Archive for January, 2009

If you wanted to refinance – do it now.

January 23, 2009

Economic analysis by Bob Chapman

The real estate crisis is probably about 40% over. They’ll be further declines, residential and commercial, and then a basing out period that will take several years. The injection of cheap interest rates and a stimulus package of $825 billion are going to temporarily delay the downside. Instead of ending in 2011 it could extend to 2012.

Citigroup is bankrupt. Its 4th quarter loss was $8.3 billion. Bank of America posted its first loss since 1991 of $1.8 billion. One day they requested $10 billion from the government. The next day it was $20 billion.

Citigroup is being dismantled as a failed financial supermarket. Sanford Weill who created this monster some years ago created a total failure. In order to keep this loser business a new bad bank is being created to dump all of Citi’s mistakes into. Those would be toxic securities and worthless derivatives. That is $850 billion of Citi’s $1.95 trillion of total assets. What a disaster. Almost half their assets are near worthless, something we pointed out 3-1/2 years ago. Government has already sunk $45 billion into the bank and backs $301 billion of its toxic garbage and securities. Citi is a major shareholder in the Federal Reserve.

Bank of America has now received $45 billion with guarantees on $118 billion of toxic waste. It too is a Fed shareholder and it too is broke.

There is now no question that all the legacy or money center banks will be merged into one nationalized bank, which we believe was the intention from the beginning. This will make it easier later in the formation of a One-World government to merge US banks into a world bank that will disperse a world currency. Government is going to take an ever-increasing role in bank ownership and in credit policy, as would be expected in any fascist government.

We are still in the earliest stages of an economic and financial collapse, which was deliberately engineered to bring about eventual total control of our economy and financial system. Except for government and the Fed, Wall Street finance has been incapacitated. The government and the Fed are left to do as they please. Our bought and paid for Congress will rubber stamp anything handed to them. Bank credit will surpass $1 trillion this year to keep the elitist banks solvent and to delay the forces of deflation and depression. Overall credit expansion will expand to $2 trillion plus as many more banks, brokerage houses, lenders, insurance companies and illuminist corporate giants are served up all the cash and credit they need to survive. Very little will ever be paid back. Once the grip of the Fed and our Treasury is complete it will be almost their sole responsibility to extend credit. The excuse will be it has to be done to save the system as they chip you and give you a debit card and set up currency and exchange controls, devalue the dollar and institute wage and price controls. We then become wards of the state. They have allowed the banks to get into such awful shape, that they will tell you that they and America have no other option but to have government and the Fed mandate what will be done to save the system.

These conclusions can only be reached if you understand the powers behind government, their history, and what their goals are. This is why we have been able to predict what has been going on for years. Very few writers understand and many choose to keep their mouth’s shut because they fear for their lives. This has been an almost 50-year odyssey for us and we refuse to hide the truth. If you do not understand the history of the Illuminati you are in a quandary. It is the missing link that ties all the events together. You cannot use macro analysis without knowing the history of what these evil butchers are up too.

We get the question – why was Lehman Brothers allowed to go under? This was a seminal event in US and global finance. It had to be done to take the system down even though Lehman’s owners were ultimate insiders. Why do you think you do not hear a peep out of Wall Street? It is because the key people in the key firms are in on it and taking orders – that is why. In the blink of an eye trillions of dollars were lost. That amount of money is meaningless when you own the system. You can just create more. It is the power to create and control money and credit that always wins the day. The loss of confidence and trust now worldwide was deliberate. It allowed central banks and governments to totally control their fiscal and monetary systems. Essentially there was no one left to do so. Within the financial community those who understand what is happening dare not say a word or they’ll lose their companies or their lives. That is why there is no opposition from within. How can any thinking person put their trust in a government or a private Fed that has gotten us into war after war and one financial debacle after another be trusted? They can’t be trusted. They are the enemy. Think it through and you will get it. Read the “Creature from Jekyll Island” by G. Edward Griffin and other books we recommend and you will finally understand what is being done to you and who is doing it. The most corrupt people on earth. The ability to print money and create credit is the ultimate power. It allows you to control everything.

Today we have allowed our government and the Fed via our elected representatives to use money and credit to control our financial system. These deficits and guarantees will not be sufficient to stabilize and save our current financial system. Hyperinflation will rage and depression will ensue. Out of this the elitists hope to create their World Government while the world is financially and economically on its knees.

