Economic Collapse

Treasury Secretary Timothy Geithner has overseen the use of trillions of taxpayer dollars to protect Wall Street criminals.

America is devolving into a third-world nation. And if we do not immediately halt our elite’s rapacious looting of the public treasury we will be left with trillions in debts, which can never be repaid, and widespread human misery which we will be helpless to ameliorate. Our anemic democracy will be replaced with a robust national police state. The elite will withdraw into heavily guarded gated communities where they will have access to security, goods and services that cannot be afforded by the rest of us. Tens of millions of people, brutally controlled, will live in perpetual poverty. This is the inevitable result of unchecked corporate capitalism. The stimulus and bailout plans are not about saving us. They are about saving them. We can resist, which means street protests, disruptions of the system and demonstrations, or become serfs.

We have been in a steady economic decline for decades. The Canadian political philosopher John Ralston Saul detailed this decline in his 1992 book “Voltaire’s Bastards: The Dictatorship of Reason in the West.” David Cay Johnston exposed the mirage and rot of American capitalism in “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill),” and David C. Korten, in “When Corporations Rule the World” and “Agenda for a New Economy,” laid out corporate malfeasance and abuse. But our universities and mass media, entranced by power and naively believing that global capitalism was an unstoppable force of nature, rarely asked the right questions or gave a prominent voice to those who did. Our elites hid their incompetence and loss of control behind an arrogant facade of specialized jargon and obscure economic theories.

The lies employed to camouflage the economic decline are legion. President Ronald Reagan included 1.5 million U.S. Army, Navy, Air Force and Marine service personnel with the civilian work force to magically reduce the nation’s unemployment rate by 2 percent. President Bill Clinton decided that those who had given up looking for work, or those who wanted full-time jobs but could only find part-time employment, were no longer to be counted as unemployed. This trick disappeared some 5 million unemployed from the official unemployment rolls. If you work more than 21 hours a week—most low-wage workers at places like Wal-Mart average 28 hours a week—you are counted as employed, although your real wages put you below the poverty line. Our actual unemployment rate, when you include those who have stopped looking for work and those who can only find part-time jobs, is not 8.5 percent but 15 percent. A sixth of the country is now effectively unemployed. And we are shedding jobs at a faster rate than in the months after the 1929 crash.

The consumer price index, used by the government to measure inflation, is meaningless. To keep the official inflation figures low the government has been substituting basic products it once measured to check for inflation with ones that do not rise very much in price. This sleight of hand has kept the cost-of-living increases tied to the CPI artificially low. The New York Times’ consumer reporter, W.P. Dunleavy, wrote that her groceries now cost $587 a month, up from $400 a year earlier. This is a 40 percent increase. California economist John Williams, who runs an organization called Shadow Statistics, contends that if Washington still used the CPI measurements applied back in the 1970s, inflation would be 10 percent.

The corporate state, and the political and intellectual class that served the corporate state, constructed a financial and political system based on illusions. Corporations engaged in pyramid lending that created fictitious assets. These fictitious assets became collateral for more bank lending. The elite skimmed off hundreds of millions in bonuses, commissions and salaries from this fictitious wealth. Politicians, who dutifully served corporate interests rather than those of citizens, were showered with campaign contributions and given lucrative jobs when they left office. Universities, knowing it was not good business to challenge corporatism, muted any voices of conscience while they went begging for corporate donations and grants. Deceptive loans and credit card debt fueled the binges of a consumer society and hid falling wages and the loss of manufacturing jobs.

The Obama administration, rather than chart a new course, is intent on re-inflating the bubble. The trillions of dollars of government funds being spent to sustain these corrupt corporations could have renovated our economy. We could have saved tens of millions of Americans from poverty. The government could have, as consumer activist Ralph Nader has pointed out, started 10 new banks with $35 billion each and a 10-to-1 leverage to open credit markets. Vast, unimaginable sums are being placed into these dirty corporate hands without oversight. And they will use this money as they always have—to enrich themselves at our expense.

Why the End of America is Closer than You Think

By Irritable Farmer

March 30, 2009

Civil unrest, Corruption, Depression, Economic Collapse, Survival, Theft

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by Mike Adams, the Health Ranger, NaturalNews Editor

I recently moved to Ecuador. Not for a vacation. Not for a month or two. I moved to Ecuador for good, as a permanent resident. Upon hearing my plans for living in South America, many people who knew me in the States asked things like, “Well what about the stability of Ecuador as a nation?” To which I would respond, “Oh, you mean the stability of banks that don’t make loans and don’t invest in derivatives? You mean the stability of a nation where the population still has the courage to march in the streets and throw corrupt officials out of its capitol?”

These questions make Americans pause. Most tend to think of public demonstrations as signs of a political instability. But in fact, public demonstrations are a sign of a healthy Democratic process. And Democracy is alive and well in Ecuador (with the usual level of corruption you find in any democracy).

It is in America, where the sheeple have been terrorized into staying inside the boundaries of their little “protest zones,” that you find a fragile, unstable nation.

Through complacency and fear-mongering, most Americans have become cowards when it comes to political activism. They think emailing their Senator a few times a year is all that’s required to defend freedom and preserve a nation. Marching in the streets is seen as uncivilized… or even unpatriotic! The government agrees with this, too, now labeling anyone who protests in public a “potential terrorist” and targeting them for FBI investigations. (http://www.foxnews.com/story/0%2C29…)

The multi-trillion-dollar theft scheme

In the mean time, while the sheeple of America are caught up in their hypnotic dreams of world domination, white-collar hoodlums in Washington D.C. and Wall Street are stealing everything!

The oft-repeated creation of $1 trillion in new money out of thin air by the Federal Reserve has made the U.S. dollar the laughing stock of the world. The leaders of the G20 nations have already decided to ditch the dollar and shift to other world reserve currencies, and China is now blatantly and publicly asking the U.S. put up some kind of collateral to back up future debt purchases, to which the U.S. says “Don’t worry about the debt. We’re good for it!”

And when $165 million in bonus money got paid to AIG employees, the tyrants in Washington demonstrated the true reach of their confiscatory punishment by enacting, within mere days, a 90% income tax rate on those bonuses. Sure, I agree those AIG executives deserve no bonus money, but the fact that the legislative branch of the U.S. government can reach out and hammer a targeted group of U.S. citizens with a retroactive 90% income tax rate should send shivers through any American that earns any income at all.

It has all taken on the caricature of a political circus. The perception around the world now is that America is not merely a land of the incompetent and the bankrupt; it’s also a land of fiscal buffoons and political puppets who have no real ability to save the crashing economy.

The Fed’s plan to increase the money supply 15-fold

But the real story starts to unfold when you realize the Federal Reserve is now hell bent on multiplying the U.S. money supply by a whopping fifteen times in 2009! This excellent article explains how this number is derived: http://www.marketskeptics.com/2009/…

Now think about this: If the Federal Reserve increases the U.S. money supply by a factor of fifteen, that means your dollars will be worth only 1/15th the value they represent right now. So a loaf of bread that costs a dollar right now could cost $15 when all this extra money ripples through the system. (Which will obviously take a couple of years, but 2009 will be the beginning of it.)

This is called “hyperinflation.” We’re talking about a loss of over 93% of the purchasing power of the dollar. That, my friends, is called a collapse of the currency.

And once it starts, the floodgates will be opened and the tsunami of investors and nations offloading dollars will be catastrophic and irreversible. By the time it’s all done, the dollar might end up losing 99.9% of its value, and you can use greenbacks to light a fire or wipe your back side, as they will be useless for anything else.

Why America’s currency — and government — is headed for total collapse

That’s why I say America’s days are numbered. The America as we know it, at least. This repeated creation of trillions of dollars in new money by the Federal Reserve is the last great looting of the U.S. economy by the wealthy elite. The Titanic is sinking, and high officials have monopolized the life rafts, leaving everyone else to drown with the ship. And while they’re rowing away from the doomed vessel that’s taking on water, they shout back to the low-income workers clinging to the rails, “Don’t worry! The ship isn’t really sinking. It’s just ‘correcting!’”

The truth is that America IS sinking — and it’s not just the currency I’m talking about here: America’s criminal health care system has sickened the population and outlawed any real healing practices, too. Meanwhile, the FDA and FTC have attempted to destroy all knowledge of natural remedies that can prevent and cure disease, further compromising the future of the American People.

On the dollars-and-cents side, America’s economy is a fictitious mish-mash of corporations selling poisons to the people, and people buying junk they don’t need, and everybody paying through the nose for disease care services that ultimately provide no net benefit to the population.

America’s infrastructure is crumbling, its industries are already gutted, and its exports resemble third-world agricultural nations more than first-world developed nations. Its political leadership is, with very few exceptions, a band of diseased, ignorant influence peddlers who sell out their constituents at every opportunity.

Perhaps more importantly, America has abandoned the principle of law. Laws no longer matter in America because they are selectively enforced only against those who threaten powerful institutions or corporations. America is no longer a nation of freedom and justice for all. Rather, it is a nation of greed and profit for the few, followed by oppression and bankruptcy for everybody else.

What’s coming soon for America

Given these circumstances, it is not difficult to predict the demise of America as we know it. The U.S. dollar will eventually collapse or be abandoned. This could happen literally overnight, or it could take years, but make no mistake: The American people will not be forewarned of the collapse of the dollar. It will be a sudden, surprise announcement, and all the politicians and banking elitists who engineered the whole thing will pronounce their “shock” that such a thing could happen! “We could never have predicted this,” they will insist, even while the whole thing was actually engineered by the very same people.

One day, Americans will wake up and discover that all banks are on “bank holidays” (which means that someone in Washington is taking a holiday with your money while YOU can’t access it).

Within hours, the National Guard will roll into the cities of the United States, and Americans will find themselves penniless prisoners in their own country. Anyone who protests will be arrested or shot. Law will be dispensed at the end of military rifles, and the President will get on television and explain how this is all being done for YOUR benefit! It’s for your own safety and protection, didn’t you know?

From here, it’s difficult to say exactly what will unfold. We could see UN troops on U.S. soil, the IMF taking over the U.S. banking system, and the forced transition to a global currency. Other possibilities include the Balkanization of the formerly-united States of America, with regional nation-states declaring their own independence from Washington.

During this chaos, just-in-time delivery of food and products will grind to a halt. Store shelves will be emptied. A healthy economy of barter will immediately spring up to fill the void. Those who have things to trade (toilet paper, butter, salt, sugar, matches, gold, silver, food, fuel, etc.) will eat. Those who don’t will starve. Health will plummet and infectious disease will become a very real threat in many cities. The conventional medical system will, of course, be utterly useless and will run out of medicine within days or weeks.

This economic transition chaos will be short-lived, however, and from the ashes of economic turmoil will spring a new nation (or nations) of People who have finally awakened from their complacency. New governments will be forged, and the fields of economic ruin will be ripe for the planting and sprouting of new ideas from a new generation of visionary leaders.

In my related article called How to Create A Healthy, Wealthy, Abundant Nation from the Ashes of America’s Demise, I discuss some advanced ideas of how new nation states might structure themselves in a way that creates lasting health, wealth and abundance for its citizens. Read that story on the other network I write for. Just enter the title shown above in the search box of the other website (NN).

Why the End of America is Closer than You Think

By Irritable Farmer

March 30, 2009

Civil unrest, Corruption, Depression, Economic Collapse, Survival, Theft

Leave a Comment

by Mike Adams, the Health Ranger, NaturalNews Editor

It is in America, where the sheeple have been terrorized into staying inside the boundaries of their little “protest zones,” that you find a fragile, unstable nation.

The multi-trillion-dollar theft scheme

In the mean time, while the sheeple of America are caught up in their hypnotic dreams of world domination, white-collar hoodlums in Washington D.C. and Wall Street are stealing everything!

The Fed’s plan to increase the money supply 15-fold

This is called “hyperinflation.” We’re talking about a loss of over 93% of the purchasing power of the dollar. That, my friends, is called a collapse of the currency.

