There is nothing more dangerous than when those responsible for a nation’s troubles are believed to be its savior.

The Wall Street Journal had one fact correct regarding Wall Street’s accelerating collapse when on September 20th they wrote: When government officials surveyed the failing American financial system this week, they didn’t see only a collapsed investment bank or the surrender of a giant insurance firm. They saw the circulatory system of the U.S. economy – credit markets – starting to fail.

The Wall Street Journal was correct in that the circulatory system of the US economy was failing. Because the Wall Street Journal is the house organ of Wall Street investment banks and their co-conspirators in government, the Wall Street Journal blamed deteriorating credit markets for America’s troubles, not those responsible – to wit, Alan Greenspan, Ben Bernanke, and their cohorts at the Federal Reserve Banks.

ALAN GREENSPAN’S BASTARD SON

Ben Bernanke, Alan Greenspan’s surrogate successor at the Federal Reserve is using Greenspan’s discredited playbook to hopefully resuscitate America’s economy. But pouring more credit into America’s stalled economy will not restart the US economy anymore than pouring gasoline into a flooded engine will restart an engine.

Excessive credit caused the problem and more credit will only exacerbate it. The US central bank, the Federal Reserve, however is now backed into a corner, a corner from which there is no exit.

After credit markets contracted in August 2007, it was hoped that central bank intervention would reverse the deterioration of global markets that was then only beginning. A year ago, on October 1, 2007, I addressed that hope in my article, The Winter of Our Discontent:

As we collectively move towards the economic disaster awaiting us, the investment community is hoping the world’s central banks will be able to save them from the crisis set in motion by this summer’s [August 2007] credit collapse.

If the truth be known – and someday it will be – central banks are at the very center of today’s problems. Indeed, they caused them. Today’s disintegration of capital markets based on debt-based paper began in 1913 with the creation of the US Federal Reserve Bank, the central bank of the US.

…Debt-based paper money has led nations and the world down a very dangerous path. Facilitating expansion by encumbering future revenues with compounding debt inevitably indebts individuals, businesses, and governments beyond their ability to repay.

In the beginning, production expands, needs are met and everyone goes home happy. In the end, everyone’s home gets repossessed. This is when the amount of debt has grown so large, governments, businesses, and consumers collapse under its collective weight.

That’s where we are today. We lived off tomorrow and tomorrow has arrived. What a surprise.

Although in the past, continuing central bank intervention has proved inadequate, the ignorant, unknowing and desperate are yet again hoping that Paulson’s latest plan will save them. But the collective solutions of Bernanke, Paulson, et. al. will again prove wanting.

Indeed, Paulson’s and Bernanke’s continuing attempts to reverse the accelerating credit contraction will only make the final rendering all the more devastating. What I wrote last year is true today – except, today, we are now one year closer to the inevitable end of this still unfolding crisis.

cont’d, The Winter of Our Discontent October 1, 2007

…As autumn approaches, this summer’s credit crisis continues to spread through the global grid created by today’s financial wizards – wizards so adept they do not understand what they have set in motion. That this summer’s credit crisis surprised them the most is the most disturbing news of all.

The financial wizards of Wall Street and The City are hoping this summer’s credit crisis is a bad cold at worst, that perhaps a slight fever and time will heal the illness and they can return once again to the task of carving out billion-dollar bonuses from capitalism’s rotting carcass (sic capitalism, any economic system based on central bank issuance of debt-based paper money).

But the wizards of Wall Street and The City will be wrong this fall. This summer’s credit contraction looks increasingly less like a cold and more like cancer which has metastasized and made its way into the lymph nodes of our global economy.

The credit contraction of August 2007 was not a cold. It was cancer and since then it has spread with increasing rapidity throughout the US and global economies; and, now, one year later, the ignorant, unknowing and desperate led by the deceitful, selfish and clever are hoping that its only pneumonia.

CHINA’S KEEPING THE PATIENT ALIVE

Some are alleging that the US government’s accelerating bailout of banks, insurance companies et. al. is socialism. Although it is government intervention in extremis, such intervention in the markets does not constitute socialism.

The bailout of investment banks and corporations by the US government is fascism; the control and intervention of government by corporate interests designed to further corporate and state control. The multi-trillion dollar state support of JP Morgan, AIG, Fannie Mae and Freddie Mac and now perhaps soon GM, Ford, and Chrysler is fascism, not socialism.

Fascism should more appropriately be called corporatism because it is the merger of state and corporate power.
Benito Mussolini, fascist dictator of Italy (1922-1943)

What is ironic is that China, a self-described socialist state, is increasingly now responsible for the well-being of the US, a nation rapidly transforming itself into a fascist nation right before our eyes; and, while this might be the ultimate resolution of the two competing ideologies of the 20th century, I don’t think so. Instead, it could be the end of both.

CHINA, PAPER MONEY, AND THE WEST

Paper along with paper money was first invented in China and Ralph T. Foster’s Fiat Paper Money, The History and Evolution of Our Currency, states that “On January 12, 1024, the Sung court directed the imperial treasury to issue national paper money for general use”.

