The US Power Elite: An Alliance of Convenience or a Ménage à Trois?

"I submit that our spendthrift government, the Federal Reserve System and the TBTF banks together now comprise the paramount political tendency in America today. This tripartite "Alliance of Convenience," let's not call it a conspiracy, fits beautifully into the corporatist mold that seems to be America in the 21st Century - but only viewed by the elites in cities like New York and Washington. Many Americans of all political descriptions oppose this corrupt and unaccountable political formulation." Chris Whalen, Institutional Risk Analytics

“Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power." Benito Mussolini

There can be little doubt now that Chris Whalen is not only a subject matter expert of the first order in the field of banking, but is additionally a brilliant mind, being able to step outside his discipline and connect the dots using his knowledge in other diverse fields including politics, history, and organizational behaviour.

I cannot judge where his thinking and my own diverge, because we do not disagree at all in this exemplary characterization of the world economy as it is today, I suspect that the solution, the path to a stable model, might offer some differences in implementation, but nothing beyond that. One cannot tell if there is a taint of the 'Chicago School' of free market romanticism in his views until one sees his detailed model of a post-recovery regulatory regime.

He does seem to be overly dismissive of a Europe in caricature, but makes many good points which are important to address at the EU. 'Europe' is one entity in the same way that New York is New Orleans. Germany has a difficult path to steer, but his criticism is right, and we have been very critical of Peer Steinbrück among others.

There are some enormous implications in the regime of the dollar as the world's currency that most economic commentators just do not 'get.' There can be no serious dollar deflation while the dollar has that role, without the world grinding to a virtual halt. This essay alone is worthwhile if one can understand that, which is a 'difference' between the US in 1929 and 2009.

But the description of the unholy alliance among Washington - the Fed - and the Banks is exceptionally good. Each depends on the other two. Washington wishes to spend while rewarding its friends, the Fed is only too eager to please by printing money to maintain the financial system which they have engineered, and the Primary Dealers on Wall Street distribute and manage the money while taking a hefty slice of the product for themselves.

Chris Whalen calls this an Alliance of Convenience, implying that of course there is no conspiracy per se, but each member of this triumvirate is merely obtaining and enabling from the others.

I would call it a willing Ménage à Trois, literally the eternal triangle, because of course this arrangement has been repeated throughout history among people of certain types who seek each other out by design.

Bootleggers need protection, corrupt politicians need criminals, and the distributors need a product. Kings desire legitimacy, churchmen need powerful defenders, and warlords wish to be paid extremely well.

There is also a great deal of intermingling and changing of positions among the actors in this arrangement. The revolving door between the Congress and the financial interests is obvious. It is hard to tell just who is on top at any given moment.

The only check and balance on this arrangement, besides the intrusion of the law as embodied in the Constitutional limitations on power, is the value, the acceptability of the dollar and the bond.

One cannot tell if Chris has thoroughly thought through the implications of what he has concluded, the Ponzi nature of the US financial system, and the consequences of its collapse. If he does, he should have more sympathy for his colleagues at the Fed who, in the American colloquial sense, should be 'scared shitless' of what they have done, if they have a mind of their own at all.

Institutional Risk Analytics
Are the Fed, the Congress and the Primary Dealers an Alliance of Convenience?
October 20, 2009

+For the better part of a year, many smart, talented people in the worlds of finance and economics have been struggling to describe the causes of the financial crisis and solutions. I witnessed such a debate recently at the international banking conference sponsored by the Federal Reserve Bank of Chicago. It is fair to say that the representatives from Europe, Asia and the Americas continue to have differing views of the crisis and how to address it; more regulation or less, more capital or less, and whether markets should be re-regulated.

Far from being dismayed by such disparity of views, I am encouraged by this difference of opinion and I hope that the debate intensifies in coming months. To recall the words of Alfred Sloan, it is only by sharpening our differences can we understand complex problems and understand those distinctions which matter and those which do not. But as we build a narrative to understand the crisis, we seem to be converging on one view of the causes of the financial "bubble" and thereby ignoring other perspectives and views that might be instructive.

In his books such as The Black Swan, the author Nassim Taleb warns us that the news media and particularly condensed versions of reality such as television force all of us into a view of the world that is often over simplified. As social creatures, we all tend to use narrative to describe and understand complexity. We speak and write and discuss. Gradually we distill our impressions and these views merge together into the collective understanding, the "official" story.

But just as bubbles are probably not a good technical metaphor to describe financial crises, we need to beware the tendency to simplify and categorize complex events when it comes to public policy for our financial institutions and markets. Americans have a wonderful tendency to look at public policy from a vertical perspective, in silos, that suggest we can somehow isolate monetary policy and bank supervision and fiscal policy into neat, separate little boxes that are never affected or disturbed by one another.

In particular, this comes to mind when we hear US economists talk about foreign capital inflows as an externality. Those fiat paper dollars belong to us. We printed them and of course they are returning home in search of at least a nominal return. That's why we have problems such a mortgage market bubbles and a surfeit of capital inflows, then a sudden outflow of these same pools of credit. In a fiat money system, after all, there is no "money" in a classical sense, merely credit. These large flows of fiat paper dollars, I submit, explain the increasingly manic behavior of markets, investors and large banks over the past decade as true investment opportunities are increasingly outnumbered by speculation.

I agree with Vince and the other speakers about the nature of the problem created by America's addiction to debt and inflationary monetary policy, and how difficult it makes it for us to address more basic structural problems in our economy. This is especially true so long as the rest of the world is willing to allow the US to retain a global monopoly on dollars as the primary means of exchange and as a short-term store of value. But I believe to achieve a true understanding of the crisis, we must step back and take a political perspective.

The evolution of the US from a democratic republic into a more statist, more corporate formulation that looks more and more like the states of Europe and Asia every day, is what makes concepts such as too big to fail ("TBTF") and "systemic risk" viable. The migration of the US from a society based on individual liberty, work and responsibility, to a society where a largely corporate and socialist perspective holds sway, in my view, is changing the way we look at our financial and monetary system. Because of the huge and some would say illegal subsidies provided to Wall Street firms during the early part of the crisis, particularly in cases such as the rescue of American International Group, the American electorate is engaged in an intense, sometimes angry debate about financial policy and government.

This debate is also very intense among the bank regulatory community, where you have FDIC Chairman Sheila Bair, the FDIC and state regulators, and smaller banks supporting a traditional if somewhat legalistic American view of banks regarding issues like insolvency and resolution, on the one hand. Then we have the internationalist tendency represented by the large banks, the Federal Reserve Board, Treasury and White House, who like the leaders of the EU advocate a socialist and proudly statist perspective where banks are "too big to fail" and under the table subsidies to well-connected institutions are encouraged. Whereas in the 1800s the New York banks advocated hard money and sound banks, and the inflationists where among the agrarian populist ranks, today it is Washington, Paris and Berlin, among the largest dealer banks and their political allies, that are found advocates of inflation and public sector debt.

Our friends at the Fed and Treasury seem to know nothing about American values when it comes to insolvency or bank safety and soundness. Our founders embedded bankruptcy in the Constitution not out of generosity, but because they knew that prompt resolution and liquidation of claims benefitted all of society. The internationalist set, like their counterparts in Europe and Japan, talk of the ill-effects of resolving zombie banks via traditional bankruptcy, but fail to notice the benefits with equal concern. If we do not have losers and well as winners in our society, then we shall have neither. For every loser in the case of the failures of Lehman Brothers and Washington Mutual, there were winners at JPMorganChase and Barclays PLC, which bought the assets of the failed companies for pennies on the dollar and absorbed thousands of valuable employees.

The internationalist tendency prefers instead to align themselves with the view of foreign nations whose governments are predominantly socialist in economic orientation and authoritarian politically. These politicians and their economists prefer to pick "losers as winners," to paraphrase my friend Bob Feinberg. Look at the situation in Germany, where the political leadership refuses to even acknowledge the depth of the crisis in the state or private banking sector. Germany is a case study illustrating the corruption and incompetence that prevails when you allow the political class to take unilateral control over all financial institutions and markets.

It is both fascinating and troubling for me to watch members of the Fed staff who I love and respect as friends and former colleagues being seduced by the siren song of political expediency when it comes to issues such as "systemic risk," a political concept that has no place in a serious discussion of finance. Certain banks, say Fed and Treasury officials, are "too big to fail." But just as true finance is about the arithmetic certainty of market prices and cash flow rather than speculative models, Fed officials seem to confuse safety and soundness in a financial sense with pleasing the political class that inhabits both of the major political parties in Washington.

