How Goldman and J P Morgan May Intend to Rape the Mining Industry (Again) and Take It Over 'On the Cheap' As Bullion Rallies

Those who have followed the mining industry over the years know how painful it was for those who had sold their bullion forward, on the advice of bullion banks like Goldman and J P Morgan, to unwind those hedges. The cost was company insolvency and a sale on the cheap for the smaller players, and billions in writeoffs for the larger, like Barrick Gold.

Perhaps a round of precision naked short selling and bullion price suppression will soften them up the cash strapped miners, and curtail their access to the alternative sources of capital and credit enough to prompt some soft-headed and desperate CEO's make their (sometimes self-serving) deal with the devil again.

You will forgive me if I wonder if Goldman would be taking the other side of this trade with their customers, waiting gleefully for the day when their 'forecast' proved to be wrong, and the miners found themselves unwittingly in their greedy little hands, God's work having been done once again.

And if they are caught, well, the going price of fraud on a massive and obvious scale seems to be about $550 million, so that will have to be factored into the business plan. Short sales on the collateral damage should cover that cost of doing business nicely, and keep the moral hazard and faux regulators happy.

And as for investors, they may wish to consider putting any miner who buys into this scheme on their 'do not buy' list. Although it should be noted that Barrick had a few good years, while its peers suffered, for its betrayal of its industry and ultimately its shareholders, when the devil had his due. In the famous New Orleans lawsuit they claimed that they had been working with JPM at the behest of the Federal Reserve.

Are the BIS, the IMF, the ECB, and the Fed starting to scrape the bottom of their bullion barrel, requiring fresh sources of physical to sell into the market, and feeling the twinges of anxiety that disclosure is near, the jig is up? Hope so. Could not happen to a more deserving group. And I hope to live to see the day.

Mineweb
Goldman predicts falling gold price beyond 2011, recommends gold hedging
Lawrence Williams
Thursday, 15 Jul 2010

Goldman Sachs has raised its medium term gold price forecast to $1,355, but reckons prices will fall from 2011 and recommends producers sell gold forward.

LONDON - Plus ça change. Goldman Sachs is suggesting that mining companies sell gold forward again. The logic behind this is that although the bank reckons the gold price will increase to $1,355 an ounce over the next 12 months - a tiny increase from its earlier prediction of $1,335 - beyond that it is looking for prices to stabilise and fall as the U.S. Fed tightens monetary policy and the recession is seen to be ending.

Of course the big gold banks, of which Goldman is probably the most successful, can do very well out of its clients hedging their gold forward whatever the fortunes of its clients in so doing. It was notably the bank which reputedly advised Ashanti Goldfields to sell its gold forward at gold's low point back at the end of the 1990s - a policy which brought the gold miner to its knees leading to its takeover by AngloGold - another Goldman client. Indeed commentators have suggested that Goldman made profits on every angle of the Ashanti hedging debacle, and on the sale of one of its clients to another.

Goldman would probably counter that its primary responsibility was to its shareholders - perhaps even more so than its clients - and that the sudden turn-around in the gold price which caused Ashanti's effective bankruptcy, was completely unforeseen, but the whole episode left a bitter taste that lingers to this day, particularly in Ghana where Ashanti was seen as the country's major gold player on the world scene.

However, the fact that Goldman is still looking for an increase in the gold price, even if only over the next 12 months, is positive for gold. The bank actually forecast a six-month gold price (effectively a year-end figure) gold price of $1,290 rising to the $1,355 figure over the following six months. With predictions being regularly updated (the latest figure is an update from Goldman's previous one of only three weeks earlier) the position may again change depending on how quickly the global economy is seen as recovering.

Goldman also delivered forecasts for base metals and silver, all of which ranged higher than previous ones apart from zinc where the bank was looking or an 18% fall.

Should the Fed Buy Gold At $5,000 per Ounce? Should Mexico Go to a De Facto Silver Standard?

These are two different interviews on two related topics: the place of specie in the reconstitution of national currencies in facilitating the recovery from a financial crisis.

I have to confess that there were some historical observations made by Lee Quaintance that made me scratch my head, wondering if we were coexisting in the same or parallel universes. I have tried to note them as they occurred in the text. What was most puzzling is that they seemed to be inserted in a line of thinking with which I was in completely agreement. Perhaps I just need another cup of coffee.

But in sum I found both interviews innovative and thought provoking. The concept of using Gresham's Law to induce people to save is interesting. I think the valuation model which my friend Hugo puts forward for a silver coin needs some work and some further thought, most likely on my part.

The status quo of economists and financial engineers, with their attendants politicians, will just hate these ideas. So I would not expect them to gain much traction, until things get substantially worse than they are today.

