Terminus of orbis terrarum ut nos teneo is
Without a doubt a MUST READ for anyone who wants a history or primer on the problems we’re about 30% through right now.
The next shoe to drop is about oh, 1 inch off the floor. And the Alt-A, Jumbo, Prime and CMBS implosion will rock the world.
So much for blaming the subprime slugs for everything. Next excuse please.
BEWARE of the Killer B’s
by John Galt
April 21, 2008
1916-Sheep grazing on the South lawn at the White House
The Bloodsuckers B’s
The average person might ask “so what’s so dangerous about a group of sheep grazing at the White House?” Since sanity has departed America’s shores decades ago, it should not be that insane to point out that those are not sheep but sheeple. They are “Killer B’s” of which there are several types which are both dangerous and could ultimately prove lethal to the American economy and political system. The Bloodsuckers are so dangerous to our system the former Comptroller of the United States, one David Walker, resigned in frustration that the entitlement and accounting nightmare was not being addressed by the Killer B’s in Congress nor the American people as a whole. In less than a decade, we could well find ourselves taking less revenue into the Treasury Department than is needed to maintain any semblance of sanity to cover just the interest payments on the debts we owe. Instead of tightening our belts, addressing the long term implications of over $53,000,000,000,000 plus in debt and obligations, the current administration and those prior have expanded the role of government in every aspect of life, be it an unrealistic prescription drug program or nation building around the world. This nightmare is not helped by the Bloodsucker, that individual who lives off of the government largess regardless if they need it or not, regardless if they are a citizen or not and regardless if the problems they endure are self-inflicted. These Bloodsuckers are expanding in population as their parent creature, the Bloated Bloodsucking Bureaucracy(BBB) is allowed and encouraged to reproduce, expand and multiply at every level of government. The bills are coming due folks and this expansion in government socialism will eventually collapse of it’s weight. The BBB’s will continue to leech off of the productive souls of society as long as we allow it, and that’s creating dependency for the sake of dependency. Unfortunately, this Killer B has spawned larger children every four years and this years batch of mega-leeches is no better….
The Killer B Parties
Ah yes, another four years, another spawn from hell to torture the American psyche and sanity. You look at those photos and ask yourself “and people wonder why the public hates to vote?” Yes, these Killer B’s, not necessarily the candidates themselves in total, but what they represent are exactly why America is on the bullet train to historical irrelevancy. The two political parties have elected to become interchangeable farces who’s sole benefit is to promote an entrenched class of elites to live large off of the producers of society. Some of these producers, a different kind of Killer B, have adopted the “why fight City Hall” philosophy and seek to expand the government also, thus their feigned support of clowns like those in the photos above. The two parties have ceased being objective opponents working towards a unified management of the people’s affairs and instead prefer to just have title interchange as their only priority as long as they can be re-elected to office with all of the accompanying power; one party becomes the “Social Democrats” one week and the other the “Democratic Socialists” the next. Regardless, any of the candidates pictured above will only do more harm than good with regards to our economic affairs and all of them appear to wish to implement some degree of even more drastic socialist solutions that will ultimately lead to the dissolution of the economic system which created modern America and enabled Algore to create the internet. Thank you Al, if I have not already.
Ben Bernanke during recent Congressional testimony praying for Greenspan to un-retire
The Economic Killer B
Alas, I feared it would not happen but the reincarnation of Arthur Burns could not escape my pen in another editorial nor should it. The economy “Killer B“, one Ben Bernanke, has taken over as steward of the Federal Reserve and in the process, attempted to approach the mess Greenspan left him from an academic rather than a practical reality. The interventionist policy approach is far outside the legal mandate outlined in Section 13 of the Federal Reserve Act, yet the “law” is just a minor inconvenience to the powers that be. This tact is what Ben said he would have done during the Great Depression but in reality, he is falling for the same trap as another “Killer B“, Arthur Burns, the FOMC Chairman in the late 1970’s.
The inflationary spiral which Greenspan laid the foundation for is an inevitable result of flooding the world with dollars and unless Ben tightens the reigns severely and quickly, the genie will not return to the bottle. These inflationary pressures are much like what Chairman Burns encountered in the 1970’s and made similar egregious mistakes that made the problem worse. If you look at the USD index chart as of this past Friday, you will note when Ben became chairman and where we are at today.
On Friday we settled at 71.923, well off our all time lows but one has to ask the obvious question: How long will the dollar be allowed to decline before the average person puts 2+2 together? The basic math is simple; we have witnessed a marked acceleration of inflationary forces on commodity and select assets. The commodity inflation we are witnessing is being blamed on everything from speculation to a desire to park money in a “safe” place like U.S. Treasury instruments. But that theory can be tossed out the window with the new volatility introduced into the government debt markets by the obligations that Ben has elected to bring on to the Federal Reserves balance sheet at the expense of taxpayers. And the central underlying demand by over two billion people for such things as food and raw materials is an extra factor that the 1929 Fed did not have to contend with nor did Ben’s paper ever consider addressing. Sisyphus had a minor task compared to the historic nightmare that Ben has inherited, yet few wish to allow the capitalist system to correct itself so every FOMC meeting, Ben is pushing the rock back up to the top again. The basic supply demand curve can not be violated nor altered, yet the mythologists who run our economy continually create new works of fiction to adapt to the new reality while still spewing such creative utterances as “it’s OPEC’s fault” or “it’s the speculators.” The US taxpayer is not supposed to be an insurance policy for the follies of the investing community but Ben and the Central Banksters gave themselves the power despite never being elected to office nor given Constitutional authority to do so. If one takes the time to read Section 13, there is nothing that should have allowed them to create said power. If you read subsection 13 of Section 13, it says:
“13. Advances to Individuals, Partnerships, and Corporations on Obligations of United States
Subject to such limitations, restrictions and regulations as the Board of Governors of the Federal Reserve System may prescribe, any Federal reserve bank may make advances to any individual, partnership or corporation on the promissory notes of such individual, partnership or corporation secured by direct obligations of the United States or by any obligation which is a direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States.”
In other words there is nothing that says a CDO, RMBS, or CMBS created by a non-commercial investment bankster or any derivative thereof shall be accepted by any member Federal Reserve bank. So just like money, the Fed is not creating “law” out of thin air yet the sheeple continue to graze on the south lawn. The implications are mind boggling and unless you people get off your butts and start screaming at your local Congress Critters, other private institutions which are married to the government and various agencies within governments at all levels might begin to create policy or laws as things begin to deteriorate, seeing how Congress has abdicated it’s Constitutional oversight responsibilities. Call, write or fax, do not waste your time emailing. The seizure of powers allocated only to the people can not be allowed to pass. And this dangerous spate of activities by this “Killer B” should be everyone’s number one concern as we move forward and the monetary crisis deepens.
The Killer Talking B’s
Oh no! Please, don’t scream at me or the computer. The dancing banana is a “Killer B” that should keep you staring at the ceiling all night long in utter frustration and anger. It represents the summation of a basically formula:
=
+
+
Yes, even cheerleading “Killer B” bananas require some basic math, even though those laws do not apply on Bubblevision, America’s propaganda arm for the economic “Killer BSERS” who have found new ways to report information, not news, but information, that would make Goebbels blush. Imagine if Africanized honey bees could speak to you before they stung you to death. I imagine it would sound alot like “Booyah” boy telling viewers to hang on to Bear Stearns right before it lost 95% of its value. Oh, and for those who doubt that there is a problem when people passing their network off as “financial journalists” begin to spout their nonsense, I refer you back to this:
March 20, 2007, 9:22 am
NY Times
“Mad Money” host Jim Cramer has gained a huge following, and more than a few critics as well, with his explosive stock-picking patter. But in a revealing video interview with TheStreet.com, the financial Web site he cofounded, Mr. Cramer drops some bombshells that go well beyond his usual chair-throwing, ‘Booyah’-shouting routine. In the clip, which has drawn lots of commentary on YouTube, Mr. Cramer brags about his ability as a former hedge-fund manager to game the stock market and offers what amounts to a how-to to aspiring stock manipulators, The New York Post reported Tuesday.
