The Epicenter of the Next Global Financial Crisis - Financial Dreadnoughts

The 'trigger event' for the next crisis could be elsewhere, someplace distant, and out of the way.  The first World War was ignited by a political assassination over a fractious disagreement in Sarajevo that engaged an international web of interconnections.

 

Granted that hubris was on a high note, particularly in Germany, and the system itself was fragile and deeply interwoven.

In the current global financial scenario, if the ripple of global interconnectedness reaches the New York (and European NationalBank Holding Companies), then the real crisis can take root and begin to knock down banks and national economies around the world.

12 Systemic Importance Indicators For US Bank Holding Companies

At that point the only rational response by the government would be to nationalize these Banks, and begin their orderly restructuring with losses ringfenced to investors and principals and creditors.

 

Of course that might not happen, since that was also the only rational response in 2008, and political power and influence and soft bribery prevailed.    And there has been very little reform, with the Too Big To Fail Banks becoming Too Big To Jail, and the real lords of the land.

 

Why do democratically organized nations allow such behemoths to grow even larger, and act with virtual impunity over the laws, and imperil their national health and welfare.   Because these outlandish financial monstrosities are the new battleships in a financial landscape in which political will controls money and wealth in ways never before seen, but far too often for the private gains of commercial moneyed interests.  War never changes.

And like the dreadnoughts from the last wars of the 20th century, they are already anachronisms, costing much more than they are worth.  The generals always seek to employ the old methods of warfare, even on unfamiliar landscapes.

 

Next time it looks like not only a 'bailout' but a 'bail-in' as well.   And the destruction of a free and honest financial system in the US will be complete.

 

Special thanks to Wall Street On Parade For this chart and the report link.

 

 

Free Markets At Work - Gold and Silver 'Owners Per Ounce'

"The government is the potent omnipresent teacher. For good or ill it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.

To declare that the end justifies the means -- to declare that the government may commit crimes -- would bring terrible retribution."

Louis D. Brandeis

I was curious to see what the big price smackdown had done at The Bucket Shop relative to the 'claims per ounce' in the precious metals.

I will be checking again tomorrow to see what the little extra kick we saw this morning might have accomplished.

In summary in silver the 'claims per ounce' actually rose a bit. This is not surprising so much because this is an active month for silver, and it clings stubbornly, almost as if by its fingertips, to the $15 handle.

Gold was as you know hit harder, being smacked down by an avalanche of futures contract selling into one of the quietest periods of the overnight trade.

The open interest actually declined a bit, but significant amount of new gold for delivery appeared, so the 'claims per ounce' as I prefer to call it dropped only to about 97:1.

They did, however, break the uptrend which had been driving towards 100:1.

Have you ever heard the rarely told story from the great bull market of the 1920's, about an unremembered  'publicist,' which is a five dollar word for a simple 'bagman,' named A. Newton Plummer?

'An investigation later discovered that business journalists for at least eight papers promoted stocks in their writing in return for bribes. The most embarrassing were at the Wall Street Journal, where reporters who wrote “Broad Street Gossip” and “Abreast of the Market” took payoffs for stock tips in the 1920s.

The revelations about the Journal reporters came out during hearings by the Senate Banking and Currency Committee in 1932, more than three years later, when Congressman Fiorello LaGuardia produced cancelled checks written to the Journal reporters from publicist A. Newton Plummer. The stories based on the bribes had gone as far back as 1923. The Journal ran the story about the testimony before the committee on page 11 the next day.

University of North Carolina, History of Business Journalism

We are very fortunate that such a thing could not happen today.  Can you imagine any self respecting analyst or media type or politician accepting physical checks?  In our modern era it would be much more likely to be hot tips on which way the HFT wind will be turning, or some drinks and dinner, maybe even hookers and blow. The only risks there might be some nasal cartilage or some extra time at the gym.

A. Newton Plummer apparently presented a whole suitcase full of cancelled checks to the Congress in 1932, and wrote a book about it titled The Great American Swindle Incorporated.   There were only 2,000 copies printed.   There is one in my library.

"I would say that practically all the financial journals were on the take. This includes reporters for The Wall Street Journal, The New York Times, The Herald-Tribune, you name it. So if you were a pool operator, you’d call your friend at The Times and say, “Look, Charlie, there’s an envelope waiting for you here and we think that perhaps you should write something nice about RCA.” And Charlie would write something nice about RCA. A publicity man called A. Newton Plummer had canceled checks from practically every major journalist in New York City."

Robert Sobel in PBS, The Great Crash of 1929

Of course with so many other innovations in finance, the information sharing culture of privilege has moved from the inkstained cubicles of 'journalists' to the hallowed halls of the Congress.  This was the most read story of all time at Le Café when first published.   

And since then you will be happy to know that the Congress has officially told the SEC to go take a hike, that they are immune to any laws against insider trading and dealing in dodgy information, apparently even for 'pay.'  There is even a cottage industry of lobbyists who share information with the Congress on behalf of hedge funds.  Nice to see entrepreneurship at the lower levels who can never expect to bring in the big bucks making 'appearances' and giving 'speeches' for fabulous fees.

