvent due to fraud and risky bets, and repeatedly been bailed out by the government and American people. The government and banks are engineering an age of permanent bailouts for this insolvent, criminal bank (and the other too big to fails).  Remember, this is the same bank that is refusing to let people close their accounts.

This is yet another joint effort by Washington and Wall Street to screw the American people, and to trample on the rule of law.

The American people will be stuck in nightmare of a never-ending depression (yes, we are currently in a depression) and fascism (or socialism, if you prefer that term) unless we stand up to the overly-powerful Fed and the too big to fail banks.

This story from Bloomberg just hit the wires this week. Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

This means that the investment bank’s European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn’t get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to “give relief” to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input. You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan. Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

First folks, we are talking over $150 Trillion of exposure.  That is 10 times our GDP!  Would you give me 100% of your income for the next ten years because I need it to make up my gambling loses!  What would you say to me?  You know, the OWS call for a BANK TRANSFER DAY in early November is getting to be a really significant idea.  If the banks refuse to act in a responsible manner and the FED is refusing to discipline its children, then we have to just take their “toys” (our money) away from the bankers.  It is time for “time out” for our out of control children.  Check out your local credit unions, they are real functioning banking organizations owned and controlled by their depositors and members.  Congress will never vote our interest, so we have to vote with our bucks.

The Month of Shocktober

We have posted several Warning/Situation Updates and we will continue to do so as information dictates.  The solar surface has been relatively quiet, although a still large un-numbered solar sunspot is just beginning to rotate into view and the earth facing sun surface has #1305 and #1313 still earth facing and could still be the sources of a large CME.

In addition, the Canary Islands El Heirro volcano still bears watching.  Swarms of earthquakes are continuing sporadically and have increased in intensity and the depth of the quakes is more shallow,  both of those facts RAISES concern.  Below is the latest press release from Spanish officials.

“October 8, 2011 – CANARY ISLANDS – An intensified sustained earthquake swarm is now taking place at the Canary Islands and it appears the magma is now on the move again bubbling closer to the surface and incinerating more rock in the process. Over the last 24 hours, we’ve seen the depths of the tremors rising up to within 11 km from a depth average of about 14.5 to 15 km. The number of seismic volcanic tremors has also doubled at El Hierro since Wednesday. On Wednesday, October 5, there were 79 recorded seismic events. On Thursday, there were 160 and on Friday, October 7th, there were 177.”

Our concern over this situation is the potential for a large land mass sliding into the ocean creating a mega-tsunami directed at the East Coast of the US and South America.  The focus of this concern is that IF a tsunami were to occur, the East Coast of the Americas would have only 8-9 hours to take any preventive measures.  IF the tsunami were to occur at say midnight EDT, then most of the residents in the danger zone would be asleep, not have any communication devices on during the valuable time they would need to get to safety.

If you live in the areas of potential danger, and until this situation stabilizes, you should think about getting the information you would need in a timely fashion.  This concern is amplified by the fact that the USGS service is not even REPORTING anything on this situation.  We are recommending taking these actions:

1).  You can monitor that activity at The European-Mediterranean Seismological Center . Do so at least twice a day.

2).  As with an emergency plan, make sure you have a way to communicate with each other 24 hours a day.  So as some of you sleep, others are awake and monitoring the situation.  We can’t emphasize enough that in this particular situation, every minute will be precious.

3).  Be sure about your evacuation plan.  Again, those with the information first will be the ones who will most likely be successful in escaping and will not be the ones stuck in grid-lock.  I think you could imagine that the roads will become impassable very quickly when every coastal citizen is trying to go west and to high ground.

However, as we monitor natural dangers, we also monitor financial and political situations as well. Given the current situation in the EU concerning Greece, Italy, Ireland, Spain, and Portugal, and the lack of action and political grid-lock in Germany, France, and to a lesser degree the UK, the collapse of the EU could occur within the next two weeks.  Based on information provided us privately, it is no longer a question of IF, only WHEN, and those in the know say it could be this week coming up (October 10-17th).

Some would say, OK, why would this be any different than the 2008 financial event in the US?  Well, consider that the EU CANNOT “bail-out” countries like we bailed out banks.  In addition, the bastard child in the room is the world’s derivatives market.  If the EU goes down, investors would only be holding all those credit swaps, etc. which would all be exercised at once.  This is the monster.  It is a $500 Trillion monster!  To put this insanity into perspective, that is almost 10 tens the world’s GDP as estimated by the World Bank for 2010, which was just a little north of $63 Trillion!