Two centuries later, the Sung Dynasty’s paper money had lost almost all its value due to over printing. Later attempts were made to resuscitate paper money but all such attempts were to end in economic collapse. Foster sums up China’s experiment with paper money as follows:

Over the course of 600 years, five dynasties had implemented paper money and all five made frequent use of the printing press to solve problems. Economic catastrophe and political chaos inevitably followed. Time and again, officials looked to paper money for instant liquidity and the immediate transfer of wealth. But its ostensible virtues could not withstand its tragic legacy: those who held it as a store of value found that in time all they held were worthless pieces of paper. [bold, mine]
Fiat Paper Money, The History and Evolution of Our Currency, Ralph T. Foster 2nd ed 2008, page 29, available email tfdf(at)pacbell.net or by phone 520-845-3015.

In 1661, China formally outlawed the use of paper money and it wasn’t to reappear in China until the 1800s when English traders wanted to pay for Chinese goods with paper bank notes issued by the Bank of England. The Bank of England claimed its paper money was backed by gold and therefore “good as gold”.

The Chinese, suspicious of western ways and rightfully so, demanded instead to be paid in their circulating currency, silver; and, as the British badly wanted China’s porcelains, teas, and silks, this forced the British to buy silver on the open market in order to purchase goods from China.

If the British bank notes were de facto fully backed by gold as claimed by the Bank of England, there would have been little need for England to go to war in order to instead force China to accept British opium. But the British claim of 100 % convertibility to gold was more a public relations gesture than an actual reality, at least in the large amounts demanded by the growing China trade.

BUYERS ALWAYS PREFER PAYMENT WITH PAPER MONEY
SELLERS ALWAYS PREFER PAYMENT WITH GOLD OR SILVER

The subjugation of China, first by the England and the West and then by Japan, continued until the Chinese Communists forced out the Japanese who had previously forced out the Russians, the British, the Germans, the French and the Americans.

But in the intervening years, between the British invasion in the 1840s and the Chinese Communist victory one century later, the Bank of England with the aid of the US Federal Reserve had instituted the universal acceptance of central bank issued paper money everywhere in the world and China was no exception.

Wikipedia recounts the long experience of China with paper money and hyperinflation:

As the first user of fiat currency, China has had an early history of troubles caused by hyperinflation. The Yuan Dynasty (1271-1368) printed huge amounts of fiat paper money to fund their wars, and the resulting hyperinflation, coupled with other factors, led to its demise at the hands of a revolution. The Republic of China went through the worst inflation 1948-49. In 1947, the highest denomination was 50,000 yuan. By mid-1948, the highest denomination was 180,000,000 yuan. The 1948 currency reform replaced the yuan by the gold yuan at an exchange rate of 1 gold yuan = 3,000,000 yuan. In less than 1 year, the highest denomination was 10,000,000 gold yuan. The highest denomination by a regional bank was 6,000,000,000 yuan issued by XinJiang Provincial Bank in 1949. After the renminbi was instituted by the new communist government, hyperinflation ceased with a revaluation of 1:10,000 in 1955.

Although China first outlawed the use of paper money in the 17th century, it now possesses over a trillion dollars worth of fiat paper money here in the 21st, the majority in the form of recently issued US paper dollars.

Now, the problems of hyperinflation may soon again affect China – because if the US continues to print its way out of its increasing problems, hyperinflation of the US dollar will destroy the value of China’s “monetary” reserves.

Although China has a much longer history than does the US, both the world’s oldest civilization, China, and the relative newcomer, the US, will face a dangerous economic future if the US continues to accelerate the growth of its money supply. But no one can control the US in this regard, not even the US.

Flooded by the West’s paper money
China has joined the West’s game against its will
How long will the game continue?
How long before China can reassert its will?
Heaven moves in its own time

EARTHQUAKE, FIRE
& FULFILLMENT OF THE PROPHECY

The August 2007 credit contraction was like a financial earthquake that unexpectedly shook global markets. It began as a series of crises that have continually escalated demanding greater and greater taxpayer resources.

Now, the house itself is on fire but the cause and the proposed solution are always the same. The cause is always investment bank greed. The proposed solution is always more taxpayer money to bailout out more investment banks. This is not a solution. This is societal blackmail.

When the US handed over the issuance of its money to the Federal Reserve in 1913 it did so in violation of the US Constitution. It illegally gave the right to issue US currency to a private bank and set in motion forces that would lead to today’s extraordinary crisis.

Today’s extraordinary banking crisis was not unexpected – as private bankers claim and we believe. Today’s crisis was inevitable and was in fact prophesized long before it happened. We were warned about this very occurrence two hundred years ago by no less than a founding father of the American republic, Thomas Jefferson.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.

Jefferson’s prophecy has now come true and, yet, we act surprised; and, if we are, it is because the corporate controlled media has effectively misled Americans about the cause of their problems.

Double-dipping welfare moms? Illegal immigrants? Muslim terrorists? It’s anyone – except, of course, the bankers and the Federal Reserve – or so say again and again America’s corrupt corporate media in whose interest it is for Americans to mistakenly blame others for the real cause of its woes.

Otherwise, Americans, left on their own, might wake up.

THE BUTLER DIDN’T DO IT
THE BANKERS DID

It is bankers such as Henry Paulson who are responsible for America’s disintegrating and imploding economy. Since 1913 America has allowed private bankers to control the issuance of America’s money and now, in the very midst of the problems they themselves created, the bankers through Paulson’s plan are seeking unsupervised control over America’s economy complete with immunity from any future criminal prosecution.

