Remarks of Robert K. Landis
Zurich, Switzerland, November 17, 2009

It is an honor and a pleasure to be here among so many good friends and great minds.

I feel a special affinity for Zurich. It was the home of my friend and inspiration Ferdi Lips. It is the home of other friends like Tony Deden.

It was also the ancestral home of the Landis family.

In fact, this ancestral tie makes me a little nervous at the prospect of a question and answer session. The last time a Landis preaching a dissident message was questioned in Zurich, it was while he was stretched out on the rack. His answers irritated his questioners. So they cut off his head.

Hans Landis was a radical Protestant who denied the authority of the Pope and preached strict fundamentalism. In the passions of the early 1600’s, that was like being a gold bug who denies the legitimacy of the central bank and preaches sound money.

And so, as I stand before you this evening, I sincerely hope that over the course of the last four hundred years, Zurich has mellowed out.

Tonight I’m going to approach the subject of gold from a somewhat oblique angle. Please bear with me as I circle in on it.

Just over a year ago, the United States underwent a seemingly radical change, seemingly overnight. Its financial system had been revealed as insolvent under the weight of huge liabilities and worthless assets. The government refused to allow all the bankrupt institutions to fail, and thus permit the market to do its job of purging the rot from the system.

Instead, the authorities saved their favorites, effectively merging bank with state. They did so under cover of a witches’ brew of subsidies, guarantees and quasi-nationalizations bearing bizarre acronyms like TARP; PDCF; TAF; TSLF; and my personal favorite, the ABCPMMFLF, otherwise known as the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility.

And those were just the visible programs. The Fed, our central bank, dropped interest rates to zero and monetized additional trillions of dollars worth of problem assets, away from prying eyes. The nature and source of these assets remain matters of speculation, because the Fed to this day refuses to tell us what it bought and from whom.

When the smoke cleared, we Americans found ourselves the subjects of a gangster state, in thrall to a clutch of greedy, corrupt and incompetent banks which only days before had failed. We were now the guarantors of trillions of dollars in worthless assets that had generated billions in profits for those same banks in recent years. Their gains remained their gains; but their losses were now our losses. Our money, the reserve currency of the world, was now backed by toxic waste.

The events of last fall were, to all appearances, a bloodless coup, taking us from freedom to fascism virtually overnight. And all without a shot fired, or even, with few exceptions, an authoritative voice raised in protest.

How was such a thing possible in the United States, the supposed bastion of free market capitalism? The nation that had led the free world in the defeat of fascism some sixty years earlier, and in the defeat of Marxism-Leninism less than 20 years earlier?

And more importantly, how do we get out of this mess?

To understand how we got here, we must first understand that what seemed like major change, was actually just the illumination of existing reality. Bank and state had been a unitary phenomenon for many years. And what seemed abrupt, was actually the outcome of a gradual, accretive process.

Ideas have consequences, and bad ideas have bad consequences. What happened last fall can be seen as the aftermath of a war of ideas fought long ago, in which the wrong side won, decisively.

The vanquished were the heirs of a noble intellectual tradition, the English empiricist philosophers who developed in the modern era the concepts of private property and voluntary exchange. This tradition, which informed, among other things, the United States Constitution, was reinvigorated in the late nineteenth century by a remarkable succession of economists originally based in Vienna, hence the term “Austrian School” of economics. The Austrians, whose greatest exponent was Ludwig von Mises, and whose American voice was Murray Rothbard, developed a theory of economics based entirely on individual choice.

The victors were the heirs of a far less noble tradition, a long line of intellectual quacks and panderers to power. The line began with a Scotsman, John Law, reached a vigorous maturity in an Englishman, John Maynard Keynes, and entered a final, flamboyant decrepitude in the policies, if not the public posturing, of former Fed Chairman Alan Greenspan. In this tradition, the relevant analytic units are aggregates, broad abstractions. The individual scarcely warrants mention. Public power, not private property, is the heart of this tradition.

Keynesian economics is just a modern mutation of inflationism, a stealth tax levied by powerful insiders on ordinary people who can’t see it happening until it is too late. It is music to the ears of interventionist governments, because it ratifies what, if unchecked, they will do anyway, and it preys on the greed and gullibility of its victims, who are more than willing to believe you can get something for nothing.

