FedUpUSA

Archive for June 12th, 2010

Written by Alex Newman  

Before the economic meltdown was in full swing, a Florida real-estate developer named William Pitts correctly read the signs pointing toward tough times ahead. In an effort to preserve some of his savings, he bought financial products that would increase in value as real-estate and banking collapsed. It seemed like the sensible thing to do. But though his analysis was correct, his investments went bust — because the U.S. Federal Reserve made them go bust.

Pitts told The New American that in early-to-mid 2008, he became aware that well-respected financial analysts who had evaluated the health of large banks and the real-estate market concluded they were in terrible shape. And it was true. Examining the publicly disclosed financial statements of the big financial institutions also revealed trouble on the horizon.

Based on that information, Pitts sold his stock in large financial firms like Citibank and Bank of America while taking a “short position,” essentially betting that their value would go down. Along with countless others acting on the same information, he also purchased various exchange traded funds (ETFs) that would do well as real-estate’s and the big banks’ fates declined. And it would have been a smart move, Pitts recounted, “but then, a strange thing started happening”: massive cash infusions and major purchases of equities and stocks in both financials and real-estate.

It turns out that under the guise of “stabilizing” the economy, the Federal Reserve banking cartel had set in motion a series of actions that would eventually transfer trillions to the bankers at taxpayers’ expense, all while decimating the investments of countless average Americans like Pitts. The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) estimated the potential total cost of the combined crisis bailouts at $23.7 trillion, or more than $75,000 per person in the United States.

Redistributing the Wealth
Pitts explained some of the Fed’s manipulations: “When we begin looking at this — and it’s pretty common knowledge now — the central banks were loaning these large financial institutions huge sums of money at virtually zero percent interest…. So they’re taking this huge amount of money that’s being borrowed from the Fed, and really making money doing two things: one is all of the banks buying each others’ stock and running up the value of it to increase their net worth on the books … and then they’re also borrowing huge amounts of money from the Federal Reserve and buying U.S. Treasuries … which means guaranteed returns from the U.S. taxpayer.” When the Fed gives new money to the banks and they buy Treasury Securities, they are basically earning free profits in the form of interest on those securities courtesy of American taxpayers, since the government will have to tax citizens to pay back the bonds plus the interest. Wealth redistribution, government style!

In addition to borrowing newly created money at almost no interest and purchasing treasuries to earn higher returns, the banks are also getting another massive but little-noticed central-bank subsidy: The Fed is actually paying banks interest to keep their money parked there, essentially giving the banks America’s money and paying them not to lend it out. And that’s just the beginning.

In mid-2009, Fed Chairman Ben Bernanke admitted to Congress that the Fed had distributed over $500 billion to 14 foreign central banks from 2007 to the end of 2008 — so-called “liquidity swaps.” That money was then handed out to foreign financial institutions. And of course, none of this was disclosed to the public. These swaps aren’t good for the little guy either. The Fed prints dollars and sends them to central banks around the world that request them in exchange for the other central bank’s currency, then those foreign central banks loan out the dollars to banks in their area, supposedly to prevent a rise in the value of the dollar and rising interest rates. Flooding markets with dollars, of course, means that each dollar in existence buys less goods than it did before, causing price inflation. This blatant albeit sneaky theft hurts the poor and middle class to bail out the super rich. It also hurts investors who accurately read the market.

The Fed also acknowledged “emergency” lending totaling more than $2 trillion that it refuses to share details about, even after being ordered to do so by federal courts. On top of that, the central bank has “guaranteed” trillions more in loans, leading to more of the same: more inflation, more debt, and more market distortions.

Another stunning example of the Fed’s blatant market manipulation came to light in April. Even before the congressionally approved “bankster bailouts” of 2008, the Federal Reserve Bank of New York (FRBNY) — owned by private banks and led at the time by tax dodger and current Treasury Secretary Timothy Geithner — “extended credit” to three limited liability companies it created.

The fake firms then began to intervene openly in the market to help certain favored firms. Incorporated in Delaware, the fake companies — Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC — used the Fed loans to purchase a variety of toxic assets from AIG and Bear Stearns, helping JP Morgan and Goldman Sachs, among others. These purchases included residential mortgage-backed securities, multi-sector collateralized debt obligations, and more. The New York Fed finally admitted to all of this on its website, justifying the measures by citing section 13(3) of the Federal Reserve Act, though this section of the act merely gives the Fed the authority “to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange” when there is “evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions.”