I hear my colleagues at the Fed recite the mantra about how Lehman Brothers should not have been "allowed" to fail and large banks are too connected globally to be subject to traditional resolutions, as in the case of the failures of both Lehman and Washington Mutual. When I point out to these same Fed officials that Lehman had been for sale, unsuccessfully, for a year, I hear only silence. When I note that Harvey Miller working as bankruptcy trustee and SIPIC and the good people of the Southern District of New York did a very fine job handling the Lehman insolvency, there is likewise only silence from the TBTF advocates. Instead of being used as an excuse for inaction and delay, the insolvency of Lehman Brothers and WaMu should be held up as examples of the American legal system functioning well.

When you challenge officials at the Fed and Treasury about TBTF and systemic risk, they point to the fact that using bankruptcy to resolve complex institutions is too damaging to "confidence." Vince mentions in his fine presentation that avoiding damage to confidence is a top-level priority for policy makers. We must avoid damaging sacred confidence. But if you have such a rule, then you cannot have a true market system. Markets must be allowed to go from exuberance to terror in order to have a free market system and also a free and democratic society. Investors, bank managers and politicians can only be held accountable if failure is allowed to occur. If we allow government to legislate confidence via the imposition of "systemic risk" regulators and rules such as TBTF, then I suggest that we will not be a free society for much longer.

If you want to see where the US is headed by embracing concepts such as "systemic risk" and TBTF into public policy, then just look at the EU, where whole nations have lost their private banking sector, where there is no private capital formation to create new banks and the state-sector has largely monopolized many areas of personal and commercial finance. In 2008, there were more de novo banks created in the great state of Texas than in all of the EU. By not allowing failure and insolvency for even the largest banks and companies in the US, we deprive our citizens of opportunity.

That the largest portion of the damage done to EU banks in the latest speculative cycle is found among state-sector banks should come as no surprise. Claims by EU politicians as to the effectiveness of regulation in terms of mitigating financial risk seem to be belied by the facts when it comes to regenerating a healthy banking system. EU politicians and bureaucrats may have regulated away bad acts and freedom of choice for private investors, but that only means that the misbehavior has migrated to the public sector and is for the benefit of entrenched political elites. We see the same pattern now in the US.

Let's turn now to Fed policy, an area where Vince spent a great deal of time in his research, in terms of whether the Fed can be both an effective safety and soundness regulator and a monetary authority, especially given the corporatist political evolution already mentioned. If you really analyze the way in which political power flows in the US today, there are three significant groupings:

First we have a central bank that manages a global fiat dollar system based on a currency unit that is not convertible into specie or commodities. The Fed enables the issuance of dollar debt by the Treasury and imposes no effective policy restraint, no check to balance US fiscal policy. In fact, since the October 1987 crisis, the Fed has never said "no" to the Congress or the markets in terms of liquidity or collateral. It has only been a matter of price. When was the last time we had a Fed Chairman willing to say no to the politicians in the White House or the Congress? Paul Volcker? I suggest that it has been far too long.

Second we have a corrupt, entrenched Congress that equates tax revenues with the proceeds of debt. All fiat paper dollars are one and the same to our esteemed Congress, which believes that the borrowing capacity of the US is infinite. There is no effective limit on spending to keep the electorate mollified and the entrenched political class in power. The Fed enables the spending habit of the Congress and whatever administration occupies the White House.

Some of the supporters of former Fed Chairman Alan Greenspan like to argue that no Fed chairman could have stopped the party in housing early; that no Fed chairman could go up to Capitol Hill and say tough things to members of the Congress about housing policy or public spending. I think that tough talking Fed governors is precisely what we need. If the heads of independent agencies are not ready to lose their jobs every day and be willing to take tough policy stands on equally tough issues, then we need new leaders. I would hold up Chairman Bair at the FDIC as an example of a public servant who understands that part of her job is to offer advice to the Congress and the White House, and not to be a creature of politics or special interests as so many of our supposed leaders seem to be today.

Thirdly we have the dealer community, especially the members of the primary dealers of US government securities, who have a special relationship with the Fed and the Treasury, most recently by placing former Wall Street chieftains and their minions as Secretary of the Treasury. Many of these banks created the trillions of dollars in toxic waste that has crippled our financial system and were subsequently bailed out by the extraordinary actions taken by NYFRB President Tim Geithner and the Fed's Board of Governors starting last year.

These large dealers such as JPMorgan, Goldman Sachs, Wells Fargo, Morgan Stanley and Citigroup, enable the US Treasury to sell debt and thereby keep the US fiat dollar system stable for another day. These large, TBTF banks are also the mechanism through which the Fed executes monetary policy or at least used to until the Fed itself grew operationally into a de facto primary dealer in its own right, merging fiscal and monetary policy explicitly.

In order to boost the profitability of these TBTF dealer banks, the Fed and the Congress encouraged the creation of opaque, unregulated over-the-counter ("OTC") markets for derivatives and complex assets. The growth of OTC markets were a retrograde development in historical terms and again illustrate the tendency of the Fed and Treasury, the Congress and the large banks to take an anti-American view of issues like market structure, transparency and solvency, encouraging instruments of fraud like OTC derivatives and private placements, while the FDIC, state regulators and smaller banks tend to oppose such innovations. By allowing the creation of derivatives for which there was no basis, the Fed enabled some of the worst acts by the dealer community.

OTC markets for derivatives and structure assets have been the primary source of "systemic risk" over the past 24 months and have contributed the lion's share of losses sustained by banks and the taxpayers of the industrial nations. Indeed, without the active support from the Congress and the Fed for "innovations" such as OTC and opaque, unregistered complex structured securities, the current crisis might never have occurred. It important to be very specific as to the alien nature of things like "dark pools" and closed, bilateral market structures such as OTC, structures that go against the most basic American principles of transparency and fairness.

When Vince and I were in Chicago for the Fed's international banking conference, I reminded our colleagues that the analog to the political checks and balances revered in the history books is a public, open outcry market. Whether virtual or physical, an open market structure is essentially for having true confidence in markets. When markets start to slip back into retrograde formulations like OTC, we are also eroding the very basis of American markets, namely openness and fairness. If our OTC markets are deliberately opaque and unfair, deceptive by design as I told the Senate Banking Committee earlier this year, then can we reasonably hope that our financial institutions and markets will be stable?

I submit that our spendthrift government, the Federal Reserve System and the TBTF banks together now comprise the paramount political tendency in America today. This tripartite "Alliance of Convenience," let's not call it a conspiracy, fits beautifully into the corporatist mold that seems to be America in the 21st Century - but only viewed by the elites in cities like New York and Washington. Many Americans of all political descriptions oppose this corrupt and unaccountable political formulation. I hope and expect that these differences will become even more pronounced as the election approaches next November.

The difference that separates the United States from the rest of the world is the difference which has always divided us, namely our at least theoretical devotion to individual liberty and free markets. Until we break the Alliance of Convenience between the Congress, the Fed and the large, TBTF banks and force our public officials to embrace core American values regarding transparency, insolvency and accountability, we will not in my view find a way out of the crisis. In may ways, the differences that separate the popular view and the views of our political elite have been turned on their heads compared with a century ago, but this does not mean that the debate and resulting political competition for ideas will be any less intense.

Matt Taibbi: Wall Street's Naked Swindle

This is worth reading.

Wall Street's Naked Swindle by Matt Taibbi.

Closing quote from this story:

"The new president for whom we all had such high hopes went and hired Michael Froman, a Citigroup executive who accepted a $2.2 million bonus after he joined the White House, to serve on his economic transition team — at the same time the government was giving Citigroup a massive bailout. Then, after promising to curb the influence of lobbyists, Obama hired a former Goldman Sachs lobbyist, Mark Patterson, as chief of staff at the Treasury. He hired another Goldmanite, Gary Gensler, to police the commodities markets. He handed control of the Treasury and Federal Reserve over to Geithner and Bernanke, a pair of stooges who spent their whole careers being bellhops for New York bankers. And on the first anniversary of the collapse of Lehman Brothers, when he finally came to Wall Street to promote "serious financial reform," his plan proved to be so completely absent of balls that the share prices of the major banks soared at the news.