Now I must concede, as a matter of historical fact, I’ve overdrawn the point. It wasn’t much of a fight, much less a war. The quacks had the field to themselves. They told powerful people what they wanted to hear, validating the intervention and deficit spending that was already occurring. They also had a head start of some 20 years, since it was not until relatively late in the day when the Austrians’ theories were even translated into English.

Nevertheless, I believe the events of last fall, and the road ahead, can best be understood in terms of the interplay between these two schools of economic thought.

Now, a detailed comparison of the two schools is just a bit beyond us this evening. But there are two contrasting theories that I’d like to mention briefly.

The first such contrast is the theory of depressions. In Austrian teaching, so-called business cycles are caused by official interference with money and credit creation. This interference – for example, setting interest rates below market – fools individual actors into overproducing, creating supply that exceeds actual demand. A depression is merely the process of clearing the resulting imbalance. It is inevitable, and it is necessary. Left to itself, the market will clear the excess of supply over demand through price adjustments. Government at this point has no role to play; it has done quite enough already.

In Keynesian teaching, by contrast, government is blameless in the business cycle, which just occurs naturally. In a depression, markets can’t be trusted to clear themselves through price adjustment. The government must step in and stimulate additional demand by means of deficit spending, more money creation, and more credit expansion.

The policy responses of last fall illustrate perfectly Keynesian doctrine in action. Our authorities refused to let the markets clear. Instead, they panicked, and attempted to prop up prices, reignite the credit expansion, and stimulate demand. All this is obvious to anyone who follows the news.

What is less obvious is how the crisis came about. Keynesians treat it like an act of God. Virtually no one in authority saw it coming. Applying Austrian theory, we see that the crisis was caused by Government intervention, decades of relentless credit expansion. It was entirely predictable. And, indeed, it was predicted. The nature and timing of the inevitable crash were endlessly debated for years all over the Internet by ordinary people unburdened by false doctrine.

A more important question, however, is why we tolerate unaccountable power in government. Why do we find it acceptable that government has the power to intervene so massively in the market that it can cause such a crisis in the first place? And why do we now tolerate more of the same, a putative cure that is doing even more damage?

This brings us to the other contrasting theory, the concept of money itself.

In Austrian teaching, money originates in the market: …all money has originated, and must originate, in a useful commodity chosen by the free market as a medium of exchange. The unit of money is basically just a unit of weight of the monetary commodity – usually a metal, such as gold or silver. Government has no role in the definition or selection of money, let alone its creation, price or quantity. That is the market’s function.

In Keynesian theory, by contrast, money originates in the state. Government has a total monopoly on money, starting with its very definition. It is not chosen in free exchange, it is imposed by force.

Keynes got his idea for state control of the means of exchange in the writings of a Prussian academic named Friedrich Knapp. Herr Knapp was the author of a book entitled the State Theory of Money, published in 1905.

According to Knapp’s theory, money is a creature of law, of state power. Money is whatever the state is willing to accept as payment for its taxes. It derives its value exclusively from the state.

Keynes was so delighted with the State Theory of Money that in 1924 he sponsored its first translation into English. In 1930, he adopted it explicitly in his Treatise on Money.

Now, it is a measure of the success of the Keynesian indoctrination to which we have all been subjected that this insidious theory strikes most people, even some who fancy themselves free market in orientation, as unobjectionable. They prefer to concentrate on other fallacies of Keynesian doctrine. Many of us are so used to hearing that the state properly has a monopoly on money that we have come to think it natural.

In fact, the State Theory was already defunct long before Keynes appropriated it. It had been demolished in theory as early as 1912 by Mises in his classic Theory of Money and Credit. It had been discredited in practice by its association with the German hyperinflation of the 1920’s. But inconvenient truth did not deter Lord Keynes. The State Theory was quietly incorporated into Keynesian dogma without further ado.

And there it sits, to this day, malignant and unexamined, a false theoretical postulate at the foundation of the entire corrupt edifice of inflationist theory and practice.

So why is this bit of intellectual history relevant?

Because bad ideas have bad consequences.

The State Theory of money, the obscure foundation of modern inflationism, left us intellectually defenseless against our government’s incremental shift to fiat money and away from any practical limitations on its power.

It left us defenseless against the depredations of our central bank, whose grotesque mispricing of money and credit over the years led in a straight line to the catastrophic serial bubbles in assets and credit whose threatened collapse triggered the open interventions of last fall.

