Monday, November 30, 2009

Default, Default, Default!

If they only knew what is going on....

The deliberate and total destruction of the American middle class by Wall street banks, assisted by US politicians, is real.
Finally people are starting to fight back:

i. stop using your credit cards;

ii. withdraw all you money from banks and put it in an account of a community bank;

iii. 401 (K)'s should be placed in a roll over account which holds physical gold and silver.

iv. stop paying your 401 (K)'s and buy instead gold and silver

v. stop paying your debt.

Trust Busting By The People, For the People

A direct action plan for bringing down the US financial system

Secessio Plebis

The FDIC, the agency that insures the nation’s $4.8 trillion on deposit with banks, recently reported that it is out of money. The FDIC has no funds to back its promise to insure up to $250,000 of the money in banks in checking, NOW, and savings accounts, money market deposit accounts and certificates of deposit. Our “insurance” is an unfunded promise.

But that’s only half of the story. The FDIC didn’t have the money they said they had to begin with! As reported by Sprott Asset Management in its October report, “Dead Government Walking,” “the real shocker . . . is that the FDIC ‘funds’ were never even held in a segregated bank account -- the fees collected from the banks are accounted for as a part of the government’s general revenues that go towards military spending bailouts, interest costs and other government programs. The FDIC ‘fund’ merely consisted of IOU’s from the general revenues accounts.” Imagine that! Just like Social “Security”! The Social Security Administration doesn’t hold the social security funds it collects in a segregated, dedicated account, either. The government spends every penny and provides the SSA with IOU’s from a “Treasury” that is empty and hell-bent on borrowing even more! Like the FDIC’s “insurance,” our retirement benefits are unfunded.

In the world of private commerce, collecting funds with a promise to provide insurance or retirement benefits and not holding, investing and using the funds for that purpose, but spending every cent on every passing fancy like, say, adventures in reforming governments abroad, would constitute fraud and a breach of fiduciary obligation. Clearly, the US is no trustee or fiduciary of the people. When companies like General Motors or Northwest Airlines go bankrupt and leave their workers with billions of unfunded retirement benefits, people think it is unconscionable that the companies did not fund their employees’ retirement benefits and wonder how the laws of this country can permit such a thing. When the government does it, it’s -- what exactly? -- just fine? It’s not as though we can fix it by voting for someone new. The money’s gone and the only source for replenishing the funds is -- us. There’s no one to sue to recoup losses for mismanagement or waste, and in any event it’s not a breach of contract or a crime. In other words, there’s absolutely no accountability, and we’ve been impoverished. Lolz, aren’t we the suckers! What a scam! We’ve been completely rolled! And the government’s only “solution” is — let’s go double or nothing!

That people believe programs like the FDIC or Social Security provide a genuine “safety net” is a testament to the phenomenal power of magical thinking, and our own ability to delude ourselves. The reality is that the government is under no constraint to dedicate the funds collected to the purpose for which they were supposedly taken, but can spend every cent on anything it likes. Its supposed “commitment” to insure our deposits or to pay retirement benefits, therefore, is nothing more than a promise that, after it takes all the funds we have already provided for insurance or our retirement and spent them on something else, it will take even more from us to supply the funds it still needs to pay those promises which, of course, will also not be dedicated to the purpose for which they are taken but can be used for any purpose whatsoever. Its “promise”, in other words, is nothing more than a commitment to progressive impoverization.

The vaunted “safety net” is not a true, actuarial-based insurance fund administered by a trustee or fiduciary who is responsible to hold, invest and use the funds for a dedicated purpose, but is nothing but an IOU backed with zero assets, whose payouts are based solely upon the power to keep taking ever more from us until there is nothing left to take. Because the “safety net” is, by design, unfunded, its real function and purpose is to serve as a moral justification for unlimited expropriation for any purpose. “Oh, sorry, the money’s gone! Yes, in retrospect maybe we were unwise or irresponsible and wasted it, but we still have this noble purpose, we can’t abandon people now, so empty your pockets and send more so we can ‘protect’ you.” Wooo-ee! Here we go again! Double or nothing!

As an aside, you can see that the idea that we must have programs like Social Security and can’t “allow” people to keep their money and provide for their own retirement because they will just spend it all is completely meritless, a straw man. The people could not be more irresponsible than the government itself is with these funds — it blows every penny! Its “savings” plan, its “self-discipline,” is to spend it all and then take more as needed.

Along with national defense, providing “social insurance” is one of the principal grounds of legitimacy of modern government yet, like “national defense”, which principally involves waging wars of aggression abroad, these programs are complete frauds. You find out just how illusory it all really is, and how you were completely played for a sucker, after the money’s gone. If previously you have been a supporter of the idea of “government as social insurance provider,” let me suggest here that you admit to yourself — and then finally act upon — what would be obvious if you were dealing with anyone besides this mythic, magical thing called “government”: People who perpetrate fraud against you do not really have your best interests at heart. Not even when they say over and over that they do, or that they went into politics to Help People and because They Care. Not even when they promise that if you vote for them and give them a little more time to fix things and give their party a bigger majority they’ll make everything right and transform the world into the Beautiful Vision in Your Mind. With the exception of a very small handful of men of principle whose actions have long corresponded with their words, like Ron Paul or Dennis Kucinich, they should be treated as the lying, thieving reprobates, snake oil salesmen, sponsors and procurers of the police state at home and destruction, expropriation and murder abroad that they are, and certainly shouldn’t be dignified with titles such as “Representative,” “Senator,” or “President.”

By far the biggest confidence game, and the one on which they all depend, is the Federal Reserve’s fiat dollar, a paper IOU backed by zero assets and subsisting on nothing more than pure trust and our own continued willingness to play “let’s pretend.” Confidence (fraudulently obtained and fraudulently maintained, to be sure, but confidence nonetheless) is the fuel that keeps the entire corrupt system going. We need to withdraw that confidence, completely.

As a store of value, the Federal Reserve’s dollar is useless. It has declined over 95% in value since the Federal Reserve’s creation in 1913, and the Federal Reserve is currently actively engaged in driving it even lower. Money “saved” loses value, even when placed in banks to earn interest. Ever wonder why the banks do not pay any real amounts in interest on your deposits, why it never even covers cost of living increases? It’s because banks don’t really need the money in order to make loans. By making unlimited quantities of credit available to banks with the push of a button at zero interest or 25 basis points, the Federal Reserve has made our deposits unnecessary to banks and essentially worthless as a means of making money, so that we cannot even earn interest on our money sufficient to offset the decline in its value. The ability of banks to obtain cheap, unlimited credit from the Federal Reserve actually prevents your money from participating in the making of money. The Federal Reserve shunts you out of growth of your money through savings and investment because it can always provide vast sums of credit more cheaply than either depositors or investors.

With (i) an inability to earn sufficient interest on savings with banks, (ii) securities regulations that create large entry barriers to raising capital and which favor large companies and wealthy investors and preclude the creation of local or regional exchanges where small investors can provide funds to start-up businesses in their communities or regions and trade their securities, and (iii) tax incentives to put our funds into withdrawal-penalized IRAs and 401(k)s, our savings are herded into mutual funds as the one means open to us to earn money on our money. There, too much money chases too few stocks, because the Federal Reserve’s unlimited supply of cheap credit also makes stock irrelevant. Companies almost never issue publicly-traded stock to raise capital for their businesses. First, companies can get credit from banks via the Federal Reserve cheaper, easier and with lower transaction costs than they can get it publicly from investors. The Federal Reserve undercuts public investment in favor of financial institutions. Second, the payment of interest on debt is a deductible expense for income tax purposes, but dividends (payments on capital) are not, so that the after-tax cost of debt is even less than the nominal interest rate.