Why America’s currency — and government — is headed for total collapse

What’s coming soon for America

One day, Americans will wake up and discover that all banks are on “bank holidays” (which means that someone in Washington is taking a holiday with your money while YOU can’t access it).

America’s Fiscal Collapse

By Irritable Farmer

March 12, 2009

Corruption, Disinformation, Economic Collapse, Federal Reserve, Looting the treasury, Rothschild banking empire, Subverting the U.S. Constitution, War profiteering

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by Michel Chossudovsky

“We will rebuild, we will recover, and the United States of America will emerge stronger” –President Barack Obama, State of the Union Address 24 Feb 2009

“Those of us who manage the public’s dollars will be held to account—to spend wisely, reform bad habits, and do our business in the light of day—because only then can we restore the vital trust between a people and their government.” –President Barack Obama, A New Era of Responsibility, the 2010 Budget

“Strong economic medicine” with a “human face”

“Promise amid peril.” The stated priorities of the Obama economic package are health, education, renewable energy, investment in infrastructure and transportation. “Quality education” is at the forefront. Obama has also promised to “make health care more affordable and accessible”, for every American.

At first sight, the budget proposal has all the appearances of an expansionary program, a demand oriented “Second New Deal” geared towards creating employment, rebuilding shattered social programs and reviving the real economy.

The realities are otherwise. Obama’s promise is based on a mammoth austerity program. The entire fiscal structure is shattered, turned upside down.

To reach these stated objectives, a significant hike in public spending on social programs (health, education, housing, social security) would be required as well as the implementation of a large scale public investment program. Major shifts in the composition of public expenditure would also be required: i.e. a move out of a war economy, requiring a movement out of military related spending in favour of civilian programs.

In actuality, what we are dealing with is the most drastic curtailment in public spending in American history, leading to social havoc and the potential impoverishment of millions of people.

The Obama promise largely serves the interests of Wall Street, the defence contractors and the oil conglomerates. In turn, the Bush-Obama bank “bailouts” are leading America into a spiralling public debt crisis. The economic and social dislocations are potentially devastating.

Obama’s budget submitted to Congress on February 26, 2009 envisages outlays for the 2010 fiscal year (commencing October 1st 2009) of $3.94 trillion, an increase of 32 percent. Total government revenues for the 2010 fiscal year, according to preliminary estimates by the Bureau of Budget, are of the order of $2.381 trillion.

The predicted budget deficit (according to the president’s speech) is of the order of $1.75 trillion, almost 12 percent of the U.S. Gross Domestic Product.

War and Wall Street

This is a “War Budget”. The austerity measures hit all major federal spending programs with the exception of: 1. Defence and the Middle East War: 2. the Wall Street bank bailout, 3. Interest payments on a staggering public debt.

The budget diverts tax revenues into financing the war. It legitimizes the fraudulent transfers of tax dollars to the financial elites under the “bank bailouts”.

The pattern of deficit spending is not expansionary. We are not dealing with a Keynesian style deficit, which stimulates investment and consumer demand, leading to an expansion of production and employment.

The “bank bailouts” (involving several initiatives financed by tax dollars) constitute a component of government expenditure. Both the Bush and Obama bank bailouts are hand outs to major financial institutions. They do not not constitute a positive spending injection into the real economy. Quite the opposite. The bailouts contribute to financing the restructuring of the banking system leading to a massive concentration of wealth and centralization of banking power.

A large part of the bailout money granted by the Us government will be transferred electronically to various affiliated accounts including the hedge funds. The largest banks in the US will also use this windfall cash to buy out their weaker competitors, thereby consolidating their position. The tendency, therefore, is towards a new wave of corporate buyouts, mergers and acquisitions in the financial services industry.

In turn, the financial elites will use these large amounts of liquid assets (paper wealth), together with the hundreds of billions acquired through speculative trade, to buy out real economy corporations (airlines, the automobile industry, Telecoms, media, etc ), whose quoted value on the stock markets has tumbled.

In essence, a budget deficit ( combined with massive cuts in social programs) is required to fund the handouts to the banks as well as finance defence spending and the military surge in the Middle East war. Obama’s budget envisages:

1. defense spending of $534 billion for 2010, a supplemental 130 billion dollar appropriation for fiscal 2010 for the wars in Afghanistan and Iraq, and a supplemental $75.5 billion emergency war funding for the rest of the 2009 fiscal year. Defence spending and the Middle East war, with various supplemental budgets, is (officially) of the order of 739.5 billion. Some estimates place aggregate defence and military related spending at $ 1 trillion+.

2. A bank bailout of the order of $750 billion announced by Obama, which is added on to the 700 billion dollar bailout money already allocated by the outgoing Bush administration under the Troubled Assets Relief Program (TARP). The total of both programs is a staggering 1.45 trillion dollars to be financed by the Treasury. It should be understood that the actual amount of cash financial “aid” to the banks is significantly larger than $1.45 trillion. (See Table 2 below).

3. Net Interest on the outstanding public debt is estimated by the Bureau of the Budget) at $164 billion in 2010.

The order of magnitude of these allocations is staggering. Under a “balanced budget” criterion –which has been a priority of government economic policy since the Reagan era–, almost all the revenues of the federal government amounting to $2.381 trillion would be used to finance the bank bailout (1.45 trillion), the war ($739 billion) and interest payments on the public debt ($164 billion). In other words, no money would be left over for other categories of public expenditure.

TABLE 1 Budgetary allocations to Defence (FY 2009 and 2010), the Bank Bailout and Net Interests on the Public Debt (FY 2010)

$ Billions

Defence including Supplementary allocations; $534 billion (FY 2010), $130 billion supplemental (FY 2010), $75.5 billion emergency funding (FY2009)	739.5
*Bank bailout (TARP plus Obama)	1450.0
Net Interest	164.0
TOTAL	2353.5
Total Individual (Federal) Income Tax Revenues (FY 2010)	1061.0
Total Federal Government Revenue (FY 2010)	2381.0

Source: Bureau of the Budget and official statements. See A New Era of Responsibility: The 2010 Budget
See also Office of Management and Budget

* The officially announced bank bailouts to be financed from Treasury Funds. The timing of disbursements could take place over more than one fiscal years fiscal years. The actual value of bank bailout cash injections is substantially higher.

The Budget Deficit

These three categories of expenditure (Defence, Bank Bailout and Interest on the Public Debt) would virtually swallow up the entire 2010 federal government revenue of 2381.0. billion dollars

Moreover, as a basis of comparison, all the revenue accruing from individual federal income taxes ($1.061 trillion), (FY 2010) namely all the money households across America pay annually in the form of federal taxes, will not suffice to finance the handouts to the banks, which officially are of the order of 1.45 trillion. This amount includes the $ 700 billion (granted during FY 2009) under the TARP program plus the proposed $ 750 billion granted by the Obama administration.

While TARP and Obama’s proposed bailout are to be disbursed over Fy 2009 and 2010, they nonetheless represent almost half of total government expenditure (half of Obama’s $3.94 trillion budget for fiscal 2010), which is financed by regular sources of revenue ($2381 billion) plus a staggering $1.75 trillion budget deficit, which ultimately requires the issuing of Treasury Bills and government bonds.

The feasibility of a large short-term expansion of the public debt at a time of crisis is yet another matter, particularly with interest rates at abysmally low levels.

The budget deficit is of the order of 1.75 trillion. Obama acknowledges a 1.3 trillion-dollar budget deficit, inherited from the Bush administration. In actuality, the budget deficit is much larger .

The official figures tend to underestimate the seriousness of the budgetary predicament. The $1.75 trillion dollar budget deficit figure is questionable because the various amounts disbursed under TARP and other related bank bailouts including Obama’s announced $750 billion aid program to financial institutions are not acknowledged in the government’s expenditure accounts.

“The aid hasn’t been requested formally, but appears in a line item “for potential additional financial stabilization efforts,” according to the budget overview. The budget office calculated a $250 billion net cost to taxpayers this year, because it anticipates it would eventually recoup some, though not all, of the money expended to help financial companies.

The funds would come on top of the $700 billion rescue package approved last October by Congress. The White House budgets no money for fiscal 2010 and beyond for such aid.” (Bloomberg, February 27, 2010)

Fiscal Collapse

A major crisis of the federal fiscal structure is occurring. The multibillion dollar allocations to the War Budget and to the Wall Street Bank Bailout program backlash on all other categories of public expenditure.

The Bush administration’s $ 700 billion bailout under the Troubled Asset Relief Program (TARP) was approved by Congress in October. TARP is but the tip of the iceberg. A panoply of bailout allocations in addition to the $ 700 billion were decided upon prior to Obama assuming office. In November, the federal government’s bank rescue program was estimated at a staggering 8.5 trillion dollars, an amount equivalent to more than 60% of the US public debt estimated at 14 trillion (2007). (See table 2 below)

Meanwhile, under the Obama budget proposal, 634 billion dollars are allocated to a reserve fund to finance universal health care. At first sight, it appears to be a large amount. But it is to be spent over a ten year period, — i.e. a modest annual commitment of 63.4 billion.

Public spending will be slashed with a view to curtailing a spiralling budget deficit. Health and education programs will not only remain heavily underfunded, they will be slashed, revamped and privatized. The likely outcome is the outright privatization of public services and the sale of State assets including public infrastructure, urban services, highways, national parks, etc. Fiscal collapse leads to the privatization of the State.

The fiscal crisis is further exacerbated by the compression of tax revenues resulting from decline of the real economy. Unemployed workers do not pay taxes nor do bankrupt firms. The process is cumulative. The solution to the fiscal crisis becomes the cause of further collapse.

Structure of The Public Debt

This large scale appropriation of liquid money assets under the bank bailouts by a handful of financial institutions serves to increase the public debt overnight.

When the US Treasury allocates 700 billion dollars to the Troubled Assets Relief Program, this amount constitutes a budgetary outlay which inevitably must be financed from within the structure of government revenues and expenditures.

Unless all other categories of public expenditure including health, education and social services are slashed, the various outlays under the bank bailout will require running a massive budget deficit which in turn will increase the US public debt.

America is the most indebted country on earth. The US (federal government) public debt is currently of the order of $14 trillion. This does not include mounting public debts at the state and municipal levels.

This US dollar denominated (federal) debt is composed of outstanding treasury bills and government bonds. The public debt, also called “the national debt” is the amount of money owed by the federal government to holders of U.S. debt instruments.

US debt instruments are held by American residents as part of their savings portfolio, companies and financial institutions, US government agencies, foreign governments, individuals in foreign countries. but does not include intergovernmental debt obligations or debt held in the Social Security Trust Fund. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.

The proposed solution becomes the cause of the crisis. The 700 billion bailout under the Troubled Asset Relief Program (TARP) combined with the proposed Obama $750 billion aid to financial services industry is but the tip of the iceberg. A panoply of bailout allocations in addition to the 700 billion have been decided upon.

Table 2

The Bush Administration’s ” Bank Bailout”

The government’s bank rescue program under the Bush administration was estimated at a staggering 8.5 trillion dollars, an amount equivalent to 60% of the Total Gross Federal debt of 14.078 trillion (2010) (See Table 2 above). This amount does not include the “aid” to financial institutions proposed by the Obama administration, including an additional 750 billion dollars in Obama’s February 2009 budget proposal. The size of these allocations of liquid assets endangers the very structures of the fiscal and monetary system.

The total of Bush bank bailouts (8.5 trillion) can be broken down into funds granted by the Federal Reserve, the Treasury, the Federal Deposit Insurance Corporation and the Federal Housing Authority.

The handouts to the financial institutions financed out of Treasury are government expenditures, to be met either through tax revenues or through the emission of public debt instruments.

The disbursements under TARP are categorized by the Bureau of the Budget as part of “a mandatory program” under an Act of the US Congress.. The Treasury’s liability, which includes the controversial Troubled Assets Relief Program, was estimated in November 2008 at 1.1 trillion dollars. (See Table 2) Further Treasury allocations, which serve to heighten the burden of the public debt have been envisaged by the Obama administration

Spiralling Public Debt Crisis

Is the Treasury in a position to finance this mounting budget deficit officially tagged at 1.75 billion through the emission of Treasury bills and government bonds?