And, unless we drag it out into the open and drive a stake through its heart, the State Theory will leave us defenseless still as we grope for a way out. If our assumptions are so flawed that we cannot properly articulate the conceptual problem, we will never understand, let alone fix, the institutional and behavioral problems.

Or, more to the point, defend ourselves against the next wave of monetary swindles by powerful insiders.

And so we come to the second question: how do we get out of this mess?

The short answer is, we don’t. There is no saving the dollar or the monetary system now based upon it.

Not that we should want to. Absolute power, Lord Acton famously observed, corrupts absolutely. The power to print a reserve currency out of thin air is the greatest power on Earth. Its very existence attracts and empowers people who wish to control other people. It corrupts all who enjoy it.

You have had direct exposure to the truth of this observation. Consider the relentless attacks on your gold by our authorities, and the relentless attacks on your bank secrecy laws by nearly everybody. The very same laws, ironically, that were developed in the 1930’s for the express purpose of protecting clients who were nationals of fascist states.

I believe it fair to say that as a society, we Americans have reached a dead end. We are bankrupt, and not just financially. Our leading institutions are corrupt and discredited. Our leadership class has betrayed its trust, openly and repeatedly.

Our financial and economic crisis will in due course lead to an intellectual and cultural crisis. We may yet avoid the fury and violence that have attended other paradigm shifts, other imperial collapses. But we will need to be very lucky indeed. That’s because on the one hand, this is about power which will not be voluntarily relinquished, and on the other, there is no reasoning with an angry mob.

So I believe it is a waste of time to talk about reform of the existing monetary system. There is no historical precedent for a fiat money surviving more than a brief span of years; and, in any event, the experience of the Soviet Union teaches that an economic system built upon a false dogma cannot survive.

We should instead focus on regeneration, the task of rebuilding out of the wreckage on the other side of that final monetary collapse. At that time, and not before, we will have the opportunity, however brief, to drive out these disastrous ideas along with those who used them to control and impoverish us. Only then will we have an opportunity, however long the odds, to restore our Constitutional republic.

In the meantime, what keeps the current system going?

You do.

You, meaning foreign investors, still lend us your savings. This just enables us to prolong the process, defer the resolution, and increase its ultimate cost.

When will it end?

Whenever you cut us off.

At some point, foreign holders will sell our debt in earnest, and buy gold with a conviction resembling panic.

And so, finally, I come to gold. This is, after all, a gold conference. Why then do I talk so much about politics?

Because I think it’s impossible to understand gold without understanding its political dimension. Gold is permanent, natural money, the antithesis of money made from nothing, money backed by force alone. It is a potent symbol of private property; of voluntary exchange taking place outside the control of the state; of limits on state power; and of resistance to the runaway state.

Left to its own devices, gold is the ultimate barometer of public confidence in government. It is also the ultimate means for ordinary citizens to opt-out of an oppressive, fraudulent system.

That is why gangsters who wield power in the name of the “people” always make ownership of gold a crime. So it was in France during the Revolution, in Germany during the Nazi era, in Russia during the Soviet era, in China during Mao’s rule, and in the United States from 1933 through 1974. It is why, even during periods when the ownership of gold is not outlawed, its price is ‘governed’, as one commentator puts it, or officially manipulated, as others of us put it.

It’s often hard for practical men of affairs to understand the vehemence of those of us who assert, seemingly ad nauseam, that gold is money. The truth is, our passion has more to do with the concept of liberty than with that of money. We know from history and experience that once the free market has lost control over the definition and creation of money, individuals have lost their liberty.

That’s why neither a central bank nor fiat money find support in the Constitution of the United States, and why our monetary system, which has these two elements as its very foundation, is unconstitutional on its face.

It’s also why, as we rebuild our institutions from the wreckage of the final monetary collapse, control over money must at all costs be kept away from government. It is not enough that gold return as money; government must keep its hands off.

Money must be real, tangible, circulating. As Mises wrote when considering the subject of monetary reform back in the 1950’s, “Everybody must see gold coins changing hands, must be used to having gold coins in his pockets, to receiving gold coins when he cashes his paycheck, and to spending gold coins when he buys in a store.” And I’m sure he would have added an approving reference to digital gold had the technology then existed.

Now, just to be clear, people must be free to choose whatever they want to use as money. We believe they will choose gold, given a chance, simply because people have already done so over thousands of years, and for very good reasons.

