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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Posts Tagged ‘currency debasement

“The Sequel”: How 2011 is a repeat of 2008—only bigger, longer, and uncut by bailouts

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by Gonzalo Lira
Posted  August 15, 2011

I MIGHT HAVE MISSED IT, BUT I DON’T THINK ANYONE HAS NOTICED THIS SIMPLE TRUISM:

The structural causes that led to the Global Financial Crisis of 2008 are identical to the structural causes that are leading us to another systemic financial crisis in 2011. And of course, the debt hole in 2011 is bigger than in 2008—a lot bigger. The only difference is the kind of debt at the core of the looming crisis: Mortgage-backed securities in 2008, as opposed to European sovereign debt in 2011.

That’s why I am confident in predicting we are about to have another Global Financial Crisis—I’m calling it The Sequel: Same movie, same players, same story. Only this time around—like all good sequels—the financial crisis we are about to experience is going to be bigger, longer, and uncut by bailouts.

By the way, that is the key difference between 2008 and 2011: We’re not going to have a Hollywood Ending this time around. The governments of Europe and the United States, as well as their respective central banks, do not have any weapons to fight off this 2011 financial crisis, as they did in 2008, for the simple reason that they used them all up—they’re out of bullets, both monetarily and politically.

So when The Sequel hits the big screen, there won’t be a Big Daddy Government deus ex machina to come save the day in the third act twist. When The Sequel hits, we’re on our own.

Let’s discuss the structural similarities between the original and The Sequel:

In both 2008 and now 2011, you had unpayable debts at the center of a fragile financial system. In 2008, it was mortgage backed securities and collateralized debt obligations—the so-called “toxic assets”. I think we all know that story pretty well.

In 2011, we have European sovereign debt. And just like the toxic assets of 2008, the Euro-bonds might have been rated AAA, but they certainly aren’t blue-chip—they are more like brown-chip: That deep brown color peculiar to fast-sinking dog-turds.

In both 2008 and 2011, these unpayable debts—emitted over many years, accumulating silently and asymptomatically like plaque in the arteries—gave a false sense of prosperity in the years leading up to the respective crises.

In the lead up to 2008, the MBS’s and CDO’s gave the American homeowner a sense that their house was their personal private ATM sitting on their quarter-acre suburban lot. They also were a profit spigot for the financial sector, which bouyed the U.S. GDP growth, leading to a false sense of national prosperity, even as there were signs that the non-financial sector of the economy was diving.

In the lead up to 2011, on the other hand, the sovereign debt of the eurozone countries gave the European citizens a sense that they could afford to buy all the imported goods they could ever want, as well as the sense that their government could afford to pay for all the social welfare programs they were all promised—without having to pay for any of this by way of higher taxes. Hell, that was the entire Labour governments’ platform between 1997 and 2010: Blair and Brown gave the UK a welfare state and low taxes—all paid for with sovereign debt.

In both 2008 and 2011, you have banks exposed to these bad debts both directly and indirectly—and this exposure in 2011 threatens to topple the entire financial structure, just as it almost did in 2008.

In 2008, the financial institutions with direct exposure to the toxic assets—that is, the institutions that actually owned these crap bonds that would never be paid in full—were mostly American banks. Their capitalization depended on how pristine these toxic assets were. As it became increasingly clear that the toxic assets were exactly that—toxic—the banks holding this crap found themselves not only without the capitalization to pass regulatory muster, but in fact found themselves functionally insolvent—hence the suspension of FASB 157, coupled with the injection of $150 billion worth of capital by way of TARP.

In 2011, the financial institutions with direct exposure to toxic assets—in this case, the European sovereign bonds, especially from the PIIGS—are once again banks, this time around mostly European banks: UniCredit, Société Générale, Dexia.