Through its front companies, the FRBNY now owns a vast portfolio of hotels, houses, and much more. In April of last year, news of this started to leak out when Reuters reported that the Fed was forced to foreclose on a practically vacant shopping mall it had acquired in Oklahoma City. Democratic Representative Alan Grayson of Florida also drew attention to the problem more recently with a detailed explanation to Congress on how the Fed ended up owning the liabilities of a debt-ridden national hotel chain called the Red Roof Inn. 

Grayson explained, using displays with pictures of — appropriately enough — the board game Monopoly: “The Federal Reserve became the sucker of last resort [as the banks sought to unload their bad real-estate loans and other bad debt], and in doing so, the Federal Reserve made you — you America — the sucker of last resort.”

“For all this time we’ve been hearing about socialism; communism; creeping government control of our economy … and it’s been happening by stealth,” he exclaimed during his 10-minute presentation, which was humorously ironic — since he’s a Democrat and would normally be expected to be a proponent of socialistic programs — though the implications were frightening. “Before long, you will not only be owning hotel chains all around this country, but you’ll be owning houses too. Maybe your neighbors’ houses. Maybe your own houses…. Actually, what’s happening is that, when these mortgages go bad, the Federal Reserve owns your home, and if you can’t make the payments, the Federal Reserve becomes your landlord,” he said, noting that the Fed had gobbled up a half trillion dollars of mortgage-backed securities. “Let’s try to put this wild beast — that creates money out of nothing and jams it into the pockets of special interests like Maiden Lane, like Bear Stearns, like JP Morgan, like all their friends — let’s put them under some degree of restraint before it all comes crashing down.”  

The mortgage-backed securities that the Fed took in hand are unlikely to be profitable for the government. In fact, they will likely cause tremendously more government debt in the future — causing price inflation and speeding the day of the insolvency of the U.S. dollar — or lead to higher tax burdens for Americans. Using available data, a Bloomberg analysis found that assets purchased by the Fed’s front companies have lost over half of their value. Some of the “assets” were garbage from the start, despite Fed reassurances. Bernanke told Congress in April of 2008 that all of the Bear Stearns assets unloaded on the Fed (or more accurately, the American people) were “entirely investment grade.” But that was a lie. “After a brief glance at a few bonds, we now know that’s not true,” noted the Financial Times.

Despite the hardships imposed on everyday Americans and the economy by the Fed’s activities, its banking cohorts are doing great. In fact, most of the big financial institutions are reporting staggering profits. Goldman Sachs, for example, posted a profit every single day in the first quarter of 2010. Big banks reported over $15 billion in profits during the same period, according to the FDIC.

The blatant cronyism on the part of the Fed with elitist bankers has made knowledgeable Americans upset and desirous to take action. Pitts is taking actions of his own: He recently filed three felony criminal complaints with the Federal Bureau of Investigation and the Securities and Exchange Commission against the Fed, the Treasury, and various banks. “How can investors compete in the market against a company that can just create money — set up companies with unlimited money — and just start buying?” Pitts wondered, adding that he “absolutely” would have invested differently if the Fed’s actions had been disclosed. “Investors who had short positions or purchased ‘put options’ were defrauded of billions. I purchased short positions and was defrauded. I want to prosecute,” he wrote in the criminal complaint lodged with the SEC. “Those guilty by their own admission should be arrested. Those who lost because of this fraud should be compensated for their loss.” Indeed, many of the accusations made in the complaints have already been admitted by the Fed itself in some form or another.

Pitts, who serves as chairman of the Republican Liberty Caucus of Florida, is also working on a class-action lawsuit to recover damages. “We’re assembling persons who were impacted as a result of these fraudulent activities and have spoken with a number of attorneys,” he told The New American. “For [the Fed] to take action in the market to increase the value of the stocks, they’re directly defrauding everyone who’s on the other side of that trade.” And even if the central bank can successfully argue that it was not required to divulge the information, “those companies that had these material transactions all had an obligation to disclose these transactions that were occurring, and they didn’t,” Pitts alleged. In a sad twist of irony, not only did Pitts lose money because of the manipulations, but both he and his descendants will be expected to bankroll the actions that decimated his investment portfolio via higher taxes and higher prices, the latter caused by the Fed expansion of the money supply.

