MIKE

Archive for September, 2010

By Allison Bennett and Catarina Saraiva – Sep 28, 2010 6:10 AM PT

The dollar traded at almost a five- month low against the euro after U.S. home prices rose at a slower pace in July, fueling speculation the Federal Reserve will ease monetary policy.

The greenback was mixed against 16 most-traded counterparts as U.S. economic reports were expected to increase the likelihood the central bank will restart the purchase of government debt. The yen strengthened against the dollar to the strongest level since Japan intervened in the market Sept. 15 to weaken the currency.

“The market is looking for the high-frequency growth data to help predict the path that lies ahead for the Fed,” said Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto. “Consumer confidence by any measure is still historically very low.”

The dollar fell 0.3 percent to $1.3489 per euro at 9:11 a.m. in New York, compared with $1.3455 yesterday, when it slid to $1.3507, the weakest level since April 20. The euro bought 113.44 yen, compared with 113.41 yen, after touching 112.67 yen.

The yen strengthened 0.2 percent to 84.09 yen per dollar, from 84.29, the highest level since Sept. 15, when it also touched a 15-year low of 82.88.

Japan sold its currency in an attempt to sustain an export- led recovery. Demand for the yen has been tempered by speculation Japan will sell its currency again.

Housing Prices

Home prices in 20 U.S. cities rose at a slower pace in July from a year earlier, reflecting a drop in sales following the end of a government tax credit.

The S&P/Case-Shiller index of property values increased 3.2 percent from July 2009, the smallest year-over-year gain since March, the group said today in New York.

The Conference Board’s U.S. consumer confidence index decreased to 52.1 this month from 53.5 in August, according to another survey. The report from the New York-based research group is scheduled for release at 10 a.m. in New York.

The dollar has depreciated 9.1 percent versus the euro this quarter in the worst performance among the European currency’s 16 major counterparts. The greenback has pared this year’s advance to 6.3 percent.

The euro erased its loss against the franc as European stocks reversed their losses. Investors traditionally buy the franc during times of economic turmoil because of the perceived stability of the Swiss economy and current account surplus, and offload the currency when they want to take on more risk.

Read the entire article HERE.

Ron Paul
Campaign for Liberty
September 28, 2010

This week marked six months since Congress passed the healthcare reform bill in what has become all-too-typical legislative chicanery. Those in power crafted a mammoth piece of legislation and rammed it through Congress under a dire sense of emergency. Insisting on time enough to read the bill was dismissed as dangerous and crazy in a time of crisis. We were told that if we really wanted to see what was in the bill, we would have to pass it first. I cannot imagine the founding fathers intended for Congress to legislate in this manner. I would think if a Member is not absolutely certain the entire legislation meets Constitutional muster, the default vote should be “no” in accordance with our oath of office.

But now that Congress has had six months to read the new law, there is a significant amount of buyer’s remorse on Capitol Hill. The more constituents learn about the law, the more angry they become. 60% of Americans are now said to be in favor of repealing the entire thing. Unfortunately, it is much more difficult to repeal a law than to pass a bill.

I wrote a while back about the egregious provision to require businesses to issue 1099s for all transactions over $600 as a way to partially pay for it. I have cosponsored legislation to fix this issue, yet this is just the tip of the iceberg.

First of all, in spite of the administration repeating over and over that this legislation would not increase costs for Americans, they are now saying they knew all along that it would. The Congressional Budget Office (CBO) estimates that American families will see their premiums rise by an average of $2100 by 2016. The Wall Street Journal has reported that the cost of compliance is forcing some insurers to increase premiums by up to 20% as soon as next year!

Also, in spite of repeated claims from the administration that we could all keep our plans and doctors if we liked them, the administration’s own officials are now predicting that won’t be true for up to 117 million Americans who will lose their current plans. Major insurers are also dropping child-only plans because of mandates and price-fixing on such policies, leaving parents with fewer choices for their children, not more.

Also, in spite of repeated claims from the administration that we could all keep our plans and doctors if we liked them, the administration’s own officials are now predicting that won’t be true for up to 117 million Americans who will lose their current plans. Major insurers are also dropping child-only plans because of mandates and price-fixing on such policies, leaving parents with fewer choices for their children, not more.