This is because the bankers not only want America to bail them out, they are planning to steal their assets back in the process.

TREASURY SEEKS ASSET-BUYING POWER UNCHECKED
BY COURTS (Update2)
By Alison Fitzgerald and John Brinsley

Sept. 21 (Bloomberg) — The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.

Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world’s largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority. [bold, mine]

“He’s asking for a huge amount of power,” said Nouriel Roubini, an economist at New York University. “He’s saying, ‘Trust me, I’m going to do it right if you give me absolute control.’ This is not a monarchy.”

The investment banks are even now intending to violate the law in Paulson’s proposed government takeover and redistribution of bank assets. It is in the redistribution and sale of bank assets where the crimes will occur – crimes which will be granted pre-existing immunity from judicial prosecution under Paulson’s proposal.

This same caveat – immunity from subsequent criminal prosecution – was also written into the authorization of the original Resolution Trust Corporation which disposed of government seized property after the Savings & Loan crisis.

The reason no one remembers the hundreds of billions of dollars of seized property from Savings & Loans listed for sale by the RTC is because it never happened.

The greatest wealth transfer in recent history happened when taxpayer money was used to liquidate S&L properties which were then “sold” to well-connected insiders in transactions immune from criminal prosecution for literally pennies on the dollar.

The soon-to-be owned bank assets under Paulson’s plan will not be sold to the highest bidders in an open and fair auction, they will be disposed of again to pools of the wealthy and well-connected at highly discounted insider valuations. The people will pay, the rich will profit.

QUI CUSTODIAT CUSTODES
WHO WILL GUARD THE GUARDIANS

No, this isn’t a monarchy. This is fascism.

THE FOX IS IN THE HENHOUSE

Today, investment banker Henry Paulson, former CEO of investment bank Goldman Sachs is US Secretary of the Treasury. This is no coincidence. Thomas Jefferson would not be surprised.

Paulson’s plan to bail out the banks is being presented to American citizens as a fait accompli, as a necessary step to prevent the complete meltdown of our financial system. Paulson’s plan is exactly what every venal, opportunistic and self-serving banker would propose as a solution to America’s problems in such circumstances.

INVESTMENT BANKERS
DON’T NEED TO BE BAILED OUT
INVESTMENT BANKERS NEED TO BE THROWN OUT

The answer to America’s problems is clear. Thomas Jefferson said it two hundred years ago.

The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Let’s do what has to be done, America – or do you still want to blame Muslim terrorists and illegal immigrants for America’s problems; or maybe you are still hoping that somehow maybe somehow Paulson’s proposed trillion dollar government bailout of the rich and well-connected will somehow trickle down to you and save you and your family from being tossed out onto the streets when your house is foreclosed on by the banks he is going to save.

The majority will always willing pay the price of fascism

When this is all over – and someday it will be – it is my hope that we will have learned the lessons that we have now forgotten. That bankers, like vicious dogs, must always be kept on short leashes for the public safety and public good (neutering should also be a requirement); and, that gold and silver, not credit and debt, are the only foundation of sound money.

PREDICTIONS

(1) Paulson’s bailout of investment banks giving bankers total control over America’s economy will be rushed through Congress and quickly signed into law damaging international perceptions of US creditworthiness which will lead to further uncertainty in the markets. US Treasuries and the US dollar will ultimately bear the long term consequences of Paulson’s self-serving short term “solution”.

Conclusion: Even greater financial disaster will result from Paulson’s taxpayer bailout of his wealthy Wall Street friends.

(2) Written into the investment banking bailout law will be provisions expanding the police powers of the state, e.g. Congressman Ron Paul noted the recent passage of the housing bill contained the requirement that by 2009 “every credit card transaction will be reported to the IRS”.

FASCISM IS ALWASY SOLD AS NECESSITY IN THE NAME OF THE PUBLIC GOOD

Conclusion: Fascism is the new zeitgeist.

This, too, shall pass.

Last weekend started early for Timothy Geithner, President and CEO of the New York Federal Reserve. At 6 pm, Friday, Geithner called an emergency meeting to discuss the possible collapse of Wall Street investment bank, Lehman Bros.

The troubles of Lehman Bros had worsened during the previous week and the current Fed playbook dictated a solution be found on the weekend to calm financial markets opening Monday; but, this weekend, the Fed playbook came up empty, Lehman Bros. declared bankruptcy.

It’s official. The storm is here. In How To Survive The Crisis And Prosper In The Process, I predicted a global financial crisis would happen where real estate prices would fall 40-70%, stock markets would crash and a Great Depression would result.

Eighteen months later, the median price of housing in California is down 40 %, global stock markets are in disarray and although another depression has yet to begin, this weekend’s failure of Lehman Bros combined with the pressured sale of Merrill Lynch and the prospect of an AIG collapse are clear signs that we are now that much closer to the predicted end.

This is the end of a system. It is not a cyclical correction. It is not a market pullback and it is not a repricing of risk in an otherwise resilient marketplace. We are witness to the end of an economic system based on credit-based paper money that began 300 years ago in England. All beginnings have endings—and that we didn’t expect it to end doesn’t mean that it wouldn’t.