Like 2008, these assets might be rated triple-A, but they’re dog-turds—and they threaten these banks with insolvency, if any of them default. A bankruptcy of any of the aforementioned European banks would have massive consequences for the rest of the global financial construct—it would not be a Europe-only problem, just as the bankruptcy of Lehman was most definitely not an America-only catastrophe.

And that’s just the direct exposure to the 2011 version of toxic assets.

The real danger in 2011 is the indirect exposure – that is, the liabilities that are triggered in the case of a debt default: Just like 2008.

In 2008, it was AIG and other assorted credit default swap sellers that got hit bad, when the toxic assets began to default—we all remember how the very ground we trod rocked as AIG stumbled and everybody had a collective nuclear-meltdown freak-out.

In 2011—you guessed it—it’s worse: We have Bank of America for sure has massive exposure to derivatives on European sovereign and debt, as well as . . . God knows what else.

Why do I say “God knows what else”? Because just like in 2008, the derivatives market is so opaque—not to say hermetic—that we are not going to know who’s going to go bust until it actually happens. In 2008, Hank Paulson and the Treasury Department didn’t find out about the AIG hole until the weekend before the company would go bust. Today, in 2011—even with the experience of how potentially deadly ignorance of the derivatives markets can be—there are no mechanisms in place to swiftly and accurately tally who has derivatives exposure to any particular bond or asset.

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Too stupid for words – If this doesn’t convince you hyperinflation is upon us, nothing will!

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by Andy Hoffman (Ranting Andy)
Posted August 8th, 2011

LAST NIGHT I CAME ACROSS AN ARTICLE DEPIECTING SUCH A LEVEL OF STUPIDITY, MORAL HAZARD, and chutzpah, that I had to reread it several times to make sure it wasn’t satire.  I figured there is no way such “luminaries” in the eyes of the doting public could possibly give such moronic, and destructive soundbytes, particularly during the most significant sovereign threat the U.S. has faced since Pearl Harbor.  But they DID anyway, and weren’t even challenged by the press.

I initially sent a brief email stating my loss of words, but as any of my readers know, that condition rarely lasts long, particularly when pertaining to an opportunity to castigate two of the people I hate most on EARTH, Alan Greenspan and Warren Buffett.  I had also gone essentially a whole day of sleep, but now that I’m refreshed the creative juices are again flowing. No need to list the Hall of Shame accomplishments of these clowns, particularly Greenspan who, unlike Buffett never earned a dime in the “legitimate business world” (sorry, I had to steal that phrase from Dr. Phillip Bombay in “Back to School”, my all-time favorite comedy).

Given the ongoing, and now accelerating, COLLAPSE of the U.S. financial system, sometimes one really needs to EMPHASIZE how far down the rabbit hole we have gone to realize that the odds of escape are no better than a ray of light in a black hole.

This weekend, amongst perhaps the most intense GLOBAL episode of “Sunday Night Special” ever, in an attempt to assuage investor fears, the puppet media trotted out their two biggest shills, Greenspan and Buffett, to give worldwide investors their sage advice.  But rather than to even hedge their comments, they straight out stated ‘all is well, nothing to see here.

Greenspan, in my mind THE NUMBER ONE PERSON RESPONSIBLE FOR THIS MESS, whom in his retirement years has been subtlely hinting that he remembers his roots as advocate of REAL MONEY (i.e. gold), decided to do a 180 and return to the Greenspan of old, fearless of “irrational exuberance” and ever-willing to implement the “Greenspan put” with a few strokes of his money-printing keyboard.

In response to a Meet the Press question regarding the validity of S&P’s decision to downgrade U.S. Treasury debt, he vociferously defended his former employers by stating  “The United States can pay any debt because we can always print money to do that. So there is zero probability of default.”  Yes readers, he actually said that, in front of a GLOBAL audience, fully believing this would be a comfort to bondholders, creditors, and rating agencies alike.

Even better, everyone’s favorite government sell-out and insider trading expert, Warren Buffet, had the gall to not only attack S&P, but add that a new rating of AAAA should be instituted so the U.S. could be UPGRADED!