The nation's largest financial players are able to write the rules for own their businesses and brazenly steal billions under the noses of regulators, and nothing is done about it. A thing so fundamental to civilized society as the integrity of a stock, or a mortgage note, or even a U.S. Treasury bond, can no longer be protected, not even in a crisis, and a crime as vulgar and conspicuous as counterfeiting can take place on a systematic level for years without being stopped, even after it begins to affect the modern-day equivalents of the Rockefellers and the Carnegies. What 10 years ago was a cheap stock-fraud scheme for second-rate grifters in Brooklyn has become a major profit center for Wall Street. Our burglar class now rules the national economy. And no one is trying to stop them."

Where David Einhorn Sees Value in Today's Markets

Greenlight Capital's David Einhorn was speaking today at the 5th Value Investing Congress in New York City.

Two years ago he appeared as a highlight lecture of the show, and laid out his reasons for shorting Lehman Brothers stock. Needless to say there was quite a bit of attention to what he had to say today.

Here are some highlights:

1. A very bleak outlook for the US economy

2. US has a lack of political will to adopt needed financial reforms.

3. Right now he would like to hold gold rather than cash because "gold benefits from poor fiscal policy."

4. Buying long dated options on much higher interest rates in the US and Japan

5. Singled out GE as thwarting financial reform due to their intense lobbying efforts.

Transcript of David Einhorn's presentation.

PBS Frontline Presents: The Warning - Roots of the Financial Crisis

It will be worth watching if we can see the role that the Fed under Alan Greenpsan played, during the Clinton Administration, to set the US on the road to financial crisis. This was done in concert with Bob Rubin, Larry Summers and Tim Geithner, representing the vested interests of the Wall Street banks.

Many of the same players that were involved in this have been brought back to Washington under the Obama Administration. This is the source of our initial disillusion with Obama as a 'reformer.' He was reforming nothing, just bringing back the crew that started the ball rolling.

Several Republicans played a key role in this sabotage of sound regulation even during the Clinton Administration, including Phil Gramm's crippling of the regulatory process. What was started under Clinton reached its fruition, if not a generalized looting, under the free market ideologues in the Bush Administration and in particular with Treasury Secretary Henry Paulson.

We have not seen it yet, but it is a story that deserves to be told. We hope that Frontline does it justice.

We hope that this is not the phase of the financial crisis when they start trotting out patsies and scapegoats to be thrown under the bus for the amusement and diversion of the crowd from the serious work before us. The US financial system needs a thorough investigation and substantial reform, not more headlines and high profile perp walks. Or we will be back at the brink most assuredly, if we are not there already. It will happen again.

PBS FRONTLINE Presents
The Warning
Tuesday, October 20, 2009, at 9 P.M. ET on PBS

The Warning (Video Preview)

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission (CFTC) -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.

"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience..."

More Hedge Funds Face Indictments As Federal Wiretaps Uncover Insider Trading Rings

It is about time the Feds started tracking some of the more eyebrow raising examples of insider trading. Whenever there is new, you see a spike in the volume and the options ahead of the announcement these days.

This is most likely the tip of the iceberg, and the hedge funds are not the only culprits.

Its a step in the right direction. Let's hope it is not diversion to placate people because of the lack of serious market reform from Washington.

Bloomberg
U.S. Plans to Charge 10 More After Rajaratnam Arrest
By Joshua Gallu and David Scheer

Oct. 19 (Bloomberg) -- Federal investigators plan to charge at least 10 securities professionals with insider trading, some linked to the criminal case against billionaire hedge-fund manager Raj Rajaratnam that shook Wall Street last week, people familiar with the matter said.

The pending crackdown, more than two years in the making and among the biggest undercover operations into insider trading, may yield charges against hedge-fund managers and their associates as early as this week, the people said, declining to be identified because the cases aren’t public. Authorities had planned to arrest Rajaratnam this week as part of a broader sweep, expediting it after learning he had bought a plane ticket to travel to London on Oct. 16, one person said.

The case against Rajaratnam, built on recorded conversations within a web of alleged conspirators, offers a glimpse of how U.S. investigators are using more aggressive tactics to identify illegal trades hidden within a blizzard of hedge-fund investments. Additional probes stem from a secret Securities and Exchange Commission data-mining project set up to pinpoint clusters of people who make similar well-timed stock investments. Some probes, like the one against Rajaratnam, rely on wiretaps.

“If you’re going to shoot the king, you better shoot to kill,” said Bradley Bennett, a law partner at Baker Botts LLP in Washington who formerly focused on insider-trading cases as an SEC investigator. “If they’re going to take on a billionaire, they need to have the strongest possible cases. The defendant’s own words are the strongest possible evidence....”

The US Needs to Get Less Competitive

"The whole aim of practical politics is to keep the populace alarmed, and hence clamorous to be led to safety, by menacing it with an endless series of hobgoblins, all of them imaginary." H. L. Mencken

The hobgoblin that is often used by the Wall Street banks is that if this or that reform is introduced, it will lessen their competitiveness, and their craftiest and most clever employees will leave the country to work for foreign banks.

Is that supposed to be a threat? That sounds like a plan. And let them deduct the price of a one way coach class ticket.

It should be painfully obvious by now, that despite his recent crocodile tears and phony fist waving, that Larry Summers and crew Obama are being bossed around by the banks, for whatever reasons that charity might prevent one from saying.

It is time for a real change, in most cases bringing back what was taken apart over the past twenty years.

If you are a bank, and you take deposits and obtain access to the Fed window and FDIC, you should do nothing other than traditional commercial on balance sheet banking. Period.

If you are an investment bank, you are a no better than a hedge fund. There should be strict limits on the quality and levels of the capital which you employ. And your partners should be exposed to the full extent of your losses. Yes, the full extent.

In the markets there needs to be position limits. If you exceed the position you get fined and surrender 100 percent of any gains. If you do it again your trader gets his license suspended. A third time and your trading license is revoked until you can prove you have gotten your internal controls together.

As for naked short selling. Forget about it. If you fail to deliver within 24 hours you are forced to cover on a market order, like a margin call.

If you receive an exemption for legitimate commercial hedging, your position is published with your name on it on a weekly basis. After all, your hedging decisions are based on information which should be disclosed, sooner rather than later.

The timely disclosure of pricing and volume information in any market is public information and should be disseminated to all parties at the same time, without predatory pricing that inhibits access by the average investor. Or better yet, just make the information feed free, and take the costs as a part of doing business as a licensed exchange.

There are criminal penalties on the books for white collar crimes. When corporations engage in fraud, those penalties should apply to the perpetrators within the firm. The current regime of wrist slap fines from the SEC to be absorbed by shareholders makes the risk-reward ratio an incentive for breaking the law. There needs to be a section of the FBI that deals only and specifically with white collar crime, not as a task force, but as part of its organizational structure.

Corporations, including non-profits, foundations and trusts, are not people, and they do not vote. Only voters should be able to contribute to political campaigns. If this creates a financial problem for politicians who rely on millions of dollar to fund elaborate media and public persuasion campaigns, well then, too bad. There is always the option to pursue public campaign funding. They might actually have to say things and stand on a genuine record actually reported by a legitimate news media.

Time to break up the media conglomerates. Period. The news organizations cannot be controlled by a few corporations. There were limitations on news outlet ownership for many years which were repealed. Bring them back. Diversity of ownership brings checks and balances.

And the financial activity of lobbyists should be limited, recorded, and disclosed on a monthly basis, and in detail. You or any member of your staff go to lunch with a lobbyist, the amount which you accept is reported along with the subject matter discussed. You are a registered lobbyist, and all your lobbying related phone calles and text messages become a matter of public record. The public deseves to hear your case as well as their representatives.

The revolving door between lawmakers, regulators, and the businesses with they oversee must be slammed shut for a period of no less than five years. Time to bone up on a trade besides influence peddling, congressman.

Would this prohibit the best minds from serving the public? Are you kidding me? Look at the government in Washington now. If those are the 'best minds' then the US is in real trouble.

If the US wants to get back on its feet, it is going to have to get serious about restoring its liberty and an even playing field for all its people.

This would be a start. Next up, tax code reform. You want a flat tax? I'll give you a flat tax....

ALBA Gives Nod for Regional Currency SUCRE in Central and South America

This is not the first time ALBA has discussed plans for a regional currency, and the proposal does not yet seem to be concrete to us. The countries have agreed in principle to proceed, with the details to be worked out over the next year.

