Stolen401K

Great Money Survival Advice from Argentina

2009-04-05T08:44:00.001-07:00

California Concentration Camps, Stealing Babies and RV's

2009-03-31T11:14:00.000-07:00

By David Kelly
Los Angeles Times Staff Writer

March 18, 2008

Dozens of Ontario police and code enforcement officers descended upon the homeless encampment known as Tent City early Monday, separating those who could stay from those to be evicted.

Large, often confused, crowds formed ragged lines behind police barricades where officers handed out color-coded wristbands. Blue meant they were from Ontario and could remain. Orange indicated they had to provide more proof to avoid ejection, and white meant they had a week to leave.

Many who had taken shelter at the camp -- which had grown from 20 to more than 400 residents in nine months -- lacked paperwork, bills or birth certificates proving they were once Ontario residents.

"When my husband gets out of jail he can bring my marriage certificate; will that count?" asked one tearful woman.

Another resident, clearly confused, seemed relieved to get a white band -- not understanding it meant she had to leave.

Pattie Barnes, 47, who had her motor home towed away last week, shook with anger.

"They are tagging us because we are homeless," she said, staring at her orange wristband. "It feels like a concentration camp."

Ontario officials, citing health and safety issues, say it is necessary to thin out Tent City. The move to dramatically reduce the population curtails an experiment begun last year to provide a city-approved camp where homeless people would not be harassed.

Land that includes tents, toilets and water had been set aside near Ontario International Airport for the homeless. Officials intended to limit the camp and its amenities to local homeless people, but did little to enforce that as the site rapidly expanded, attracting people from as far away as Florida.

"We have to be sensitive, and we will give people time to locate documents," said Brent Schultz, the city's housing and neighborhood revitalization director. "But we have always said this was for Ontario's homeless and not the region's homeless. We can't take care of the whole area."

Officials believe the local homeless number about 140, less than half of those currently in residence. Schultz wants to reduce Tent City to 170 people in a regulated, fenced-off area rather than the sprawling open-air campsite it has become.

No other city has offered to take in any of the homeless who Ontario officials say must leave.

"So far I have heard nothing," Schultz said.

Even before the large-scale action Monday, police last week moved out parolees and towed about 20 dilapidated motor homes. A list of safety rules, including one banning pets, has been posted. The city says there is a threat of dog bites and possible disease from the animals.

The no-pet order caused widespread anger and tears Monday as some homeless people said they could not imagine life without their dogs. Many have three or four and vowed to leave Tent City before giving the dogs up.

"I will go to jail before they take my dog," said an emotional Diane Ritchey, 47. "That's a part of me as much as anything. The dogs are as homeless as we are."

Cindy Duke, 40, hugged Ritchey, who was sobbing.

"I had to give up my 6-year-old son because I was homeless and I'll be damned if I give up my dog too," Duke said.

Celeste Trettin, 53, rolled up in a wheelchair. She and her husband have an Ontario address but have lived for years in a truck, parking wherever they found a safe place. Trettin, who got an orange wristband, said she believed she would be able to find the paperwork to prove she was from Ontario.

"We thought if we came here we could save some money, but now they have pulled the rug out from under us," said Trettin, who has fibromyalgia, a painful disorder.

Marty Tovar took it all in stride. The 53-year old Mentone man had fresh bumps and cuts on his face after being on the receiving end of a recent assault. He didn't seem to care if he had to leave.

"It doesn't anger me; it angers a lot of other people here but not me," he said, wearing no shirt under his blue overalls. "If I got to go I'll just catch the next bus to the next town. Every town has a park."

Still, by noon only one man had taken up an offer of free taxi rides back to their home cities, returning the 50 miles to Victorville, said Det. Jeff Higbee, spokesman for the Ontario police.

"By next Monday we should have everyone who is supposed to be gone out of here," Higbee said. "The wristbands are only temporary so we can identify everyone."

As the local homeless people were separated from the others, city workers were busy setting up fencing for the new encampment. Those who are approved will get 90-day renewable permits to stay.

Peter Bibring, staff attorney with the America Civil Liberties Union of Southern California, toured Tent City and spoke with local officials.

"We are concerned that however they go about trying to reduce this population they don't depend on arrests or property seizures for people who have no other place to go and are just looking for a place to sleep," he said. "We will continue to monitor the situation."

Although no one at the camp seemed happy about efforts to shrink Tent City, some tried to see Ontario's point of view.

Tina Gove, 39, was evicted from her Pomona home and has been at the encampment for three months. Like many others in Tent City, her life has been marked by drug problems and mental illness.

Her four children, she said, were taken from her because of a past methamphetamine addiction.

"If they throw me out I'll be back on the street, and I don't want to be back on the street because it's scary," she said. "But I think we should all be grateful because if Ontario hadn't opened this place for us, where would we be today?"

We Are Becomming the 3rd World!

2009-03-27T19:56:00.000-07:00

2009 Web Bots Predictions

2009-01-06T15:42:00.002-08:00

2009 Web Bots Predictions

2009-01-06T15:42:00.001-08:00

2009 Web Bots Predictions

2009-01-06T15:42:00.000-08:00

How Bad 2008?

2009-01-05T16:24:00.000-08:00

Great data collection, via David Gaffen of the WSJ’s MarketBeat, titled By the Numbers — How 2008 Shakes Out. Unfortunately, it got lost last week during the vacation days.

Here is Gaffen’s data run:

-33.84% The percentage loss in the Dow industrials, worst since 1931, third-worst in history.

-38.49% The percentage loss in the S&P 500, worst since 1937.

-40.54% The percentage loss for the Nasdaq Composite Index, worst in history.

126 The number of up days on the S&P 500 in 2008.

126 The number of down days on the S&P 500 in 2008. (The difference, of course, is that on the down days, the market lost an average of a kajillion points.)

28 The number of Dow industrials components ending lower on the year. The outliers were Wal-Mart Stores and McDonald’s.

15 The number of Standard & Poor’s 500-stock index members that ended the year in positive territory. This is the worst breadth for the S&P going back to 1980; second-worst was 2002, when 131 stocks, or 26% of the issues, rose on the year.

18 The number of daily 5%+ moves on the S&P 500 in 2008.

17 The number of 5%+ moves on the S&P 500 between 1956 and 2007.

280.80 The daily average point range on the Dow Jones Industrial Average.

421.01 The daily average point range on the Dow Jones Industrial Average between Sept. 1 and Dec. 31.

-7.87%. The worst one-day percentage change on the Dow in 2008, which ranks ninth all-time.

-87.14% The performance of General Motors in 2008, making it the worst among Dow components. (There are issues here of survivorship bias — American International Group was removed from the 30-stock average during the year, and that stock lost 97.31% in 2008, making it the worst performer among the members of the S&P 500.)

1.78 The percentage-point decline in the benchmark 10-year Treasury yield, which fell to 2.253% by the end of the year.

6 The number of days in 2008 that rank among the Dow’s top 20 up days and top 20 down days in terms of percentage change. (The leader, with 10 appearances, is 1932.)

-17.7%.The performance of the S&P’s consumer staples sector — the best performer among the S&P’s 10 industry sectors.

24.03% The gain in the Barclays long-term Treasury Index in 2008.

15.66 The difference, in percentage points, between the lowest spread over Treasurys for the Merrill Lynch High Yield Index for the year, and the highest spread over Treasurys. (At its peak, the index was at 20.68 percentage points over comparable Treasurys.)

$61,000 The cost of insuring $10 million in U.S. Treasurys against default for five years. At the beginning of 2008, this cost was $6,000.

Sources: Dow Jones Indexes; Markit; Standard & Poor’s

>

Source:
By the Numbers — How 2008 Shakes Out
David Gaffen
Marketbeat, January 2, 2009, 10:09 am
http://blogs.wsj.com/marketbeat/2009/01/02/by-the-numbers-how-2008-shakes-out/

Manufacturing Srinks to 1948 Levels

2009-01-04T09:03:00.000-08:00

U.S. Economy: Manufacturing Shrinks as Orders Plunge (Update1)

By Shobhana Chandra

Jan. 2 (Bloomberg) -- The decline in U.S. manufacturing deepened in December as demand for such products as cars, appliances and furniture reached the lowest level since at least 1948, signaling further cutbacks in factory jobs and production this year.

The Institute for Supply Management’s factory index fell to 32.4, below economists’ forecasts and the lowest level since 1980, from 36.2 the prior month. Readings less than 50 signal contraction. The group’s new-orders measure reached the lowest level on record and prices slid the most since 1949.

“Every component suggests that the weakness is going to carry over into 2009,” Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. “There’s just not a whole lot of new business coming in,” and companies will have a “painful adjustment” as consumers shun spending.

Today’s figures underscore that, with private demand collapsing, manufacturers’ best hope for new business this year may be President-elect Barack Obama’s plans for an unprecedented stimulus package. Obama has pledged an investment program in roads, schools and the U.S. energy network akin to the 1950s-era interstate highway construction boom.

Stocks climbed to a two-month high on the first day of trading in 2009, following the market’s worst annual drop since the Great Depression, as General Motors Corp. got its first cash infusion from the government and rising oil prices lifted energy shares. The Standard & Poor’s 500 Index rose 3.2 percent to close at 931.8. Benchmark 10-year Treasury yields rose to 2.39 percent at 4:41 p.m. in New York from 2.22 percent late Dec. 31.

Global Slump

The report also showed the impact of recessions abroad: the Tempe, Arizona-based ISM’s measure of exports fell to the lowest level since that series began in 1988.

Separate figures today showed business at European factories contracted in December by the most on record. Manufacturing declined in China for a fifth month in December, for an eighth month in the U.K., for a seventh month in Australia and at the fastest pace in at least 14 years in Sweden.

The figures “confirm a sharp contraction in global investment, output and trade activity, consistent with the deepest global recession since at least the early 1980s,” said Lena Komileva, head of market economics in London at Tullet Prebon Plc.

Economists’ Forecasts

The ISM’s gauge, which covers about 12 percent of the economy, was projected to drop to 35.4, according to the median estimate of 57 economists surveyed by Bloomberg News. Forecasts ranged from 34 to 40 and the measure averaged 51.1 in 2007.

Clogged credit markets, the collapse in housing and mounting job losses have hurt demand for everything from furniture and appliances to automobiles, driving General Motors Corp. and Chrysler LLC to the brink of bankruptcy.

The ISM’s employment index decreased to 29.9 from 34.2 in November. The gauge of prices paid fell to 18, reflecting the drop in commodity costs. Economists had projected that the measure, which averaged 65 in 2007, would drop to 20.

Automakers have been among the hardest hit as November sales plunged to the lowest level in a quarter century, according to industry figures. President George W. Bush announced Dec. 19 that General Motors and Chrysler will get $13.4 billion in initial government loans to keep operating while they restructure operations to return to profitability.

Automakers Hit

The carmakers last month expanded their traditional holiday shutdowns to clear out unwanted stock. Chrysler idled all 30 of its assembly plants on Dec. 17 for at least a month, while GM announced output cuts Dec. 12 that affected 20 plants.

The closings will extend into this month. Ford Motor Co. said 9 of 15 North American factories would shut for the first week in January.

The U.S. Treasury this week issued broad guidelines for aid to the auto industry, opening the door to using taxpayer money to finance a wider array of companies, such as GM’s bankrupt former parts unit Delphi Corp.

The factory slump has spread well beyond autos as demand from abroad also weakens. Ingersoll-Rand Co., the maker of Thermo King and Hussmann refrigeration equipment, said last month that profit will fall short of fourth-quarter and full- year estimates after demand declined “sharply” in North America and Western Europe.

“Probably the U.S. and developed world are in recession,” General Electric Co. Chief Executive Officer Jeffrey Immelt said in his annual outlook address on Dec. 16. “The environment is still the toughest, for people of my generation, that we’ve ever seen.”

U.S. exports dropped in October for a third straight month, leading to an unexpected widening in the trade gap, figures from the Commerce Department last month showed. The drop indicated the economy was sinking even faster than previously estimated.

Gov's Want a Trillion

2009-01-03T08:54:00.000-08:00

U.S. governors seek $1 trillion federal assistance
Fri Jan 2, 2009 5:48pm EST
By Jon Hurdle

PHILADELPHIA (Reuters) - Governors of five U.S. states urged the federal government to provide $1 trillion in aid to the country's 50 states to help pay for education, welfare and infrastructure as states struggle with steep budget deficits amid a deepening recession.

The governors of New York, New Jersey, Massachusetts, Ohio and Wisconsin -- all Democrats -- said the initiative for the two-year aid package was backed by other governors and follows a meeting in December where governors called on President-elect Barack Obama to help them maintain services in the face of slumping revenues.

Gov. David Paterson of New York said 43 states now have budget deficits totaling some $100 billion as tax revenues plunge.

"It's clear that the federal government needs to step in and jump-start the economy," said Gov. Deval Patrick of Massachusetts.

The latest package calls for $350 billion to create jobs by building or repairing roads, bridges and other public works; $250 billion to maintain education; and another $250 billion in "counter-cyclical" spending such as extending unemployment benefits and food stamps, which are typically a responsibility of the states.

The remainder would be used to fund middle-class tax cuts, stimulate the embattled housing market, and stem the tide of home foreclosures through a loan-modification program.

Gov. Jon Corzine of New Jersey said he hoped some of the $700 billion authorized by Congress in the Troubled Asset Relief Program would be available to help the housing market.

The governors said during a conference call with reporters that the plan had been discussed with Congressional leaders and the incoming administration, which had indicated its willingness to help.

"The Obama team has been very receptive in listening to us," said Gov. Jim Doyle of Wisconsin. He said "quite a number" of other governors back the initiative.

The Republican Governors Association, however, said the level of federal aid being sought would create a burden for the future.

"The proposal by the Democratic governors goes beyond things like 'shovel-ready' infrastructure projects and is essentially a bailout of these states' general funds," Nick Ayers, executive director of the Republican Governors Association, said in a statement. "Now is the time to focus on finding cost-effective ways to provide essential services without burdening future generations with ever greater debt."

Doyle of Wisconsin said the plan would allow states to maintain essential services at about the current level until 2010, when the national economy is expected to begin a recovery.

The proposal comes amid expectations that the Obama administration, which takes office on January 20, will provide hundreds of billions of dollars in economic stimulus to boost the shrinking U.S. economy and halt the loss of jobs.

Paterson of New York said his state's budget deficit has surged to $15.4 billion currently from $5 billion in April 2008, despite a 3.2 percent cut in the education budget.

Corzine said the money called for represents about 3 percent to 3.5 percent of the economy, equivalent to the amount that the economy is expected to contract by over the next two quarters.

In light of the $700 billion provided to bail out the financial industry, "It's not shockingly large," he said.

Jim Rogers 2009 Predictions for Economy

2009-01-02T08:19:00.000-08:00

Thank You for the Bailout!

2009-01-01T08:36:00.000-08:00

Black Hole of Debt

2008-12-31T12:31:00.000-08:00

Gold and Silver Manipulation

2008-12-31T09:01:00.000-08:00

http://seekingalpha.com/article/112535-the-manipulation-of-gold-and-silver-prices

China disses Dollar

2008-12-29T16:30:00.000-08:00

Monday, December 29, 2008

Chinese central bank: "The US dollar is unlikely to be stable next year"
by Eric deCarbonnel

BBC reports that China will allow freer yuan trades:

(emphasis mine) [my comment]

China to allow freer yuan trades

China has said it is to allow some trade with its neighbours to be settled with its currency, the yuan.

The pilot scheme was announced in a package of measures designed to help exporters hit by the global downturn.

It means if the two parties to a trade have yuan available, they need not enter world exchange markets to pay.

Most of China's foreign trade is settled in US dollars or the euro, leaving exporters vulnerable to exchange rate fluctuations.

The yuan is not yet a freely convertible currency. [Keyword here is yet.]

Officials did not say when the trial scheme would start.

When it does, the yuan could be used to settle trade between parts of eastern China (Guangdong and the Yangtze River delta) and the territories of Hong Kong and Macau, and between south-west China (Guangxi and Yunnan) and the Asean group of countries (Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam). [that is a pretty vast area for yuan trade settlements to be extended to.]

Spreading yuan

Analysts told Chinese media that the yuan was already being used in some South East Asian countries and that China was happy to see such use extended.

They also agreed that the measure was intended to help companies cope with the global financial meltdown [domestic Chinese exporters are worried about inking trade deals in a currency that might becomes worthless by the time they deliver the goods], even though buying and selling the currency requires the presentation of legitimate trade documents to banks.

The latest measure follows Beijing's announcement earlier this month of a 30-point directive in which it vowed to "support the development of yuan business in Hong Kong" and expand the use of the currency to settle trade with neighboring countries.

Central bank governor Zhou Xiaochuan was quoted by the South China Morning Post as saying: "The US dollar is unlikely to be stable next year and later. [Yikes, this is the most worrying thing I have heard yet. I see only two ways to interpret this quote:

a) Zhou thinks the dollar is going to become unstable because China is going to cut back on dollar purchases.
b) Zhou thinks the dollar's problems are so big that China won't be able to do anything about it.

I personally believe it is a combination of the two.]

"And the likelihood of the United States issuing more money in the near future adds to the depreciation risk in US-dollar-denominated assets [China is worried about its massive holdings of US assets.] and trade settlements [Chinese exporters are worried about inking deals in a rapidly depreciating currency]."

He also reportedly said that Guangxi, a province in southern China, had already been settling trade with Vietnam in yuan for some time. [the fact that Chinese exporters are insisting on payments in yuan should be very worrying for the US. They wouldn't be doing this if they still trusted the dollar.]

Spurs to spend

A document released after a meeting of China's State Council on Wednesday announced more measures to stimulate domestic consumption. [Measures to stimulate domestic consumption should be very worrying to the US. It is evidence that China is moving away from its reliance on exports for economic growths towards a more consumer driven economic model. A shift away from promoting exports is also a shift away of financing our deficit.]

These include subsidies to rural households for the purchase of household appliances and other goods, and the setting up of new stores and distribution centres in rural areas.

The document called for the renovation of urban food markets, the provision of more variety of goods on sale, the setting up of more second-hand markets, incentives for distribution companies to merge and consolidate, and support of small and medium-sized enterprises.

The state news agency Xinhua said the government intended to raise export tax rebates for high-technology products, to encourage foreign investment, extend customs and inspections services, lower inspection fee for exports and strengthen trade relations in emerging markets.

Analysts said the ideas, though vague, indicated growing concern among China's policy makers about the domestic impact of the current global financial turmoil.

Powered by exports, China's economy has grown by double digits in recent years.

In November, official figures showed a 2.2 percent drop in exports, the first decline in more than seven years. [China's incentive to finance our trade deficit declines with its exports.]

My reaction: Did I mention now was a good time to buy gold?

US Treasuries -Who Holds?

2008-12-23T14:44:00.000-08:00

According to the US Treasury/Federal Reserve Board, as of September 2008 US government debt was held by the following countries.

The biggest three owners of US Treasury bonds are:

1. China - $585 billion
2. Japan - $573 Billion
3. United Kingdom - $338 billion

In this light the announcement that was made today in the English language official organ of the Communist party, the China Daily, is particularly thought provoking. "China’s increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis…”

This follows an announcement made about 2 weeks ago by the head of China’s sovereign wealth fund to the effect that the current high value for the US dollar might not continue.

Perhaps the Chinese are sending a warning that might be attended to.

Walter Williams on FED Money Printing

2008-12-22T17:08:00.000-08:00

Counterfeiting Versus Monetary Policy
By WALTER E. WILLIAMS | Posted Monday, December 22, 2008 4:20 PM PT

Congress is on a spending binge. With all the calls for bailouts, economic stimulus and other assorted handouts, there is a real risk of inflation in our future. If we do have a rapid inflation, it's likely that Congress, as they did in the financial meltdown, will blame it on everybody except itself.

Before Congress begins to shirk its responsibility, let's understand what inflation is.

Several prices rising are not inflation. Only when prices across the board rise is there inflation. But just as in the case of diseases, describing a symptom does not necessarily tell us the cause. That is the same with inflation; it is a symptom of something else.

Nobel laureate and noted monetary theorist Milton Friedman explained, "Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output." Put another way, inflation results from an increase in the supply of money relative to the demand for money.

That being the case, who is responsible for inflation? It's not you or I because if we privately increased the supply of money to finance profligate spending, we would be charged with counterfeiting and go to prison.

The Federal Reserve Bank, our central bank, is the only entity legally permitted to increase the supply of money, to finance Congress' profligate spending. The Federal Reserve Bank is supposed to be independent, but it typically accommodates the wishes of Congress and the White House.

Central banks are villains in most countries; ours is just not as bad as others. In 1946, Hungary's central bank gave it the world's highest inflation rate. Prices doubled every 16 hours, creating an annual inflation rate of 13 quadrillion percent.

Last October, Zimbabwe's central bank produced history's second highest rate of inflation. Prices doubled every 25 hours, giving it an annual inflation rate of 80 billion percent.

By comparison, Germany's inflation rate, which brought about the social disruption responsible for Hitler's rise to power, was a mere 30,000% that saw prices doubling every four days.

You say, "Williams, that couldn't happen here." Except during the Revolutionary War and the War of 1861, our inflation has never exceeded 20%, but keep in mind that any hyperinflation was once 20%.

Knowing the dangers posed by central banks, we might ask whether our country needs the Federal Reserve Bank. Whenever I'm told we need this or that government program, I always ask what we did before.

It turns out that we did without a central bank from 1836, when President Andrew Jackson closed the Second Bank of the United States, to 1913 when the Federal Reserve Act was written. During that interval, we prospered and became one of the world's major economic powers.

The justifications for the Federal Reserve Act of 1913 was to prevent bank failure and maintain price stability.

Simple before and after analysis demonstrates that the Federal Reserve Bank has been a failure.

In the century before the Federal Reserve Act, wholesale prices fell by 6%; in the century after they rose by 1,300%.

Maximum bank failures in one year before 1913 were 496 and afterward 4,400.

During the 1930s, inept money supply management by the Federal Reserve Bank was partially responsible for the depth and duration of the Great Depression.

It is not wise for us to permit a few people on the Federal Reserve Board to have life and death power over our economy.

My recommendation for reducing some of that power is to repeal legal tender laws and eliminate all taxes on gold, silver and platinum transactions.

That way there would be money substitutes and the government money monopoly would be reduced, as would be the ability to tax — some people would say steal from — us through inflation.

Williams is a syndicated columnist and professor of economics at George Mason University.