In the December interview with the site’s “Wall Street Confidential” Webcast, Mr. Cramer describes at least two strategies, including a way of driving stock futures up or down that he explicitly said was legal. “A lot of times when I was short, I would create a level of activity beforehand that would drive the futures. … It’s a fun game,” he told TheStreet.com’s executive editor, Aaron Task.
But Mr. Cramer spends most of the interview describing a practice called “fomenting,” where a hedge fund manager essentially creates a false impression about a company in order to drive its stock one way or another — which he says is “blatantly illegal,” but adds that “the Securities and Exchange Commission doesn’t understand it.” While he claims this practice is widespread, he never says he has used it himself.
Here’s how fomenting works, according to Mr. Cramer: Say a hedge fund manager is holding a short position — a bet that a stock will decline — in Research in Motion, which has just announced blockbuster quarterly earnings results. An enterprising fund manager might call several brokerage houses and either feed them bad information or order a slew of short sales. Then he or she could call up a “bozo reporter” with a fake news tip about Resarch in Motion rival Palm.
The result, he says, is a perfect storm of bad news that temporarily lowers R.I.M.’s stock price, long enough for the manager to reap a tidy profit. He recommends a similar procedure with Apple (the video was filmed before the company introduced its iPhone at its annual Macworld convention in January).
“These are all the things that you should be doing on a day-to-day basis and if you’re not doing it, maybe you shouldn’t be in the game,” Mr. Cramer tells Mr. Task.
Mr. Cramer sums up his philosophy this way:
What’s important when you are in that hedge fund mode is to not do anything remotely truthful, because the truth is so against your view, that it’s important to create a new truth, to develop a fiction.
Updated March 23: We’ve swapped the link to the video; the previous YouTube link no longer works.
Link to Original Video on TheStreet.com
Yet he is still employed on Bubblevision (CNBC), he still has his own evening program even though CNBC denies endorsement of his statements, and worse, the people on their network like infobabe Maria Bartiromo continue to hold him up in high regard as an “expert” when the sums of money he plays with is beyond the perception of the average individual investor. The so-called “breaking news” these clowns promote are twisted or key facts deliberately omitted to give a different impression as to reality. Let’s perform the “Killer B” exercise using history as an example using the business channel ideal of bovine scattalogical distribution. What if CNBC existed when the HMS Titanic sunk? Would the breaking news be something like:
“Tragic cruise line accident as HMS Titanic hits iceberg! Thankfully 201 first class passengers survived!”
Of course they are not “lying” they are just omitting the key fact that 1496 other people perished, yet that same methodology is how our financial news is reported today. On Friday April 19th, the Bubblevision Network reported Citigroup’s quarterly report was “not as bad as expected” and of course threw in the line “this time they tossed in the kitchen sink.” The part about $14 billion in write downs was gleefully omitted as was mentioning briefly in passing that several thousand more people were being laid off. How anyone in their right mind can promote a quarterly loss as a good thing while there has been no indication for over a year now that these banksters are about to be honest as to the depths of their problems is not only irresponsible it should be criminal! To prove the insanity is just that, let’s go back a little while further to Intel’s report. Back in March, as required, Intel reduced their quarterly earnings expectations from 35 cents per share down to 25 cents per share causing angst within the Bubblevision propaganda department. The Fast Money gang all stewed on their program that this could indicate tech is actually under threat from this “slowdown” or possible recession. Then when Intel reported on April 16th, that they beat expectations by 1 penny, the same group all went nuts saying “wow, the worst is over, they beat expectations” to paraphrase the lunacy. It’s really hard to not beat your own expectations yet these morons on Bubblevision want you to sink your hard earned retirement into an obviously rigged game which is guaranteed for them to never lose by your tax dollars (thank you Ben)!!!!! Before you get excited about one thing coming from the so-called “Financial Press” in this country or any other, I simply point you to some key charts to review and you draw your own conclusions; focus especially on the S&P 500 price level on December 31, 1999 of 1469.25 and April 19th’s closing price of 1390; 9 years almost after the fact, if you had invested in a S&P 500 index based mutual fund, you are still down, and that’s not adjusted for inflation. THINK PEOPLE!!! Quit believing this nonsense and look at who advertises on these networks, in these magazines and especially the daily newspapers. Everyone has an interest in propagating the myth that stocks are now in a perpetual bull market and the idea that bear markets are impossible. Now check out the charts and start to think:
(Chart added with 200 DMA and NOT adjusted for inflation)
Being a historian allows one to keep things in perspective and the last time the 200 Day Moving Average rolled over as in the chart above, well, you can see for yourself what happened.
Of course if that chart does not convince you, let’s refer to some charts that Kevin Depew used from Minyanville.com in his article Five Things You Need to Know: The Point of Recognition published on March 19, 2008 which point out what the S&P 500 looks like priced in other fiat currencies that have not experienced the attack of the Killer B’s….
First the S&P 500 priced in Euros as of the publish date of the article above:
Not so hot. So much for the rallies which appear a tad bit hollow now. So let’s see if this confirms with the S&P priced in Yen:
A bit more tolerable but then again, I can only handle so much Sushi. Let’s pick the currency closer to home, the Canadian Dollar:
Ouch. But that really does not indicate the severe amount of pain that we are trapped in. From another one of my favorite websites, here is the Dow priced in Gold which indicates that the bear market which began in 2000 really has not ended but traded within a channel thanks to inflation:
That’s about all I need to see to realize that inflation has taken a death grip on our markets, the reporting of financial news is akin to getting the location of the Holy Grail from a drunken housewife at ten in the morning while you’re working in your yard and that this game will not continue much longer with the dilution of our currency at the pace we are at. So listen to the Killer BSers of Bubblevision at your own risk and make the research and judgment decisions for your financial future yourself. Which leads me to the final “Killer B” in our story, the banksters.
Baptists have Faith, Banksters Destroy It
Would you buy a used car from this man?
There is a myth that the banking community as a whole only has the best interests of their customers at heart. In reality they are a business and the bottom line is all that matters. Unfortunately we have allowed an arrogant class of banksters to develop a base of power which could threaten the economic well being of the Western world. There is a theory that these clowns propagated over the last six years that by spreading the risk around the world, the impacts of variations in the business cycle would be evenly distributed and the risk distribution would minimize impacts in changes to the climate by keeping them within some carefully constructed formulas or norms. The problem with these calculations and theories is that the “Black Swan” or unexpected event, oh, you know, like a greater percentage of people defaulting on homes they could ever afford (who could have seen that one coming), will distort the results and amplify the crisis, especially when these bozos start to distort the information flow to protect what ill gotten gains they have achieved. No less an investor than Warren Buffett has warned about the games these people play with his “economic weapon of mass destruction” comment referring to the derivatives time bomb, yet the banksters continued to churn out highly leveraged instruments based on another theory, a not so public one.