Some of the New York Fed’s more egregious actions have also come under the scrutiny of Neil Barofsky, chief of the Office of the Special Inspector General for the Troubled Asset Relief Program. According to news reports, the notorious watchdog is investigating an alleged coverup and unwarranted secrecy by Geithner’s FRBNY during its rescue of AIG.  “We’re either going to have criminal or civil charges against individuals or we’re going to have a report,” Barofsky recently told Bloomberg. “This is too important for us not to share our findings.” He is also looking into possible insider trading involved in the TARP program, where certain bankers may have been tipped off about which institutions would be bailed out. “There was a time when, if you got that word the stock price would go up, and if you were to trade on that information prior to the public announcement, that would be classic insider trading,” he said.

In an e-mail to The New American, the communications director for SIGTARP said she could not comment on investigations.

A significant bipartisan majority in the House of Representatives has also taken an interest in at least figuring out what has been going on behind the Fed’s closed doors, and four out of five Americans want an audit, according to polls. Hundreds of non-profit groups and even the big labor unions have announced their support for transparency. Audit legislation sailed through the House of Representatives. But a thorough audit was upended in the Senate, when it recently approved a watered-down audit and voted against complete transparency. It appears likely, though, that at least some of the Fed’s secret machinations may be revealed soon.

The American media have jumped on the bandwagon as well. Fox Business Network, for example, announced on April 20 that it was expanding its Freedom of Information Act lawsuit against the Fed’s secret bailouts. Bloomberg won a similar case in federal court, but the Fed obtained permission to delay disclosure while it appealed the ruling, arguing that it was not subject to FOIA requests as a private corporation and that disclosure would “harm” the institutions receiving bailouts. The Fed lost again on appeal. But despite the two court rulings, the Fed continues to stonewall and may even take the case all the way to the U.S. Supreme Court.

The disclosure of the Fed’s inner workings would shed needed light on the extent of Fed-induced distortions in real-estate, stocks, and bonds. But the manipulation doesn’t end there. Available data indicates that the Fed is involved in another critical market, with actions just as serious, and equally secretive.

Manipulation of Gold and Other Precious Metals
Whistleblowers, and even some government officials, are now taking aim at “irregularities” in the precious-metals market being orchestrated by the banking cartel and its government allies.

An ex-Goldman Sachs employee and veteran metals trader in London shocked the world in April when he went public with startling allegations. “JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer,” Andrew Maguire told the New York Post. After sharing information with government investigators and accurately predicting events in the metals market, Maguire was supposed to testify before the U.S. Commodity Futures Trading Commission (CFTC). However, a few days after his identity was revealed, Maguire and his wife were struck and injured by a car in a hit-and-run accident. Details about any investigations into the event have not been made public yet, sparking a tornado of conspiracy theories.

The CFTC did hold a hearing on precious-metals market manipulation nevertheless, which included other speakers with similarly powerful accusations, including the Gold Anti-Trust Action (GATA) Committee’s Bill Murphy. He told The New American that GATA tried to find out what role the Fed was playing in the gold markets, but his FOIA request for information about the Fed’s “gold-swap” agreements was denied. The organization then filed a lawsuit against the central bank in federal court. “[The Fed] came back and said they didn’t have to tell us anything — that they were exempt from telling us and that it was secret information,” he said in a telephone interview. “So then, we filed a suit in District Court in Washington to compel them to give us the information.” The suit is in progress, and GATA has high hopes for it.

Murphy said his organization wants to find out exactly what the Fed and the Treasury have done with America’s gold. “It’s the people’s gold, not their gold,” he said. The manipulation of gold prices is very serious and is part of the U.S. “strong dollar policy,” Murphy explained, pointing to the relationship between gold and interest rates.

“By suppressing the gold price, they can keep the dollar stronger than it would be and keep interest rates less than they would have been,” he said, noting that this manipulation played a pivotal role in the current economic meltdown. “What happens is every time gold prices soar, what do you hear? Too much inflation? Crisis? It’s always bad for the Wall Street crowd and the incumbent politicians.… If the gold price had been allowed to trade freely, interest rates wouldn’t have been kept too low for too long,” and the natural warning system would have kicked in.