Readers, we are entering a VERY, VERY DANGEROUS TIME, unprecedented in human history.  The largest, most destructive fiat Ponzi scheme of all time is on the verge of certain collapse, and frankly at the pace things are going such a cataclysm could occur at any moment. Bill H., also of GATA fame, penned a great missive this morning comparing the time frames of a mania versus a panic, driving home the conclusion about how fast things can plummet when CONFIDENCE is lost and FEAR takes over, as opposed to the slow-motion inflation of a GREED-based bubble.  That loss of confidence is picking up steam as we speak, and comments like this are the type that could potentially start an avalanche at any time.

Yes, Greenspan is an old, senile coot, but he has had more influence over world monetary policy than any man in history.  And more importantly, we now have the past TWO Fed Chairmen, Greenspan and Bernanke, who have cumulatively destroyed the dollar for 24 of the 40 years it has reigned as “reserve currency”, giving similar statements about ‘helicopter drops’ in terms of the arsenal available to them. With protests and in some cases riots going on all over the world in response to rising inflationary pressures (Egypt, Libya, Tunisia, Algeria, Bahrain, Greece, and now more civilized nations such as Israel and the UK), such massively hyperinflationary statements from the reserve currency’s LEADERS can only bode for potentially horrific near-term outcomes, in my view.

Sorry for the light humor about Back to School, as frankly this is no time for humor of any kind.  At the GATA conference, Jim Rickards spoke about the psychology of complex systems such as financial markets, noting that every system has its own threshold of pain, and that at any time we could witness the “straw that breaks the market’s back.”  Once the hyperinflationary genie is out of the bottle (and it’s pushing FULL FORCE at the cork right now), the 1971-2011 worldwide status quo will be GONE FOREVER, replaced by a MUCH SCARIER reality, the type that has inspired insidious fictions such as 1984, V for Vendetta, and Atlas Shrugged, as well as more diabolical realities such as Stalinist Russia, Fascist Italy, and Nazi Germany.

Holding any material portion of your “wealth” in DOLLARS, POUNDS, or EUROS appears SUICIDAL, particularly if held in insolvent BANKS in the U.S., UK, or Europe.  All one needs to do is look at the chart of Bank of America, THE LARGEST AMERICAN BANK, (http://www.ffiec.gov/nicpubweb/nicweb/top50form.aspx), which has been bailed out perhaps a half dozen times (on its own and via Merrill Lynch and Countrywide Credit), to realize that NO AMOUNT OF PAPER, ACCOUNTING CHICANERY, OR PPT SUPPORT, will ultimately be able to save the system.

NOW IS OFFICIALLY NOT SOON ENOUGH to PROTECT YOURSELF from the tsunami which is about to wipe out the Western financial system once and for all.  The receding of the waters is long past, and now the wave is within spitting distance of the shore

Too much of a good thing is not a good thing

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by David Galland of Casey Research
Posted August 12, 2011

I AM BEGINNING TO FEEL A BIT LIKE ONE OF THE FRENCH unfortunates stumbling through the fog in the Ardennes, circa 1914. Except that, instead of Germans full of deadly intent coming at me in the gloomy forest, it is a flock of black swans. As it was for the French in the Ardennes, the number of problems – then Germans, now black swans – is becoming overwhelming.

Consider just a little of what we as investors, and as individuals looking forward to retirement in accommodations more commodious than a shipping box, must contend with:

  • The Euro-Stone. Despite all the bailouts and bluster flying about Europe, the yields in the wounded “piiglets” of Greece, Portugal, etc. have failed to soften to more tolerable levels. Worse, yields in the fatter PIIGS of Spain and Italy are hardening. This is of no small import to the German and French banks, which together are owed something like US$2 trillion by the porkers. At this point, it is becoming clear that the eurozone’s systematic flaws doom the euro to continue trending down until it ultimately takes its place in the pantheon of failed monies.
  • The Yen Has Lost Its Zen. This week the Japanese government again began intervening in currency markets because, remarkably, the yen has been pushed to highs against the dollar. This in a nation with a government debt-to-GDP ratio that is better than twice the also horrible ratio sported by these United States.