Nevertheless, it does start to chip away at Wall Street's usual answer to any dollar challenge, "Where else will they put their reserves, what else will they use for trade if not the US Dollar?" This has always seemed to be among the most arrogant, self-centered observations of an empire in recorded history. "Without us, who will tell them what to do, who will lead them, who will manage their money?" Were even the British at the turn of the 19th century that self-deluded, so blineded by the rationale of the white man's burden to manage other people's affairs?

Ecuador’s currency was called the sucre before it shifted to the US dollar nearly a decade ago. Jose Antonio de Sucre was an early 19th century South American Independence leader who fought alongside Simon Bolivar. Sucre is also the capital of Bolivia.

In this proposal, it is known as the Sistema Único de Compensación Regional (SUCRE), a new currency for intra-regional trade, to replace the US dollar in trade among several countries: Venezuela, Bolivia, Cuba, Ecuador, Nicaragua, Honduras, Dominica, Saint Vincent and Antigua and Barbuda.

Most of these countries have already withdrawn their participation with the World Bank, and it's Center for International Trade disputes, which had sought to arbitrate disagreements among the countries and several western energy firms.

This may be important because Venezuela is a major source of oil imports to the US market. Will Chavez start demanding payment for his oil in the SUCRE? Will the US begin to discover the nuclear threat from Venezuela? Or merely encourage its neighbors and internal groups to challenge its sovereignty?

The exact composition of the SUCRE has not yet been disclosed, if it has been decided. Until that happens, and a firm timeline is disclosed, this is merely a proposal that has been discussed before.

The proposed sucre does not affect any discussions (if any are still continuing) with regard to the amero, which as we understand it is a potential North American regional currency amongst Mexico, the US, and Canada. If we were Canadian, we would resist that proposal with all the resources at our disposal.

But make no mistake, there are alternatives to the dollar and they are being discussed around the world. A broader based alternative that would include China and Russia among others would have more 'teeth.' Some composition including gold and silver backing of some sort, if it is sufficiently revalued higher, would give any regional currency a greater international acceptibility.

It made an impression, by the way, that this news story was first picked up here out of China, and not from any US mainstream news outlets.

And speaking of strategic moves, the US recently sought to obtain seven military bases in Colombia, strategically located in the midst of the ALBA countries.

CCTV China
ALBA member states plan new currency
2009-10-18 11:44 BJT

A meeting of the Bolivarian Alternative for the Americas, or ALBA, has announced plans to create a new single currency to replace the US dollar. The organization's 7th Summit has concluded with an aim to stop using the greenback for trade between member states next year.

ALBA groups Bolivia, Cuba, Ecuador, Nicaragua, Venezuela and other regional governments. A Russian delegation also attended the two-day meeting. Leaders announced a plan to eventually create a single regional currency, the SUCRE.

They also decided to explore creating state-sponsored food and mining multinationals.

The summit also touch the Honduras issue. The ousted Honduran Foreign Minister called on the Organization of American States to implement new measures to increase pressure on the de facto government of Honduras to end the political crisis.

Preparing for the Next Crash and Unexpected Consequences: Now Is the Time

A friend sent this along, and we thought it was worth publishing an extended excerpt. This is Part 1 of the essay, and we look forward to Part Two – Managing Your Own Money – Take Action Now.

That is really the challenge isn't it. Most people are financial non-specialists. Their lives are full enough as it is, with things that they understand and that are important to them.

Too often the call to 'take control of your own money' is a prelude to 'and buy into my advice, what I wish to sell to you.'

Financial advice is a difficult thing to provide in a blog. It would be like a doctor writing a prescription for the public at large, fitting for some, inappropriate for others, potentially deadly for a few. This is why I do not do it. Ever.

The prescription I use for my personal situation is the most that I will share, in addition to general opinions and analysis of the markets and the economy. I am 58 years old, and have amassed a fair amount of savings over the past twenty years. My general rules for the current period now are:

1. Get liquid. Have little or no debt. Be in cash and diversified. Reduce living expenses to essentials.
2. Get as far away as you can from Wall Street and riskier assets as is practical.
3. Put something you can spare from discretionary retirement savings into long term assets that are not directly contingent on anyone else whom you cannot trust:

a. Personal food production, preservation, and preparation
b. Precious metals as insurance against monetary inflation / breakdown
c. Essentials for daily living and personal health care
d. Investments in practical education
e. Personal infrastructure and efficiency
f. Have a contingency plan for a systemic shock.

4. Above all be flexible. If this stagflation we are in becomes a protracted deflationary spiral or an emerging hyperinflation, both possible outcomes, we will see it happening and may need to adjust. This is where being light on debt and long on liquidity is most helpful. There is no one right plan for the unexpected, ever.

If you have 401k plans you cannot cash in, you might consider some very long term 'leap' puts to hedge them. But Cash or short term Treasuries is preferable. I have all my discretionary cash scattered across several very highly rated banks within FDIC limits. I have some money available for investment in foreign currencies although I have cashed in my loon and aussie dollar positions now. I have sold some 'collectible assets' that might have done very well if we get a prolonged period of high inflation similar to the 1970's in order to raise cash levels. I may regret this, but so be it. The cash can be deployed as the situation develops. Cash can otherwise be kept your home currency which you use on a daily basis, as long as it is safe and liquid.

If you wish raise your voice or to peacefully demonstrate, be prepared with a simple set of coherent positions and specific demands, avoiding anger. The mainstream media likes nothing better than to portray demonstrators as cranks or fools. In general they are not sympathetic to the less powerful. They will not lead change, but they will eventually follow.

Try to avoid squabbling amongst yourselves. When the reformers fight over fine points and petty egotistical issues, the status quo rejoices, often formulating and encouraging the bickering. Debate television where no serious discussion occurs, but plenty of sound bites and ad hominem attacks get thrown, is the model for media distraction. But it 'works' for the short term opportunists, and generally adds to the bread and circuses atmosphere masking an historic wealth transfer and the decline of an empire, as it has done in the past.

And as always, the banks must be restrained, and the financial system reformed, and balance restored to the economy before there can be any sustained recovery.

Reality Arbiter
The Extinction of Ethics in Finance – The Fallout
by Greg Simmons
October 13, 2009

"...To revisit my original intention in writing this article, I cannot stress to you the importance of understanding exactly what is going on in the world. No one is to be trusted with your money. Not Wall Street, not the banks, not the government – nobody is to be trusted! Does the investing public not realize that Wall Street almost lost every penny of American wealth? Now we’re supposed to believe they’ve saved the day? I beg to differ. Those parasitic liars nearly took us to zero. Who knows, they still might.

The grossly deluded public has been at the mercy of brokers, financial advisors, Wall Street, the Fed, congress, and the US Treasury far too long. This moral hazard and subsequent uneven playing-field created by the current financial structure (the trifecta of the Fed, Treasury, and the “Banksters”) wherein the scales of balance tip only upward, hence siphoning this nation’s wealth into the coffers of those that create such hazards. Their current solutions to this crisis, a crisis of their own making, is nothing more than a replication of the same idiotic practices that got us here in the first place; corporate bailouts, homebuyer tax-rebates, foreclosure moratoriums, cash-for-clunkers, all designed to forego the inevitable sanctification of sins past and deliver them on to the US taxpayer.

The difference between the past and present is that now we have a government willing to set up shop and take over entire industries; mortgage lending, auto, banking, and who knows going into the future. Just wait, we’ll be in the airline business in no time. I feel like I’m in a perpetual state of Déjà vu - with a repeat of September 2008 barreling headlong around the next bend.

That we exist in a quasi public-private financial system wherein the government in collusion with the Fed and the “Banksters” take your money essentially by force (specifically through the leverage of ZIRP) or otherwise and shove it into new toxic instruments, bailouts, and ill-conceived stimulus programs that even these so-called best-and-brightest have no concept of the inherent risks, or hazard of unintended consequences, is proof that the entire game is rigged against you.

It is time to take control of your money.

Now, with regard to the subject of managing one’s own money, the rules of the game have officially changed. The EXTINCTION OF ETHICS in today’s financial markets IS the new rule. You must take total responsibility for the management of your own money and you must do it now! I don’t know how to make it any more clear. I could probably write an entire thesis about the utter abandonment of morality by today’s so-called investment community. I mean, does everybody have to cheat each other to make a dollar? The subject literally brings into question the human thread that binds our social fabric together.

Given the dire state of the global economy and the fact our collective economic situation has gotten significantly worse, not better, creates an opportune time to shift any misplaced philosophy of trust in a corrupt system and recognize that we’re in the middle of a COVER-UP, NOT A RECOVERY!