As a result of these huge structural biases toward debt financing, there is a very limited supply of publicly traded stocks in which to invest. Too many investment dollars chasing too few stocks results in overvalued stocks, whose price no longer reflects the fundamental underlying value of a percentage ownership interest in the company, but instead is a “bubble” reflecting (i) the momentary relative demand for the shares among the pool of largely captive investors (“captive” because people who have put their funds into IRAs and 401(k)s face very high extraction costs), and (ii) the amount of credit available to banks and other speculators and traders seeking to profit from short-term price swings in the stock. Providing zero interest credit to banks to trade in securities, as the Federal Reserve is currently doing, further inflates bubble prices to reflect the surfeit of credit available to the speculators playing with these chips, rather than any underlying real value of the securities.

The result of all of these factors is that the stock’s price (having ceased to have much to do with its real underlying value) is susceptible to huge, rapid increases and declines that, again, do not necessarily correspond to any change in the company’s actual business or prospects, but instead reflect credit expansion or contraction and the activities of short-term traders and speculators seeking profits. As a result of the bust last year when, practically overnight, the Dow Jones Industrial Average fell almost 34% and the S&P 500 Index fell about 38%, we all know now that the advice we were given long ago that we should just put our money in stocks and forget about it until retirement (“Over the long run, you will make money!”) was effectively sheer BS designed to get us to put money into what are really high-risk assets. Thanks to the massive price inflection risk caused by massive underlying fiat credit, speculative trading and churning for trading and management fees, this is a high-stakes game rigged for speculators, traders and mutual fund managers, and is certainly not a game anyone should be playing with funds they will need to live in their old age. And yet, this is the corral into which our savings are driven by our government’s policies.

We are never going to have a government that is constrained by economic reality until it is forced to use and reckon in sound money, and not in a fiat currency that can be created out of thin air completely unconnected to, and unlimited by, the real economic value of assets or productive capacity. We are never going to be able to save funds that have any lasting value, or grow our savings through a return in the form of interest or through real public investment opportunities under the current system. It is time for us, the people, to do our own trust busting, to bring down these huge financial institutions, including the Federal Reserve, and the oligarchy that transform our savings into chips in a global financial casino and transform us into tax and debt slaves. We can do it, and we don’t need the politicians.

It hasn’t received anywhere near the attention it deserved, or prompted the sustained action it warrants but, shades of Howard Beale!, on October 21, something pretty significant happened. Someone in the “main stream media” went beyond the formulaic, toothless recommendations to “contact your representatives in Washington and demand that they do something” and called for direct action. MSNBC financial commentator Dylan Ratigan recommended that we stop helping the nation’s largest banks gamble with our money and make record profits off of taxpayer funds by (i) taking all of our funds out of the largest banks and moving them into community banks, (ii) using cash as much as possible, and (iii) stop using our credit cards. He actually urged self-help to stop the pillage of our wealth and our future.

Unfortunately, he is not as radical, yet, as he could be, because he seems to still believe it is possible to get Washington to work for the people. In the same October broadcast in which he called for direct action, he also urged that we write and complain to our representatives. Again, on November 16th, he hosted a discussion of the need for people to burn up the phone lines with their anger and come to Washington to protest so that their representatives start “getting it” and pass legislation to protect the people.

Now, just let the bitter implications of that suggestion sink in for a moment. Our “representatives” don’t know what serves our interests, that is, they can’t perceive it by putting themselves in our position, or do and won’t act on it, but need to hear from us in large numbers, with impassioned voices, and we actually have to go to Washington and provide a visual demonstration to them of how important this is to us, before they will stop doing the bidding of the lobbyists who provide funds for their campaigns and actually represent us. Hmmm, maybe we have a far bigger systemic problem here than can be addressed by phone calls, emails and bus trips to Washington.

Mr. Ratigan, give up this last vestige of hope in our utterly corrupt political system, so you can more fully throw yourself into the work that actually needs to be done!

“Burning the phone lines,” and protests in Washington aren’t going to accomplish anything. Calls to Washington opposing TARP were running close to 400 to one against, and Congress passed it anyway. When people in France take to the streets it has some effect because they are really teed off and “communicate” this by burning cars, smashing things, bringing public transit or truck deliveries to a halt or shutting down parts of the city. When people in France take to the streets, it still recalls to the minds of their elected representatives a time 220 years ago when members of the ruling class were guillotined in those very streets, and tens of thousands of aristocrats and clergy had to flee their country and leave their estates behind to avoid a similar fate. When Americans “take to the streets” in Washington we have, what, exactly? Picnics on the Mall, family outings with the kids, people listening to fiery speeches from activists and celebrities, protest songs from popular singers and maybe memories of free love from the 60s? Oh, how they tremble in the halls of Congress!

Meanwhile, over at Huffington Post, to take it as but an example of the supplicant form of “activism” that is prevalent and accepted among polite society, we are treated to earnest blog entries explaining the steps that our government should be taking to help us, as if our “representatives” were people of good faith who really want to help us but just need it carefully explained to them so they know what to do. Or we are treated, in “Bearing Witness 2.0,” to tales of people who are suffering from the financial crisis or our health care system, as if appeals to compassion and conscience will trump the built-in dictates of the system.

Expecting to bring about reform by pushing for “change” in the next election, reporting the horrendous consequences of failed government polices, “speaking truth to power,” petitioning Congress, protesting — tell me again, what is the definition of “insanity”? The American progressive agitating for “change” is the very incarnation of the hapless, inept George Constanza, who badly needs to have an epiphany and start doing the opposite.

The Barons at Runnymede were not petitioning their government. Magna Carta, the great font of Anglo-American law that secured liberty from 1215 until the latter part of the 20th Century, was not obtained by begging for it. It is time to take direct action to bring the entire corrupt, central banking, fractional reserve, fiat currency system down. It is time, not for us to go to Washington, but to create so much financial havoc that our “representatives” come to us, begging us, with the entire edifice crashing down around them, for the chance to represent and serve us. It is time to engineer the downfall of the oligarchy that controls our government, so that all the financiers who created this crisis lose their jobs and flee to their offshore fortresses of solitude to enjoy some permanent time off with their ill-gotten gains. There, they can begin plotting anew how, after a few generations, when the world has forgotten the lessons of the current crisis, their grandchildren or great grandchildren can regain control of the world’s financial system and governments. That is the plan we need.

Dylan Ratigan has the right idea, but I don’t believe he takes it far enough. People with far more knowledge and insight into the workings of the current financial system than I currently have are needed to help plan this downfall, and many are needed to spread the word, but we should build and start acting now on Dylan Ratigan’s proposal.

Please note that in what follows, I am not rendering investment advice. I am not talking about a plan to protect or preserve your wealth or to profit in this crisis, or the actions you can take as a solitary individual to assist you and your family to weather this storm. I have no idea whether the actions recommended below will preserve or increase your wealth. In what follows I am talking about a grassroots uprising, a communal undertaking, to bring an end to the corrupt money system that rules and ruins our lives. At its utmost reaches, it is a scorched earth plan, and it would cost us, dearly. However, I believe that if we do not act now, we will simply face an even greater consolidation of power over us, and will be reduced even further into tax and debt peonage.

Herewith the Plan. None of it is illegal. Yet.

1. According to Bernie Sanders, the four largest banks in America — JP Morgan Chase, Bank of America, Wells Fargo, and Citigroup — now issue two-thirds of all credit cards and hold 40% of all bank deposits in the country. As Dylan Ratigan suggested, and we should keep suggesting and urging people to act upon, everyone who is a depositor in any these banks or any other large or regional bank should take all of their money out of those banks, terminate the accounts and open new accounts in small community banks and credit unions, and people should stop using their credit cards.