But creating the conditions within which an informed choice can be made, even – or perhaps especially – after the collapse of the system and the discrediting of its false ideology, will be extremely difficult.

We are beset by propaganda, falsehood and spin from all sides. Truth is of no consequence; the Fed has bought and paid for virtually the entire economics profession in the United States.

Our universities are riddled with apparatchiks who at the very least must toe the party line to advance in their careers, and in many cases are directly dependent on Fed largesse.

The financial press, now concentrated in ever fewer hands, is captive to the same false dogma, and is little more than an apologist for the current monetary regime.

We desperately need credible new sources of information on money if we are going to have any shot at a sustainable regeneration.

In this connection, I have reason to hope that from the talent assembled here this evening, we will see a new initiative in the very near future. Stay tuned.

Thank you.

By Greg Hunter
4th of December, 2009

Yesterday, Federal Reserve Chief Ben Bernanke was in front of the Senate Banking Committee trying to hold on to his job. Some Senators were complimentary on Bernanke’s job. Republican Senator Judd Gregg from New Hampshire gave the Fed Chairman a warm welcome. Judd said, “If you hadn’t been there, and hadn’t been willing to take extraordinary action last fall, last winter, and even early spring … it’s very likely we would be experiencing a depression…” I look at Bernanke’s performance during the financial crisis the same way I would look at a drunken bus driver who crashes and then stumbles around pulling a few children out of the wreckage. In my eyes, Bernanke is hardly a hero.

Republican Jim Bunning from Kentucky, on the other hand, couldn’t have given a colder reception if he greeted Bernanke in the North Pole. Bunning said, in part, “Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.” Bunning, a former Major League pitcher, hurled another fast ball at Bernanke’s head when he said, “Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives.” Senator Bunning vowed to do everything possible to stop Bernanke’s nomination and to “end the Fed’s failures.”

Nice speech, but according to economist John Williams of Shadow Government Statistics, it is too late. In Williams latest report he writes “The United States Economy and Financial System Face an Eventual Great Collapse.” Williams told me in an interview this week that because of all the bailouts, stimulus packages, giveaways and short-term debt, the U.S. has to finance nearly $5 trillion in 2010 alone. That’s about $96 billion in debt auctioned off each and every week!! Williams said, “Someone has to buy those Treasuries, and if no one does, then the Federal Reserve will become buyers of last resort.” The Fed buying that much in Treasuries is the same as printing huge amounts of money. Williams says that “is the tipping point that will start a dollar crisis.” According to Williams, this will produce a “high risk of an ultimate dollar crisis that will begin unfolding in year ahead.”

Inflation created by this “dollar crisis” will turn into hyperinflation within 5 years. Government and Fed actions have caused this problem and Williams sees “no way out,” and “hyperinflation is just a matter of time.” The hyperinflation forecasted by Shadow Government Statistics will look like Weimar Germany in the early 1920’s. The dollar will rapidly lose value to the point it will take a wheelbarrow full of cash to buy a loaf of bread or a gallon of gas. Anyone on fixed income or holding dollars will be wiped out according to Williams.

The Gold market seems to be reflecting the fear of inflation and a weakening dollar. Big central banks are buying Gold. India bought 200 metric tons of the yellow metal last month. Other countries, such as China and Russia, are also gold buyers. Retail investors are, likewise, beginning to flock to gold. Arthur Blumenthal of Stack’s Rare Coins in New York City has been in the gold and coin business since 1974. Stack’s opened its doors in 1934 and is the oldest coin dealer in America. Blumenthal saw the “go-go years” of the late seventies gold market firsthand. Blumenthal told me, “I have never seen anything like this before! There are only buyers.” He says many of his customers are “Wall Street types who are buying physical gold for the first time.”

Williams says buying gold and silver “long term” will be your best defense against a “great collapse…dollar crisis… and hyperinflation.” Williams also says you should stock up on food and other necessary supplies because the coming crisis will create shortages in all sorts of things.

I predict Mr. Bernanke will keep his job at the Federal Reserve. That might be poetic justice because this Fed Chief should witness his handy work firsthand. What is coming to America might go down in history as Ben Bernanke’s Hyperinflation and Economic Collapse.