The Fedsters Belong in Jail

2008-12-20T21:00:00.001-08:00

Peter Schiff, Get out of the Dollar Now

2008-12-20T11:35:00.000-08:00

Ride the Titanic All the Way Down

2008-12-19T12:24:00.000-08:00

Treasury Won’t Ease Mandatory 401(k) Withdrawal Rules for 2008

By Jeff Plungis

Dec. 19 (Bloomberg) -- The U.S. Treasury Department won’t change rules on mandatory withdrawals from 401(k) plans for 2008, forcing many retirees to draw down accounts after large stock-market losses.

Congress approved legislation Dec. 11 that will defer required distributions in 2009, but it didn’t address retirees who have had to take distributions this year, when the Standard & Poor’s 500 Index has lost 35 percent. Account holders over the age of 70 and a half are required to take a minimum withdrawal based on Internal Revenue Service tables.

President George W. Bush is expected to sign the legislation into law, Treasury Assistant Secretary for Legislative Affairs Kevin Fromer wrote in a Dec. 17 letter to Rep. George Miller, a California Democrat and chairman of the House Education and Labor Committee. The Treasury Department and Internal Revenue Service determined any further change “should not be undertaken,” Fromer said, because implementation would be “complicated and confusing for individuals and plan sponsors.”

Congress thought the Treasury Department would address 2008 distributions through regulation, Education and Labor Committee spokesman Aaron Albright said in a statement. Lawmakers will work with the administration of President-elect Barack Obama on other ways to provide “permanent relief,” he said.

“We are disappointed that the Treasury Department declined to act,” Albright said. Congress acted with the “understanding that Treasury was actively working on a solution for this tax year.”

Merrill Lynch Sees Inflation not Deflation as Problem

2008-12-19T11:53:00.000-08:00

As you can see from the article below, Merrill Lynch shares our view about central banks sowing the seeds of inflation with their money printing. They are not concerned about deflation. They see it as only a very short term phenomena, and nothing be concerned about.

Timothy Bond who wrote this is one of the great economists on China and Asia. I have followed his work for years, and he has been correct. He says inflation is the problem not deflation. Deep interest rate cuts will continue in Asia and they will cause “deflation to be swept away by a flood of policy stimulus.” He goes on to say “In fact, we share the concern that central banks could over do it, sowing the seeds of future inflation.”

Asia has swapped an inflation scare for a deflation scare in the space of just a few months.

Price levels are falling almost everywhere. Four countries (China, Hong Kong, Taiwan, and Thailand) could see year-on-year deflation by early 2009.

What’s our view? We think deflation will temporarily raise its head, then be swept away by a flood of policy stimulus. In fact, we share the concern that central banks could overdo it, sowing the seeds of future inflation.

Still, deflation is the clear and present threat right now. Heading it off requires more “deep” rate cuts by Asian central banks, in our view. For this reason, we think the rally in domestic bond markets could continue through early 2009.
—TJ Bond

Asian snapshot: China—Cut 2009E GDP growth forecast to 8.0%

The global economy, especially international trade, has been hitting a wall since mid-September and will have to take several months to bottom out from this severe demand shock. For China, the world’s second-largest exporter, the sudden contraction of external demand is beyond our original expectation, and we believe it’s warranted to lower our 2009E GDP growth forecast from 8.6% to 8.0% albeit our optimistic view on the effectiveness of China’s fiscal stimulus plan.

What to watch: Singapore and Taiwan

As investors work through the next lfew months of data, we think they should revisit our view on the “heart attack” and the cycle. We expected terrible data in 4Q08 (this is happening), followed by a bounce-back in early 2009…and then business as usual, meaning a bread-and-butter deterioration in Asian data through mid-2009 as the fundamental slowdown continues to unfold. The December data should remain in “heart attack” mode. We believe key activity data from Singapore and Taiwan next week should further validate this thesis.

As the downturn deepens, we expect Taiwan export orders—a key lead indicator of China’s trade—to contract 15.5% y-o-y in November, following a 5.6% decline in the previous month. Separately, we project Singapore’s November industrial production to contract 14% y-o-y (down 12.6% y-o-y in October) in view of the poor trade data. This suggests another negative GDP reading for Singapore.

PAY RAISE FOR CONGRESS! JUST IN TIME

2008-12-19T07:05:00.000-08:00

With economy in shambles, Congress gets a raise
By Jordy Yager

A crumbling economy, more than 2 million constituents who have lost their jobs this year, and congressional demands of CEOs to work for free did not convince lawmakers to freeze their own pay.

Instead, they will get a $4,700 pay increase, amounting to an additional $2.5 million that taxpayers will spend on congressional salaries, and watchdog groups are not happy about it.

“As lawmakers make a big show of forcing auto executives to accept just $1 a year in salary, they are quietly raiding the vault for their own personal gain,” said Daniel O’Connell, chairman of The Senior Citizens League (TSCL), a non-partisan group. “This money would be much better spent helping the millions of seniors who are living below the poverty line and struggling to keep their heat on this winter.”

However, at 2.8 percent, the automatic raise that lawmakers receive is only half as large as the 2009 cost of living adjustment of Social Security recipients.

Still, Steve Ellis, vice president of the budget watchdog Taxpayers for Common Sense, said Congress should have taken the rare step of freezing its pay, as lawmakers did in 2000.

“Look at the way the economy is and how most people aren’t counting on a holiday bonus or a pay raise — they’re just happy to have gainful employment,” said Ellis. “But you have the lawmakers who are set up and ready to get their next installment of a pay raise and go happily along their way.”

Member raises are often characterized as examples of wasteful spending, especially when many constituents and businesses in members’ districts are in financial despair.

Rep. Harry Mitchell, a first-term Democrat from Arizona, sponsored legislation earlier this year that would have prevented the automatic pay adjustments from kicking in for members next year. But the bill, which attracted 34 cosponsors, failed to make it out of committee.

“They don’t even go through the front door. They have it set up so that it’s wired so that you actually have to undo the pay raise rather than vote for a pay raise,” Ellis said.

Freezing congressional salaries is hardly a new idea on Capitol Hill.

Lawmakers have floated similar proposals in every year dating back to 1995, and long before that. Though the concept of forgoing a raise has attracted some support from more senior members, it is most popular with freshman lawmakers, who are often most vulnerable.

In 2006, after the Republican-led Senate rejected an increase to the minimum wage, Democrats, who had just come to power in the House with a slew of freshmen, vowed to block their own pay raise until the wage increase was passed. The minimum wage was eventually increased and lawmakers received their automatic pay hike.

In the beginning days of 1789, Congress was paid only $6 a day, which would be about $75 daily by modern standards. But by 1965 members were receiving $30,000 a year, which is the modern equivalent of about $195,000.

Currently the average lawmaker makes $169,300 a year, with leadership making slightly more. House Speaker Nancy Pelosi (D-Calif.) makes $217,400, while the minority and majority leaders in the House and Senate make $188,100.

Ellis said that while freezing the pay increase would be a step in the right direction, it would be better to have it set up so that members would have to take action, and vote, for a pay raise and deal with the consequences, rather than get one automatically.

“It is probably never going to be politically popular to raise Congress’s salary,” he said. “I don’t think you’re going to find taxpayers saying, ‘Yeah I think I should pay my congressman more’.”

Bailouts, Beck & Socialism LOL-->>

2008-12-18T17:36:00.000-08:00

Social Security Ponzi Scheme, too

2008-12-18T16:35:00.000-08:00

Jim Rogers is Selling ALL $$

2008-12-18T08:21:00.000-08:00

California Towns Bankrupt

2008-12-18T06:55:00.000-08:00

DECEMBER 18, 2008 More California Towns Face Bankruptcy Article

»By BOBBY WHITE
RIO VISTA, Calif. -- California may soon have more bankrupt towns on its hands.
The city of Vallejo, Calif., gained national attention earlier this year by filing for Chapter 9 bankruptcy protection. Now, two neighbors are fighting to avoid the same fate, as the state's economic crisis spreads.
Isleton and Rio Vista, small towns roughly 50 miles northeast of San Francisco, say they have begun consulting with bankruptcy lawyers as they draw up plans to deal with their mounting budget crises. The towns' leaders say they hope to avoid bankruptcy, but concede the move may eventually be their only option.
"We're strapped for cash and by the end of March or early April we may not have enough money to pay for payroll," says Hector De La Rosa, Rio Vista's city manager.
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A Rio Vista, Calif., street is empty after construction was halted at a housing development last month.
California's troubled towns can't expect much help from the state. A state board voted Wednesday to shut off $3.8 billion in financing to hundreds of infrastructure projects to preserve cash, as the nation's most populous state struggles under a budget deficit that officials say could balloon to more than $40 billion over the next two years.
"California's fiscal house is burning down," State Treasurer Bill Lockyer said in a statement.
The plights of Isleton and Rio Vista highlight the difficulties small California municipalities face as revenue falls. Vallejo, just a few miles west of the two towns, filed for bankruptcy in May after its tax revenue sank with the economy, while wages and benefits for police and other services rose. Vallejo instantly became the nightmare scenario for towns across the state facing a similar toxic mix of foreclosures, debts, pension obligations and the inability to raise money on bond markets.
California also makes it hard for municipalities to quickly raise taxes to cover shortfalls: In most instances, state law requires them to place increases in utility rates and taxes before voters for their approval.
Rio Vista began to see the trouble last year, when property-tax revenue began to falter. The city lacks revenue sources such as big-box retailers and depends heavily on two auto dealerships for sales-tax revenue, Mr. De La Rosa says. But the dealerships have hit hard times.
Rio Vista has cut a third of its city workers and slashed its recreation budget to $29,000 from about $250,000. The city is looking into selling more than 100 acres of its land for revenue. Since July 2007, Rio Vista has cut $1 million from its $7 million budget but still faces an $800,000 shortfall. "The fact we are a small town makes it more difficult to handle this slide we are on," says Rio Vista Mayor Jan Vick. "We don't have that much to cut."
In September, Rio Vista contacted law firm Orrick, Herrington & Sutcliffe, which handled the Vallejo bankruptcy, and requested guidance, says former Mayor Eddie Woodruff.
The thought of bankruptcy doesn't sit well with some residents. "When I first heard the council was considering bankruptcy, I was all for it," says Howard Lamothe, owner of Foster's Bighorn restaurant, whose family has lived here for seven generations. "But after I learned about what it means and how it affects business and service, I changed my mind," he says. "I can't support that."
John Knox, a partner at Orrick Herrington, says he expects to see several more municipal bankruptcies in California next year. But "there is no capacity at the state level to write a check to aid our financially burdened local governments," says Marie Ann O'Malley, a policy analyst with the state's Legislative Analysts Office, a nonpartisan financial and policy-advisory agency.
The state's Pooled Money Investment Board Wednesday halted the flow of money to highway, prison and schools projects, among others, until June, so the state can pay for public safety, health care and other crucial services for as long as Sacramento lawmakers remain stalemated over how to close the budget gap.
Ms. O'Malley says that distressed cities could turn to county governments to take over some services. But with many counties also hurting financially, that option is limited. Another option: Cities could dissolve themselves, she says. But dissolution also involves county officials taking over city services and orchestrating a recovery, and lenders would still be left holding the bag for debts.
Isleton's city manager, Bruce Pope, says the town owes $950,000 for an assortment of services including trash pickup and electricity. With Isleton's operating budget of about $1 million, interest on unpaid bills could overpower the city's budget, he says.
Some county leaders are pressuring Mr. Pope to dissolve Isleton. But the town, with about 1,000 residents, doesn't have the money to cover the fees to do so, he says.
—Jim Carlton contributed to this article.

Ukraine's Currency Crashes.. PopulationPanics

2008-12-17T18:41:00.000-08:00

Panic as Ukraine's currency plummets
by Eric deCarbonnel

unian.net reports panic as Ukraine's currency plummets:

(emphasis mine)

[15.12.2008 09:33]
Panic as Ukraine's currency plummets

The national currency of Ukraine, whose pro-West government wants to join the European Union, has almost halved in value in the last six months, prompting panic amongst its heavily indebted population.

The sudden fall in the hryvnia has sent Ukrainians rushing to exchange booths to change local money for hard currency, in scenes that recalled the hyperinflation suffered by the country in the early 1990s.

Not only do Ukrainian consumers have to pay back loans taken out in more prosperous times but many will also have to pay them back in dollars.

The hryvnia (UAH) was on Friday trading at 7.49 UAH against the dollar compared with 5.05 UAH at the beginning of the year and 4.84 UAH in July.

The National Bank of Ukraine has allowed the hryvnia to trade freely in line with the conditions of a 16.4-billion-dollar (12.8 billion euro) IMF loan aimed at helping the country through the financial crisis.

The hyrvnia -- a currency introduced in 1996 and named after money used in ancient Kiev -- has endured the ignominy of suffering one of the worst devaluations, along with the Icelandic krona, in the global financial crisis.

"I consider myself a cultivated gentleman. But at the moment I`m thinking of taking petrol and a lighter and setting the National Bank of Ukraine on fire," said Egor Sobolev, a journalist who owes 60,000 dollars for his flat.

"We are paid in hryvnia and for the moment our family budget allows us to make monthly payments of 1,000 dollars, but if the hyrvnia falls to 10 or 15 to the dollar the Bank has a big chance of going up in flames!"

As of December 1, Ukrainian consumers had notched up debts of 235.5 billion hryvnia (31 billion dollars) some 70 percent of which (176 billion hryvnia or 23 billion dollars) has been taken out in foreign currency.

Dollars and euros were almost impossible to buy in banks and exchange offices in Ukraine in November as people flocked to trade their hyrvnia for stronger currencies.

The growth in hryvnia-denominated bank deposits was replaced in October by an outflow amounting to 10 percent of investments.

The panic reached a peak earlier this month when a newspaper reported that all dollar bank savings could be converted into hryvnias, a rumour vehemently denied by the authorities.

"Savers can only feel that they have been duped and have reason to be scared of similar surprises in the future," said the Dzerkalo Tyjnia weekly.

"Who is going to answer for for the devastation of entire layers of Ukrainian society?"

President Viktor Yuschchenko oversaw the currency`s introduction when he was working as head of the central bank in the 1990s.

Ukraine has been among the countries hardest hit by financial turmoil as the plunging price of steel, the country`s main export, has exacerbated a credit crunch and a sharp fall in stock prices.

Underlining the country`s difficulties, Ukrainian industrial production is in freefall, crashing 15.2 percent in November compared to the previous month and 28.6 percent compared to November 2007.

Metals output in November was 23.5 percent lower than in October and a whopping 48.8 percent lower than the same figure for November 2007.

Out of the three major economies of the former Soviet Union -- Kazakhstan, Russia and Ukraine -- Ukraine is to see the sharpest slowdown, analysts at UBS said in a bleak research note.

"Ukraine will see the sharpest slowdown among the three countries despite support from the IMF. Its currency will have to devalue given that it has the worst net international asset position," the UBS analysts said.

But they added that with the conditions of the IMF loan there is a "good chance" that Ukraine might finally start implementing the reforms that it had put off for 10 years.

My reaction: Another currency bites the dust. With Ukraine and Iceland, the total for failed currencies stands at two: the Krona and the hryvnia. The dollar and pound will soon join that list.

There are two points I am now wondering about:

1) How much will dollar's collapse help already failed currencies like the dollar? (probalby a little)

2) With "industrial production is in freefall" in Ukraine and other nations, could we end up seeing shortages of goods? (I think yes)

Dollar Tankin , Golds Rollin

2008-12-17T16:53:00.000-08:00

Today’s action in nearly every single market that trades can best be described by one phrase – “It’s all about the Fed”. Their decision to basically print as much money as needed to liquefy the financial system is a signal that the Dollar be damned as far as they are concerned. They will create as many of those little green things as they feel is necessary to free up the logjam in the credit markets. The Forex markets wasted no time whatsoever in administering a sound “arse whooping” to the greenback as it has utterly collapsed. We have been saying at this site for years now that the Fed would burn the dollar to the ground rather than allowing the stock market and the general economy to slump into a depression. That prediction has been vindicated I think it is safe to say. It really did not take a rocket scientist to figure this out; one merely had to read Chairman Bernanke’s own writings where the strategy is laid bare for anyone who wanted to see it. The only question in my mind at this point is exactly how fast the monetary authorities are prepared to let the dollar fall since it is no longer a matter of “IF” it will fall – they want it down. No one is going to want the dollar to drop off the face of the earth – what they ideally want is a “controlled descent” if such a thing is possible now that any fundamental support beneath the dollar has been eliminated.

When you throw in the fact that the incoming administration has made it clear that their intent is to create a government works project modeled after the New Deal of the 1930’s, the whole thing has an eerie, surreal feeling as if we have been here before. Budget deficits into the future as far as the eye can see coupled with free money being thrown into the system is a recipe for the demise of the Dollar. All this translates to much higher gold prices especially with the absolutely pathetic yields that investors can now hope to obtain on US Treasuries.

The mining shares are higher today building on yesterday’s impressive late session power move higher. The 100 day moving average is below the HUI’s session low with the last barrier up near the 200 day moving average around the 350 level. That same moving average comes in near the 148 level for the XAU. It too is trading above the 100 day moving average with the 10, 20, 40 and 50 day all now moving up. The charts are clearly in a bullish technical posture. On the weekly HUI chart, prices have moved above the 38.2% Fibonacci retracement level off the early 2008 peak and the October low. A key test will be the 50% level near 334. A close above that and the shorts are cooked. I am interested in seeing where support emerges on any dips in price. The fact that this move is coming so late in the month and year is noteworthy as generally this is a period in which liquidity tends to dry up and most investors do not commit to anything of size as far as positions go. They are generally reducing positions and getting ready to take off until the new year. That alone tells me that this is not an ordinary move; rather a great deal of distress is taking place and emotions are very strong.

Back at the paper gold market known as the Comex – open interest is indeed rising – a bullish technical signal but the rather small extent of that rise is a sign that a great deal of short covering has been occurring. The jump in open interest in the very distant months is a sign that the spreaders are also at work. With open interest still at very low levels and all of the technicals now generating bullish signals and upside momentum, the room for a very large build in speculative long positions is quite ample.

Bonds are moving vertically, a sure sign that a market is in a parabolic blow off run. That market is a giant bubble but only the very brave or very, very quick will be able to get in front of it. When it pops, and it will, great will be its fall. In the meantime, the trend is higher as the many traders are simply buying the long end with flattening trades and could care less how high they push it.

Back to gold – deliveries for December gold have been continuing with 500 contracts still left open in the December. Those of you who have been taking delivery - nice work – those of you who are financially able and wish to secure more physical gold – how about joining the effort to level the playing field against the bullion banks. Do not leave the gold in the warehouses if you stand for delivery. Physically remove it.

Technically gold has run all the way to the technically significant level near $880. If it can clear this level and shrug off the selling that we saw come in today near there, it will be at $900 the next day. With the huge move in the dollar the last few days, it would not be unexpected to see a bit of a pause in the Forex arena which might stir some short term longs to book a few profits in the gold. Then again, one can just look over at the bond market and see a market which really is not pausing a helluva lot. The psychological damage that was inflicted on Dollar bulls by the Fed’s decision yesterday was simply enormous. The nearest I can come to describing the experience that the Dollar bulls went through would be to defenders inside a castle learning that their reserves intended for reinforcement had just thrown open the huge gates from the inside and laid down a red carpet with the words, “Welcome” inscribed on it.

Those of you who are interested can take a look at the CCI index. If it can get back above the 370 level on two consecutive closes, the commodity complex might have bottomed as a whole.

Toronto Exchange Glitch, Computers again?

2008-12-17T10:58:00.001-08:00

Computer glitch shuts down Toronto Stock Exchange

Dec 17 02:45 PM US/Eastern
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Traders at the Toronto Stock Exchange monitor the day's acti...

Technical woes on Wednesday halted trading at the Toronto Stock Exchange, North America's third largest stock market, and no timeline has been announced for its reopening.
All trading was suspended "due to technical issues with data feeds," said a statement on the exchange's website.

"Because the data feeds provide information to investors to guide their trading decisions, trading was halted to ensure market integrity," it said.

The data feeds provide real-time data for stocks such as quotes and corporate actions on both the Toronto Stock Exchange and its junior TSX Venture Exchange, which was also closed.

The Fed .. Handmaiden for Tyranny

2008-12-17T09:23:00.000-08:00

Fed Out of Bullets

2008-12-17T07:25:00.000-08:00

U.S. Stocks Fall on Concern Fed Is Running Out of Ammunition

By Elizabeth Stanton

Dec. 17 (Bloomberg) -- U.S. stocks fell and the Standard & Poor’s 500 Index retreated from a five-week high on concern the Federal Reserve has few tools left to combat the recession after cutting its benchmark interest rate to as low as zero.

Morgan Stanley lost 4.8 percent after its $2.2 billion fourth-quarter loss was worse than analysts estimated as investment-banking fees dwindled. Citigroup Inc. and JPMorgan Chase & Co. declined more than 2 percent. Apple Inc. slid 6 percent after the maker of the iPhone said Chief Executive Officer Steve Jobs won’t speak at the Macworld Expo, spurring concern that the leader’s health is deteriorating.

“Following interest-rate cuts you always see an initial reaction and then you get back to your senses,” said Joost Van Leenders, strategist at Fortis Investments in Amsterdam, which oversees $305 billion. “All the structural indicators, such as the economic cycle and profit outlook, remain negative.”

The S&P 500 lost 0.8 percent to 906.36 at 9:49 a.m. in New York. The Dow Jones Industrial Average slipped 60.05 points, or 0.7 percent, to 8,864.09. The Russell 2000 Index of small U.S. companies retreated 0.3 percent.

The S&P 500 declined after a 5.1 percent rally yesterday spurred by the Fed’s rate cut and its plan to use “all available tools” to revive the economy. The central bank’s decision came after simultaneous recessions in the U.S., Europe and Japan dragged the S&P 500 down almost 45 percent from its 2007 record.

Europe’s Dow Jones Stoxx 600 Index slid 0.7 percent, as BNP Paribas SA tumbled as much as 19 percent after saying losses at its securities unit since October more than wiped out the division’s profit for the first three quarters of the year.

Morgan Stanley Earnings

Morgan Stanley retreated 77 cents to $15.36. The loss of $2.24 a share compared with a deficit of $3.61 a share in the same period a year earlier. The average estimate of 16 analysts surveyed by Bloomberg was for a 34-cent loss, with no estimates exceeding $1.15. Goldman Sachs slipped 0.7 percent to $75.44. The shares rallied 14 percent yesterday after the company posted a quarterly loss, its first since going public in 1999, that was narrower than analysts estimated.

The Wall Street that Morgan Stanley and Goldman Sachs dominated for decades vanished in September, when Lehman Brothers Holdings Inc. went bankrupt and Merrill Lynch & Co. sold itself to Bank of America Corp. Goldman Sachs and Morgan Stanley took $10 billion each from the U.S. government.