The largest budget deficit in US history coupled with the lowest interest rates in US history: With the Fed’s ” near zero” percent discount rate, the markets for US dollar denominated government bonds and Treasury bills are in straightjacket. Moreover, the essential functions of savings (which is central to the functioning of a national economy) is in crisis. .

Who wants to invest in US government debt? What is the demand for Treasury bills at exceedingly low interest rates?

Table 3 Interest Rates in Percent

Treasury securities

Updated 2/25/2009

	This week	Month ago	Year ago
One-Year Treasury Constant Maturity	0.64	0.43	2.10
91-day T-bill auction avg disc rate	0.300	0.150	2.160
182-day T-bill auction avg disc rate	0.495	0.350	2.070
Two-Year Treasury Constant Maturity	0.95	0.77	2.04
Five-Year Treasury Constant Maturity	1.79	1.58	2.89
Ten-Year Treasury Constant Maturity	2.75	2.56	3.85
One-Year MTA	1.633	1.823	4.326
One-Year CMT (Monthly)	0.44	0.49	2.71

Source Bankrate.com

The market for US dollar denominated debt instruments is potentially at a standstill, which means that the Treasury lacks the ability to finance its mammoth budget deficit through public debt operations, leading the entire budgetary process into a quandary.

The question is whether China and Japan will continue to purchase US dollar denominated debt instruments. Washington is running a public relations campaign to lure Asian investors into buying T-bills and US government bonds. .

With the markets for US dollar denominated debt (both domestically and internationally) in crisis, further pressure will be exerted on the Treasury to slash (civilian) public expenditure to the bone, exact user fees for public services and sell off public assets, including State infrastructure and institutions. In all likelihood, this crisis is leading us to the privatization of the State, where activities hitherto under government jurisdiction will be transferred into private hands.

Who will be buying State assets at rock bottom prices? The financial elites, which are also the recipients of the bank bailout.

Consolidation of the Banks

A massive amount of liquidity has been injected into the financial system, from the bailouts but also from pension funds, individual savings, etc.

The stated objective of the bank bailout programs is to alleviate the banks’ burden of bad debts and non-performing loans. In actuality what is happening is that these massive amounts of money are being used by a handful of institutions to consolidate their position in global banking.

The exposure of the banks, largely the result of derivative trade, is estimated in the tens of trillions of dollars, to the extent that the amounts and guarantees granted by the Treasury and the Fed will not resolve the crisis. Nor are they intended to resolve the crisis.

The mainstream media suggests that the banks are being nationalized as a result of TARP, In fact, it is exactly the opposite: the State is being taken over by the banks, the State is being privatized. The establishment of a Worldwide unipolar financial system is part of the broader project of the Wall Street financial elites to establish the contours of a world government.

In a bitter irony, the recipients of the bailout under TARP and Obama’s proposed $750 billion aid to financial institutions are the creditors of the federal government. The Wall Street banks are the brokers and underwriters of the US public debt, although they hold only a portion of the debt, they transact and trade in US dollar denominated public debt instruments Worldwide.

They act as creditors of the US State. They evaluate the creditworthiness of the US government, they rank the public debt through Moody’s and Standard and Poor. They control the US Treasury, the Federal Reserve Board and the US Congress. They oversee and dictate fiscal and monetary policy, ensuring that the State acts in their interest.

Since the Reagan era, Wall Street dominates most areas of economic and social policy. It sets the budgetary agenda, ensuring the curtailment of social expenditures. Wall Street preaches balanced budgets but the practice has been lobbying for the elimination of corporate taxes, the granting of handouts to corporations, tax write-offs in mergers and acquisitions etc, all of which lead to a spiralling public debt.

Circular and Contradictory Relationship

The Federal Reserve system is a privately owned central bank. While the Federal Reserve Board is a government body, the process of money creation is controlled by the 12 Federal Reserve Banks, which are privately owned.

The shareholders of the Federal Reserve banks (with the New York Federal Reserve Bank playing a dominant role) are among America’s most powerful financial institutions.

While the Federal Reserve can create money “out of thin air”, the multibillion outlays of the Treasury (including the TARP program) will require the emission of public debt in the form of Treasury Bills and government bonds.

US financial institutions oversee the US public debt. They are involved in the sale of treasury bills and government bonds on financial markets in the US and around the World. But they also hold part of the public debt. In this regard, they are the creditors of the US government. Part of this increased public debt required to rescue the banks will be financed or brokered by the same financial institutions which are the object of the bank rescue plan.

We are dealing with a pernicious circular relationship. When the banks pressured the Treasury to assist them in the form of a major bank rescue operation, it was understood from the outset that the banks would in turn assist the Treasury in financing the handouts of which they are the recipients.

To finance the bank bailout, the Treasury needs to run a massive budget deficit, which in turn requires a staggering increase of the US public debt.

Public opinion has been misled. The US government is in a sense financing its own indebtedness: the money granted to the banks is in part financed by borrowing from the banks.

The banks lend money to the government and with the money they lend the government, the Treasury finances the bailout. In turn, the banks impose conditionalities on the management of the US public debt. They dictate how the money should be spent. They impose fiscal responsibility, they dictate massive cuts in social expenditures which result in the collapse and/or privatization of public services. They impose the privatization of urban infrastructure, roads, sewer and water systems, public recreational areas, everything is up for privatization.

The recipient banks are the beneficiaries as well as the creditors. As creditors, they will oblige the government a) to slash expenditures b) to run up the public debt through the issuing of treasury bills and government bonds.

This public debt crisis is all the more serious because the US federal government does not control monetary policy. All public debt operations go through the Federal reserve, which is in charge of monetary policy, acting on behalf of private financial interests. The government as such has no authority over money creation. This means that public debt operations essentially serve the interests of the banks.

Continuity from Bush to Obama

The Obama stimulus program constitutes a continuation of the Bush administration’s bank bailout packages. The proposed policy solution to the crisis becomes the cause, ultimately resulting in further real economy bankruptcies and a corresponding collapse of the standard of living of Americans.

Both the Bush and Obama bank bailouts are intended to come to the rescue of troubled financial institutions, to ensure the payment of “inter-bank” debt operations. In practice, large amounts of money transit through the banking system, from the banks to the hedge funds, to offshore banking havens and back to the banks.

The government and the media tend to focus on the ambiguous notion of ” inter-bank debts”. The identity of the creditors is rarely mentioned.

Multi-billion dollar transfers are conducted electronically from one financial entity to another. Where is the money going? Who is collecting these multibillion debts, which are in large part the consequence of financial manipulation and derivative trade?

There are indications that the financial institutions are transferring billions of dollars into their affiliated hedge funds. From these hedge funds they can then channel money capital towards the acquisition of real assets.

Through what circuitous financial mechanisms were these debts created? Where is the bailout money going? Who is cashing in on the multibillion dollar government bailout money? This process is contributing to an unprecedented concentration of private wealth.

Concluding Remarks

Financial manipulation is an integral part of the New World Order. It constitutes a powerful means to accumulate wealth. Under the present political arrangement, those responsible for monetary policy are quite deliberately serving the interests of the financiers, to the detriment of working people, leading to economic dislocation, unemployment and mass poverty.

This article has focussed on how financial manipulation has served to shatter the structure of US public expenditure.

More generally, this restructuring of global financial markets and institutions (alongside the pillage of national economies) has enabled the accumulation of vast amounts of private wealth – a large portion of which has been amassed as a result of strictly speculative transactions.

This critical drain of billions of dollars of household savings and state tax revenues paralyses the functions of government spending and spurs the accumulation of a public debt, which can no longer be be financed through the emission of US dollar denominated debt.

What we are dealing with is the fraudulent transfer and confiscation of lifelong savings and pension funds, the fraudulent appropriation of tax revenues to finance the bank bailouts, etc. To understand what has happened: follow the money trail of electronic transfers with a view to establishing where the money has gone. What is at stake is the outright criminalization of the financial system: “financial theft” on an unprecedented scale.

The monetary system, which is integrated into the State budgetary process has been destabilized. The fundamental relationship between the monetary system and the real economy is in crisis.

The creation of money “out of thin air” threatens the value of the US dollar as an international currency. Similarly, the financing of a mammoth US budget deficit through dollar denominated debt instruments is impaired as a result of exceedingly low interest rates. Moreover, the process of household savings is undermined with interest rates close to zero.

What we have dealt with in this article is one central aspect of an evolving process of global financial collapse.

The international payments system is in crisis. The economic prospects are terrifying. Bankruptcies in the US, Canada, the European Union are occurring at an alarming rate. Country level exports have collapsed, leading to a contraction of international trade Reports from the Asian economies indicate a massive increase in unemployment. In China’s Pearl River basin in Southern Guangdong province’s industrial export processing economy, some 700,000 workers were laid off in January. (China Morning Post, Feb 6, 2009). In Japan, industrial output has collapsed by more than 20 percent since December. In the Philippines, a country of 90 million people, exports collapsed by more than 40 percent in December.

Financial Disarmament

There are no solutions under the prevailing global financial architecture. Meaningful policies cannot be achieved without radically reforming the workings of the international banking system.

What is required is an overhaul of the monetary system including the functions and ownership of the central bank, the arrest and prosecution of those involved in financial fraud both in the financial system and in governmental agencies, the freeze of all accounts where fraudulent transfers have been deposited, the cancellation of debts resulting from fraudulent trade and/or market manipulation.

People across the land, nationally and internationally, must mobilize. This struggle to democratise the financial and fiscal apparatus must be broad-based and democratic encompassing all sectors of society at all levels, in all countries. What is ultimately required is to disarm the financial establishment:

-confiscate those assets which were obtained through fraud and financial manipulation.

-restore the savings of households through reverse transfers

-return the bailout money to the Treasury, freeze the activities of the hedge funds. .

- freeze the gamut of speculative transactions including short-selling and derivative trade.

ANNEX

Documents

A New Era of Responsibility: The 2010 Budget

The tables contained in Annex can also be consulted by clicking:

Summary Tables

See also:

http://www.budget.gov

http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf

The Economic Depression was predicted in this 2002 best-seller

The Globalization of Poverty and the New World Order

America’s Fiscal Collapse

By Irritable Farmer

March 12, 2009

Corruption, Disinformation, Economic Collapse, Federal Reserve, Looting the treasury, Rothschild banking empire, Subverting the U.S. Constitution, War profiteering

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by Michel Chossudovsky

“We will rebuild, we will recover, and the United States of America will emerge stronger” –President Barack Obama, State of the Union Address 24 Feb 2009

“Those of us who manage the public’s dollars will be held to account—to spend wisely, reform bad habits, and do our business in the light of day—because only then can we restore the vital trust between a people and their government.” –President Barack Obama, A New Era of Responsibility, the 2010 Budget

“Strong economic medicine” with a “human face”

The realities are otherwise. Obama’s promise is based on a mammoth austerity program. The entire fiscal structure is shattered, turned upside down.

In actuality, what we are dealing with is the most drastic curtailment in public spending in American history, leading to social havoc and the potential impoverishment of millions of people.

The predicted budget deficit (according to the president’s speech) is of the order of $1.75 trillion, almost 12 percent of the U.S. Gross Domestic Product.

War and Wall Street

The budget diverts tax revenues into financing the war. It legitimizes the fraudulent transfers of tax dollars to the financial elites under the “bank bailouts”.

1. defense spending of $534 billion for 2010, a supplemental 130 billion dollar appropriation for fiscal 2010 for the wars in Afghanistan and Iraq, and a supplemental $75.5 billion emergency war funding for the rest of the 2009 fiscal year. Defence spending and the Middle East war, with various supplemental budgets, is (officially) of the order of 739.5 billion. Some estimates place aggregate defence and military related spending at $ 1 trillion+.