In addition, in spite of claiming this law would contain government costs, not increase them, administration actuaries now predict it will increase healthcare spending by over $300 billion. This additional spending comes along with doctor shortages, fewer choices and more taxes. Perhaps worst of all, increases in labor costs because of health insurance mandates are discouraging employers from hiring new workers and even triggering more layoffs.

Anyone with a basic understanding of Austrian economics could have predicted the unintended consequences of these new healthcare policies. Central planning never increases choices and quality or cuts costs as promised. Price controls and government mandates always create artificial scarcity. Healthcare is not a right, nor a privilege. It is a product, like food or clothing. As with any good or service, the free market regulation of supply and demand provides the optimum quality to the maximum number of people. Once we realize the problems we are trying to solve today were created by government intervention beginning in the 1960?s, we can begin to put patients and doctors back in control of healthcare, rather than third party oligopolies and government bureaucrats. The sooner, the better.

Follow Ron Paul’s message HERE.

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By Bill Bonner

09/24/10 Delray Beach, Florida – Gold hit three new record highs last week. This week, following the announcement by the US Fed on Tuesday, it is hitting still more highs…closing in on $1,300 as we write.

Gold should go up with consumer prices. But, for nearly two decades – from 1980 to 1999 – gold went down while consumer and asset prices rose. Now, consumer prices are stable. Yet gold hits new records.

All views on gold are baroque. There’s no line of thought on the subject that doesn’t have a curve in it. Some buyers are loading up on gold because they see a recovery coming. Others are buying it because they don’t. Recovery, say some, will boost consumer appetites, resulting in higher inflation levels and a higher price for gold. The absence of recovery, say others, will cause the Fed to undertake more money printing.

Those who have no opinion on the matter are among gold’s most aggressive buyers. To them, gold looks like a “can’t lose” proposition. If the economy improves, gold rises naturally. If it doesn’t improve, the Bernanke team will force it up.

And if not Bernanke, the Chinese. Gold makes up only 1.7% of China’s foreign exchange reserves. Many analysts believe China is targeting a 10% figure. If so, it would have to buy every ounce the world produces for two and a half years. Or, if it relies on only its own production – China is the world’s largest producer – it would take nearly 20 years of steady accumulation to reach the 10% level.

The metal holding down the 79th place in the periodic table has many uses. People make spoons, forks and bathroom faucets out of it. It’s occasionally used as roofing, or even as a murder weapon; Crassus had molten gold poured down his throat after being captured by the Parthians. And Lenin said he would line the public latrines with it. But the best use ever found for it was as money – as a reliable measure of wealth.

Even gold is not perfect as money. During the years following the Spanish conquest of their New World territories, for example, gold flooded back into the Iberian Peninsula. Soon there was much more gold than the other forms of wealth it was meant to represent. Each incremental ounce of gold was disappointing. It bought only a fraction as much as it had before this monetary inflation began. And had you bought it in 1980 you would have seen 90% of your purchasing power disappear before the bottom finally came. Even today, you still would not be back at breakeven. The price of gold will have to almost double from today’s level to reach its inflation-adjusted high of 1980.

But this is what makes gold very different from other money. If you happen to have a billion-Mark note from the Weimar Republic or a trillion dollar note from Zimbabwe, you can hold onto that paper until hell freezes; its value will never return. Gold, on the other hand, will never go away. And when the post-1971 monetary system cracks up, gold is likely to return to its 1980 high…and keep going.

Over the centuries, mankind has often experimented with alternatives to gold. Driven by larceny or desperation, base metal and paper were tried on many occasions. Paper was particularly promising. You could put as many zeros on a piece of paper as you wanted, creating an infinite supply of “money,” as Ben Bernanke once noticed, at negligible cost. But the experiments all ended badly. People realized that money gotten at no expense was only gotten rid of at great cost. Given the ability to create “money” at will, a central banker will sooner or later create too much.

But one generation learns. The next forgets.

Read the entire article HERE.

Six months ago, President Obama, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi rammed Obamacare down the throats of an unwilling American public. Half a year removed from the unprecedented legislative chicanery and backroom dealing that characterized the bill’s passage, we know much more about the bill than we did then. A few of the revelations:

» Obamacare won’t decrease health care costs for the government. According to Medicare’s actuary, it will increase costs. The same is likely to happen for privately funded health care.