Jeff Christian, founder of CPM Group, a trading firm dealing mostly with commodities, also spoke at the CFTC meeting. In his testimony, he revealed that bullion banks had leveraged their physical metals by as much as 100 to 1, essentially selling 100 times the amount of actual bullion they possessed, a fraudulent process known as “naked short selling.” Morgan Stanley was sued for similarly fraudulent activities in 2007 by clients who were led to believe that the institution had purchased and stored bullion on their behalf. The clients even paid storage fees, only to discover later that their alleged bullion did not even exist. Morgan Stanley settled the multi-million dollar class-action suit “to avoid the cost and distraction of continued litigation,” it claimed in a statement.

The allegations of gold price suppression seem to have been confirmed by the Fed itself. “Central banks stand ready to lease gold in increasing quantities, should the price of gold rise,” then-Fed boss Alan Greenspan told the House Banking Committee in 1998. In other words, if gold prices go up, the central bank will make sure they come back down.

Even before Greenspan’s infamous admission, a “confidential” Fed document dated April 5, 1961, available in the Federal Reserve Bank of St. Louis’ archives, revealed the central bank’s hand in the metals market. “Monetary authorities in the United States … have maintained the stability (and primacy) of the dollar in the international currency structure by standing ready to buy gold from, and sell it to, foreign monetary authorities who either need or acquire dollars for exchange purposes,” reads the paper, entitled “U.S. Foreign Exchange Operations: Needs and Methods.” The minutes from Fed “Open Market Committee” meetings showed the central bankers jubilantly admitting that even mentioning a possible gold sale would drive the price down. 

The manipulation process today works something like this: When gold goes up in value relative to Federal Reserve Notes (what Americans today call “dollars”) and other fiat currencies, the central bank “leases” out some of its holdings to other institutions at a relatively low interest rate. These firms then sell the borrowed gold, driving down the price of the metal relative to fiat money. The companies then invest the cash into other assets with a higher rate of return, allowing the Fed to keep gold prices down while providing banks with an opportunity to earn more money.

The scheme involves a number of other players too. “It’s not only bullion banks like Goldman Sachs and JP Morgan Chase and HSBC, but also — we call it a gold cartel — it’s also the Fed, the Treasury, the U.S. government, and the [central] Bank of England,” Murphy explained, adding that some of the conspirators had likely broken laws and probably belonged in jail. The suspicions have also been recently confirmed by whistleblowers within the system.

But despite the deliberate suppression of gold and precious-metals prices, their value continues to rise as the Fed adds trillions of new dollars to the money supply. “Gold measures the value of currencies. And right now gold is telling us, in spite of the fact that the gold price is rigged by central banks and various entities, gold is telling us that the dollar is in danger — great danger,” explained Fed foe Representative Ron Paul during a recent interview with CNBC. “We’re in worse shape than we were in the 70s, and it was rather chaotic then. So we’re moving into a very dangerous era according to what the gold price is telling us.”

The manipulative system remains intact. But there are signs that some minimal government action is finally being taken regarding manipulation of metals and commodities markets. The CFTC recently slapped multi-million-dollar fines on Morgan Stanley and a large hedge fund for just such activities. Various news reports also claim the Department of Justice’s anti-trust division is investigating alleged silver price manipulation by JP Morgan Chase.

Sadly, whatever is going on in the precious-metals market pales in comparison to the Fed’s manipulation of literally the entire world economy via the creation and control of money and credit.

Manipulation of the Market for Money
Being a central bank, the Fed has taken upon itself the job of supplying the dollars that we use to make transactions. To supply our currency, the Fed either prints it, or it simply adds funds to America’s ledgers by making an electronic adjustment to its books. To spread this currency throughout society, the Fed loans this “cash” to government or big banks for a very low interest rate, and the banks, in turn, loan it to other banks, which expand the supply even more and loan it to consumers.

The Fed can artificially boost segments of the economy, such as housing, for a period of time (even many years) by creating lots of money and flooding the market with it by offering it at very low interest rates — prompting lots of people to take out low-interest loans to build houses (and causing a market bubble). In a free market, on the other hand, the price of money would be determined by the amount of savings (supply) and the amount of currency sought by borrowers (demand). Interest rates would be set where the supply and demand curves meet, with the relative risk of a loan raising or lowering the interest rate demanded by a bank — higher risk earns banks higher rates. But instead, a shadowy, unelected cabal at the Fed arbitrarily sets interest rate “targets” and creates or destroys money to achieve its aims. The problems that result from this central economic planning cannot be overstated and include malinvestment, inflation, destruction and redistribution of wealth (from the poor and middle class to the super rich), and much more.