Apple Downgraded

Apple lost $5.73 to $89.71. Oppenheimer & Co. analyst Yair Reiner downgraded Apple to “perform” from “outperform,” saying it’s “past time” for Apple to disclose the state of Jobs’ health or outline a plan for a successor. Apple also said that the company will no longer participate in the MacWorld show after next month’s event.

Nike Inc. added 1.5 percent to $49.90. The world’s largest athletic-shoe maker is due to report second-quarter earnings today. The median analyst estimate in a Bloomberg survey calls for per-share profit of 77 cents excluding items.

Adobe Systems Inc. jumped 5.6 percent to $23.56. The world’s biggest maker of graphic-design programs said it earned 60 cents a share, excluding some items, in the fourth quarter. That beat the 57-cent average estimate in a Bloomberg survey of analysts.

Fed Rally

Yesterday’s advance in the S&P 500 was its biggest on a Fed rate-decision day since 1994, when the central bank began announcing its target on the same day the decision was made, according to Bespoke Investment Group LLC. The rally put the index above its average level during the past 50 days for the first time since September.

The Fed cut its target rate for overnight loans between banks to a range of zero to 0.25 percent. The Fed said in its statement that the recession is likely to warrant exceptionally low levels of the federal funds rate “for some time.”

The statement noted that the Fed has already announced it will purchase agency debt and mortgage-backed securities, and said the central bank is ready to expand the program. Policy makers continue to weigh the potential benefits of buying longer-term Treasury securities, the statement said.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net;

Bush Sacrificed Principles for Economy

2008-12-16T20:29:00.000-08:00

US President George W. Bush said in an interview Tuesday he was forced to sacrifice free market principles to save the economy from "collapse."
"I've abandoned free-market principles to save the free-market system," Bush told CNN television, saying he had made the decision "to make sure the economy doesn't collapse."

Bush's comments reflect an extraordinary departure from his longtime advocacy for an unfettered free market, as his administration has orchestrated unprecedented government intervention in the face of a dire financial crisis.

"I am sorry we're having to do it," Bush said.

But Bush said government action was necessary to ease the effects of the crisis, offering perhaps his most dire assessment yet of the country's economy.

"I feel a sense of obligation to my successor to make sure there is not a, you know, a huge economic crisis. Look, we're in a crisis now. I mean, this is -- we're in a huge recession, but I don't want to make it even worse."

At a G20 summit last month in Washington, Bush resisted some proposals for global financial regulation and argued free market principles still held true despite the global economic downturn.

And administration officials have also referred to the primacy of the free market when discussing a possible government bailout for the troubled US auto industry.

In the interview, Bush said that a "disorganized bankruptcy" of the carmakers could create "enormous" economic difficulties.

But the US president has yet to announce how his administration will proceed amid calls from Detroit automakers and Democrats for a bailout drawing on funds set aside for financial firms.

Sign of the Times

2008-12-16T06:51:00.000-08:00

Peter Schiff Today

2008-12-15T13:46:00.000-08:00

US is being cut off from All Supplies!!

2008-12-15T11:21:00.000-08:00

1/3 of Hedge Funds-Wipeout!

2008-12-15T06:01:00.000-08:00

By Tom Cahill

Dec. 15 (Bloomberg) -- Almost a third of hedge funds will shut or merge after the $1.5 trillion industry posted its worst ever performance this year, according to IGS Group, which advises hedge funds on raising money.

“The failure rate is going to go up, the closure rate is going up, and the merger rate is going up,” IGS Chief Executive Officer John Godden said in an interview in London. “It’s going to be a 30 percent wipe out.”

The number of hedge funds more than tripled in the last decade to a record 10,233 at the end of June, according to Chicago-based Hedge Fund Research Inc. That number will likely tumble after funds dropped 18 percent in the year through November, the worst year since HFR started its Fund Weighted Composite Index in 1990.

IGS will team up with Grisons Peak, a financial advisory firm to start Alternative Investment Management Banking, a firm that will advise hedge fund managers on mergers. Godden and Paul Sullivan, a partner at Grisons Peak, will oversee the venture, with each firm contributing three to four employees. The firm aims to advise on six to eight transactions next year.

Hedge funds typically charge a 2 percent management fee and keep 20 percent of profits, while funds-of-hedge-funds typically charge 1 percent and 10 percent of profits. Profits are usually based on high-water marks that could take years to reach again.

Many funds may have been “cavalier” about actually charging management fees, giving rebates to large investors or distributors on the expectation the fund manager would more than make up the shortfall through performance fees, said Godden.

‘Crowded Space’

Prime brokers, the banks that provide loans and handle fund administration, are cutting off firms they don’t expect to be profitable clients, Godden added. Hedge funds will need to manage at least $300 million in assets, up from $100 million a year ago to stay in business, Sullivan said.

Funds of hedge funds, in particular, are likely to combine, Godden added. There are roughly three funds-of-funds for every single hedge fund, up from one to seven in 2001, according HFR.

“And even one to seven was too many,” said Godden. “It’s a very, very crowded space with way too much overlap. The only thing that would threaten it was a change to the economic environment which is what we’ve got.”

Godden and Sullivan said they expect more transactions such as fund-of-fund Pacific Alternative Asset Management Co.’s decision this month to hire the investment team of KBC Alpha Asset Management, adding $700 million in client assets to the $9 billion it already oversaw.

Athens Burns

2008-12-14T17:01:00.000-08:00

Garbage Paper, Junk Dollars & Hyperinflation

2008-12-13T08:17:00.000-08:00

This incisive article by Peter Shann takes us from the shock of the creation of more dollars than ever anticipated being ploughed into both financial and industrial concerns to the mechanics of how hyperinflation is created and why it is now unavoidable. All of this was caused by the implosion of the huge mountain of garbage paper, over the counter derivatives.

In terms of forward discounting markets, this could be marketwise tomorrow.

Farming is a credit-based business that has for months been discussed not in terms of farming products, but rather in the sense of its impact on demand in the market for critical products to the farming process. Primary focus has been aimed at South America but applies everywhere.

Grains and meats, as all edibles, certainly qualify as necessities to life. Electricity, heating oil, housing, and medicine are part of what is necessary for life, itself.

Dislocations in supply are easiest to understand when viewing today’s decision to support Motors from the US Treasury. There is still no clear answer if the suppliers to Motors are willing to do business as usual in terms of delivering goods for payment 45 days later. It seems as if supplier will not be happy with this traditional manner of doing business. It may be like beer suppliers to a questionable credit that is “cash on hand,” or no beer.

So here are two examples that will be repeated many times but in the same way as we move faster and faster toward the unseen CONSEQUENCES of a broader and ass backwards approach to the business of government and commerce. That is best understood as when you reward non-production and punish production. The result is ALWAYS non-production.

You would assume that extremely difficult business conditions would be accompanied by an oversupply of all kinds of goods and services, but hard logic and history prove otherwise.

Simply stated, both on the micro and macro level, the present credit lockup and lack of confidence between lender and borrower, between supplier and consumer, and eventually between international suppliers and the currency of the world’s major manufacturer of currency will be the process of why the present unprecedented air bombing of cash (US dollars) will result in hyperinflation as unprecedented as is its cause.

Do some introspection. Does a supply of essential goods seem attractive to you? If the answer is YES here are the mechanics of what you have intuitively understood

Read the following slowly with your major focus on the steps numbered one through ten.

We will name this Peter’s Formula, the natural outcome of Jim’s Formula.

Jim

The roots of hyperinflation
I have written the following because I do not think the dangers of hyperinflation and currency collapse are understood;
Peter Shann

The most widely accepted view is that hyperinflation and monetary collapse results from governments introducing large amounts of fiat money into the economy, Wikipedia comments;

"The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run"

This explanation is superficial and doesn’t provide answers as to why governments would in the first instance "massively and rapidly increase the amount of money" nor why they would.

feel compelled to continue with this as inflation increases by factors of thousands of percent and in some extreme instances print banknote in denominations of 100,000,000,000,000 currency units, it also fails to explain why newly issued money is not primarily invested in asset class goods or why goods that can easily be replicated, as can most essential consumables, be often subject to the greatest price inflation.

A prerequisite of hyperinflation and monetary collapse is that a disruption in the availability of essential goods occurs, today this could happen as a result of past reliance on expanding credit and fiat money temporally facilitating dependency on low cost imported goods many of which now feed primary needs leading to a commensurate loss of home production capacity with an inherent delay to the medium-term should such reengagement with manufacture become necessary as it would in the event of off shore suppliers losing confidence in reciprocal worth of monetary instruments offered in exchange for goods, and or shortage of essential goods may arise as a result of natural correction occurring, by way of example from the collapse of speculation driven credit markets and or as a result of collateral damage to the production cycle caused by inappropriate governmental action in further increasing money and credit supplies in attempt to drive a spontaneously occurring and necessary correction back in the direction of instability and in so doing distorting essential work ethics and disincentivising investment in the production cycle,

In my view the most probable sequence of events resulting in hyperinflation and monetary collapse is as follows:

1. A broad based shortage of goods that are thought essential develops and this is not relieved in time to satisfy demand.

2. Consumers trying to acquire essential goods that they believe are in short supply become fearful and are prepared to pay increasingly higher prices and stockpile these goods further increasing shortages and accelerating prices as a sellers market develops.

3. Prices rise for essential goods in short supply as an increasing proportion of the money supply circulates in these goods, also with increasing velocity and as most of these goods are consumables with high turnover upward re pricing quickly occurs.

4. The proportion of available money circulating in goods that are perceived as essential increases and the demand for less essential goods diminishes I.e essentials become disproportionately more expensive than the norm against non essential goods displacing money towards the goods most in demand further fuelling inflation,

5. The shortage of essential goods accelerates as manufactures increasingly focus on short term survival, longer term risk is avoided and investment in the production cycle is reduced accelerating 1.

6. The normal balance of demand for all goods increasingly prefers those goods required to satisfy primary needs and people engaged in making and supplying less immediately essential or non essential goods become unemployed who then pressures governments accelerating condition 9.

7. Eventually goods not immediately required but non the less essential are needed and rapidly increase in price as they also become in short supply.

8. Consumers with least money first find it increasingly difficult to secure essential goods, become frightened and are forced to allocate greater proportions of their money on essential goods and demand greater income,

9. The demand for money forced by need and fear becomes irresistible so governments feel insecure and provide increasing amounts of fiat new money,

10. Consumers first to spend the new money see some value but soon as this new money is distributed and its value is lost, the velocity of money also accelerates as people rapidly exchange money for goods, wealth is seen as best protected when stored as goods rather than cash further increasing price and reinforcing condition 9,

--------------------------------------------------------------------------------

Article printed from Welcome To Jim Sinclair’s MineSet: http://jsmineset.com

Money Madness

2008-12-12T09:14:00.000-08:00

Fed Wants to Cut out US

2008-12-11T10:23:00.000-08:00

Dec. 10 (Bloomberg) -- The Federal Reserve explored the idea of issuing its own debt in discussions with Congress as the central bank sought ways of coping with a balance sheet that has more than doubled in the past year.

The Fed began examining the issue after Treasury officials scaled back their funding assistance for the central bank in the last two months, a person briefed by a government official said on condition of anonymity. Another person informed of the matter said at least one discussion was held with Congress, which would need to pass a law to provide the authority to sell bonds.

The Treasury, which has a legal limit on the amount of debt in can sell, abandoned new issues of bills to finance the Fed in mid-November. Since then, incoming President Barack Obama has picked New York Fed President Timothy Geithner for Treasury secretary, making coordination between the agencies more likely, analysts said.

Debt issuance would offer the Fed a funding source other than creating money. The central bank’s emergency lending programs in the past year have swelled its balance sheet, forcing it to create a surplus of reserves at commercial banks.

“The creation of excess reserves is the least desirable form of central bank balance-sheet expansion during periods when bank balance sheets are a critical to bottleneck to financial flows,” said Lou Crandall, chief economist at Wrightson ICAP LLC. “You have your choice then: Either the Fed can issue liabilities to the general public, or you can issue Treasury liabilities. The preferred option is Treasuries.”

Assets Climb

Assets on the Fed’s balance sheet have more than doubled over the past year, reaching $2.14 trillion on Dec. 3, and may increase more as the Fed buys up to $600 billion of housing- finance debt and securities.

The Wall Street Journal reported the Fed’s discussions with Congress earlier.

The interest-rate setting Federal Open Market Committee meets Dec. 15-16, when officials are set to discuss how to boost the economy beyond lowering rates. The FOMC has already cut the benchmark rate to 1 percent, limiting the scope for further cuts.

Policy makers’ plans would involve financing even more cash injections into the economy either through pumping up bank reserves or possibly through some form of debt issuance. The debt idea is still at a preliminary stage, one of the people said.

Until November, Fed officials were able to access financial markets through U.S. Treasury issues of special-purpose bills. The Treasury placed the cash on deposit on the Fed. The Treasury announced Nov. 17 that the “balance in the Treasury Supplemental Financing Account will decrease in coming weeks” to “preserve flexibility in the conduct of debt management.”

Surplus Reserves

The Treasury’s move prompted Fed officials to begin discussions on alternatives. Meanwhile, the central bank relied on the banking system, creating excess reserves, which affect the balance-sheet capacity of private lenders. Excess reserves in banks jumped to $559 billion at the end of November from $1.7 billion a year earlier.

The flood of cash has interfered with the Fed’s ability to keep the overnight lending rate between banks close to the target set by the FOMC. The average daily federal funds rate yesterday was 0.13 percent.

Gold , Take Delivery

2008-12-11T07:00:00.000-08:00

There is a great shift in the gold market that is being consistently leaned against by the Gold Banks. You can be sure they will be back to rip us all off. Please do me and yourselves a great favour: No matter where you are on this planet if you can afford a 100 ounce bar buy the nearby month gold on the Comex, take delivery then remove the delivered gold from the warehouse.

CIGA JB Slear will walk with you the entire way if you want the complexity transmuted into simplicity.

Fear triggers gold shortage, drives US treasury yields below zero
The investor search for a safe places to store wealth as the financial crisis shakes faith in the system has caused extraordinary moves in global markets over recent days, driving the yield on 3-month US Treasuries below zero and causing a rush for physical holdings of gold.
By Ambrose Evans-Pritchard
The Telegraph, London
Wednesday, December 10, 2008

"It is sheer unmitigated fear. Even institutions are looking for mattresses to put their money under until the end of the year," said Marc Ostwald, a bond expert at Insinger de Beaufort.

The rush for the safety of US Treasury debt is playing havoc with America’s $7 trillion "repo" market used to manage liquidity. Fund managers are hoovering up any safe asset they can find because they do not know what the world will look like in January when normal business picks up again. Three-month bills fell to minus 0.01 percent on Tuesday, implying that funds are paying the US government for protection.

"You know the US Treasury will give you your money back, but your bank might not be there," said Paul Ashworth, US economist for Capital Economics.

The gold markets have also been in turmoil. Traders say it has become extremely hard to buy the physical metal in the form of bars or coins. The market has moved into "backwardation" for the first time, meaning that futures contracts are now priced more cheaply than actual bullion prices.

It appears that hedge funds in distress are being forced to cash in profits on gold futures to cover losses elsewhere or to meet redemptions by clients. But smaller retail investors — and perhaps some big players — are buying bullion in record volumes to store in vaults.

The latest data from the World Gold Council shows that demand for coins, bars, and exchange-traded funds (ETFs) doubled in the third quarter to 382 tonnes compared to a year earlier. This matches the entire set of gold auctions by the Bank of England between 1999 and 2002.

Peter Schiff Down Under

2008-12-10T15:54:00.000-08:00

Gold, $1650,$3,000 to $5,000 ?

2008-12-10T05:40:00.000-08:00

I completely agree that a study of similar historical periods argues strongly for an equity rally. Those rallies in the past have had one year legs but for the moment we must wait to see what transpires.

I am cautious about being bearish on equities right now. Models of 1873 and 1929 show humdinger rallies during the worst of these periods.

The most likely time for a rally to occur is when Obama starts the nation's two trillion fiscal stimulus which will trigger the $8.5 trillion bailout of the system, starting an inflation few people can imagine.

No lender will fail to loan on a government contract that probably guarantees payment.

Over time this fiscal stimulus will be famous for only one thing - triggering hyperinflation.

Gold's rally then can be quite long term, as in more than three years.

Gold will trade at $1,650 but I am sure even that number could be very low. Reasonable people are saying $3,000 to $5,000.

Base metals are not staying as low as they are now in a hyper-inflationary environment.

Gold as honest money will lead everything.

When the fiscal stimulus fails to establish a sustainable recovery, it will have pulled the trigger for hyper-inflation. This is a currency event, not an economic event.

Regards,
Jim Sinclair

Jim Sinclair's Take on Negative Treasury Rates

2008-12-09T17:52:00.000-08:00

Citigroup says gold could rise above $2,000 next year as world unravels
Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.
By Ambrose Evans-Pritchard
Last Updated: 7:29AM GMT 27 Nov 2008

An employee of Tanaka Kikinzoku Jewelry K.K. displays a gold bar at the company’s store in Tokyo Photo: Reuters

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

"They are throwing the kitchen sink at this," said Tom Fitzpatrick, the bank’s chief technical strategist.

"The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

Walter Williams on History

2008-12-09T16:15:00.001-08:00

How about a few civics questions? Name the three branches of government. If you answered the executive, legislative and judicial, you are more informed than 50 percent of Americans. The Delaware-based Intercollegiate Studies Institute (ISI) recently released the results of their national survey titled "Our Fading Heritage: Americans Fail a Basic Test on Their History and Institutions." The survey questions were not rocket science.

Only 21 percent of survey respondents knew that the phrase "government of the people, by the people, for the people." comes from President Abraham Lincoln's Gettysburg Address. Almost 40 percent incorrectly believe the Constitution gives the president the power to declare war. Only 27 percent know the Bill of Rights expressly prohibits establishing an official religion for the United States. Remarkably, close to 25 percent of Americans believe that Congress shares its foreign policy powers with the United Nations.

Among the total of 33 questions asked, others included: "Who is the commander in chief of the U S. military?” "Name two countries that were our enemies during World War II." "Under our Constitution, some powers belong to the federal government. What is one power of the federal government?" Of the 2,508 nationwide samples of Americans taking ISI's civic literacy test, 71 percent failed; the average score on the test was 49 percent.

ISI findings about cultural illiteracy and academic incompetence are nothing new. A 1990 Gallup survey for the National Endowment of the Humanities, given to a representative sample of 700 college seniors, found that 25 percent did not know that Columbus landed in the Western Hemisphere before the year 1500; 42 percent could not place the Civil War in the correct half-century; and 31 percent thought Reconstruction came after World War II.

In 1993, a Department of Education survey found that among college graduates 50 percent of whites and more than 80 percent of blacks couldn't state in writing the argument made in a newspaper column; 56 percent could not calculate the right tip; 57 percent could not figure out how much change they should get back after putting down $3.00 to pay for a 60-cent bowl of soup and a $1.95 sandwich, and over 90 percent could not use a calculator to find the cost of carpeting a room.
But not to worry. A 1999 survey taken by the American Council of Trustees and Alumni of seniors at the nation's top 55 liberal-arts colleges and universities found that 98 percent could identify rap artist Snoop Dogg and Beavis and Butt-Head, but only 34 percent knew George Washington was the general at the battle of Yorktown.

With limited thinking abilities and knowledge of our heritage, we Americans set ourselves up as easy prey for charlatans, hustlers and quacks. If we don't know the constitutional limits placed on Congress and the White House, politicians can do just about anything they wish to control our lives, from deciding what kind of light bulbs we can use to whether the government can take over our health care system or bailout failing businesses. We just think Congress can do anything upon which they can get a majority vote.

The Intercollegiate Studies Institute has one finding that I find both a bit perplexing but encouraging. Roughly 70 percent of Americans, even those who failed the test, agreed that our history, culture and institutions are important and should be taught to our college students. They might even agree with Thomas Jefferson who warned, "If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be."