2. A bank bailout of the order of $750 billion announced by Obama, which is added on to the 700 billion dollar bailout money already allocated by the outgoing Bush administration under the Troubled Assets Relief Program (TARP). The total of both programs is a staggering 1.45 trillion dollars to be financed by the Treasury. It should be understood that the actual amount of cash financial “aid” to the banks is significantly larger than $1.45 trillion. (See Table 2 below).

3. Net Interest on the outstanding public debt is estimated by the Bureau of the Budget) at $164 billion in 2010.

TABLE 1 Budgetary allocations to Defence (FY 2009 and 2010), the Bank Bailout and Net Interests on the Public Debt (FY 2010)

$ Billions

Defence including Supplementary allocations; $534 billion (FY 2010), $130 billion supplemental (FY 2010), $75.5 billion emergency funding (FY2009)	739.5
*Bank bailout (TARP plus Obama)	1450.0
Net Interest	164.0
TOTAL	2353.5
Total Individual (Federal) Income Tax Revenues (FY 2010)	1061.0
Total Federal Government Revenue (FY 2010)	2381.0

Source: Bureau of the Budget and official statements. See A New Era of Responsibility: The 2010 Budget
See also Office of Management and Budget

The Budget Deficit

These three categories of expenditure (Defence, Bank Bailout and Interest on the Public Debt) would virtually swallow up the entire 2010 federal government revenue of 2381.0. billion dollars

The feasibility of a large short-term expansion of the public debt at a time of crisis is yet another matter, particularly with interest rates at abysmally low levels.

The budget deficit is of the order of 1.75 trillion. Obama acknowledges a 1.3 trillion-dollar budget deficit, inherited from the Bush administration. In actuality, the budget deficit is much larger .

“The aid hasn’t been requested formally, but appears in a line item “for potential additional financial stabilization efforts,” according to the budget overview. The budget office calculated a $250 billion net cost to taxpayers this year, because it anticipates it would eventually recoup some, though not all, of the money expended to help financial companies.

The funds would come on top of the $700 billion rescue package approved last October by Congress. The White House budgets no money for fiscal 2010 and beyond for such aid.” (Bloomberg, February 27, 2010)

Fiscal Collapse

Structure of The Public Debt

This large scale appropriation of liquid money assets under the bank bailouts by a handful of financial institutions serves to increase the public debt overnight.

Table 2

The Bush Administration’s ” Bank Bailout”

The total of Bush bank bailouts (8.5 trillion) can be broken down into funds granted by the Federal Reserve, the Treasury, the Federal Deposit Insurance Corporation and the Federal Housing Authority.

The handouts to the financial institutions financed out of Treasury are government expenditures, to be met either through tax revenues or through the emission of public debt instruments.

Spiralling Public Debt Crisis

Is the Treasury in a position to finance this mounting budget deficit officially tagged at 1.75 billion through the emission of Treasury bills and government bonds?

Who wants to invest in US government debt? What is the demand for Treasury bills at exceedingly low interest rates?

Table 3 Interest Rates in Percent

Treasury securities

Updated 2/25/2009

	This week	Month ago	Year ago
One-Year Treasury Constant Maturity	0.64	0.43	2.10
91-day T-bill auction avg disc rate	0.300	0.150	2.160
182-day T-bill auction avg disc rate	0.495	0.350	2.070
Two-Year Treasury Constant Maturity	0.95	0.77	2.04
Five-Year Treasury Constant Maturity	1.79	1.58	2.89
Ten-Year Treasury Constant Maturity	2.75	2.56	3.85
One-Year MTA	1.633	1.823	4.326
One-Year CMT (Monthly)	0.44	0.49	2.71

Source Bankrate.com

Who will be buying State assets at rock bottom prices? The financial elites, which are also the recipients of the bank bailout.

Consolidation of the Banks

A massive amount of liquidity has been injected into the financial system, from the bailouts but also from pension funds, individual savings, etc.

Circular and Contradictory Relationship

The shareholders of the Federal Reserve banks (with the New York Federal Reserve Bank playing a dominant role) are among America’s most powerful financial institutions.

To finance the bank bailout, the Treasury needs to run a massive budget deficit, which in turn requires a staggering increase of the US public debt.

Public opinion has been misled. The US government is in a sense financing its own indebtedness: the money granted to the banks is in part financed by borrowing from the banks.

Continuity from Bush to Obama

The government and the media tend to focus on the ambiguous notion of ” inter-bank debts”. The identity of the creditors is rarely mentioned.

Concluding Remarks

This article has focussed on how financial manipulation has served to shatter the structure of US public expenditure.

The monetary system, which is integrated into the State budgetary process has been destabilized. The fundamental relationship between the monetary system and the real economy is in crisis.

What we have dealt with in this article is one central aspect of an evolving process of global financial collapse.

Financial Disarmament

There are no solutions under the prevailing global financial architecture. Meaningful policies cannot be achieved without radically reforming the workings of the international banking system.

-confiscate those assets which were obtained through fraud and financial manipulation.

-restore the savings of households through reverse transfers

-return the bailout money to the Treasury, freeze the activities of the hedge funds. .

- freeze the gamut of speculative transactions including short-selling and derivative trade.

ANNEX

Documents

A New Era of Responsibility: The 2010 Budget

The tables contained in Annex can also be consulted by clicking:

Summary Tables

See also:

http://www.budget.gov

http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf

The Economic Depression was predicted in this 2002 best-seller

The Globalization of Poverty and the New World Order

The Federal Reserve is Bankrupt

By Irritable Farmer

March 11, 2009

Deception, Economic Collapse, Federal Reserve, Fraud, Rothschild banking empire, Theft

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How Did It Happen and What are the Ugly Consequences?

by Matthias Chang

This article will focus largely on the Fed, because the Fed is the “financial land-mine”.

How long can someone who has stepped on a landmine, remain standing – hours, days? Eventually, when he is exhausted and his legs give way, the mine will just explode!

The shadow banking system has not only stepped on the land-mine, it is carrying such a heavy load (trillions of toxic wastes) that sooner or later it will tilt, give way and trigger off the land-mine![1]

In a recent article, I referred to the remarks of British Prime Minister Gordon Brown and President Obama calling for the shadow banking system to be outlawed.

Even if the call was genuine, it is too late. The land-mine has been triggered and the explosion cannot be averted under any circumstances.

The only issue is the extent of the damage to the global economy and how long it will take for the world to recover from this fiasco – a financial madness that has no precedent. The great depression is “Mary Poppins” in comparison!

The idea of a central bank going bankrupt is not that outlandish. I am by no means the first author who has given this stark warning. What underlies this crisis (which I initially examined in an article in December 2006) is the potential collapse of the global banking system, specifically the Shadow Money-Lenders.

Nouriel Roubini, the New York University professor said [2]:

“The process of socialising the private losses from this crisis has moved many of the liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case, the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued.“

Please read the underlined words again. “Sovereign bank” means central bank. When a central bank “cracks” i.e. becomes insolvent, “all hell breaks lose”, because as the professor correctly pointed out, “any government guarantees will ring hollow and will be useless”.

If a central bank goes belly up, it is as good as the government going bankrupt. Period!

In another article, Roubini admitted that the pressure on “the financial land-mine” is totally unbearable. He wrote: “The US Financial system is effectively insolvent”. It follows that if the financial system is bankrupt, it is a matter of time before the “sovereign bank” goes belly up. This is a given!

He stated further that:

“Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.

“AIG which lost $62 billion in the fourth quarter and $99 billion in all of 2008 is already 80% government-owned. With such staggering losses, it should be formally 100% government-owned. And now the Fed and Treasury commitments of public resources to the bailout of the shareholders and creditors of AIG have gone from $80 billion to $162 billion.

“Given that common shareholders of AIG are already effectively wiped out (the stock has become a penny stock), the bailout of AIG is a bailout of the creditors of AIG that would now be insolvent without such a bailout. AIG sold over $500 billion of toxic credit default swap protection, and the counter-parties of this toxic insurance are major U.S. broker-dealers and banks.

“News and banks analysts’ reports suggested that Goldman Sachs got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout. (Maybe Bloomberg should sue the Fed and Treasury again to have them disclose this information.)

“But some things are known: Goldman’s Lloyd Blankfein was the only CEO of a Wall Street firm who was present at the New York Fed meeting when the AIG bailout was discussed. So let us not kid each other: The $162 billion bailout of AIG is a nontransparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions.

“So for the Treasury to hide behind the “systemic risk” excuse to fork out another $30 billion to AIG is a polite way to say that without such a bailout (and another half-dozen government bailout programs such as TAF, TSLF, PDCF, TARP, TALF and a program that allowed $170 billion of additional debt borrowing by banks and other broker-dealers, with a full government guarantee), Goldman Sachs and every other broker-dealer and major U.S. bank would already be fully insolvent today.

“And even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate – given the macro outlook -that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent.”

McClatchy newspaper reported (03/08/2009) bad news affecting the banks:

“America’s five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.

“Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their “current” net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

“The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.

“The government has since committed $182 billion to rescue AIG and, indirectly, investors on the other end of the firm’s swap contracts. AIG posted a fourth quarter 2008 loss last week of more than $61 billion, the worst quarterly performance in U.S. corporate history.

“The five major banks, which account for more than 95 percent of U.S. banks’ trading in this array of complex derivatives, declined to say how much of the AIG bailout money flowed to them to make good on these contracts.

“The banks’ quarterly financial reports show that as of Dec. 31:

— J.P. Morgan had potential current derivatives losses of $241.2 billion, outstripping its $144 billion in reserves, and future exposure of $299 billion.

— Citibank had potential current losses of $140.3 billion, exceeding its $108 billion in reserves, and future losses of $161.2 billion.

— Bank of America reported $80.4 billion in current exposure, below its $122.4 billion reserve, but $218 billion in total exposure.

— HSBC Bank USA had current potential losses of $62 billion, more than triple its reserves, and potential total exposure of $95 billion.

— San Francisco-based Wells Fargo, which agreed to take over Charlotte-based Wachovia in October, reported current potential losses totaling nearly $64 billion, below the banks’ combined reserves of $104 billion, but total future risks of about $109 billion.

“Kopff, the bank shareholders’ expert, said that several of the big banks’ risks are so large that they are “dead men walking.”

Berkshire Hathaway Chairman, Warren Buffett is so livid by the sheer magnitude of the financial mess that he said:

“These instruments [derivatives] have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks . . . When I read the pages of ‘disclosure’ in (annual reports) of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios. And then I reach for some aspirin.”

The above bad news refers to the losses and potential losses that the big banks have suffered and will suffer in the near future.But what is overlooked by many financial analysts is that these very same derivative products have caused another financial organ failure. And there is no way that the said organ can be resuscitated to its former state of health.

The Repo Market is gridlocked!

There has been an incestuous relationship between the traditional banking system and the shadow banking system and the link that joined the two together is the Repo Market.[Repurchase Market]

This is in fact the weakest link in the entire financial system.This is a very technical subject and I seek your indulgence and patience when reading the remaining part of this article. The gridlock of the repo market is the basis for my assertion that over and above the aforesaid dire financial facts, it is the major contributing factor to the bankruptcy of the Federal Reserve!

I want to use a simple analogy. This will make the issue easier to understand.

Picture a one-inch diameter thick rope. Such a rope is made up of a few strands of narrower ropes, say 1/10^th inch which are twined together to make the thick one-inch diameter rope.

Picture again that all the outer strands have been burnt away, and what remains is the middle strand, still lifting the weight. But this strand cannot on its own, lift such a weight and sooner or later, it will snap. When that happens, the weight will come crashing down!

The middle strand is the repo market.

Alternatively, you can use the analogy that the repo market is the heart that pumps the blood (the cash flow). The financial system is the body and it has suffered a massive heart attack!

What is the repo market?

The repo market is the market whereby all financial institutions (regulated and unregulated) invariably go to obtain financing to meet reserve requirements, bridging finance, to lend or purchase securities, to hedge and or to invest on short-term basis.