THE BANKERS’ BEGGING BOWL

Because Lehman Bros.’ CEO Richard Fuld received a $22 million bonus for his “work” in 2007 or perhaps because Fed officials had been openly criticized at their annual Jackson Hole soirée for their continuing bailouts of US investment banks, last weekend US officials unexpectedly informed Wall Street bankers that a government bailout of Lehman Bros. was not possible.

There is no political will for a Federal bailout…

Timothy Geithner, September 12, 2008

Geithner’s statement really means that Wall Street no longer possesses the requisite political muscle to extract more US dollars from a bankrupt electorate. Last weekend, Wall Street bankers finally understood that their privileged position in the welfare line of US government largesse had come to an end. This time, the banker’s begging bowl would remain empty.

With their co-conspirators in the US government no longer able or willing to provide additional US guarantees, the position of investment banks has now become increasingly fragile; and their newly hatched liquidity plan concocted by the bankers over the weekend is another indication of just how fragile their system is.

THE BANKERS’ NEW PLAN

Last Saturday when the bankers realized they could no longer depend on government money to bail them out, they came up with a plan. Granted, they did so with only one night’s sleep but nonetheless there appears to be a significant flaw in their thinking.

This is the plan:

Sept. 14 (Bloomberg) — A group of banks including Bank of America, CitiGroup and JPMorgan Chase & Co. are putting up $70 billion for a borrowing fund aimed at providing liquidity… Each participating financial firm will provide $7 billion to establish the fund and have the ability to borrow up to a third of the total. Other banks include Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and UBS AG. The pool could expand as other companies join.

Now, let’s get this straight. Ten banks put up $7 billion for a total of $70 billion. Because any bank can withdraw up to $23.3 billion, if three banks take $23.3 billion each, there will be nothing left for the others. Am I missing something?

There is nothing wrong with the plan, per se. The flaw lies in the flawed character of the participants. These are investment banks and if investment banks can exploit a situation, they will do so. That’s what investment banks do for a living, they exploit situations for their own advantage in order to maximize profits.

Last year when two Bear Stearns highly leveraged funds were in danger of failing, Bear Stearns came to the “rescue” of one of its funds and lent it more capital, albeit with the caveat that Bear now had first claim on the fund’s assets. Then, when the fund collapsed shortly thereafter Bear Stearns exercised its now first-in-line rights to all the assets.

Since self-serving behavior is common among investment bankers, it will be interesting to see how the bankers’ $70 billion fund will fare. After the first withdrawal, there may be a “bank run” on the remaining assets by the remaining banks—a real life version of what will be “the Banker’s Dilemma”.

A FRACTIONAL RESERVE SAFETY NET

The investment banks’ $70 billion liquidity fund is predicated on much the same premise that fractional reserve banking is based. While it is understood there may not be enough in the fund to cover all needs, it is assumed that not everyone one will need their funds at the same time.

This thinking/sic assumption is the basis of today’s fractional reserve banking system; because, as in the banker’s “liquidity plan”, there is not enough money in US banks in the event of significant withdrawals by savers.

There is $6.84 trillion on deposit in US banks; but US banks have only $273.7 billion cash on hand. The banks cannot possibly pay back depositors all their money as only 4 % of depositors’ funds are actually available. The rest has been loaned out, i.e. to real estate developers, etc.

The safety net of both bankers and depositors may prove inadequate in the days ahead. Be forewarned.

INVESTING IN CHAOS

Investing in these times is investing in a time of chaos; and gold and silver, traditional havens, appear to have failed in that role, both having sustained significant losses of late. But don’t dismiss gold and silver so quickly. Their day is coming.

The recent correction of gold and silver was not unexpected. In my book, I noted that in 2006 UBS had predicted a commodities sell-off—an avalanche sale of all commodities—could occur and take down gold in the process.

Page 48, from How To Survive The Crisis And Prosper In The Process:

In the June 5, 2006 article, UBS also warned that while the long term outlook for gold was decidedly positive, there was an intermediate risk of a global economic downturn that would drag “gold down in an avalanche sale of all commodities”; an avalanche that gold would ultimately survive before embarking again on a strong upward path.

The global turndown predicted by UBS in 2006 is underway; and the current sell-off of commodities, an avalanche sale of all commodities, may well be the event predicted by UBS. That such is occurring means we are now entering what I call the third and final stage of economic-collapse.

No one knows how long this stage will be. It is clear, however, from the recent takeovers of Fannie Mae and Freddie Mac, and the collapse of Bear Stearns and Lehman Bros. that there has been a seismic shift recently in the global financial landscape.

This stage is the last period in which investments can be profitably re-allocated to take advantage of what will soon happen, a financial tsunami the likes of which have never before been seen. A deflationary collapse with hyperinflation is only one possibility. There are more.

The engine used to run on premium, e.g. gold and silver; now it’s being run on credit which over time will destroy the engine and everything else.

The euro, the yuan, the yen, and the dollar are The Four Tires Of The Apocalypse, an event that recently appears to have come out of nowhere. It didn’t. Its apparently sudden appearance is new only to those who wished to see otherwise.

The destructive juggernaut now bearing down on the financial house of cards constructed by central bankers contained within it the seeds of its own destruction from its very beginning. Over time, those seeds would turn into Cerberus, the hound of hell, on whose mercy Bernanke et. al. now depends.

Epochs, like movies, need time to reveal protagonists and antagonists, as well as victims, villains and victors. We are now at the end of an epoch and as the final scene opens, the program notes are becoming disturbingly clear.