The “we’re too big to fail” economic theory allowed a diverse group of banks in Europe and North America to create a nightmarish problem in excess of $500 trillion in derivatives (notional values) that if just 10% imploded, it would eviscerate the economies of the West for over a decade and the regulators know it, the politicians know it, but the average citizen who will pay for it is not allowed or too lazy to find out about it. Folks, this is not just a passing storm as some nut cases will have you believe, this is a long term problem and we are just beginning to see the impact. Instead of absorbing a short term politically painful recession before the 2004 elections, the philosophy of over-expansion of the money supply and turning the other cheek in regulatory matters has allowed this new manifest destiny to appear. As the deleveraging process accelerates, which it always does, charts like this one of the Philadelphia Banking Index will tell the tale:
If you think that the roll over in the 200 day moving average on the chart above is any indication, the fear that should make you stand up and pay attention is that we have yet to retest lows unseen in over a decade. As the banksters begin to fail, it should trigger a wave of counterparty risk failures which eventually cause that roll over to turn into a waterfall. And that waterfall will drown the American people and those of Western Europe who smugly think they are immune as they sip their lattes. The banksters would have you believe because there are some that are too big to fail, the taxpayer must bail them out at all costs even if it includes the introduction of hybrid socialism as is practiced in Communist China. This is a dangerous and slippery slope we are progressing down and the idea of income redistribution to be shared in management by a strong central government and bankster community would have had our forefathers in the streets with pitchforks and bonfires ready to rock and roll. Instead we are more concerned with the release of the next video game for the Playstation III or just will the new Apple Iphone have the ability to provide back massages while playing MP3’s back. Folks, you had best wake up. This is a historical crossroads which has every indication that our society will undergo a massive change from top to bottom and unfortunately the bottom half of the citizenry will experience it first and feel it with the greatest amount of pain.
What do you do? As highlighted earlier in this story, call, write, and fax your political reps, or sign petitions like those over at www.tickerforum.org complaining about these abuses of power. It may not help, but it can not hurt. If you are an investor in the markets, complain about the manipulation to the SEC as much as you can within legal limits. But at the same time, I would hunker down expecting the worst and praying for the best. Right now there is a smokescreen being deployed and the election can not come fast enough for the elites to confuse and distract the critical eye cast now on the financial markets. This system, our political and economic one, needs some disinfectant. Or as this editorial is trying to drive home, one hell of a lot of bug spray. We must stop this game now and get rid of the “Killer B’s” and their control over our future. Otherwise, the complaints you hear in the near future might be your own. And the “B” stings this nightmare could inflict will leave you a debt ridden collapsed pile of Jello for the rest of your adult life.
by John Galt
April 20, 2008
Mike was stunned when his wife and kids accepted the offer to “get out of Dodge” and make a run for it. The “Springfield Slaughter” was all it took for the kids to be totally terrorized and the wife to finally say “okay prepperboy, you were right!” The FEMA food lines in Springfield, MO where over three thousand people deep and when the food ran out a riot ensued. That was met, of course, with harsh action from machine gunners surrounding the area and two Cobra helicopters which quickly dispersed the crowd by killing several hundred civilians in less than twenty minutes of action. The civilians who lived outside of Joplin, Kansas City or middle Missouri have no clue as to what happened but the word of mouth express made sure the word was spread. What was worse was the absolute cut off and censorship of the Missouri media and the internet being shut down. Well, the wife was finally convinced that “holding out” was the stupid strategy and she agreed it was time to make a break for it.
Mike had the “connections” to the now outlawed ‘Patriot’ community that he had met online and that put him in immediate danger. He knew he was just an observer, but the the fact he viewed websites and listened to the radio shows put him on a list as several now absent broadcasters warned when the system crashed in 2009. The new Department of Federal Information (DFI) insured that only the news that was screened and deemed “acceptable” would be all that was dispersed to the sheeple. Considering America’s current situation with German troops protecting the U.N. in downtown New York, that was all he needed to know to get the heck out of town. Mike went down to a friends home he had made connections with on the other side of town and asked him how he was supposed to leave town. This friend said he would arrange a meeting which of course made Mike nervous that he was a FBI plant, but it was too late now, the die was cast.
Mike arrived at the meeting expecting something from a bad 1940’s spy movie but instead was greeted by his contact’s wife who offered lemonade and cookies and the apologized for not having more to offer. Mike was stunned and politely said, “no thank you” and waited for her husband code named “The Turk” to walk out. When he did, he was wearing two pistols in shoulder holsters and there was someone else standing in the kitchen with an AR-15. “Do I call you Mr. Turk?” Mike asked, obviously nervous. The Turk replied, “Turk is fine. So why are you here and if the answer is wrong, the meeting ends now.” Mike stammered “my wife was questioned at her work by Homeland Security and the local police. She fears we are about to be rounded up after I’ve been warning her this had been going on for over a year.” The Turk glared into Mike’s eyes, checking for sincerity and uttered “why didn’t you leave before the new visas were created?” Mike nodded in an embarrassing fashion and uttered “we never thought it could get this bad.” The Turk seemed satisfied with the answer and said “come with me.” Mike was lead downstairs into the basement with the Turk in front and the guy with the AR two steps behind him. The Turk started barking instructions,”Here is where you are to come exactly 7 days from today. Bring only two days worth of clothes, all of your identification papers, banking papers, insurance papers, everything. Leave nothing for the authorities to find as I have to erase you from the system as much as possible. You have to bring me five ounces of gold for each person to travel with you. You will depart north on the Arctic Express escape route then. Do you understand?” Mike stammered out “5 ounces! That’s almost $20,000 for the four of us to make the trip! Where am I to get that?” The Turk replied “that’s not my problem and you only get one shot at this. You are either here in seven days with the money or forget about it.”
Mike left knowing it had to be done. Seven days later, after selling almost everything he owned he was fearful that the fire sale tipped off the authorities. When his family pulled into the driveway of the Turk’s home, the wife came out and motioned him into the garage. They hurried Mike and his family into the basement then into a storm shelter hidden off the side of the basement. “Here’s some food and water. You have to remain down here for forty-eight hours. Did you bring the gold?” she asked somewhat nervously. “Yes, I followed all the instructions, do you want it all now?” Mike asked. “Yes, so we can get you out of here, things are a lot worse now” the wife replied.
The Turk opened the door slowly and asked Mike to bring everything to him and show the papers and more. “We will repaint and renumber your car. In this manila envelope are your new identities, your passports, and tickets to New Zealand. Memorize everything without fail as you will be questioned several times before you land in New Zealand. You will be driven up to Des Moines the morning after next at 4 a.m. I will ride with you and then we will drive nonstop from there so have your family ready to go. You’ll move in four relays every two hundred miles. Once the last relay occurs and the driver tells you to open your paperwork, you give him the blue envelope and pass the ID’s out to your family. Smile a lot and look normal as you are now Canadian citizens. Have a safe trip and good luck.” The Turk nodded to the family and walked away. The prolonged period of isolation from the news did not help his family’s feeling of unease.