First will come repudiation of debt via default and devaluation. Then a new national currency to be followed by a world currency, followed by a chip or a debit card. Everyone throughout the world will be controlled. If you say or write anything negative regarding the New World Order your chip will be disabled or your debit card will be disengaged. Then you become a fugitive to be hunted down and exterminated. This is what is in store for us. This is what these people are up too. This isn’t intrusion, this is dictatorial government and this is where we are headed.

The answer is clear and we saw this year’s ago. The financial system is to be collapsed in stages that are manageable. You are seeing that in part with the collapse of the financial sector and the securities of these companies. This is caused by eventual government and Fed control of and nationalization of the financial industry. This will be followed by the collapse of stock markets worldwide.

This is not gloom and doom…. This is reality and the truth. The financial system will not stabilize. It is being deliberately changed. The Treasury is crowding out corporate borrowers in their quest for liquidity, as corporations rush to raise what funds they can to allow them to keep functioning and so that they won’t be absorbed by an elitist mega-company of our new corporatist state. At the same time municipalities are raising all the money they can to keep from going under having far overextended themselves.

Don’t be fooled by the respite you will see over the next nine months. It won’t last. It will be a consolidation period. Government and the Fed will be planning their next moves, as the stock market moves lower, along with bonds as long dated interest rates move higher. If you wanted to refinance do it now. You will never get a better opportunity.

The crisis is here and ongoing. The financial stocks are telling us there is a rocky road ahead. If the market was going to rally it would have already happened. It tried to breakout over Dow 9,000 and was unsuccessful. Underlying everything are lies, corruption and acute stress not visible to the public. Even many old Wall Street types do not get it and that is because they refuse to believe the actuality of what is happening behind the scenes. Those behind the scenes know full well what is going on and they are not going to fill in the rest of Wall Street, banking, government and corporate America that do not have a need to know. Housing will fall another 10% to 25% dependent on area and circumstances and more and more foreclosures will hit the market, as millions of jobs are lost. In addition, the entire world will experience this process, which worsens the situation. There is still de-leveraging to be dealt with along with the monstrous derivative problem. Focus has to be on wealth preservation and safety of person and assets. The core is your water filter, freeze dry and dehydrated food, family protection and gold and silver related assets.

The subprime and ALT-A borrowers will have reset or fallen by the wayside by the end of June. Now those in trouble are not lower income borrowers, but middle-class and upper-middle class homeowners. Some own Option ARM-pick-and-pay loans they cannot now afford or homeowners who never thought they will lose their business or get laid off. We do not see the downside nightmare hitting bottom until 2011. It may well be later due to trillions of dollars in artificial stimulus. About half of borrowers are under water and all are seeking a break from their lenders. The lenders are making few concessions. There are now no stereotypes, anyone can become a victim.

The Option ARMs are clustered in California, Arizona, Nevada, and Florida and outside the Washington, DC area.

On top of these underlying mortgages are unemployment and crashing home prices that have left a great percentage of homeowners under water.

The latest statistics we have show long-term unemployment at 17.8%, intermediate U6 at 13.8% and the phony government media figure at 7.2%. In one of the hot spots we estimate U6 to be near 16%. In 2005 and 2006 this region saw construction make up 11% of the job base.

There are many formerly prosperous people who had equity, no debt, great FOICs who have lost jobs, closed businesses, have no equity, just debts. They have maxed out the credit cards and gone through all their savings and retirement.

There are lenders who are making deals to help homeowners, but not many.

Some borrowers walk away in spite. The home next door is in foreclosure and is selling at a deep discount, which in turn put the neighbor under water. It feeds on itself.

Then there are those who refuse offers. Many of them just do not like owning their own home.

All we can say is there is plenty of pain ahead.

The players who made this all possible, the Fed, lenders, rating agencies, mortgage originators, appraisers, salespeople and buyers are for the most part walking away. The buyers and lenders are stuck, but government is bailing out the lenders not the buyers. The rest are going out of business or losing their jobs. The exception is the rating systems.