Auto Nationalization

2008-12-08T19:15:00.000-08:00

By GREG HITT
WASHINGTON -- Congress and the White House inched toward a financial rescue of the Big Three auto makers, negotiating legislation that would give the U.S. government a substantial ownership stake in the industry and a central role in its restructuring.
Under terms of the draft legislation, which continued to evolve Monday evening, the government would receive warrants for stock equivalent to at least 20% of the loans any company receives. The company also would have to agree to limits on executive compensation and dividend payments, much like those contained in the government's $700 billion rescue of the financial industry.
More
Hourly Workers Fared Better as GM Plant ClosedMany Car-Parts Makers Could Go UnderAutos Blog: Summary of Bailout Bill In the case of General Motors Corp., such a move could give the government a large stake in the company and may hurt existing shareholders. GM is seeking about $10 billion in short-term loans and has a market capitalization of about $3 billion. The legislation didn't specify what kind of stock the government would take, leaving open the option it could be preferred, common, voting or nonvoting.
Assuming congressional Democrats and the White House come to agreement on the plan, the car industry would be the latest to submit to strict government scrutiny in return for a bailout, joining most prominently the banking sector.
The auto industry would undergo a restructuring process akin to bankruptcy reorganization, only with fewer rigors and with the government, not a judge, in control, and with many associated political complications.
The program would be overseen by an official, tapped by President George W. Bush, whom congressional aides and lawmakers describe as an "auto czar." This person would act as a kind of trustee with authority to bring together labor, management, creditors and parts suppliers to negotiate a restructuring plan. He or she also would be able to review any transaction or contract valued at more than $25 million.
"We call this the barbershop," said House Speaker Nancy Pelosi, a California Democrat. "Everybody's getting a haircut here, in terms of the conditions of the bill," she said, noting the likely impact on labor, bondholders, shareholders, car dealers, suppliers and executives. "The management itself has to take a big haircut on all of this."
View Full Image

Reuters
House Speaker Nancy Pelosi, with House Financial Services Committee Chairman Barney Frank, discusses auto-bailout negotiations.
Senior congressional Democrats and top Bush aides wrestled late Monday with final details of the package, which the White House would prefer were even tougher on the car makers. GM, Ford Motor Co. and Chrysler LLC have asked for a total of $34 billion to weather the downturn in the economy and steep slump in vehicle sales. GM and Chrysler say they need a cash infusion before the end of December to avoid shutting down.
The White House has been pressing for a compromise package but gave a chilly reception to the latest overture by Democrats. White House officials suggested the package isn't rigorous enough, people familiar with the matter said, and would open the door for companies that aren't financially viable to receive long-term financing.
"We'll continue to work with members on both sides of the aisle to achieve legislation that protects the good-faith investment by taxpayers," said White House spokeswoman Dana Perino.
The latest version of the bill would extend to the companies billions of dollars in short-term financing. These bridge loans are expected to total about $15 billion, enough to carry the auto makers through next March.
Any deal would have to be ratified by Congress. Support there remains tepid and opposition remains high, especially among Republicans in the Senate, who can block the bill through a filibuster.
A handful of Republican senators have said they are willing to help the industry, but it isn't clear how many will swing behind legislation this week. Senate Minority Leader Mitch McConnell (R., Ky.) said the rescue must be financed out of existing funds and include strong taxpayer protections. Mr. McConnell stopped short of endorsing the bill Monday, but did note the auto industry is "an important source of jobs throughout America, including my own state of Kentucky."
Democratic leaders hope to push a bill through Congress this week, with the Senate likely moving first. "Congress is trying to save Detroit," said Senate Majority Leader Harry Reid (D., Nev.). "If senators are willing to work together...we can pass legislation."
In a statement, GM noted the "extraordinary action" that both the auto makers and Congress will be taking. "As part of our plan, we will abide by the conditions proposed in the bill and will continue our restructuring with great urgency," the company said, urging passage of the bill.
Chrysler said it looks "forward to working with Congress and this administration, and the next administration, and to completing our restructuring in an orderly fashion."
Ford, which has said it is in better health than its peers, said it wouldn't seek a short-term loan. It threw its support behind the effort to aid the other two, saying "a failure of one of our competitors could affect us all."
As in bankruptcy court, the legislation tries to establish a process under which the auto makers would negotiate with creditors. The companies would be expected to modify contracts with bondholders and unions. The threat looming under the proposed program would be an actual bankruptcy filing -- which the trustee could prompt by withdrawing the loans -- something auto makers have argued could lead to their liquidation as buyers flee.
Some congressional officials are floating the idea that Kenneth Feinberg, the lawyer who oversaw the 9/11 victims' compensation fund, should be considered for "car czar." The decision is ultimately up to the president.
One danger for auto makers is exposing the industry to congressional meddling as it attempts to build a new business model. The legislation, among other things, would bar the companies from participating in legal challenges to state laws designed to impose limits on greenhouse-gas emissions. The White House opposes that provision, congressional aides said.
The big three would have to analyze whether excess production capacity could be used to make trains and buses for public transit authorities. Also, in a slap, the legislation would require companies to sell or cancel lease agreements for private jets. The Detroit chief executives raised the ire of lawmakers in November by arriving in Washington on their own planes.
If the car companies don't make satisfactory progress toward fixing their long-term problems by the end of March, the auto czar could submit to Congress a plan "and request legislative implementation," according to the draft bill.
The short-term loans would be financed out of an existing $25 billion program created to help the industry meet fuel-economy standards. Under the terms of the bill, the loans would mature in seven years. For the first five years the companies would pay a 5% interest rate; after that, a 9% rate would be levied, the bill says.
The bill doesn't specify what would happen to a company's existing management. GM Chief Executive Rick Wagoner has come under pressure from top lawmakers to step down. He was defended Monday vigorously by GM Vice Chairman Bob Lutz, who said in an interview that Mr. Wagoner has "total support of the board of directors" and shrugged off criticism from lawmakers.
"To blame the American automobile executives for this frankly is ridiculous," Mr. Lutz said, suggesting an unforseen downturn in the economy and housing market are the culprits. "How were we supposed to forecast this when the government doesn't forecast it and the financial institutions couldn't?"
In a sign of how messy the reorganization could become, the United Auto Workers union is seeking to attach strings to any concessions it makes for the Big Three. Marc McQuillen, president of UAW Local 2404 in Charlotte, N.C., said the union is looking for an equity stake in GM and likely a seat on the company's board. UAW officials in Detroit couldn't be reached for comment

Stealing Bread, Capital Crime? Sinclair Editorial

2008-12-07T11:41:00.000-08:00

Posted: Dec 07 2008 By: Jim Sinclair Post Edited: December 7, 2008 at 3:31 pm

Filed under: General Editorial

Dear Friends,

Let’s put on our practical thinking hats. I am inviting opinions from both our academic reader as well as those that believe answers are more accurate when derived by the “follow the money” concept.

The Fed says and statistics support that the majority of the $8.5 trillion in funds injected into the economy in many ways was to protect the US financial community. This has given comfort to the establishment intellectuals that there is no inflationary implication as a result of this massage and unprecedented liquidity injections.

Follow the money approach

The US Federal Reserve made $8.5 trillion available to Wall Street and other entities with OTC derivatives in their inventory. These “assets” have the potential for causing bankruptcy.

It is claimed that the majority of these funds will not have an inflationary impact because of the huge amount of T bills, bonds and note sales that will offset the inherent liquidity injections.

The main buyer of the Treasury instrument issued was China.

China sold US Agencies and as a courtesy bought US treasuries, claiming no negative impact on US financial plans.

The inviting question is who got sterilized? Sterilization impacts the entity that buys the T-bills.

The conclusion then is that it is China, not the USA that received the sterilization process tool. The Chinese, being no fools, offset this process by selling US Agency instruments.

It follows that the USA got the liquidity but not the sterilization, leaving all those funds locked and loaded to fulfill Dr. Milton Friedman’s accurate statement that inflation is monetary, not demand-pull or cost- push motivated.

The Fed figures say sterilized, but it is totally false when the “follow the money process” is utilized to understand the action.

China however did remain relatively dollar neutral as the product of selling agencies to buy T-bills.

Therefore the final answer is that $8.5 trillion that is unspecialized has been injected into the US monetary system.

Where is the Beef?

When the Fed buys OTC derivatives say from AIG, Fanny and Freddie and guarantees them against loss or keeps them on their balance sheet, the Fed becomes the principal counterparty as the loser to each OTC held or guaranteed.

It is reasonable then to assume that a non-performing OTC derivative instrument becomes a performing asset as long as it is held or guaranteed by the US Federal Reserve. The Fed would need to be responsible for the obligations of the losing counterparty to the special performance obligation.

If these defunct instruments are now functional it is reasonable to assume that bailout entities were losers in the specific performance contracts known as OTC derivatives. There has to be one or a daisy chain of winners out there of $8.5 trillion, either paid out or held as a full value position

Who are they?

Now let’s look at the assumption that the $8.5 trillion is not a factor because the intellectuals state that all it does is fill a black hole of losses.

You own a junior gold that has been under attack by naked and pool short sellers. Mr. Oliver has done the work of god to make cold calls to major stockholders (discovered in required filings) informing them of his opinion that the entity is overpriced at zero.

I now come to your house informing you that I feel sorry for you and hold the naked and pool short seller in contempt, therefore here is a check for the difference between your cost and the present market value.

Does that fill a black hole of losses or put you back in business? It puts you back in business with your wealth factor reestablished.

What intervention factor will start the flow of the absolutely unsterilized $8.5 trillion dollars of liquidly into the business section?

The answer is significant FISCAL STIMULATION through Quantitative Easing (aka wild-ass money printing) will trigger the dollar’s death by inflation of the currency unit. When road, schools, special education, music, athletic, teacher’s salaries, the no child left back, road building and local infrastructure building providers are granted Federal contracts with Federal guarantees of borrowing, they go to the bank. What bank against a Federal fiscal stimulus contract or guarantee will fail to lend up to 90% of the required funds?

That will open the barn door of liquidity.

This is followed by inflation then hyperinflation (a currency event not an economic event) in the midst of a recession so deep it threatens to be the second Great Depression.

The dollar declines below .72 and gold moves above $1024 on its way to $1650. What would make Alf Field’s technical projection of the price of gold at $3000, $5000 or even $10,000 correct?

The answer to that question is also easy: $8.5 trillion in government bailouts and direct cash injections as fiscal stimulus while quantitative easing throws money in the street for people to pick up (Bernanke and the famous Electronic Helicopter Money Drop Defalcation fighting speech will do the trick).

Obama will be cheered as saving the US economy for at least one year while the equity markets gets its 1930 rally for a year.

Keep in mind that the grease of the wheels of the equity market has been and always will be LIQUIDITY for a short to medium term rally.

Weekend Events

Republic Windows and Door Corporation got a surprise on Friday when it furloughed all its workers as a result of Bank of America calling their cash flow, plant and equipment based loan.

This morning and all weekend the employees are marching around the facility demanding their severance pay and reimbursement for vacation days earned after only a 3-day notice.

The Federal Warrant Act demands employees get 60 day notices or get paid for 60 days pay when furloughed.

The workers are after Bank of America and the assets of the firm to meet their legal demand.

As a side note the company does not have the funds for severance payment or its contribution to employee’s health insurance.

Most employees’ health insurance was up for renewal now.

The Bank of America was asked to extend the company loans for severance and health insurance. Their reply was “you have to be kidding.”

Christmas Shoppers Publicly Warned

The warning was given not to rob Christmas presents for their children in this difficult business condition.

To assume that present day workers will quietly go to soup kitchens or live as hobos is madness.

Soon stealing a loaf of bread for your family will be a capital crime.

Respectfully yours,
Jim

Dec 6, Iceland Protest

2008-12-06T14:35:00.000-08:00

Washington Jobcuts Needed -535

2008-12-05T18:37:00.000-08:00

It Hurts... Laugh

2008-12-05T15:33:00.001-08:00

Corporate Reality

CEO — Chief Embezzlement Officer
CFO — Corporate Fraud Officer
BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
VALUE INVESTING — The art of buying low and selling lower.
P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.
BROKER — What my broker has made me.
STANDARD & POOR — Your life in a nutshell.
STOCK ANALYST — Idiot who just downgraded your stock.
STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves.
FINANCIAL PLANNER — A guy whose phone has been disconnected.
MARKET CORRECTION — The day after you buy stocks.
CASH FLOW — The movement your money makes as it disappears down the toilet.
YAHOO — What you yell after selling it to some poor sucker for $240 per share.
WINDOWS — What you jump out of when you’re the sucker who bought Yahoo @ $240 per share.
INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a nuthouse.
PROFIT — An archaic word no longer in use.

Party Like there's no Tomorrow

2008-12-05T11:42:00.000-08:00

The hedge fund dealers partied at a New York nightclub like there was no tomorrow -- which for some was probably true.

Swilling martinis and vodkas, they filled Manhattan's white, tent-themed Nikki Beach to bursting. Waiters, trays of tapas held high in the air, became stranded, wedged into crowds swaying to music under pink lights.

About 650 guests attended the event late Wednesday, a third more than organizers expected.

Yet with hedge funds in freefall, this was more funeral wake than celebration.

"The industry is down 20 percent. It's by far the worst environment we've ever seen and we'll see a lot of funds going out of business," said Evan Rapoport, co-founder of HedgeCo Networks, which services hedge funds and organized the party.

The evening was billed as a networking session. Sometimes that meant angling for a particularly special deal.

"A lot of people are looking for a job," said Nicole Alexander from Ovation Group, a corporate travel company.

"There is no stigma now because so many people have lost jobs," she said. "The joke is that the new status symbol, instead of a Porsche or Ferrari, is having health insurance and a desk."

Job losses across Wall Street are forecast by New York state accountants to hit 48,000 by the end of next year.

Hedge funds, which have long prided themselves on their resilience, are reeling.

A new study by Morgan Stanley predicts assets under hedge fund management globally will drop to 900 billion dollars by the end of 2009, half the peak valuation earlier this year.

And as clients run for the exits, growing numbers of hedge funds have imposed emergency blocks on the ability to withdraw money.

To admirers, hedge fund traders are risk-taking, profit-hauling buccaneers who can afford to bet big because they deal only with big players.

Detractors say hedge funds embody under-regulated, over-leveraged and greed-driven business practices responsible for the US financial crisis.

Either way, the sense is that these masters of the universe, as Tom Wolfe christened traders in the novel "Bonfire of the Vanities," won't party much longer.

"They're masking their fear," said a heavy set equities broker at Nikki Beach, who asked not to be identified, as he surveyed his colleagues, drink in hand.

"The gig's over and they're in denial. A lot of people are going to be in shock."

"It's been a tough year," said Mitchel Manoff, CEO of hedge fund Corinthian Partners. "The hedge fund community says they can make money in all markets. This year, though, they haven't."

Of course, there are profits to make, even in hard times.

Nikhil Khandelwal, who raises money at ThornWood Capital, gleefully described his company's ability to charge clients sharply increased interest on loans that banks now refuse.

"It's a sad reality but we make money when others lose it," he said, not sounding sad.

Khandelwal, wearing a pin stripe suit, had no sympathy for those in the mayhem. "You come to a hedge fund to make excessive money, so you know the risks."

Hedge fund brokerages face pressure from Washington following Barack Obama's victory in an election where the need for greater regulation was a constant theme.

Rapoport said the crisis is already forcing hedge funds to reform and he expects the industry to reemerge smaller, yet healthier and unburdened by highly leveraged debt.

"It will be ripped down and built up, but the build-up will be much stronger," he said. Once the effects of over-leveraging are "cleared out, that should be a real positive."

Steve Tosi, a trader at Magna Securities, agreed.

He noted that Obama's chief of staff Rahm Emanuel himself worked two and a half highly lucrative years in the finance sector and received hedge fund campaign donations.

Hedge funds "play it very well politically," Tosi said. "Will they be over-regulated? Will they be told they're bad, that they make too much money? Will Obama say that? I don't think that will happen."

UN Warns about Dollar

2008-12-04T16:37:00.000-08:00

By Harvey Morris in New York

Published: December 1 2008 08:48 | Last updated: December 1 2008 08:48

The current strength of the dollar is temporary and the US currency risks a hard landing in 2009, according to a team of United Nations economists who foresaw a year ago that a US downturn would bring the global economy to a near standstill.

In their annual report on the world economy published on Monday, the economists said the dollar’s sharp rebound this autumn had been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.

The overall trend remained a downward one, however, reflecting perceptions that the US debt position was approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets.

“Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the US economy into a hard landing and pulling the global economy into a deeper recession,” the report said.

Publication of the annual survey by the UN’s Department of Economic and Social Affairs, its trade organisation Unctad and UN regional bodies, was brought forward by a month in the light of the financial crisis. It was launched in Doha to coincide with the UN-sponsored development financing conference in the Qatari capital.

The UN team said that, as the financial crisis spread beyond the US, there had been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. At the same time, however, the US’s external debt had risen to new heights that could provoke a dollar collapse.

The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.

Rob Vos, a Dutch economist who heads the UN’s policy and analysis division and who is responsible for the annual economic review, said the global economic pain could be eased if governments co-ordinated a spate of stimulus packages that were already under way.

“There has been a sea change in attitudes in favour of intervention and concerted action,” he told the Financial Times. He welcomed statements from US president-elect Barack Obama’s transition team in support of spending on infrastructure.

CNN Censors Peter Schiff ?

2008-12-04T12:10:00.000-08:00

Hyperinflation Starts with Deflation

2008-12-04T07:27:00.000-08:00

by Eric deCarbonnel

The Daily Paul reports about hyperinflation during a deflationary slump:

(emphasis mine)

Confused About Hyperinflation? It Always Happens During A Deflationary Slump!
Posted December 2nd, 2008 by Republicae

There seems to be some confusion about Hyperinflation. Do you know that in 95% of all historic cases of hyperinflation it begins during either a deflationary depression or deep deflationary recession? The other 5% is brought about by political stupidity as in Zimbabwe.

Hyperinflation operates in a very different way than regular inflation.

THE MOST DANGEROUS PERIOD FOR HYPERINFLATION IS DURING A DEFLATIONARY RECESSION OR DEPRESSION...NOT DURING AN INFLATIONARY RECOVERY

Regular inflation does not lead to hyperinflation, deflation leads to hyperinflation, primarily because the people are beat down by the deflation depression or recession and they being to lose confidence in the government and the money and because the central banks will always over respond to the deflationary slump...as we are now seeing with perhaps the most dangerous move the FED can make and that is quantitative easing, or direct fiat liquidity injections.

It seems counterintuitive, and perhaps that is the problem some people are having in trying to understand just how hyperinflation occurs.

Now, I fully realize that some are under the impression that hyperinflation can only occur when the money supply is rapidly moving through the economy, that is definitely true of plain inflation, but not of hyperinflation since it is a horse of a very different color.

The fact is that the normal velocity of money has very little to do with hyperinflation as it does with regular inflation where the velocity of money is converts the expanded money supply into inflation.

As I said, hyperinflation is primarily a psychological event and happens when masses of people lose confidence in both their government and the monetary system. Yes, it does have to do with the money supply also, but it is primarily the effect of people simply losing faith in the system. Such a loss of faith can happen and usually does happen during deflationary periods, not in periods of economic booms or even economic recoveries. So, hyperinflation is both a monetary event and a socio-political event. Every single example in history, all the way back to Rome, will show that hyperinflation always begins during a deflationary period and is a combination of a rapid increase in the money supply with a rather rapid loss of confidence in the system. Check it out for yourself.
So, hyperinflation, as I have said a hundred times on the DP never happens during an upturn in the economy.

Some seem to think that the money supply has to be filtering through the economy for it to happen, but history proves that is not the case with hyperinflation, only inflation. It is a mistake to believe that the normal deflationary/inflationary forces are at work when hyperinflation takes hold of an economy, they are not the primary force behind hyperinflation.

At the moment, there are absolutely huge amounts of fiat funds being infused into the economic system, which, if we were in a recovery would automatically translate into high inflation, but the danger is that hyperinflation could very easily take charge as the public continues to lose a great deal of confidence in the government and the monetary system. Another interesting fact about hyperinflation is that it always seems to involve some type of quantitative easing by the governing powers, now, for the first time the FED is using the policy of quantitative easing in this country.

The reason that hyperinflation and quantitative easing are so linked together is because with quantitative easing there is a direct infusion of money into the economic system by the central banks instead of using the fractional reserve system and the monetizing of debt. Many are screaming about debt monetization, well guess what…they are skipping that process now in favor of quantitative easing and there in is the danger for hyperinflation. Quantitative easing also skips the market process normally associated with the creation and velocity of money.

There are several other companies, or sectors of the economy that are lining up at the quantitative easing trough, GE, along with the Big Three are all sticking out their hands for this direct lending bailouts, many are trying to figure out just how to ask for the money now, they are working the system. Even the banks have now consolidated themselves into institutions with the tagline:"TOO BIG TO FAIL". The type of credit that is involved with quantitative easing always, without exception, carries a major consequence with it, especially when the FED is basically “printing” this money without going through the usual monetization process. The dollar will suffer, at the moment it is only slightly rallying because of the actions taken by the FED with TARP and other handout programs but that will stop as we continue on this destructive path. The fact is that there will be nothing to help the dollar from drastic depreciation, the carry trade won’t help, nor will any attempts to draw in more credit from overseas.

My reaction: I was wondering how long it would be before our government started printing money to finance our deficit spending. I was also wondering how this money printing would be sold to the public. Now I know the answers to both questions: the time is now, and the name is quantitative easing. Hyperinflation is absolutely 100% guarranteed.

While on the subjet of quantitative easing, I would like to point out that the US is not Japan! Quantitative easing here is suicide for two reason:

1) We are the world's reserve currency! Japan could use quantitative easing without worrying about foreign central banks dumping the yen, because the majority of the world's central banks are long the dolar, not the yen. If the US starts using quantitative easing, it will lose its status as the world reserve currency and central banks will bail on the dollar, causing hyperinflation.

2) US fundamentals are toxic! Japan was a nation of savers with a trade surplus when it used quantitative easing. In contrast, today the US is buried under a mountain of debt while running enormous trade deficits. Quantitative easing will break currency pegs, forcing nation like China to stop financing our debts. The reason quantitative easing breaks currency pegs is that nations like China would need to print so much money to offset the dollar's devaluation that it would destroy their own currencies.

I repeat: now is the time to be in gold or silver.

Silver , Gold Rehash

2008-12-01T06:19:00.000-08:00

by Eric deCarbonnel

Goldseek reports that The Perfect Storm for precious metals:

(emphasis mine)

The Perfect Storm
-- Posted Monday, 1 December 2008

The indiscriminate printing of paper money coupled with the crippling of the World’s financial system is the “perfect storm” setting for gold and silver investors. Current conditions in the financial markets should be more than enough proof to convince even the most stubborn of financial pundits of the necessity to own precious metals. The vast majority of people who visit the websites where articles like mine are posted recognized this a long time ago. The time has now come where the rest of the world is about to wake up as well.

The demand for physical gold and silver has reached all time record levels where delivery for fully bought and paid for bullion is weeks away. If my thinking is correct the demand and price for physical metal will set new record highs each year until the physical supply is exhausted. Your guess is as good as mine as to the price of gold and silver when there is none to be delivered.

The absolute irony to this is buried in the fact that during this resurgence in popularity the price of both commodities has been hammered while the prices of the common stocks in this sector have been decimated. The imbalances created by this growing demand and dwindling supply has created opportunities for those who have both the courage and the funds to take advantage of this death spiral.

HOW CLOSE ARE WE TO COLLAPSING?

The real question investors need to ask themselves today deals with the timing of future events. Does the “rubber band” snap today or is there enough elasticity to put another artificial leg on the world’s economies?

The creation of trillions of Dollars, Yen, Euros and the like are practically guaranteeing the future demise of the current world’s financial system and most likely some of the governments behind them. If the creation of this “Worth Less or Worthless” paper makes its way into the economies of the world I believe the possibility exists that there is still elasticity left in the rubber band. The resulting consequences of this pumping will be hyperinflation. The ensuing fix could last 3-6 years before the rubber band snaps.

I find it pathetic that those who are in charge of distributing the proceeds from this newly created piggy bank coincidentally happen to be the ones responsible for the mess taxpayers share today. If the real truth of this fiasco ever comes to light in a book a reader will find it in the “fiction” section of the library because no sane person would ever believe that the “intelligent” politicians of the world would have sat back and allowed this delinquent party to go on for as long as it has.

Countries like China are in the unfortunate position of having accumulated too large a reserve of dollars. They have no choice, at this time, but to sit back and allow countries like the US the luxury of creating trillions in new paper with no accountability. Objections and protest would place high risk on their own massive reserves. There is no doubt that the creation of this paper destroys the buying power and worth of what they worked so hard to accumulate. You might say that they are silently stuck between the “rock and the hard place.”

Those who have accumulated all this worth less currency will do everything they can to unload it. This liquidation becomes obvious when one takes notice of China spending $600,000,000,000 to build new infrastructure. I believe that any country, who is not a debtor nation, will, in the end, take extreme measures to protect the value of the reserves they have built. I expect to see a world wide spending spree where countries use this toilet paper to buy real assets trading at pennies on the dollar.

The disposal of currencies coupled by spending programs in countries like the US, in an attempt to reboot their economies, could very easily create an extreme shortage in base metals. Take special notice of all the marginal and high cost base and precious metals projects being shut down or put back on the shelf. There could be a very heavy price to pay for this downsizing as production which was expected to come online in 2010 and beyond will simply not be there.