Hugo Salinas-Price on the Silver Peso and Deflation: Should the Fed be Buying Gold?
Chris Whalen, Institutional Risk AnalystJuly 19, 2010

"The difficulty lies, not in the new ideas, but in escaping from the old ones."

John Maynard Keynes
(1883-1946)

In this issue of The Institutional Risk Analyst, we shift focus from the U.S. to Mexico and feature a comment by Hugo Salinas-Price on his proposal for a silver-peso coin. We saw such a big response to the conversation with Jim Rickards about a gold-backed euro ("Paper Gold vs the Dollar? Interview with James Rickards," July 7, 2010) that we wanted to come back to the subject by speaking with an old friend from one of our favorite countries.

Salinas is founder, former chief executive officer, and honorary president of Grupo Elektra, the Mexican retailing company. He is also founder of the Mexican Civic Association Pro Silver, which for 10 years has been advocating the introduction of a monetized silver coin in parallel circulation with fiat pesos in Mexico. Legislation to that effect now is under serious consideration before the Mexican Congress.

Salinas describes the Mexican peso as a "derivative" of the dollar, a troubling prospect since, as we discuss below, the dollar itself is a derivative of nothing, at best a mere representation of a unit of work. But before we go to our feature, we need to comment on the latest minutes from the FOMC and the growing indication that the U.S. economy is continuing to slow.

To us, there is no "double dip" in the economy. We never recovered from the first decline in aggregate demand. Forget the bogus inflation and GDP statistics coming from Washington. Talk to your neighbors and family, the people in the community who own businesses. Ask them how their revenues for 1H 2010 are doing YOY...

In response to mounting concerns about deflation, news reports are filled with speculation that the Federal Reserve System will "ease" monetary policy further, an interesting idea given that interest rates already are at zero. The concept of further quantitative easing, as we understand it, would be for the Fed to purchase more securities from the Wall Street banks and hope -- repeat hope -- that a few pennies trickle down to the real economy. But mindful of the quotation from Lord Keynes above, maybe there is a better idea.

Last week The IRA spoke to Lee Quaintance, co-founder of QB Asset Management. Lee had worked in high yield credit and government bonds for several decades for the likes of Goldman Sachs (GS), CSFB and DLJ. Lee and his partner Paul Brodsky write a fascinating monthly market comment.

The IRA: So Lee, we see deflation as far as the eye can see but also rising costs. What's your view of the inflation/deflation debate amongst the chattering classes?

Quaintance: Credit inflations create asset bubbles that destroy the organic equilibrium mix between the factors of production. The deflation process curtails production and shrinks overall wealth but, ironically enough, redistributes a vast portion of the wealth that's left to the privileged few, mostly banks and government.

The IRA: We have created quite a mess.

Quaintance: A mess, yes, but, a predictable one nonetheless. Inflation and deflation are two sides of the same coin. Fiat currency and unreserved lending privileges are the root causes of all these imbalances. Throw in a bit of greed and malice too no doubt. The Austrians modeled it and predicted it. The Keynesians make excuses for it.

The IRA: Years ago, we made our friend Bill Janeway angry at us for calling Keynesian economics a coward's road to socialism (See "New Hope for Financial Economics: Interview with Bill Janeway," November 17, 2008). Now that we are at that endpoint, our political leaders are completely clueless. We have yet to find a single American politician able to talk about the role of the dollar in the global economy.

Quaintance: Have you asked yourself why most people have come to believe that deflation is to be avoided at all costs? It's painfully obvious to us -- because it destroys the banks and handcuffs the politicians. For everyone else, it's seemingly a zero sum game. Why all the fuss? (A zero sum game? Perhaps it has something to do with mass unemployment, and the transfers of wealth from the many to the few, the banks and the government, which Quaintance noted previously, leading to the decimation of the middle class, and a nation of hobos and millionaires. If all deflation did was destroy banks and harm politicians I would think it would be the most popular thing since the pre-elected version of Obama - Jesse)

The IRA: Well, if the U.S. economy continues to decelerate and deflate, we are going to see a lot of politicians facing mandatory "retirement" a la Harrison Ford in the film Blade Runner. A large portion of the U.S. population thinks that we are entitled to full employment, price stability and early retirement even as the government expands the deficit and currency at a double digit rates. The Chartalists think that we should just print money and use it to monetize all existing debt. The neo-Chartelist framework comes from the same intellectual wellspring as Keynesian economics and has been extended by the likes of Nobel laureate Bob Mundell. The current policy of the Obama Administration to borrow trillions of dollars to fund future deficits is similar madness, in our view, but is Fed-induced inflation better? What do you propose?