» As written, Obamacare covers elective abortions, contrary to Obama’s promise that it wouldn’t. This means that tax dollars will be used to pay for a procedure millions of Americans across the political spectrum view as immoral. Supposedly, the Department of Health and Human Services will bar abortion coverage with new regulations but these will likely be tied up for years in litigation, and in the end may not survive the court challenge.

» Obamacare won’t allow employees or most small businesses to keep the coverage they have and like. By Obama’s estimates, as many as 69 percent of employees, 80 percent of small businesses, and 64 percent of large businesses will be forced to change coverage, probably to more expensive plans.

» Obamacare will increase insurance premiums — in some places, it already has. Insurers, suddenly forced to cover clients’ children until age 26, have little choice but to raise premiums, and they attribute to Obamacare’s mandates a 1 to 9 percent increase. Obama’s only method of preventing massive rate increases so far has been to threaten insurers.

» Obamacare will force seasonal employers — especially the ski and amusement park industries — to pay huge fines, cut hours, or lay off employees.

» Obamacare forces states to guarantee not only payment but also treatment for indigent Medicaid patients. With many doctors now refusing to take Medicaid (because they lose money doing so), cash-strapped states could be sued and ordered to increase reimbursement rates beyond their means.

» Obamacare imposes a huge nonmedical tax compliance burden on small business. It will require them to mail IRS 1099 tax forms to every vendor from whom they make purchases of more than $600 in a year, with duplicate forms going to the Internal Revenue Service. Like so much else in the 2,500-page bill, our senators and representatives were apparently unaware of this when they passed the measure.

» Obamacare allows the IRS to confiscate part or all of your tax refund if you do not purchase a qualified insurance plan. The bill funds 16,000 new IRS agents to make sure Americans stay in line

Read the entire article HERE.

September 4, 2010
By Michael Hudson

The Angelides Committee Sidesteps the Mortgage Fraud Issue

What is the difference between today’s economy and Lehman Brothers just before it collapsed in September 2008? Should Lehman, the economy, Wall Street – or none of the above – be bailed out of bad mortgage debt? How did the Fed and Treasury decide which Wall Street firms to save – and how do they decide whether or not to save U.S. companies, personal mortgage debtors, states and cities from bankruptcy and insolvency today? Why did it start by saving the richest financial institutions, leaving the “real” economy locked in debt deflation?

Stated another way, why was Lehman the only Wall Street firm permitted to go under? How does the logic that Washington used in its case compare to how it is treating the economy at large? Why bail out Wall Street – whose managers are rich enough not to need to spend their gains – and not the quarter of U.S. homeowners unfortunate enough also to suffer “negative equity” but not qualify for the help that the officials they elect gave to Wall Street’s winners by enabling Bear Stearns, A.I.G., Countrywide Financial and other gamblers to pay their bad debts?

There was disagreement last Wednesday at the Financial Crisis Inquiry Commission hearings now plodding along through its post mortem on the causes of Wall Street’s autumn 2008 collapse and ensuing bailout. Federal Reserve economists argue that the economy – and Wall Street firms apart from Lehman – merely had a liquidity problem, a temporary failure to find buyers for its junk mortgages. By contrast, Lehman had a more deep-seated “balance sheet” problem: negative equity. A taxpayer bailout would have been an utter waste, not recoverable.

Only a “liquidity problem,” or a balance sheet problem of negative equity?
Lehman CEO Dick Fuld is bitter. He claims that Lehman was unfairly singled out. After all, the Fed lent $29 billion to help JP Morgan Chase buy out Bear Stearns the preceding spring. In the wake of Lehman’s failure it seemed to gain the courage to say, “Never again,” and avoided new collapses by bailing out A.I.G. – saving all its counterparties from having to take a loss.

Was this not a giveaway? Mr. Fuld implied. Why couldn’t the Fed and Treasury do for Lehman what they did with other Wall Street investment firms and stock brokers: let it reclassify itself as a bank so it could pawn off its junk mortgages at the Fed’s discount window for 100 cents on the dollar, sticking taxpayers with the loss? (And by the way, will these firms ever be asked to buy back these mortgages at the price they borrowed against from the government? Or will they be allowed to walk away from their debts in a Wall Street version of “jingle mail”?)