A comment I always appreciated and have tried to take credit for but know I plagiarized from somewhere is this; ANTICIPATING BAD LUCK IS GOOD LUCK; DEPENDING ON GOOD LUCK IS BAD LUCK. This so-called recovery is merely a papered-over facade made possible by trillions of newly created dollars. The time to prevent getting thrown back into the ditch is now. Remember, do not fall victim to the CNBC-induced epidemic of economic amnesia."

Read the entire essay here.

Charles Walters: New Wealth and the Productive Economy

Here is an essay that explores the historical concept of "New Wealth" and what we call 'the productive economy.'

For us, there is a real place in the general economy for lawyers, bankers, merchants, and those who enable the organization and distribution of 'new wealth.'

It is a matter of balance. When one segment dominates the other destructive imbalance results.

When labor dominates, the economy will often slide into long periods of slow growth and cultural narrowing or even stagnation, with a badly lagging industrial development and technological innovation.

When the organizers dominate, the wealth transfer from the many to the few tends to strangle economic growth with the onset of weak-minded successors and heirs, leading to periods of degeneration as it overreaches its capability. The society becomes stratified into elites, enablers, systemic serfs, and free rabble. The imbalance of stratification stresses social cooperation and tranquility and leads to a change in governance as the organization collapses. The American Revolution was an example of this, the beginning of the end for the British Empire.

As communication and information technology improves, and behavioural persuasion becomes more sophisticated, the organizers and oligarchists can extend their domination to ever larger portions of the world population. The control of currency and commerce are almost as important as military power to the maintenance of empire. The Fall of Rome was as much an artifact of technological shortcomings, despite significant advances and innovations in the prime of the empire, exacerbated by a general weakening of governance through a corruption of leadership.

This essay is offered as a stimulus for thought and is not intended as a general endorsement of this author or his organization.

Enjoy your weekend.

THE PRIMACY OF NEW WEALTH
By Charles Walters

So 2008 is gone, leaving in its wake the end of an era conceived in iniquity, nursed along in delusion with religious propitiation to the capricious god called high finance. As promised in these newsletters and other editorials, we have already started making drastic adjustments in our political and institutional arrangements. A fuller version of the entire story is contained in my semi-autobiographical, fully historical novel, A Beast of Muddy Brain, which was released at the recent Acres U.S.A. Conference in St. Louis.

Usually the passage of an era is viewed in terms of leaders and military people who hog the pages of history. This is not the case with Beast. Here the nearly century-long story unfolds as the life of a single farmer and his family.

In this column, however, a small part of the story brought into focus by recent events lays out a few lessons found in unopened books.

Military Industrial Complex

By the time Dwight D. Eisenhower warned of a military-industrial complex in his farewell address, the complex was already a reality. Ike wanted to say, "Congressional-industrial- military complex," but his advisors convinced him to delete any reference to the "honorable ones," this in spite of their penchant for both hidden and open bribery.

The military-industrial complex was in fact launched February 27, 1947, in the White House cabinet room. The cast of characters included Secretary of State Dean Atchison, a few congressional leaders, including Republican Senator Arthur Vandenberg. The product of that meeting was the replacement of the republic with a national security state and a public policy of waging "perpetual war for perpetual peace," the last phrase a Gore Vidal quote. The first of these became characterized as cold. It became hot in Korea and tepid in terms of scale into the now present.

It was Senator Vandenberg who in effect told Harry S. Truman he could have his militarized economy if he employed the canard that the Russians were on the way. This dark secret was dressed up as the Truman Doctrine, war being the engine of credit used to save Greece, Turkey, then Europe and the rest of the world from the nearly prostrate Soviet Union.

Mark that date --- February 27, 1947. Align it with the buildup drive to pass new farm legislation and the full implementation of the new-fangled Bretton-Woods Agreement. Bretton Woods has already been described fully in this column (October 2008). The infamous farm act of 1948-1949 (the Aiken bill) has been the subject of commentary as long as this paper has been published.

The 80th Congress

Truman called the 80th Congress the worst in history. And yet its action in the matter of the Aiken bill fit hand in glove with the destruction of the simple and obvious system mandated by the U.S. Constitution. The end result that swung from the neck of the nation like a dead albatross was a provision called "60 percent of parity."

The military-industrial complex decreed that the nation's commissary could be maintained by underpaying agriculture by 40 percent, thereby releasing millions from the farms for factory work, military factory work included.

In perhaps another 50 years, economists may rediscover the awesome truth that a steady decline in farm income translated into a steady decline in national income, the ratio being 1 for agriculture, 7 for national income --- a ratio fixed by the state of the arts.

The shortfall in farm and national income became so uncomfortable during the second Eisenhower term, an injection of $72 billion was decreed for the military-industrial (and now university) complex status quo for agriculture. By the time rumblings that formed the National Farmers Organization became evident in 1955, hogs were selling for 10 cents a pound, corn 10 cents a bushel. War was ever triumphant in those days. There was a Communist under every stone, as is the case now with terrorists. Loyalty pledges were demanded, and neighbors were invited to fink on each other. By the mid-1960s, some 2,400 farms were closed down each week, the land and other assets being transferred into "a few strong hands."

What Was Wrong?

What indeed, was wrong with this equation? Agriculture --- Farm Bureau, agribusiness and academia excepted ---appealed to physics in its role as a new wealth industry and commonsense while institutional arrangements were being dismantled, and new ones constructed that were suitable to finance, esoteric manipulations, and a dream as old as Genghis Khan --- one world. Representative government of, by and for the people is now no more than a footnote in history. Only corporate America and a compliant military have true representation in Congress, the bribe is that powerful, whether paid in the dark or openly as an obscene fee for a speech while either in or out of office. The two-party vote has become so repugnant hardly half those eligible even bother with the exercise.

The Source

"The land is the source or the substance from which wealth is drawn;" wrote Richard Cantillon in Essai sur la Nature du Commerce en General, and he continues, "the work of man is the form which produces it, and wealth in itself is nothing other than food, commodities and the amenities of life."

Cantillon's treatise described the source of new earned income at a time when John Law ruled the economy of France. Cantillon and Law clashed, chiefly over the real character of money.

Law established the Banque Generale in 1715 and had it converted to a state bank three years later. His every move was designed to drive raw materials prices down while he, John Law, furnished substitutes to repair the deficit. In his own way, he developed a war against poverty, created make-work projects such as digging a canal at Briare, and he took steps to make Paris a seaport town. All tolls were abolished so that the grain trade could be "freed." Import duties were reduced on oil, leather, tallow and wines so that free trade could furnish France with cheap imports. Commodities fell in price. And new money issues were constructed by the Banque Generale, which simply monetized collateral. It took this economy only two years to explode.

After the dust settled, about the only thing left was Richard Cantillon's Essai, the masterpiece that reached the purity of theory in one lesson and limited itself to the possibilities of life in the next.

New wealth is not easily comprehended in a society addicted to wealth on the gaming table, at the end of a stock trade or embodied in currency created out of thin air by institutional arrangements that no longer ask the questions of a child: Where does it come from? Where does it go? The transition from the simple business equation to some idea of earned income at the national level that can emerge as national profits (social surplus) and savings leaves most people and most economists bewildered. They see the CEO who walks off with, say, $10 million after scuttling his company as wealth, and so it is in terms of the individual. But he has left in his wake disturbing exchange consequences and no direct effect on buildup of national profits and savings. The parasite creates no new wealth, and usually debilitates new wealth creation, because the predator merely transfers money from one pocket to another, and in terms of physics creates nothing.

There are close to one million lawyers in the United States. They transfer a great deal of money from their clients and victims into their own coffers. This transfer is called earnings. It adds to national income, but it adds nothing to national profits and savings.

Wal-Mart is said to be the largest corporation in the nation if not the world. Bentonville billionaires are now a part of American legend. Yet Wal-Mart produces no new national wealth. Like the baseball game or the professional football contest, it transfers the money called wealth by talk show hosts from one pocket to the next, but the net effect of these enterprises is to enable new wealth industries to fabricate things like baseball bats from lumber, helmets and gear from plastic --- all sourced from raw materials --- to stimulate economic activity, but adds little or no national profits and savings for stable investment.

To find the source of new wealth, we are required to examine new wealth industries.
Financial services are not new wealth creators. Quite the contrary, they make the stable dollar a relic of yesteryear because in the main they create money, but do not create the interest required to make this super-grift appear real. The grift called debt may enable instant gratification, but it also transfers the wealth of a nation into the hands of a few. That is why the interest mill delivers nations into convulsions at regular intervals in history.