Quaintance: We have some basic views on what should be done and it comes in two steps. First, there needs to be a coordinated global currency devaluation. We argue for the Fed to tender for private gold holdings at something like $5,000 per ounce and to maintain that bid/offer. This would be the true economic/regulatory function of a central bank and/or monetary authority.

The IRA: The U.S. central bank has not had any gold holdings since FDR's expropriation of the private banking industry's gold in the 1930s. All of the gold in the Fed's vaults belongs to somebody else. We have a reserve bank with no reserves. So you would have the Fed buy gold rather than purchase more crap assets from the large dealer banks via a second round of quantitative easing (QE II)?

Quaintance: Precisely. The second step would be a major policy-mandated contraction in unreserved bank lending. These two simple steps would not only rebalance the financial books globally but would prevent leverage from over-inflating asset prices going forward, in turn creating another non-sustainable bubble economy. This isn't just theory. Let's look back. Employment trends in developed economies are being strangled presently by prior asset price inflation. As an admittedly crude example, the cost of shops on Main Street are overvalued and require artificially high rents to service debts. The average would-be shop owner can choose to pay his inflated lease or choose to pay workers - but not both. So, asset price inflation due to excessive unreserved credit expansion is not wealth enhancing but, rather, productivity destroying. (As a counterpoint though, it was not asset price inflation that started the process of breaking labor through offshoring and anti-union activity, a trend with its roots in the Reagan presidency, but general greed and lower tax rates on the monied interests. Why pay wages when you can pay yourself bonuses and tax free dividends to yourself and your friends? Capitalism has a natural dynamic to self-destruction, despite the mythology spun by the efficient market hypothesis folks. Given free rein, it will destroy itself by destorying its customers - Jesse)

The IRA: That is a structural problem. How does the Fed buying gold help?

Quaintance: You want organic employment growth? Lower the relative price of other factors of production. Boosting asset prices unilaterally while wage rates remain relatively stagnant is a recipe for unemployment. This is just common sense and it's what we're seeing today. The system yearns for more money, not more credit.

The IRA: Yes, their operating costs are rising but selling prices are compressed, just like our favorite Italian food dispensary in New York. As we have long argued with our friend Bill Greider, consumers and small businesses who do not do business with JPMorgan and Goldman Sachs are the big losers in the fiat system. You must be smart enough to surf the waves of inflation, not just swim with the tide, and that makes us all speculators. (It is really the arbitrariness of the money that is a root cause, and the creation of a monopolization of credit under an incompetent/corrupt Federal Reserve - Jesse)

Quaintance: Agreed. In the end, credit inflation historically leads to asset inflation while base money inflation leads to wage and basic goods/consumables inflation. No matter how you slice it, the ratio of outstanding global debts to global base money is irreconcilable. This is a mathematical tautology. From this imbalance flow many of the imbalances you cite, in my mind. Chris, as I said, we think this is as simple a problem as too little "money" in existence attempting to service and ultimately reconcile too much debt.

The IRA: So where do we go from here?

Quaintance: When the ratio of productive asset prices exceeds a theoretical limit vis-à-vis the other factors of production, the productive process breaks down. In the case of the U.S., it headed to developing economies overseas where labor demographics, regulatory apparatuses and asset pricing environments were far more in balance. This trend should continue until there is a serious reconciliation of that debt-to-base money gap.

The IRA: The one-sided era of free trade, with the U.S. open to all other nations but without reciprocity, has been like Smoot-Hawley in reverse, draining resources from the U.S. economy instead of what happened once WW II began. America ended up with much of the gold reserves and industry in the world but now we have swung to the other extreme. But most people don't realize that technological changes such as the electrification of the U.S. and resulting overcapacity in the 1920s drove the deflation of the 1930s, (What! How about the huge waves of bank failures? There is nothing like vaporizing a class of person's life savings to provoke deflation. How can someone make such a sweeping statement and ignore the most prominent feature of the time from an economic perspective! - Jesse) not the marginal increase in tariffs. Tariffs were already high and had been for 50 years. So Lee what we hear you saying is that we need another global reflation a la FDR's purchases of gold?

Quaintance: Yes. I abhor as much as the next guy proactive public sector administration of anything that a free market can manage better. But given the massive unreserved credit inflation of the last 20-plus years, a major -- and I mean major -- expansion of the global stock of base money must be administered ASAP to avoid further nominal private credit deflation and subsequent real economic contraction. Simply replacing vaporizing private debts with public debts is a mug's game -- a poorly-veiled requirement to inflate tomorrow. Why dance around the obvious here?

The IRA: So in a nutshell...