That ratio ensures that Japan’s long struggles will continue, burdened as it also is with the aftermath of the deadly tsunamis and the ongoing drama at Fukushima. Adding to its woes are the commercial challenges it faces from aggressive neighbors, and maybe worst of all, the demographic glue trap it is stuck in, with fewer and fewer young to pick up the social costs of the old. Toss in the waterfall plunge in Japan’s much-vaunted savings rate – formerly a big prop keeping Japanese interest rates down – and the picture for Japan is anything but tranquil.

  • China’s Crucible. There are many reasons for being optimistic about the outlook for China, including a large and hard-working populace. But there is one overriding reason to expect a big bump in the path to China’s emergence as the world’s reigning economic powerhouse.

Simply, it’s a capitalistic country with a communist problem.

Now, in the same way that some people believe in leprechauns or any of dozens of other magical beings, some people believe that an economy can be successfully commanded just as a captain commands the crew of a Chinese junk cruising along the coast. It’s a fantasy.

While the comrades in charge have done quite well – largely by getting out of the way of natural human actions – they are fast reaching the limits of their ability to navigate the shoals. As I don’t need to tell you, China is a massive country, with hundreds of millions of people capable of every manner of human strengths and frailties. But if they share one interest, it is in a job that allows them to keep their rice bowls full and a roof over their heads. Said jobs don’t come from government dictate – at least not on a sustainable basis – but rather by the messy process of free-wheeling commerce… and the more free-wheeling, the better.

In the July edition of The Casey Report, guest contributor James Quinn discusses the very real challenges facing China, not the least of which is that in the latest reporting period, official Chinese inflation popped up to 6.4%. Even more concerning was a 14% rise in the price of food.

Scrambling to keep employment high while also keeping inflation low, the Chinese government is throwing all sorts of ingredients into the mix – building ghost cities, raising interest rates, stockpiling commodities, clamping down on dissent, hacking everyone – but in the end, the irrefutable laws of economics must prevail. And so the Chinese government will have to atone for the massive inflation it unleashed in 2008, and for the equally disruptive misallocations of capital that are the hallmark of command economies.

While the blowup in China will wreak havoc in world markets, including many commodities, a bright side for gold investors is that the country’s rising inflation should help keep the wind in the sails of monetary metal. It’s no coincidence that the World Gold Council’s latest data show investment demand for gold in China more than doubling in the first quarter of this year.

  • Uncle Scam. Then there is the United States. Casey Research readers of any duration know the fundamental setup… The political avarice that dominates both parties… The fear and greed of John Q. Public and his steady demands that the government do more… The scam being run by the Treasury and the Fed to provide the funny money to keep the government running… The cynical attempts by certain politicians to stoke a class war… The cellars full of toxic paper at the nation’s financial institutions… The outright corruption and deceit of the various government agencies as they twist and torture the data to fool the people into supporting them in their scams.

But there’s a growing problem: An increasing number of people and institutions are coming to understand just how intractable the problems are. This has resulted in a steady move into tangible assets – gold, especially – that are not the obligation of any government. And it’s not just individuals and money managers moving into gold, but central banks as well. That is an absolute sea change from the situation even a few years ago.

Meanwhile, with the Treasury unable to borrow since May, a backlog in government financing needs has built up. Which begs the question: With the Fed standing aside (for the moment), where is the government going to find all the buyers for the many billions of dollars worth of Treasuries it needs to flog in order to keep the scam going?

If I were a conspiracy theorist, I might look at the sell-off in equities this week, triggered as it was by nothing specific, and see a gloved hand operating behind the curtain. After all, nothing like a good old-fashioned stampede out of equities to send billions chasing after “safe” Treasuries… which has been exactly the case this week.