2. We should take, and keep, as much money out of the banks, all banks, as possible. Use cash to pay all local merchants and stop using your debit card. When CDs come to term, do not renew them, but withdraw the funds. In that community bank account you establish, leave in, or deposit when needed, only enough money to cover checks or bills you pay electronically and monthly fees, with a cushion against errors. Because banks have only a small fraction of the amount people have in deposits, and so many payments are made by digital account entries, taking our money out of banks en masse may force the Federal Reserve to actually have to print money, so that we can hold it in our hot little hands, and may actually force paper money into system. It will also decrease bank reserves and create bank instability, if not actual bank closings.

3. All amounts of long-term savings withdrawn from banks (i.e., not the cushion you keep for unexpected events or planned-for future expenses, like those new tires you are going to need for your car in a few months) should be used to purchase physical gold or silver. By doing this, you affirm that you want a currency that more than mere scrip that allows you to purchase current goods and services, but serves as a long term, stable store of value, is tied to some underlying commodity and independent measure of value that trades freely and therefore reflects real market or economic value, and is not subject to manufacture out of thin air or ready manipulation. For every ounce of gold or silver that you buy, you cast a vote of no confidence in the US dollar and the US government far more powerful than any vote you can cast for or against any politician and directly challenge the corrupt, manipulative central banking fiat money system that is destroying the middle class, destroying your wealth, reducing the value of your labor and condemning you and your children to perpetual debt and tax servitude.

As mentioned above, there are about $4.8 trillion in deposits in banks. The goal is to get as much of this into our hands as physical dollars for current or short-term needs and as much of our long-term savings into physical gold and silver as possible. If we can move sufficient amount of our funds permanently out of the largest banks, even the too-big-to-fails may tumble, and the system the oligarchs have set up for themselves might implode. In pursuing this goal we will not be alone. If we can move enough of our deposits into gold and silver, the world will see that even the American people are rejecting their worthless currency and have no trust or confidence in the fiat dollar or their government, and would join us in an exodus from dollars that may well overwhelm the capacity of central banks to control.

From a purely personal perspective, thus far, there is little cost to these actions, other than the necessity of continually managing your cash needs to avoid credit and debit card transactions and to keep your bank balance as low as possible, and the transaction costs of purchasing bullion, which seem to run generally from 5 to 7 percent. That will be an expense that has to be recouped before you begin “profiting” from owning bullion. Of course, there would be personal costs associated with actually succeeding in bringing about a collapse of the banking system, somewhat unquantifiable! You will also need to make appropriate preparations for those.

Now let’s deal with funds in IRAs and 401(k)s. It is difficult to obtain current information but, based on information compiled by the New York Times from data supplied by the Employee Benefit Research Institute and presented in an article on October 31st, it appears that, shortly after the market crash in 2008, there was approximately $3.7 trillion in IRAs and approximately $2.7 trillion in 401(k)s, or $6.4 trillion in retirement savings. Let’s address what we can do with these.

4. Funds from previous employment in rollover IRAs or in 401(k)s that are in former employer plans because you didn’t roll them over into your own IRA can be taken out of stock and bond funds and placed in a new qualified rollover account which holds physical gold and silver.

Generally, creating a gold and silver rollover account can be done with relatively minimal cost, but check carefully before you act because in some cases you will be charged fees for taking money out of your existing stock or bond funds. You are definitely going to lose anywhere from 5 - 7% of your funds in transaction fees to acquire bullion, unless you can make a very large purchase. However, because of the large amount of funds in rollover accounts that can be rolled over into bullion accounts, this action would be a massive vote of no confidence not only in the central banking, fiat currency system, but also in the rigged, captive investment, mutual fund stock market system, as people made it clear they will no longer put their savings into a relatively closed and limited pool of securities whose underlying prices bear little to no real relationship to the underlying economic value of the companies that issue those securities.

I caution again that I am not giving investment advice here, but describing a tactic to take down the existing corrupt financial system. I have no idea whether this will make you “better off” financially. The more people who do this, the more the price of gold and silver will rise, and the value of the dollar decline. But do not make the mistake of thinking that gold and silver have some inherent value immune from the relativity that affects all other assets. They do not. Should the entire fiat dollar system implode, there may well be massive deflation in the prices of assets, as the portion of asset prices attributable to the massive underlying credit disappears into thin air. In such a scenario, gold and silver prices may readjust downward as well, to a level below the amount you paid to acquire them, to reflect their real purchasing power. This is not a plan to make money, but to eliminate a corrupt system that consigns us to the status of mere consumers and renders us incapable of accumulating any of our own wealth or making any genuine returns on our own money, and reduces us to debt peonage. War is hell, and it is not going to be cost-free.

There are at least three other steps we can take, but each of them will involve even greater personal costs.

5. Cease contributing funds to IRAs and 401(k)s and use the available after-tax funds to purchase gold and silver. You will pay more in taxes, but you will stop feeding the asset bubbles in securities, undermine the Wall Street traders and money managers that make their profits from trading these inflated assets and managing mutual funds and further undermine the dollar with your purchases of bullion.

6. Withdraw funds from IRAs and 401(k)s and use the after-tax proceeds to buy gold and silver.

This one will really hurt. Amounts withdrawn from these accounts prior to age 59-1/2 are subject to a 10% tax penalty (except in limited cases) and are also subject to income tax, so taking any funds out of these accounts prior to that age and while you are still earning income from employment and subject to high tax rates will cost you. The 10% penalty is imposed to prevent you from taking your money out before retirement and blowing it all, like, you know, the government does. Depending on your federal and state tax brackets you could easily lose up to 50% of the total amount you take out. This tax burden effectively dissuades most people from withdrawing their funds, even in the face of huge swings in the market and huge uncertainty about the future value of their stock and bond investments. It would be quite costly, personally, but a large-scale termination of these accounts would massively deflate the value of stocks and other securities and the use of the after-tax funds to purchase gold and silver would further strike a huge blow against the fiat dollar.

7. Finally, the “nuclear option” — a large-scale permanent default on payment of personal debt.

This would be a complete refusal to pay any amount owed to lenders until part of the debt is written off and the financial system is completely reformed. People in some debtor nations that are in extremis, like Iceland and Latvia, are talking about this. The underlying justifications for a write-down are:

(a) morally, no person may own another, and it is as wrong to accomplish this by reducing people to debt peonage as it is to seize them and subsequently buy and sell them outright;

(b) economically, the central bank, fractional reserve banking system, in possession of a legally-created monopoly on credit by virtue of legal tender laws that require people to use the central bank’s currency, permits credit to be created out of thin air with the push of a button in amounts both untethered and unrelated to the real economic value of assets or productive capacity (the necessary implication of any fractional reserve system that is untied to any physical commodity the price of which is difficult to manipulate (such as gold) and has no real upper bounds), resulting in asset prices that reflect, not underlying economic reality, but the surfeit of underlying available credit, and it is necessary to deflate this artificial bubble inflated by the rent-seeking behavior of financiers so that people can again engage in real economic transactions on the basis of economic reality, and the real economy can again begin to thrive, and

(c) legally (although an argument that is unlikely to be accepted in any court of law), unlimited credit made available at artificial interest rates (interest rates produced by a central bank under legal tender laws inherently cannot reflect any “real” cost of money because central banks can literally create infinite supplies of credit by simply commanding it into existence) and lowered credit standards result in inflated asset prices that are far more a function of artificially created mass demand fueled by limitless cheap credit than the underlying economic value of assets, amounting to both price manipulation and “fraud in the inducement” by financial institutions, entitling debtors to damages or to vitiate their contracts.