It used to be that mainly US Treasuries (bear this in mind at all times) were used as security for Repo transactions, as it is considered as most secure i.e. as good as cash since it is backed by the credit of the US government!

This requirement is no longer the case. More of this issue later.

The Nature of Repo Transactions

In repo transactions, securities are exchanged for cash with an agreement to repurchase the securities at a future date. The securities serve as collateral for what is effectively a cash loan. A distinguishing feature of repos is that they can be used either to obtain funds or to obtain securities. As repos are short-maturity collateralized instruments, repo markets have strong linkages with securities markets, derivative markets and other short term markets such as inter-bank and money markets. [3]

Like other financial markets, repo markets are subject to credit risks, operational risks and liquidity risks. However, what distinguishes the credit risks on repos from that associated with uncollateralized instruments is that repos credit exposures arise from volatility (or market risk) in the value of collateral. Bear this in mind at all times.

Repos allow institutions to use leverage to take larger positions in financial markets which could add to systemic risks. Bear this in mind at all times.

And because of the close linkages between repo markets and securities markets, any shocks will be transmitted quickly, resulting in a gridlock. Bear this in mind at all times.

Transactions covered by definition of repos are as follows:

(A) Repurchase Agreement

A repurchase agreement involves the sale of an asset under an agreement to repurchase the asset from the same counter-party. Interest is paid on the repurchase agreement by adjusting the sale and purchase price. A reverse repo is the purchase of an asset with an agreement to re-sell the same or a similar asset.

A hold-in-custody repurchase agreement is a trade whereby the repoer (the borrower of cash) continues to hold the collateralizing securities in custody for the lender of cash. The risks are obvious!

A deliver-out repurchase agreement is where securities are delivered to the cash lender for custody in exchange for cash.

A tri-party repurchase agreement is similar to a deliver-out repurchase agreement, except that the security is placed in the custody of a third-party entity. The third-party ensures that the security meets the cash lender’s requirements and provides valuation and margining services. This is the primary form of repurchase agreement for securities dealers in the United States. Bank of New York and JP Morgan Chase are the two main custodians or clearing banks in the US and supervise the vast majority of the tri-party repos. Bear this in mind at all times.

(B) Sell/Buy-Back Agreement

A sell buy-back is two distinct outright cash market trades, one for forward settlement. The forward price is set relative to the spot price to yield a market rate of return.

This is where the owner of the security lends them to another person in return for a fee. The borrower of the security is contractually obliged to redeliver a like quantity of the same securities, or return precisely the same securities.

Repos can be of any duration but are most commonly over-night loans. Repos longer than over-night are called Term Repos. There are also Open Repos which are transactions which can be terminated by both parties on a day’s notice.

The largest players of repos and reverses are the dealers in government securities. There are about 20 primary dealers recognised by the Fed which are authorised to bid for new-issued treasury securities for resale in the market. The dealers are highly leveraged, 50 to 100 times their own capital. To finance the purchase of treasury securities, the dealers need to have repo monies in large amounts on a continuing basis. The institutions that supply such huge funds in the repo market are money funds, large corporations, state and local governments and foreign central banks.

The Repo Market and the Financial Crisis

As stated earlier when the repo market first started, US treasuries were the preferred security. But when financial engineering exploded and many financial products (i.e. CDOs) were rated AAA by rating agencies, these securities were also traded as described above in the repo market. This was when problems started.

According to Gary Gorton [4], the repo market before the crisis was estimated to be worth a whopping $12 trillion as compared to the total assets in the entire US banking system of $10 trillion.

The former CEO of Federal Reserve Bank of New York (NYFRB) and now the US Treasury Secretary, Tim Geithner observed in 2008:

“The structure of the financial system changed fundamentally during the boom, with dramatic growth in the share of assets outside the traditional banking system. This non-bank financial system grew to be very large, particularly in money and funding markets.

“This parallel system financed some of these very assets on a very short term basis in the bilateral or tri-party repo markets. As the volume of activity in repo markets grew, the variety of assets financed in this manner expanded beyond the most highly liquid securities to include less liquid securities, as well. Nonetheless, these assets were assumed to be readily sellable at fair values, in part because assets with similar credit ratings had generally been tradable during past periods of financial stress. And the liquidity supporting them was assumed to be continuous and essentially frictionless, because it had been so for a long time.

“The scale of long term risky and relatively illiquid assets financed by very short-term liabilities made many of the vehicles and institutions in this parallel financial system vulnerable to a classic type run, but without the protection such as deposit insurance that the banking system has in place to reduce such risks.”

Economic historians will argue for another century as to the cause for the run on the repo market. The collapse of Bear Stearns is as good a starting point as any. When the market discovered that its securities were duds, pure junk, shock waves ripped through the system.Recall that I had mentioned earlier that Federal Bank of New York and JP Morgan Chase were the primary clearing banks for repos.

The Fed’s rescue of Bear Stearns through JP Morgan was not so much to save the former but rather to shore up the “clearing system” of the repos for which JP Morgan Chase and the Bank of New York were the main pillars. One of the functions of a “clearing bank” for repos is to value and match securities tendered for cash borrowings. If Bear Stearns securities are now valued as junks, the integrity of JP Morgan and Federal Bank of New York as clearing banks in this market is as good as zero! And bearing in mind that the five major investment banks in the US rely heavily on the repo market for their funding, any gridlock in this part of the shadow banking system would tear wide open the entire banking system, including the traditional counter-part.

Hence, the FED intervention by the creation of the Primary Dealer Credit Facility (PDCF) which was in effect the backstop for all investment banking using tri-party repos!

This was what Bernanke said:

“We have been working with market participants to develop a contingency plan should there ever occur a loss of confidence in either of the two clearing banks that facilitate the settlement of tri-party repos.”

Louis Crandall, economist at Wrightson ICAP observed:

“The vulnerability of the tri-party repo system has been a recurring theme among Federal Reserve and Treasury officials in recent weeks.”

The inherent weakness of tri-party repos is that the counter-party risks of billions worth of funding agreements are shouldered by essentially two players – Federal Bank of New York and JP Morgan Chase.

Yet, way back then, they were held up as rock solid. It is almost hilarious to read the then advert of the Federal Bank of New York as to their expertise and service:

“Sophisticated collateral selection: enforce diversification and credit quality; control adequacy, volatility & liquidity.

“Cutting edge infrastructure: economies of scale facilitate extensive data warehousing, access to more asset classes and markets, auto-substitution, auto-allocation & optimisation technology, same day reporting.

“Introduction to new counterparts: A Global Collateral Clearing House.”

Panic swept across the entire repo market.

No securities were considered safe enough for repos except US treasuries.

Fundings in the repo market grind to a halt.

Market players withdrew funds and began hoarding treasuries.

The rest who own structured products were slaughtered.

I would like to quote Gary Gorton again:

“Imagine a firm that is levered 30:1, by borrowing in the repo market. If the haircut [5] doubles, or goes from zero to a positive amount, the required deleveraging is massive! Most investment banks were levered 30:1, equivalent to about a 3 per cent haircut. If the haircut rises to 6 per cent, at least half the assets will have to be sold.

“Another sign of trouble is a ‘repo fail’. A ‘repo fail’ occurs when one side of the agreement fails to abide by the contract. [Fail to deliver the security under the repurchase agreement.]

“Dealer banks would not accept collateral because they rightly believed that if they had to seize the collateral should the counter-party fail, then there would be no market in which to sell it. This was due to the absence of buyers because of the deleveraging. This led to an absence of prices for these securities. If the value cannot be determined because there is no market – no liquidity or there is the concern that if the asset is seized by the lender, it will not be saleable at all, then the dealer will not engage in repo. Repo dealers report that there was uncertainty about whether to believe the ratings on these structured products, and in a very fast moving environment, the response was to pull back from accepting anything structured. If no one would accept structured products for repo, then these bonds could not be traded – and then no one would want to accept them in repo transactions.”

This change led to a sharp increase in the demand for government securities for repo transactions, which was compounded by significantly higher safe-haven demand for US Treasuries and the increased unwillingness to lend such securities in repo transactions. As the crisis unfolded, this combination resulted in US government collateral becoming extremely scarce. [6]

I will now turn to the issue of the FED’s solvency.

As has been observed, the Fed intervened aggressively to check the run on the repo market. Various measures were taken, but in my view the most dangerous was the widening of the collaterals which the Fed was willing to accept to secure funding of the players in the repo market. The Fed also intervened by lending a huge chunk of its US treasuries in exchange for junks to facilitate credit expansion.

In the result, what happened was that the Fed’s present balance sheet of approximately $2 trillion is made up mostly of junk securities.

The Fed is no different from banks in that confidence in the quality of its assets is critical and that if and when the market recovers, there is in fact a market for the junk assets that it took on to unravel the gridlock in the financial markets.

By way of analogy, if your high street bank’s balance sheet is made up of junk, what would you do? There are just not enough assets to meet its liabilities.

But of course, one can argue that the Fed is not your high street bank. It is the central bank of the mighty USA. It will always be able to “print money” or “digitalise” money and keep the markets going.

But beware that the Federal Reserve Note is mere paper, fiat money which cannot be redeemed for anything tangible such as gold. And although it is stated boldly in the notes issued – “In God we trust” – you and I are not actually placing our trust in God when accepting the Federal Reserve Notes as “money”.

When Joe Six-Packs realises that the Federal Reserve Note is not even secured by US treasuries and or the FED has real tangible assets, but its balance sheet is littered with junks and toxic waste, there will be a run on the Fed i.e. when Americans and foreigners no longer have faith in the Federal Reserve Notes as “money”.

If confidence could vaporise in a second and cause a stampede in what was once considered solid security, the triple A rated bonds in the repo and money markets, the same confidence that is now reposed in the Federal Reserve Notes can likewise disappear into the memory hole.

All these years, the con was maintained by the Fed that it was solid because it has on its balance sheet over $800 billion of US treasuries i.e. its notes “were so-called backed by these treasuries”. It could sell its treasuries in the repo market for cash and thereby control the money flows in the economy and vice versa.

In their subconscious mind, Americans and stupid foreign central banks and their executives (brain-washed by the Chicago School of Economics) somehow believe in the infallibility of the Fed.

Now it has been exposed that the Fed’s “assets” comprise of junk bonds and toxic wastes.

The Emperor has no clothes!

Paul Volcker, former Chairman of the Federal Reserve may have given the ultimate epitaph: “The bright new financial system – for all its talented participants, for all its rich rewards – has failed the test of the market place.”

And it is any wonder that Professor Nouriel Roubini declared:

“The process of socialising the private losses from this crisis has already moved many liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued

In my opinion, the Fed has already become “unglued”. Whatever guarantees given to secure the indebtedness of CitiGroup and others to prevent a run on these banks are useless.

It is bankrupt!

End Notes

[1] There are two banking systems in existence today. The Traditional Banking System – i.e. High Street banks and the Shadow Banking System. But the players in both the systems overlap because, the major banks of the traditional system helped spawn the shadow banking system. In fact they are the key players in the use of the so-called “new financial products, the CDOs, CLOs, MBS” etc and which have now turned toxic – worthless, junk to be exact.
[2] See my website archives: Roubini Warns of Sovereign Bank Failure – February 20, 2009 www.theage.com.au
[3] See: Implications of repo markets for central banks, CGFS Publications No 10, March 1999.
[4] Gary Gorton, Information, Liquidity, and the (Ongoing) Panic of 2007 prepared for the Jackson Hole Conference 2008
[5] “haircut” here refers to the rate payable for the cash loan or the margin.
[6] Peter Hordahl and Martin R King, Developments in repo markets during the financial turmoil BIS Quarterly Review, December 2008

Matthias Chang is a prominent barrister, author and analyst of the New World Order based in Malaysia.
His website: www.FutureFastForward.com

The Federal Reserve is Bankrupt

By Irritable Farmer

March 11, 2009

Deception, Economic Collapse, Federal Reserve, Fraud, Rothschild banking empire, Theft

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How Did It Happen and What are the Ugly Consequences?

by Matthias Chang

This article will focus largely on the Fed, because the Fed is the “financial land-mine”.