The precious metal pool operators can surely make some nice profits on their short bets on related items after their latest escapades, and then acquire quality mining assets on the cheap for the next trip up when you know what hits the twirling blades, thanks to their servants' gross mismanagement and policy errors.

Well done.

So many assume that the 'rig' in the metals is similar to the London Gold Pool and past operations that were undertaken in order to support some otherwise unsustainable policy and persuasion initiative.  

 

What if something like this started out that way, but then found its momentum in some mutually lucrative private profiteering that proved too easy and tempting and perhaps inconvenient to stop?  It certainly has been hard of late to overestimate the self-serving venality and audacious excesses of these jokers.

When you don't know, you don't know.  And that is how they seem to like it, what 'it' is.  In a society not of reason and laws but of secrecy and privilege, knowledge, like the ability to print and distribute money, is power.

.

Gold Daily and Silver Weekly Charts - Falling, Coiling - The Slow Blues

"At its very inception this movement depended on the deception and betrayal of one's fellow man; even at that time it was inwardly corrupt and could support itself only by constant lies...

If at the start this cancerous growth in the nation was not particularly noticeable, it was only because there were still enough forces at work that operated for the good, so that it was kept under control. As it grew larger, however, and finally in an ultimate spurt of growth attained ruling power, the tumor broke open, as it were, and infected the whole body.

The greater part of its former opponents went into hiding. The German intellectuals fled to their cellars, there, like plants struggling in the dark, away from light and sun, gradually to choke to death.

Now the end is at hand. Now it is our task to find one another again, to spread information from person to person, to keep a steady purpose, and to allow ourselves no rest until the last man is persuaded of the urgent need of his struggle against this system. When thus a wave of unrest goes through the land, when "it is in the air," when many join the cause, then in a great final effort this system can be shaken off."

White Rose, Second Leaflet, Munich, 1942

There was little activity in warehouses, the few substantial portions of The Bucket Shop, relatively speaking.

The oversold extreme in the precious metals is setting up for a rally.

This is an exercise in knocking down the long positions as reflected in the open interest, against a dwindling supply of metal available at these prices.

In an honest market prices would rise to match supply with demand.  This is not how it is in The Bucket Shop, which is run by insiders for insiders.

It is utterly artificial. But most things in the US markets are these days.

The markets, like the public, seem restless, tired of this status quo of deception and rigging.

I sense a 'break' is coming.  The timing is hard to predict.

Have a pleasant evening.

 

 

 

SP 500 and NDX Futures Daily Charts - Downfall

 

"Behold, the pay of the laborers who have worked your fields, and which has been withheld by you, cries out against you; and the suffering of those who have done the harvesting has reached the ears of the Lord of hosts."

James 5:4

July and August are certainly not traditional months in which to see steep equity market declines.

 

Nevertheless, now might be a good time to hide some of your profits in cash, until the SP 500 and even better the Russell can match the bubble high breakout of the Nasdaq 100, which looks for all appearances to have been artificial and designed to extract more wealth from the productive economy.

 

Have a pleasant evening.

 

 

 

 

Comex Registered 'Deliverable' Gold Bullion Stores - Money Is All About Power To Some

"The conventional wisdom seems to be that the problems of the euro zone are, as economist Martin Feldstein once put it, 'the inevitable consequence of imposing a single currency on a very heterogeneous group of countries.'

What this commentary gets wrong, however, is that single currencies are never the product of debates about optimal economic solutions. Instead, currencies like the U.S. dollar itself are the result of political battles, where motivated actors try to centralize power.

This has most often occurred 'through iron and blood,' as Otto van Bismarck, the unifier of Germany put it, as a result of catastrophic wars. Smaller geographic units were brought together to build the modern nation state, with a unified fiscal system, a common national language that was often imposed by force, a unified legal system, and, a single currency. Put differently, war makes the state, and the state makes the currency....

European leaders weren’t stupid or self indulgent when they decided to move ahead with the euro, without fiscal union or strong Europe-level democracy. They just cared more about politics and international security than economics. They wanted to build a Europe that had transcended the divisions of the Cold War, and bind together Germany, which was reunited and much more powerful, with the rest of Europe."

Kathleen McNamara, This is what economists don’t understand about the euro crisis – or the U.S. dollar

Why is it that 'great people' always seem compelled to build their dreams of empire on the backs and broken bodies of innocents.  As always, it is for the greater good, and there will be collateral damage.

I do think some of the things that McNamara says is just a rationale for a certain philosophy of government.  The historical example of the US is almost embarrassing, revisionist, especially when she discusses the civil war, and how aimless the US had been until the creation of the Federal Reserve in 1913.

But it serves the hypothesis that the ends of pursuing 'order' justify the means including the overthrow of freedom, and that this is the lesson from history.  It certainly is a lesson, but I am not sure it is the one that she intends.