Reform in America would mean, at a minimum, that all the people who helped create the crisis are out of all positions of power in government and replaced with people who saw it coming and understand why it happened, ending the Federal Reserve’s power to create credit, print money and act as lender of last resort, auditing it and putting it into receivership for liquidation, repeal of legal tender laws (so that people can freely use whatever currency they believe is the soundest and best store of value), repeal of the utterly disastrous Gramm-Leach-Bliley Act to re-separate commercial banking from investment banking, prohibition of sales of loans originated by commercial banks to a secondary market (banks will be far more careful lenders if they know they are the ones stuck holding the mortgage), and either elimination of all tax advantages that favor debt over equity, or grant of corresponding tax advantages to equity investment.

Large-scale, intentional default on all debt payment to lenders would be a fatal blow to the financial system. The goals are worthy, and should be the goals we have. Unfortunately, I suspect that the strategy of mass default as a means of achieving those goals is one of those shimmering visions like the syndicalist idea of the General Strike: absolutely awe-inspiring in its potential power and perfectly correct in theory, but near-impossible to actualize because of the degree of social cooperation needed to pull it off. I mention it principally to suggest we not be sidetracked by it but instead proceed immediately to do as much as possible with the readily available actions.

If Americans ever hope to have a government that is fiscally responsible and reflects the government we can actually afford, we have to take away its ability to play with monopoly money and force it to base its decisions on the much more limited supply of a sound currency that is rooted in economic reality and not in the rent-seeking activities of financiers. The political process is completely broken, captured by financial interests and utterly corrupt. The time has come for Americans to abandon “hope” in “change” coming from that quarter and do some trust-busting on their own. Écrasez l’infâme! Let’s get to work!

Friday, November 27, 2009

Dubai debt move 'carefully planned': top official

Was: Iconic building
Now Is: Moronic building

Don't worry, the financial engineers (the guys who caused the financial crisis) know what they are doing and are in charge of everything.

Please go back to bed and have trust in the Wall Street, cheap credit and our financial leaders. They will do EVERYTHING possible to get us back to the malls.
Got Gold?

Dubai debt move 'carefully planned': top official


Dubai's move to suspend payments on its Dubai World conglomerate's debt was "carefully planned" and done in full knowledge of how the markets would react, the chairman of the Supreme Fiscal Committee said on Thursday.

"Our intervention in Dubai World was carefully planned and reflects its specific financial position," Sheikh Ahmed bin Saeed al-Maktoum said in a statement.

"The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react. We understand the concerns of the market and the creditors in particular.

"However we have had to intervene because of the need to take decisive action to address its particular debt burden."

However, Sheikh Ahmed insisted that "unprecedented growth, in Dubai and across the (United Arab Emirates), over the past decade has helped lay the foundation for what is now a broad-based sustainable economy beyond just natural resources."

Wednesday, November 25, 2009

Dubai World to Delay Debt, Owes $59 Billion; Default Swaps Soar

One of the Champions of Cheap Credit: From Icon To Moron or from Hero to Zero.

Bubble apparently to pop soon.

Owner Waterfront Cape Town Going Bust?

Nov. 25 (Bloomberg) -- Dubai World, the government-owned holding company struggling with $59 billion of liabilities, is seeking to delay repayment on all of its debt, even after Abu Dhabi banks provided $5 billion for Dubai’s support fund.

Dubai World will ask all creditors for a “standstill agreement” as it negotiates to extend the maturities of its debt, including $3.52 billion of Islamic bonds due for repayment on Dec. 14 by its property unit Nakheel PJSC, the builder of Dubai’s palm tree-shaped islands, the company said in an e- mailed statement today.

The cost to protect against a default by Dubai surged 111 basis points to 429 basis points, ranking it the sixth highest- risk government borrower, according to credit-default swap prices from CMA Datavision in London. The contracts, which increase as perceptions of credit quality deteriorate, are now higher than Iceland’s after climbing 131 basis points in November, the biggest monthly increase since January.

The emirate, home to the world’s tallest tower and the biggest man-made islands, owes $4.3 billion next month and another $4.9 billion in the first quarter of 2010 through government and corporate debt, Deutsche Bank AG data show. Abu Dhabi government-controlled banks, National Bank of Abu Dhabi PJSC and Islamic lender Al Hilal Bank bought all $5 billion of bonds from the government, Dubai’s Department of Finance said in an e-mailed statement today.

“The Dubai Financial Support Fund, working with the chief restructuring officer, will start to assess and evaluate the extent of the restructuring required,” the Dubai Department of Finance said in a statement. “As a first step, Dubai World intends to ask all providers of financing to Dubai World and Nakheel to ‘standstill’ and extend maturities until at least May 30.” The price of Nakheel bonds dropped to 80 percent of face value.

Debt Restructuring

Dubai will draw down $1 billion from the bonds sold to Abu Dhabi to provide funding through a sale of securities to National Bank of Abu Dhabi PJSC and Islamic debt, or sukuk, to Al Hilal.

Dubai’s Supreme Fiscal Committee hired Deloitte LLP to lead the restructuring of Dubai World debt, the Department of Finance said. Deloitte’s Aidan Birkett, managing partner for corporate finance, was assigned.

Dubai, the second biggest of seven sheikhdoms that make up the United Arab Emirates, set up a $20 billion Dubai Financial Support Fund after the credit crisis triggered the world’s worst property crash and hurt its finance and tourism industries. The emirate raised $10 billion by selling bonds to the U.A.E. central bank in February, with some of the money going to property developers.

‘Shut Up’

Dubai ruler Sheikh Mohammed Bin Rashid Al-Maktoum said Nov. 9 the emirate’s bond program to raise a further $10 billion will be “well received,” and those who doubt the unity of Dubai and Abu Dhabi should “shut up.” Abu Dhabi, the U.A.E.’s capital, is owner of the world’s biggest sovereign wealth fund and holds almost all of its oil.

Eleven days later, he removed the governor of the Dubai International Financial Centre, Omar Bin Sulaiman, who had led efforts to transform Dubai into a Middle East finance hub. The change came 24 hours after Sheikh Mohammed dropped the chairmen of Dubai Holding LLC and Dubai World, two large state-owned business groups, as well as the head of U.A.E.’s biggest developer Emaar Properties PJSC from the board of the Investment Corp. of Dubai, the emirate’s main holding company.

Home prices in Dubai plummeted 47 percent in the second quarter from a year ago, the steepest drop of any market, according to Knight Frank LLC. Property prices may drop further, a survey by Colliers International showed Oct. 14.

Dubai World had $59.3 billion in liabilities at the end of last year, its subsidiary Nakheel Development Ltd., said in a statement posted on the Nasdaq Dubai Web site Aug. 20. The company had total assets of $99.6 billion at the end of 2008 and total revenue of $14.2 billion.

To contact the reporter on this story: Arif Sharif in Dubai at To contact the reporter on this story: Camilla Hall in Dubai at

Marc Faber: First Bust, Then War!

Mark Faber has sharp eye and his predictions are always spot-on. He is an Austrian economist and maintains that the politicians must leave markets alone. You can hardly find Austrian economists, as 99% of economists think that economies can be manipulated and treated like their own fiefdom as they know best. Or their group, like the Keynesians, know best. If there is one thing clear about this economic crisis, it is the moral bankruptcy of the Keynesians as Keynesians are ALL interventionists, they have been brought up like this and market intervention worked for 50 year. But we know (and they know, but are afraid to say so as they will lose control if they do so), is that only the market knows best.

So, leave the market alone and let it clean the economy. Problem is, there hardly markets anymore, just interventions. Banking, car industry, almost everything is TBTF (too big to fail), with as a consequence a distorted economy which eventually has to come clean in any case, but the agony will be much bigger. So here we have the result. An economic crisis, created because of market distortions by politicians and supported by Keynesians.