This is the soap opera that Americans should be watching, if only it weren’t conducted in the foreign language of jargon and euphemism. At issue is whether Lehman’s crisis was merely a temporary “liquidity problem,” that time would have cleaned up much like BP’s oil spill in the Gulf; or, did the firm suffer a more deep-seated “balance sheet problem” (negative equity), as Federal Reserve Chairman Ben Bernanke claims – a junk balance sheet, composed of assets that not only had no buyers at the time, but had no visible likelihood of recovering their market price even after the $13 trillion the Treasury and Federal Reserve have spent to bail out Wall Street.

Insisting that Lehman should have shared in Washington’s $13 trillion giveaway, Mr. Fuld testified that his firm was just as savable as Countrywide or A.I.G. – or Fannie Mae for that matter. Lehman was perversely singled out, he claims. Was it not indeed as savable as the Fed and Treasury claim the U.S. real estate sector is? Like over-mortgaged homeowners, all it needed was enough time to finish selling off its portfolio, given enough loan support to tide it over.

The problem, of course, is that the securities that Lehman hoped to pawn off were fraudulent junk. American homeowners are victims, not crooks. Wall Street bailed out crooks at Countrywide and its cohorts. The credit-rating agency Fitch has found financial fraud in every mortgage package it has examined. And these are the packages that have made Wall Street rich and powerful enough to gain Washington bailouts to establish them as a new ruling class, bailouts to use for buying up Washington politicians and lawmakers, and for buying out the popular press to tell people how necessary Wall Street financial practice is to “support” the economy and “create wealth.”

Could any other daytime telecast have a more typecast villain than Mr. Fuld? A novelist would be hard-put to better personify greed, arrogantly playing bridge with his boss while Lehman burned. Yet his testimony has a certain logic. If the negative equity suffered by a quarter of U.S. homeowners can be saved, as the Fed claims it can, where should the line be drawn?

Or to put this question the other way around, why are ten million American homeowners being treated like Lehman, if the Fed believes that they are as savable as Countrywide and A.I.G.?

Huge sums are at stake, because the bailout has left little for Social Security, and nothing to bail out the insolvent states and cities, or for more stimuli to pull the national economy out of depression.

Most relevant in Mr. Fuld’s self-pitying defense before the Angelides Committee is not what he said about his own firm, but his accusation that the Fed and Treasury rescued the rest of Wall Street. Weren’t other firms just as bad? Why was Lehman singled out?

The Fed’s witnesses gave a devastating reply. They drew a clear distinction between a temporary “liquidity problem” and outright negative net worth – the “balance-sheet problem” of insufficient assets to cover one’s debts. Lehman was so badly managed, the Fed claimed – so reckless and arrogant in its belief that it could cheat its customers by selling junk at a huge markup – that it could not have been rescued except by an outright taxpayer giveaway.

As the Fed’s Chief Counsel, Scott Alvarez, put matters: “I think that if the Federal Reserve had lent to Lehman?…?in the way that some people think without adequate collateral?…?this hearing and all other hearings would have only been about how we had wasted the taxpayers’ money – and I don’t expect we would have been repaid.” Like downtown Los Angeles, there was no “there” there.

Included in the hearings’ evidence is an exasperated e-mail sent by Treasury Secretary Hank Paulson’s chief of staff, Jim Wilkinson, on Sept. 9, 2008: “I just can’t stomach us bailing out lehman. Will be horrible in the press.” Five days later, on Sept. 14, he added that unless a private buyer could be found (e.g., as JP Morgan Chase stepped forward to buy Bear Stearns), “No way govt money is coming in … also just did a call with the WH [White House] and usg [U.S. Government] is united behind no money … I think we are headed for winddown.”[1]

Lehman’s problem was not just temporary illiquidity. It had a fatal balance-sheet problem: Its assets were not worth anywhere near what it owed. So with poetic justice, it was in the same position as the subprime borrowers whose junk mortgages it had underwritten and sold to investors gullible enough to believe Moody’s and Standard and Poor’s AAA ratings. This fraudulent junk was supposed to be as safe as a U.S. Treasury bond. But it turned out to be only as safe as Social Security and state pension promises are in today’s “Big fish eat little fish” world.

Yet Mr. Fuld is correct in pointing out that not only Bear Stearns and A.I.G., but also Morgan Stanley and Goldman Sachs would have failed without state support. So the question remains: Why bail out these firms (and their counterparties!) but not Lehman?