Do not kid yourself with the mistaken belief that the recipients of these worthless dollars are happy and content with the US attempting to bail itself out by devaluing their currency.

THE NEXT ARCHAIC RELIC!

For years gold bugs have had to listen to pundits refer to gold as an archaic relic. After all, “what good is it; you can’t eat it?” The shoe is now on the other foot and the archaic relic will soon be the dollar; you can’t eat it either! This may be a little difficult to comprehend at this point in time, particularly when the dollar has just exploded to the upside. The panic to seek safety by those who recognize the potential collapse of the Worlds financial system is the event that has led to this explosion.

The deleveraging of hedge funds coupled with the forced selling from margin and panicked investors devastated the portfolios of all those who own stock. Losses in the financial community were so widespread that even money market funds were incurring losses which drove net asset values below $1. The last thing investors ever want to concern themselves with is the safety of their funds in a money market account. Outside of being short the market there has been absolutely no place to hide.

Throughout history short term treasuries have been viewed as the safest and most liquid of investments. Panicked and forced margin liquidations left the “traditional thinking” investor with no options. The traditional investor feels they had no other choice than to flee to the historical safety of short term treasuries to protect their funds.

THE ECONOMIC END!

In my opinion, I feel the difference that separates the economic markets of today from the economic markets of the future lies in the fact that it is getting much more difficult for the Fed to play the same games that gave the appearance of being successful in the past. The Fed still believes that lowering interest rates coupled with exponentially increasingly larger infusions of cash will give them the future results they desire. Unfortunately someone forgot to tell them homeowners have blown all the equity in their homes and there is no pump to prime.

Lowering interest rates are an effective way of stimulating the economy only when the consumer has room in their budgets, or in the end “thinks” he has room to afford more debt.

When the day comes that the rubber band snaps the Fed will have no control over the outcome. Foreign countries will have divested themselves from their dependency on undesirable currencies. Payment to them will be made in assets that cannot be printed and devalued at the will of the debtor. Treasury bond prices will collapse and interest rates will skyrocket. At this point in time gold and silver will be the only game in town; just ask any cab driver or shoe-shine boy. Gold bugs should make sure these latecomers have some bullion to buy. Precious metal stocks will be trading at prices even gold bugs will find hard to believe; this will be the exact opposite of today’s equity environment.

Markets always move in extremes. I always knew the Fed would choose inflation over deflation. I never dreamed the American people would allow these clowns to create trillions in debt without any plan or accountability. Who would have guessed in the confusion of this insanity that gold, silver and precious metal stocks would fall victim with everything else.

WHAT THE GOLD MARKETS ARE TRYING TO TELL US!

As investors it is imperative that we understand what the markets are telling us. At this point in time you literally have two completely opposite markets in the precious metals sector. The first market deals with precious metal stocks and the second market deals with the purchase of physical gold and silver bullion.

Unfortunately most of us currently own or owned precious metal stocks that were trading at multiples of 5-10X the current price just a few short months ago. If you wanted to add to your position or reestablish a new position in a company that is now trading for a fraction of its old value all you have to do is put in a low “stink” bid. In a falling market you would have no trouble getting the shares for the price you want to pay. Most of the time you would still be paying too much simply because, in a falling market, prices usually fall to levels far below what we think is a bottom.

The reality of the physical market is the exact opposite of the equities. With the spot price of gold and silver being creamed over the last several months; why is it that;

1) Physical delivery takes weeks to receive, if at all; and
2) Premiums over spot range anywhere from 10%-50% to get a fill;

These two points speak volumes about what is actually going on behind the scenes in the physical market. In a falling market, common sense would dictate that any buyer should be able to buy all of anything they desire at prices very favorable to their wishes. In the physical market gravity does not seem to exist.

With the price of gold falling from over $1000/oz. and silver collapsing from above $20/oz. a buyer of physical bullion should be able to do so at prices close to spot with no trouble taking receipt in a timely fashion. A premium of 10%-50% is a very clear signal of the future direction prices will head. I have stated many times in the past that the physical market will dictate the direction of future prices. I think that this could be an understatement as financial events worldwide continue to unfold.

Any equity investor, in a falling market, would love to be able to sell shares at 10%-50% above the current depressed levels. Unfortunately, not only can investors not sell shares at premiums but they are lucky to have liquidly to sell any shares at all. If the end for gold was at hand the same set of circumstance would exist in the physical market.

There is a huge war being fought between paper gold and physical gold. This war has been going on for years. I believe there are only a few battles left before physical triumphs over paper. Physical gold is true wealth and has been since the beginning of time. Paper on the other hand is a game designed to accommodate the gamblers and those with a lot to hide. In the end only a few will survive and the inventories of gold will be gone exposing the true worldwide damage of debt creation run amuck.

I think there is a strong possibility that if we fast forward ten years from now, on a technical basis, we will look at a set of charts and recognize this last year as a massive consolidation in the precious metals and possibly the base metals sectors. Shares have been dumped by weak and panicked investors. If this is true there will never be a better time to take advantage of the opportunities that have been created from the nightmare circumstances of today. In my opinion the economic circumstances of today have created “THE PERFECT STORM” opportunity for precious metal investors.

My reaction: Nothing really new in this article, but it does a good of summarizing the outlook for gold: physical shortages, rampant money printing, war between paper & physical, etc…

There has been one noteworthy development in precious metals: silver is now in backwardation.

December silver up 6 cents to 10.25
March Silver Down 2 cents to 10.20

Silver being in backwardation shows fears of defaults are growing on the COMEX.

Peter Schiff on Auto Bailouts

2008-11-30T16:17:00.000-08:00

Safe Precautions

2008-11-30T08:21:00.000-08:00

We only owe 12,500 times all the gold in the world

2008-11-29T15:15:00.000-08:00

If you think our government can work out of the economic mess, I’ve got some numbers that will make you feel uncomfortable.

The estimated face value amount of Derivatives in the economy in $50 Quadrillion or $50,000,000,000,000,000.

The estimated value of all the Gold in the world at current spot price is about $4 Trillion or $4,000,000,000,000.

This is only 12,500 times as great as guaranteed by our government.

If this doesn’t scare the hell out of you, I don’t know what will.

Claims of Stock Fraud

2008-11-29T10:51:00.000-08:00

Too True

2008-11-28T09:19:00.000-08:00

Tomorrow Might be the Day the Dollar Dies

2008-11-27T16:03:00.000-08:00

by Eric deCarbonnel

Meltdown2011 reports about gold going into backwardation:

(emphasis mine)

Antal E. Fekete, a professor at Intermountain Institute of Science and Applied Mathematics, and frequent writer on precious metals, answers a timely question:

Q: People from around the world keep asking me what advance warning for the collapse of our international monetary system, based as it is on irredeemable promises to pay, they should be looking for.
A: My answer invariably is: “watch for the last contango in silver”.

It takes a little bit of explaining what this cryptic message means. Contango is that condition whereby more distant futures prices are at a premium over the nearby. The opposite is called backwardation which obtains when the nearby futures sell at a premium and the more distant futures are at a discount.

When contango gives way to backwardation in all contract spreads, never again to return, it is a foolproof indication that no deliverable monetary silver exists.

People with inside information have snapped it up in anticipation of an imminent monetary crisis.

Friday the goldbugs at Lemetropolecafe.com explained gold’s $50 up move:

Gold Officially Goes Into Backwardation

This morning, gold officially went into backwardation for the first time since the announcement of the Washington Agreement in 1999, which sent gold shorts scrambling to find physical metal after the world’s major central banks agreed to limit sales of gold going forward and ended the one-way trade to the downside in gold that had been in place in the late 1990s.

We know gold is now in backwardation because the gold forward offerred rate (GOFO) has now gone negative. The 3M GOFO has fallen 12 bps to -0.07%, and the 1M GOFO has fallen 20 bps to -0.1167%.

Unlike other commodities, gold very rarely goes into backwardation, and only when
1) the market fears a collapse in the currency, and/or
2) the market is worried about counterparties making good on their promise to deliver gold [ed: A.K.A. "COMEX goes bust"] (which was briefly the case in 1999, when the Washington Agreement was announced and shorts were squeezed).

Translation: Gold is about to meltup, and the dollar is about to have an accident.

Buckle up, gold bulls. Gold could be set to blow its top soon.

My reaction: Tomorrow might be the day the dollar dies. If gold violently breaks out above $1000 due to unexpectedly high delivery requests on the COMEX, it will blow the deflation argument out the window. Hyperinflation from a currency meltdown trumps deflation from a credit bubble collapse, end of story.

Is the Gold Dollar Dam About to Break?

2008-11-26T16:35:00.000-08:00

GoldSeek reports about the failed CB franchise & gold explosion:

(emphasis mine)

Failed CB Franchise & Gold Explosion
By: Jim Willie CB, GoldenJackass.com

-- Posted Wednesday, 26 November 2008
The OMEN for a powerful shift in the gold market in my playful mind was the very real earthquake on November 18 here in Costa Rica, a clear signal from the financial gods, no minor tremor, measured at 6.0 on the Richter scale. The tremor confirmed the tectonic shifts to come to the gold market without question. This was the biggest earthquake in my life, no damage at all though, roof and toys intact. Numerous stories testify in aggregate to a severe tightening of the physical market, certain to put pressure on the corrupt paper market managed by the COMEX and its parent NYMEX.

Be sure not to miss the spectacular conjunction of planets and the moon in the southwest sky, over the next few days. The opportunity is for those in the Northern Hemisphere, sorry Australians and New Zealanders. Venus will converge with Jupiter, seen in nearly equal magnitude of brightness. When they are close in a few more days, the moon will enter the picture as a crescent in a spectacular display. For the description of the highly unusual event, check the NASA website (CLICK HERE). One could regard this event as another omen for a COMEX gold default, a stretch, but a legitimate one.

THE GLOBAL SHAME OF CENTRAL BANKS

On October 29, the US Federal Reserve cut by 50 basis points the official Fed Funds rate down to 1.0% flat. Do not expect the USFed to be done cutting rates. One week later, the entire globe of beleaguered central banks also cut their official interest rates in a parade of ignominy. They coordinated rate cuts on October 8, and again followed the USFed in early November. The important Euro CB cut by 50 basis points to the 3.25% level, surely in reluctant fashion given their firm defiant stance. The most desperate CBs are clearly England and Switzerland among the majors, and Australia and New Zealand in the second tier. The Bank of England (BOE) cut by 150 basis points unexpectedly, now at a 3.0% low level. The Swiss National Bank cut by 50 bpts with the pack, but on November 20 surprised all by cutting another full 100 bpts down to the ultra-low 0.5% level. The Reserve Bank of Australia cut by 100 bpts in October and plans to cut again this month. The Reserve Bank of New Zealand cut by 100 bpts in October and also plans further cuts. The Bank of Canada cut by 25 bpts in October and plans another 25 bpt cut in December. The Riksbank of Sweden cut by 50 bpts to 3.75% in October and plans another 25 bpt cut in December or soon afterwards. With global monetary inflation raging, and official interest rates converging to zero, the global central bankers must hang their heads in shame. THIS IS THE MOST VISIBLE, OBVIOUS, PREVALENT SIGNAL OF THEIR FAILURE.

The contained messages are four-fold:
1) ABSOLUTE CONTAGION: the global economy is suffering from broadly felt toxic shock due to US bonds, a process that has a few more quarters of severe crisis pathogenesis
2) POLICY EXTORTION: the major and secondary CB heads want to cut so that the US$ does not fall, coerced with a monetary gun at their heads
3) INFLATION EXPLOSION: global monetary growth has gone ballistic, no longer a priority to control, with all talk about limiting price inflation relegated to mumbling in the corner
4) ENDLESS RESCUES & BAILOUTS: the government sponsored bailouts are nowhere near finished, sure to be an endless parade of patchwork and stimulus with eventual climax of mortgage aid.

Just think of it. The USGovt, after a coup d’etat pulled off by Wall Street and fraudulent climax diversion of TARP funds, has yet to address the mortgage problem at all. Mortgage aid in meaningful and necessary terms is actively avoided, since it must come with a price tag up to $2000 billion in the United States alone. The nationalization of the US banking, if not financial system, is highly likely to be followed by an eventual virtual nationalization of the entire mortgage system. Such a decision and desperate socialist action will be the death knell for the USDollar, if it survives to the point when such a program is enacted.

The unbridled monetary inflation is a powerful bull market signal for gold, once asset prices stabilize. Monetary explosion always pushes gold upward in price, but this time much money is directed into a multi-channeled black hole. Today, yet another program was announced, finally to enable more lending capital to banks. They have been starved to date, drained in order to supply the corrupt Wall Street conmen in charge. The coordinated interest rate cuts reveal the strong impact of Competing Currency Devaluation. Foreigners wish to avoid further aggravation to their economies from even lower domestic currency exchange rates. They inflict higher prices upon their economies. Later, foreign governments will order their reserves and sovereign wealth funds to dump USTBonds in order to bolster their domestic currencies, the great counter-attack. The USEconomy has a worse problem to fix by an order of magnitude. My view is that the powerful US ailments are not fixable, since the financial engineering is too deeply rooted and the manufacturing industrial base has been removed in several stages over a 25-year period. Besides, the credit derivatives loom like a series of hidden bombs whose fuses intersect in the dark.

THE FRANCHISE OF CENTRAL BANKING HAS FAILED, AND GRAND RATE CUTS CONFIRM THIS NOTION EMPHATICALLY!!! THE COLLECTION OF CONCLUSIONS ADDS UP TO ONE POWERFUL FORECAST: GOLD & SILVER PRICES WILL RISE 10-FOLD IN THE NEXT FEW YEARS. SOON THE CLUTCH WILL BE RELEASED AND THE 10000 RPMS ENGAGE THE ECONOMIC TRANSMISSION TO PRODUCE PRICE SKIDMARKS. Ignore for now the paper price heavy-handed influence, which in my view will suddenly disappear in a volcano of controversy and tumult! The US paper system has falsified the entire global pricing structure. Instead of price discovery, we have been subjected to price controls and tyranny. Next comes the counter-attack.

Lost faith in USFed has finally come. Chairman Bernanke has learned the hard way that usage of the printing press is not the boasted solution. He is sending good money after bad, redeeming criminal fraud, endorsing checks for a broken system, and creating numerous delivery channels into a vast black hole. The US Federal Reserve has accomplished a bizarre feat. They have made short-term lending virtually free, but offer a yield over 3% on long-term bonds. So US banks are deeply engaged in a queer carry trade. US banks borrow short and lend to the USGovt long, and thus exploit the steep USTreasury yield curve. The US banks are trying to liquefy from this perverse mechanism, using incredibly large volumes of money. In the process, the USFed balance sheet is testing whether it can grow a tree to the sky. The USGovt has contributed to the ugly mountain of rancid paper with bad precedent after bad precedent, from poorly written deals. No private investor in right mind would step forward to help an ailing industrial or financial firm on the absurd blockheaded terms established by the USGovt. A record setting 25% of high-powered money, as in bank assets, that the USFed has provided, actually sit idle as excess reserves. Hence, money velocity has sharply dropped, typical of a recession. Failure has many symptoms. The USEconomy aggregates are falling off a cliff in unison.

Europe has entered a recession, but the US has entered disintegration, while England is close behind with a galloping leap off the Dover Cliffs. Kenneth Clark is a highly respected former conservative Chancellor of the Exchequer (finance minister) from 1993 to 1997 in England. He delivered an urgent warning for a “catastrophic crisis [that will be] far worse than anything that has occurred in my lifetime” for Great Britain. Clarke even slammed Gordon Brown as having received undue credit for his role in attempting to shore up the global economy. He warned policymakers should beware of a “full-blown depression will have on public finances” for its effect. A major error has been committed by both the US & UK. Neither nation has succeeded in passing on lower interest rates to home loans, and repayment plans are not happening in volume. The elite in both the US & UK are protecting their bankers, but killing the system in the process. Housing prices are careening downward, while job losses mount in large numbers, in both nations. The death of the AngloSphere is nigh, as status of debtor nations comes soon with all its penalties. A simple move to cut rates does nothing to address insolvency of both banks and households. This basic truism is totally lost on clownish inept US & UK economists and bankers. They both built an economy atop a housing bubble, blessed it, and encouraged the debt orgy process, only to see the entire system melt down. This was fully forecasted during the last two years by the Hat Trick Letter.

A VERY QUEER ANOMALY

We are working toward a nasty climax of historic proportions. Notice that the USTreasury Bill has an artificially high price, with staggering huge volume, which is backwards. This condition defies Mother Economic Nature. Notice that gold has an artificially low price on the paper contracts, with staggering huge demand for physical metal, which is also backwards. This condition defies Mother Economic Nature.

The USTreasurys, given the staggering high volume, should be valued lower. The gold bullion, with its staggering high demand, should be valued higher. Something must break, and break soon. Regard these two anomalies as temporary distress symptoms of ass-backward price mechanisms. The natural tendencies of man, full of human emotions like vengeance and retribution, will soon be unleashed to correct the PHONY HIGH USTBILL PRICE AND PHONY LOW GOLD PRICE. All kinds of key evidence points to a COMEX default in December, discussed in the November Gold & Currency Report. The keys are in the Open Interest, which for gold is collapsing. But the December OI is holding up at relatively high levels. The interpretation from Mr Market, who is a distant cousin of Mother Economic Nature, is “The paper gold market is flawed, and people want no part of it. What physical gold becomes available is being grabbed immediately.”

Further hints are offered by the Chinese, who announced a stimulus plan worth over $500 billion. They will use their USTBonds before they are trashed. The next phase is feeding off the USTreasury much like a dead elephant. However, the signature event must come first. THE COMEX GOLD MUST BE VANQUISHED. This is the Achilles Heel to the USDollar.

ATTACK OF COMEX GOLD & SILVER
Powerful foreign entities are preparing a massive major assault on the US financial corruption, at key spots. All signs seem to point to the gold futures contracts traded at the COMEX and NYMEX, whose prices are routinely suppressed by a high volume of uneconomic short contracts by two to four banks. The COMEX is a division of the New York Mercantile Exchange. A highly leveraged sequence is soon to be unleashed, one that should bring back thoughts of asymmetric attack. Think small cost of a weapon, heavy damage to costly equipment. Something big comes to the gold market, with big angry players! If successful, severe damage will be done to the USDollar. Their goal is to kill the COMEX gold market, the key location for gold price suppression. Major Russian, Chinese, Arab, and European bankers and billionaires are angry beyond words. The giant portion of gold vaulted resides in Central Europe. A plan is in place. The key here and now is COMEX gold futures contracts, where many big players are demanding delivery for their December contracts. North American investment houses have also targeting them for delivery demands. With newly energized Russia & China building their gold treasures, with Arabs turning from distrusted Western paper and more toward gold & silver, look for the new players to offer support to the primary thrust attacks. If successful, it will be a defining moment in US financial history. The first delivery notice for the December gold contract is given on November 28.

Recall that Russians and Arabs each have severe damage done to the crude oil price and petro revenues. The futures contract games conducted by US price systems and Wall Street tactics used against hedge funds are largely responsible. Russians and Arabs are angry. Their financial markets are in turmoil, their economies are disrupted, their property markets are in disarray. Furthermore, Russians and Arabs own a large amount of acquired gold, whose value is also pushed down by corrupt US paper mechanisms. The Persian Gulf lusts to put in place a gold trading center of world repute. A brutal powerful trap has been set, to be executed upon the paper engineers without mercy. If you have noticed the facial expression on some Wall Street heads, like Paulson, change in the last few weeks, this is one reason why. They have no shame in confiscation of Congressional funds. But they dread presiding over a failed pricing system for gold, and dread the prospect of being unmasked, not to mention bankrupted. Keep the focus on the JPMorgan garbage can, where the illegal futures contracts are stored, the very same contracts that are never marked to market on their balance sheet. A COMEX blowup reveals their grotesque distortion of market forces, underpinned by gold and USTreasurys. More details are provided in the November Hat Trick Letter report, like the movement by the Chinese and Iranians to vastly increase their gold reserves.

Veteran warhorse Max Keiser, has a video worth watching. See his video (CLICK HERE). He discusses the upcoming COMEX default for the December gold futures contract. He believes that in its wake, the gold price will rise suddenly to $2000 per ounce, perhaps in a single day. The main impetus in his view for the breakdown is pressure exerted by Russia, in his view. He describes their motive. Russia is very angry over the oil price, down 60% from its peak, driven largely by liquidations from Wall Street targeting of hedge funds. Russia regards the paper game to be out of control. Russia has suffered from both reduced energy revenues from export sales, and notable currency decline in their ruble exchange rate. Financial markets, banks, and corporations have suffered in Russia as a result, prompting a severe reaction by Putin and Medvedev. These are not guys known to take ambushes and sucker punches well without a response.

AWAKENED GOLD PRICE

The USDollar DX index has topped. Conversely, the gold price has bottomed. Each has experienced a clear vivid pronounced reversal off the extreme. Signs point to December as being a battleground month. The moving averages have begun to reverse, a more stable signal. A MACD crossover is near, which would give a billboard notice to technical traders. Beware that this is the phony paper gold price. Actual large physical gold transactions are conducted at prices in excess of $1000 per ounce. The undue influence of paper price discovery is soon to end. As the Gladiator said in the 1999 movie by the same name, to the phony emperor who usurped power, “The time will soon come to an end for you to honor yourself.” Expect severe discontinuity in the gold price in the next few months, maybe sooner. If Keiser and others are correct, and the assault on the COMEX gold succeeds to liberate its price, a gap up is assured, a big gap up, like a few hundred dollars per ounce. Now is the time to hold firm your gold and silver metal. Sell the children, but do not sell the precious metal.

The video referred to in this article:

My reaction: Do not dismiss the warnings in this article as mere doomsaying. This is NOT a year to be optimistic, unless you desire to experience utter poverty. Now is the time to presume the worst. The 28 of November is this Friday! There is a high likelihood of default on the COMEX for gold and silver, and such a default would send the credit markets, stocks, treasuries, and the dollar crashing. The magnitude of the imminent economic and financial catastrophe should not be underestimated. I strongly advise doing the following:

1) Get out of the credit market!!! Sell treasuries, bonds, agencies, etc. Sell everything.

2) Lock in fixed interest on all your debt. Interest rates are going to soar.

3) Sell all stocks that aren't commodity related.

4) Buy physical gold, silver, and precious metals.

Best of luck and goodnight.

Iceland -Only 130,000 People

2008-11-26T10:55:00.000-08:00

The Engineers of Financial Disaster

2008-11-25T16:54:00.000-08:00

Low Down on Silver

2008-11-25T08:24:00.000-08:00

UK Bankrupt?