Greg Hunter

Bunning Statement On The Re-Nomination Of Ben Bernanke To Be Chairman Of The Federal Reserve

Senate Banking Committee
Thursday, December 3, 2009

As Prepared For Delivery:

Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I was the only Senator to even raise serious concerns about you. I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.

The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did you continue that policy when you took control of the Fed, but you supported every Greenspan rate decision when you were on the Fed earlier this decade. Sometimes you even wanted to go further and provide even more easy money than Chairman Greenspan. As recently as a letter you sent me two weeks ago, you still refuse to admit Fed actions played any role in inflating the housing bubble despite overwhelming evidence and the consensus of economists to the contrary. And in your efforts to keep filling the punch bowl, you cranked up the printing press to buy mortgage securities, Treasury securities, commercial paper, and other assets from Wall Street. Those purchases, by the way, led to some nice profits for the Wall Street banks and dealers who sold them to you, and the G.S.E. purchases seem to be illegal since the Federal Reserve Act only allows the purchase of securities backed by the government.

On consumer protection, the Greenspan policy was don’t do it. You went along with his policy before you were Chairman, and continued it after you were promoted. The most glaring example is it took you two years to finally regulate subprime mortgages after Chairman Greenspan did nothing for 12 years. Even then, you only acted after pressure from Congress and after it was clear subprime mortgages were at the heart of the economic meltdown. On other consumer protection issues you only acted as the time approached for your re-nomination to be Fed Chairman.

Alan Greenspan refused to look for bubbles or try to do anything other than create them. Likewise, it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings.

Chairman Greenspan’s attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.

On derivatives, Chairman Greenspan and other Clinton Administration officials attacked Brooksley Born when she dared to raise concerns about the growing risks. They succeeded in changing the law to prevent her or anyone else from effectively regulating derivatives. After taking over the Fed, you did not see any need for more substantial regulation of derivatives until it was clear that we were headed to a financial meltdown thanks in part to those products.

The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say nothing. Things were so bad one TV network even tried to guess his thoughts by looking at the briefcase he carried to work. You promised Congress more transparency when you came to the job, and you promised us more transparency when you came begging for TARP. To be fair, you have published some more information than before, but those efforts are inadequate and you still refuse to provide details on the Fed’s bailouts last year and on all the toxic waste you have bought.

And Chairman Greenspan sold the Fed’s independence to Wall Street through the so-called “Greenspan Put”. Whenever Wall Street needed a boost, Alan was there. But you went far beyond that when you bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Under your watch, the Bernanke Put became a bailout for all large financial institutions, including many foreign banks. And you put the printing presses into overdrive to fund the government’s spending and hand out cheap money to your masters on Wall Street, which they use to rake in record profits while ordinary Americans and small businesses can’t even get loans for their everyday needs.

Now, I want to read you a quote: “I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled.”

That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing. I’m going to ask that the full question and answer be included in today’s hearing record.

Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.

Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses. Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives. You are repeating the mistakes of Japan in the 1990s on a much larger scale, while sowing the seeds for the next bubble. In the same letter where you refused to admit any responsibility for inflating the housing bubble, you also admitted that you do not have an exit strategy for all the money you have printed and securities you have bought. That sounds to me like you intend to keep propping up the banks for as long as they want.

Even if all that were not true, the A.I.G. bailout alone is reason enough to send you back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because they posed a systemic risk, largely because of the credit default swaps portfolio. Those credit default swaps, by the way, are over the counter derivatives that the Fed did not want regulated. Well, according to the TARP Inspector General, it turns out the Fed was not concerned about the financial condition of the credit default swaps partners when you decided to pay them off at par. In fact, the Inspector General makes it clear that no serious efforts were made to get the partners to take haircuts, and one bank’s offer to take a haircut was declined. I can only think of two possible reasons you would not make then-New York Fed President Geithner try to save the taxpayers some money by seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those two reasons are incompetence or a desire to secretly funnel more money to a few select firms, most notably Goldman Sachs, Merrill Lynch, and a handful of large European banks. I also cannot understand why you did not seek European government contributions to this bailout of their banking system.

From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for. Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America. Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed’s failures, and there is no better time than now.

In the following interview Jim discusses inflation, deflation, hyperinflation, the U.S. Dollar, gold, silver, social unrest, the Federal Reserve, commercial banks incorrectly positioned on the COT, fraudulent bank balance sheets, the equity market, future opportunity, gold and silver shares and much more.