This is too narrow a scope to pose the proper question. What needs to be discussed is the result of Washington arranging for Wall Street to repay its TARP, A.I.G. and other bailout money – including that of Fannie Mae and Freddie Mac – by “earning its way out of debt” at the “real” economy’s expense. Why has Washington refused to write down the bad debts of homeowners, states and cities, and companies facing bankruptcy unless they annul their pension promises to their employees? Why is Washington is treating the American economy like it treated Lehman and telling it to “Drop dead”?

The explanation is that a double standard exists. The wealthy get bailed out – the creditors, not the debtors. And even the fraudsters, not their victims.

Sidestepping the Fraud Issue: Bailing out fraudsters instead of saving America’s economic base
Recent federal bankruptcy proceedings have exposed Lehman’s deceptive off-balance-sheet accounting gimmicks such as Repo 105 to conceal its true position. No fraud charges have yet been levied, but this is the invisible elephant in the Washington committee rooms. “Everyone was doing it,” so that makes it legal – or what is the same thing these days, non-prosecutable in practice. To prosecute would be to disrupt the financial system – and it is Fed doctrine that the economy cannot survive without a financial system enabled to “earn its way out of debt” by raking off the needed wealth from the rest of the economy?

So the Fed, the Treasury and the Justice Department have merely taken the timid baby step of pointing out that Lehman suffered from such bad management that no firm was willing to buy it out. Barclay’s was interested, but Mr. Fuld was so greedy that he found its offer not rich enough for his taste. So he ended up with nothing. It is a classic morality tale. But evidently not fraud.

The fraud issue lies as far outside the scope of the financial committee meetings as does the question of how the economy should cope with its unpayably high mortgage, state and local debts in the face of its inadequately funded pension obligations. Fed Chairman Bernanke testified on Thursday, Sept. 2, that “the market” itself breeds what most people would call fraud. Widening the market for home ownership necessarily involves lowering loan standards, he explained. But as the Lehman failure illustrates, where should we draw the line between “illiquidity” and insolvency on the one hand, and higher risk and outright fraud?

The Fed argues that the economy cannot recover without a solvent financial system. But what about that large part of the financial system based on fraud? Would the economy fall apart without it – without mortgage fraud, without deceptive packaging of junk mortgages, and for that matter without computerized gambling on derivatives? What of the credit-ratings agencies whose AAA writings were as much up for sale as the conscience and honesty of politicians on the Senate and House Banking Committees? Do we really need them?

And does the economy need more credit (that is, debt)? Or does it need jobs? Does it need to un-tax the banks and give tax-favoritism to Wall Street (“capital gains” tax rates) to enable it to earn its way out of debt at the expense of the production-and-consumption economy?

The question that Washington financial committees should be asking (and economics textbooks should be posing) is whether wider home ownership is really dependent on easier and looser lending standards. After all, the effect of easy credit is to enable borrowers to bid up housing prices. Is this really how to make the U.S. economy more competitive – given the fact that industrial labor now typically pays 40% of its wage income for housing?

Or, does the Fed’s easy-money policy deregulation of oversight open the way for asset-price inflation that puts home ownership even further out of reach – except at the price of running up a lifetime of debt to the banks that write the loans on their keyboard at steep markups over their cost of funding from the compliant Fed?
Qui bono?

Who is to benefit from the Fed’s easy money policy – consumers and homeowners, or Wall Street?

This is the broad issue that should be discussed. What would have happened without the bailout? (Remember, Republican Congressmen opposed it – before that fatal Friday when Maverick John McCain rushed back to Washington and said he would not debate Mr. Obama that evening unless Congress approved the bailout of is Wall Street backers.) What if debtors had been bailed out by a write-down of bad debts, instead of the lenders who had made bad loans and the large institutions that bought them?

The bailout has saddled taxpayers not only with $13 trillion that now must be sacrificed by the economy at large (but not by Wall Street), but with the cost of a decade-long depression resulting from keeping the bad debt on the books. This is what rightly should be deemed criminal.

Defenders of Wall Street insist that there was no alternative. And the committee hearings are carefully only listening to such people, because these are very respectable hearings. They are writing mythology, almost as if they are crafting a new religion. In this new ethic, Wall Street financial institutions – “credit creators,” that is, debt creators – are supposed to fund industry, not strip assets or make bad loans. Without rich people, who would “create jobs”? Such is the self-serving logic of Wall Street. For them, Wall Street is the economy.