Regardless, with the crossroads for hard choices now behind us, the global economy finds itself at the top of a long hill… with no brakes. From here on, it will increasingly be every nation for itself – meaning a return to competitive currency devaluations and, in time, exchange and even trade controls. And we will see a return of the Fed to the markets. On that topic, I will once again trot out a chart from an article by Bud Conrad that ran in The Casey Report a couple of years back.

I do so because it shows what I think is a very strong corollary between what occurred in Japan after its financial bubble burst and what is now going on here in the U.S. (and elsewhere). As you can see, as a direct result of the Japanese central bank engaging in quantitative easing, the Japanese stock market bounced back strongly. But then, when the quantitative easing stopped, the market quickly gave back all its gains.

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On perpetual ZIRP

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by Bruce Krasting
Posted August 9, 2011

I HAD THIS TO SAY LAST WEEK:
The Fed could easily attempt to buy some market peace by issuing a statement that the policy of zero interest rates would be extended for a minimum period of one year. I consider this to be a “high probability” to happen in the next 30 days.

I got it right, but I got it completely wrong. I feared that the Fed could extend the ZIRP language for as long as a year. Not in my wildest dream did I think they could take the extremely risky move of guaranteeing that interest rates will remain at zero for another 24 months. Having been shocked, my thoughts:

• This action is indefensible on economic merits. This move is not motivated by sound monetary policy. It’s motivated by politics. This is a payback to Obama. Shame on the Fed for mixing politics with money.

• We will not go two years with this monetary policy without inflation (measured by core) exceeding the previously stated commitment by Bernanke that policy would not be allowed to rise above 2%. Bernanke and the dove members that signed onto this policy have lied to the American people. Bernanke has done it on 60 Minutes. He has done it to Congress. Shame on all of them.

• The Fed has taken away its ability to react to a situation that would require them to tighten. We are now on a one-way street. There is no way to turn around anymore. I believe the Fed has abdicated its responsibilities under the dual mandate. The have no ability to react if inflation should pop up in a year from now. Even worse, they have no policy options should there be a run on the dollar. The possibility of a run on the buck has gone up exponentially as a result. Should that happen, the Fed will have left us economically defenseless. Shame on the Fed for making us more vulnerable to a speculative attack.

• The stock market run up this afternoon is the Bernanke Put at work. Lets be clear on the consequences of Perpetual ZIRP. From this day onward every buy and hold investor who acquires Treasury debt with maturities of less than five-years is GUARANTEED TO LOSE MONEY. So if you accept that, then stocks have to look better. Shame on the Fed for debasing money and punishing savers.

• We have only one monetary policy. Juice stock multiples. This is the farthest thing from “Progressive” economics as you can get. We have a policy in place that is designed to make wealthy people wealthier. At some point there will be a social cost to this. The fires and riots in London were triggered by a shooting. Underneath is a rage between haves and have nots. Shame on the Fed for rigging the outcome for fat cats. Double shame on them for when our streets are filled with rage.

• Zero interest rates also means Zero risk. I think the change in Fed language will exacerbate recent short-term funding liquidity. I think we will see this appear (again) sooner versus later. I think Zero interest rates discourages leveraged investing. This policy will dry up liquidity in the asset backed market (Shadow banking system). I’m looking for evidence of this in the Euro Dollar funding markets. I am also looking for it to occur in the Term Commercial Paper market. Shame on the Fed for setting us up for this systemic risk.

• Brazil, Argentina, Korea, Indonesia are going to scream bloody murder over perpetual ZIRP. Russia is likely to get downright ugly with their rhetoric. I wouldn’t be surprised if they took this opportunity to vote with their feet and just abandon the dollar as a reserve holding. China will also make noise. They will make more calls for a new international currency to replace the dollar. The Central bankers in Japan and Switzerland are puking in the trashcan over this. Bernanke is exporting US deflation to them. Shame on the Fed for pursuing beggar my neighbor policies. They deserve all the global criticism they are about to get.