2008-11-25T05:38:00.000-08:00

The bond vigilantes are restive.

We are not yet facing a replay of the 1970s 'Gilts Strike', but we are not that far off either.

There is now a palpable fear that global investors may start to shun British debt as the budget deficit rockets to £118bn - 8 per cent of GDP - or charge a much higher price to cover default risk.

The cost of insuring against the bankruptcy of the British state has broken out - upwards - over the last month. Yes, credit default swaps (CDS) are dodgy instruments, but they are the best stress barometer that we have.

Today they reached 86 basis points, near Portuguese debt in the league table. For good reason. Alistair Darling has had to admit that the British economy faces the most sudden economic collapse since World War Two, and the worst budget deficit of any major country in the world.

Ok, this is a lot lower than Iceland, Ukraine, Hungary, and other clients of the IMF, but is significantly higher than Germany (35), USA (43), and France (49).

After trading at similar levels to our AAA-rated peers for years, we started to decouple in August and then began to soar in October.

We reached a fresh record the moment the Chancellor told the House of Commons that the budget would not return to its already awful condition until 2016.

Should we be worried? Yes.

Marc Ostwald from Insinger de Beaufort said Gilt issuance would reach £146bn in fiscal 2008/2009. Britain will have to borrow £450bn over the next five years.

This is an utter fiasco.

With deep embarrasment, I plead guilty to supporting the Brown-Darling fiscal give-away - though with a clothes peg clamped on my nose. As the Confederation of British Industry and many others have warned, we face an epidemic of bankruptcies unless we tear up the rule book and take immediate counter-action.

The Bank of England's drastic rate cuts are a necessary but not sufficient stimulus. Monetary policy is failing to get traction because the credit system has broken down.

We face the risk of a rapid downward spiral if we misjudge the threat at this dangerous moment, as we sit poised on the tipping point. Besides, the whole world is now resorting to fiscal stimulus in unison under IMF prodding. Sticking together is imperative. If countries reflate in isolation, they can and will be singled out and punished. That is the lesson of 1931.

But this is not to excuse the Brown Government for the total hash it has made of the British economy. It presided over a rise in household debt to 165pc of personal income. How could the regulators possibly think this was in the interests of British society? What economic doctrine justifies such stupidity? Why were 120pc mortgages ever allowed? Indeed, why were 100pc mortgages ever allowed? Debt is as dangerous as heroine.

Labour ran a budget deficit of 3pc of GDP the top of cycle. (We had a 2pc surplus at the end of the Lawson bubble, so we go into this slump 5pc of GDP worse off). The size of the state has ballooned from 37pc to 46pc of GDP in a decade, and will inevitably now rise further.

It is because Gordon Brown exhausted the national credit limit to pay for his silly boom that today's fiscal stimulus - just 1pc of GDP (China is doing 14pc) - is enough to rattle the bond markets. Our national debt will jump in what is more or less the bat of an eyelid from under 40pc of GDP to nearer 60pc - according to Fitlch Ratings. It is enough to make you weep. But is this bankruptcy territory? Not yet. Britain will remain at the mid to lower end of the AAA club.

A Fitch study today estimates the "fiscal cost" of the bank bail-outs (which is not the same as just adding guarantees to the national debt) is 6.9pc of GDP for Britain - compared to Belgium (5.7pc), Germany (5.8pc), Netherlands (6.3pc), and Switzerand (12.9pc). We are not alone in this debacle.

If and when the storm blows over, Britain should still have a lower national debt than Germany, France, or Italy. It will certainly have a better demographic structure that most of Europe (except France and Scandinavia), and less catastrophic pension liabilities than most.

The situation is desperate, but not serious -- as the Habsburgs used to say. Fingers crossed.

Devaluation of Dollar

2008-11-24T13:47:00.000-08:00

Iceland .. a few Months Ahead

2008-11-24T13:07:00.000-08:00

BY TK Jayaraman
Monday, November 24, 2008

November 2008 is truly a remarkable month.

It witnessed the historic election of a non-white to the highest office in the United States. Secondly, there was seismic shift in global hegemony signifying the end of world dominance by seven rich countries and the European Union, when they held the G-20 summit.

One more record was made on November 20 when IMF approved a loan for a Western European nation since 1976.

Normally, such loans in the past two decades were for the third world countries.

Industrialised countries were ever ready to preach on monetary, fiscal and exchange rate management matters to the rest of the world.

This time the dubious distinction fell on Iceland, geographically very near to UK, whose financial sharks were also equally responsible.

The two-year IMF loan of US$ 2.1 billion is for "restoring confidence and stabilising the economy of Iceland."

There are other European nations including Ukraine, Hungary and Turkey, in the waiting list of IMF borrowers, beside Pakistan in the third world.

Globalisation: leveller like death!

Strangely enough, Iceland's financial crisis has nothing to do with the housing bubble in USA.

Iceland's three major banks avoided troubled mortgage securities which brought Wall Street to its knees, but expanded aggressively at home and abroad.

It was due to the heady homebrew, a mix of domestic financial aggression and the neighbouring British depositors' greed of making a quick buck, aided by poor banking laws.

It ended finally in the takeover of the banking system by government: the ultimate levelling of institutions, as witnessed in the nationalisation of Northern Rock in UK and the bailout in USA.

How it all started

As a North Atlantic island country, Iceland (area 40,000 square miles with 320,000 people) was traditionally known for whaling activities. Following the international moratorium, it abandoned whaling and concentrated on fishing. Its major exports were cod and haddock to Britain and Germany. Though closer to Europe, Iceland did not want to join European Union.

Iceland's growth in the past was due to fishing. As fisheries showed signs of gradual contraction in the early 2000s, Iceland wanted to diversify by attracting foreign investment in other areas.

Investors like Alcoa built giant aluminum plants, utilising the country's cheap, clean hydro energy.

From 2002, Iceland deregulated its commercial banking. The three banks that make up almost the entire banking system went wild attracting savers from Europe, offering high interest on savings accounts.

For high returns, money poured in from UK. More than 120 British municipal governments, universities, hospitals and charities and even British police forces sent their deposits.

As the joke goes, even the British bobbies were banking in Iceland!

Total UK deposits in Iceland banks at one time were estimated around ú4 billion.

The Icelandic banks did not invest in US sub prime mortgages but went on their own lending binges.

Soon, Iceland underwent a metamorphosis from a fishing economy into a super North Star of global economy, holding assets nearly 10 times the nation's gross domestic product.

With borrowed money and profligate consumption, Iceland became another American economy. Its prosperity grew to reach annual per capita income at US $54,000 in 2007!

As Oscar Wilde wrote, "Nothing succeeds like excess!"

As the credit crunch spread across the globe with failure of institutions in USA and UK, the rumour mongering began early this year.

Financial speculators started doubting whether Iceland's three banks would default on huge foreign loans. As speculations became ripe, Iceland's currency, the krona, began to depreciate and the situation deteriorated into one of crisis of confidence in Iceland's ability to maintain the financial system.

That was sufficient

British depositors began to pull out their funds. As Iceland's banks pulled their shutters down, depositors moved the British Government for repatriation of their savings. Soon it degenerated into a diplomatic dispute with UK. The British invoked antiterrorism laws in October in an effort to get the money back from Iceland!

The central bank had foreign reserves of only US $2.5 billion.

As Iceland became nearly bankrupt and its currency went down in value by half, a loan from the lender of last resort, the IMF was necessary.

Out of an estimated requirement of US $6 billion to handle the meltdown, IMF would provide a two year loan of US $2.1 billion to meet the banking crisis, besides stabilising its currency and overhauling its financial regulation system.

Following the IMF announcement, Finland, Sweden, Norway and Denmark promised they would lend Iceland an additional US $2.5 billion.

Meanwhile, the economic projections are: Iceland would contract by 2.5 per cent in 2009, after growing 3.8 per cent last year and would decline by 1.5 per cent in 2010.

The IMF intervention in Iceland marked the most unexpected reversal in the country's fortunes after a decade-long, debt-fuelled binge by the country's banks, businesses and some citizens.

Globalisation giveth and it also taketh away!

As Thomas Friedman wrote recently in the New York Times, "Now we have to hope, that globalisation will saveth!"

Protest -End the FED

2008-11-23T08:23:00.000-08:00

Gold to Go Bananas

2008-11-23T06:33:00.000-08:00

Iceland's Meltdown Months Ahead of Ours,

2008-11-22T14:42:00.000-08:00

by Eric deCarbonnel

The Guardian reports that Icelanders demand PM resignation, clash with police:

(emphasis mine)

Icelanders demand PM resignation, clash with police
Reuters, Saturday November 22 2008

REYKJAVIK, Nov 22 (Reuters) - Thousands of Icelanders demonstrated in Reykjavik on Saturday demanding the resignation of Prime Minister Geir Haarde and Central Bank Governor David Oddsson for failing to stop a financial meltdown in the country.

It was the latest in a series of protests in the capital since the financial meltdown that crippled the island's economy.

Hordur Torfason, a well-known troubadour in Iceland and the main organiser of the protests, said the protests would continue until the government stepped down.

"They don't have our trust and they are no longer legitimate," Torfason said as the crowds gathered in the drizzle before the Althing, the Icelandic parliament.

A separate group of 200-300 people gathered in front of the city's main police station demanding the release of a young protester being held there, Icelandic media reported.

Police in riot gear used pepper spray to drive back an attempt to free the protester during which several windows at the police station were shattered. The protester was later released after a fine he had been sentenced to pay was paid.

Iceland's three biggest banks -- Kaupthing, Landsbanki and Glitnir -- collapsed under the weight of billions of dollars of debts accumulated in an aggressive overseas expansion, shattering the currency and forcing Iceland to seek aid from the International Monetary Fund (IMF).

This week, the North Atlantic island nation of 320,000 secured a package of more than $10 billion in loans from the IMF and several European countries to help it rebuild its shattered financial system.

Despite the loans, Iceland faces a sharp economic contraction and surging unemployment while many Icelanders also risk losing their homes and life savings.

A young man climbed onto the balcony of the Althing building, where the president appears upon inauguration and on Iceland's national day, and hung a banner reading: "Iceland for Sale - $2.100.000.000", the amount of the loan Iceland is getting from the IMF.

The rally lasted less than one hour and as daylight began to wane, demonstrators drifted away into the nearby coffee shops where the price of a cup of coffee has shot up to 300 kronas in the last few weeks, up by about one third from before the crisis struck, as the currency has tumbled.

Opposition parties tabled a no-confidence motion in the government on Friday over its handling of the crisis, but the motion carries little chance of toppling the ruling coalition which has a solid parliamentary majority.

"I've just had enough of this whole thing," said Gudrun Jonsdottir, a 36-year-old office worker.

"I don't trust the government, I don't trust the banks, I don't trust the political parties, and I don't trust the IMF. We had a good country here and they've ruined it."

My reaction: It looks like Icelanders are progressing from a state of shock to a state of anger. I expect events will continue to detiorate towards violence and anarchy. The scary part is that, when the treasury bubble bursts, America's disintegration will be far worse than anything Iceland experiences.

Jim Rogers left the US, Why?

2008-11-21T18:22:00.000-08:00

China.. Trouble for the Dollar

2008-11-20T20:37:00.000-08:00

by Eric deCarbonnel

About a week ago, Peter Schiff wrote an article making a very good point about China's $600 billion economic stimulus package. He rightly suggests that China would be wise to fund such spending through the sale of US treasuries:

(emphasis mine)

China's Stimulus Spells Trouble for U.S.

This week, Asian markets were initially energized by China's announcement of a near $600 billion economic stimulus package for its own economy. Although I have never been a fan of government-fueled stimuli, the relative wisdom of the plan hinges on the source of funds the Chinese government decides to utilize. Their best choice would be the country's nearly $2 trillion in foreign reserves, the largest portion of which is held in U.S. Treasury and agency debt. This pile of dollars, which really amounts to no more than a subsidy for U.S. consumers, does nothing to benefit Chinese citizens.

If it does decide to employ this ocean of cash, China will become a net seller of U.S Treasuries just as the U.S. Government itself will be pushing up its issuance of new Treasury bonds into record territory. With two huge sellers and few major buyers (just about every major creditor nation having problems of their own), the Federal Reserve will become the only reliable customer. As a result, not only will the Fed monetize our own economic stimulus packages, but will be forced to provide the same service to the Chinese.

Most economists feel that China will maintain the status quo by borrowing or printing the funds for their own stimulus while continuing to hoard its trillions of existing U.S. dollars. Most also believe that the Chinese will substantially increase their dollar holdings in order to finance America's never-ending string of bailouts and its ballooning Federal deficit, which is soon to pass $1 trillion annually. These optimists are in for a rude awakening.

The Chinese cannot follow such a course without unleashing intolerable inflation at home. Selling down their vast reserves of U.S. debt and using the proceeds for domestic infrastructure projects (or anything else for that matter) is a vastly superior stimulus mechanism than "lending" to Americans so we keep "buying" their products. When Chinese authorities finally figure this out the United States will suffer the consequences.

My reaction: For China, selling U.S. Treasuries to finance domestic economic stimulus packages makes sense for three reasons:

1) As outlined by Peter Schiff, selling US treasuries would allow China to finance its spending at home without printing or borrowing money, thereby avoiding inflation.

2) If China sold its 2 trillion dollars in foreign reserves, the dollar would collapse, forcing the US to drastically scale back on its consumption of the world's resources, especially oil. Who knows? If the dollar's purchasing power drops enough, the US might become a net exporter of oil as abandoned SUVs litter the roads. China and other creditor nations would reap the rewards of cheaper oil and gas prices, boosting their domestic economies.

3) Increasingly, China's purchases of US debt aren't translating into new consumer spending. Instead, all the money China is pouring into the dollar is being funneled and absorbed into the black hole which banks call a balance sheet. China now faces the law of diminishing returns: it is take ever bigger purchases of US treasuries to prevent falling US consumer spending from collapsing entirely. It is only a matter of time before China accepts that funding the US trade and current account deficits is no longer worth it.

The Day China Starts Selling Treasuries

What should you do to prepare for the day China starts selling treasuries? For starters, buy some physical gold. Then ask yourself the questions: What would 10 dollar gas do to the US economy? Do I really want to be here when that happens?

Peter Schiff Explains Dollar Rally & Collapse

2008-11-20T17:02:00.000-08:00

Peter Schiff Has Some Hope

2008-11-20T15:43:00.000-08:00

Get Your Bailout Here! Investor Pains

2008-11-19T09:35:00.000-08:00

Bailout Zombies

2008-11-18T17:45:00.000-08:00

30 Reasons to Panic or Prepare

2008-11-18T17:25:00.000-08:00

by Eric deCarbonnel

Paul B. Farrell from MarketWatch reports about 30 'leading edge' indicators of the coming great depression 2:

(emphasis mine)

30 'leading edge' indicators of the coming Great Depression 2

Every day there is more breaking news, proof Wall Street's greed is already back to "business as usual" and in denial, grabbing more and more from the new "Bailouts-R-Us" bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas -- anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 "leading indicators." Each problem has one or more possible solutions, but lacks unified political support. Time's running out. We're already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:

1. America's credit rating may soon be downgraded below AAA

2. Fed refusal to disclose $2 trillion loans, now the new "shadow banking system"

3. Congress has no oversight of $700 billion, and Paulson's Wall Street Trojan Horse

4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets

5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this year

6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers

7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money

8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states

9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt

10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps

11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up

12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns

13. Fed also plans to provide billions to $3.6 trillion money-market fund industry

14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars

15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion

16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs

17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown

18. Big three automakers near bankruptcy; unions, workers, retirees will suffer

19. Corporate bond market, both junk and top-rated, slumps more than 25%

20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall

21. Unemployment heading toward 8% plus; more 1930's photos of soup lines

22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists

23. China's sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai

24. Despite global recession, U.S. trade deficit continues, now at $650 billion

25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities

26. Now 46 million uninsured as medical, drug costs explode

27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt

28. Outgoing leaders handicapping new administration with huge liabilities

29. The "antitaxes" message is a new bubble, a new version of the American

30. dream offering a free lunch, no sacrifices, exposing us to more false promises

Will the next meltdown, the third of the 21st Century, trigger a second Great Depression? Or will the 2007-08 crisis simply morph into a painful extension of today's mess to 2011 and beyond, with no new bull market, no economic recovery as our new president hopes?

Perhaps some of the first 29 problems may be solved separately, but collectively, after building on a failed ideology, they spell disaster. So listen closely to "leading indicator" No. 30:

At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan's Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America's problems will take years and will burn trillions.

He sees "nothing but large increases in the deficit ... I think it would be worse than the depression. ... Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." It'll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."

Reuters concludes: "Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. 'I just want to get people thinking about this, and to realize this is a road to disaster,' said Whitehead. 'I've always been a positive person and optimistic, but I don't see a solution here.'"

We see the Great Depression 2. Why? Wall Street's self-interested greed. They are their own worst enemy ... and America's too.

My reaction: This article does a great job of highlighting all the issues facing the US and the fact that we are heading towards a very nasty period in American history.

"Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists"

Too true.

Global Gold Run

2008-11-18T06:29:00.000-08:00

Posted: 4:37 am
November 18, 2008

THERE'S a worldwide run on gold coins.

Even as the price of the precious metal itself comes under pressure along with commodities like oil and copper, people around the world are demanding so many of the valuable coins that government mints are having difficulty filling orders.

A spokesperson for the US Mint tells me that gold coins in this country, for the past month, "are being allocated because of an increased demand."

And the price that the government charges coin dealers has recently been increased by as much as 10 percent for a 10-ounce coin.

Robert Mish, a coin dealer in Menlo Park, Calif., says customers who want to purchase 200 gold coins often have to wait up to two weeks. Six months ago, he said, a purchase that size could have been filled immediately.

Someone who recently tried to purchase 100 one-ounce American Eagle gold coins in the New York City-area was turned away, even though he'd uneventfully made purchases before through the same dealer.

And even when gold coins are available, dealers report that customers are paying a bigger premium than they would have just a few months ago.

Previously, American Eagle coins were going for 5 percent over the market price of gold on the Commodity Exchange (Comex). Now the premium can be anywhere from 10 percent to 15 percent, even though the US Mint raised its price to dealers by just 3 percent for an ounce coin.

In one sense, the attraction for gold coins isn't surprising. Since ancient times, gold has been considered the safest investment to hold in times of uncertainty.

With fears of future inflation rising and concern about the value of paper currency and government-debt increasing with each new recovery plan announced in Washington and in foreign capitals, the desire to hold gold grows.

That part makes perfect sense. But there's another more puzzling aspect to the recent gold rush.

Even as the demand for gold coins such as the Canadian Maple Leaf or the Krugerrand of South Africa has grown, the market price of the precious metal itself is off its highs.

In early October, the price of an ounce of gold on the spot market was about $930 an ounce. With the commodities bubble bursting in recent months, gold declined into the upper $600 range. Spot gold closed yesterday at $739.90, down $2.60.

Bill Murphy, chairman of the Gold Anti-Trust Action Committee, says the price of spot gold is even more perplexing given the demand for coins and the fact that central banks in Europe have stopped selling gold into the open market.

"Gold should be moving up," Murphy says. "How could there be such a dichotomy between the historic high premium for coins all over the world and the low Comex price?"

His answer? "Today the public is buying gold like crazy, but the US government and the banks that hold bullion are intentionally keeping the price down."

Ah, but that column will have to wait for another day.

*

Finally, someone in Washington is complaining about the coziness between the government and Goldman Sachs - which, incidentally, has been going on unfettered for the greater part of two decades.

If you've been reading this column for any length of time, you already know I have been griping loudly about the obvious inappropriateness of this Washington/Wall Street liaison and have spent considerable energy outlining my suspicions.

Now, Iowa Sen. Charles Grassley, the senior Republican on the Senate Finance Committee, is asking the inspector general of the US Treasury to investigate whether some government officials who formerly worked at Goldman let their "relationships" cloud their judgment during the merger of Wells Fargo and Wachovia.

In case you aren't up on the Goldman-to-govern ment express train, cur rent Treasury Secretary Hank Paulson is a for mer Goldman chairman, as was Robert Rubin who headed the department during Bill Clinton's presidency.

And more Goldman execs are being mentioned for the Treasury job in President-elect Barack Obama's administration.

Specifically, Grassley is concerned about a tax code change that paved the way for the acquisition of Wachovia by Wells Fargo. An ex-Goldman executive was leading Wachovia at the time of that deal.

Here's the answer he'll get from Treasury and Paulson: these are dangerous times and anything that was done was for the good of the country. In other words, they'll drag out the old national security argument.

Grassley will become a minnow in the next Democrat-controlled Congress. But the Democrats need to take up the baton, turn it into a club and see just what Paulson has been up to.

As I've written before, Paulson has admitted that part of his job was to keep in touch with "market participants." Calling his friends on Wall Street - and especially at Goldman - would be an odd extension of the role of Treasury secretary and I certainly would like to know what he felt compelled to tell these folks.

Like - did Paulson leak to Wall Street last August the fact that the Federal Reserve was about to begin interest-rate cuts?

All Grassley or the Democrats need to do is subpoena Paulson's phone records and meeting minutes of his secretive President's Working Group on Financial Markets. But I don't think anyone in Washington has the nerve. john.crudele@nypost.com

$4.28 Trillion and counting

2008-11-17T16:59:00.000-08:00

Given the speed at which the federal government is throwing money at the financial crisis, the average taxpayer, never mind member of Congress, might not be faulted for losing track.

CNBC, however, has been paying very close attention and keeping a running tally of actual spending as well as the commitments involved.

Try $4.28 trillion dollars. That's $4,284,500,000,000 and more than what was spent on WW II, if adjusted for inflation, based on our computations from a variety of estimates and sources*.

Not only is it a astronomical amount of money, its' a complicated cocktail of budgeted dollars, actual spending, guarantees, loans, swaps and other market mechanisms by the Federal Reserve, the Treasury and other offices of government taken over roughly the last year, based on government data and new releases. Strictly speaking, not every cent is directed a result of what's called the financial crisis, but it arguably related to it.