War is coming and you must prepare yourself. Buy gold and silver. Soon, the newspapers will be full with stories that "nobody saw it coming". I am telling you now. Protect yourself.

In his gloomiest prediction yet, Marc Faber sees big financial bust leading to war


INTERNATIONAL. Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, said eventually there will be a big bust and then the whole credit expansion will come to an end. Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to continued stimulus.

Speaking at a conference in Singapore on Wednesday, Faber said: "The crisis has not solved anything. On the contrary there is less transparency today than there was before. The government's balance sheet is expanding, and the abuses that have led to the one cause of the crisis have continued".

"I think eventually there will be a big bust and then the whole credit expansion will come to an end," Faber added.

"Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus".

In one of his Gloomiest predictions, Faber, referred to as Dr Doom, said "the average family will be hurt by that, and then in order to distract the attention of the people, the governments will go to war".

"People ask me against whom? Well, they will invent an enemy," Faber said.

"At some stage, somewhere in future, we will have a war - that you have to be prepared for. And during war times, commodities go up strongly,” said Faber.

"If you want to hedge against war, you don't want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities. That is something to consider for you as a personal safety and hedge. You have to own some commodities," he added.

In a Bloomberg Television interview in Singapore Wednesday, Faber said "What will continue to happen is that the S&P 500 and the Dow Jones will go down relative to gold.

"I think gold will go up more," he added.

Will it go US$2,000, US$200,000 or US$2 trillion? I don’t know,” Faber said. “But if you have money printing in the world, then the price will over time rise. It will go up more for things that you just can’t increase the supply, and the supply of precious metals is very limited.”

Faber expects the US government to increase its stimulus spending should the Standard & Poor’s 500 Index fall toward 900. The US budget deficit under President Barack Obama’s administration reached a record US$1.4 trillion in the fiscal year that ended Sept. 30. Debt amounted to 9.9% of the nation’s economy, triple the size of the 2008 shortfall.

“I don’t think the S&P will drop below 800 or 900, and eventually will go higher in nominal terms, but not necessary in real terms,” he said, predicting a correction in the measure in the “near term.”

Faber has been warning about a collapse of the capitalistic system 'as we know it today,' massive government debt defaults and the impoverishment of large segments of Western society.

In a May interview with CNBC, he said central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries.

The years 2006 and 2007 were "the peak of prosperity" and the world economy is not likely to return soon to that level, he added.

Unless the system is cleaned out of losses, "the way communism collapsed, capitalism will collapse," according to Faber. "The best way to deal with any economic problem is to let the market work it through."

"I repeat what I have said in the past," Faber said. “No decent citizen should trust the Federal Reserve for one second. It’s very important that everyone own some gold because the government will make the dollar (in the long term) useless."

Tuesday, November 24, 2009

The Dollar Bubble

Britain's new Internet law -- as bad as everyone's been saying, and worse. Much, much worse.

Lord Mandelson at the London Economic Conferen...Image via Wikipedia

<----- He will send his militias to your house to check you out.

All Omnipotent as they are, they will spy on you, kick in your door, come into your house and read your files. Read below, how a morally and financially bankrupt government is trying to control the internet. And after kicking you around they throw you in jail. It is just a matter of time as this is what governments do. All the time and everywhere. In Zimbabwe, North Korea, Pakistan or Great Britain. The country does not matter. Don't trust them!

Britain's new Internet law -- as bad as everyone's been saying, and worse. Much, much worse.

The British government has brought down its long-awaited Digital Economy Bill, and it's perfectly useless and terrible. It consists almost entirely of penalties for people who do things that upset the entertainment industry (including the "three-strikes" rule that allows your entire family to be cut off from the net if anyone who lives in your house is accused of copyright infringement, without proof or evidence or trial), as well as a plan to beat the hell out of the video-game industry with a new, even dumber rating system (why is it acceptable for the government to declare that some forms of artwork have to be mandatorily labelled as to their suitability for kids? And why is it only some media? Why not paintings? Why not novels? Why not modern dance or ballet or opera?).

So it's bad. £50,000 fines if someone in your house is accused of filesharing. A duty on ISPs to spy on all their customers in case they find something that would help the record or film industry sue them (ISPs who refuse to cooperate can be fined £250,000).

But that's just for starters. The real meat is in the story we broke yesterday: Peter Mandelson, the unelected Business Secretary, would have to power to make up as many new penalties and enforcement systems as he likes. And he says he's planning to appoint private militias financed by rightsholder groups who will have the power to kick you off the internet, spy on your use of the network, demand the removal of files or the blocking of websites, and Mandelson will have the power to invent any penalty, including jail time, for any transgression he deems you are guilty of. And of course, Mandelson's successor in the next government would also have this power.

What isn't in there? Anything about stimulating the actual digital economy. Nothing about ensuring that broadband is cheap, fast and neutral. Nothing about getting Britain's poorest connected to the net. Nothing about ensuring that copyright rules get out of the way of entrepreneurship and the freedom to create new things. Nothing to ensure that schoolkids get the best tools in the world to create with, and can freely use the publicly funded media -- BBC, Channel 4, BFI, Arts Council grantees -- to make new media and so grow up to turn Britain into a powerhouse of tech-savvy creators.

Lobby organisation The Open Rights Group is urging people to contact their MP to oppose the plans.

"This plan won't stop copyright infringement and with a simple accusation could see you and your family disconnected from the internet - unable to engage in everyday activities like shopping and socialising," it said.

The government will also introduce age ratings on all boxed video games aimed at children aged 12 or over.

There is, however, little detail in the bill on how the government will stimulate broadband infrastructure.

Friday, November 20, 2009

South Africa: Massive Slump In Debt

<----- Good old times

Advertising in your face and blaring on the streets, but the South African consumer is deleveraging like there is no tomorrow.

This will have enormous consequences for the economy, especially for the small business owner.

Many small business owners trade in items or services completely or partially connected to the housing industry.

The housing bubble popped and now what.......

South Africa: Massive Slump In Debt


Cape Town - South African consumers continue to experience tremendous pressure and have firmly turned their backs on credit over the past year.

The latest consumer credit report shows that they have not only reduced house purchases to an absolute minimum, but have also avoided like the plague entering into debt for cars and the like.

The report shows that the value of new home loans was only R17.6bn in the second quarter of the year - an incredible 60% down on the R42.6bn for the corresponding period in 2008.

The value of new mortgages declined to such an extent over 12 months that in the second quarter the biggest category of new consumer debt was securitised debt.

This includes vehicle and furniture finance, which now represents R18.8bn or 42% of the total. Even this category of debt has dropped 27% from a year ago.

The report also indicates that the total value of credit used in the second quarter was R50.9bn - 40% down on the R85.6bn for the corresponding quarter last year.

The report was compiled by the National Credit Regulator from information furnished by registered credit providers.

The report shows that small mortgages (under R150 000) have come off more sharply. Most (90%-plus) of those approved have gone to people with disposable incomes of more than R15 000/month. Some 67% of the total credit in the category for vehicle and furniture loans has been granted to the same category.

Econometrix managing director Rob Jeffrey said that from the information it appeared that households are deferring larger expenditure in favour of immediate payments.

He warned that the current economic conditions still required moderate consumption and that debt should be reduced.

Wednesday, November 18, 2009

The worst is yet to come: Unemployed Americans should hunker down for more job losses.

economist Nouriel RoubiniImage by Esthr via Flickr

And so the saga continues....with the American middle class angry at themselves as they lost the race to richness, power and stardom with the bankers. Now the story goes that there are 2 or 3 guys wanting to organise a demonstration in Washington DC to protest against Obama economic policies. LOL, just re-broadcast Baywatch and those 2 or 3 will decide to stay in their hotel rooms.