Quaintance: It's all about excessive unreserved credit having created real economic distortions that can't be reconciled through further debt creation. For a true financial reconciliation to occur the debt-to-monetary base ratio has to narrow significantly, and to set a sustainable course the growth rate of global money should be capped in a credible fashion. The easiest way to do this is by reinstituting and maintaining a true gold standard, at least for base money. This is not a radical notion. Remember the reason the gold standard "failed" historically was not the basic mechanics of hard money being "too restrictive". The problem has always been unreserved leverage that accompanies "gold standards" creating non-sustainable economic imbalances. There is plenty of gold, at the right price, to reserve all money and credit.

The IRA: The new $5,000 per ounce price for gold in greenbacks suggests a huge degree of suppressed inflation in the dollar system.

Quaintance: We see no other way to re-ignite the real economy and put it on a sustainable path. Policy makers are holding a burning match. They have to act or the markets and global trade partners will act for them.

The IRA: Thanks Lee.

And now to our feature. We have long believed that the U.S. government should issue silver and gold coins that are valued by weight. Most people are sophisticated enough to go down to their bank branch, look in the newspaper or online to ascertain the current value of silver or gold. By allowing the metal coins to trade on their intrinsic value instead of the arbitrary, political value assigned by the state, it would provide a way for average Americans to save and protect themselves from inflation. Hugo Salinas Price talks about how just such a system soon may be implemented in Mexico.

The Monetization of the "LIBERTAD" Silver Ounce in Mexico
By Hugo Salinas-Price
www.plata.com.mx

The correct diagnosis of the world's economic sickness is: there has been too much spending based on too much debt and there is a starvation of real savings.

What would be the treatment for the illness? Flush out the excessive debt accumulated by excessive spending with a laxative which will cancel that debt, and provide the patient with some healthy real money which he will greedily gobble up.

This is the philosophy which has led me to propose the reintroduction of silver money into renewed use in Mexico. I leave the cancellation of debt to others; my contribution is real, healthy money for the Mexican nation.

How to reintroduce silver into permanent use as money in Mexico?

First, since I do not wish to kill the patient, I prescribe a gradual introduction of silver into circulation, in parallel with fake money, which is the only kind of money in the world today. We shall gradually increase the amount of silver money in circulation in Mexico, as it circulates along with fake, fiat money.

It is necessary to take into account that although at one time - about a hundred years ago, in the case of Mexico - people calculated value in terms of weight of silver, today they would not be able to do so. People have become accustomed to using numbers to designate value.

Thus, if we want silver to circulate in the hands of the Mexican people, we must devise a silver coin to which is attributed a number. If the silver coin has a number officially attributed to it, the Mexican people will snap up all the coins they can afford to purchase, because they know they will be able to use the coin in commercial transactions at any moment - though we know they will not do so: they will instinctively save these coins (Gresham's Law). And that is what we want the patient to do!

There were silver coins circulating in many parts of the world, just after World War II. They had all disappeared from circulation a few years later. What happened? There was inflation of paper money all over the world, due to credit expansion. This inflation caused the price of silver to rise. Since all the silver coinage in circulation had engraved numbers signifying monetary value, and the engravings could not be erased, the silver coinage became more valuable if it was melted down into silver bullion. That sealed the fate of the silver coinage: it was all melted down and never came back. In fact, silver coins with engraved value can never come back as long as there is paper money in circulation - they will all suffer the same fate, they will all be melted down eventually, no matter what value is engraved, because paper or digital money leads to constant inflation.

You have Silver Eagle one-ounce bullion coins in the US, but they are purposely demonetized by having an engraved value of $1 Dollar; this makes them useless as ready money.

So the silver coin which is to be introduced into permanent circulation must have no engraved value. Providentially, there is such a coin in existence in Mexico: the "Libertad" pure silver ounce. We don't have to invent a new coin.

All we have to do is to obtain Legislation which will attribute a monetary value to this coin by means of a quote from the monetary authority, the Bank of Mexico. The quote will simply take the place of the engraved value.

It so happens that a former President of Mexico, Jose Lopez Portillo (1976-1982), tried to do just this, in a moment of inspiration, back in 1979. However, his legislation was defective and the measure was a failure because that legislation decreed that the Bank of Mexico should issue a monetary quote for the silver ounce, to depend directly on the international price of silver. The intention was excellent, but the legislation deficient, because the silver ounce bounced about in monetary value from day to day and no one could use it as money under those conditions. The law was allowed to lapse in 1981, but never repealed.