This, simply stated, ends the world economy as we know it, and it would all unravel within a matter of 7-10 days.  Markets and banks close immediately, riots ensue within 48 hours and chaos is real for EVERYONE.  We are now elevating our watch of this situation.  Anything that would even trigger rumors at this point could tip the bus over the cliff.  While we have been writing about this since we began, we now see real events beginning to form that toxic situation that could trigger this financial tsunami and soon.

One of the major concerns are the threats being issued by the so-called “Anonymous”, the group believed responsible for kicking off the Occupy Wall Street (OWS) movement.  They have specifically threatened to “attack” the global electronic banking system during this period.  If the markets were forced to close because of such attack, it could be the “gunshot” that panics the herd into a stampede to “preserve” what is left in value in the market.  

We know that these situations all together seem a bit overwhelming.  It makes us step back and want to just go fishing.  However, the reality is we will survive all of this and more!  We simply want everyone to be awake and alert.  It is the LERTS that will survive and we want everyone to survive.  Too many of us have already paid the ultimate sacrifice as a result of the events unfolding.  Each loss is a loss to each and every one of us. Whether it was a soldier or civilian killed in the various wars, or the death of a protestor in Yemen, or the retired “investor” who took their own life because they lost everything, they ARE US.  Knowledge gives us the ability to remain calm, confident, and most importantly the ability to endure and continue.

Further Updates from the Currency War Front

Well, folks, it’s official – mark November 22, 2010 in your calendars.  With yesterday’s $8.3 billion POMO monetization, the Fed’s official holdings of US Treasury securities now amount to $891.3 billion, which is higher than the second largest holder of US debt: China, which as of September 30 held $884 billion, and Japan, with $864 billion.  The Fed is now buying about $30 billion per week, or about $120 billion per month, for the foreseeable future and beyond, it would mean that China would need to buy a comparable amount to be in the standing. It won’t. In other words, the Ponzi operation is now complete, and the Fed’s monetization of US debt has made it not only the largest holder of such debt, but made external funding checks and balances in the guise of indirect auction bidding, irrelevant. China is now not the one having the most to lose on a DV01 basis on that day when the inevitable surge in interest rates finally happens. That honor is now strictly reserved for America’s taxpayers.

In addition, Tuesday China and Russia sent a loud message to the FED.

Source: Asia One – Su Qiang and Li Xiaokun

St. Petersburg, Russia – China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.  Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities. The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

“That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries,” he said.

Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.  The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communique. Details of the documents have yet to be released.

Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a “fair and reasonable new order” in international politics and the economy.

Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.  Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.

In related news on the situation in the EU comes the grim but expected news that the Spanish 3-month bill auction failed.  The debt agency sold only €3.26bn of the €4-5bn that was offered, at average yield of 1.743% vs 0.951% prior. What people must understand is that is nearly double the interest rate.  This debt service is the back breaker to the economy.  Tensions are surely going to start boiling over on the Emerald Isle.  If Greece was a big bomb to the EU and ECB stability, and Ireland was Greece’s big brother, then the Spanish economy is their bigger brother Bubba.  These three countries WILL require further bailouts and quite frankly more than the ECB can handle.  The death of the EU is like watching a shot buffalo go down in a Sam Peckinpah movie.

Finally, back in the US, in addition to the impacts of QE2, the mortgage situation as related to the big banks is far from going away.  To put things in clear perspective, the banks bundled, and sold to investors, junk paper consisting of bundled questionable mortgages.  In most cases, those same banks kept the seconds on those mortgages.  However, now the investors do have recourse.  These bundled packages required the banks to “buy back” any equity that was in default or foreclosure.  The bottom line to this is that the top five banks, between the bad second mortgages and the default clauses on the crap they dumped on investors, are on the hook for nearly $400 Billion, which is more than the equity value of those top five banks.

In view of the fact the currency wars have unquestionably erupted, these elements represent the perfect storm.  As a side, the “fear” index on Wall Street today was the highest recorded since 1987.  These events are moving along the worst case scenario lines.  Watch very carefully.

The Decrees of Fate are Many but the Decrees of Destiny are Few

Destiny can be likened to travelling to a distant city whether or not you wish to make the trip. The way the man gets to the city is his only choice and therefore whatever occurs as a result of his decision is where fate comes in.

When I contemplate all that I am currently observing in the world with wars, natural disasters, and economic hardships, I think about us.  I mean the collective “US”. WE, as mankind have a destiny.  We might not know the ultimate destiny, but we all sense we are moving toward something more.  We sense when we are not moving forward to that destiny, as we collectively sense now.  We have lost what we call  “our spirit” or the “spirit of mankind.”  More realistically we can say it is the collective aspirations of all men.  This universal inspiration sets us apart from all other creatures we are aware of in existence.