When 0400 arrived a few days later, it was a blessing. A tired but eager family looked the Turk in the eye with that puppy dog look of fear and he said with a chuckle “good day, Eh?” That lightened the mood a bit as they headed into the car and drove away. The Turk took the wheel first telling us all to relax and hang tight as it was going to be a long day. As the Turk hit the first checkpoint the test of the new IDs was upon us and thankfully the State Trooper returned to the window and said “have a nice day” and that was that. The Turk smiled and said to us “don’t get comfortable, it’s the Minnesota stop that worries me.” After changing cars and getting a new driver, the Turk said he was heading home with the car. The new driver, Bill, said it bluntly, “look, I’m all business, do what I say and no one gets hurt. The border crossing is tough enough for one person but an entire family raises red flags. When they demand the DNA sample, do not argue, just do it, smile, and move on.” As we saw the skyline of Des Moines disappear as we moved north, the unease of the situation hit Mike. “Here I am, surrendering my family’s future to a total stranger” Mike thought to himself. And despite all of Mike’s concerns, this new driver Bill got us through. The next morning his children woke up to see the sign for the airport in Winnipeg and everyone seemed relieved. Bill started to pull up to the departure area and passed one more envelope to Mike, which contained one way tickets to New Zealand, a blessing and relief for everyone.
As Mike checked in for the Air Canada flight to Vancouver then on to Wellington, the family started to loosen up, realizing they were soon to start their new life. It was a strange feeling for them, now suddenly becoming “Canadians” to escape a land they used to call home. Now as the plane went wheels up and the airport vanished beneath the clouds, the relief sunk in as the flight attendant handed out snacks and water. After enjoying the usual airline snacks, Mike suddenly felt the urge to take a much needed nap as did my wife and kids. As the kids started to sleep and his wife curled up in her seat, he reclined back and like many passengers drifted off as some horrible movie in French was being played and did not want to see nor hear any of it.
The “thud” of the wheel’s touching down made Mike think that the hop to Vancouver wasn’t so bad but the shocking realization that his hands were restrained with those plastic zip seals the cops used and his mouth was taped up set off a wave of panic. As Mike looked around the plane, everyone had the same look as he did. His wife and kids were crying and the tears streaming down the pieces of tape covering their mouths. They were restrained also and then the announcement which stunned them all was made:
“All of you are under arrest under Homeland Security Article 8, Subsection 196″ the voice boomed out. Mike began to panic inside as the rumor of Article 8 was the reason he wanted to flee; it gave the HSA unlimited authority over detractors, traitors, violators of the Fair Business Act, and anyone who spoke against or fled from responsibility or service to the government. The voice continued, “You will be separated by age, sex and historical files upon departure. Any resistance will be dealt with immediately. Children will be removed off the plane first. Followed by all women over age sixteen, then all men over age fourteen. Please cooperate until you are boarded on to your assigned bus. You are now on a military reservation and escape is not possible. Thank you.”
Ah yes, a long brewing story that I really had a hard time ending. This is not about government oppression, rumored or real. This is not a “Constitutional” op-ed, or fiction designed to stir up feelings of hate against one group or another. This is to cause you, the reader, to focus internally. The difference between this Prepetorial and all of the other ones that have been penned is that your author, that would be “me”, had a hard time concluding the ending to get the point across. The point is simple:
Do not depend on others unless you implicitly know and trust them.
I could go into story after story throughout history of people betrayed by friends but is that important now? To tell the stories again of historical figures betrayed by mentors and friends? IF you are willing to put your family’s lives in the hands of total strangers, then YOU had best be willing to either accept the consequences of a bad decision, or have gotten off your lazy butt to do the due diligence about the other souls to insure YOUR family is not in danger. The story could easily have been about a criminal operation, killing the parents and selling the children off into slavery. It could also have easily been a trap where the money was stolen and the entire family killed. The reality of the story above is that it would not beyond the pale to imagine a multi-nation operation which is designed to capture people who wish to flee in such an environment. Would a new “North American Union” undergoing internal strife in any of it’s nation’s want people to flee to tell the outside world how horrible conditions are? No, it would be a propaganda disaster. And considering the myriad of paths our political elites could choose in the years ahead, it’s not a reach to assume they would want anyone of working age to remain behind and produce in any capacity, be it a blood donor, organ donor or day laborer to keep the machine working, the Constitution be damned. But I digress from the political venting and back to the basic point. Review everyone and anyone who claims to be a “helper” of your family in the trying times being endured now or in the future. The person who claimed to have the key to escape via the fictional “Arctic Express” escape route via Canada could easily be a double agent for the government. This is why friendship, life long friendships, are important to develop when you can. That, if some of you may ask, is why my circle of friends is very closed, and very tight. It is not that I don’t want to add more friends, nor have a lot of friends; God knows I’ve made many online via the message boards and the blessing of the radio program I work on with Steve Quayle. It’s that you have to choose those “close” friends carefully in times like these. Please, I beg of you, do your due diligence and most of all, protect your family first. Do not leave that responsibility to others.
By John Galt
April 16, 2008
You know it’s going to be a long year when you see this guy, uh yeah, him, Robert Hawkins from “Jericho” move in next door to your house. Immediately you think ” do I have all my preps in order and just how do I survive like the TV show?” Please folks do not prep like life is a television show. Will you have to get ready for a nuclear attack? Do I have enough food? Will my credit card work? Have not a fear my friends. Your friend, this author has the ability to add a “nomics” suffix to darn near anything (ugh, banksternomics….some other time) and try to throw a theory or idea to the wall to make it stick. In the television show “Jericho” the idea of a terrorist attack isolating a small Kansas town is not that far fetched. What makes it interesting is the politically correct Columbia Broadcast System interpretation of how events will unfold. Despite the fantasy of the Obamaconomists, the nation would not implode immediately and beg to become a communist utopia. The average citizen would adapt, with the notable exception of Paris Hilton, and seek a normalization of commerce in very short order.
(Cheap tacky publicity stunt to insert Paris Hilton’s photo)
Back to the article now. You see people (the plural) think that the government will be the saving grace for the future but alas, good old Katrina dispelled that theory about 100 HDTV’s later. The thought of issuing FEMA credit cards to average schmucks sounded good in an ivory tower, but in reality it didn’t work so hot. And some of what I would call above average citizens without corporate sponsorship who attempted to enter the disaster area without FEMA’s blessing found their goods and firearms confiscated because the private sector is only allowed to help when they are sponsored or can cut through the red tape of government bureaucracy. You and I can not afford this problem when it hits (or if still). So what is one to do. Back in the days of the ancients the common currencies were salt, silver, and gold. Amazingly some 5000 years later, we still value silver and gold and most people take salt for granted.
Phoenician Silver Didrachm of Tyre, circa 360 BC era
This leads the modern man to a dilemma; what does one do if they are not to get a FEMA card and actually out on their own? Does commerce stop? No, not unless everyone is dead or dying. Do we wait for the government? Only if you want to starve to death or have civilization cease to function. So what does one do? You barter. And for all my friends who do not understand the concept, it’s the same as our stock market but in a slightly different form. You offer an item in whatever quantity to obtain an item in whatever quantity or service or vice-versa. If we do suffer a series of 9-11 style attacks and the country shuts down you had best have some idea of value or you might trade 2 ounces of silver for one dozen eggs. While that might sound good if you’re dying for an omelet, it’s a sucker’s trade. Use your head, negotiate and be friendly. Most of all develop a circle of friends that you trust.
As you can tell from the mainstream media, there’s been a lot of “advice” offered on how to survive as times get tough. Just for laughs, I’ve watched some of the so-called shopping networks and shows that seek to promote anything as “insurance” for the possible hard times ahead. There are some rules all of us have to live within and the first one might strike someone as surprise:
Collectible coins are only good as an investment if we are in a period of economic stability.