It also creates the “boom and bust” cycle and enables the “Welfare-warfare State” to function by loaning government amounts of money that it could likely not convince citizens to give up through direct taxation. Again, flooding a country with new money means everything just costs more, and the government essentially pays its bills through inflation — rather than through direct taxes.

By manipulating interest rates and thereby the price of money, the Fed becomes the de facto central planner of the economy and probably the single greatest market manipulator in all of history.

But even worse than those problems, as serious as they are, is the fact that the entire system is literally a “debt trap.” When money is created by the central bank and borrowed into circulation by government or commercial banks, more money is owed to the cartel than actually exists. This is because the interest on the principal charged by the central bank was never created with the money that was originally lent out.

The results of this trap were illustrated in the conclusions of Ronald Reagan’s Grace Commission: “100% of what is collected is absorbed solely by interest on the Federal Debt … all individual income tax revenues are gone before one nickel is spent on the services taxpayers expect from government.” The system literally depends on the creation of ever greater debt loads in perpetuity, and if new borrowers cannot be enticed into taking out loans, the whole economy collapses — leaving the bankers in control of everything (plus interest). 

Republican Representative Ron Paul of Texas, who originally introduced legislation to Audit the Fed, explains some ramifications of the Fed’s control of money. “Due to nearly a century of inflationary monetary policy on the part of the Federal Reserve, the US dollar stands at historically low levels. Investors around the world are shunning the dollar, and millions of Americans see their salaries, savings accounts, and pensions eroded away by rising inflation,” Paul said in a statement introducing legislation that would legalize competing currencies and end the government-created Fed monopoly. “We stand on the precipice of an unprecedented monetary collapse, and as a result many people have begun to look for alternatives to the dollar. As a proponent of competition in currencies, I believe that the American people should be free to choose the type of currency they prefer to use.”

The consequences of monetary central planning and the debt trap inherent in the system have distorted the economic landscape beyond imagination. Nobel Prize-winning economist Friedrich A. Hayek thought civilization itself depended on ending the corrupt process. “The only way to avoid being driven by continuing inflation into a controlled and directed economy, and therefore ultimately in order to save civilization, will be to deprive governments of their power over the supply of money,” he wrote in The Denationalization of Money. The greatest minds in economics — from Ludwig von Mises to Murray Rothbard — have echoed his concerns.

Fed Fighting Back
Of course, the Fed and its allies — the Obama administration and a powerful coalition of big banks including Bank of America, Citigroup, Deutsche Bank, and JPMorgan Chase through the Clearing House Association — are desperately attempting to beat back the myriad attacks on the central bank’s market manipulations and secrecy. The cartel has been waging an intense public-relations battle, and it even hired a lobbyist to pressure Congress to protect its interests. Unbelievably, the Senate has sought to increase the Fed’s powers through passage of the financial reform legislation in mid-May. This bill has not yet been passed as law because the Senate bill must be reconciled with the House bill.

It is to be hoped that as investors, legislators, and taxpayers continue to demand answers, the truth will finally come out and, if warranted, the prosecutions can begin. The issue of Fed transparency transcends politics — the American people are growing tired of an unaccountable, unconstitutional institution impoverishing them and enriching the banks without even so much as an audit. But with the economy in shambles and inflation rapidly destroying the dollar, the time for action to rein in these abuses is rapidly dwindling. Politicians who side with the banking cartel should be booted out of office at the next possible opportunity, and solutions must be found soon to avert a tragedy of historical proportions.

The New American

By Mark Whitehouse

122%: U.S. household debt as a share of annual disposable income

U.S. consumers are paring down their debts faster than many economists had expected. To understand what that means, though, it helps to know how they’re doing it.

As of the end of March, the average U.S. household’s total mortgage, credit-card and other debt stood at 122% of annual disposable income, meaning it would take a bit more than 14 months to pay it all off if everyone stopped spending money on anything else. That sounds like a lot, but it’s better than it was before: At its peak in the first quarter of 2008, the debt-to-income ratio stood at 131%. Economists tend to see 100% as a reasonable level, so we’re almost a third of the way there.

The falling debt burden conjures up images of a nation seeking to repent after a decade of profligacy, conscientiously paying down mortgages and credit-card balances. That may be true in some cases, but it’s not the norm. In fact, people are making much more progress in shedding their debts by defaulting on mortgages and reneging on credit cards.