We find ourselves participants in the last and final act of capitalism and its credit based capital markets—or more correctly, credit and/or debt markets masquerading as free markets.

THE BIRTH OF CERBERUS
THE GENESIS OF THE JUGGERNAUT

Capitalism did not appear until the Bank of England began issuing its debt-based paper money in 1694. The issuance of credit as money gave rise to capital markets where debt-based money replaced savings-based money

The Bank of England’s debt-based money drove out gold and silver coinage as Gresham’s Law clearly illustrates—bad money drives out good. No one would willingly pay gold or silver for what paper coupons would just as easily buy.

Capital markets are debt-markets made possible by the fiat issuance of central bank debt-based money. After central bankers’ faux money replaced gold and silver coins, commerce appeared to change forever; but that too is now about to change.

The rise of central banks parallels the substitution of paper debt-based money for gold and silver. When a disease spreads, so, too, do its symptoms. Replacing gold and silver with debt-based money was to eventually cripple commerce itself, albeit after a three hundred year run at the table.

Previous to central banking, commerce was founded on currencies composed of gold and silver. But with the advent of central banks, credit was substituted for gold and silver and after three centuries, credit-based economies are now on the verge of collapse, the juggernaut is in the shop and the long awaited apocalypse has arrived.

SOMEBODY BETTER CHECK THE TIRES

The euro, the yuan, the yen, and the dollar—the four major fiat currencies—are The Four Tires Of The Apocalypse; and although the economy’s engine, the credit markets, have seized up and are receiving most of the attention, somebody should take a look at the tires.

The mechanics, the central bankers, are instead focused only on the engine. Their solution again proves that good mechanics are hard to find. Like hacks at the corner garage, they’re pouring more credit into an already flooded engine, a sure sign they don’t know what they’re doing.

They’re not even looking at the tires. They should because the tires are fiat made of paper. The front tires are the Japanese yen and the Chinese yuan. The rear two are the euro and the US dollar; and it’s the two rear tires that now pose the greatest threat, the driver’s side rear, the US dollar, in particular—and the spare in the trunk, the British pound has a leak.

Of the four, the Chinese yuan is the newest, which in credit-driven economies is a plus, as usage in such economies equals more debt. Nonetheless, the Chinese yuan is not capable of carrying more than its present load although it is presently holding its own.

The other front tire, the Japanese yen, unlike the Chinese yuan, is well-worn and its tread is almost gone. Its debt load is enormous (the highest ratio of debt to GDP of all major economies) while its pressure, sic interest rate, is the lowest of all, incapable of handling more.

Currently at only 0.5 % because of an almost fatal blowout in 1989, the Japanese yen still hasn’t yet recovered—that the tire is still in service after its severe blowout is in itself something of a miracle.

But the two rear tires, the euro and the US dollar, are the source of our future trouble as they are particularly vulnerable to the continuing collapse of credit markets. The euro and dollar, like all fiat currencies, are dependent on the strength of their underlying economies, economies addicted to credit from increasingly insolvent banks, banks which are in far more trouble than presently believed.

Like someone who has HIV and has only confessed to having the clap, the money-center banks in Europe and the US are holding assets both on and off their balance sheets that are virtually worthless, with actual losses totaling $1.6 trillion, four times what the banks have yet admitted; and because the value of fiat currencies are a function of their economies, the collapse of the US dollar and euro may be ahead.

PUBLIC MONEY
PRIVATE BANKS

It is now clear that central banks are using national treasuries to indemnify losses incurred by private banks. This should come as no surprise. Once private bankers and public government colluded to debase the currencies of their nations in order to enrich themselves, the joining of the two was inevitable and it is happening as we watch.

The last and final act of capitalism will be characterized by the looting of what little remains in our national treasuries as central bankers bail out the banks that caused our present problems. The only thing new is our surprise that it is happening.

The consequences, however, will not end there. The consequence of the public bailout of private banks will be the collapse of fiat currencies, currencies which have been the very basis of government and bankers’ power—power which will be swept away when fiat currencies collapse.

THE END GAME

Capitalism and credit markets—the bastard offspring of fiat money and central banking—are now in their final stage; and the default of fiat money will herald the end of the reign of central bankers in our affairs. No fiat system has ever survived. The present fiat system will be no exception to that rule

For those worried about private property, have no fear. Capitalism has nothing to do with the private ownership of property as maintained by private bankers and their corporate sponsors. The private ownership of property existed long before capitalism and will exist long after.

Capitalism has everything to do with central bankers’ issuance of debt-based money and the increasing power of government in our lives and the increasing profits of bankers at our expense.

Thomas Jefferson, the author of America’s Declaration of Independence understood well the threat posed by central banks:

The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution…Bankers are more dangerous than standing armies… [and] If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.

With the establishment of the Federal Reserve Bank in 1913, the American people allowed private bankers to destroy the economic freedom the founding fathers had fought to achieve.

That first by inflation and then by deflation, the banks and corporations as Jefferson warned are now in the process of depriving Americans and others of their homes and property by the issuance of credit and by default on those debts

The founding father fought a war in 1776; and 137 years later in 1913, Americans ceded back what they had won when they allowed private bankers to establish the Federal Reserve Bank in the US, a central bank which would do exactly as Jefferson said

Since the establishment of the Federal Reserve System, the US has been a slave to bankers and those in government who do their bidding, Today, Americans are bankrupt and indebted to those they allowed to issue their currency.