But the guy with the slick haircut and sales pitch said those state quarters would be a great insurance policy if the world ends you say? Uh, no. I will sum this up in the bluntest of terms possible so you understand. Remember in previous posts on this blog where I discussed the concept of a flea market trading in food, livestock, goods and services outside of a government controlled commerce system? Show up at any barter market like that or heck, at my house, with a slabbed MS-67 or PR-70(in photo) American Buffalo 1 ounce gold piece and try to barter.
You’re going to try to convince the guy selling the rifle (which would become priceless in such an event) who is asking for two ounces of gold in trade that your coin is worth that. The reply wold be quite simply that you have a petrochemical encased one ounce piece of gold and if you had one more you could buy the rifle. You see in the ultimate breakdown in societal organization and the end or the credit based fiat money system of commerce “things” actually retrace back to a valuation determined by the common region and on hard assets. The idea that five quarts of motor oil equal three packs of cigarettes isn’t that foreign. For centuries salt served as a basis of trade between people and nations as did bags of silver or gold powder in the old West. Do not think for one moment that a numismatic coin is going to mean any more than the content of the silver or gold within that coin when it comes to trade for survival. Thus why the emphasis on obtaining a broad base of silver and gold in various sizes and denominations for your storage is essential.
To help guide you along in this idea, I’ve developed a spreadsheet with some average prices for goods in a barter environment roughly based on current prices. No matter what the price evolves into based in dollars in the near future, these trading valuations can be traced back to bottom line values of gold or silver. As in the television show Jericho, you’ll see that there will be variations but the main thing is that you use this as a guideline, not a hard and fast rule. I hope this helps everyone to think about the preps and just what is and is not going to be valuable. The bottom line is that besides your own personal stores, you had best start thinking outside the box with regards to currencies. Gold and silver first, tradeables and staples next…..
Note: I’ve added a link with a printable view and instructions here….hope that helps everyone.-John
Ok, another note: I left off the Unit of Measure for Silver and Gold, which has been pointed out in several emails; I’ll reconstruct the spreadsheet, convert it and update it accordingly in the thread; it is in ounces…-John
And for once, it’s not just illegals, heroin addicts, and AIDs infested hookers enjoying the socialist trough finally. The “truly needy” are getting some of that much needed money I work so hard for every year to mail on April 15th.
Here’s just a few of them….
Thank you Google Trends research….for the phrase “economic depression”….
Wow.
Gang, I do not know what went bump in the night but in less than one hour the dollar went DOWN 25 points and STRAIGHT DOWn…something just happened. As I get details, beyond the surge in the Euro, I’ll update everyone…
Besides the unemployment numbers, which if honestly reported will show a massive drop in addition to substantial revision downwards for February, there was one story which stood out and grabbed my attention last night:
Moody’s cuts Countrywide Bank rating to “D”
This story ( located here ) could be the news Bank of America has been looking for to walk away and leave the taxpayer with this dog. Stay tuned gang as life is about to get one heck of a lot more interesting in our markets as the big hits, the CMBS problems are about to explode like a cow that fell asleep on the railroad tracks of a bullet train.
It’s a good thing the analysts have not put a “SELL” recommendation on this stock yet. Heck, it might rally above 7 with this news……(Check out one of the analyst summaries here at Yahoo Financial page).
ABBAnomics
By John Galt
Dancing Queen
You can dance, you can jive, having the time of your life
See that girl, watch that scene, dig in the dancing queen
Friday night and the lights are low
Looking out for the place to go
Where they play the right music, getting in the swing
You come in to look for a king
Anybody could be that guy
Night is young and the musics high
With a bit of rock music, everything is fine
Youre in the mood for a dance
And when you get the chance…
You are the dancing queen, young and sweet, only seventeen
Dancing queen, feel the beat from the tambourine
You can dance, you can jive, having the time of your life
See that girl, watch that scene, dig in the dancing queen
Youre a teaser, you turn em on
Leave them burning and then youre gone
Looking out for another, anyone will do
Youre in the mood for a dance
And when you get the chance…
You are the dancing queen, young and sweet, only seventeen
Dancing queen, feel the beat from the tambourine
You can dance, you can jive, having the time of your life
See that girl, watch that scene, dig in the dancing queen
East of the Rockies, this is your host Art…er, never mind. Time for the “Dancing Queen” Benron Bernanke to explain why he is allowed with his other twelve cronies to circumvent the laws of the land and partake with their co-conspirator, Hanky Panky Paulson.. But to do this first, let’s do a quick and dirty tour of history, going back in time first to our childhood to bring this down to basics and moving into the music of the 1970’s with my dedication and personal nomination of our new economic system:
ABBAnomics
Marbles
Ah the great game of marbles. Remember how that used to work for all you old timers out there? Most of us would “lose our marbles” (well, my wife would endorse that) to the geeky kid with the glasses who always won. Then one day you and a few friends would get on a hot streak and start to win. The kid would get more and more upset as he lost more and more of those marbles and get furious at all of you. He would try more dramatic strategies and then try to pull other players aside to convince them to team up against the winning sides. Just as it looks as if you’re going to get your marbles back and some of his, what happens?
That’s right, the geeky kid gets pissed off and takes his marbles and goes home, ending the game. This ancient, well at least to the video game generation, parable about a game long past might seem like an irrelevant analogy to our modern markets. Sadly, it is about spot on. The failure to understand that the geeky kid is losing and thus he’s ending the game right when it gets good is one thing. The failure to actually endorse the concept of laissez-faire capitalism and the risks to reward ration that engenders is another. America was a risk and has paid a hearty reward to those who founded this nation and those fortunate enough to be born or emigrate here.
Unfortunately, America is turning into the biggest whiny sissy on the block. And a whiner who can not lose with grace and dignity in the market place of finance and ideas is not only dangerous but pathetic. The mass interventionism by our government agencies and private banking institutions is an indication that the marbles are being removed and soon will be played with by only their direction and a new set of rules.
What will soon end up occurring is that as the rules are changed to prevent “cheating” as the powers that be will call it, they will also modify them so that certain players can never lose. This modification in the middle of the game often results in the end of the game as the players walk away to preserve what marbles they have. We are on the brink of witnessing the same event in our markets on a scale far beyond the scope or imagination of our friend Benron Bernanke. And the consequences will change our society for at least three generations if they are not stopped immediately.
The World War I Market Holiday Experience and Inflation
As I discussed in the op-ed below titled “Birth of a Nation” the markets closed in 1914 thanks to an act of Islamic terror and prevented a massive exodus of European capital. While unprecedented, to insure that the coming capital flight does not occur, the simple numerical identifier of “1914” is all it will take to destroy your retirement program, and insure you are sitting there going “DOH” while banging your head into a bloody pulp against the wall because you trusted the same morons who determined “subprime” was a great idea. The most amazing thing that I have ever witnessed in my years of watching this nonsense since the late 1970’s is that for the first time ever, the rules can be changed before any trader, any investor or any foreign government can make substantial changes to their portfolios or strategies. To make matters worse, the rules can be changed outside of the scope of the regulator and legal powers of those doing so and without Congressional action. So as the markets continue to deteriorate while the mortgage problems are imploding further and further the valuations will be changed by the markets on the various bond instruments constructed to enable this problem to occur in the first place. That leaves foreign investors little if any choice as the US Dollar declines in value and the inflationary pressures increase in our economy, eroding earnings on dollar denominated investments. The nonsense we are seeing in our markets has infected almost every equity and credit market worldwide, and that is a very dangerous problem that will impact all fiat currencies and force a flood of paper on to the markets in a desperate final attempt to salvage economic stability which will instead trigger the inflationary death spiral all Fiatocracies are destined to experience. Presuming that we continue to dilute the value of the U.S. Dollar at a faster pace than other nations to stabilize our banking system, the inflationary specter shall hang over economic growth in the U.S. like an executioner swinging a large heavy ax.