I wonder how we allowed ourselves to make the choices we have made or are making.  Would are ancient ancestors look with pride at how far we have progressed or will they be saddened that we are still at war, or that there are still far too many of us hungry, sick, or marred in poverty and victimized on a daily basis?

I also wonder that if our current situation is the decrees of fate that has resulted from the choices we have made, then why do we feel so powerless to change those choices?  Let’s be honest here.  On an individual basis, we all are sickened at how many of our finest young men and women are dying in distant wars we know little about and yet as individuals we do nothing more than lip service on occasion to change it. Why?

We all know that a very few have a vastly disproportionate amount of the collective wealth and they are amassing even more everyday and we know they are not using their wealth in any meaningful way for the betterment of all.  Yet we allow them the continued privilege that such wealth generates.  Why?

I understand the wisdom that a man realizes more readily the depth of his soul when confronted with disaster than while sitting in the lap of luxury, but where are WE right now?  For me it came down to some pretty basic stuff.  Do I really have a soul and do I really have a destiny?  For me, the answer to both questions is yes. While trials and tribulations are the tuition of a soul, we have choices, choices as individuals and collective choices.

I feel I am on fairly solid ground here.  This has nothing to do with religious dogma or belief systems.  I don’t pretend to have even the slightest clue to the “TRUTH”.  I think even most agnostics or atheists you would meet would agree that you cannot rule out the possibilities of some sort of eternal  or dimensional existence.

So why am I rambling about this now?  Is it too much coffee or not enough sleep?  No, it’s the stories of people having their retirement plans so impacted that they must continue to work well past 65, or 4500 children dying every minute of starvation or disease.  It is the agony and pain of women, children, and the elderly caught in the vise grips of war and conflict.  It is the deterioration of our systems of education and infrastructure.  It is 2 million families that will be thrown from their homes in just America this year.

Can WE not do better than this?  What is really stopping us from drinking from the Chalice of Fulfillment?  When will these unnecessary hardships and suffering actually become intolerable to us?  Please do not misunderstand what I am trying to say, I really don’t have any of the answers, only the questions.

I know it is easier for the soul in each of us to devolve rather than evolve, but it seems we are almost severed from that which we call the “spirit of man”.  That same spirit that created England and the Magna Carta.  The same spirit that sparked the French and American Revolution. The same spirit that allowed the world to survive two major global wars.

It seems to me that we should re-empower OURSELVES as individuals. We need to reconnect to our spirit of who we are and then collectively we need to clean this mess up pronto.  What say you?

An Update on the Continuing Bank Failures

On October 4th,2009 I wrote that the FDIC had laid out over $55 Billion in insurance funds to cover bank loses, and that I felt the FDIC would go red in January or February of 2010, just based on the math and the rate of bank failures, coupled with the number of banks that were still in trouble.  My concern was the bigger banks still in trouble like Citi.  In December 2009, one of the major shareholders of Citi, Kuwait Investment Fund sold their stake in Citi.  There is also a lot of money moving in the EU after the announcement that Greece is essentially bankrupt.  In my October article, I personally thought that the FDIC might go red sooner than January or February, “much sooner” is what I said exactly.

While many readers commented that I may be too pessimistic about the situation, it actually turned out to be worse than even I thought.  Bank failures for 2009 set a record and FDIC went red in December 2009.  As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund, and its deficit stood at $20.7 billion as of March 31.

282 banks have failed since the beginning of 2008. 400 of the remaining 800 “troubled” banks may be in trouble. George G. Kaufman is the John F. Smith Professor of Finance and Economics at Loyola University Chicago and a consultant at the Federal Reserve Bank of Chicago has this to say about it. “ Bank (depository institutions) failures are widely perceived to have greater adverse effects on the economy and thus are considered more important than the failure of other types of business firms. In part, bank failures are viewed to be more damaging than other failures because of a fear that they may spread in domino fashion throughout the banking system, felling solvent as well as insolvent banks.  Thus, the failure of an individual bank introduces the possibility of system wide failures or systemic risk. This perception is widespread.  It appears to exist in almost every country at almost every point in time regardless of the existing economic or political structure. As a result, bank failures have been and continue to be a major public policy concern in all countries and a major reason that banks are regulated more rigorously than other firms.  Unfortunately, whether bank failures are or are not in fact more important than other failures, and I will argue in this paper that they are not, the prudential regulations imposed to prevent or mitigate the impact of such failures are frequently inefficient and counterproductive.