Since household debt hit its peak in early 2008, banks have charged off a total of about $210 billion in mortgage and consumer loans, including credit cards. If one assumes that investors suffered at least that much in losses on similar loans that banks packaged and sold as securities (a very conservative assumption), then the total — that is, the amount of debt consumers shed through defaults — comes to much more than $400 billion.

Problem is, that’s more than the concurrent decrease in household debts, which amounts to only $372 billion, according to the Federal Reserve. That means consumers, on average, aren’t paying down their debts at all. Rather, the defaulters account for the whole decline, while the rest have actually been building up more debt straight through the worst financial crisis and recession in decades.

In a sense, people who default on onerous debts — including the “strategic defaulters” who still have jobs and could pay — are doing the economy a favor. They’re freeing up cash to spend on other things, which can boost demand and give companies the confidence they need to start hiring again. If everybody just hunkered down and tried to pay their insurmountable debts, we might never have gotten out of the recession. Defaults are bad for the banks, but taxpayers already covered the cost of the losses through federal bailouts.

The bigger question, though, is what we as a society will learn from the experience. The lesson seems to be that the way to get ahead in the world is to take huge risks — buy a house you can’t afford with no money down, or invest huge amounts of borrowed money in risky loans — but let somebody else pick up the bill if things go wrong. As the growing U.S. federal debt demonstrates, that’s not a sustainable way to run an economy.

Wall Street Journal

By Karl Denninger

The dichotomy of the following two pieces is rather sobering, when one considers the implications. 

First, from George Soros: 

“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.” 

Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.  

That, of course, is because the original medicine was incorrect.  The entire financial world, including Soros, advocated for (and got) more Keynesian stimulus – that is, more debt applies to an over-levered debt-laden world. 

Indeed, as the below shows, the fundamental instability here is not one of excess capacity, it is one of excess debt – an excess that has built up since the early 1980s: 

This, incidentally, is not just a US-centric thing.  It is a global problem and rests at the root of virtually all of the ills.  By willfully and intentionally abdicating the black-letter responsibility vested in The Federal Reserve, and by our Congress and Executive refusing to hold The Fed to account in regard to its core mission, the stage was set. 

What core mission? 

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.  

[12 USC 225a. As added by act of November 16, 1977 (91 Stat. 1387) and amended by acts of October 27, 1978 (92 Stat. 1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000 (114 Stat. 3028).] 

“Stable prices” does not mean “inflation at some rate.”  Stable means stable – that is, level, unchanging, etc. 

The Fed has willfully and intentionally refused to follow the law and Congress and The Executive have willfully and intentionally refused to enforce the law. 

From here all other evils in the economy flow. 

For example, for March 30th: 

Rising stock prices, a stabilizing housing market and fewer firings may be giving households hope that the recovery from the worst recession since the 1930s will be sustained. The 184,000 increase in payrolls economists project for this month shows it will take years for the economy to reverse the loss of 8.4 million jobs since the contraction began in December 2007. 

Why would rising stock prices matter?  

The government’s refusal to hold The Fed accountable to it’s mission has effectively forced people to “invest” in what amount to serial Ponzi Schemes in an attempt to have anything at all for retirement! 

Why would government do this?  

Because it forces dependency.  

Social Security and Medicare would both be immaterial and unnecessary if it was possible to simply sock away 10% of one’s earnings every year for retirement, and wind up with the same purchasing power at the end as you began with. 

Consider the person who earns $50,000 a year “on average” from entry into th workforce at 23 (assuming a college education) to 65.  If we have stable prices then wages would also remain stable.  So said person, assuming no promotions or improvements in their contribution to society (as measured by their productivity) works for 42 years and puts away $5,000 x 42 = $210,000. 

At 65 they retire and live 20 more years, to 85.  They can take $10,500 a year from that money, assuming zero dividends or otherwise, and live on it. 

But zero isn’t realistic.  What’s the operating return on a real business?  Presume it’s 10% – again, in constant dollars.  Further presume that as owners, you decide (shareholders are owners, right?) that half of this should be returned to the owners, and half plowed back into the company in development of further opportunity.  We now can take out $10,000 a year in dividends and never touch the principal, or we could run a 2 or 3% “depletion rate” on the principal and live on the mixture. 