The Art of Socialist Nationalization Practices by “Free Market” Economies
The big lie has begun to spread. All of our lives we have had it drilled into our head per airheads like Kudlow:
“We Believe that Free Market Capitalism is the best path to prosperity”
The unsaid caveat which will never be heard on Bubblevision or any of the MSM?
“We believe that until our portfolios go into the crapper and create massive losses causing us to sell one of our vacation homes in St. Kitts.”
You see the rules are different when failure due to horrid decision making comes into play. Free markets are supposed to reward the intelligent companies by driving their valuations higher while punishing the gamblers and the foolish by taking their values to a very low price or “zero” as they should be. In this modern world however, we can not have winners or losers in little league games and that educational model has been expanded to include Wall Street. The major banksters have all got issues beyond any comprehension with losses yet to be declared and in all probability beyond the capability of the entire U.S. economic structure to absorb. So what does a supposedly quasi-capitalist economy do when free market rules indicate failure is imminent? Change the rules.
Paulson’s folly on Monday was a very dangerous venture into the elimination of freedom via the circumvention of the U.S. Constitution. There is nothing in the primary legal foundation of our country which allows a private institution regulatory powers over other private institutions but thanks to decades of ignoring the works of our Founding Fathers, the Constitution is no longer relevant and thus the discussion of the so-called “Nordic” model has entered into the conversation. The fallacies of fiat currencies have been discussed numerous times by this writer, but he fallacies of attempts to merge socialism with capitalism are going to be the destruction of our nation leading to further declines in our standard of living. With that warning in mind, let’s review the Nordic model and the history of the central bankster bailout in Sweden that our Fed appears to eager to undertake.
ABBA Banksterism
“Fed eyes Nordic-style nationalisation of US banks” was the story on March 31, 2008 by Ambrose Evans-Pritchard from the U.K. Telegraph which caught my eye. He was the first reporter, as usual, to find the perfect analogy for the actions that the Federal Reserve is undertaking and where they got the idea for this outrageous activist banking system operating outside of our Constitution. So what happened in Sweden in the early 1990’s which created a model for the central banksters of the world to follow? Let’s get into our way back machines and visit the land of ABBA to get some idea.
To get some idea, I’m going to extract some quotes from a speech by the Governor of the Riksbank of Sweden, Urban Bäckström, of that time at a Federal Reserve Symposium in Kansas City on August 29, 1997 (Titled: “The Swedish Experience” ) to give everyone some perspective on the problem from the view of their central bank and how they dealt with it. The first thing that grabbed my attention in this speech was this paragraph:
“The expansion of credit was also associated with increased real economic demand. Private financial saving dropped by as much as 7 percentage points of GDP and turned negative. The economy became overheated and inflation accelerated. Sizeable current-account deficits, accompanied by large outflows of direct-investment and other long-term capital (once exchange control had been finally abandoned in the late 1980s), led to a growing stock of private sector short-term debt in foreign currency.”
Sound familiar? The primary difference has been obvious with the inflationary overheating not a factor thanks to the factors of foreign economies willing to accept the export of U.S. inflation into their economies to stave off a problem in our system plus the manipulation of data structure by our reporting agencies to maintain permanent distortions in the records thus preventing traditional application of existing economic modeling. These two factors prevented the inflationary spike from impacting the U.S. economy for over almost two decades until 2006 when the questions were being asked how the reporting system claimed no inflation in the housing numbers despite firm data suggesting twenty plus percent increases in prices across the nation. Add in the sudden increase in costs of precious metals, base metals and a steady but not dramatic surge in energy prices(until 2007) and doubts about the statistical reporting methodology from the U.S. began to spread. Those mitigating factors appear to be coming to an end as the lack of savings in the U.S. economy are paralleling the Swedish experience of the early 1990’s and as the Riksbank chief illustrates, the crisis starts to accelerate.
“Step by step the Swedish economy became increasingly vulnerable to shocks. During 1990 matters came to a head. Competitiveness had been eroded by the relatively high inflation in the late 1980s, resulting in an overvalued currency.”
Sound familiar again? Our currency by all models was extremely overvalued in 2005 as valuations were not realistic for many of the underlying assets in our nation. If anyone needs proof of this fact, please go hug the closest Realtor sign with the words “Short Sale” or “Foreclosure Sale” hanging on it. This was realized by many as the flight to nations with more stable fiat currencies(sorry for the oxymoron) began in earnest yet was not realized by many U.S. investors until 2007. The rest of the world realized that by basing our economy on consumerism instead of actual productivity was a formula for disaster as all nations who are in debt beyond their capabilities to repay eventually defaulted. The Swedes realized that the problems they had in attempting to use their managed quasi-capitalist socialist economic model with a fixed currency exchange rate would result in failures within their finance system. This was borne out as the chief continues to illustrate here:
“Asset prices began to fall and economic activity turned downwards. Between the summers of 1990 and 1993 GDP dropped by a total of 6 per cent. Aggregate unemployment shot up from 3 to 12 per cent of the labour force and the public sector deficit worsened to as much as 12 per cent of GDP. A tidal wave of bankruptcies was a heavy blow to the banking sector, which in this period had to make provisions for loan losses totalling the equivalent of 12 per cent of annual GDP.”
Notice any parallels? This one quote should indicate to everyone why the Fed is contemplating the Swedish or “Nordic” model for management of the financial crisis. Here is the key part of the Riksbank Governor’s speech, in my opinion, that indicates why Bernanke will apply a mix of his anti-deflationary Great Depression model in addition to the ABBA Banksterism model:
“In the early stages of the crisis, monetary policy was directed to maintain the fixed exchange rate. This line had broad support among the general public as well as in the political system. The aim was to establish a low-inflation policy once and for all. But in spite of major efforts, both political and economic, the international currency unrest in November 1992 meant that the fixed exchange rate had to be abandoned. It was replaced by a flexible exchange rate and an explicit inflation target. This resulted in a considerable depreciation of Sweden’s currency but during 1993 the continued fall in international bond rates meant that Swedish interest rates also moved down to levels that were comparatively low. Together with the Riksbank’s reduction of its instrumental rate, this gave the monetary conditions a stimulatory turn. It also helped to stabilise both the economy and the banking system. Lower market rates eased the fall in asset prices, lightened the burden of servicing private sector debt and mitigated the negative impact on the financial system.
Rescuing the banking sector was necessary to avoid a collapse of the real economy. There is no evidence that a credit crunch developed, though anecdotal information did suggest that creditors became more restrictive. I shall be returning shortly and in more detail to how the banking problems were tackled.”
While this is nice in theory, it has never been applied to the largest debtor nation in the history of capitalism and thus why I have grave concerns about the implementation of such policies by our cronies at the Fed. In this context, here is the reason we see a massive Fed bailout of our system at this time as the Swedish banking chief discusses their past which is becoming our reality:
“Looking back, one can see that in the course of the crisis the seven largest banks, with 90 per cent of the market, all suffered heavy losses. In these years their aggregate loan losses amounted to the equivalent of 12 per cent of Sweden’s annual GDP. The stock of non-performing loans was much larger than the banking sector’s total equity capital and five of the seven largest banks were obliged to obtain capital contributions from either the State or their owners. It was thus truly a matter of a systemic crisis.