A little background: Most failed banks are essentially sold to other banks and some go into receivership. The common maneuver here is to transfer the assets and liabilities to another bank with some level of guarantee from the FDIC to help support those liabilities. This is typically done on a Friday evening and causes the bank to be closed perhaps the next day (Saturday) and then the bank opens, business as usual, on Monday. So far, there has been little panic or problems with this modus operandi.

Now however, the FDIC is finding it more and more difficult to find banks that want to help out. That is, the banks that formerly had wanted to purchase other banks have done so and are not interested in buying any more banks. To put it bluntly, the FDIC is running out of buyers.  Often times they are literally coming down to the wire to get all the transactions and contracts, etc. pertaining to the purchase completed in time to seamlessly make the transition, as it is taking longer and longer to secure a buyer.  A recent example is Ideal Federal Savings Bank of Baltimore Maryland with $6.3 M in assets, but will cost the FDIC $2.1M because the FDIC could not find a buyer.

The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007.

The number of banks on the FDIC’s confidential “problem” list has jumped to 775 in the first quarter of 2010 from 702 three months earlier, even as the industry as a whole had its best quarter in two years. A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.

The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.  The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.  While depositors’ money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government, the concern is competition and more importantly the loss of local community banks that invest locally.

James Wesley Rawles at survivalblog.com suggests we should be forewarned: 1.) The pace of bank failures in the U.S. is likely to increase. 2.) The number of banks that will have to be directly bailed out (rather than conglomerated with little fuss) will increase. 3.) The risk of bank runs will also increase. The point at which bank runs occur is difficult to predict, since it is based upon subtle psychological tipping points.

What is really disconcerting about these facts is that there are several other facts that just don’t jive with the reality of what is going on. Fact One- The FED is sitting on the largest excess cash reserves in its history (over $1 trillion). Fact Two- collectively corporate America is sitting on their largest cash reserves. Fact Three- banks are recalling record numbers of credit lines from small businesses that ARE NOT in default and have no adverse issues.  So while overall the economy is the main cause of the failures, there also seems to be some hidden agendas working as well.  It will be very interesting to read the independent examiner’s report concerning the WAMU closure last year.  Maybe we can find a “smoking gun” from this report that would indicate if there is some hidden agenda in the FDIC’s aggressive actions.  All I know is that there will be little hope of recovery if the “Big Five” are the only ones standing when the “Fat Lady” sings.

Even the Happy Talk is Waning

One only has to pay moderately close attention to what is going on concerning our current economic condition to know that we are in a world of hurt.  No one has a clue what to do next.  Politicians on both sides of the aisle are shamelessly using the issue to attack one another, but offering no solutions what so ever.  The Fed is hoarding cash reserves, corporations are sitting on record cash reserves, and the banks aren’t lending anything.  All the while our economy is collapsing more and more each day.

According to Laurence Kotlikoff of Bloomberg, “last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”  The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act. “

The U.S. government can continue to try to pump up with economy with more debt, but the reality is that there is not going to be a legitimate “recovery” until consumer spending rebounds.  Consumer spending makes up the vast majority of U.S. GDP.  But without good jobs, consumers are not going to be able to spend money.  Unfortunately, our jobs base continues to be erode as millions upon millions of middle class jobs are shipped over to China, India and dozens of third world nations by the global predator corporations that now dominate the world economy.

The U.S. government cannot create real wealth out of thin air.  It can borrow even more money and flood the economy with even more paper currency, but the short-term “buzz” that creates does absolutely nothing to solve our long-term economic problems.

It is the private sector that actually creates wealth.  But unfortunately, over the last several decades we have allowed that wealth to become highly concentrated.  Now the giant global predator corporations have decided that American workers aren’t really that desirable after all.  They are slowly taking away their factories and their offices and they are moving them to where people are willing to work for one-tenth the pay.

So where does that leave middle class American “consumers”?

Well, it leaves us in a world of hurt.

According to Michael Snyder – BLN Contributing Writer:

The following are 15 key economic statistics that just keep getting worse and which reveal the horrific economic plight in which we now find ourselves….

1 – The number of Americans who are receiving food stamps rose to a new all-time record of 40.8 million in May.  The number of Americans receiving food stamps has set a new all-time record for 18 months in a row.  But there is every indication that things are going to get even worse.  The U.S. Department of Agriculture projects that the number of Americans on food stamps will increase to 43 million in 2011.

2 – The U.S. economy lost 131,000 more jobs during the month of July.  (edit note: August is looking a little better, but not much).  But the truth is that the U.S. economy has been bleeding jobs for a long time.  According to one analysis, the United States has lost 10.5 million jobs since 2007.  Meanwhile, immigrants (both legal and illegal) continue to pour into this nation in unprecedented numbers.