Every society has the leaders it deserves.

The worst is yet to come: Unemployed Americans should hunker down for more job losses.

Nouriel Roubini, Daily News

Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

There's really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.

The long-term picture for workers and families is even worse than current job loss numbers alone would suggest. Now as a way of sharing the pain, many firms are telling their workers to cut hours, take furloughs and accept lower wages. Specifically, that fall in hours worked is equivalent to another 3 million full time jobs lost on top of the 7.5 million jobs formally lost.

This is very bad news but we must face facts. Many of the lost jobs are gone forever, including construction jobs, finance jobs and manufacturing jobs. Recent studies suggest that a quarter of U.S. jobs are fully out-sourceable over time to other countries.

Other measures tell the same ugly story: The average length of unemployment is at an all time high; the ratio of job applicants to vacancies is 6 to 1; initial claims are down but continued claims are very high and now millions of unemployed are resorting to the exceptional extended unemployment benefits programs and are staying in them longer.

Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.

The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession.

As a result of these terribly weak labor markets, we can expect weak recovery of consumption and economic growth; larger budget deficits; greater delinquencies in residential and commercial real estate and greater fall in home and commercial real estate prices; greater losses for banks and financial institutions on residential and commercial real estate mortgages, and in credit cards, auto loans and student loans and thus a greater rate of failures of banks; and greater protectionist pressures.

The damage will be extensive and severe unless bold policy action is undertaken now.

Roubini is professor of Economics at the Stern School of Business at New York University and Chairman of Roubini Global Economics.

Monday, November 16, 2009

South African gold on final deathwatch

The Union Building in Pretoria, South Africa.Image via Wikipedia

Got gold?

Top grade scientist finds residual gold is more than 90% less than claimed.


JOHANNESBURG - The apparent bottom line in a paper published in the South African Journal of Science is that South Africa's gold industry is on final deathwatch, despite claims of massive existing below-ground reserves. Chris Hartnady, research and technical director of Cape Town earth sciences consultancy Umvoto Africa, has found that South Africa's Witwatersrand goldfields are around 95% exhausted, and anticipates that production rates should fall permanently below 100 tonnes a year within the coming decade.

Gold production from the Witwatersrand, the biggest known gold field in the world, peaked at around 1 000 tonnes in 1970 and has declined ever since. Hartnady says that while initially (1970-1975) the decline was "quite precipitous", it has been interrupted by only short periods of slight trend reversal (1982-1984 and 1992-1993).

Leon Esterhuizen, a London-based specialist analyst at RBC Capital Markets, has reacted to the research by saying that "South African gold is dying -- this is not new news", but adds "that it may be dying faster than we currently believe is novel". On the levels of reserves, Hartnady finds that the South African "residual gold reserve" after production through 2007 is only 2 948 tonnes, a little less than three times the 1970 production figure, and much less than 10% of the officially cited reserve.

The country's gold reserves are less than half of the current United States Geological Survey (USGS) estimate of 6 000 tonnes, and the country is not first, but fourth in world rankings, after Australia (5 000 tonnes), Peru (3 500 tonnes) and Russia (3 000 tonnes), Hartnady's research shows. The USGS currently cites South Africa's gold reserves at around 6 000 tonnes, while SA claims a 36 000 tonnes reserve base figure (or about 40% of the global total). Hartnady's findings are based on Chamber of Mines figures and mathematical modelling pioneered by the distinguished American geologist M King Hubbert.

Esterhuizen comments that "most recent indications from Harmony (even with gold bullion at new dollar records over $1 100/oz) is that its old shafts - effectively the Free State gold field - are dying. DRDGold has got Blyvooruitzicht on life support and is trying to get permission to keep the plug in for a little bit longer (with everything around Blyvooruitzicht now having been shut down), while Pamodzi Gold's demise and Simmer & Jack's failure at Buffelsfontein just proves the point -- all of this, at record gold prices in rand terms".

Analysts have also expressed surprise, if not amazement, about recent comments from AngloGold Ashanti CEO Mark Cutifani to the effect that its South African operations will be restructured. How is it, analysts ask, that "the highest margin operating gold assets in South Africa are . . . being re-structured ?"

A growing number of sceptics are also asking whether Gold Fields's developing South Deep operation - which it bought in 2007 for $3bn - will truly ever be able to make money. It is already evident that it will probably never deliver a real return on the capital that it took to bring it to life, says Esterhuizen. He also notes particular current promises by both Gold Fields and Harmony of growth from the South African base over the next three years.

Hartnady's prognosis is pretty grim: "Given the energy and environmental problems associated with ongoing groundwater control, water-resource contamination by acid mine drainage, and the possibility of widespread mercury and other factors of pollution caused by illicit underground ore-processing by the zama-zamas (illegal miners), the glory days of South African gold mining appear to have arrived finally at an ignominious end.

"There can be no further illusions, maintained by unrealistic expectation of a future fortune, about the seriousness of the present situation. In their various possible forms, the slow-onset disasters of environmental degradation associated with the death-throes of a formerly illustrious industry now pose a serious threat, and may ultimately cost far more than the net present value of some 3 000 tonnes of gold".

Esterhuizen mentions a number of other challenges faced by South African gold diggers: royalties (a new thing), zooming electricity charges, BEE (black economic empowerment) burdens, safety shutdowns, "massive security costs", and ever-present currency exchange control. In these areas, Esterhuizen argues that "government may achieve a ‘small' miracle or, more likely, simply hasten the end".

Esterhuizen says that "a small opportunity may be the possible stronger future uranium market- effectively reducing gold costs by obtaining revenue from by-products". This is already happening at a number of gold mines where uranium is also produced. Certain closed shafts known to hold good quantities of uranium are also being investigated for possible recommissioning.

Source: market & company data, compiled by Barry Sergeant

House Of Cards

House of Cards

What is happening in the USA is a personal disaster for millions of people. Watch this documentary and shiver...

Saturday, November 14, 2009

Say Goodbye to Wall Street

Fofoa, King of bloggers.

Say Goodbye to Wall Street


So many faces in and out of my life
Some will last
Some will just be now and then
Life is a series of hellos and goodbyes
I'm afraid it's time for goodbye again
Say goodbye to Wall Street
Say goodbye, my baby
Say goodbye to Wall Street
Say goodbye, my baby

Equity versus Credit

This is the difference between gold and dollars. One is limited and the other is unlimited. Gold and equity are limited. Dollars and credit are unlimited. The two cannot be mixed without a negative outcome for society.

Imagine two neighbors. Both are unemployed, yet neither are worried about it at the moment. One neighbor has a stash of gold coins. The other has a FICO score of 800. One has equity, the other has credit. For the time being they can each live on what they have. Eventually both will have to get a job, but hopefully you can see the difference.

Gold Credit?

In my post, The End of a Currency, I wrote about a perfect gold standard in which there was no monetary inflation and no monetary interest on loans. Someone asked, "why would anyone make a loan in this perfect system?" The simple answer is that they would not.

The more complicated answer is that savers would not loan their gold in the way we think of loans today, with only a piece of paper obliging the borrower to return the gold plus some interest. And certainly not with a mere piece of paper requiring the return of only the principle. Even if it would be worth more when it was returned, the same positive result could be had by burying one's gold, eliminating risk.

No, the way that gold would "go to work" in this perfect gold standard is only through equity investment. One man might provide the gold while another would provide the labor and knowledge and together they would share in the profit or loss of the joint venture.

(On a side note, all major religions originally promoted only this kind of economic activity. Loans for a specific nominal return that included interest were forbidden. Christianity called it usury. Judaism called it neshekh, meaning "a bite". And Islam called it riba, meaning "excess or addition".[1][2])

Which Came First, the Chicken or the Egg?