The wealth of a nation is worth whatever banks will lend, by collateralizing the economic surplus for debt service.

What the Angelides Commission really should focus on is whether this is true or false. That would make it a soap opera worth watching. The Fed so far has stonewalled attempts to discover just who was bailed out in autumn 2008? But most important of all is, what dynamic was bailed out? What class of people?

The answer would seem to be, financial firms employing and serving the nation’s wealthiest 1%? Any and all fraudsters among their ranks? (There has not been a single prosecution, as Bill Black reminds us.) Or the remaining 99% of the population – their bank deposits and indeed, their jobs themselves?

Academic textbooks pretend that the economy is all about production and consumption – factories producing the things their workers buy. The distribution of wealth does not appear, nor is it regularly tracked in statistics. But in Washington and at the hearings, the economy seems to be all about lending and debt, all about balance sheets.

I believe that the beneficiaries were fraudsters, and that the system cannot be saved. Trying to save it by keeping the debts in place – and letting Wall Street banks “work their way out of debt” at the U.S. economy’s expense – threatens to lock the economy in a chronic debt deflation and depression.

At issue is the concept of capital. Does money that is made by short-term, computer-driven financial trades qualify as “capital formation” and hence deserving of tax breaks? Are the billions of dollars of “earnings” reported by Wall Street speculators to be taxed at the low 15% “capital gains” rate? That is only a fraction of the income-tax rate that most workers pay – on top of which is piled the 11% FICA wage withholding for Social Security and Medicare that all workers have to pay on their salaries up to the cut-off point of about $102,000 (This cut-off frees from this tax the tens of millions of dollars that hedge fund traders pay themselves).

Or should these trading gains – a zero-sum activity where one party’s gain is, by definition, another’s loss (usually one’s customers) – be taxed more highly than poverty-level income of workers?

A short while ago the Blackstone hedge fund’s co-founder, Stephen Schwarzman, characterized the attempt to tax short-term arbitrage trading gains at the same rate that wage-earners pay as analogous to Adolph Hitler’s invasion of Poland in 1939. It is a class war against fraudsters and criminals – an unfair war as serious as World War II.

In Mr. Schwarzman’s inspired vision the Democrats are re-enacting the role of Adolph Hitler by mounting a fiscal blitzkrieg to force billionaires to pay as high a tax rate as workers. Are not Wall Street firms doing “God’s work,” after all, as Goldman Sachs chairman Lloyd Blankfein, put it last fall? And if they are, then are not those who would tax or criticize Wall Street “God-killers”?

If religion can be turned on its head like this – where the Invisible Hand of Wall Street (invisible to the Justice Department, at least) is elevated to a faux-Deist moral philosophy – is it any surprise that economic orthodoxy and formerly progressive tax policy is succumbing?

The rentiers are fighting back – against the Enlightenment, against Progressive Era tax policy, and against hopes for U.S. economic recovery.

Given today’s florid emotionalism when it comes to discussing Wall Street finances, it hardly is surprising that the Angelides hearings do not dare venture into such territory as to ask whether the bottom 90% of the U.S. economy might need to be bailed out with debt relief just as Wall Street’s elites were.

Read the entire article HERE.

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Part 2

Mike Maloney was recently invited to speak at the 8th International Banking Forum in Sochi, Russia. The purpose of the conference was for bankers from around the world to meet and discuss the current state of the global economy, the banking system, and strategies for protecting their personal wealth (hence the speaking spot for Mike).

The first morning passed without too much fuss as each speaker gave an introduction and a brief talk on his or her area of expertise. However, by the end of the day…it became obvious that something was definitely wrong. After speaking with many of the attendees, Mike was alarmed to find that practically none of the international bankers understood our present monetary system. Most had no idea how currency is created! Here at wealthcycles.com, we’ve often wondered exactly how well modern day bankers understand the worldwide predicament that we find ourselves in. Ladies and gentlemen, our worst fears have been confirmed – the lights are on, but there’s nobody home.

Mike’s presentation on personal protection of wealth changed overnight, into one of basic education on our monetary system. How can anybody take the role of wealth protection (or running an economy!) seriously unless they can see the massive storm that lies ahead?