In turn, debt is enabled by anything less than broad-spectrum distribution of landed resources and money income. Further, as new wealth industries are deprived of parity earnings, either instant depression or deferred depression (deferred by debt) must follow in the fullness of time.

Those French philosophers of the 18th century not only reasoned well, they forecast the inevitable as the court and its syncophants installed debauchery as public policy. Finance based on debt creation has replaced the court in our day, purchased the Congress and trapped the American worker into virtual indentured servitude. Finance now bills itself as a prime mover, not as a grim reaper that inevitably destroys the simple and obvious system gifted posterity by the Founding Fathers.

What, then, are the new wealth industries on which national solvency depends?

New Wealth Industries

It can be seen that even the making of a lead pencil involves a staggering complement of services, know-how, sales efforts, even advertising. The only part that meets the test of new wealth is the raw material component --- the lumber, the graphite, the ink for printing, all of which invite a look at nature's gift. Depending on the state of the arts, the raw materials component in products for the sales floor use up to eight times more labor than raw materials. Therefore we speak of new wealth industries as those that require a heavy raw material input.
Food to stoke the metabolic furnace of human beings comes first. It takes some 2,000 calories a day to feed a hard-working human being. That is why agriculture is the largest new wealth industry, accounting for fully 70 percent of the raw materials used to operate the economy.

Fuel, minerals, lumber, gravel, fossil fuels, fish all together account for approximately 30 percent of the raw materials used to run the economy.

The lumber used to make that No. 2 lead pencil may be a small component in the manufacture of the end product, but it is most important because along with graphite it accounts for the lion's share of national profits and savings possible based on the pencil's fabrication. People taking in each other's laundry can create employment, transferring money wealth from one pocket to the next, but that trade-off is strictly neutral in creating the profits and savings needed for sound investment and sound expansion.

Is Labor Primary?

The answer is "yes" --- but that "yes" has a codicil.

The only source for national profits and savings is the raw material input as monetized by the agency of price. That is physics speaking, once you trace those profits and savings back to their origin. That is why national profits and savings rely on new wealth industries.

It is hard not to belabor the point. Take the baseball stadium that Chamber of Commerce types chest-thump into being at the taxpayer's expense, usually with the declaration that a home team generates so-and-so much income. At the local level, it is made to look that way. But from the plane of observation called national profits and savings, the game creates nothing except the few dollars involved in bat, glove and paraphernalia manufacture and the little titanium used to mark base lines.

It is labor that enables the use of raw materials. It is labor that harvests the lumber, mines the minerals, catches the fish, grows the crop. Producers, processors, and an improved state of the arts all are essential. The apparatus of economy pyramids into national income, but not national profits and savings. The policeman, the fireman, we require their service, and their salaries help that pyramid called national income stand on its raw materials base. All facilitate civilization. But they create no national profits or savings. That chore is left to the food they eat, the clothes they wear and the gift from the planet traced to raw physical product.

The Attack

Why, then, do civilizations try to cut the legs from under the source of new wealth? It may seem an assault on the intelligence of the reader to point out that the worldwide scramble is for the control of raw materials, food included. This much stated, we have to wonder aloud why public policy always seems to cut off the nation's legs at the knees by underpricing all of agriculture and many of its other raw materials. In modern times we exacerbate this delusion by ignoring the values embodied in recyclables. The above expresses itself in food's role in energy transfer from the sun to plant to human metabolic necessity. The cycle has to replicate itself daily, monthly, annually!

Finance and debt appear to be prime movers, but they cannot substitute for national profits and savings based on raw materials without engineering convulsion at regular historical intervals.

We now know that interest doubles a debt very quickly. At 10 percent, the doubling time is seven years; at 7 percent, it is 10 years. It is interest that builds a collapse position in 80 to 90 years.

The Fed will be 100 years old on December 23, 2013.

This article is reproduced from Acres U.S.A. The Voice of Eco-Agriculture Volume 39, Number 1, January 2009.
AcresUSA.com

How Goldman Sachs Leveraged $70 Billion in Government Money For Record Profits

Guess which two Wall Street banks were acting as informal agents of the government in order to support the bond and stock markets and reinflate them?

Two big banks that are showing record trading profits, and a small group of enablers and assistants.

Its a near layup when the US fronts you the money and then works with you to take the markets higher via its Working Group on Financial Markets. Especially when it is on thin volumes based on 'news' which you help to create and control via frequent calls to young Tim who is your coordinator, in addition to all your other well-placed backchannel sources. You get a heads up, you use the futures to prop the markets. You need some good news, some can be arranged. Just like the good old days when Timmy was riding herd on the NY Fed desk.

All for the good of the country. And if you happen to make a billion per month in trading profits, well, that is the price of freedom for a job well done. Besides, a lot comes back in lobbying and campaign contributions. And you get to be rather porky and demanding about new banking and derivatives regulations because after all, you have a job to do and if they won't let you do it, well its uh oh.

That's what we hear, rumour-wise. Makes as much sense out of this as anything. How about you? Max Keiser thinks it is a fraud, as he describes here.

Below is Dylan Ratigan and his guest's take on this rally and the record profits.

Life Imitates Art On Bloomberg News

Just a random thought, but the new reporter on Bloomberg television bears a remarkable resemblance to Louis Winthorpe III from Trading Places. The speech and mannerisms are an even better match than the look. To Adam's credit he actually knows the financial business, which makes him Einstein compared to the anchors Debby and Matt.



Bernanke and Summers can be the Duke Brothers.



And Timmy can be Clarence Beeks.



Life imitates art? If so where is Ophelia? Oh, she is on CNBC. Woof.

SP Weekly Chart Updated

Here is the chart we have been keeping through this decline and now into the bounce.

The bounce will end when it ends. It is a 'false flag' intended to spark a recovery in confidence and the economy. It is fueled by an enormous infusion of liquidity by the Treasury and Federal Reserve into a few favored banks, who are making the bulk of their newly found profits by trading.

The rally cannot be sustained without continuous printing of money. The difficulty with this tried and true monetary approach which has lifted the economy out of the last two bubble breaks is that the financial sector is closer to the heart of the credit bubble than tech or housing, which were just vehicles for the Ponzi scheme.

And the largesse is not being distributed evenly, as relative outsiders like Ken Lewis are finding out. "Not all animals are equal." And not all the pigs have purchased premier positions at the trough.

So, when will it end? On the charts, the area between 1060 and 1100 is likely, since it is in the area of a valid and confirmed neckline. But given the strength with which the SP has penetrated the prior resistance, one has to approach any forecast of an end to a rally like this with fear and trembling, and a generous portion of caution.

Still, our point is not to make a killing for the punters, but rather to help to illuminate the perfidy at the heart of the US financial system. It is truly amazing at how brazen it has become, especially under their token reformer.

The comments on this chart are those that had already been there. All that has been done is to update the chart from July, and to clean it up a bit for readability.

An Opportunity for Purveyors of Gold in London

Le Proprietaire has favored shopping at Harrod's at holiday time for many years, and finds the Food Halls to be a delight. One has to wonder if buying gold bars 'off the shelf' in size such as this indicates that there is a market to be made in London for lower scale purchases.

The Prechterian wave weenies may see anecdotal 'signs of a top' in this, but in general they have been chasing themselves silly throughout this entire multi-year bull market.

One has to wonder if the Harrod's card could be used for this type of purchase. Do they deliver the gold in their familiar green trucks? Perhaps at least provide a reinforced shopping bag for takeaway.

Ah, a ceramic post of Stilton and a box of cream crackers. Those were the days.


Harrods adds gold bars to its luxurious image

LONDON — Glittering bait for the well-heeled shopper: Harrods department store has added gold bars to its merchandise line.

The store announced Thursday that it has joined with Swiss refiner Produits Artistiques Metaux Precieux to offer gold bars weighing 27.5 pounds (12.5 kilograms). The move comes as gold prices have been going through the roof. On Wednesday, they hit another record high of $1,072 an ounce.

Based on Thursday's afternoon gold fixing price in New York, a gold bar would cost about $462,440. Customers can buy the gold through Harrods financial arm Harrods Bank, which is located in the central London's department store (didn't that used to be Lloyds? - Jesse)

"The financial environment has kindled a new demand for physical gold amongst private investors in Britain," said Chris Hall, head of Harrods Gold Bullion.

"Up until now, however, London has had no well-recognized name serving this market," he added.