It took me many months of thought to find the solution to the monetization of the silver ounce, with no engraved value, but one day it came to me, right out of the blue: the Bank of Mexico must issue a quote which will give the Libertad a monetary value, but once given a monetary value, that value must not be reduced, under any circumstances! The central bank must stand ready to make an infinite market at the minimum quoted value. (I can see some a large hedge funds having fun with this one, testing the resolve of the Bank of Mexico. It probably needs more thought, as it is an absolutely pivotal point, and one on which the idea foundered before. I thought Hugo's idea of gold / silver for regulating international trade was brilliant, but I need to think more of how this one might survive the inevitable attacks of an unreformed financial system, capable of perverting almost anything it touches. - Jesse)

People will gladly receive a silver coin for savings, if it has a monetary value ascribed to it by a quote. But the quote must be stable, it must not be reduced - no one can accept as money, a coin whose monetary value may be less tomorrow that it is today. If we compare with paper money, a paper bill is acceptable because it says $100 pesos, and will always say $100 pesos. Its purchasing power may decline, but the bill will always say $100 pesos.

The same principle applies to a silver one ounce coin with no engraved value: if the quote is $300 pesos, the public must have the certainty that the quote will not be reduced. A fluctuating quote is what caused the failure of our former President's legislation: the coin had different monetary values from day to day, some days worth more, some days worth less.

On the other hand, people will joyfully accept a silver coin whose quote may be increased due to the increasing value of silver. In fact, this is an extremely powerful incentive to savings, and that is what we are looking for: more savings! No interest payment is necessary to entice people into saving this coin - silver is an irresistible magnet for savings. (The US is using it on a much smaller scale through the issuance of common coins with a marketing appeal, like the states and presidents series - Jesse)

So our proposed legislation is this:

The Bank of Mexico shall publish a monetary quote for the silver ounce, based on this procedure:

a. To the international price of silver in pesos, Bank of Mexico shall add a 10% seigniorage (profit) for itself. ($231.41 pesos X 1.1 = $254.55 pesos. Today's values of silver and pesos, at kitco.com)

b. The Bank of Mexico shall add to this, the cost of minting the silver ounce. ($254.55 + $19.02 estimate = $273.57 pesos)

c. The Bank of Mexico shall round out the sum of the two foregoing, to the nearest multiple of 5, to make the monetary value easy to remember. ($273.57 rounded out = $275 pesos quoted monetary value of the "Libertad" silver ounce)

d. When the international price of silver in pesos falls, the Bank of Mexico shall do nothing.

e. When the international price of silver in pesos rises and impinges upon the seigniorage of the Bank of Mexico, it shall increase the quoted monetary value to restore its seigniorage.

f. The Bank of Mexico shall mint sufficient quantity of Libertad ounces to satisfy market demand and prevent the appearance of a premium over the quoted monetary value of the Libertad.

By this means, the people of Mexico will have an ideal vehicle for savings and even those who cannot read or write will accumulate these coins as a family patrimony. A recent Mexican Treasury study discovered that 85% of all Mexicans do not have bank accounts. These are the candidates for savings in silver!

Under this legislation, the silver Libertad will never be melted down into bullion, as its predecessors. The coin will always be worth more as money, than as bullion.

A fall in the value of silver will not affect this coin. No matter how severe a collapse in the price of silver, this coin will always be preferable to any paper bill or digital money, because the paper bill and digital money have absolutely nothing to back them up, whereas this coin will always have some value due to its being silver. I find such a collapse hard to conceive, but one must take into account this possibility.

I cannot help adding that I believe that this silver money is what the whole world is waiting for, "waiting for the sunrise" out of our present deathly darkness. I believe that if it becomes a reality, it will be an enormous success.

Three Interesting Interviews on King World News

John Williams of Shadow Government Statistics on the Economy

• US is in the structural change of an Economic Depression and is starting the next leg down.
  
  
• Heavy dumping of US dollar assets is coming which will inhibit the Fed's ability to monetize and the Treasury's ability to issue new debt; this will trigger very serious inflation problems leading to genuine hyperinflation.

Ted Butler on the weekly action in the Precious Metals Markets

• Friday's price declines on Friday were nothing but 'crooked dealers on the Comex trying to liquidate as many technical funds and speculative longs as possible.
  
  
• You cannot rule anything out in a manipulated market, but the selling appears to be coming to an end.
  
  
• In the Financial Reform Bill the Congress has given strong direction to the CFTC to look into position limits. (The CFTC now has all the tools they need to regulate the manipulation in the US markets, but I am not holding my breath while Gary Gensler is in office as Chairman. - Jesse)

Matt Simmons on the Oil Markets and the Gulf Oil Spill

• BP has been lying and covering up the incident in the Gulf of Mexico from day one, because of the risk of criminal prosecution for gross negligence
  
  
• People who live in the Gulf states are still in danger because of lethal methane gas. A hurricane may bring up a poisonous lake of toxic oil from the bottom of the Gulf. He believes that we might be facing one of the largest losses of life from a natural non-war related disaster.
  