3 – Americans who are out of work are finding it incredibly difficult to get back into the workforce.  In the United States today, the average time needed to find a job has risen to an all-time record of 35.2 weeks.

4 – The U.S. government keeps trying to pump up the economy with debt, and in the process things are getting wildly out of control.  According to a U.S. Treasury Department report to Congress, the U.S. national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015.

5 – The interest on all of this debt is becoming increasingly oppressive.  As of July 1st, the U.S. government had spent $355 billion so far in 2010 on interest payments to the holders of the national debt.  The total for 2010 should be somewhere in the neighborhood of $700 billion.  According to Erskine Bowles, one of the heads of Barack Obama’s national debt commission, the U.S. government will be spending $2 trillion just on interest on the national debt by 2020.  Keep in mind that the entire U.S. government budget is less than $4 trillion for the entire year of 2010.

6 – If the U.S. government was forced to use GAAP accounting principles (like all publicly-traded corporations must), the annual U.S. government budget deficit would be somewhere in the neighborhood of $4 trillion to $5 trillion.

7 – Social Security will pay out more in benefits in 2010 than it receives in payroll taxes.  This was not supposed to happen until at least 2015.  In the years ahead, these new “Social Security deficits” are projected to be absolutely catastrophic.

8 – There are simply far too many retirees and not nearly enough workers to support them.  Back in 1950 each retiree’s Social Security benefit was paid for by 16 workers.  Today, each retiree’s Social Security benefit is paid for by approximately 3.3 workers.  By 2025 it is projected that there will be approximately two workers for each retiree.

9 – Wealth continues to become highly concentrated at the top.  Since 1973, the average CEO’s salary has increased from 26 times the median income to over 300 times the median income.

10 – According to a poll taken in 2009, 61 percent of Americans “always or usually” live paycheck to paycheck.  That was up significantly from 49 percent in 2008 and 43 percent in 2007.

11 – The Mortgage Bankers Association recently announced that more than 10% of all U.S. homeowners with a mortgage had missed at least one mortgage payment during the January to March time period.  That was a new all-time record and represented an increase from 9.1 percent a year ago.

12 – A recent survey of last year’s college graduates found that 80 percent moved right back home with their parents after graduation.  That was up substantially from 63 percent in 2006.

13 – During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

14 – The total number of U.S. bank failures passed the 100 mark in July of this year.  In 2009, the total number of U.S. bank failures did not pass the century barrier until October.

15 – The U.S. dollar continues to rapidly decline in value.  An item that cost $20.00 in 1970 would cost you $112.35 today.  An item that cost $20.00 in 1913 would cost you $440.33 today.

So what can we each individually do to somewhat insulate ourselves from the economic problems that are coming? Beside the given of being an informed voter and demanding the fiscal reforms we need and voting with our pocket books, such as not supporting companies that are exporting jobs overseas or exploiting illegal immigrant labor, here are some suggestions.

1 – Get Out Of Debt: The old saying, “the borrower is the servant of the lender”, is so incredibly true.  The key to insulating yourself from an economic meltdown is to become as independent as possible, and as long as you are in debt, you simply are not independent.  You don’t want a horde of creditors chasing after you when things really start to get bad out there.

2 – Find New Sources Of Income: In 2010, there simply is not such a thing as job security.  If you are dependent on a job (“just over broke”) for 100% of your income, you are in a very bad position.  There are thousands of different ways to make extra money.  What you don’t want to do is to have all of your eggs in one basket.  One day when the economy melts down and you are out of a job are you going to be destitute or are you going to be okay?

3 – Reduce Your Expenses: Many Americans have left the rat race and have found ways to live on half or even on a quarter of what they were making previously.  It is possible – if you are willing to reduce your expenses.  In the future times are going to be tougher, so learn to start living with less today.

4 – Learn To Grow Your Own Food: Today the vast majority of Americans are completely dependent on being able to run down to the supermarket or to the local Wal-Mart to buy food.  But what happens when the U.S. dollar declines dramatically in value and it costs ten bucks to buy a loaf of bread?  If you learn to grow your own food (even if is just a small garden) you will be insulating yourself against rising food prices.

5 – Make Sure You Have A Reliable Water Supply: Water shortages are popping up all over the globe.  Water is quickly becoming one of the “hottest” commodities out there.  Even in the United States, water shortages have been making headline news recently.  As we move into the future, it will be imperative for you and your family to have a reliable source of water.  Some Americans have learned to collect rainwater and many others are using advanced technology such as atmospheric water generators to provide water for their families.  But whatever you do, make sure that you are not caught without a decent source of water in the years ahead.