Today, America’s once free markets are rigged and government officials lie openly and with impunity whenever it serves their purpose to do so, their words no more trustworthy than the statistics they produce in order to pacify a nation regarding the dangers they have put it in.

Soon, however, that will change. For the collapse of the fiat US dollar will also bring about the collapse of those who benefit from its false issuance—private bankers, corporations and those who govern for their benefit in our name.

Although we do not possess the requisite power to successfully oppose those who oppress us, we can however wait for their inevitable demise, a demise that will unfortunately be as devastating to us as it will be to them.

The collapse of the US dollar will be horrific as will be its aftermath. But the price of liberty is always high. It was high in 1776. It will be high again.

THE UNLEASHING OF CERBERUS

These days at Apocalypse Auto, the lights are on at midnight as the mechanics wonder what to do. This is not the first time the once apparently unstoppable US economic juggernaut has been in the shop.

Just a few years ago, when the dot.com bubble burst, the US economy was obviously badly in need of emergency repair. To Al Greenspan, the head mechanic at Apocalypse Auto, it was a dangerous situation.

In 1989, the Japanese stock market bubble had collapsed sending Japan into a deflationary spiral in which it was still mired and if the US suffered likewise, the US, Japan and world economies would be in deep trouble.

So, Al and the others at Apocalypse Auto did what they did. The story is best told by Professor Antal E. Fekete in The Bubble That Broke The World, June 2003, see http://www.professorfekete.com/articles%5CAEFTheBubbleThatBrokeTheWorld.pdf.

… Aladdin Greenspan let the genie out of the bottle. The genie is now at large, entirely on its own, roaming around the world, visiting disaster upon the economies wherever it may go: a depression possibly worse than that in the 1930s. Aladdin hasn’t got a clue how to put it back in the bottle because if he tried, the genie would threaten to plunge the world into another bottomless pit, that of hyperinflation.

Greenspan [explained] the strategy the Fed has developed to combat deflation. He would climb the yield curve, that is, go out to buy government bonds of all maturities, if need be up to and including the30-year Treasury bonds, in an effort to push interest rates down thereby enlarging the monetary base that would, according to him, contain the weakness in prices.

It is a long shot from open market purchases of bonds to a buoyant price level. After all, once in circulation, the new money created by the Fed is no longer under its control. It is under the control of the speculators. They will not necessarily deploy it in the commodity or stock markets, as the Fed is hoping. They may see a better opportunity for profitable speculation elsewhere, say, in the real estate or the bond markets [bold, mine].

Just as Professor Fekete predicted, central bank credit, sic “new money”, went out of central bankers’ control and created an even larger bubble, the US real estate bubble whose collapse is now threatening economies everywhere.

Central bankers are again trying to contain the forces they themselves set in motion. But, irreparable harm has already been done because the genie that Greenspan let out of the bottle was no ordinary genie, it was Cerberus, the hound from hell.

Cerberus, Hades’ three-headed hound, is now on the loose. It is a sign of the times that many still hope central bankers can save them from what is about to happen. But hope is as blind as the information upon which it feeds—for although the bankers let Cerberus out, they are powerless to put him back in.

GOLD & SILVER
THE BANE OF CENTRAL BANKERS
THE FOUNDATION OF OUR PAST AND FUTURE FREEDOMS

Darryl Robert Schoon
Jul 22, 2008

Only those who have gone too far know where the limits should have been.

Money served throughout history as a medium of exchange and as a storehouse of value. But when gold and silver coins were replaced by paper currencies, money no longer was the same. Paper money, no longer having intrinsic value, now functions only as a medium of exchange, a function that degrades over time.

The value of paper money continually loses value because the constant printing of paper money constantly dilutes the value of previously printed money. The more paper money printed, the less paper money is worth; and today, money is being printed at a faster rate than at any time in history.

In fiat paper money systems, today’s paper money will be worth less than tomorrow’s and will be worth less the day after ad infinitum. This constant degradation of paper money is known as inflation. When the process rapidly speeds up, it is known as hyperinflation. Remember that word.

For the first time in history, all money, all currencies are now fiat which means money no longer has intrinsic value. This is not because intrinsic value was deemed unnecessary for a functioning currency. The real reason is far less reasonable.

All money is now fiat because between 1949 and 1970 the US overspent its entire 21,775 ton hoard of gold and could no longer convert its currency to gold as agreed under the Bretton Woods Agreements in 1944.

Note: What gold remains in US custody today remains only because in 1971 the US refused to transfer the remaining gold owed to others; as its obligations were far greater than its capacity to settle.

Because at the time the gold-backed US currency anchored all world currencies, when the US dollar became fiat, all currencies also became fiat. For the first time in history, no currency was backed by either gold or silver including the international reserve currency, the US dollar. The destructive consequences of that act have remained contained for 35 years. They are no longer.

The sudden global switch from gold backed money to fiat paper money was not by design; it was the by-product of excessive US post-WWII military spending and corporate overseas expansion. Throughout history, the downfall of most paper money economies can be directly tied to wars and the military. The US is no exception.