Bretton Woodshed lll

2008-11-17T14:45:00.000-08:00

Glenn: I wanted to get some sense, does anybody really have an idea of how deep and how this is just destroying the Constitution and nobody did. Bretton Woods 1 and, believe me, this is one of the reasons why I was sleeping two hours a night over the last couple of years, for some reason -- I don't remember what it was, but something came up in a story and I would leave no stone unturned about two years ago as I started to -- I knew nothing about the economy. I couldn't tell you even how the Fed worked. Discount -- I had no idea what any of this stuff meant. I just knew there was trouble and so educate yourself, Glenn. And so I did and I worked with my researchers and we researched everything and every story that would come up, if it had one thing in it that I didn't know what it was, let's look into that. One of the stories about a year and a half ago or two years ago mentioned something called Bretton Woods 1. I didn't know what it meant. I'm like, geez, please just be like a farm where they all had pancakes there or whatever. That was actually where the world got together after World War II and the United States said, Do you know what guys? This is going to be a hassle. Do you know what it's like to carry gold bars? It's going to get heavy and then you have to go to the bank and make it into coins. Why don't we just keep all the gold and then you guys just keep our dollar? It was the exchange currency. It was the -- it was the -- it's the global currency and we promised them at Bretton Woods 1 that we would hold the gold and we would never go off the gold standard.

So, if you held a dollar, it would mean a dollar's worth of gold and you didn't have to have all that heavy gold because out, out, my back hurts. It worked to our advantage because everybody had to use our dollar. Then we started the great society and we were first told debt doesn't matter. This is when this started. Debt doesn't matter. We'll build all these housing projects and give away you will kinds of free stuff. Debt? What debt? Oh. We're and doing that war thing. Don't worry about it. We have plenty of money. We didn't have enough gold. Out. My back is hurting. I don't think we can get more gold. So, what we decided to do was go off of the gold standard and onto the debt standard. This is sounding like it's going to work out well! Well, that's what the rest of the world thought. So, they called Bretton Woods 2, another summit where the world got together and said, Hey, remember when you guys said you would never go off of gold and we bought all of your dollars and so now we have them sitting in your bank? You guys are devaluing that and so it hurts us? And we went, no, no, no, no, no. First of all, we'll never be irresponsible with our debt. (Laugher.) We're Americans. And, you know what? It's only going to help you because we're going to change gears and become a consumer society. Sure, we used to make washers and dryers and everything like that, but now we're so rich, we're going to start consuming. So, Japan, it will be good for you because we'll start buying your crazy televisions. Hey, China, we'll buy more than bamboo umbrellas for your drinks from you guys. And so the rest of the world went, Okay. So, we'll still hold on to your currency and you're going to buy our crap? Yeah. And you'll never devalue your dollar? You'll never go crazy on debt? Of course not. What do you guys think? You crazy cats. Get out of here. We're Americans.

Well, now we're at the top of our debt limit and it's not a self-imposed limit. It is a limit -- you know it. You've got one. You know you can carry debt, but then there's a point like, Oh, boy, we're never got to get out of this debt. It's like a flying piano coming out of the sky at us. It should hit us in about 10 minutes. You know when that debt is going to crush you. You can carry debt, but not an irresponsible debt because in the end it all comes raining down like giant Steinways. Right? Well, that's where we are now. Isn't this crazy? And so the world call together another summit, only in a couple of news stories have I heard it called what it really was and, that is, Bretton Woods 3. So, this is, okay, fool me once, shame on you; fool me twice. This is the world getting together. That's why we serve them $500 bottles of wine this weekend. We're like, you guys are great. Here. Drink a lot. The rest of the world, Japan -- I'm sorry, not Japan. China, Germany, France, they're all saying now that they want a -- they want -- do you know what they would like is they would like a global reserve currency and I thought, hum. Bretton Woods 3. And they want a global reserve currency. Wait a minute. Where have I heard that one before? Oh, I remember. The global reserve currency that used to be called the -- the dollar! They're looking for a global reserve currency. They were talking about there is no franc, there is no mark, there is no yen, there is no dollar. We just need a global reserve currency. That's what happened this weekend. Was anybody giving you that story on television or radio? Anybody? You know, I turn it on, Hey, we've got some boring stuff to talk about. Here's some boring economist guys talking about some boring stats and stuff and, you know what? Just go back watching football or something because I'm paid to do this job and I can't even pay attention to it. My gosh, is this boring stuff! That's what was happening this weekend, not the boring stuff that they all reported on, the context, the meaning of it, but you only know that if you know history. You only know that if you have a sense of what is coming and I have that sense and I think you have that sense, but you don't have anybody giving you context on it. This is why I say you've got to do your homework. You've got to seek those things out, but you also have to be very, very careful not to go to extreme websites, not to go -- you've got to be careful. You have to second source everything. With everything that is going on in the world today, all of these rumors, all of these things, the truth is bad enough, gang. The truth is bad enough. You don't need to go to some, you know, i'minmybasement.org. You don't need to do that. The truth is scary enough and you don't -- what we cannot afford is more half truths, more lies. We're not -- we don't have a dollar shortage. We have a trust shortage. And so be that person that people can trust.

You know, when I was asked to leave the building at CNN because we had signed the new deal with FOX and they said, do you know, Glenn? We're just going to pay out your contract and this is totally traditional in radio and television. This is what you do. When you go to a competitor, they don't have you finish out your contract. They just pay it out. And so it's totally fine. And when I was leaving, I left -- I couldn't evening say good-bye to my staff and so my staff, they didn't know what was going on and there were all kinds of half truths and untruths that were floating around and everything else and I thought to myself for two weeks I couldn't speak for them and for two weeks I thought, my gosh, they must think I was lying to them and I just wanted a chance to explain. When we finally got back together about a week ago, I went to each of them and they were, like, Glenn, we worked with you, we knew. We knew. At first we looked at each other and went, wait a minute. This doesn't match and then we all started talking about it and said, it doesn't match and we have two years of experience with him telling us the truth. That's why it's so critical, so critical that you live your life the way you want to live it, the way you're meant to live with it. Live it in truth because when it comes -- push comes to shove, when it comes to a critical time, it may not matter today, but when it's a critical time in your life or our country's life or your family's life, they've got to know, they've got to know, and that's why I say please don't send these crazy e-mails around. Don't do it. Unless you know it to be true, don't do it. Just tell the truth and make sure they're from good sources because when push comes to shove. People are going to need to know that they can trust the information that they have from you. I am doing my best to live my life this way so you can trust the information that's coming from me and if I get it wrong, I will correct it and I won't bury it. I will lead an hour with it. If I get it wrong, I will tell you that I have it wrong, not because I'm, look at me, how wrong I am, but because we need to trust each other and if we all adopt that, if we all do those things, we are going to be fine and we'll make it.

(Break)

Glenn: What is -- out of the seven deadly sins, what's the biggest sin? I'm going to tie this in and tell what I think the biggest sin is, coming up in just a second. We'll see if you agree. We have Garrett on the phone, however. Hello, Garrett.

Caller: Hi. I'm very upset at the slander that you presented at my show about the website. i'minmybasement.com. I worked very hard on this website. Here you are trying to talk about Bretton Woods 3. We're already on to Bretton Woods 9. Where are you on interpret Bretton Woods 4 through 8? You have no position on it and you've been silent this entire time. I want to tell you something. I'm in my basement right now and I have the entire wall sealed with packing tape and "Star Wars" throw blankets and if there's an attack from Bretton Woods 7 or Bretton Woods 4 like I predicted, I will be safe and I will be the one laughing! (Laugher.)

Inhofe's Letter- Bailout Halt

2008-11-16T19:48:00.000-08:00

November 15, 2008

WASHINGTON, D.C. - U.S. Senator Jim Inhofe (R-Okla.), in a letter to his Senate colleagues, laid out his plan to push for legislation that will require Secretary Paulson's plan for the remaining $350 billion in authorized Troubled Asset Relief Program funds to be ratified by an affirmative vote in the U.S. Congress. In the letter, Senator Inhofe writes that the lame duck session provides Congress a tremendous opportunity to change course. Below is the text of the letter.
Dear Colleague,

I write to inform you of the actions I will be taking during the lame duck session of Congress regarding the funding status of the Troubled Asset Relief Program (TARP). Given the recent news about Secretary Paulson's execution of the TARP program, I firmly believe action is required by Congress. I plan to push for legislation that will require Secretary Paulson's plan for the remaining $350 billion in authorized TARP funds to be ratified by an affirmative vote in the U.S. Congress.

In my statement opposing the Paulson Plan last month, I laid out two primary reasons why I voted ‘no.' The first is that I wasn't convinced that asset-purchase program was the right way to do this, and the second is that it would lead to increased lobbying for handouts and bailouts by any industry facing financial trouble.

I stated at the time that my vote was against the Paulson plan - not against taking extraordinary action to provide necessary confidence to financial markets. I stated that "The Paulson plan would have Washington take $700 billion worth of toxic Wall Street assets from financial firms' balance sheets and put them on the balance sheet of the federal government.... I'm not confident in its success."

The critics were right. On October 14th, in a significant shift, Treasury outlined a plan to directly purchase equity stakes in of major financial institutions. The Wall Street Journal noted that "critics...say Treasury should have formulated a comprehensive plan earlier in the crisis." This past week, Secretary Paulson announced that he has completed a remarkable about face, as summarized by November 13th Investor's Business Daily front page headline, which read, "In Major Reversal, Treasury Won't Buy Bad Mortgage Debt." This is a complete reversal. Why did Paulson reverse course? Thursday's Los Angeles Times provides the answer. "Treasury Secretary Henry M. Paulson's decision to abandon plans to buy troubled bank assets shows that he has come to two conclusions about what was once the chief focus of the government's $700-billion bailout: The first is that it wouldn't work."

I know many of you have serious concerns about how Secretary Paulson has executed the financial rescue program and I share them with you. Congress abdicated its Constitutional responsibility by signing a truly blank check over to the Treasury Secretary. However, the lame duck session of Congress offers us a tremendous opportunity to change course. We should take it.

During the lame duck session, I will be taking the following actions. First and foremost, if Secretary Paulson submits his plan to Congress in order to access the remaining $350 billion while we are in session, a doubtful prospect, I plan to immediately introduce the disapproval resolution pursuant to Section 115 of the EESA and push for its enactment. I will also introduce and actively pursue enactment of legislation to do two things: First, it will amend Section 115 of the Emergency Economic Stabilization Act of 2008 (EESA) to require an affirmative vote on the part of Congress to approve Treasury's plan for the remaining $350 billion, instead of the current statutory process which gives Secretary Paulson far too much latitude. Second, it will require a freeze on any remaining funds of the first $350 billion. It is imperative that we not allow that amount of money to be added to a deficit approaching $1 trillion this year without any input from the legislative branch.

Secretary Paulson stated in a CNBC interview at 2:00pm on Friday, November 14th that "the financial markets have been stabilized." If that is the case, it is Congress's duty to have a say in what happens with the remaining authorized amount of $350 billion. It is clear that it was a mistake to sign a blank check to one man for such a tremendous amount of money. Though there are still significant challenges in financial markets, it appears that the threat of a catastrophic financial crisis, which was the justification for the grant of such sweeping authority, has subsided. Perhaps the additional $350 billion should not be added to the deficit. Congress should have a debate.

I appreciate your time and attention to this matter and look forward to working with you in the coming week.

Sincerely,

Senator Jim Inhofe

Sen Inhofe , Not Happy with Paulson Check Writing

2008-11-16T19:28:00.000-08:00

Inhofe: Cancel the 'blank check'

by: JIM MYERS World Washington Bureau
11/16/2008 12:00 AM

He criticizes Henry Paulson for changing the $700 billion bailout plan.

WASHINGTON — U.S. Sen. Jim Inhofe said Saturday that Congress was not told the truth about the bailout of the nation's financial system and should take back what is left of the $700 billion "blank check'' it gave the Bush administration.

"It is just outrageous that the American people don't know that Congress doesn't know how much money he (Treasury Secretary Henry Paulson) has given away to anyone,'' the Oklahoma Republican told the Tulsa World.

"It could be to his friends. It could be to anybody else. We don't know. There is no way of knowing.''

Inhofe's comments, unusually pointed even for a senator known for being blunt, come on the heels of Paulson's shift in how he thinks the bailout funds should be spent.

Last week the Treasury secretary announced he was abandoning his plan to free up the nation's credit system by buying up toxic assets from troubled financial institutions. Instead, Paulson wants to take a more direct action on the consumer credit front.

"He was able to get this authority from Congress predicated on what he was going to do, and then he didn't do it,'' Inhofe said.

"So, that's enough reason right there.''

Inhofe recalled earlier comments opposing Paulson's plan because the administration's point man did not have answers for a number of questions. He also recalled questioning the rush to get the bailout passed.

"I have learned a long time ago. When they come up and say this has to be done and has to be done immediately, there is no other way of doing it, you have to sit back and take a deep breath and nine times out of 10 they are not telling the truth,'' he said.

"And this is one of those nine times.''

Inhofe has laid out his legislative plans for this week on the bailout package in a letter to his Senate colleagues.

He wants to freeze what is left of the initial $350 billion — reportedly $60 billion, but Inhofe concedes he does not know for sure.

Then he wants a provision requiring an affirmative vote by Congress before Paulson can get his hands on the second $350 billion of bailout money.

Current law lays out a scenario where President Bush submits a plan on the second half of the funding.

Lawmakers have 15 days to disapprove it, but Inhofe questions that wording.

"Congress abdicated its constitutional responsibility by signing a truly blank check over to the Treasury Secretary,'' he wrote.

"However, the lame duck session of Congress offers us a tremendous opportunity to change course. We should take it.''

In the interview, the senator said his plans can provide "redemption'' for those senators who supported Paulson.

Inhofe's plan appears to be a long shot at this point. Senators originally approved the bailout plan by a 74-25 vote.

He does not know how much support he has among his Republican colleagues, and he concedes Democratic leaders could block it.

Bush also could veto it if it were to make it out of Congress.

Neither Senate Majority Leader Harry Reid's office nor the Treasury Department commented.

Reid, D-Nev., wants to use the upcoming lame duck session to push economic issues such as extending unemployment benefits and aid to the nation's ailing auto industry.

Inhofe opposes both.

"You don't stimulate the economy by giving away more money,'' he said.

In response to concerns expressed by some that allowing even one of the big automakers to fail would be too much of an economic hit for the nation, Inhofe said reality must be accepted.

"If we keep on nursing a broken system, then we can't expect to have a different result come later on,'' he said.

"I just think we have to draw the line someplace, and the time is here.''

Bailout Unconstitutional

2008-11-16T11:28:00.000-08:00

Bailouts Abound ... Where's yours?

2008-11-16T07:53:00.000-08:00

by Eric deCarbonnel

Here are the numerous bailout-related news items I didn't get to this week. (emphasis mine)

Marcy Gordon from the Associated Press reports that 4 insurers seek to buy thrifts for part of bailout:

Four insurance companies on Friday asked the government to allow them to buy thrifts so they can qualify to receive federal money under the financial rescue program.

Hartford Financial Services Group Inc., Genworth Financial Inc., Lincoln National Corp. and Aegon NV, a Dutch company that owns U.S. insurer Transamerica, each asked the Office of Thrift Supervision for permission to acquire an existing savings and loan.

The deadline for filing applications was Friday. The Treasury Department agency said it received submissions from those four firms to become thrift holding companies by acquiring savings and loans.

Insurers that own thrifts, which are federally regulated, are eligible to apply for a piece of the $250 billion the government is spending to buy shares in banks and other financial companies. Thrifts differ from banks in that, by law, they must have at least 65 percent of their lending in consumer loans such as mortgages.

The New York Times reports that 110 banks have asked for $220b under bailout plan:

At least 110 banks have requested about $220 billion from the Treasury Department’s rescue fund, and many more are expected to have submitted applications before Friday’s deadline.

The figures, from banks’ own statements and analyst reports, indicate the requests are closing in on the $250 billion the Treasury set aside from the $700 billion fund to purchase stock in banks.

Analysts at Keefe, Bruyette & Woods estimated that 62 banks have received full or preliminary approval from the Treasury for $173 billion from the Troubled Asset Relief Program. The government said Monday that American International Group Inc. also would receive $40 billion from the program.

Another 48 banks have applied for about $6.5 billion, according to the Keefe, Bruyette & Woods report. Several banks that have filed applications said they haven’t yet decided whether to accept any funds.

The tally doesn’t include requests from four life insurance companies that are seeking regulatory approval to purchase savings and loans in order to become eligible for government funds.

The Wall Street Journal reports that cit looks to transform into bank:

Commercial lender CIT Group Inc. said it has applied to become a bank holding company, looking to access part of the Federal Reserve's $700 billion in funds being pumped into financial companies and to participate in the Treasury Department's $250 billion capital-infusion program.
…
Numerous other financial firms, including Morgan Stanley, Goldman Sachs Group Inc. and American Express Co., have been applying for bank-holding status so they can participate in the government's plan and get access to other sources of capital. For example, getting approval would allow CIT to borrow at the Fed's discount window if it faces liquidity problems.

Washington Post reports about a quiet windfall for u.s. banks:

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."

Washington Post reports that bailout lacks oversight despite billions pledged:

In the six weeks since lawmakers approved the Treasury’s massive bailout of financial firms, the government has poured money into the country’s largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

“It’s a mess,” said Eric M. Thorson, the Treasury Department’s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. “I don’t think anyone understands right now how we’re going to do proper oversight of this thing.”

Reuters reports that record loss forces freddie mac to tap $100 bln fund:

Freddie Mac reported a $25.3 billion quarterly loss on Friday as the housing slump worsened, forcing the second-largest provider of U.S. home loan funding to draw on a $100 billion Treasury Department lifeline.

The company attributed much of the record loss to a write down of tax-related assets, essentially conceding it will not return to profitability soon. Writing down the assets left the company with a negative net worth, in which liabilities exceed its assets, requiring it to tap the Treasury backstop.
…
The companies' regulator has submitted a request for the Treasury Department to provide $13.8 billion for Freddie Mac to erase the shareholder equity deficit.

The McLean, Virginia-based company said it expects to receive the money from Treasury by Nov. 29.

The Mercury News reports that san jose mayor seeks slice of bailout pie:

As cities around the United States start to scramble for a share of the $700 billion federal bailout package, San Jose Mayor Chuck Reed said Friday that he's working with leaders of other large California cities to make sure they're not left behind.

The stimulus package Congress passed last month wasn't designed to dole out money to governments, so it's far from clear whether San Jose will get a piece. But with $1.6 billion in unfunded retiree health care obligations, plus $500 million worth of local and regional road work to be done and $750 million in federal help sought to bring BART to the South Bay, Reed noted the city has a full slate of needs.
…
Reed created a minor furor Friday when he told an Associated Press reporter he would seek 2 percent of the bailout, or $14 billion, for San Jose — an eye-popping figure, given that the city's entire annual budget is $3.3 billion. Reed later told the Mercury News that his remark was "off the cuff," and based on the fact that the city contributes more than 2 percent of the nation's gross domestic product.

The Wall Street Journal reports that a showdown looms over auto bailout:

Congress and the Bush White House appear headed for a showdown next week over how best to assist Detroit's troubled auto makers.

Senate Majority Leader Harry Reid plans on Monday to move forward with a bill that would give the auto industry access to the $700 billion Troubled Asset Relief Program set up by the government in October to help ailing banks and other financial firms.

The Bush administration and many Senate Republicans disagree with such an approach. Instead, President George W. Bush late Friday urged Congress to speed up release of $25 billion in already approved loans to the auto industry. Mr. Bush asked Congress to ease requirements that those loans be used to help the industry retool to meet higher fuel-economy standards, a move opposed by many Democrats.

The Star Ledger reports about a bonanza for lobbyists:

In this moment of economic malaise, it's comforting to know that at least one group of hard-working Americans is destined for a payday from the big federal bailout program -- Washington's legendary lobbyists. It's enough to bring a tear to the eye.

Lobbyists are swarming like locusts at the Treasury Department as Secretary Henry Paulson and his merry men ponder how to cut up the $700 billion bailout pie. Rare is the interest group or industry, large or small, that doesn't have a hired K Street gun pleading its case at Treasury's door.
…
The National Marine Manufacturers Association, for one, believes its members deserve a dollop of the dole. Otherwise, the association argues, boat financing firms won't be able to pony up the credit that boat dealers need to stock their showrooms. At a time like this, the sight of yachts for sale can only lift the nation's spirits.

The Hispanic Chamber of Commerce had a face-to-face with Paulson, seeking contracts in accounting, legal and assorted white-collar services in addition to maintenance and other blue-collar jobs. Still another Hispanic business group is lobbying specifically for plumbers (Jose the plumber?) and home heating contractors.

Even the car dealerships have a lobbyist in line at the Treasury Department, on the theory, presumably, that what's good for the automaker is good for the auto peddler. Insurance costs on the cars they can't sell are killing them, they claim.

CalculatedRisk reports that federal reserve assets increased $139 billion this week:

Some day the Fed's balance sheet will shrink ... hopefully ... but for now the assets are increasing rapidly. The assets on the Fed's balance sheet have more than doubled from under $1 trillion at the beginning of 2008 to about $2.214 trillion now.

Dallas Fed President Richard Fisher commented last month that he expects the assets to grow to $3 trillion by the end of this year.

"I would not be surprised to see them aggregate to $3 trillion—roughly 20 percent of GDP—by the time we ring in the New Year."

Here is the Federal Reserve report released today.

The Federal Reserve assets increased $139 billion this week to $2.214 trillion.

My reaction: The dollar is totally doomed. Buy gold.

More News from the Dream Factory

2008-11-15T18:13:00.000-08:00

The number of U.S. workers receiving unemployment benefits climbed to 3.9 million in the week ended Nov. 1, the Labor Department said today in Washington. Commerce Department figures showed that U.S. imports dropped by the most on record in September, and exports also slid as demand for American-made aircraft and computers declined.
…
First-time claims for jobless benefits increased by 32,000 to 516,000 in the week ended Nov. 8, from 484,000 the week before, the Labor Department said. The median estimate of 40 economists in a Bloomberg News survey was for a reading of 480,000, compared with the originally reported 481,000 in the prior week.
…
Payroll losses at companies from Citigroup Inc. and Goldman Sachs Group Inc. to Ford Motor Co. and Circuit City Stores Inc., the consumer electronics chain that went bust this week, mean unemployment claims will probably rise further.

Bloomberg reports that U.S. Treasuries Gain as Retail Sales Plunge by Most on Record:

Treasuries rose, led by longer-term securities, as a report showed U.S. retail sales fell the most on record in October, driving investors to the relative safety of government debt.

The rally in longer-term securities amid concern that a deepening slump will further erode corporate earnings narrowed the yield difference between two- and 10-year notes from a five- year high. Freddie Mac asked the Treasury for $13.8 billion to keep its net worth above zero. The Group of 20 heads of state meet in Washington amid divisions over what steps to take to shore up the slowing global economy.

"The Treasury market is factoring in a very weak economy," said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit in New York. "Given the economic outlook and with some supply behind us, we have some green lights for lower yields."

Sales at U.S. retailers dropped 2.8 percent last month, the Commerce Department said today in Washington. It was the fourth consecutive drop and the biggest since records began in 1992.