Which came first? The greed of the banksters to make usurious loans to the people? Or the demand of the people to borrow frivolous capital for whatever economic activity they chose without sharing profits?

Adam Smith (1723-1790) taught us that economies emerge as bottom-up spontaneous self-organized order that naturally arises from social interactions, not from top-down bureaucratic design. This is also true of banks.

Banks emerge in economies because man has the innate desire for a credit-based system in which he can engage his own economic folly at someone else's risk. Given pure equity, the individual man will not lend, but still demands to borrow. And as a society, we (rightly or wrongly) end up demanding that the risk of loss is spread far and wide. We say, "don't mind borrowing it, but damned if I'm gonna lose it!" (See: FDIC)

And with the recent bailout of the banks, it is repelling to think that we are responsible. It is true. We are all, as a society, responsible for the actions taken. It was a foregone conclusion a long time ago. That if losses ever loomed large enough to bring down the system, society at large would end up covering the losses. This is the very nature of the system we have built as a society. A system that sprung up from man's desire to borrow, not from man's desire to lend or steal. That came later.

I do not make these statements in support of the bankers or the bailouts. I find them just as revolting as the next guy. But as a pragmatist, I am looking for a realistic explanation of what is happening.


As a credit-based system emerges along side an equity-based monetary system, all kinds of problems arise for society, not the least of which is inflation. The interest portion of all loans requires growth in the money supply over time. And on a large economic scale, this growth can be quite substantial.

As the lenders' credit-paper notes are "seasoned" over time they begin to circulate as near-money at a discount to the original equity they represented. And as the "money supply" grows, so does the disparity of value between credit and equity. At first, governments always keep the two tied at par through legal tender laws, but this only drives real equity into hiding and credit must expand even faster to cover the loss of equity from the monetary system. But sooner or later the credit portion must be devalued against the equity portion and ultimately, the link between the two is severed.

Society as a whole decides what society's official money is. And once the link between credit and equity is stretched to the breaking point, credit alone is declared to be official money. Thus begins the ultimate unrestrained inflation.

Political Risk

Money, whatever it is declared to be, is constantly at risk from the body politic. The infantile will of the collective is the risk faced by all monetary systems. If gold is a part of that system, then it is the people's gold, their savings, that is at risk from the collective's grabbing hands. The collective is most often described as the government, but governments cannot take bold actions without at least the implicit support of the majority.

In our current crisis, it is the dollar that is at risk. The collective has given implicit support to unlimited government printing in hopes that it will slow the fall from the collapse of credit derivatives. We now also have the central bank of central banks suggesting printing support to guarantee the sum total of bank credit derivatives numbering five to ten times larger than the entire value of all equity on the planet earth.
Central Banks Must Agree Global Clearing Supervision, BIS Says
Sept. 14 (Bloomberg) -- Central banks must coordinate global supervision of derivatives clearinghouses and consider offering them access to emergency funds to limit systemic risk, according to the Bank for International Settlements.

It is the political will of the collective, now facing momentous losses, that is the biggest threat to the dollar. This will is already set in stone. And we have yet to see the full impact of this will as pension funds fail and state and local governments face inevitable insolvency.

The dollar's collapse through the loss of its reserve status has already begun. But it is the political risk, this political will inside the US that ensures that this collapse will be a hyperinflation the likes of which the world has never seen. Never before has a global reserve currency imploded. The stage is now set, the audience seated, the lights dimmed, and a low, rumbling, tympanic drum roll can be heard rising from under the stage.

Evolution of the Dollar

Over the past 65 years, the US dollar has been parlayed into a cost advantage for the United States greater than any other currency scheme throughout all of history. The reason this advantage has been so great was that the true inflation cost of the currency was concealed from the pricing markets.

In the fiat-gold systems of the past, steep price inflations always signaled that the official money was about to be destroyed and redenominated. This fear carried forward into our present purely symbolic currency system, but we soon evolved to accept price inflation as the cost of doing business. As long as it was low enough that we could out-gain it through other investments, the benefits that our fiat trading economy provided were readily accepted.

Over time we have grown numb to the slow, hidden increases of the inflation tax. In moderation, this tax would have been somewhat acceptable, in an immoral sort of way, as society stole the productivity and efficiency gains (from those that could provide such) to pay for itself. But alas, hidden theft is just too good of a process for our collectivist political system not to expand on.

And in the US it is our political system's MO that government does exactly what the majority demands, and then expands the inflation tax to cover it. It has been this way since before we were born!

The Catch

But here's the catch. Since 1971 at least, and probably since 1944, the US dollar has been EXPORTING most of its inflation. And in doing so, it has built up an enormous inflation tax deficit on all dollar based assets. The full amount of this deficit is unknown because it has been masked, hidden, rejigged, absorbed and papered over time and time again. But one thing is for sure. The full price of this tax is way, way above anything we imagine. Most of it hidden over many years in the "dollar reserve function".

As a credit-based currency expands, the market acts as the lever that balances equity values against the expanding currency within its legal tender zone. But in the case of the dollar, a constant outflow lasting decades has been absorbed and held in reserve (think reservoir) outside of the dollar zone.

In addition to this main monumental price deception, the little bit of price inflation that actually did seep into the dollar zone was either suppressed through the gold and oil price manipulation scheme, masked by CPI rigging, or simply papered over with low interest rates and intentional asset bubbles. In other words they handed out free money to pay for what little price inflation actually showed up, in the form of HELOCs on overpriced homes.

So even though prices have risen over the last 40 years, don't assume the inflation tax has been paid. Don't even assume we have made a down payment on it. Just think about the gains we have seen in the US ever since our purely symbolic currency became the global reserve. (Actually, ever since our gold-backed paper fiat currency became the global reserve and then somehow managed to retain that privilege after switching to pure fiat!) Think of the standard of living improvements. Think of the growth. Think of the military expansion. Think of the social program expansion. Think of all the spending we've done over the last 40 years, compared to the producing we've done.

Our spending has gone parabolic while our production has collapsed. And now we are mostly a service industry workforce and a consumer driven economy. The result of decades of decadence. The result of public and private profligacy. And now the tax is due.

Hugo Salinas Price's graph [3] gives us a good visual depiction of some of this unpaid inflation tax.

Payment of this enormous inflation tax deficit will present itself to us as a sudden hyperinflation. It will be perceived and reported by the media as something that was done to us by China. But now, at least you know the truth.


The taxman is at our door. The mother of all taxes is now due. But curiously, there is a refuge. There is a haven in which you can hide. Can you guess what it is?

Of course it is physical gold in your physical possession. But gold will not just protect you from this 65-year inflation tax. As the system collapses from its own weight, gold will first reveal its true value. And then, from there, it will hold its true value as paper burns all around it.

And once we make it through this firestorm to the other side, gold will continue to be THE world class refuge from the future inflation tax that is sure to come.

You see, the Siamese twins, credit and equity, have finally been separated. Gold has been demonetized! It is now a world class wealth asset. A tradable wealth asset. A portable wealth asset. A durable wealth asset. Money, which has been deemed by society to be fiat currency only, no longer needs to carry the heavy burden of ALSO being a store of value. No longer must we raise entire industries that suck in generations of our best and brightest talent for the sole purpose of designing paper wealth derivative products in a vain attempt to make money be a store of value. No longer. Say goodbye to Wall Street.


[1] History of Usury Prohibition
Wayne A.M. Visser and Alastair McIntosh
Centre for Human Ecology

[2] Islamic finance principles to restore policy effectiveness
Willem Buiter, Financial Times

[3] A New Magna Carta for Our Times
Hugo Salinas Price

Friday, November 13, 2009

Is silver's salvation upon us?