Now you say “but that’s not enough!”  Ah, but during those years they also bought a house and were paying for it over time.  By 65, they own it free and clear.  If that house was a $100,000 (again, we’re assuming stable prices) home it still is, and they now have $310,000.  Now we’re up to $18,000-$20,000 a year in lifestyle. 

Perfect?  No, but remember, in retirement your expenses tend to drop as you don’t need to drive to work, you don’t need fancy suits or other clothing, there is no need to go out to lunch every day and other similar things. 

You want more?  Save more. 

Note that nowhere in this analysis have I factored in any sort of compound growth!  It isn’t necessary any more for you to “make it”, nor is any sort of government nonsense necessary either.  Mere saving is now enough! 

What else does the current intentional malfeasance lead to?  This sort of crap: 

Has the worm turned at last? As the oil continues to gush in the Gulf of Mexico, angry rhetoric has gushed from President Barack Obama’s lips. His rabid denunciations of BP have damaged the interests not only of that company but of most British people, in a way that must make us wonder whether he leads a friendly country. 

…. 

As BP’s share price has plummeted, it has lost £55billion of its market value, and the company’s entire outlook is very bleak, which affects most of us. Every British insurance company, building society and pension fund has large holdings of BP shares in its portfolio.  

If you have a pension, at present or in prospect, your income falls with every sour word Obama speaks. It’s a fine way for a friend to behave, if indeed we should regard the president as a friend. 

Spoken like a true douchebag banker apologist. 

In point of fact I suspect Mr. Wheatcroft is simply brainwashed by the idiocy of the time, rather than being in the pocket of the bankster cult.  After all, when one grows up with and lives under a structure that over the intermediate and long run cannot be stable, but which appears to produce “prosperity” for a time, it is difficult not to become imbued with the premise that one must have “compound growth” of earnings (and interest) to be able to “make prosperity.” 

In point of fact chasing compound return is how pensioners and insurance companies got in this mess.  Such a quest is an unsustainable Ponzi Scheme that was always doomed to fail – we were merely arguing over the when, not the what.  That BP found itself pressured by the demands to fulfill ever-rising profit expectations and thus allegedly decided to install and operate generators without working airdoor shutdowns along with continuing to drill while either knowing or being able to know that critical safety equipment was inoperative in fact doesn’t change this set of facts, it underlines them. 

Similarly, Foxconn, which is a contract manufacturer in China that makes Apple iPhones and HP Computers (among other things) is rumored to be intending to pull out of the nation and head for sunnier shores - in India, Vietnam and Taiwan.  Suicides at their plants have brought them under intense pressure – deaths blamed on harsh working conditions.  When one considers that the average Chinese worker in their plants makes $161 a month (after raises going into effect in July!) the problem should become obvious – these are people who would have to work for nearly three months to afford one of these $500 gadgets. 

Contrast this with the US, where at the current $7.25 minimum wage a worker performing 40 hours of work would earn nearly double that amount in one week.  That is, at minimum wage a worker in the US earns (gross) about $1,300 monthly, or eight times as much.  At the average manufacturing wage in the United States ($10.60 – $15.88 – call it $13 for grins and giggles) said US worker would make $2,340 monthly before taxes – 14.5 times what the Chinese worker makes. 

Are you really going to argue that for the minimum wage worker the cost of living in America is eight times that in China, or for the average factory worker it is 14 times higher?  Nonsense.  The truth is that said Chinese worker lives in what we consider abject poverty with the boot of the company, enabled by a murderous and thuggish central government that refuses to recognize and honor fundamental human rights, pressed ever-more tightly on the people’s necks. 

If you can drive people like slaves by first buying up and bulldozing their villages to put in your “compounds” where said work is done, then (as a consequence) becoming the only reasonable means of earning anything at all, you can exploit people like this.  

For a while. 

Until they jump off the roof. 

There are many who claim that our “problems” all come from a lack of “hard money” and “The Fed”, including Ron Paul in Congress.  He, and the rest, are wrong. 

The problem isn’t The Fed, it’s Congress.  It’s Ron Paul and the other 534 Ron Paul’s in Congress.  “End The Fed” is a fraudulent premise when in fact The Federal Reserve Act itself contains a legal stricture that imposes, by statute, a zero-inflation mandate – if Congress and The Executive would only enforce it. 