  
• The practical solution is a small diameter nuclear device to glass over the well bore. The nuclear device offers no risk.
  
  
• The skimmers are only wiping up the scum but are not addressing the real problem.
  
  
• BP will have to be liquidated to cover all the claims. Apache might buy the North Slope of Alaska which is a good development because BP is irresponsible. BP's stock will effectively become worthless.
  
  
• BP continues to perjure itself and manipulate the press. They are distracting attention from the real problem which is a much bigger leak that cannot be controlled by this cap.

Both John Williams and Ted Butler make sense to me, since they talk about areas in which I have experience and adequate knowledge for a probability.

I do not know enough or have enough data to have an informed opinion on what Matt Simmons is saying. It is hard to believe that the government could be so incompetent to take the risks that he outlines. It should be relatively easy for the US Navy to lead an effort to ascertain if some of the things that he says is true.

If he is wrong, then his reputation and credibility will be destroyed. If he is right, the Obama government, BP, and possibly the corporatocracy will be brought down in a spasm of popular rage.

I sincerely hope he is completely wrong, and would have to view some of his claims with skepticism until proof emerges.

False flag in September, anyone? You just know that is being teed up as an option on Obama's policy plate by the neo-Machiavelians in his administration.

Nothing Was Sacred: The Theft of the American Dream

America must decide what type of country it wishes to be, and then conform public and foreign policy to those ends, and not the other way around. Politicians have no right to subjugate the constitutional process of government to any foreign organization.

Secrecy, except in very select military matters, is repugnant to the health of a democratic government, and is almost always a means to conceal a fraud. Corporations are not people, and do not have the rights of individuals as such.

Banks are utilities for the rational allocation of capital created by savings, and as utilities deserve special protections. All else is speculation and gambling. In banking, simpler and more stable is better. Low cost rules, as excessive financialisation is a pernicious tax on the real economy.

Financial speculation, as opposed to entrepreneurial investment, creates little value, serving largely to transfer wealth from the many to the few, often by exploiting the weak, and corrupting the law. It does serve to identify and correct market inefficiencies, but this benefit is vastly overrated, because those are quickly eliminated. As such it should be allowed, but tightly regulated and highly taxed as a form of gambling.

When the oligarchy's enablers, hired help is the politer word, and assorted useful idiots ask, "But how then will we do this or that?" ask them back, "How did we do it twenty years ago?" Before the financial revolution and the descent into a bubble economy and a secretive and largely corrupted government with a GDP whose primary product is fraud.

Other nations, such as China, are surely acting for their own interests, and in many cases the interests of their people, much more diligently and effectively than the kleptocrats who are in power in Washington and New York these days. How then could we possibly subvert the Constitution and the welfare of the people to unelected foreign organizations? If this requires a greater reliance on self-sufficiency, then so be it. America is large enough to see to its own, as the others see to theirs.

Economics will not provide any answers in and of itself. Economics without an a priori policy and morality, without a guiding principle like the Constitution, is a heartless monster easily manipulated to say whatever one wishes it to say, if they are willing to pay enough economists to say it. Its reputation as a science is greatly exaggerated.

"Eliminating government" is a trap put forward by the plutocrats for those unable to reason except by prejudice, as they desire to exercise their power unimpeded by the rule of law. Once you knock down the protections and the safeguards in the name of reform, the wolves will turn on the public in an orgy of looting and exploitation. This is an old story, and sadly it often works.

Efficient markets hypothesis is almost as great a hoax as the benefits of globalization and 'free trade' have been to the American people as a whole. These things are promoted by the few, at the expense of the gullible many, for their own personal benefit.

Hatred, mean spiritedness, and resentment of the weak, the old, the different, is a trick played on the masses by oligarchs and would be dictators from time immemorial. They play to the darker side of the crowd. It is a trap, and the means to the demise of freedom. And these tricksters play it well, because deceit is their specialty, their stock in trade.

"First they ignore you, then they ridicule you, then they fight you, then you win." - Mohandas K. Gandhi

So it will not be easy, and it is a mistake to think that it will be. But what greater task can we set ourselves to, other than justice and freedom for ourselves and children?

It’s the End of the World As We Know It
By Phil of Phil’s Stock World

What are 308,367,109 Americans supposed to do?

First of all, despite clamping down on immigration, our population grew by 2.6M people last year. Unfortunately, not only did we not create jobs for those 2.6M new people but we lost about 4M jobs so what are these new people going to do? Not only that, but nobody is talking about the another major job issue: People aren’t retiring! They can’t afford to because the economy is bad – that means there are even less job openings… The pimply faced kid can’t get a job delivering pizza because his grandpa’s doing it.