We will continue to do our best to tell the truth, get the REAL information, and pass it on here.  Katie bar the door please.  Storm is acomin’.

I’m back but with some new perspective

I know that some of my readers have wondered what happened to me.  Did I just quit writing. Was it something more.  Well to be honest, over the last two months I have relocated back to the States and I also felt that reporting what I think people need to know and understand about our current times was putting me too close to all of the negative aspects of our current transitions.  I wanted to insure myself that I was not becoming jaded by the information I was covering and presenting in my blog.

Certainly I feel very strongly that MSM media is not reporting the most important stories of our times and no doubt watching events such as the BP oil spill unfold or how the banksters and PTB continue their choke hold on our government continues, I think it is becoming increasingly obvious to even the casual occasional observer that things ain’t right.  However, I felt and to some degree continue to feel frustrated that such baloney continues uncontested.  Still the sheeple sleep, or worse, parrot the most inflammatory talking heads and politicians who are continuing their efforts to keep our focus on any place except where we should be focused. A very good example is the story of Ms. Sherrod and how those events unfolded.  While the truth was brought forth quickly about who Ms. Sherrod really was and what she really said, it none the less created a living hell for her personally and so many quickly jumped on the bandwagon to burn the witch!

After long contemplation, I realized that I must continue my vigilance and to write about my observations.  Bur something else emerged from my sabbatical.  That is I need to rant just a bit more about how lazy and subverted we have become as people.  We really have to wake up now.  If you have seen the recent commercial by Geico about the Marine Drill Sargent as the psychiatrist, you have an idea about how I am feeling right now.  We have to leave Manby Panby land and get with the program.

We are not this stupid.  We, as a global community, are facing enormous challenges and we are shirking our responsibilities and laying them off to politicians and banksters, and they are both basically robbing us blind and creating more chaos.  Looking closely at home, we are watching our schools, hospitals, police and fire departments collapse.  We are watching our local, state and federal governments crumble.  We are watching as families are losing their homes, our youth find no hope for jobs, and our elder and sick, including the fine young men and women who have served so honorably to protect our freedom get neglected and abused, and we do nothing.  I do not believe, as a people, that is who we are; yet we are silent.

People ask me what can they do about the situation and I used to respond dutifully to become an informed voter, I mean really informed, and to volunteer in their local communities, and etc.  The standard appropriate answers.  But during my self-imposed exile, I saw things a little more clearly.  Now my answer to that question is I don’t know what YOU can do, but you do and now get to it dammit.  Get off your butt and do something.  Speak out, vote, volunteer, prepare your family, speak to your relatives.  I do not know what you can do, but YOU do!

For my part, I will continue to observe and inform.  Recently there have been attempts to control the internet and its content.  Blog sites have been shut down to control the dialogue under the auspicious of copyright protections and other flimsy excuses. There have also been a number of disclosures that the PTB and MSM didn’t what floated in the mainstream conciousness.  Freedom of speech when exercised in a noncommercial manner designed only to inform and educate is NOT treason or a National security threat. IT IS AN unalienable right.

Finally, during my restbit, I analyzed critically the hundred or so blog entries I have made over the past 18 months to see if somehow I was being influenced in subtle ways that would compromise my objectivity.  What I concluded was that I was ahead of the curve in predicting the outcomes of market performance, bank closures, collapse of governmental, educational, and economic institutions.  I can’t really explain to you why I can see things so clearly.  I guess I can best describe it as something akin to say a savant who sees numbers as geometric figures and structures, or formulas as colors or patterns.  When it comes to patterns in the time line I just see them and the outcomes like a negative of a photograph.  Not always clear, but certainly discernible

The next six months contain events that will make the last 18 months pale in their impacts to all of us. However, I also know and understand that what we collectively can and should make these events create a more positive, stable, and peaceful world.  It really is up to us. Are we going to let a minority greedy service to self lot dictate the future or are we, as the majority, as the decent human lot that we really are going to retake control of our destiny.  What’s it going to be folks.

Where Have All the Flowers (Bailout Money) Gone?

The idea we were sold to fork over nearly $7.6 trillion in taxpayer money was to remove “toxic assets” from the financial system and open up credit to consumers and small to medium size businesses, and we just give this money to the banskters and they take from there.  They are good guys and we can trust them.  Well nearly two years later and things haven’t gotten any better and nobody can get a loan, small and medium size businesses are failing left and right.  Banks are continuing to fail at an alarming rate, nearly 60 banks since the beginning of the year and over 150 banks since the start of the crisis. So where is the bailout money?