Many investors believe it is currently safer to invest in gold than in stocks, property, or currencies.

"The fact that a company like Harrods is moving into the physical gold market is interesting ," said Adrian Ash, head of research at Bullionvault.com, the online gold trading company. "It shows gold is moving back into the mainstream, having spent two decades in the arena of cranks and gold bugs."

Mehdi Bakhordar, managing director of Produits Artistiques Metaux Precieux, said Harrods was the only location in London where investors could buy a 27.5 pound (12.5 kg) gold bar "off the shelf."

Sumitomo Forecasts Dollar to 50 Yen, End of Dollar as Reserve Currency

"We can no longer stop the big wave of dollar weakness," said Daisuke Uno at Sumitomo.

Nothing goes straight up or straight down. Look for corrections in the precious metals and the dollar, and the strengthening currencies such as the Aussie dollar, which seems headed to US dollar parity. However, the macro trend is apparent.

We get a chuckle over this dollar weakness when free market people like Steve Forbes come out and look for market intervention to stop it. The market is taking the dollar where it should be, where it needs to go. If only countries with obvious pegs and ongoing manipulation to support export mercantilism were also to allow their currencies to float more freely. It is going to kill off global trade. It is the great failure of the WTO and US trade policy to have allowed pegs and overt currency manipulation policies which are de facto tariffs and subsidies on trade.

A 'crash' in the US stock market, should one occur, will temporarily jar nearly everything. More likely is a long slow slide as in the second phase of the Great Depression, from 1931 to 1933.

Monetary inflation can make the nominal charts more palatable as it is doing today. The problem is that all Ponzi schemes come to bad ends.

The only way out, the only viable path, is for the US to embrace a serious reform of its markets and its financial system, and to change system that encourages the debilitating corruption of decision-making in Washington, which is under the influence of an army of well-heeled lobbyists.

To that extent, the "straight talking" pre-Palin version of John McCain had it right. Little serious reform can be done until campaign finance and influence peddling in Washington is addressed. McCain saw the danger of this conflict of interest in his own career as part of the Keating Five, and his own party and the rise of the neo-con statism and its assault on republican ideals.

The Democrats have shown themselves to be no better, having gone down the slippery slope of Clinton capitalism, the partnership of special interests and government. Obama failed when he embraced it. And now both parties are deep in the mire of corruption.

The banks must be restrained, and the financial system reformed, and balance restored to the economy, before there can be any sustainable recovery.


Bloomberg
Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says
By Shigeki Nozawa

Oct. 15 (Bloomberg) -- The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.

“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

The dollar last week dropped to the lowest in almost a year against the yen as record U.S. government borrowings and interest rates near zero sapped demand for the U.S. currency. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, has fallen 15 percent from its peak this year to as low as 75.211 today, the lowest since August 2008.

The gauge is about five points away from its record low in March 2008, and the dollar is 2.5 percent away from a 14-year low against the yen.

“We can no longer stop the big wave of dollar weakness,” said Uno, who correctly predicted the dollar would fall under 100 yen and the Dow Jones Industrial Average would sink below 7,000 after the bankruptcy of Lehman Brothers Holdings Inc. last year. If the U.S. currency breaks through record levels, “there will be no downside limit, and even coordinated intervention won’t work,” he said.

China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency. Hossein Ghazavi, Iran’s deputy central bank chief, said on Sept. 13 the euro has overtaken the dollar as the main currency of Iran’s foreign reserves....

Dow 10,000: A Celebration

Team coverage today on Bloomberg by the Money Honeys as the Dow Jones Industrial Average crossed 10,000 intra-day, led by J.P. Morgan, in a move that surely epitomizes the illusions of wealth granted by modern accounting practices.

Can you believe the NYSE had the nerve to prepare new Dow 10,000 hats and distribute them for today? The first time the Dow Industrials crossed 10,000 was in 1999. The last time it closed over 10,000 was in October of 2008, just before the most recent plunge of the collapsing credit bubble.

That does not speak well of equities for the "buy and hold" crowd, which has surely had a wild ride if they have indeed managed to hold on for the last ten years, and ex-dividends and fees and commissions and inflation and a plunging US dollar and soaring commodities are... even.

And all that was required to create this economic miracle was to repeal the Glass-Steagall safeguards created by Congress after the Great Depression, decimating the productive economy, amassing a mountain of debt that can never be repaid, restructuring the Dow Industrials every so often, most recently replacing such inconsequential names as General Motors and Citigroup, and of course the devastation of the US dollar and a general loss of reputation and credibility around the world for justice and liberty.

But look where we have been? But who do you think took us there? Al, Ben, Larry Summers, Robert Rubin, Sandy Weil, craven economists and the crony capitalists in corporate America and their enablers and dependents in Washington.

"At what point shall we expect the approach of danger? By what means shall we fortify against it? Shall we expect some transatlantic military giant, to step the Ocean, and crush us at a blow? Never! All the armies of Europe, Asia and Africa combined, with all the treasure of the earth (our own excepted) in their military chest; with a Buonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years. At what point, then, is the approach of danger to be expected? I answer, if it ever reach us it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide." Abraham Lincoln.

And to what benefit? So that a bunch of pathetic sociopaths can try and fill the hole in their hollow beings with trophy wives and trophy houses, empty titles and hair pieces, extravagant lifestyles with ridiculously overpriced cars and jewelry and ugly art, spoiled idiot children who hate and fear them as they hated and feared their own parents, and the illusion of love and power while making asses out of themselves as a few paid sycophants sing their praises, trodding over corpses on the road to hell.

Oh, bravo. Well done. Surely a light for the ages.

Wall Street Set to Pay a Record $140 Billion In Bonuses Topping 2007

While the world suffers, Wall Street pays itself record bonuses, larger even than the peak year of 2007, by taxing the productive economy to maintain an extravagant lifestyle. These bonuses are being paid with your money, and your children's money, if you hold US dollars.

And while this happens, the US credit card banks are raising interest rates to 20+% even on customers with excellent payment records and jobs which is certainly usury, and with an arrogant impunity. The insider trading scandals and tales of government graft yet to be told are so blatant and shocking that only a captive mainstream press keeps them from being investigated.

The rest of the world looks on in shock and amazement. What has gone wrong with America? What are they thinking? America has not only lost the high ground, it is sliding into a ditch.

While Americans are pacified by bread and circuses, the rest of the world looks at a painful reality show in the States, a country in a death spiral of corrupt leadership and public apathy. If it was Zimbabwe or Iceland there would still be sympathy for the people, but far less concern.

A deflationist friend was railing about the US slide into bankruptcy, and I could not help but ask, "What happens to the paper of a bankrupt company, or country?"

Where indeed will the dollar gain its long anticipated strength, its renaissance of value?

Or yes, from "less dollars" through debt destruction. Mutant monetarism gone mad, an argument worthy of Herr Goebbels. The dollar will rise in value by immersing itself in a pool of corruption, and by destroying its shareholders, those who hold their savings in it, while oligarchs loot the financial system. Unless the US can turn its trade balance positive overnight, while raising interest rates, and maintaining a growing domestic economy based on consumption, it is not going to happen. The US is running out of degrees of freedom.

Wall Street holds the US public and government hostage by threatening financial armageddon if they do not get what they wish. We would anticipate a similar threat to the global economy based on dollar debt at some point, asking for a global monetary regime controlled out of New York and London, with perhaps a few associates.

Nothing goes straight up or down. There will be more sucker rallies and bubbles, but the train is starting to come off the rails a little more with each wrenching turn of this cycle.

The banks must be restrained, and the financial system reformed, and balance restored to the economy before there can be any sustained recovery.

Finfacts Eire
Wall Street firms set to break new records in 2009 with pay rising to $140bn; Bailed-out insurance giant AIG paid “retention bonuses” to kitchen staff
By Finfacts Reporting Team
Oct 14, 2009 - 6:10:22 AM

Wall Street firms are set to break new records with employee pay set to rise to $140bn this year. Meanwhile, it has been reported that the bailed-out insurance giant AIG paid “retention bonuses” to kitchen staff earlier this year from a $168m pot, that was ostensibly designed to keep staff from leaving the government controlled firm.

Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did in the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

The Journal reports that total compensation and benefits at the publicly traded firms it analyzed, are on track to increase 20% from last year's $117bn -- and to top 2007's $130bn payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.

Average compensation per employee at investment bank Goldman Sachs, is set to reach about $743,000 this year, double last year's $364,000 and up 12% from about $622,000 in 2007, according to the Journal analysis...