The late central banker John Exter called today’s money IOU-nothing money, the best description yet of today’s constantly degrading paper currencies. Trillions of dollars are bet daily on FOREX markets as speculators bet on the value of government issued coupons masquerading as money. Someday, perhaps sooner than later, speculators will bet the coupons have no value at all.

THE DAY GOLD CORNERS PAPER MONEY

On that day, according to Professor Antal E. Fekete, a spontaneous gold corner could develop; but the corner would not be driven by speculators cornering a commodity to drive up its price. The corner will be caused by the refusal of those who own gold to exchange their increasingly precious metal for increasingly worthless paper currencies.

Since 1913 when the Federal Reserve first issued its debt based paper money in the US, the paper US dollar has lost 95 % of its value, a loss of 95 % over 95 years. Perhaps in five more years, 100 years after the creation of the Federal Reserve, the US dollar will have lost 100 % of its value – which means in five years the US paper dollar will be worth nothing.

Throughout history, no fiat money system has stood the test of time. All attempts to substitute paper money for gold and silver have ended in the total destruction and debasement of the currency.

This time will be no different. It is hubris to think otherwise but unfortunately the vast majority do – which is a clear sign they’re not thinking at all.

ALAN GREENSPAN’S REAL CONUNDRUM – THE GAME IS OVER WHEN PAPER MONEY LOSES ITS VALUE

This is the real conundrum of Alan Greenspan and all central bankers. When paper money loses its value, it can no longer function as a medium of exchange. Today, money is losing value faster than at any time in recent history. The end game, the end of fiat money in our time is approaching.

Inflation is reflected not only in the increasing costs of goods and services, it’s reflected in the corresponding decline in the value of paper money; and as money increasingly loses value, commodities, e.g. gold, silver, oil, gas, food etc. inversely become increasingly expensive measured in depreciating currencies.

Hyperinflation is merely an extended condition of inflation. In a hyperinflation, the value of paper money declines so quickly that costs rise exponentially in shorter and shorter periods of time. The end cycle of paper currencies is first inflation, then hyperinflation, then the collapse and destruction of the currency.

Today, inflation is rising everywhere as central bank printing of money is increasing everywhere. Hyperinflation is now a distinct possibility even as deflationary forces, sic collapsing and slowing demand, are themselves also in motion.

Inflation and deflation are not mutually exclusive phenomena as they have been in the past. Even now, we are experiencing higher prices along with decreasing demand, sic. stagflation. Stagflation is merely a less virulent version of the unthinkable – a simultaneous hyperinflationary deflationary collapse.

We are at a critical moment in history. Never before has money been debased on such a grand scale. Never before has so much debt been owed and never before have monetary authorities been so helpless to control the destructive forces they themselves set in motion.

THE FUTURE – SOVEREIGN DEFAULT

While it may appear to most that we are having a credit crisis or a liquidity crisis or a solvency crisis etc., the actuality is that we are having a monetary crisis – a crisis whose root cause is the increasingly pathological state of money itself.

Money is a medium of exchange and a storehouse of value. When money no longer serves those functions, its usefulness is over; and while the experience will be new to us, it will not be new to others.

History is littered with cast-off currencies, discarded attempts by nations to pay for excessive government expenditures with increasing amounts of paper money, sourced from an apparently limitless supply of paper, ink and human hubris; and while such are indeed limitless, the tolerance of such is not.

Economists Kenneth Rogoff (Harvard) and Carmen Reinhart (University of Maryland) have recently done seminal research in this area. Their findings are a disturbing sign of what now lies directly ahead. Sovereign currency collapse and defaults are not uncommon, they come in waves.

Sovereign defaults come in waves and while the present trough has been unusually quiescent, the future may not be so kind. What lies ahead may be the mother of all monetary defaults – because for the first time in history, all currencies including the world reserve currency are fiat; and, when the US dollar, the lynchpin of the current fiat regime collapses, all currencies may fall as well.

The very ubiquity of paper money portends a level of economic chaos never before experienced. All nations are now using paper money without the constraint and backing of gold or silver. Indeed, that is the very reason why governments substitute limitless paper for limited supplies of gold and silver.

The ambitions of government are always greater than their resources, especially when it comes to war and geopolitical ambitions. Since the end of WWII, the US has spent more money on its military than any nation in history.

EISENHOWER’S PROPHECY

Retired US General Dwight D. Eisenhower was President of the United States from 1953 to 1961. In 1961, in his historic farewell address to the nation, Eisenhower, a highly decorated general and former Supreme Commander of the Allied Forces in Europe, took the unprecedented step of warning America about the dangerous influence of what he called the military-industrial complex.

Our military organization today bears little relation to that known by any of my predecessors… Until the latest of our world conflicts, the United States had no armaments industry… [Now] We annually spend on military security more than the net income of all United States corporations.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every State house, every office of the Federal government

… In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

Eisenhower’s prophetic warnings went unheeded; and today, the US and the world will bear the consequences. Throughout history, war and military expenditures have been the leading cause of currency collapse and history is about to repeat itself. The past is again prologue.

Since WWII, the US government has spent money like it grew on trees and now unfortunately it literally does (albeit with the addition of a bit of ink and issuance from a central bank); and as President of the United States for eight years, Eisenhower clearly understood the consequences of continued US profligacy.

… As we peer into society’s future, we — you and I, and our government — must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.