How long can someone who has stepped on a landmine, remain standing – hours, days? Eventually, when he is exhausted and his legs give way, the mine will just explode!

In a recent article, I referred to the remarks of British Prime Minister Gordon Brown and President Obama calling for the shadow banking system to be outlawed.

Even if the call was genuine, it is too late. The land-mine has been triggered and the explosion cannot be averted under any circumstances.

Nouriel Roubini, the New York University professor said [2]:

“The process of socialising the private losses from this crisis has moved many of the liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case, the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued.“

If a central bank goes belly up, it is as good as the government going bankrupt. Period!

He stated further that:

“Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.

“AIG which lost $62 billion in the fourth quarter and $99 billion in all of 2008 is already 80% government-owned. With such staggering losses, it should be formally 100% government-owned. And now the Fed and Treasury commitments of public resources to the bailout of the shareholders and creditors of AIG have gone from $80 billion to $162 billion.

“Given that common shareholders of AIG are already effectively wiped out (the stock has become a penny stock), the bailout of AIG is a bailout of the creditors of AIG that would now be insolvent without such a bailout. AIG sold over $500 billion of toxic credit default swap protection, and the counter-parties of this toxic insurance are major U.S. broker-dealers and banks.

“News and banks analysts’ reports suggested that Goldman Sachs got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout. (Maybe Bloomberg should sue the Fed and Treasury again to have them disclose this information.)

“But some things are known: Goldman’s Lloyd Blankfein was the only CEO of a Wall Street firm who was present at the New York Fed meeting when the AIG bailout was discussed. So let us not kid each other: The $162 billion bailout of AIG is a nontransparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions.

“So for the Treasury to hide behind the “systemic risk” excuse to fork out another $30 billion to AIG is a polite way to say that without such a bailout (and another half-dozen government bailout programs such as TAF, TSLF, PDCF, TARP, TALF and a program that allowed $170 billion of additional debt borrowing by banks and other broker-dealers, with a full government guarantee), Goldman Sachs and every other broker-dealer and major U.S. bank would already be fully insolvent today.

“And even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate – given the macro outlook -that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent.”

McClatchy newspaper reported (03/08/2009) bad news affecting the banks:

“America’s five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.

“Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their “current” net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

“The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.

“The government has since committed $182 billion to rescue AIG and, indirectly, investors on the other end of the firm’s swap contracts. AIG posted a fourth quarter 2008 loss last week of more than $61 billion, the worst quarterly performance in U.S. corporate history.

“The five major banks, which account for more than 95 percent of U.S. banks’ trading in this array of complex derivatives, declined to say how much of the AIG bailout money flowed to them to make good on these contracts.

“The banks’ quarterly financial reports show that as of Dec. 31:

— J.P. Morgan had potential current derivatives losses of $241.2 billion, outstripping its $144 billion in reserves, and future exposure of $299 billion.

— Citibank had potential current losses of $140.3 billion, exceeding its $108 billion in reserves, and future losses of $161.2 billion.

— Bank of America reported $80.4 billion in current exposure, below its $122.4 billion reserve, but $218 billion in total exposure.

— HSBC Bank USA had current potential losses of $62 billion, more than triple its reserves, and potential total exposure of $95 billion.

— San Francisco-based Wells Fargo, which agreed to take over Charlotte-based Wachovia in October, reported current potential losses totaling nearly $64 billion, below the banks’ combined reserves of $104 billion, but total future risks of about $109 billion.

“Kopff, the bank shareholders’ expert, said that several of the big banks’ risks are so large that they are “dead men walking.”

Berkshire Hathaway Chairman, Warren Buffett is so livid by the sheer magnitude of the financial mess that he said:

“These instruments [derivatives] have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks . . . When I read the pages of ‘disclosure’ in (annual reports) of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios. And then I reach for some aspirin.”

The Repo Market is gridlocked!

I want to use a simple analogy. This will make the issue easier to understand.

Picture a one-inch diameter thick rope. Such a rope is made up of a few strands of narrower ropes, say 1/10^th inch which are twined together to make the thick one-inch diameter rope.

The middle strand is the repo market.

Alternatively, you can use the analogy that the repo market is the heart that pumps the blood (the cash flow). The financial system is the body and it has suffered a massive heart attack!

What is the repo market?

This requirement is no longer the case. More of this issue later.

The Nature of Repo Transactions

Repos allow institutions to use leverage to take larger positions in financial markets which could add to systemic risks. Bear this in mind at all times.

And because of the close linkages between repo markets and securities markets, any shocks will be transmitted quickly, resulting in a gridlock. Bear this in mind at all times.

Transactions covered by definition of repos are as follows:

(A) Repurchase Agreement

A deliver-out repurchase agreement is where securities are delivered to the cash lender for custody in exchange for cash.

(B) Sell/Buy-Back Agreement

A sell buy-back is two distinct outright cash market trades, one for forward settlement. The forward price is set relative to the spot price to yield a market rate of return.

The Repo Market and the Financial Crisis

According to Gary Gorton [4], the repo market before the crisis was estimated to be worth a whopping $12 trillion as compared to the total assets in the entire US banking system of $10 trillion.

The former CEO of Federal Reserve Bank of New York (NYFRB) and now the US Treasury Secretary, Tim Geithner observed in 2008:

“The structure of the financial system changed fundamentally during the boom, with dramatic growth in the share of assets outside the traditional banking system. This non-bank financial system grew to be very large, particularly in money and funding markets.

“This parallel system financed some of these very assets on a very short term basis in the bilateral or tri-party repo markets. As the volume of activity in repo markets grew, the variety of assets financed in this manner expanded beyond the most highly liquid securities to include less liquid securities, as well. Nonetheless, these assets were assumed to be readily sellable at fair values, in part because assets with similar credit ratings had generally been tradable during past periods of financial stress. And the liquidity supporting them was assumed to be continuous and essentially frictionless, because it had been so for a long time.

“The scale of long term risky and relatively illiquid assets financed by very short-term liabilities made many of the vehicles and institutions in this parallel financial system vulnerable to a classic type run, but without the protection such as deposit insurance that the banking system has in place to reduce such risks.”

Hence, the FED intervention by the creation of the Primary Dealer Credit Facility (PDCF) which was in effect the backstop for all investment banking using tri-party repos!

This was what Bernanke said:

“We have been working with market participants to develop a contingency plan should there ever occur a loss of confidence in either of the two clearing banks that facilitate the settlement of tri-party repos.”

Louis Crandall, economist at Wrightson ICAP observed:

“The vulnerability of the tri-party repo system has been a recurring theme among Federal Reserve and Treasury officials in recent weeks.”

Yet, way back then, they were held up as rock solid. It is almost hilarious to read the then advert of the Federal Bank of New York as to their expertise and service:

“Sophisticated collateral selection: enforce diversification and credit quality; control adequacy, volatility & liquidity.

“Cutting edge infrastructure: economies of scale facilitate extensive data warehousing, access to more asset classes and markets, auto-substitution, auto-allocation & optimisation technology, same day reporting.

“Introduction to new counterparts: A Global Collateral Clearing House.”

Panic swept across the entire repo market.

No securities were considered safe enough for repos except US treasuries.

Fundings in the repo market grind to a halt.

Market players withdrew funds and began hoarding treasuries.

The rest who own structured products were slaughtered.

I would like to quote Gary Gorton again:

“Imagine a firm that is levered 30:1, by borrowing in the repo market. If the haircut [5] doubles, or goes from zero to a positive amount, the required deleveraging is massive! Most investment banks were levered 30:1, equivalent to about a 3 per cent haircut. If the haircut rises to 6 per cent, at least half the assets will have to be sold.

“Another sign of trouble is a ‘repo fail’. A ‘repo fail’ occurs when one side of the agreement fails to abide by the contract. [Fail to deliver the security under the repurchase agreement.]

“Dealer banks would not accept collateral because they rightly believed that if they had to seize the collateral should the counter-party fail, then there would be no market in which to sell it. This was due to the absence of buyers because of the deleveraging. This led to an absence of prices for these securities. If the value cannot be determined because there is no market – no liquidity or there is the concern that if the asset is seized by the lender, it will not be saleable at all, then the dealer will not engage in repo. Repo dealers report that there was uncertainty about whether to believe the ratings on these structured products, and in a very fast moving environment, the response was to pull back from accepting anything structured. If no one would accept structured products for repo, then these bonds could not be traded – and then no one would want to accept them in repo transactions.”

I will now turn to the issue of the FED’s solvency.

In the result, what happened was that the Fed’s present balance sheet of approximately $2 trillion is made up mostly of junk securities.

The Emperor has no clothes!

And it is any wonder that Professor Nouriel Roubini declared:

“The process of socialising the private losses from this crisis has already moved many liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued

In my opinion, the Fed has already become “unglued”. Whatever guarantees given to secure the indebtedness of CitiGroup and others to prevent a run on these banks are useless.

It is bankrupt!

End Notes

Matthias Chang is a prominent barrister, author and analyst of the New World Order based in Malaysia.
His website: www.FutureFastForward.com

The Collapse of America is Unavoidable

By Irritable Farmer

March 10, 2009

Civil unrest, Depression, Economic Collapse, Theft

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America must work on starting a new economy and not restarting the old one or it will resemble the former Soviet Union, says author and blogger Dmitry Orlov.

When debt becomes so great that it cannot be paid back then bancruptcy occurs. The U.S. is on the edge of bankruptcy and trying to avoid the edge by increasing the debt increases the probability of bankruptcy.

Growth models of society are not sustainable and until they become sustainable, they will collapse over time.

Capitalism is a pyramid scheme built by those at the top of the pyramid with their full knowledge of the effect it was having on those at the bottom.

The Collapse of America is Unavoidable

By Irritable Farmer

March 10, 2009

Civil unrest, Depression, Economic Collapse, Theft

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America must work on starting a new economy and not restarting the old one or it will resemble the former Soviet Union, says author and blogger Dmitry Orlov.

Growth models of society are not sustainable and until they become sustainable, they will collapse over time.

Capitalism is a pyramid scheme built by those at the top of the pyramid with their full knowledge of the effect it was having on those at the bottom.

A Short Rant on the Meaning of Value

By Irritable Farmer

March 8, 2009

Corruption, Economic Collapse

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If you own a house, no matter how shabby and rundown it may be, and you have had to spend money on the place to repair important things like plumbing, electrical, etc., and have had to actually work on it, putting physical effort and energy into it – that is when you can make an objective estimate of its true value.

When you can look out your window at a winter landscape, while enjoying being warm and comfortable, or when you can remain dry while buckets of rain are coming down – that is an opportunity to recognize the real value of a home. Otherwise, when you hear or read about the declining value of real estate, all you are doing is listening to the blather of wheelers and dealers as they jot down arbitrary numbers on pieces of paper and pass them around among themselves, that wonderful ‘invisible hand’ of the marketplace, right down in your pocket until it comes up with nothing more than blue lint.

Not too long ago we were inundated by calls from various companies offering to buy out our mortgage contract. What the hell good is a contract if it can be bought out? This is where the profit incentive divorces the object from its value, the mechanism by which finances go to shit while a few fat cats roll in the cash, an attempt to base an economy on a scam, with results that should have been easily predictable.

I’m a reading fool, have been for a very long time, with an interest in a wide variety of issues, but I didn’t see many people who were willing to come out and call the turd what it really is back when we were getting those phone calls; mostly, I only observed a very nice array of various ribbons in a good selection of styles and colors being tied neatly around said turd. This country is not based on a fair exchange of goods and services between honorable parties for respective gain, and it has never been so; instead it is a celebration of the Pharisee mindset, the money changers in the temple. Screw you buddy, here’s a dollar – deliver your firstborn to this address at this specified time. Late fees may apply, so cover your ass.