The link to the interview

Congressman McFadden on the Federal Reserve Corporation.
Remarks to Congress, 1934

Reprinted by permission 1978 Arizona Caucus Club

Congressman McFadden’s Speech
On the Federal Reserve Corporation

Quotations from several speeches made on the Floor of the House of Representatives by the Honorable Louis T. McFadden of Pennsylvania. Mr. McFadden, due to his having served as Chairman of the Banking and Currency Committee for more than 10 years, was the best posted man on these matters in America and was in a position to speak with authority of the vast ramifications of this gigantic private credit monopoly. As Representative of a State which was among the first to declare its freedom from foreign money tyrants it is fitting that Pennsylvania, the cradle of liberty, be again given the credit for producing a son that was not afraid to hurl defiance in the face of the money-bund. Whereas Mr. McFadden was elected to the high office on both the Democratic and Republican tickets, there can be no accusation of partisanship lodged against him. Because these speeches are set out in full in the Congressional Record, they carry weight that no amount of condemnation on the part of private individuals could hope to carry.

The Federal Reserve-A Corrupt Institution

“Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation’s debt. The depredations and iniquities of the Fed has cost enough money to pay the National debt several times over.

“This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Fed and through the corrupt practices of the moneyed vultures who control it.

“Some people who think that the Federal Reserve Banks United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lender. In that dark crew of financial pirates there are those who would cut a man’s throat to get a dollar out of his pocket; there are those who send money into states to buy votes to control our legislatures; there are those who maintain International propaganda for the purpose of deceiving us into granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime.
(more…)

This is Jim Sinclair’s May 21st, 2009 posting. We find it interesting that Mr Sinclair sees the death of the dollar in Rio de Janeiro, Brazil. It is very ironic that the strongest currency in the world for the last century has perished in the home of, not only Pele and five World Cup titles, but also one of the bastions of currency debasement and hyperinflation of the last century! Maybe Brazil will now finally be on the right course to reach its potential as a nation?

Mr Sinclair’s post below:

Dear CIGAs,

I bring to you the following with the specific permission of Alf Fields.

I have suggested to you often in the past that once the price of gold reaches into its maximum potential it will not repeat the fall of the 1980s.

I foresee gold re-entering the system in a new and unique form that does not include convertibility. It will not be tied to interest rates as it once was in its previous form.

I have written to you various times about the Federal Reserve Gold Certificate ratio, modernized and revitalized, which now may well be associated with an SDR form of an International Central Bank. The tie between the ratio and gold would be a measure of international liquidity considered zero or 100 on the day of adoption.

The following is Alf’s statement yesterday, with his permission to post:

“Gold cannot decline from its highs as it will be incorporated into the national and international monetary systems at that time.”
–Alf Fields, May 20, 2009

Now do you have any questions why Fund Wizard Paulson just got long a few billion dollars worth of Gold ETFs and a few major gold producers?

Finally a major event has taken place that is a US dollar milestone.

The financing and extremely important event is the arrangement between China and Brazil displaces the dollar as China becomes the major trading partner with Brazil. Since then the Real has been celebrating and the dollar has been depressed.

This is a once in approximately a century replacement of a trading currency that has always meant a dethronement of the deposed and coronation of a new currency king.

The last time this happened was when the US dollar supplanted the British Pound as the major trading currency and entity with Brazil 79 years ago.

It took the Brits 300 years to supplant the Portuguese Escudo with the British Pound.

Only twice has this occurred in 379 years. This is obscure to most but not to Mr. Paulson the hedge wizard. Obscure to most, but not to our gang at JSMineset.

The dollar died in Rio and that means everywhere.

The dollar is in for a very cold winter.

There is one thing that is absolutely certain and that is Gold is now headed to at least $1650 and in all probability much higher. This is happening NOW!

What more do you need to know?