How Much Gold Does the US Have In Its Reserves?

Looking around the web, and considering some recent questions regarding gold and SDRs on the Fed's and Treasury's balance sheets and reserve statements, I came across quite a bit more confusion and misinformation than one might have expected to find on what should be a fairly straightfoward question, ranging from completely incorrect but precise numbers to 'shitloads' at Yahoo!Answers.

So, I spent some time reading the relevant source documents, and have decided to publish this little fact sheet here, so that one might at least be able to find some of the basic facts about the US gold holdings on the books of the Treasury and the Fed in one place, with references.

There is also a little detail about the SDRs. It should be noted that because SDRs may be added to the Treasury's books, as in the recent allocation from the IMF, it does not mean necessarily that they are monetized by the Fed and placed on their own balance sheet.

Not getting into issues of where the gold is, what claims there may be on it, and what fineness it may actually be, according to the US Treasury:

The US currently holds 261,499,000 fine troy ounces in its reserves. US International Reserve Position, US Treasury

The gold is valued on the books at $42.2222 per fine troy ounce.

This represents a total value of $11,041,063,078.

This value appears on the Treasury's International Reserve Position US Treasury on Line 4.

Since there are 32150.7466 troy ounces in a tonne, the US Treasury is holding 8,133.528072 tonnes of fine gold.

Federal Reserve Gold Certificates

The Federal Reserve holds $11,037,000,000 in gold certificates as assets on its Balance Sheet as shown in their weekly H.41 report. The Fed has no physical gold of its own. According to my reading of the relevant law, the Fed is not able to place claims upon or issue those gold certificates to any other entity other than the 12 federal reserve banks.

With regard to the Fed's Gold Certificates here is some history by way of explanation:

Acting under this authority [the Emergency Banking Act of March 9, 1933], the secretary of the Treasury issued orders dated December 28, 1933, and January 15, 1934, the latter requiring all gold coin, gold bullion, and gold certificates to be delivered to the Treasurer of the United States on or before January 17, 1934.

A new type of gold certificate, series of 1934, in denominations of $100, $1,000, $10,000, and $100,000, was issued only to Federal Reserve banks against certain credits established with the Treasurer of the United States. These certificates are not paid out by Federal Reserve banks and do not appear in circulation. They bear on their face the wording: "This is to certify that there is on deposit in the Treasury of the United States of America dollars in gold, payable to bearer on demand as authorized by law."

Gold certificates, however, have not been printed since January, 1935. Under the Gold Reserve Act of January 30, 1934, all gold held by the Federal Reserve banks was transferred to the U.S. Treasury, in accordance with Presidential Proclamation of January 31, 1934, the former receiving the gold certificate credits on the books of the Treasury at the former statutory price for gold $20.67 per ounce.

Gold assets were valued at $35 per fine troy ounce, giving effect to the devaluation January 31, 1934, until May 8, 1972, when they were revalued at $38 pursuant to the Par Value Modification Act, P.L. 92-268, approved March 31, 1972. The increment amounted to $822 million.

Gold assets were subsequently revalued at $42.22 pursuant to the amendment of Section 2 of the Par Value Modification Act, P.L. 93-110, approved September 21, 1973. This increment amounted to $1,157 million. All of the U.S. Treasury's monetary gold stock valuation, including the preceding revaluation increments, has been monetized by the U.S. Treasury by the issuance to the Federal Reserve banks of $11,160,104,000 for their gold certificate account (total as of close of 1980). In addition, the U.S. Treasury monetized $2,518 million (as of close of 1980) of the U.S. special drawing rights by issuance to the Federal Reserve banks for their special drawing rights certificate account.

On the books of the Federal Reserve banks, neither the gold certificate account nor the special drawing rights certificate account plays any restrictive role in Federal Reserve banks' operations. With the U.S. losing monetary gold in recent years of balance-of-payments deficits, causing decline in gold certificates (credits), two restraints were eliminated: P.L. 89-3, March 3, 1965, eliminated the requirement contained in Section 16 of the Federal Reserve Act for the maintenance of reserves in gold certificates by Federal Reserve banks of not less than 25% against Federal Reserve bank deposit liabilities; and P.L. 90-269, March 18, 1968, eliminated the remaining provision in Section 16 of the Federal Reserve Act under which the Federal Reserve banks were required to maintain reserves in gold certificates of not less than 25% against Federal Reserve notes.

Gold certificates (credits) held by the individual 12 Federal Reserve banks, therefore, merely reflect the total of monetary gold held by the U.S. and also the individual Federal Reserve bank holdings of gold certificates (credits) to their credit on the books of the INTER-DISTRICT SETTLEMENT ACCOUNT. Nevertheless, both the gold certificate account and special drawing rights account at Federal Reserve banks were utilized as eligible assets to serve as part of the 100% collateral pledged with the Federal Reserve agent at each Federal Reserve bank for issues of Federal Reserve notes. (The Depository Institutions Deregulation And Monetary Control Act Of 1980 removed the collateral requirements for Federal Reserve notes held in the vaults of Federal Reserve banks.)

Encyclopedia of Banking & Finance (9th Edition) by Charles J Woelfel

Does any of this amount to a hill of beans? Perhaps, but probably not. At least the next time I need to look up some of these facts and history to explain or correct a question or misunderstanding, I will not have to look all around the web for it again, and wade through many links of incorrect misinformation and rubbish to find it.

This is in no way meant to imply that the Treasury actually possesses the gold it says it has, the fineness of the gold, and the nature of any claims that might be on that gold. This is not a trivial issue as the estimates of the fineness of the gold have shown that a meaningful portin of it may be 'coin melt' and not of deliverable quality unless it has been further refined. It is said that the Bank of England recently discovered that some of their own gold stocks were not suitable for a delivery to the London Bullion Market Association (LBMA) for example.

By the way, and just as a point of curiosity, I calculated that if the Fed wished to back its balance sheet with all the gold in the US Treasury, the amount today would be approximately $8,000 per troy ounce. Don't hold your breath. LOL

Some of this may become an issue IF the SDR does become the international reserve currency, and IF gold is added to the mix of its basket of currencies as some countries like China and Russia have requested.

And in a new Google search, How Much Gold Does the US Have In Its Reserves, this little blog pops right up on page one, so its 'mission accomplished.'

And in case you were wondering, here is a recent lineup of official gold reserves from the major countries around the world.

Consumer Credit Contracting at Record Levels

Total Consumer Credit Outstanding in the US is contracting at a year-over-rate of almost 5 percent, which is a record for the post 1960 economy.



The challenge facing Bernanke and the Obama economic team is how to get the US consumer spending again, if they cannot be paid a living wage, and if they can no longer be encouraged to borrow beyoned their means, by using their homes as a cash machine with variable interest rates, as they were encouraged to do by Fed Chairman Greenspan.

This is as much a public policy question as it is an economic question. Large segment of the population which are homeless and and jobless tend to be destabilizing to the community. The liquidationist school is not without its attraction to the let-them-eat-cake frame of mind, but from a societal perspective it is fraught with peril and unintended consequences.

For now the remedy being utilized by Bernanke and associates is to prop the financial system and allow the dollar to decline while artificially supporting the long bond. They may also be attempting to control certain indicators of monetary inflation such as gold and oil by using position limits exclusively on long positions and 'speculation.' while exempting the naked short selling. Similarly, pumping up equities provides a flowback into financial assets that helps to support the banks.

This is obviously no solution. The Fed is in maintenance mode, trying to coddle the banks through their ongoing crisis despite the recent appearances of vitality, which are an illusion.

The Obama Administration is not engaging in the systemic and financial reform that really is their responsibility. So what we have here is a bit of a mess with no clear way out at least to us, except to weaken the dollar, and perform their particular version of 'pray.'

I believe the colloquial American characterization of Team Obama's current policy might best be described as 'throwing shit at the wall and hoping something sticks.'



Yes, there is often a lag between credit contraction and the appearance of decline in the broader money stock. This may be a direct correlation with a lagged, or a colinearity resulting from the effects of the recession in the real economy on both, again with uneven impacts over time.

There can be no denying that the Fed is promoting money supply growth in ways never seen before in the US. Whether they can be successful is open to question. We think they will keep at it until they break something.

Wall Street has a gun to the head of the public, in the form of derivatives positions that are 'weapons of mass destruction.' For now it is a standoff. But there should be little doubt that this is artificial and unsustainable, and that something has got to give.