• Bernanke bills himself as a student of the Depression. He has said over and over that he would not make the mistakes that the Fed made in 1937 when a tightening of monetary policy triggered another wave of deflation. I think the history books will look at the Fed and August of 2011 and draw a similar conclusion. At a critical time in history the Fed has taken action. The mistake of 72 years ago DID cause a recession that lasted a few years. The mistakes of 2011 will mark a point in history where America turned a corner downward. One that will take a few decades to recover from. The history books will shame Ben.

The Fed Uncertainty Principle

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by Mike “Mish” Shedlock

 

THE FED, BY ITS VERY EXISTENCE, HAS COMPLETELY DISTORTED the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.

Corollary Number One:

The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two:

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three:

Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four:

The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

It’s time to be very concerned about what’s going on behind the scenes

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by Simon Black
of Sovereign Man
Posted August 8, 2011

ANCIENT GREEK MYTHOLOGY TELLS THE TALE OF ODYSSEUS, the heroic king of Ithaca whose 10-year journey home after the Trojan War became one of the world’s most famous epics. At one point in the journey, his ship was heading straight for two deadly hazards– on one side was Scylla, a six-headed monster disguised as a giant rock, and on the other side was Charybdis, a sinister whirlpool born from the sea god Poseidon.

The perils were close enough to pose an inescapable threat to ships passing through, forcing the captain to choose between the two evils. A Latin proverb from this story, “incidit in scyllam cupiens vitare charybdim” (he runs on Scylla, wishing to avoid Charybdis), is now “between a rock and a hard place” in modern English.

This is exactly where the entire world finds itself right now. With confidence vanishing, markets panicking, and entire nations going bankrupt, ultimately there are no good solutions… and thinking people need to understand some simple truths about the situation:

1) America’s credit rating was punished by S&P because US politicians failed to reach an adequate solution to the country’s massive debt woes which are nearing 100% of GDP. Investors reacted by buying the Japanese yen– a country whose sovereign debt rating is two steps below the US, and at 220% of GDP, over twice as indebted!

Not to mention, Japan has burned through 4 prime ministers and 8 finance ministers just in the last four years. This is not exactly a country whose government has a successful track record of dealing with its problems.

How does this make any sense? That’s like firing an employee who gets drunk on the job and replacing him with a gun-toting heroin addict. Yet faced with a universe of bad choices, investors will pick the one which appears to be the ‘least worse’. This approach is sure to create even more gross misallocations of capital down the road.

2) World governments have gone on the offensive against S&P, slamming the rating agency and trying to discredit the firm’s financial calculations without acknowledging the underlying premise– that America lacks a credible plan to deal with its crisis.

Leaders from countries as diverse as France, South Korea, and even Russia have all shrugged off the downgrade and publicly reiterated their confidence in the United States. (They even rolled out Warren Buffet who said that the US deserves “a quadruple-A” credit rating.)

You know that old adage– how do you know that a politician is lying? Because his lips are moving. When so many world leaders are expressing nearly unanimous support for the dollar and the US government, it’s time to be very concerned about what’s going on behind the scenes.

3) G7 finance ministers have pledged to take any steps necessary to calm markets and “avert collapse in world confidence.”

Here’s the thing: All governments can do is print, borrow, or steal from taxpayers. These are exactly the policies that created a loss of confidence to begin with, and now they are pledging to restore confidence by doing the exact same things.

If they take action, the situation will only get worse. If they don’t take action, the markets will panic and the situation will only get worse. Rock. Hard place.

4) Trillions of dollars are sloshing around in the financial system right now desperately seeking some modicum of safety. With the wave of downgrades and money creation that’s coming, few asset classes look stable… so that little hunk of yellow metal is starting to look awfully attractive to a lot of investors.