The raters, S&P, Moody’s and Fitch were the key to the biggest economic and financial calamity since the Great Depression. Why didn’t we have criminal charges brought against these crooks or at least civil action? These miscreatants gave complex, opaque toxic mortgage-backed securities AAA ratings when they knew they should have had BBB ratings, in conclusion with the Fed and the lenders. This stamp of approval allowed other crooks to market destructive securities worldwide. Some would have us believe that putting a financial floor under these players would solve our problems.

That is not the way it works. Bailing them out accomplishes nothing. It just extends the problems into the future.

www.theinternationalforecaster.com

 

Patriots Awake!

January 15, 2009

Dear Readers,

As I feared, “Lord Obama” is amassing his forces for an all-out assault on our natural rights for self-defense and liberty.

Now is *not* the time to be passive or wait for the “change” that is about to start!

I urge you to get ACTIVE!  Join  a Pro 2nd Amendment group.  My favorite is “Gun Owners of America”  http://gunowners.org/

Write your congress-critter and senator!  Call, fax, petition!  Become a pain-in-their-ass for freedom and let them know you expect them to support the 2nd Amendment and Constitution as they pledged to do when they were sworn into office!

This is most-assuredly NOT a “republican vs. democrat” issue.  Long-time readers know we do not play that silly delusional and misleading mind game here!  Daddy Bush Sr passed the ban on “imported” so called “assault-weapons” back in 1989.  John McCain is on record having voiced support for bans.

The problem is that now…..with the imminent coronation of his majesty; the first brown-skinned puppet ever to be used by the globalists – the momentum is such that his lordship may propose we all light our selves on fire and thousands of dumbed-down acolytes, ecstatic in their servitude, will reach for the gas cans!

Didn’t the rap group “Public Enemy” have a song that said “Don’t believe the hype?”

Well Boys & Girls, I hope *you* don’t believe the hype!

Barack Obama is a puppet, pure and simple.  He runs nothing and he has no real power (just remember, the same forces that installed Obama also installed G. W. Bush…and Bush can’t tie his shoe laces without assistance!  A good puppet doesn’t have to be smart, just subservient!)

The biggest impediment to the total destruction of free America and the complete bondage of her people is that damn 2nd Amendment “Right to Keep and Bear Arms” — that simply has to go for “progress” to be made!

You will see all sorts of subterfuge and trickery employed by the socialist/fascists.  You will hear appeals that it is “for the children”  — we may even see a rash of shootings in schools or public places (typically places like Virginia Tech or Columbine where the intended victims are 100% disarmed!) and the plea will go out for “reasonable” gun control.

Don’t believe the hype.

Not one stinking lying word of it.

Of course there are bad people in the world that should not have guns.  Funny thing is, these are also the people MOST LIKELY to ignore any gun laws!

So where does that leave the good honest citizen that wishes to “play by the rules” and protect their family?  Well very simply, you will be disarmed and rendered helpless unless you start TO FIGHT FOR YOUR GOD-GIVEN RIGHTS !  Accept no “reasonable” restrictions!

Is it “reasonable” to prevent you from subscribing to more than one newspaper?  To pass a law preventing you from attending a religious service more than three times a year?

Is it “reasonable” to allow the police into your home without a warrant, to search through your papers and possessions whenever they wish because you “have nothing to hide?”

Once you neglect the 2nd Amendment, you will have no mechanism for retaining the others.

This is no joke and I am not trying to be dramatic.  The stakes are very high and the push to disarm us is going to begin very soon.

The gradual erosion and dismemberment of our Constitution is not fast enough for the Illuminati cabal that seeks to enslave us.

Staging “false-flag” terrorist attacks was an effective way to push through Orwellian legislation like the “Patriot Act” but the problem with that is, too many people are waking up to the fraud.

So now the preferred method seems to be the orchestrated collapse of the economy, and with the massive increase in street crime, burglaries, and overall malaise, the Govt. can position itself as our “Savior” while enslaving us in the grip of its socialistic “bail-outs’ that ultimately only benefit Wall Street and the bankers.

Just remember one thing – in Nazi Germany gun control was complete and total.  In Communist China today gun control is complete and total.  In socialist Europe, gun “ownership” is so neutered through “reasonable” gun laws as to be effectively banned!

What kind of country do *YOU* want to live in?

More importantly, what kind of country do you want to leave for your children?