The American Research Group, Inc reports that Shoppers Cut 2008 Christmas Spending Plans in Half from 2007:

Shoppers around the country say they are planning to spend an average of $431 for gifts this holiday season, down from $859 last year according to the twenty-third annual survey on holiday spending from the American Research Group, Inc. The overall average planned spending is down almost 50% from 2007 and it is the lowest level of planned spending recorded by the American Research Group since 1991.

While planned spending increases as Christmas approaches, a majority of shoppers are beginning the holiday shopping season saying they plan to cut their gift spending in half from a year ago. Shoppers saying they will pay full price for holiday gifts this year (14% of all shoppers) show the smallest decline in planned spending - $751 this year, down from $763 in 2007.

In telephone interviews with a random sample of 1,100 adults nationwide conducted November 10 through 13, 2008, the average planned spending of $431 for 2008 is down about 50% from planned spending in the 2007 survey.

Bloomberg reports that China Industrial-Output Growth Is Slowest in 7 Years:

China's industrial output grew at a slower pace than any economist forecast in October, stoking concern that the biggest contributor to global growth is running out of steam.

Production rose 8.2 percent from a year earlier, the smallest gain in seven years, the statistics bureau said today. None of 18 economists surveyed by Bloomberg News predicted such a small increase. Output grew 11.4 percent in September.

The slowdown may prompt the central bank to cut interest rates for the fourth time in two months to augment a $586 billion package of government spending on housing and infrastructure, announced on Nov. 9. China cut taxes on 28 percent of exports yesterday to sustain growth in the economy that accounted for a quarter of the global expansion in 2007.

``China's economy is losing momentum faster than expected: the central bank needs to act,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. ``We hope this is the worst quarter and things start looking better next year because of the infrastructure plan.''

The one-year lending rate is 6.66 percent after three cuts totaling 81 basis points since September. China's third-quarter economic expansion of 9 percent was the weakest in five years.

The yuan traded at 6.8301 against the dollar as of 2:11 p.m. in Shanghai, unchanged from before the announcement. The CSI 300 Index of stocks rose 3.3 percent after the government detailed some spending, including power-plant construction.

Chuck from RebelTraders reports that US Postal Service to Layoff "Tens of Thousands"??

Today I spoke with a post office manager and asked him if the rumors on the Internet about big layoffs were true or not.

The conversation is paraphrased here:

Me: Are you guys hearing these rumors about big layoffs coming? And do you think there is any truth to them?
Post office manager: Yes, I think it is true
Me: Is there any talk of who, where or how many?
Post office manager: The word here is that junior members with less than 5 years of seniority will be let go.
Me: When
Post office manager: I think it will all happen after the Christmas holiday.
Me: Any idea how many people will be impacted?
Post office manager: The number being floated around here is in the many tens of thousands
Me: Will there be any post office closings?
Post office manager: They will have to. I think what they will do is consolidate in a major way all of the small rural offices.
Me: How is the mood in the post office?
Post office manager: Not too good. Everybody wants to hear something official and not just this unconfirmed speculation. These guys want to know if they will have a job after Christmas now and not be informed at the last minute.

So there you have it. This is still speculation and a lot of rumors. But the word from ‘inside‘ the post office is that they believe the speculations will end up being true. Just like the postal employees, we have to wait and see if it turns out to be fact or not.

My reaction: Yet another wave of grim news. If the market rallies next week like I expect, make sure you to use the opportunity to get out of any stocks you have left.

Posted by Eric deCarbonnel at 5:31 PM

Bloomberg Sues the FED over 2 Trillion

2008-11-15T17:23:00.000-08:00

Fed Defies Transparency Aim in Refusal to Disclose (Update2)

By Mark Pittman, Bob Ivry and Alison Fitzgerald

Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

``The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. ``In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

``It's your money; it's not the Fed's money,'' said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. ``Of course there should be transparency.''

Treasury, Fed, Obama

Federal Reserve spokeswoman Michelle Smith declined to comment on the loans or the Bloomberg lawsuit. Treasury spokeswoman Michele Davis didn't respond to a phone call and an e-mail seeking comment.

President-elect Barack Obama's economic adviser, Jason Furman, also didn't respond to an e-mail and a phone call seeking comment from Obama. In a Sept. 22 campaign speech, Obama promised to ``make our government open and transparent so that anyone can ensure that our business is the people's business.''

The Fed's lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan -- without safeguards put into the TARP legislation by Congress.

Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank's purchase of Fannie Mae and Freddie Mac bonds.

Sept. 14 Decision

Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities, some with lower ratings. The Fed collects interest on all its loans.

The plan to purchase distressed securities through TARP called for buying at the ``lowest price that the secretary (of the Treasury) determines to be consistent with the purposes of this Act,'' according to the Emergency Economic Stabilization Act of 2008, the law that covers TARP.

The legislation didn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' In a reverse auction, bidders offer to sell securities at successively lower prices, helping to ensure that the Fed would pay less. The measure also included a five-member oversight board that includes Paulson and Bernanke.

At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets under the TARP program.

`We Need Transparency'

``We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.''

At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. ``Transparency is a big issue,'' he said.

The Fed lent cash and government bonds to banks, which gave the Fed collateral in the form of equities and debt, including subprime and structured securities such as collateralized debt obligations, according to the Fed Web site. The borrowers have included the now-bankrupt Lehman Brothers Holdings Inc., Citigroup Inc. and JPMorgan Chase & Co.

Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group.

Frank Backs Fed

``You have to balance the need for transparency with protecting the public interest,'' Talbott said. ``Taxpayers have a right to know where their tax dollars are going, but one piece of information standing alone could undermine public confidence in the system.''

The nation's biggest banks, Citigroup, Bank of America Corp., JPMorgan Chase, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, declined to comment on whether they have borrowed money from the Fed. They received $120 billion in capital from the TARP, which was signed into law Oct. 3.

In an interview Nov. 6, House Financial Services Committee Chairman Barney Frank said the Fed's disclosure is sufficient and that the risk the central bank is taking on is appropriate in the current economic climate. Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York and a possible candidate to succeed Paulson as Treasury secretary.

``I talk to Geithner and he was pretty sure that they're OK,'' said Frank, a Massachusetts Democrat. ``If the risk is that the Fed takes a little bit of a haircut, well that's regrettable.'' Such losses would be acceptable, he said, if the program helps revive the economy.

`Unclog the Market'

Frank said the Fed shouldn't reveal the assets it holds or how it values them because of ``delicacy with respect to pricing.'' He said such disclosure would ``give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic.

Revealing how the Fed values collateral could help thaw frozen credit markets, said Ron D'Vari, chief executive officer of NewOak Capital LLC in New York and the former head of structured finance at BlackRock Inc.

``I'd love to hear the methodology, how the Fed priced the assets,'' D'Vari said. ``That would unclog the market very quickly.''

TARP's $700 billion so far is being used to buy preferred shares in banks to shore up their capital. The program was originally intended to hold banks' troubled assets while markets were frozen.

AIG Lending

The Bloomberg lawsuit argues that the collateral lists ``are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression.''

The Fed has lent at least $81 billion to American International Group Inc., the world's largest insurer, so that it can pay obligations to banks. AIG today said it received an expanded government rescue package valued at more than $150 billion.

The central bank is also responsible for losses on a $26.8 billion portfolio guaranteed after Bear Stearns Cos. was bought by JPMorgan.

``As a taxpayer, it is absolutely important that we know how they're lending money and who they're lending it to,'' said Lucy Dalglish, executive director of the Arlington, Virginia- based Reporters Committee for Freedom of the Press.

Ratings Cuts

Ultimately, the Fed will have to remove some securities held as collateral from some programs because the central bank's rules call for instruments rated below investment grade to be taken back by the borrower and marked down in value. Losses on those assets could then be written off, partly through the capital recently injected into those banks by the Treasury.

Moody's Investors Service alone has cut its ratings on 926 mortgage-backed securities worth $42 billion to junk from investment grade since Sept. 14, making them ineligible for collateral on some Fed loans.

The Fed's collateral ``absolutely should be made public,'' said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site BailoutSleuth.com, which focuses on the secrecy shrouding the Fed's moves.

The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net; Bob Ivry in New York at bivry@bloomberg.net; Alison Fitzgerald in Washington at afitzgerald2@bloomberg.n

Dollar devaluation?

2008-11-15T08:03:00.000-08:00

411 on 401K's -911!

2008-11-14T19:33:00.000-08:00

Dollar Collapse

2008-11-14T13:35:00.000-08:00

$1500 to $2000 Gold Prices?

2008-11-14T11:21:00.000-08:00

Christmas Over--Celente Trends Research

2008-11-13T20:56:00.000-08:00

US Treasury Bonds Default Avoidance Means Dollar Death

2008-11-13T09:56:00.000-08:00

By: Jim_Willie_CB

LIQUIDATION & USTBOND SUPPORT - The two main factors pushing up the US Dollar have been liquidation of speculative trades funded by it, and redemption of credit derivatives paid in it. These are not signs of any inherent investment in the US Economy itself, but rather its liquidation. Evidence abounds of severe deterioration within the United States, a collapse of confidence, a fall in business investment, ruin in retail demand, an avalanche of job loss, and a spread of corporate breakdown beyond the financial sector. Demands for nationalization have begun outside the financial sector in a wave certain to grow in strength and breadth.

The US Economy faces a risk of not so much recession, as DISINTEGRATION. The distribution channels within the United States are at risk from lack of credit and trust. The overseas shipping channels to the United States are at risk from refused letters of credit. These constitute arterial clots never seen before. Look for export trade also to be harmed soon, as the US Dollar exchange rate is silly high, and foreign customers are damaged from export of US bond toxin.

LAST DEFENSE AGAINST USTBOND DEFAULT

The printing press is that last defense. Default can be averted, but only with extraordinary actions with clear impact on the US Dollar itself, undermining USTreasury integrity at the same time. The huge funding needs in excess of $2.6 trillion cannot be even remotely met by conventional USTreasury Bond issuance. Auction failures from ridiculous under-bid conditions are next to come. Higher bond yield offered is an immediate result. The last resort to printing press usage will have an immediate and negative effect on the US Dollar exchange rate. Theoretically the printing press can meet the demand, but in doing so, the risk is transferred to the US Dollar from the USTBond. The two are inseparable. In fact, the USGovt-backed bond in the Treasury (which used to hold gold, now pure toxic debt) is the obverse of the US Dollar

The backside risk is for the USTBond yield to rise from US Dollar pressure, as foreigners sell. The US Fed and Dept Treasury have fiercely resisted unbridled usage of the printing press, for fear of inflation consequences. Evidence abounds, revealed in the November Hat Trick Letter report, to reveal specifics on draining the mainstream US Economy for the benefit of corrupt Wall Street bond redemption and general bailouts. Rob the US populace realm in order to subsidize aristocratic fraud and redemption. The unlimited risk from AIG, seen in credit derivatives, and from Fannie Mae, more hidden from interest rate swap risk, is next to be manifested in double barrel form. Already, AIG is back to the trough for the third time. Keeping a lid on credit derivative explosions has been a primary motive for bailout action in recent months. The Fannie Mae demand will be more like a gigantic intravenous supply, more hidden from view.

The pennant pause pattern in the long-term USTBond yield can be seen in the chart of the 10-yield for the Treasury Note. My expectation is for the yield to move out of the pattern to the upside. Foreigners are witnessing an artificially high US Dollar at the same time as an artificially high USTreasury principal (from low bond yield), a bad combination. Auctions will thus be strained in coming weeks and months. Details on the USTreasury Bond risk and connected factors are in the Macro Economy report for the November Hat Trick Letter.

STEEP TREASURY YIELD CURVE

The gold price typically loves a steep yield curve. Banks do also, but they are struggling in a horrible manner with insolvency. A great consolidation phase is underway, described in past articles, and increasing in strength, where the Federal Reserve banks benefit. Evidence is ugly and stark, as the great majority of the initial Wall Street bailout tranche was not dispensed as bond purchase but rather of bank stock purchase of Federal Reserve primary dealers! Banks are not lending the USGovt funds from the bailouts, a violation of agreements, but then again, a Coup d'Etat took place recently as Wall Street installed a Czar named Henry who acts unilaterally.

The short-term bond yield in the USTreasury complex is low, while the long-term bond yield is high. Profit margins will be aided in a pyrrhic victory for the banks, who are dead but still permitted to operate. They borrow short and lend long, so have a decent profit margin restored. Price inflation will be the phenomenon discussed in coming months, as officials attempt to turn on the switch and reflate the US financial and economic systems. The task is fraught with risk and challenge. The level of deterioration in the US Economy is great, more than what the bankster megalomaniacs figure.

CLASH DIRECTLY AHEAD, GOLD IMPLICATIONS

The major nations and camps are heading for a power clash of historic proportions. Certain nations have long memories for having been victimized by past imperial forces. Look for them to set a series of traps, with possible military confrontation. Analysis has begun of the extent of degradation and impotence of the US military machinery. Conflict resolution will not occur at the conference table alone. Brawls on the global landscape are assured. The G-20 Meeting will serve to be a sideshow, populated by clowns. To an absurd degree, the United States and England still maintain the grand illusion of being in control. They are not, since both are deep debtor nations and operating under failed banking systems. The major creditor nations will not permit a simple restart of Western nations, under the same rules. Big changes are coming. The gold and silver prices will soon enter a powerful stage of rising price, as in go through the roof. Defaults are likely at the COMEX, so watch the December contracts.

In the next couple months, all value will be called into question on the paper side. Alternatives to the US Dollar as global reserve currency are soon to be discussed and even tested. Implications to global commerce are huge and all-encompassing. Gold and silver will emerge as the primary store of value, in undisputable manner. The new global masters, from the credit side and not from the debtor side, will not permit any confiscation of gold or silver to occur. Desperate attempts might be seen by the US/UK failed team, certain to reveal their impotence. Gold & silver will emerge from these smoldering ashes of bank ruins (seen clearly as unfolding) as survivors of stored value. The next round of economic decline will occur outside the financial sector, and serve as exclamation points for the need to find true value.
VALUE IS ULTIMATELY FOUND IN GOLD & SILVER.

THE BIG ELEPHANT CARCASS

As a friend and contact has said to me, “The US financial system can be killed with a single well-placed shot, much like a shotgun to an elephant.” The US is so vulnerable, its true condition is indescribable. The USTreasury Bond represents an obelisk bubble specifically originating within the bond bubble that has broken in a general sense. It rises like a narrow tower above all the other deeply damaged bonds in a perversely structured credit market. All non-government bonds have suffered, while USTBonds have benefited. The high USTBond principal value and high US Dollar exchange rate will encourage foreign bond holders to begin to “spend” their artificially high valued USTreasury Bond securities before events occur to greatly undermine their value. See for instance the Chinese announcement to spend $568 billion in a stimulus package. Although great news for the commodity and reflation trade, this cannot be seen as good news for the USTreasurys. They will lose a strong Chinese bid, or see outright selling.

The Chinese plan calls for strong support of public housing, infrastructure, railways, and indirectly demand for commodities. Contrast theirs to US plans to support failed financial firms and deeply rooted corruption of marquee named financial firms, at the exclusion of mainstream businesses. Other nations will soon be forced to defend their own domestic currencies against an unreasonable decline in exchange rate, the result of the Black Hole in USTBonds. Currencies from nations ranging from Europe to Brazil to Russia will react by selling their USTBond reserves, and to use them for purposes consistent with why those reserves were accumulated in the first place.

GLOBAL USDOLLAR SWAP GAMBIT

A desperate attempt was made in recent weeks by the US Federal Reserve. They installed a US Dollar Swap Facility, which essentially averts failure in the form of non-government bond defaults within the credit market and credit derivative markets, flooding the global financial system with USTBonds. As the US attempts to jumpstart a Reflation Initiative, the rest of the world will be pulled into the same policy, so the US power hungry but failed wizards believe. Foreigners will grow increasingly confused and defiant, offering central bank support but not showing up with any vigor for USTreasury auctions.

This is a huge risk to avert USTreasury Bond default from the back door. As the globe is reluctantly coerced to follow the US lead in a reflation, the gold and silver prices are sure to respond. The clarity of the depth and scope of attempted reflation will be vividly clear when General Motors faces further bailouts. A GM failure would have more bond damage done than the Lehman Brothers failure, but with a million jobs vaporized from a mammoth vertical integration and broad fallout zone. Implications to the US Dollar will be seen. In a sick sense, the extension of bailout and rescue will grow out of control, and usher in entrance to the Third World.

The transition of the new Obama Administration seems marked clearly by continuation of Wall Street and Washington DC insiders, not change. Expect all four major syndicates to remain in place. An analysis, a good start and by no means complete, since names are not yet final, of the Obama Cabinet is included in the November Hat Trick Letter report. Any Dept Treasury Secretary picked by Robert Rubin will continue the Wall Street stranglehold of US Dollar and banking policy, not change. A vast revolving door is clear, payback for support during the long campaign for both donor support and media coverage. Never confuse change with transition.

by Jim Willie CB

Editor of the “HAT TRICK LETTER”

My reaction: Here are some of my reactions to the interesting points made in this article:

1) It is scary to think that " overseas shipping channels to the United States are at risk from refused letters of credit." I am going to have to do some research on how US distribution channels are holding up.

2) I also expect to see "Auction failures from ridiculous under-bid conditions" for US treasuries.

3) According to Jim, creditor nations " will not permit any confiscation of gold or silver to occur." This should be reassuring to some gold bugs who worry about this.

4) If the fed succeeds in holding short term interest rates down as long term rates rise on inflation concerns, it will benefit banks which borrow short term and lend long term. this prospect might temporarily boost financial stocks, but soaring defaults will eventually bring financial stock values down to zero.

5) Finally, I agree with Jim that gold and silver will be become the world's new reserve currency. I believe the loss of faith in paper currencies will also lead to the forced re-adoption of the gold standard by nations around the world.

Dollar Collapse

2008-11-13T07:50:00.000-08:00

Capitalism and Free People, Milton Freedman

2008-11-12T19:23:00.000-08:00

Sound Money

2008-11-12T18:59:00.000-08:00

Fruit & Urban Survival

2008-11-12T17:21:00.000-08:00

Dems Eye Your 401 K

2008-11-11T18:21:00.000-08:00

We don't make anything, we just shop

2008-11-10T17:00:00.000-08:00

Wall Street to Shrink , Says Schiff

2008-11-10T14:32:00.000-08:00

FED Hides $ 2 Trillion in Bailout Loans

2008-11-10T09:58:00.000-08:00

Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

``The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. ``In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

``It's your money; it's not the Fed's money,'' said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. ``Of course there should be transparency.''

Federal Reserve spokeswoman Michelle Smith declined to comment on the loans or the Bloomberg lawsuit. Treasury spokeswoman Michele Davis didn't respond to a phone call and an e-mail seeking comment.

$2 Trillion

The Fed's lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan -- without safeguards put into the TARP legislation by Congress.

Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank's purchase of Fannie Mae and Freddie Mac bonds.

Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities, some with lower ratings. The Fed collects interest on all its loans.

`We Need Transparency'

The plan to purchase distressed securities through TARP called for buying at the ``lowest price that the secretary (of the Treasury) determines to be consistent with the purposes of this Act,'' according to the Emergency Economic Stabilization Act of 2008, the law that covers TARP.

The legislation didn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' In a reverse auction, bidders offer to sell securities at successively lower prices, helping to ensure that the Fed would pay less. The measure also included a five-member oversight board that includes Paulson and Bernanke.

At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets under the TARP program.

``We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.''

Banks Resist Disclosure

At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. ``Transparency is a big issue,'' he said.

The Fed lent cash and government bonds to banks, which gave the Fed collateral in the form of equities and debt, including subprime and structured securities such as collateralized debt obligations, according to the Fed Web site. The borrowers have included the now-bankrupt Lehman Brothers Holdings Inc., Citigroup Inc. and JPMorgan Chase & Co.

Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group.

Frank Backs Fed

``You have to balance the need for transparency with protecting the public interest,'' Talbott said. ``Taxpayers have a right to know where their tax dollars are going, but one piece of information standing alone could undermine public confidence in the system.''

The nation's biggest banks, Citigroup, Bank of America Corp., JPMorgan Chase, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, declined to comment on whether they have borrowed money from the Fed. They received $120 billion in capital from the TARP, which was signed into law Oct. 3.

In an interview Nov. 6, House Financial Services Committee Chairman Barney Frank said the Fed's disclosure is sufficient and that the risk the central bank is taking on is appropriate in the current economic climate. Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York and a possible candidate to succeed Paulson as Treasury secretary.

``I talk to Geithner and he was pretty sure that they're OK,'' said Frank, a Massachusetts Democrat. ``If the risk is that the Fed takes a little bit of a haircut, well that's regrettable.'' Such losses would be acceptable, he said, if the program helps revive the economy.

`Unclog the Market'

Frank said the Fed shouldn't reveal the assets it holds or how it values them because of ``delicacy with respect to pricing.'' He said such disclosure would ``give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic.

Revealing how the Fed values collateral could help thaw frozen credit markets, said Ron D'Vari, chief executive officer of NewOak Capital LLC in New York and the former head of structured finance at BlackRock Inc.

``I'd love to hear the methodology, how the Fed priced the assets,'' D'Vari said. ``That would unclog the market very quickly.''

TARP's $700 billion so far is being used to buy preferred shares in banks to shore up their capital. The program was originally intended to hold banks' troubled assets while markets were frozen.

AIG Lending

The Bloomberg lawsuit argues that the collateral lists ``are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression.''

The Fed has lent at least $81 billion to American International Group Inc., the world's largest insurer, so that it can pay obligations to banks. AIG today said it received an expanded government rescue package valued at more than $150 billion.

The central bank is also responsible for losses on a $26.8 billion portfolio guaranteed after Bear Stearns Cos. was bought by JPMorgan.

``As a taxpayer, it is absolutely important that we know how they're lending money and who they're lending it to,'' said Lucy Dalglish, executive director of the Arlington, Virginia- based Reporters Committee for Freedom of the Press.

Ultimately, the Fed will have to remove some securities held as collateral from some programs because the central bank's rules call for instruments rated below investment grade to be taken back by the borrower and marked down in value. Losses on those assets could then be written off, partly through the capital recently injected into those banks by the Treasury.

Ratings Cuts

Moody's Investors Service alone has cut its ratings on 926 mortgage-backed securities worth $42 billion to junk from investment grade since Sept. 14, making them ineligible for collateral on some Fed loans.

The Fed's collateral ``absolutely should be made public,'' said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site BailoutSleuth.com, which focuses on the secrecy shrouding the Fed's moves.

The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net; Bob Ivry in New York at bivry@bloomberg.net; Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net.

Last Updated: November 10, 2008 10:14 EST

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