Unmindful of Eisenhower’s warning, the US accelerated its spending and now its assets are mortgaged beyond of the ability of America’s grandchildren’s to pay. Since Eisenhower’s presidency, the US has gone from being the world’s only creditor to the world’s foremost debtor.

In but five decades, the US squandered not only its extraordinary patrimony (21,775 tons of gold), but the income and assets of future generations. Today US obligations, in excess of $70 trillion, are incapable of ever being paid back.

During the Eisenhower presidency, the US was the wealthiest nation and most productive economy in the world. Now, only five decades later, the US has become the insolvent phantom of which Eisenhower warned.

EISENHOWER’S LONG AWAITED ANSWER

For fifty years, we in America have proceeded down an aisle of destruction without meaningful debate or concern for the consequences. Neither the press nor the nation’s scholars addressed and pressed the issues that would someday destroy the economy of the most powerful nation in the world – and many of us in the US have wondered why.

In his farewell address to the country in 1961, Eisenhower gave the answer to that question. It is not, as I had feared, that Americans by nature are not inquiring, or are too afraid to ask hard questions, or are unable to accept uncomfortable truths.

Americans have not asked critical questions because those in positions of authority have been bribed not to do so. Eisenhower’s answer is as follows:

… A steadily increasing share [of research] is conducted for, by, or at the direction of, the Federal government… the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity… The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present … and is gravely to be regarded… we must also be alert..that public policy could itself become the captive of a scientific technological elite.

Issues such as the legality of the Federal Reserve Bank, or the transformation of America into a quasi-police state (the US is now the world’s number one jailor), or the inability to demand answers to questions such as why thousands of put options were placed just prior to 9/11 – bets on shares of American and United Airlines (the planes involved in the 9/11)) and on Morgan Stanley and Merrill Lynch (occupants of the World Trade Center) have not been asked or answered by those in authority and control.

The put options were traced to former US investment firm, A.E. Brown now a unit of Deutsche Bank. Perhaps it is only coincidence that in 1997, A. E. Brown was headed by Buzz Krongard who in 1998 became counsel to CIA Director George Tenet and in 2001 was appointed to the number three position of Executive Director of the CIA, see http://www.hereinreality.com/insidertrading.html.

Perhaps such are coincidence, perhaps they are not. What we do know is that we do not know – that such relevant and important questions have been assiduously avoided by the Congress, the press, and the nation’s scholars.

But, now, because of Eisenhower’s words we now know why today meaningful public inquiry is non-existent in America – it has been bought and paid for with US taxpayer dollars.

Seen in the light of the founding fathers’ dreams, the US is a failed experiment; and while it is true the experiment is not yet over, it may be uncomfortably close to its end. It is important to remember that not all experiments turn out as intended.

America’s debased democratic process has shown itself woefully impotent to resist the powers of which President Eisenhower so presciently and explicitly warned – powers so dangerously formidable that Eisenhower spoke of them only days before he was to leave office.

His successor, President John F. Kennedy was not to be so lucky. Just six months after authorizing US dollars to be backed by silver bullion instead of debt-based money from the Federal Reserve, JFK was killed by a “lone gunman” whose bullet followed a route almost as circuitous as the Warren Commission’s pathetic attempts to explain his assassination to a grieving and unquestioning nation.

Time has shown Eisenhower to be a prophet ignored by the nation he led. The future he warned about is now here and, unfortunately, so, too, are we. It would be a tragedy if the sacrifices of previous Americans and the founding fathers were to end like this.

THE GOLDEN PARACHUTE WITH A SILVER LINING

Because the root problem is monetary in nature, so, too, is the cure. Because paper money is the cause, real money, e.g. gold and silver, is the answer. This is true for nations as well as individuals. We can protect ourselves from the economic chaos that is about to happen if we possess gold or silver and faith – the first two can be bought, the latter cannot.

Throughout history, whenever a currency collapse occurs, in the ensuing chaos gold and silver can be exchanged for goods and services. It will be no different if and when this happens again in the not too distant future.

In July when Martha and I were in Hungary attending Session IV of Professor Fekete’s Gold Standard University Live (GSUL), we saw a branch of.Erste Bank, an Austrian bank, in the town of Szmobathely where GSUL was being held.

Just days before while sitting on the tarmac in Austin, Texas, waiting for our plane to be refueled, I had read a well researched in-depth report on gold forwarded to me by Ronald-Peter Stöferle of Erste Bank, headquartered in Vienna. See https://www.sparkasse.at/erstebank, Firmensitz Wien FN 33209 m Handelsgericht Wien.

Stöferle’s report is one of the best technical overviews on gold that I have recently read. Its analysis of gold’s history and future in relevant sectors, e.g. mining, bullion, central banks etc, is both focused and far-reaching, a not inconsiderable feat.

Quite positive about gold’s prospects, the title of Erste Bank’s analysis reads: Special Report: Gold – A Shiny Outlook. The report concludes:

Secular bull market still intact
Strongly increased investor interest in 2008 and beyond
Central banks will want to achieve a higher degree of diversification of their dollar holdings
Necessary correction following an overbought scenario
First target price: $1,200: long term target: inflation-adjusted all-time high of $2,300
It is now one year after August 2007 when the historic credit contraction shook the confidence of global financial markets. Today, the ground still appears firm beneath our feet. It is not.