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I would like to explain the meaning of the phrase “Molon Labe” embroidered on the gentleman’s cap in the picture at the top of this article.  Here from Wikepedia is the short answer:

The Greek phrase Molōn labe! (Μολὼν λάβε; approximate Classical Greek pronunciation [molɔ̀ːn labé], Modern Greek [moˈlon laˈve]), meaning “Come and take them!”, is a classical expression of defiance reported by Plutarch in response to the Persian Army’s demand that the Spartans surrender their weapons. It corresponds roughly to the modern equivalent English phrase “over my dead body“.

Μολὼν λάβε was reportedly the defiant response of King Leonidas I of Sparta to Xerxes I of Persia at the onset of the Battle of Thermopylae (480 BC). Xerxes, whose forces vastly outnumbered the Spartans and their allies, offered to spare the lives of Leonidas and his few thousand warriors if they would only surrender and lay down their weapons.

Instead, the Spartans held Thermopylae for three days and, although they were ultimately annihilated, they inflicted serious damage upon the Persian army, and most importantly delayed its progress to Athens, providing sufficient time for the city’s evacuation to Salamis Island. Though a clear defeat, Thermopylae served as a moral victory and inspired the troops at the Battle of Salamis and the Battle of Plataea, where the non-medizing Greeks won their freedom and arguably saved the Western World.

The source for this quotation is Plutarch, Apophthegmata Laconica, 225c.11.

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And now, for those of you who may think I am just being alarmist, please read the following information on who his Lordship has selected to serve as Imperial Field Marshall in the war against our Freedoms:

http://gunowners.org/a011309.htm

Here is a clip from today’s (1/15/09) confirmation hearings.  The weaselly slimeball is directly asked about his plans for eviscerating the 2nd Amendment:

Also, out of the Annointed One’s home State of Corruption – The People’s Republic of Illinois – we have this gem of pending legislation:

http://www.infowars.com/?p=7133

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Finally, I would like to offer some words of advice for my fellow freedom-loving Americans and loyal readers:

If you do not have a gun and ammunition – BUY THEM NOW!

If you have nothing;  first buy a .308 caliber semi-automatic magazine fed rifle! Go to your dealer and ask to see a Springfield Armory M1A or an “FAL” type rifle or perhaps a “G3″ type rifle.  These are battle proven .308 caliber (also known as 7.62 x 51mm NATO caliber) rifles that are normally available in the civilian-legal “semi-automatic” configuration.   (Note: You may not find all these choices available to you depending on which state you live in.  If you happen to live in one of the “advanced” socialist states like NJ, California, Illinois or the District of Columbia that already restricts the rights of it’s citizens, my best advice is to MOVE OUT!)

.308 is far more powerful than the .223 round used in the AR-15 /M-16 rifles.  If you have the money, buy an AR-15 rifle too.  Buy magazines, spare parts and ammo.  Buy a 12 gauge shotgun and a pistol if you have the funds, (the shotgun is ideal for home defense) and LEARN HOW TO SHOOT!

I am a strong advocate of gun ownership.  I can say that in the *MANY YEARS* I have gone to guns shops, gun shows and shopped the internet for guns, parts, accessories, and ammo, I have NEVER SEEN SUCH SCARCITY!

Thank-God that hundreds of thousands of law-abiding Americans are waking up to the dangers we face!

Since the election of  the ObamaMessiah, gun sales have gone through the roof, especially semi-automatic rifles (the best kind for a patriot to own!)

Thirty round magazines for AR rifles are extremely difficult to find, gun shops are out of inventory, prices are going up, and Obama has not even gotten started yet.

So *PLEASE* heed my warning – if you care about your rights, and your freedom, educate yourself and BUY NOW!

I am not exaggerating when I say that gun shops I have frequented for over ten years have hardly any inventory to sell.  Start now to secure what you need.  Even if you have cash to burn, you may find it is not as easy as you think!

So please get active, get informed, and fight on ALL FRONTS!

Join a pro 2nd Amendment group, contact your congress-critters and senators, hell even write, email or phone his Lordship; and tell them you will NOT TOLERATE any infringement on your right to own a gun, despite how “reasonable” they think their new laws will be!