Whether you are a banker or a baker, a lawyer or a bricklayer…the time to get educated is NOW. We hope you enjoy Mike’s frantic effort to awaken the conference from its slumber. It would have been nice for Mike to finish his speech, but perhaps there was a little too much reality on the stage for these Masters Of The Matrix, the Demigods Of Delusion.

You can Subscribe to Michael Maloney’s Newsletter at:

http://www.wealthcycles.com

By Adrian Douglas
Thursday, September 16, 2010

On September 15 former Federal Reserve Chairman Alan Greenspan made a speech to the Council on Foreign Relations. Some very interesting comments he made with respect to gold in response to a question were reported in an editorial in yesterday’s New York Sun, “Greenspan’s Warning on Gold”:

http://www.nysun.com/editorials/greenspans-warning-on-gold/87080

On this occasion Greenspan, who has been famous for gobbledygook that leaves the audience guessing what he meant, did not mince his words. He said, “Fiat money has no place to go but gold.”
He further commented that “if all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”

Greenspan was a close friend of the writer Ayn Rand and he reportedly read drafts of her novel “Atlas Shrugged” before it was published and even had a letter published by The New York Times in November 1957 in response to the newspaper’s negative review of the book. In 1966 Greenspan wrote an essay published in Rand’s newsletter “The Objectivist” titled “Gold and Economic Freedom”:

http://www.constitution.org/mon/greenspan_gold.htm

In that essay Greenspan declared:

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

“This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

When one juxtaposes Greenspan’s views from 1966 with those of 2010, it is clear that he has a good understanding of the central role gold plays in the monetary system and that unbacked fiat currency is intrinsically worthless. So one would have to conclude that between these two reference points, when Greenspan was Federal Reserve Chairman for 19 years, he knew he was part of an elaborate charade to continue the “shabby secret” of the welfare statists.

Read the entire article HERE.

By Michael Gray of the NY Post

Yes, it is really happening. After years and years and years of market manipulation, JPMorgan is about to realize there is only so far you can push your luck against the criminal envelope.

Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned.

The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.

The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice’s Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.

The probes are far-ranging, with federal officials looking into JPMorgan’s precious metals trades on the London Bullion Market Association’s (LBMA) exchange, which is a physical delivery market, and the New York Mercantile Exchange (Nymex) for future paper derivative trades.

JPMorgan increased its silver derivative holdings by $6.76 billion, or about 220 million ounces, during the last three months of 2009, according to the Office of Comptroller of the Currency.

Regulators are pulling trading tickets on JPMorgan’s precious metals moves on all the exchanges as part of the probe, sources tell The Post.

JPMorgan has not been charged with any wrongdoing.

The DOJ and CFTC each declined to comment, as did JPMorgan.

All Things Considered – John’s Commentary:

The ironic, and somewhat disgusting thing, is that JP Morgan Chase is also the custodian for the world’s largest silver exchange traded fund – Barclays’ iShares Silver ETF (AMEX:SLV). The last time I looked, JP Morgan Chase held 220,000 silver futures contracts short. The contracts are “naked” in that the physical silver to settle these contracts, should physical silver be demanded, is not available through the COMEX (the Commodities Exchange Division of the New York Mercantile Exchange).

Ask yourself this – “why would the custodian (physical holder) of the largest silver ETF (long position) in the world concurrently hold the world’s largest unbacked short position in silver? Seems like a conflict of interest – what do you think? I am not anti-metals ETF’s, but bear in mind – ETF’s are a derivative product dependent on the performance of numerous counter-parties in order for the investment to perform. Please realize that a metals EFT is a proxy in the form of a paper prospectus. Physical metals that you hold in your hands and put in your pocket carry no counter-party risk.

Action to take: Gold has had a big run-up in the last couple of days. I was speaking with a new client today who was vacationing with his family in the Northeast. He was contemplating an additional purchase of approximately 10 ounces of gold and asked me what I would do.

I shared with him that on one hand, gold had run up hard. On the other hand, even if it pulls back to $1,200 that will be a savings of $400 on a $12,500 investment – not pocket change but not a huge amount either. There is a tremendous amount of resistance at $1,250 that gold must definitively penetrate. That is not likely to happen on the first try. There is excellent support at $1,195. So, the initial trading range consists of approximately $55.

Read the entire article HERE.