Yes, the free market is a very fine idea, and my car runs on wishes and dreams. Such a market would last all of the quarter hour it would take for some slick bullshit artist to figure out a way to game the system. Eventually the powers that be would feel compelled to impose the usual regulations and we would find ourselves right back where we started from, at best. I’m all for the barter system: we each have various resources and various needs, so why not trade for our mutual benefit. Unfortunately, usury has taken over, with the result that we breed con men like a flophouse breeds bedbugs.

You reap what you sew or so I’ve been told, but lord it’s a bitch when you’re poor and get old.

A Short Rant on the Meaning of Value

By Irritable Farmer

March 7, 2009

Corruption, Economic Collapse

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You reap what you sew or so I’ve been told, but lord it’s a bitch when you’re poor and get old.

Billions Dished Out in the Shadows

By Irritable Farmer

March 4, 2009

Corruption, Deception, Economic Collapse, Theft

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American International Group’s offices are shown Tuesday, Oct. 7, 2008 in New York. Executives at the American International Group Inc. hid from its auditors the full range of risky practices at its financial products division even as losses mounted, according to documents obtained by a congressional panel examining Tuesday the chain of events that forced the government to bail out the conglomerate.

By Robert Scheer

This is crazy! Forget the bleating of Rush Limbaugh; the problem is not with the quite reasonable and, if anything, underfunded stimulus package, which in any case will be debated long and hard in Congress. The problem is with what is not being debated: the far more expensive Wall Street bailout that is being pushed through—as in the case of the latest AIG rescue—in secret, hurried deal-making primarily by the unelected secretary of the treasury and the chairman of the Federal Reserve.

Six months ago, we taxpayers began bailing out AIG with more than $140 billion, and then it went and lost $61.7 billion in the fourth quarter, more than any other company in history had ever lost in one quarter. So Timothy Geithner and Ben Bernanke huddled late into the night last weekend and decided to reward AIG for its startling failure with 30 billion more of our dollars. Plus, they sweetened the deal by letting AIG off the hook for interest it had been obligated to pay on the money we previously gave the company.

AIG doesn’t have to pay the 10 percent interest due on the preferred stock the U.S. government got for the earlier bailout funds because that interest will now be paid out only at AIG’s discretion, which means never. The preferred stock, which got watered down, carried a cumulative interest, meaning we taxpayers would have recaptured some money if the company ever got going again, but that interest obligation was waived in the new deal.

We’ve already given AIG a total of $170 billion—an amount that dwarfs the $75 billion allocated to helping those millions of homeowners facing foreclosures. And more will be thrown down the AIG rat hole because President Barack Obama is blindly following the misguided advice of his top economic advisers, who insist that AIG is too big to fail.

“AIG provides insurance protection to more than 100,000 entities, including small businesses, municipalities, 401(k) plans and Fortune 500 companies who together employ over 100 million Americans,” the joint Treasury Department and Fed statement declared while insisting that for that reason, plus the “systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high.”

What about the cost of inaction by Treasury and the Fed before this meltdown? If AIG were so important to the American economy, shouldn’t government regulators have been looking more closely at its activities? They couldn’t then, and even now they don’t understand what AIG has been up to, because the company was allowed to operate in an essentially unregulated global economy in which multinational corporations have their way. As the Treasury/Fed statement concedes: “AIG operates in over 130 countries with over 400 regulators and the company and its regulated and unregulated subsidiaries are subject to very different resolution frameworks across their broad and diverse operations without an overarching resolution mechanism.”

Oh, really? And you’re discovering that only now, when you’re making us bail AIG out? It wasn’t that long ago that a couple of hustlers operating out of an AIG office in London were going wild making money off selling insurance on credit default swaps that no one could understand, but the company execs loved those huge profit margins. To challenge their maneuvering, as some in Congress attempted, was said by their defenders, including Geithner, to put them at an unfair disadvantage in the world market. Ignorance was bliss … until the bubble burst.

This was all belatedly conceded by Bernanke in his Senate testimony on Tuesday: “AIG exploited a huge gap in the regulatory system. There was no oversight of the Financial Products division. This was a hedge fund, basically, that was attached to a large and stable insurance company, made huge numbers of irresponsible bets—took huge losses. There was no regulatory oversight because there was a gap in the system.”

AIG used to be in the conventional insurance business, covering identifiable risks it knew something about, until it took advantage of deregulation and a lack of government surveillance to come up with contrived new financial products. Even Maurice Greenberg, the man who built AIG from the ground up over a span of 40 years before he was forced out amid corruption charges in 2005, admits that he didn’t understand the newfangled financial gimmicks that the company was peddling. This week, claiming he too was swindled, Greenberg sued in federal court, charging the AIG execs who forced him out with “gross, wanton or willful fraud or other morally culpable conduct,” over the credit default swap portfolio that was part of his settlement.

U.S. taxpayers now have ownership of almost 80 percent of AIG, but with the company’s once solid traditional insurance business now suffering a steep loss of consumer confidence, it’s not likely that even the formerly healthy parts of the company will be worth much. What we have here is all pain and no gain for the taxpayers roped into this debacle, which is proving to be the story of the entire banking bailout.

Billions Dished Out in the Shadows

By Irritable Farmer

March 4, 2009

Corruption, Deception, Economic Collapse, Theft

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AP Photo/Mark Lennihan

By Robert Scheer

WELCOME TO THE ERA OF HYPERINFLATION

By Irritable Farmer

February 27, 2009

Deception, Economic Collapse, Looting the treasury, Rothschild banking empire, Subverting the U.S. Constitution, Theft

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Further Adventures in the Quantum Wrongness Field, Economic Crisis Edition

by Glen Allport

- 1 –

Deeper into the Wrongness

I described the common state of Wrongness in Marooned in the Quantum Wrongness Field (April, 2007). Today, the public is predictably being lured ever-deeper into Wrongness by propaganda about the economic crisis. Among other things, we are told that adding trillions of dollars in new federal debt and printing oceans of new money-from-thin-air will somehow restore prosperity.

Given that such behavior was the primary cause of the crisis, it would seem obvious that more of the same will not solve the problem. Debt doesn’t create prosperity, but heavy debt can certainly vaporize prosperity, and the bailouts have so far added $27,599 in government debt for every U.S. citizen – $110,396 per family of four. (Yes, that’s just new debt). Printing money non-stop doesn’t create prosperity either, as anyone in Zimbabwe can testify (do not miss the video embedded in that link), but the human ability to passionately believe in Things That Are Wrong is apparently stronger than reality itself.

For a time, anyway.

- 2 –

Why is Counterfeiting Illegal?

If printing up trillions of dollars to “stimulate spending” is going to save the economy, why do we ever put up with even the slightest recession? Just print that funky money, boys and girls! Give every citizen a high-speed color laser printer and require everyone to download the Official Dollar Jpeg Files and then print, print, PRINT those dollars nonstop, day and night! Every man, woman, and child would be a multi-billionaire, and economic activity would be red-hot forever!

Why stop at ten giant-screen TVs when you can have twenty? Heck, why not panel every wall in your mansion floor-to-ceiling with big-screen LCDs? You couldn’t get them all home in your new Ferrari, but you could easily buy a fleet of vans for the job – and hire drivers for them, too. You could buy ANYTHING YOU WANTED, every day of the year!

See what I mean? How could the economic crisis withstand that? Problem solved! – at least if we believe the rationale for America ‘s current response to the financial crisis.

For some reason, we aren’t handing the zillions of new dollars we are creating to just anyone. No, Our Leaders know what’s best (despite their constant failure in the past) and they have decided to be picky, and to hand most (although not all) of those galactic-sized piles of your money to failed bankers (only some of whom may be guilty of teensy amounts of mortgage fraud), to failed automakers and other failed big-business honchos, to federal bureaucrats and heads of police-state agencies, and to other more-important-than-you über-humans who will spend the money better than you would. (Our Maximum Leader also knows how to spin this better than I do [or see here], making it sound positively sensible). Like crumbs trickling down from a banquet table to the mice and roaches below, some of this trillion-dollar largess will float down to the Little People, and then Americans can be happy and rich and smug once again, as we have every right to be. America ! Hell yeah!

But somewhere, in a dark and anxious corner of our minds, we know the truth: hard work and savings are needed to create and sustain prosperity. Constantly going into debt to spend more money than you actually have while closing down productive industries and shipping the work overseas – living like parasites on the savings and labor of other nations – is a sure-fire way to turn a prosperous nation into a poor one. Printing mountains of money from thin air doesn’t work either, since each new dollar-from-nothing reduces the value of every existing dollar – exactly why counterfeiting is illegal. For proof, Americans need only look at their own currency, which used to be gold and silver (as the Constitution still requires*), with a fixed rate of roughly $20 per ounce of gold. As this is written, it takes 50 times more dollars to buy an ounce of gold, at $1,000 per ounce. Imagine how much new money was created (and spent or given away by the government – instead of being used by the people for what they might have wanted) to debase the dollar to such an extent, rendering each dollar now almost worthless.

It is worth saying again: Print more dollars, and each dollar loses value. A simple chart shows how this works in the real world:

From Money Supply and Purchasing Power

by Mike Hewitt and Dr. Krassimir Petrov

The chart above uses the government CPI figures for “purchasing power”, and during the time covered in the chart the government has changed the way the CPI is calculated, resulting in lower rates of “official” inflation than the older methods would show (see shadowstats.com for details). In other words, the problem is even worse than the chart suggests.

We did get something for all that debt and counterfeit money – many things, in fact: war after war [pdf], the largest military-industrial complex the world has ever seen, an intrusive and arrogant foreign policy that has made us the most hated nation around the globe, social programs that have displaced voluntarily-funded (i.e., civil) market alternatives while leading Americans into child-like dependency, an expanding police state here at home, a cruel and counterproductive war on drugs, and ominously powerful corporatist nodes like Blackwater and Halliburton and Monsanto (not to mention Big Pharma, the banking industry, and a hundred more). As I said, the power elite know how to spend your money, and in today’s crisis, more than ever, we need to just stand back and let ‘em work!

- 3 –

Throwing Gasoline on the Fire

“ US TREASURIES ARE DOOMED for the simple reason that the United States thinks it can go on manufacturing money out of nowhere and get stupid foreigners to pay for it all by buying Treasuries . . . . WELCOME TO THE ERA OF HYPERINFLATION. Is it any wonder that gold and silver, the traditional stores of value in times of crisis, are taking off against all currencies? Hot new degree course topics for business students around the world will surely be ‘The Weimar Republics of Germany and the United States , 1920 and 2009′, and ‘ Zimbabwe and the United States –from riches to rags’. So US Treasuries are the ultimate sucker play–zero yield and a bear market to boot–why not save yourself the trouble and walk out into the street and stuff your money straight down the drain?” [ CAPS in original]

– Clive Maund, Precious Metals Stocks Stalemate About to End

Moving gingerly back to reality, we are reminded, with a sense of horror, that even many intelligent and educated people are mired in the Quantum Wrongness Field like mastodons in the La Brea tar pits. Despite example after example of hyperinflation throughout history, Americans somehow think they will be immune. Despite the universally devastating effects of hyperinflation – destruction of the middle class; near-total loss of value for pensions, salaries, and savings; widespread poverty and hunger; enhanced tyranny and (too often) outright war – despite all that, people expect something different this time: unicorns and flowers, perhaps.

But even unicorns wouldn’t be enough to hold back the darker reality of hyperinflation. The PBS series Commanding Heights includes an essay on the German Hyperinflation of 1923, which quotes Pearl Buck on her experience in Germany at the time, where she was visiting (Buck is most famous for her novels on China). Looking back on the experience from later in life, she wrote: “The cities were still there, the houses not yet bombed and in ruins, but the victims were millions of people. They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.” (See also this list of descriptions of 20^th Century hyperinflations at the PBS site).