There are some brilliant pundits who believe cutting retirement benefits will fix our economy. How will that work exactly? Pay old people less money, don’t cover their medical care and what happens? Then they need money. If they need money, they need to work and if they need to work they increase the supply of labor, which reduces wages and leaves all 308,367,109 of us with less money. Oh sorry, not ALL 308,367,109 – just 308,337,109 – the top 30,000 (0.01%) own the business the other 308,337,109 work at and they will be raking it in because labor is roughly 1/3 of the cost of doing business in America and our great and powerful capitalists have already cut their manufacturing costs by shipping all those jobs overseas, where they pay as little as $1 a day for a human life so now, in order to increase their profits (because profits MUST be increased) they have now turned inward to see what they can shave off in America.

How does one decrease the cost of labor in America? Well first, you have to bust the unions. Check. Then you have to create a pressing need for people to work – perhaps give them easy access to credit and then get them to go so deeply into debt that they will have to work until they die to pay them off. Check. It also helps if you push up the cost of living by manipulating commodity prices. Check. Then, take away people’s retirement savings. Check. Lower interest rates to make savings futile and interest income inadequate. Check. And finally, threaten to take away the 12% a year that people have been saving for retirement by labeling Social Security an “entitlement” program – as if it wasn’t money Americans worked their whole lives to save and gave to the government in good faith. Check.

As Allen Smith says: “Ronald Reagan and Alan Greenspan pulled off one of the greatest frauds ever perpetrated against the American people in the history of this great nation, and the underlying scam is still alive and well, more than a quarter century later. It represents the very foundation upon which the economic malpractice that led the nation to the great economic collapse of 2008 was built. Essentially, Reagan switched the federal government from what he critically called, a “tax and spend” policy, to a “borrow and spend” policy, where the government continued its heavy spending, but used borrowed money instead of tax revenue to pay the bills. The results were catastrophic. Although it had taken the United States more than 200 years to accumulate the first $1 trillion of national debt, it took only five years under Reagan to add the second one trillion dollars to the debt. By the end of the 12 years of the Reagan-Bush administrations, the national debt had quadrupled to $4 trillion!“

Both Reagan and Greenspan saw big government as an evil, and they saw big business as a virtue. They both had despised the progressive policies of Roosevelt, Kennedy and Johnson, and they wanted to turn back the pages of time. They came up with the perfect strategy for the redistribution of income and wealth from the working class to the rich. If Reagan had campaigned for the presidency by promising big tax cuts for the rich and pledging to make up for the lost revenue by imposing substantial tax increases on the working class, he would probably not have been elected. But that is exactly what Reagan did, with the help of Alan Greenspan. Consider the following sequence of events:

1) President Reagan appointed Greenspan as chairman of the 1982 National Commission on Social Security Reform (aka The Greenspan Commission)

2) The Greenspan Commission recommended a major payroll tax hike to generate Social Security surpluses for the next 30 years, in order to build up a large reserve in the trust fund that could be drawn down during the years after Social Security began running deficits.

3) The 1983 Social Security amendments enacted hefty increases in the payroll tax in order to generate large future surpluses.

4) As soon as the first surpluses began to role in, in 1985, the money was put into the general revenue fund and spent on other government programs. None of the surplus was saved or invested in anything. The surplus Social Security revenue, that was paid by working Americans, was used to replace the lost revenue from Reagan’s big income tax cuts that went primarily to the rich.

5) In 1987, President Reagan nominated Greenspan as the successor to Paul Volcker as chairman of the Federal Reserve Board. Greenspan continued as Fed Chairman until January 31, 2006. (One can only speculate on whether the coveted Fed Chairmanship represented, at least in part, a payback for Greenspan’s role in initiating the Social Security surplus revenue.)

6) In 1990, Senator Daniel Patrick Moynihan of New York, a member of the Greenspan Commission, and one of the strongest advocates the 1983 legislation, became outraged when he learned that first Reagan, and then President George H.W. Bush used the surplus Social Security revenue to pay for other government programs instead of saving and investing it for the baby boomers. Moynihan locked horns with President Bush and proposed repealing the 1983 payroll tax hike. Moynihan’s view was that if the government could not keep its hands out of the Social Security cookie jar, the cookie jar should be emptied, so there would be no surplus Social Security revenue for the government to loot. President Bush would have no part of repealing the payroll tax hike. The “read-my-lips-no-new-taxes” president was not about to give up his huge slush fund.