5) Governments will do whatever it takes to keep the party going and maintain the status quo, whether it’s printing money into oblivion and sticking consumers with massive inflation, or sending police out into the streets to beat everyone into submission.

I really want to urge you to think rationally about your situation and ask yourself a simple question–  do you feel secure having the entirety of your assets and livelihood under the control of a single bankrupt nation in the midst of a financial collapse?

If not, it’s time to let go of the excuses and take action.

S&P downgrades US credit rating to AA+, and more

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Daily Bell Briefs
Posted August 08, 2011

S&P downgrades U.S. credit rating to AA+

The United States lost its top-notch triple-A credit rating from Standard & Poor’s Friday, in a dramatic reversal of fortune for the world’s largest economy. … This came after a confusing day of reports: Standard & Poor’s told the U.S. government early Friday afternoon that it was preparing to downgrade the U.S.’s triple-A credit rating but U.S. officials notified S&P that it had made a $2 trillion mathematical error. The error was in the calculation of the U.S. debt-to-GDP ratio over time and was based on a misreading of what the correct congressional baseline was, government sources indicated. They said that once informed of the error S&P revised its rate-cut rationale to emphasize the political aspects of the country’s debt situation. “A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesperson said. – CNBC

Dominant Social Theme: You cannot trust the private sector with this sort of thing… the State knows better.

Free-Market Analysis: We have been suggesting for quite a long time now, perhaps ten years or more, in various books, editorials and publications, that the US monetary and political system was in serious trouble and would eventually face a severe “reality check.” Today, we see the headwinds of reality crashing into the structural edifices that have been erected as a means of population control and economic enslavement. The US dollar is a license to steal, one that has been granted via legal tender laws, and the heist has now been revealed to millions during this dawning era of what we call, the Internet Reformation. The US political establishment – in this case the Treasury Dept. – can criticize S&P’s downgrade all they like, but the truth of the matter is that the US is broke and soaked in a sea of unsustainable debt. To whine about a $2 trillion “error” – that isn’t really an error at all, considering the Treasury Dept. is disputing S&P’s misuse of “congressional baseline” numbers that somehow accurately forecasts the “U.S. debt-to-GDP ratio over time” – is nothing short of laughable. Suffice to say, why should anyone, including S&P base any of their numbers on congressional baseline numbers when all the government does is tell one lie after another? Does anyone with any semblance of understanding of the fiat-money system really believe that the “wise leaders” acting/running the US are going to master the great ship’s rudder and pull off a last minute “miracle-manouver,” thus avoiding the treacherous shoals it is destined to crash into? We think Hurricane Reality is about to teach the “Captains of Fantasy” and their believers a severe lesson. Now S&P cannot come out and say that, but we can.

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Asian Markets slip on U.S. credit downgrade

International markets trembled over the weekend following an unprecedented downgrade of the United States’ sovereign credit rating by the agency Standard & Poor’s. Analysts had feared that the downgrade, in combination with the spiraling European debt crisis, could send overseas investors into a panic and undermine the strength of the global economy. … As of 11 p.m. EST on Sunday, Japan’s Nikkei index had fallen 1.3 percent to 9,178.03, a drop of 121.85 points. Hong Kong’s Hang Seng was down 3.71 percent at 20,169.41, while the South Korean composite index KOSPI had fallen 3.01 percent to 1,885.27. Australia’s S&P/ASX 200 index slipped 1.2 percent to 4,055.80, while New Zealand’s NZX 50 declined 2.49 percent to 3,194.82. In the Middle East, Israel’s TA-25 market fell 7 percent to close at 1,074.27, its biggest decline since 2000. Egypt’s EGX30 fell 4.2 percent. Other markets showed more measured losses: the Abu Dhabi Securities Exchange General Index fell 2.5 percent, while Dubai’s exchange closed 3.7 percent down. … In spite of the S&P downgrade, few on Wall Street are expecting investors to pull out of Treasuries on a large scale, since the bonds are still seen as relatively safe. – Huffington Post

Dominant Social Theme: Don’t believe all the hoopla; US government debt is a safe and stable investment.