Morals, ethics, and decency gone, along with every last shred of prosperity: Welcome to your future, America ! It is probably too late to avoid that hyperinflationary future now no matter what we do – economist John Williams of ShadowStats.com thinks so – but adding trillions of dollars in new debt while also printing trillions from thin air will accelerate and deepen the disaster as surely as the dark of night follows sunset. The carefully-misnamed “stimulus” that so many are cheering is the death knell for what remains of this nation’s prosperity and freedom.

Government “help” is exactly what turns a short, sharp correction into a generation-long nightmare; when government stays out of the way in a financial crisis, the problem is resolved quickly, as happened in 1921, 1947, and 1981. This is perfectly in line with a well-known natural law, which states that – as social philosopher and noted economic expert Ringo Starr once put it – “everything government touches turns to crap.” (My own formulation of the law is that “coercive government is The Worst Way to Do Anything.”)

Japan and the United States, among other nations, have previously turned what might have been short downturns into decades-long economic agonies by means of the same type of “government stimulus spending” that Obama and Congress are now forcing on American taxpayers. Obama is only following in the footsteps of Bush, who promoted and signed a $700 billion bailout along with other massive giveaways, just as FDR was following in the interventionist footsteps of Herbert Hoover, despite the common myth that their policies were diametrically opposed. Big-spending “stimulus” and “job creation” efforts not only failed to quickly end the Great Depression; they dragged the problem out for years. Despite the long build-up of demand (from low consumption) during the ‘30s, it wasn’t until after the end of World War II (during which Americans suffered rationing of meat, gasoline, tires, automobiles, shoes, and other necessities) – in the late 1940s – that America returned to anything one might reasonably call prosperity.

In last Sunday’s San Francisco Chronicle, Carolyn Lochhead gives some relevant specifics about how government “stimulus spending” has worked historically: “Japan’s Nikkei stock index peaked around 39,000 in 1989 and two decades later is languishing around 7,500. Japan ‘s real estate market still has not recovered after 17 years. The Dow Jones index did not rebound from the 1929 U.S. stock market crash until 1954.”

Today, U.S. fundamentals are far worse than they were in 1929. Our levels of debt; our diminished and crumbling manufacturing sector; the banking sector meltdown; the size of our military, of our costly overseas empire and of our parasitic government generally; not to mention the approach of both hyperinflation and Peak Oil, among other things – all this is orders of magnitude beyond what we faced as the 1930s began. For such reasons, I believe that real recovery in the U.S. will take far longer than the quarter-century it took to finally shake off the effects of the Great Depression. Most people alive today will not be alive when (or rather, if) America returns to the level of prosperity this generation grew up taking for granted.

And that is what you get when you let government and a monopoly-chartered central bank control your nation’s system of money.

- – - – -

Note:

* Although the United States came into being as exactly that – a voluntary union of sovereign states – and despite Article One, Section 10 stating clearly that “No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debt”, the argument has been made (before the Supreme Court, in fact) that this clause actually means that the States can make anything whatsoever a tender in Payment of Debt, as long as the federal government decides to force that system down their throats. In fact, the Constitution explicitly prohibits the states from recognizing or allowing money other than gold and silver to circulate as legal tender, regardless of who issues it. The founders clearly meant for money in these United States to always be gold and silver (writings from the era amply confirm this), but that’s the glory of our system: with the right crew on the Supreme Court, plain language in the Constitution can mean anything our rulers want it to mean. For a highly detailed look at the topic, consider Eugene C. Holloway’s Gold, Money, and the U.S. Constitution series.

WELCOME TO THE ERA OF HYPERINFLATION

By Irritable Farmer

February 26, 2009

Deception, Economic Collapse, Looting the treasury, Rothschild banking empire, Subverting the U.S. Constitution, Theft

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Further Adventures in the Quantum Wrongness Field, Economic Crisis Edition

by Glen Allport

- 1 –

Deeper into the Wrongness

For a time, anyway.

- 2 –

Why is Counterfeiting Illegal?

See what I mean? How could the economic crisis withstand that? Problem solved! – at least if we believe the rationale for America ‘s current response to the financial crisis.

It is worth saying again: Print more dollars, and each dollar loses value. A simple chart shows how this works in the real world:

From Money Supply and Purchasing Power

by Mike Hewitt and Dr. Krassimir Petrov

- 3 –

Throwing Gasoline on the Fire

– Clive Maund, Precious Metals Stocks Stalemate About to End

And that is what you get when you let government and a monopoly-chartered central bank control your nation’s system of money.

- – - – -

Note:

The greater the fortune the greater the crime…

By Irritable Farmer

February 26, 2009

Abuse of Political Power, Bribes, Corruption, Deception, Economic Collapse, Fraud, Theft

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Stanford reportedly had links to fund run by Bidens

(Reuters) – A fund of hedge funds run by two members of U.S. Vice President Joe Biden’s family was marketed exclusively by firms controlled by Texas financier Allen Stanford, charged by regulators with an $8 billion (5.5 billion pound) fraud, the Wall Street Journal said.

The $50 million fund was jointly branded between the Bidens’ Paradigm Global Advisors and a Stanford Financial Group entity, and was known as the Paradigm Stanford Capital Management Core Alternative Fund, the paper said.

Stanford-related companies marketed the fund to investors and also invested about $2.7 million of their own money in the fund, the paper said, citing a lawyer for Paradigm.

Paradigm Global Advisors is owned through a holding company by the vice president’s son, Hunter, and Joe Biden’s brother, James, according to the paper.

Paradigm’s attorney, Marc LoPresti, who represents Hunter Biden and James Biden, as well as Paradigm, told the paper he did not know which Stanford entity invested the roughly $2.7 million.

He told the paper the Bidens never met or communicated with Stanford.

Joe Biden’s office and the U.S. Securities and Exchange Commission (SEC) could not be immediately reached for comment by Reuters.

The paper cited LoPresti as saying the fund offered to turn over the $2.7 million investment it received from Stanford’s firm in 2007 to a court-appointed receiver in the SEC’s civil fraud case involving Stanford.

Stanford was charged by the SEC last week with fraudulently selling $8 billion in certificates of deposit with improbably high interest rates from his Stanford International Bank Ltd (SIB), headquartered in Antigua.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Anshuman Daga)

The greater the fortune the greater the crime…

By Irritable Farmer

February 25, 2009

Abuse of Political Power, Bribes, Corruption, Deception, Economic Collapse, Fraud, Theft

Leave a Comment

Stanford reportedly had links to fund run by Bidens

Stanford-related companies marketed the fund to investors and also invested about $2.7 million of their own money in the fund, the paper said, citing a lawyer for Paradigm.

Paradigm Global Advisors is owned through a holding company by the vice president’s son, Hunter, and Joe Biden’s brother, James, according to the paper.

Paradigm’s attorney, Marc LoPresti, who represents Hunter Biden and James Biden, as well as Paradigm, told the paper he did not know which Stanford entity invested the roughly $2.7 million.

He told the paper the Bidens never met or communicated with Stanford.

Joe Biden’s office and the U.S. Securities and Exchange Commission (SEC) could not be immediately reached for comment by Reuters.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Anshuman Daga)

Britain faces summer of rage – police

By Irritable Farmer

February 24, 2009

Civil unrest, Economic Collapse, Protests, Tyranny

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Middle-class anger at economic crisis could erupt into violence on streets

* Paul Lewis
* The Guardian, Monday 23 February 2009

Protestors clash with mounted riot police outside the Israeli embassy in London

Protesters clash with police in London in January over Israel’s action in Gaza. Such scenes could become more common sights in the UK. Photograph: Peter Macdiarmid/Getty Images

Police are preparing for a “summer of rage” as victims of the economic downturn take to the streets to demonstrate against financial institutions, the Guardian has learned.

Britain’s most senior police officer with responsibility for public order raised the spectre of a return of the riots of the 1980s, with people who have lost their jobs, homes or savings becoming “footsoldiers” in a wave of potentially violent mass protests.

Superintendent David Hartshorn, who heads the Metropolitan police’s public order branch, told the Guardian that middle-class individuals who would never have considered joining demonstrations may now seek to vent their anger through protests this year.

He said that banks, particularly those that still pay large bonuses despite receiving billions in taxpayer money, had become “viable targets”. So too had the headquarters of multinational companies and other financial institutions in the City which are being blamed for the financial crisis.

Hartshorn, who receives regular intelligence briefings on potential causes of civil unrest, said the mood at some demonstrations had changed recently, with activists increasingly “intent on coming on to the streets to create public disorder”.

The warning comes in the wake of often violent protests against the handling of the economy across Europe. In recent weeks Greek farmers have blocked roads over falling agricultural prices, a million workers in France joined demonstrations to demand greater protection for jobs and wages and Icelandic demonstrators have clashed with police in Reykjavik.

In the UK hundreds of oil refinery workers mounted wildcat strikes last month over the use of foreign workers.

Intelligence reports suggest that “known activists” are also returning to the streets, and police claim they will foment unrest. “Those people would be good at motivating people, but they haven’t had the ‘footsoldiers’ to actually carry out [protests],” Hartshorn said. “Obviously the downturn in the economy, unemployment, repossessions, changes that. Suddenly there is the opportunity for people to mass protest.

“It means that where we would possibly look at certain events and say, ‘yes there’ll be a lot of people there, there’ll be a lot of banner waving, but generally it will be peaceful’, [now] we have to make sure these elements don’t come out and hijack that event and turn that into disorder.”

Hartshorn identified April’s G20 meeting of the group of leading and developing nations in London as an event that could kick-start a challenging summer. “We’ve got G20 coming and I think that is being advertised on some of the sites as the highlight of what they see as a ‘summer of rage’,” he said.

His comments are likely to be met with disappointment by protest groups, who in recent weeks have complained that police are adopting a more confrontational approach at demonstrations. Officers have been accused of exaggerating the threat posed by activists to justify the use of resources spent on them.

Police were said to have been heavy-handed at Greek solidarity marches in London in December and, last month, at protests against Israel’s invasion of Gaza. In August 1,000 officers, helicopters and riot horses were drafted to Kent from 26 UK police forces to oversee the climate camp demonstration against the Kingsnorth power station. The massive operation to monitor the protesters cost £5.9m and resulted in 100 arrests. But in December the government was forced to apologise to parliament after the Guardian revealed that its claims that 70 officers had been hurt in violent clashes were wrong.

However, Hartshorn insisted: “Potentially there will be more industrial actions … History shows that some of those disputes – Wapping, the miners’ strike – have caused great tensions in the community and the police have had difficult times policing and maintaining law and order.”

Both “extreme rightwing and extreme leftwing” elements are looking to “use the fact that people are out of jobs” to galvanise support, he said.

A particularly worrying development was the re-emergence of individuals involved in the violent fascist organisation Combat 18, he said. “They are using the fact that there’s been lots of talk about eastern European people coming in and taking jobs on the Olympic sites,” he said. “They’re using those type of arguments to look at getting support.”

Hartshorn said he also expected large-scale demonstrations this year on environmental issues, with hardcore green activists “joining forces” with middle-class campaigners over issues such as airport expansion at Heathrow and Stansted. With the prospect of angry demonstrations against the economy, that could open the door to powerful coalitions.

“All you’ve got to do then is link in with the environmentalists, and look at the oil companies. They’re seen to be turning over billions of pounds profit in issues that are seen to be against the environment.”

—Arable Farmland

Globalism, Authoritarianism, Propaganda, & War

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Why the End of America is Closer than You Think

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The Federal Reserve is Bankrupt

The Federal Reserve is Bankrupt

The Collapse of America is Unavoidable

The Collapse of America is Unavoidable

A Short Rant on the Meaning of Value

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Billions Dished Out in the Shadows

Billions Dished Out in the Shadows

WELCOME TO THE ERA OF HYPERINFLATION

WELCOME TO THE ERA OF HYPERINFLATION

The greater the fortune the greater the crime…

The greater the fortune the greater the crime…

Britain faces summer of rage – police

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Why America’s currency — and government — is headed for total collapse

What’s coming soon for America

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