Money is indeed a medium of exchange, and a store of value. And it can also be a means of power, if it is abused and distorted to serve selfish ends.   We certainly have seen enough of that sort of thing in the first fifteen years of this century, with bailouts, and selective justice, and the abuse of regulation and monetary policy to favor a few over the many.

According to this line of thought, those who foresaw the pitfalls of the euro wanted nevertheless proceed in order to foster a unified political system which they felt would be more orderly, controlled by a collection of technocrats.

There is a similar school of thought with regard to a single world currency like the US dollar for example, that is to be controlled centrally by a cadre of technocrats that will be able to bring order, if not freedom, to everyone.   And somehow these benevolent technocrats always turn out to be merely human.  And then with time something less, much less.

After all, we must have order.  And in establishing that order, there must be collateral damage. Like Greece.

Have we forgotten the long line of thought that money and the banking system are utilities, that were put in place under state charter and regulated to provide for their function within a greater, productive economy in order to serve the public good?  And not as a tool of power and oppression by a privileged few?

Is this not the message one receives in reading of the law, and the long history of thought from the founders to the New Deal, with the usual digressions and abuses of monopoly power that will use a variety of means, including finances?  And not as an instrument primarily of state power and control over the people.

The central hypothesis of Professor McNamara seems to be that money, like most other things, is primariily an instrument of power, and that the deployment of the euro is an exercise in the centralization of power over a heterogeneous collection of nations and economies, and a means to bring Germany to its natural place at the head of a United Europe.

I am not saying that this view of public finances, banking and money as instruments of power is the intention or perspective of all economists.  Such a view of monetary theory exists as a willful distortion and abuse of economics, fostered by hubris and the will to power.

"What is good? All that enhances the feeling of power, the will to power, and the power itself in man. What is bad? All that proceeds from weakness. What is happiness? The feeling that power is increasing--that resistance has been overcome. Not contentment, but more power; not peace at any price, but war; not virtue, but competence."

Friedrich Nietzsche

It is a perspective that is shared by some of the powerful and the privileged.  It is just not normally associated with popular or democratic governments.   Just as other public utilities like the police are not intended as a force used to terrorize the people and quell any dissent, or the judiciary exists to permit and facilitate the abuses of a privileged few, while serving as an instrument of oppression over the general populace.  Such things can and do occur.  But these are aberrations, and not the norm, except in a society that has lost its conscience and moral moorings.

It is ironic that McNamara is a Professor of Government and Foreign Service at Georgetown, Carroll Quigley's old university.  I am not familiar with her body of work, and so admit I may be construing what she has written about the European Monetary Union, or was even being satirical.  But what she says calls to mind the writings of another Georgetown professor Carroll Quigley who, as you may recall, was Bill Clinton's mentor, and sponsor for his Rhodes Scholarship.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences."

Carroll Quigley, Tragedy and Hope, 1966

As old as Babylon— or Babel.

The amount of gold deliverable at these prices at the Comex seems to be a bit thin by historical standards. 

Gold Daily and Silver Weekly Charts - Whatever We Say It Is

"Obstinate ignorance is usually a manifestation of underlying political motives."

Michael Kalecki, Political Aspects of Full Employment

"The gap between what we know and what we should do about it is getting bigger and bigger."

C. K. Michaelson

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

Charles Mackay

 

The recent gold and silver smack down, which was artificial and predatory selling by any measure, was also the occasion of the largest volume ever on the GDX Gold Miners Index on the NYSE.  And through continuing abuse of the financial system, more and more productive assets fall into fewer and fewer hands.  We can see this growing inequality in our society now as a corrosive influence on the republic.

 

It will be interesting to see how this extreme modern relativism, the belief that power and might define all that is of value and right, will continue to unfold against the hard realities of other points of view, and the unyielding laws of nature, and dare I say, the moral arc of justice.

 

It is a kind of madness, and it affects to move people towards a spiral of self-destruction.   If we see that small lies work for others, then we must lie as well, but excuse it as something else, some exceptional necessity.   

 

And over time when many are lying and deceiving and distorting, then the falsehoods become greater and even greater, until a complete divergence from reality occurs.   And because of this divergence no objections or dissension from the accepted narrative can be tolerated.   

 

We will write the narrative, and we will control the source and distribution of money, because money is power.  We cannot create the vitality of organic growth, but we can deeply influence the distribution of ownership and resources.   We can be like gods, the looters and arbiters of the world.

 

And so we see the rise of the absolutist salesmen of relativism. There can be no exterior standard and no tolerance of any other belief.  Our control over the official story must become absolute, because it has become so disconnected from the reality, unable to withstand any objective examination, so fragile.

 

And then comes the deluge. 

 

Some intelligent and sensitive souls see what is happening and are appalled. 

 

Things still make sense.  You are not alone.  All of this has happened before.

 

Have a pleasant evening.