The view from an Argentinian economist by the name of Adrian Salbuchi.

by Joel Skousen
World Affairs Brief

As the US Treasury Department continues to brag that the US has not yet been forced to make good on its guarantees of toxic debt held by the major insider banks (Citigroup, JP Morgan, Bank of America, etc) we find they have been using a back door to funnel money to their friends–AIG the world insurance giant holding the largest share of derivative contracts that guarantee those toxic debts against default. In point of fact, those debts are defaulting in ever increasing number, and AIG is having to pay out billions. But, those billions are being replenished by additional bailout funds from the Treasury–while the rest of the nation suffers from lack of credit. Why should the American taxpayer be bailing out gambling bets based on promises to pay that were utterly fraudulent? Now we find out that AIG is also the preferred avenue of funneling money into European banks. Lastly, what do all these insider banks have in common? They constitute the private owners of the Federal Reserve. It all begins to make sense why only the largest banks are receiving these funds and why the regulators continue to squeeze the smaller banks with millions in new surcharges–forcing them into liquidation. The fix is in.

International law professor Richard Cummings, writing for Lew Rockwell.com, says, “Fed Chairman Ben Bernanke has resisted calls from Congress that he release the names of the banks that were recipients of the bailout money the Fed gave to AIG to prevent it from collapsing. AIG insured its counterparties against losses from mortgage-backed derivatives. The Fed poured $85 billion into AIG, which paid out $37.3 billion of that money to counterparties that had purchased a certain type of derivative-based protection from AIG, called multi-sector credit default swaps.

“The counterparties have never been disclosed but the Wall Street Journal reported that they included Goldman Sachs, Merrill Lynch, UBS and Deutsche Bank. AIG and the Federal Reserve Bank of New York have unwound many of these contracts. To do this, they offered to buy the CDOs (collateralized debt obligations) that were originally insured by those agreements. The counterparties sold these assets at a discount, but were compensated in full in return for allowing AIG to extricate itself from the obligations. The counterparties also got to keep the $37.3 billion in collateral, according to the Wall Street Journal.

“While Bear Stearns was collapsing, Goldman Sachs boasted that it had insulated itself by buying insurance against the mortgage-backed derivatives. As it turns out, it was, in fact, rescued by the Fed when it bailed out AIG. In 2007, Lloyd Blankfein, Goldman Sachs’ CEO, received $70 million in compensation, including bonuses, $27 million in cash… At the time the New York Fed came to AIG’s assistance, Secretary of the Treasury Timothy Geithner was its head. Blankfein is still drawing down millions in compensation. The rationale for his compensation is the alleged profitability of Goldman Sachs, which raked in over $9 billion in 2006. It should also be noted that the bailout stopped Goldman stock from plummeting, thereby protecting not only Blankfein’s fortune, but that of Hank Paulson, the former chairman of Goldman Sachs, who was Secretary of the Treasury under George W. Bush.

“This is perhaps the greatest financial scandal in American history but most Americans are totally ignorant of it. On top of this, the AIG bailout enabled John Thain to pay out billions in bonuses while he headed Merrill Lynch, just prior to its sale to Bank of America, a recipient of billions of bailout money, this while the unemployment rate is headed towards ten percent and the market collapse has caused losses in the trillions. Were the names of the banks made officially public, there would be cries of outrage so loud as to be deafening, making any further bailouts dubious for political reasons. And while Bernanke has said that he would not permit the big banks to fail, the looting of America by some of the richest and most powerful people, such as Blankfein and Thain, goes on, with no end in sight. Pandit the bandit now says Citigroup is profitable, enabling its stock to rise above a dollar, generating a temporary euphoria in the market. The cheers going up on CNBC can be heard all the way to Warren Buffett’s coffers. And American tax payers are not only bailing out the American banks, they are also bailing out Europe.”

Toni Reinhold of Reuters answers “Who got AIG’s bailout billions?” “The Wall Street Journal reported… that some of the banks paid by AIG since the insurer started getting taxpayer funds were: Goldman Sachs Group Inc, Deutsche Bank AG, Merrill Lynch, Societe Generale, Calyon, Barclays Plc, Rabobank, Danske, HSBC, Royal Bank of Scotland, Banco Santander, Morgan Stanley, Wachovia, Bank of America, and Lloyds Banking Group.” I think it’s the large number of foreign banks that would be particularly irritating to the public if it knew the extent of this largess.

Who Owns The Fed?

Jim Quinn unravels for us the real link between all this insider dealing. Who really owns the Federal Reserve. It’s not the US government and its not you the taxpayer. “The average American does not know much about the Federal Reserve. The government and the Federal Reserve prefer to operate in the shadows. If the American public understood what their policies have done to their lives, they would be rioting in the streets. Henry Ford had a similar opinion: ‘It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.’