In connection with a serious financial crisis it is important first and foremost to maintain the banking system’s liquidity. It is a matter of preventing large segments of the banking system from failing on account of acute financing problems.”
Thus it is quite obvious that while Bernanke would like to apply traditional solutions to our banking crisis, the ideal of an illegal and blatantly unconstitutional socialist model being applied is the only immediate method which would stave off an economic collapse. To justify the actions after they have been taken, the U.S. government trotted out Paulson to speak to what needs to change to allow the Fed to continue this course of action even though there is nothing in the original Federal Reserve Act which allows expansion of these powers nor other actions outside of their scope to be taken. The Riksbank chief continues:
“The bank guarantee provided protection from losses for all creditors except shareholders.”
Yet the shareholders in our nation are too stupid to realize they are being given the ABBA DDD treatment:
Duped. Diluted. Dumped.
Ah well, maybe the shareholders will all get a free toaster oven and copy of “Dancing Queen” as compensation. Bernanke could care less about free market capitalism and when the American public becomes aware of this, they will flee for the exits as more actions are being undertaken which are very unfriendly to shareholders and speculators as I shall discuss later in the article. So back to the Swedish crisis and the course of action the Riksbank took to stave off a financial system collapse. So why the urgency to bail out the Swedish system and change the rules? This should give you a clue why and start to think about the parallels boys and girls:
“The political system concluded that in the event of widespread failures in the banking system, the national economy would suffer major repercussions. The direct outlays in connection with the capital injection into the banking sector added up to just over 4 per cent of GDP. However, it is now calculated that most of this can be recovered.
One way of limiting moral hazard problems was to engage in tough negotiations with the banks that needed support and to enforce the principle that losses were to be covered in the first place with the capital provided by shareholders.
A separate authority was set up to administer the bank guarantee and manage the banks that landed in a crisis and faced problems with solvency, though the crucial decisions about the provision of support were ultimately a matter for the Government. A clear separation of roles was achieved between the political level and the authorities, as well as between different authorities. Naturally this did not preclude very close cooperation between the Ministry of Finance, the Bank Support Authority, the Financial Supervisory Authority and the Riksbank.
It was up to the Riksbank to supply liquidity on a relatively large scale at normal interest and repayment terms but not to solve problems of bank solvency. Collateral was not required for the loans to banks, neither intraday nor overnight. The banking system was free to obtain unlimited liquidity by drawing on its accounts with the central bank. The bank guarantee meant that the solvency of the Riksbank was not at risk. In order to offset the loss of foreign credit lines to Swedish banks, during the height of the crisis the Riksbank also lent large amounts in foreign currency.”
Notice the sections that I put into bold print. Notice the sense of urgency in their decision making process. Notice the ominous parallels. Now start thinking about the events of the last month. The Treasury Department today gave unqualified guarantees to the Federal Reserve a private unregulated institution to support the Federal Reserve Bank of New York(FRBNY) should any losses be incurred in the Bear Stearns bailout. Translation? The $29 billion in bonds can be added to the FRBNY’s balance sheet because the taxpayers will eat it. Thank you for letting me vote on that. In the mean time the bond holders and derivative holders of Bear’s garbage might get to skate with relatively minor losses compared to the equity holders. This model of rescue will be repeated over and over again, adding huge liabilities to an already over-extended government debt load. But is this the end? Oh no, there’s more to come. If you notice above a new authority was created in Sweden and that proposal and search for a new RTC type agency is being sought out. The Congresscritters are already thinking about creating a massive mortgage rescue plan for consumers to prevent deteriorating property values from falling further and creating a municipal bond default wave. What they fail to realize is that by copying the Swedish model, you have to create an entirely new welfare state including the creation of a government managed industrial base to sustain employment levels to collect the taxes necessary to support such an idea. So what fool would invest in a US Government Bond if that prospect was around the corner unless the yield was north of 15%???????
So what did the Swedes do to save their banking system? More from the Governor:
The Swedish Bank Support Authority had to choose between two alternative strategies. The first method involves deferring the reporting of losses for as long as is legally possible and using the bank’s current income for a gradual write-down of the loss making assets. One advantage of this method is that it helps to avoid the bank being forced to massive sales of assets at prices below long run market values. A serious disadvantage is that the method presupposes that the bank problems can be resolved relatively quickly; otherwise the difficulties compound, leading to much greater problems when they ultimately materialise. The handling of problems among savings and loan institution in the United States in the 1980s is a case in point. With the other method, an open account of all expected losses and writedowns is presented at an early stage. This clarifies the extent of the problems and the support that is required. Provided the authorities and the banks make it credible that no additional problems have been concealed, this procedure also promotes confidence. It entails a risk of creating an exaggerated perception of the magnitude of the problems, for instance if real estate that has been taken over at unduly cautiously estimated values in a market that is temporarily depressed. This can lead, for instance, to borrowers in temporary difficulties being forced to accept harsher terms, which in turn can result in payments being suspended.
The Swedish authorities opted for the second method: disclose expected loan losses and assign realistic values to real estate and other assets. This method was consistent with other basic principles for the bank support, such as the need to restore confidence. Looking back, it can be said that in general the level of valuation was realistic.
While the solution sounds realistic, sound and decisive, this is where I think Ben and the oligarchy of the twelve will run into issues. The easy part would be to assign realistic values to real estate, that’s fair enough, as there are decades of appraisals and measurements in any market in the United States to determine such valuations. But the problem that they will run into is the determination of values on “other assets” because the concept of “mark to market” was never applied until an institution was about to enter into a crisis. If Bear Stearns had defaulted and the associated paper had been marked to market this would have triggered a series of similar asset valuations at other institutions world wide and without the liquidity necessary to maintain these valuations, instead of an inflationary rescue of the banksters, we would have experienced a 1929 deflationary spiral that would have been out of the control of the entire financial system because the phrase “no bid” would once again enter into the vocabulary of the investing public. Sadly, if you ask the average investor what the definitions of the terms “bid” and “ask” actually mean, most would give you a blank stare, not realizing that the basic fundamentals of all capitalist economies returns to those two words. The markets could never assign an asking price to something that has a fictional valuation such as some of the mortgage backed derivative instruments because the history of the prices is considered a “Level III” secret to be determined by an institution and the self-associated hedge funds they owned and ordered to buy the products. Since Ben and the boys have no idea how to deal with these alleged assets, they have to allow other institutions to assign valuations to these instruments and then absorb or bury them into their balance sheets under the Level III heading. This is no way to run a free market economy and as the Swedes demonstrate, the hybrid model leads to stagnation and a lack of the explosive expansion as we have experienced throughout our history.
Let’s continue to review the Governor’s speech:
Allow me now to summarise what I consider to be the most important lessons from Sweden’s financial crisis:
1. Prevent the conditions for a financial crisis
The primary conclusion from our experience of Sweden’s financial crisis is that various steps should be taken to ensure that the conditions for a financial crisis do not arise.
- Fundamentally it is a matter of conducting a credible economic policy focused on price stability. This provides the prerequisites for a monetary policy reaction to excessive increases in asset prices and credit stocks that would be liable to boost inflation and create the type of speculative climate that paves the way to a financial crisis.