As General George S. Patton so wisely put it:

“I always believe in being prepared, even when I’m dressed in white tie and tails.”   (see more here: http://www.generalpatton.com/quotes.html )

Obama is evil, but he is the symptom of an evil system.  He is a lackey, an opportunistic water-boy for a much more powerful gang that seeks to undermine the free people of the United States (and the world).

Their little game has been going on for a long long time, but now it is reaching a climax.

The times ahead will be hard and fraught with danger.

Let’s just make sure that we can make it as dangerous for our would-be masters as they wish to make it for us, the would-be slaves.

Molon Labe!

Gold & Economic Freedom

January 6, 2009
Libertarian Ayn Rand and her former devotee - Alan Greenspan

Libertarian Ayn Rand and her former devotee - Alan Greenspan

Dear Readers,

Imagine for a moment that you are in charge of one of the biggest criminal operations in human history – the Privately Owned “Federal Reserve Bank” (which is no more “Federal” than Federal Express!  Don’t believe me?  Well GOOGLE it and read for yourself).

Furthermore, imagine that a brilliant young mind is actively campaigning against you, writing intellectual essays targeted to the power elite that exposes the tremendous (and extremely lucrative) fraud you have been running since 1913.

Now what do you *do* about this smart, insightful troublemaker?

Well you offer him a JOB that is what you do!

You buy him out!  Put him in charge of your money-making operation and suddenly he *shuts-up* about the fraud you are inflicting every minute on the unsuspecting public.

Such is the story of Alan Greenspan.

Here is an essay I hope you will read carefully.  The truth of these words cannot be denied.  Today, the fraud and corruption is so blatant, the thieving so bold, that the only protection afforded the “little guy” is found in GOLD!

Cheers,

FoundingFather1776

Gold and Economic Freedom

by Alan Greenspan

[Editor's note - It may surprise more than a few gold devotees to learn they have an ideological friend in none other than former Federal Reserve Board chairman Alan Greenspan. Starting in the 1950s, in fact, Greenspan was a stalwart member of Ayn Rand's intellectual inner circle. A self-designated "objectivist", Rand preached a strongly libertarian view, applying it to politics and economics, as well as to religion and popular culture. Under her influence, Greenspan wrote for the first issue of what was to become the widely-circulated Objectivist Newsletter. When Gerald Ford appointed him to the Council of Economic Advisors, Greenspan invited Rand to his swearing-in ceremony. He even attended her funeral in 1982.

In 1967, Rand published her non-fiction book, Capitalism, the Unknown Ideal. In it, she included Gold and Economic Freedom, the essay by Alan Greenspan which appears below. Drawing heavily from Murray Rothbard's much longer The Mystery of Banking, Greenspan argues persuasively in favor of a gold standard and against the concept of a central bank.

Can this be the same Alan Greenspan who formerly chaired the most important central bank of them all? Again, you might be surprised. R.W. Bradford writes in Liberty magazine that, as Fed chairman, "Greenspan (once) recommended to a Senate committee that all economic regulations should have fixed lifespans. Senator Paul Sarbanes (D-Md.) accused him of 'playing with fire, or indeed throwing gasoline on the fire,' and asked him whether he favored a similar provision in the Fed's authorization. Greenspan coolly answered that he did. Do you actually mean, demanded the senator, that the Fed 'should cease to function unless affirmatively continued?' 'That is correct, sir,' Greenspan responded."

Bradford continues, "The Senator could scarcely believe his ears. 'Now my next question is, is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard?' Greenspan responded, 'I've been recommending that for years, there's nothing new about that. It would probably mean there is only one vote in the Federal Open Market Committee for that, but it is mine.'" -- Editor, The Gilded Opinion ]


GOLD AND ECONOMIC FREEDOM

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth.

When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates.

The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market — triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

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.


by Alan Greenspan
1967

Reprinted by USAGOLD with editorial content on July 6, 2001.

The Elites happily motor away while America sinks under the fraud of the Federal Reserve

The Elites happily motor away while America sinks under the fraud of the Federal Reserve

Solutions for the New Year…..

January 4, 2009

Here is an idea I hope you will all try in 2009:

WAKE UP!

GET ACTIVE!

RESIST TYRANNY ANY WAY YOU CAN! (hint – recognizing you have a problem is the first step in solving it!)

Cheers,

FoundingFather1776


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