The practice of using every dollar of the surplus Social Security revenue for general government spending continues to this day. The 1983 payroll tax hike has generated approximately $2.5 trillion in surplus Social Security revenue which is supposed to be in the trust fund for use in paying for the retirement benefits of the baby boomers. But the trust fund is empty! It contains no real assets. As a result, the government will soon be unable to pay full benefits without a tax increase. Money can be spent or it can be saved. But you can’t do both. Absolutely none of the $2.5 trillion was saved or invested in anything.

That is how the largest theft in the history of the world was carried out. 300M people worked and saved their whole lives to set aside $2.5Tn into a retirement system that, if it were paying a fair compounding rate of 5% interest over 40 years of labor (assuming an even $62Bn a year was contributed), would be worth $8.4Tn today – enough money to give 100M workers $84,000 each in cash! The looting of FICA hid the massive deficits of the last 30 years in the Unified Budget. Presidents and Congresses were able to reduce taxes on the wealthiest Americans without complaint from the deficit hawks, because they benefited. The money went directly from the pockets of average Americans into the pockets of the rich.

Now that it is time to repay those special bonds in the Trust Fund, we are inundated in opinion pieces in the leading newspapers and magazines complaining about Social Security and its horrible impact on the budget. Government finances have been trashed by foolish tax cuts, unpaid wars, tax loopholes for corporations and the very wealthy, the failures of economists, the greedy search for greater returns in financial markets and the collapse of moral values in giant businesses, but Social Security is supposed to be the problem that needs fixing…

Social Security is not “broken“–the money is in the Trust Fund. But the people who manage the finances of the United States don’t want to repay the bonds held by the Trust Fund. They want to default selectively against average people, their fellow citizens, who paid their taxes expecting to be protected in their retirement. Refusing to repay the $2.54 trillion dollars in bonds held by the Social Security Trust makes the US look like Greece, just another nation unable to govern itself coherently. The people who manage US finances come from the financial elites, the best that Wall Street and enormous corporations have to offer. Selective default exposes them as charlatans. The claims of the economics profession to expertise are puffery. Their theories about the benefits of tax cuts are proven false. Their mathematical proofs about free markets collapse in the real world.

So, what is this all about? It’s about forcing 5M people a year who reach the age 65 to remain in the work-force. The top 0.01% have already taken your money, they have already put you in debt, they have already bankrupted the government as well so it has no choice but to do their bidding. Now the top 0.01% want to make even MORE profits by paying American workers even LESS money. If they raise the retirement age to 70 to “balance” Social Security – that will guarantee that another 25M people remain in the workforce (less the ones that drop dead on the job – saving the bother of paying them severance).

What’s next? Is it fair to say that children can’t work in a struggling family business? Isn’t it to everybody’s benefit that kids should be allowed to help out at the family store? That will be the next step towards turning America into a 3rd World country. The seemingly innocent concept of “letting” kids work will deprive another 5M people of paying jobs – throwing them out into the labor force as well and driving labor costs down even further.

There’s an expression that goes “give them an inch and they’ll take a yard.” The top 0.01% of this country have taken their inches and they are foreclosing on the yards and they will come for the rest of your stuff next. If you think you are “safe” from the looting of America, it is only because they haven’t gotten around to you yet. As I explained in “America is 234 Years Old Today – Is It Finished?” – the game is rigged very much like a poker tournament. The people at the top table don’t care how well you do wiping out your fellow players at the lower tables, they know they will get you eventually and your efforts to scoop up a pile of cash for yourself simply makes their job easier when they are ready to take it from you.

The average American is $634,000 in debt thanks to the efforts that Reagan and Greenspan put in motion 30 years ago and the richer you are, the more of that money is going to come out of your hide eventually and the more you lobby to make sure that the “rich” are not taxed unfairly, the less fair it will be to you because, no matter how rich you THINK you are, unless your income is measured in MILLIONS PER MONTH, you aren’t even close to the top 30,000.

No progressive tax? That means that people and corporations who make $1M PER DAY should pay no more tax than a person making $1M per year, right? Well that means that the $2.5M debt that your family of four owes will be paid by you over 2.5 years of labor while the $2.5M owed by your Billionaire competitor will be paid over a long weekend, after which he can turn his attention back to crushing your business by creating cheaper goods – maintaining profit margins by driving down local labor costs and outsourcing the rest.

It’s a new world, America, and you’d better get used to it – we were sold down the river on a slow boat to China long ago and we’re only just beginning to feel the first effects of waves that wash back to our own shores. The people who own the media don’t want CHANGE. That’s why you never hear this stuff in the MSM – things are going exactly according to plan and the old money crowd is playing a long, patient game and they already have most of the chips – the last thing they want is people questioning the system…