- Looking back, it can be said that if various indicators that commonly form the background to a financial crisis had been followed systematically, then incipient problems could have been detected early on. That in turn could have influenced the conduct of fiscal and monetary policy so that Sweden’s financial crisis was contained or even prevented. In spite of the evident signs, few if any in the public discussion warned of what might happen. Martin Feldstein offers an interesting explanation in his introduction to The Risk of Economic Crisis from 1991. At that time the industrialised world had not experienced an outright financial crisis since the 1930s. As a result, economists had devoted relatively little work to the analysis of this subject, being more concerned to understand the more normal economic world. This symposium is a positive sign that matters have changed in that respect. The conclusion drawn by the Riksbank is that various indicators must be followed systematically with the aim of detecting any signs of potential financial problems and systemic risks.
- In Sweden’s case the supervisory authority was not prepared for the new environment that emerged after credit market deregulation. This meant that during the 1980s the banks were able to grant loans on doubtful and sometimes even directly unsound grounds without any supervisory intervention. In addition, in many cases the loans were poorly documented. The lesson from this is that much must be required of a supervisor operating in an environment characterised by deregulated markets.
Notice the sections I have put into bold for this discussion. The Swedish banking system was not ready for new loan structures provided and created(translation to the U.S. problems: Subprime) and elected to depend on price stability to maintain equilibrium instead of maintaining regulatory authority as originally intended after the last crisis in the 1930’s. With the repeal of the Glass-Steagall Act by the Gramm-Leach-Bliley Act in 1999, the wall which prevented a lot of the creative instability in the banking system was torn down and allowed the bubbles in both equity and real estate markets to accelerate to excesses for which the problems of today have been exacerbated. The failure to maintain price stability in equity markets and honest reporting in the financial statements of corporations (much less the government) have allowed the instability to spread into commodities and begin the much feared inflationary death spiral which has resulted in a decline in the U.S. dollar in an attempt to monetize part of the American government and private debt.
(Dollar chart from www.shadowstats.com )
The now inherent currency instability introduced into the U.S. Dollar will eventually accelerate the capital flight from our shores which will increase the magnitude of the problems instead of allowing a stable system to manage the orderly deleveraging of these overvalued assets. The “Nordic Way” might sound applicable until one realizes that Sweden did not owe the entire world trillions of dollars in government and corporate debt. Add in the trillions in securitized debt obligations which our institutions created and sold based on the concept that “real estate never declines” and the “American consumer rarely defaults” and it does not take much to imagine just how a nationalization of our banking system could blow up in our face. The necessary monetization of our Treasury Debt would create a capital flight unseen since the Weimar Republic of Germany gave wheelbarrows to banking customers instead of toasters.
The final section from the speech by the Governor:
2. If a financial crisis does occur
In a sense all major financial crises are unique and therefore difficult to prepare for and avoid. Once a crisis is about to develop there are some important lessons concerning its handling that can be learnt.
- If an economy is hit by a financial crisis, the first important step is to maintain liquidity in the banking system and prevent the banking system from collapsing. For the management of Sweden’s banking crisis the political consensus was of major importance for the payment system’s credibility among the Swedish public as well as among the banking system’s creditors throughout the world. The transparent approach to the banking problems and the various projects for spreading information no doubt had a positive effect, too.
- The prompt and transparent handling of the banking sector problems in also important. The terms for recapitalisation should be such as to avoid moral hazard problems.
- Automatic stabilisers in the government budget and stimulatory monetary conditions can help to mitigate the economy’s depressive tendencies but they also entail risks. Economic policy has to strike a fine balance so that inflation expectations do not rise, the exchange rate weakens and interest rates move up, which could do more harm than good. In this respect a small, open economy has less freedom of action than a larger economy.
- It is important both to avoid a widespread failure of banks and to bring about a macroeconomic stabilisation. The two are interdependent. The collapse of much of the banking system would aggravate the macroeconomic weaknesses, just as failure to stabilise the economy would accentuate the banking crisis.
While Governor Bäckström’s point about a small open economy having less freedom of action is applicable to Sweden, this theory is full of holes when applied to a debtor nation which owes in excess of four times of it’s annual GDP in debt and committed future liabilities. The flexibility is applicable when a nation is a creditor nation or has the ability to back it’s currency something other than “faith” or an IOU. The American currency was the strongest in the world for decades but the failure to escape the consumerism mentality has allowed the degradation of not just the respect for the dollar, but the nation as a whole. There is no longer a hegemony of the dollar as other nations have started to shy away from accepting the currency or the debt created by the U.S. The most recent Treasury auction had a whopping approximately 3% foreign participation and still to this day the ever evasive and mysterious “Caribbean Banking Centers” are still large holders of our bonds, yet providing no level of foreign trade or commerce beyond being a Laundromat for our currency holding just over $108 billion in Treasuries. The desire to bring stabilization first, and deal with the inflationary consequences later appears to be Mr. Bernanke’s solution. And this solution is what should terrify every sane American.
ABBAnomics
The new term I have coined is not meant to be an insult to one of Sweden’s foremost musical talents, but it is so appropriate as to the solution. You see the Dancing Queen we have as a Fed chairman is trying desperately to put lipstick on a pig and call it something we should all behold. In reality that pig is now eight years bloated and should have been slaughtered and slow cooked instead of waiting on it to explode. Instead of a slow, orderly deflating of over-valued assets, the risk of a sudden crash only expand week by week as the foreign investors realize this dance will not last much longer. This Bubblenomics economy created by Greenspan to inflate asset class after asset class in an attempt to maintain political favor and keep economic discomfort as something that was eliminated along with the business cycle is a myth of epic proportions. Unfortunately the basic rules of economics, excess demand and diminished supply creates price pressures and vice versa still apply. And we have been in a period of excess supply for almost a decade now. The excess I am referring to is EXCESSIVE GOVERNMENT. By allowing the government to expand far beyond what has ever been needed be it in the arena of macroeconomic management or individual behavior supervision, the American people have opened the door to the ABBAnomic solution. And that’s a solution which can be summed up as the new cradle to grave nanny state mentality which most Americans seem perfectly willing to accept. Karl Marx said it best in the Communist Manifesto:
“The weapons with which the bourgeoisie felled feudalism to the ground are now turned against the bourgeoisie itself.”
The idealism of free market capitalism have been buried and shamed by the socialist agenda as a new corporatist elite have elected to encourage the stifling of competition and invite the government into a new working relationship to prevent older institutions from failing and essentially destroying the investing public’s monies to create a new dependency class. Instead of accepting personal responsibility at every level, be it corporate or individual, a new government feudalism has been determined to be an acceptable solution for the average soul. America works best in their minds when the citizenry has a level of enslavement to the government trough and with over fifty-five percent of the American public accepting some sort of largess, there is no reason to doubt that this will only increase as pension funds and investment plans are devalued to adjust balance sheets and maintain the banking system’s status quo. The investor who worked his entire life, played by the rules, never cheated and worked within the system to achieve a comfortable standard of living in his or hers twilight years will now be forced into the government system as their savings are destroyed and investments revalued. The theories of the “Nordic Solution” are wonderful if we are talking about a small, young and growing population such as that of the early 1990’s in Sweden. But we are a retiring, aging population with an exodus of our manufacturing base and an import based consumerist economy. Socialism will work here, but it will be a disaster. And Bernanke’s legacy of creating ABBAnomics, the economic model where hybrid government agencies working with a private group of banksters will forever hijack the free market until the citizens take a stand and demand their both personal and economic freedoms be returned without prejudice. The time to take a stand is at hand. It’s freedom or polyester bell bottoms with a government handout.
The choice is yours.
So don’t panic boys and girls, you’re precious metals are still precious…..