The Federal Reserve Act provides for a proper and correct monetary system.  Whether the currency is backed by gold, bushels of corn or grains of rice is immaterial if one is allowed to extend credit without bound.  The Federal Reserve Act is supposed to place upon The Fed a stricture not to allow that, and they have the ability to prevent it through control of leverage – which they are absolutely capable of exercising (e.g. reserve ratio requirements, etc.) 

The failure to do so is no accident, it is policy.  Policy of Congress and policy of The Executive, just as it was policy that allowed S&Ls to backdate deposits and detonate the FSLIC and one of the very regulators at OTS who allowed that to happen did the exact same thing with IndyMac bank 20 years down the road! 

Regulation and law without enforcement is no law at all.  We have seen this time and time again – with liar loans, with securities sold to investors that didn’t really contain what was claimed to be within them, with leverage constraints removed and now with BP, which managed to drill with, it appears, critical safety measures (that were supposed to be present) inoperative or damaged. 

When the disaster then strikes we have people cry poverty of foreknowledge, claiming that “nobody could have predicted this” and “nobody saw it coming.” 

Baloney. 

If you drill oil wells with an inoperative blowout preventer than eventually you will drill a hole that blows out and you will be unable to stop it. 

If you make liar loans and sell securities based on them claiming to have “good paper” when it is in fact trash, eventually the number of suckers available to continue to ponzi scheme will be exhausted and the financial market(s) associated with same will collapse. 

Mathematically, the results over sufficient periods of time are certain.  While it is true that “nobody can tell you in advance which trial of a probability game will result in the bad outcome”, what everyone who analyzes such a mathematical system can tell you is that the ultimate outcome is not one of chance, but certainty – the only element of uncertainty is WHEN the bad outcome will be realized, not if it will. 

We as Americans (and indeed as citizens of the world) must demand that the purveyors of schemes that contain these sorts of “will fail, without question of outcome, only time” elements be held to full account personally for their willful and intentional malfeasance.  

This, in the context of BP, means each and every executive up and down the line who knew the blowout preventer was not at 100% of design capacity to interrupt a blowout along with each and every person who knew that the generator engines lacked air doors.  The former is the cause of being unable to shut down the well, the latter is the proximate cause of ignition of the gas that was ejected during the blowout and thus the explosion, fire and destruction of the rig, along with the death of 11 men. 

In the context of our financial system it means that we must put into the dock and demand the removal of each and every lawmaker and regulator who allowed credit aggregates to grow to double their long-run sustainable values.  We must force those aggregates to contract to sustainable values and accept the economic contraction and deflation that must come with it, in order to restore long-run stability.  At the same time we must put a full and complete stop to the sort of global wage arbitrage that has been enabled by and fueled this insane game, along with all the “high frequency trading” games that have replaced the proper public and social purpose of public equity and debt markets in the first place (the raising and allocation of capital for legitimate business purpose.) 

Doing so requires we “clean house” at the legislative and executive levels.  Those current lawmakers who wish to retain their jobs must immediately demonstrate that they “Get It” and will act here and now to put a stop to the BS.  A few steps that would do so would be reinstatement of Glass-Steagall, a one-second rule for all orders entered on stock, commodity and futures exchanges (once entered no order may be modified or canceled for one second, which would make the “dancing games” of the HFT boys instantly unprofitable) and a stop to all “specialized” information flows for these folks not available to ordinary investors (and by which they cheat said ordinary investors.) 

In addition The Government must demand of The Fed that it immediately bring to bear its tools to contract total systemic credit outstanding to a ratio commensurate with the long-run stable economic levels known for more than fifty years – that is, no higher than 175% of GDP economy-wide.  Provide for a five year period during which this adjustment must take place, and that aggregates must fall by at least 1/5th of the requirement adjustment from top to bottom each year, with the penalty for failure being de-certification of The Federal Reserve and reversion to Treasury of monetary control. 

Finally, regulatory statutes in the United States, including The Federal Reserve Act, Prompt Corrective Action, MMS regulations governing oil and gas drilling and elsewhere must all be revised to contain an “or else” that is criminally enforceable against government actors who fail to perform their duties, and a civil cause of action and standing for each taxpayer. 

The day in which one may rob a bank or poison a waterway through regulatory malfeasance and corruption and go free, yet the same crime committed with a ski mask, hold-up note and a gun draws a 20 year sentence must end. The Market-Ticker