“Most Americans believe that the Federal Reserve is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States. There are Class A, B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner?” It does, indeed.

Tony Rheinholt continues: “The U.S. Federal Reserve has refused to publicize a list of AIG’s derivative counterparties and what they have been paid since the bailout, riling the U.S. Senate Banking Committee. Federal Reserve Vice Chairman Donald Kohn testified before that committee on Thursday that revealing names risked jeopardizing AIG’s continuing business. Kohn said there were millions of counterparties around the globe, including pension funds and U.S. households.” What this means is that AIG is only paying out on SOME of its obligations, and US Pension funds are NOT on that list. In other words, the bailout monies are only going to a select few. AIG has absorbed $180B so far, with no end in sight, no transparency, and no sign of changing this pattern.

Proof that we haven’t even turned the corner yet comes from Greg Gordon and Kevin G. Hall of McClatchy Newspapers (itself a losing enterprise like dozens of other print media): “America’s five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show. Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their ‘current’ net loss risks from derivatives —- insurance-like bets tied to a loan or other underlying asset —- surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.”

Not counted in those write downs, of course, are the funds they are getting through the back door, which are not accounted for publicly. “While the potential loss totals include risks reported by Wachovia Bank, which Wells Fargo agreed to acquire in October, they don’t reflect another Pandora’s Box: the impact of Bank of America’s Jan. 1 acquisition of tottering investment bank Merrill Lynch, a major derivatives dealer.”

Squeezing The Small Solvent Banks

The next part of the fix is the most evil, in my opinion. The Fed and the US Treasury have given trillions of paper dollars to insider banks, and yet they are letting the FDIC run short of money so that this “insurer” of the public’s deposits ($250,000 and below) can have an excuse to jack up the insurance premiums (surcharges) to member banks. These new “temporary” fees are more than most small bank profits, and will ensure that these banks fail.

As Paul Kiel writes in ProPublica, “It’s looking increasingly like the FDIC will have to turn to Treasury to help it weather the storm… FDIC’s deposit insurance fund has plummeted in the past year as a growing number of banks have failed. The fund relies on fees from member banks, and Bair held out hope that a recent bump in those feeswould provide enough cushion. But if it doesn’t, Bair said, people shouldn’t be nervous about their FDIC-insured accounts: ‘It is important for people to understand, we’re backed by the full faith and credit of the United States government. The money will always be there. We can’t run out of money.’” Then why has the fee increased? Why penalize the banks that have been conservative, and limited their growth for safety?

Bill Butler describes the “squeeze play” going on: “FDIC Chairwoman Sheila Bair announced last week that the quasi-public insurance monopoly would become insolvent in the next few months if it is not allowed to implement a one-time, draconian surcharge on all U.S. banks. This charge will, in some cases, wipe out last year’s profits. At the same time, the FDIC has requested an additional $500 billion ‘loan’ from Congress [notice that a loan requires the member banks to pay it off. A bailout would not. They choose to ask only for the loan as a justification for the surcharge].

“Small, solvent, well-run local and regional banks have objected. They rightly claim that they are not the problem. These banks have a solid and growing deposit base and many of them service their own loans and so did not get caught in the trap of originating bad loans and dumping them on the secondary mortgage market in federally-guaranteed bundles. Whether they know it or not, these banks intuit that, like Social Security, there is no FDIC “fund.” FDIC insurance, like social security, is just another government-coerced Ponzi scheme — a tax that, according to former FDIC commissioner Bill Isaac, goes immediately to the Treasury to buy “spending . . . on missiles, school lunches, water projects, and the like.”

“Rather than increasing their taxes and punishing their relatively good behavior, these small banks suggest that the FDIC look first to Bailout Banks, the Wall Street mega-banks that have received nearly a trillion dollars in unearned, government-supplied capital via the printing press, for any increased insurance premium/tax. Ms. Bair rejected these pleas by claiming that FDIC law does not allow her to ‘discriminate’ against banks based on their size. Clever [Actually, there is a basis for discrimination since the larger one's 1) caused the problem and 2) are the recipients of taxpayer backed funds]. What is really going is that the Bailout Banks are using the government and its insurance monopoly to help them gain market share by drastically increasing the operating costs of their smaller, better-run and scrappy competitors.” We are about to see the worst banks absorb the smaller sound banks–a great injustice, and totally engineered.

World Affairs Brief