Is silver's salvation upon us?


ADVANCES in technology, increasing focus on reducing human interaction with bacteria, and tracking goods and people are all good news for silver and the price of the industrial metal, which has lagged for so long, says Jessica Cross, CEO of VM Group.
Long regarded as the poor cousin of gold, the metal, which is mainly used in industrial applications as well as to make jewellery, has bright prospects, with off take in a spectrum of new products put at just below 350 million ounces by 2020 (see graph below), Cross argued in a presentation at the LBMA Conference earlier this month.

The silver price is currently trading around $17.30/oz, a level that it traded around in the first half of 2008 when it broke up to just shy of $21. These two spikes were unparalleled, certainly since 1985, with the metal touching slightly north of $8.50 just once since then. Looking at the history of the silver market, Cross said about two thirds of the mined metal is a by product of other minerals like copper, gold and lead, making it difficult to determine a price at which silver production would fall in a natural supply and demand scenario.

Being a by-product, the metal will come onto the market almost regardless what the price is for it. One of the major users of silver, the photographic film sector, is being particularly hard hit as consumers turn to digital cameras. A graph of silver demand by the sector shows a steady decline since a peak above 200 million ounces in the early 1990s to well below 150 million ounces in 2009. Another anchor on silver prices, which tend to take direction from the waxing and waning gold price, is that a lot of silver used in a range of applications – like photographic film, electronics and batteries -- tends to be recycled, bringing back about 400 million ounces a year of the metal to the market. But the days of huge recycling could be drawing to an end, Cross said, pointing to a host of technological advances needing silver, including wound care, food hygiene and water, wood preservatives, textiles, solar panels and radio frequency identification tags.

This metal appears to be in the right place at the right time
“These new end uses for silver are set to pick up the demand slack left by the shrinking photographic industry,” she said. “But, unlike photographic film, these end uses do not generate vast amounts of recycled metal. In general... the metal is going to be taken off the market for good.” Silver’s time has come, she said. “The change is coming about as a result of silver’s unique properties as a biocide as well as is superior conductivity,” she said. “The interesting thing is that many of the world’s worries and woes today are playing right into the hands of silver and this metal appears to be in the right place at the right time in a number of applications.”
Radio frequency identification tags, used in identity documents, passports and stock controls, are growing in use. China, for example is spending $6bn to install these devices in identity documents for all its citizens and in transport tickets, she said. London-based metals consultancy VM Group estimates use of these tags will grow to more than 30 billion by 2020 from around seven billion now.
Each tag contains about 10 milligrams of silver on average, absorbing nine million ounces of silver from the 2.3 million ounces currently. Solar panels and mirrors could absorb another 50 million ounces by 2020 compared to 18 million ounces now. Wood preservative coatings could account for up to 100 million ounces a year as chromate copper arsenic, the existing wood preservative is phased out. There were no estimates of the amount of silver that could be used in plasters and bandages, which use silver for its anti-bacterial properties. These properties also feed into the clothing and textile sector where body odours and bacteria are eliminated. Silver is also used in water purification devices and to store food. It could take up around 95 million oz by 2020. “Superimpose this good news on the tonnages of silver that have gone into the ETFs (silver-backed exchange-traded funds) and you have an underlying strength within this market to justify its current price strength,” Cross said.

The gold:silver ratio is expected to narrow. At current prices you can buy 64.4 ounces of silver for the price of a single ounce of gold. “The current market conditions indicate that gold has become overpriced and silver has become underpriced, suggesting there will be a shift in assets from gold to silver,” said Jeffrey Lewis, who edits “Since 1970, the ratio of the number of ounces of silver you could buy with one ounce of gold has run as high as 80:1 and as low as 20:1, with a mean of 54:1. Today's ratio is moderately higher than 54:1; in fact, the ratio is nearing 64:1, suggesting that there will be a correction in either the price of gold, or silver will advance to make up the deficit,” he said.

Saturday, November 7, 2009

44% of Congress Members are Millionaires

And in another development, the US soap opera continues with the revelation that the selected member of US Congress are representative of US society; in touch with reality and will take your interests at heart. Duh....

44% of Congress Members are Millionaires


Talk about bad timing.

As Washington reels from the news of 10.2 percent unemployment, the Center for Responsive Politics is out with a new report describing the wealth of members of Congress.

Among the highlights: Two-hundred-and-thirty-seven members of Congress are millionaires. That’s 44 percent of the body – compared to about 1 percent of Americans overall.

CRP says California Republican Rep. Darrell Issa is the richest lawmaker on Capitol Hill, with a net worth estimated at about $251 million. Next in line: Rep. Jane Harman (D-Calif.), worth about $244.7 million; Sen. Herb Kohl (D-Wis.), worth about $214.5 million; Sen. Mark Warner (D-Va.), worth about $209.7 million; and Sen. John Kerry (D-Mass.), worth about $208.8 million.

All told, at least seven lawmakers have net worths greater than $100 million, according to the Center’s 2008 figures.

“Many Americans probably have a sense that members of Congress aren’t hurting, even if their government salary alone is in the six figures, much more than most Americans make,” said CRP spokesman Dave Levinthal. “What we see through these figures is that many of them have riches well beyond that salary, supplemented with securities, stock holdings, property and other investments.”

The CRP numbers are somewhat rough estimates – lawmakers are required to report their financial information in broad ranges of figures, so it’s impossible to pin down their dollars with precision. The CRP uses the mid-point in the ranges to build its estimates.

Senators’ estimated median reportable worth sunk to about $1.79 million from $2.27 million in 2007. The House’s median income was significantly lower and also sank, bottoming out at $622,254 from $724,258 in 2007.

But CRP’s analysis suggests that some lawmakers did well for themselves between 2007 and 2008, even as many Americans lost jobs and saw their savings and their home values plummet.

Senate Minority Leader Mitch McConnell (R-Ky.) gained about $9.2 million. Sen. James Inhofe (R-Okla.) gained about $3 million, Sen. Daniel Inouye (D-Hawaii) had an estimated $2.6 million gain, and Richard Shelby (R-Ala.) gained about $2.8 million.

Some lawmakers have profited from investments in companies that have received federal bailouts; dozens of lawmakers are invested in Wells Fargo, Citigroup, Goldman Sachs and Bank of America.

Among executive branch officials, CRP says the richest is Securities and Exchange Commission Chairwoman Mary L. Schapiro, with a net worth estimated at $26 million.

Secretary of State Hillary Clinton is next, worth an estimated $21 million. President Barack Obama is the sixth-wealthiest, worth about an estimated $4 million. Vice President Joe Biden has often tagged himself as an original blue collar man. The CRP backs him up, putting his net worth at just $27,000.

He’s hardly the worst off.

Rep. Alcee Hastings (D-Fla.), freshman Rep. Harry Teague (D-N.M.), Rep. Jeff Fortenberry (R-Neb.), Rep. John Salazar (D-Colo.) and Rep. Sander Levin (D-Mich.) each a net worth of less than zero, CRP says.

One caveat on those numbers: Federal financial disclosure laws don’t require members to list the value of their personal residences. That information could alter the net worth picture for many lawmakers.

Even so, Levinthal said, “It is clear that some members are struggling financially.

“Over a calendar year, one’s wealth can change drastically. Many peoples’ investments took a nose dive over night in the last year,” he said.

A number of lawmakers are estimated to have suffered double-digit percentage lossed in their net worth from 2007 to 2008. The biggest losers include Kerry, who lost a whopping $127.4 million; Warner lost about $28.1 million; Sen. Dianne Feinstein (D-Calif.) lost about $11.8 million; and Sen. John McCain (R-Ariz.) lost about $10.1 million.