Free-Market Analysis: How anyone can suggest that there is anything safe about US government bonds, especially now, is beyond us. But we would expect nothing different of an article that appears in the Huffington Post, a mainstream media player to be sure. To think that people should act like the US Congress and try and solve the fiat-money debt problem by investing in the very problem itself – US debt – is foolish, in our opinion. The article, not surprisingly, mentions nothing about honest money as a safehaven option – despite that fact that gold, trading above $1,700 as of this writing, is up more than 50% in purchasing power over the last three-years alone against the US dollar. Does the US dollar, or dollar denominated debt, sound like an investment that is “relatively safe” to you?

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China blasts U.S. debt problems, urges new global reserve currency

China on Saturday condemned the “short-sighted” political wrangling in the United States over its debt problems and said the world needed a new global stable reserve currency. “China, the largest creditor of the world’s sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets,” China’s official news agency said in a commentary. “International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” it said. – Reuters

Dominant Social Theme: It’s time to let Christine Lagarde and the other “wise leaders” at the IMF run the world’s money.

Free-Market Analysis: Well this certainly comes as no surprise. We have been ringing the bell on this one for while now. In fact, we ran a staff report back in March 2009, titled China Wants IMF to Manage New One-World Currency. The essence of what we said in that article, as well as many others dealing with Money Power’s insatiable desire to fasten a global currency yoke on the entire world’s population, is that out of the fiat-manufactured chaos we have today, it is likely that global order will be promoted as the cure to all our monetary ills. The IMF, a globalist organization to be sure, along with the World Bank, will be marketed by the establishment politicians, NGO think tanks and mainstream media outlets as the only logical way to alleviate the markets of their instability and overall confusion. The eurozone experiment alone should be enough of a wakeup call – for anyone that cares to see – that by stitching together a bunch of systemically bankrupt nation’s fiat currencies does nothing to aleviate the rot inherent in the design and nature of the money-stuff-system itself. We truly hope the world escapes from the grasp of the globalist’s fiat-fangs and that this plan of unification does not become a reality. What the world needs, in our opinion, are private currencies competing in a free-marketplace where governments have no involvement in either the issuance of currency or its management. Let the market decide what to use as money and keep the State and unelected global government agencies out of it.

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ECB says will “actively implement” bond-buying

The European Central Bank said on Sunday it would “actively implement” its controversial bond-buying programme to fight the euro zone’s debt crisis, signaling it will buy Spanish and Italian government bonds to halt financial market contagion. … “The Euro system will intervene very significantly on markets and respond in a significant and cohesive way,” a euro zone monetary source said, speaking shortly before the statement was released. … The ECB statement sought to justify the buying by saying it was “designed to help restoring a better transmission of our monetary policy decisions taking account of dysfunctional market segments and therefore to ensure price stability in the euro area.” – Reuters

Dominant Social Theme: The dysfunction of the invisible hand must be slapped with oversight and active intervention.

Free-Market Analysis: This is getting just silly. Think about it for a minute. Here comes the ECB to create a US-style Plunge Protection Team that can “intervene” whenever the “wise leaders” feel it is necessary – all for the purposes of shoring up confidence in a dying fiat-money central banking system. The arrogance of Money Power to think that people cannot see this for what it is – blatant manipulation – is simply flabergasting. The ‘Net dissects the obviousness of such planning and exposes the desperate attempts of those who believe they are smarter than the free market. The name of the game is global power via global governance. To achieve that end, the power elite‘s agents will do just about anything in the face of Hurricane Reality to try justify the means. Once again, the problem facing the world today is the fraudulent nature of the global central banking system and the monetary units they peddle. Creating another manipulation-arm to intervene and “fix” the illusion is no solution at all.