In actuality the real estate and the ensuing fraudulent bond fraud was the last straw in the elitist house of cards. The collapse known as the credit crisis will hobble America for years to come unless the system is purged. The Fed over the last year transferred off of bank balance sheets some $1.7 trillion in bonds, CDO’s, known as toxic waste. The Fed won’t tell us who they were purchased from or what was paid for them. It is another secret. The US taxpayer will pay all the losses, as less Fed profits flow to the Treasury. Don’t forget as well that the 3-card Monte game of the Fed lending money to banks at ½% and then receiving those funds back to earn 2% is also a paid for by the public to enrich the bankers.

This last sentence is very important to understand.  Here’s an interesting fact that you may not have seen yet. The M1 money multiplier just slipped below 1. So each $1 increase in reserves (monetary base) results in the money supply increasing by $0.95 (OK, so banks have substantially increased their holding of excess reserves while the M1 money supply hasn’t changed by much).

Since January 2009, the M1 Money Multiplier has crashed further, to .786 in the U.S. as of February 24, 2010:

That means that – for every $1 increase in the monetary base – the money supply only increases by 79 cents. Why is M1 crashing? Because the banks continue to build up their excess reserves, instead of lending out money:

Why are banks building up their excess reserves?

As the Fed notes:

The Federal Reserve Banks pay interest on required reserve balances–balances held at Reserve Banks to satisfy reserve requirements–and on excess balances–balances held in excess of required reserve balances and contractual clearing balances. The New York Fed itself said in a July 2009 staff report that the excess reserves are almost entirely due to Fed policy:

Since September 2008, the quantity of reserves in the U.S. banking system has grown dramatically, as shown in above.  Prior to the onset of the financial crisis, required reserves were about $40 billion and excess reserves were roughly $1.5 billion. Excess reserves spiked to around $9 billion in August 2007, but then quickly returned to pre-crisis levels and remained there until the middle of September 2008. Following the collapse of Lehman Brothers, however, total reserves began to grow rapidly, climbing above $900 billion by January 2009. That is a 100 fold increase!!! As the figure shows, almost all of the increase was in excess reserves. While required reserves rose from $44 billion to $60 billion over this period, this change was dwarfed by the large and unprecedented rise in excess reserves.

Why are banks holding so many excess reserves? What do the data tell us about current economic conditions and about bank lending behavior? Some observers claim that the large increase in excess reserves implies that many of the policies introduced by the Federal Reserve in response to the financial crisis have been ineffective. Rather than promoting the flow of credit to firms and households, it is argued, the data shown indicate that the money lent to banks and other intermediaries by the Federal Reserve since September 2008 is simply sitting idle in banks’ reserve accounts. Edlin and Jaffee (2009), for example, identify the high level of excess reserves as either the “problem” behind the continuing credit crunch or “if not the problem, one heckuva symptom”  Commentators have asked why banks are choosing to hold so many reserves instead of lending them out, and some claim that inducing banks to lend their excess reserves is crucial for resolving the credit crisis.

This view has lead to proposals aimed at discouraging banks from holding excess reserves, such as placing a tax on excess reserves (Sumner, 2009) or setting a cap on the amount of excess reserves each bank is allowed to hold (Dasgupta, 2009). Mankiw (2009) discusses historical concerns about people hoarding money during times of financial stress and mentions proposals that were made to tax money holdings in order to encourage lending. He relates these historical episodes to the current situation by noting that “with banks now holding substantial excess reserves, [this historical] concern about cash hoarding suddenly seems very modern.”

In fact, however, the total level of reserves in the banking system is determined almost entirely by the actions of the central bank and is not affected by private banks’ lending decisions.

The liquidity facilities introduced by the Federal Reserve in response to the crisis have created a large quantity of reserves. While changes in bank lending behavior may lead to small changes in the level of required reserves, the vast majority of the newly-created reserves will end up being held as excess reserves almost no matter how banks react. In other words, the quantity of excess reserves depicted  reflects the size of the Federal Reserve’s policy initiatives, but says little or nothing about their effects on bank lending or on the economy more broadly.

Why is the Fed locking up excess reserves?

As Fed Vice Chairman Donald Kohn said in a speech on April 18, 2009:

We are paying interest on excess reserves, which we can use to help provide a floor for the federal funds rate, as it does for other central banks, even if declines in lending or open market operations are not sufficient to bring reserves down to the desired level.

Kohn said in a speech on January 3, 2010:

Because we can now pay interest on excess reserves, we can raise short-term interest rates even with an extraordinarily large volume of reserves in the banking system. Increasing the rate we offer to banks on deposits at the Federal Reserve will put upward pressure on all short-term interest rates. This is just what we need to stimulate the economy?  Upward pressure on short term interest rates,  yeah, that makes sense huh?

As the Minneapolis Fed’s research consultant, V. V. Chari, wrote this month:

Currently, U.S. banks hold more than $1.1 trillion of reserves with the Federal Reserve System. To restrict excessive flow of reserves back into the economy, the Fed could increase the interest rate it pays on these reserves. Doing so would not only discourage banks from draining their reserve holdings, but would also exert upward pressure on broader market interest rates, since only rates higher than the overnight reserve rate would attract bank funds. In addition, paying interest on reserves is supported by economic theory as a means of reducing monetary inefficiencies, a concept referred to as “the Friedman rule.”

And the conclusion to the above-linked New York Fed article states:

We also discussed the importance of paying interest on reserves when the level of excess reserves is unusually high, as the Federal Reserve began to do in October 2008. Paying interest on reserves allows a central bank to maintain its influence over market interest rates independent of the quantity of reserves created by its liquidity facilities. The central bank can then let the size of these facilities be determined by conditions in the financial sector, while setting its target for the short-term interest rate based on macroeconomic conditions. This ability to separate monetary policy from the quantity of bank reserves is particularly important during the recovery from a financial crisis. If inflationary pressures begin to appear while the liquidity facilities are still in use, the central bank can use its interest-on-reserves policy to raise interest rates without necessarily removing all of the reserves created by the facilities.

As the NY Fed explains in more detail:

The central bank paid interest on reserves to prevent the increase in reserves from driving market interest rates below the level it deemed appropriate given macroeconomic conditions. In such a situation, the absence of a money-multiplier effect should be neither surprising nor troubling.

Is the large quantity of reserves inflationary?

Some observers have expressed concern that the large quantity of reserves will lead to an increase in the inflation rate unless the Federal Reserve acts to remove them quickly once the economy begins to recover. Meltzer (2009), for example, worries that “the enormous increase in bank reserves — caused by the Fed’s purchases of bonds and mortgages — will surely bring on severe inflation if allowed to remain.” Feldstein (2009) expresses similar concern that “when the economy begins to recover, these reserves can be converted into new loans and faster money growth” that will eventually prove inflationary. Under a traditional operational framework, where the central bank influences interest rates and the level of economic activity by changing the quantity of reserves, this concern would be well justified. Now that the Federal Reserve is paying interest on reserves, however, matters are different.

When the economy begins to recover, firms will have more profitable opportunities to invest, increasing their demands for bank loans. Consequently, banks will be presented with more lending opportunities that are profitable at the current level of interest rates. As banks lend more, new deposits will be created and the general level of economic activity will increase. Left unchecked, this growth in lending and economic activity may generate inflationary pressures. Under a traditional operating framework, where no interest is paid on reserves, the central bank must remove nearly all of the excess reserves from the banking system in order to arrest this process. Only by removing these excess reserves can the central bank limit banks’ willingness to lend to firms and households and cause short-term interest rates to rise.

Paying interest on reserves breaks this link between the quantity of reserves and banks’ willingness to lend. By raising the interest rate paid on reserves, the central bank can increase market interest rates and slow the growth of bank lending and economic activity without changing the quantity of reserves. In other words, paying interest on reserves allows the central bank to follow a path for short-term interest rates that is independent of the level of reserves. By choosing this path appropriately, the central bank can guard against inflationary pressures even if financial conditions lead it to maintain a high level of excess reserves.

This logic applies equally well when financial conditions are normal. A central bank may choose to maintain a high level of reserve balances in normal times because doing so offers some important advantages, particularly regarding the operation of the payments system. For example, when banks hold more reserves they tend to rely less on daylight credit from the central bank for payments purposes. They also tend to send payments earlier in the day, on average, which reduces the likelihood of a significant operational disruption or of gridlock in the payments system. To capture these benefits, a central bank may choose to create a high level of reserves as a part of its normal operations, again using the interest rate it pays on reserves to influence market interest rates.

Because financial conditions are not “normal”, it appears that preventing inflation seems to be the Fed’s overriding purpose in creating conditions ensuring high levels of excess reserves. However, is it?  I would  suggest that the FED is simply taking full and complete control of the monetary policy without permission and with the full support of our CONgress harlots. The Dodd reform bill is a sham and people like Uncle Warren B, who called credit derivatives “weapons of mass destruction”, while holding over $60 billion worth and getting a sweetheart exemption for them in the Dodd bill are..let’s be kind being deceptive with us.

For you and I and all the hard working small and medium size business people in the US who really create the quality jobs.  Well, we just have to load another 16 tons boss.