Archive for March, 2008

The Financial Destruction Of The Average Man

March 25, 2008

Grapes of Wrath

Jim Sinclair
March 24, 2008

This weekend’s meeting of four heads of central banks communicates the size of the OTC derivative disaster. It is a system that is broken. A bailout will require the printing of trillions of dollars worth of monetary stimulation making Bernanke’s helicopter drop look like chump change.

The dollar number of pending derivative bankruptcies is the size of the mountain of garbage paper issued by just those who are to be bailed out. That number is greater than the total world economies.

There simply isn’t enough money in the world for central banks to buy up the mountain of worthless paper sold by those who need bailouts; all of which made fortunes for their directors, officers and key people.

When an OTC derivative fails to perform, notional value becomes real value.

The notional value of all OTC derivatives exceeds $500 trillion.

Credit default swaps (OTC derivatives) alone account for over $20 trillion dollars of notional value and are failing. Major dealers in these items, Lehman and JP Morgan, had their debt downgraded last week.

Maintaining the AAA rating on debt of public companies primarily issuing default swaps as credit guarantees is a sick JOKE of fabrication. This is a JOKE that in all probability will lead to litigation that destroys the rating companies.

You can be absolutely sure that all the biggies have their money out.

No one mentions these firms being bailed out are the ones who created this disaster, making billions for their economic sin. You can be sure the big boys have their money out of the now on-the-rocks international institutions.

No one mentions that bailing out the bankers will leave the average man victimized and paying for the pleasure of the economic rape.

Meanwhile Derivative Traders (salesmen of perdition, not traders) and their hedge fund managers are all in Greenwich Connecticut with their hundreds of millions and billions, now retired playing tennis on their indoor courts at their waterfront mansions as the mess deepens.

Litigation against the officers and directors of these international banking firms, both against the biggies personally as well as the company, will make the biggies occupation one of defending against litigation for the rest of their lives.

For those biggies in these companies who trust no one and therefore have wives with no money will lose everything. Some of them I know. What goes around certainly comes around.

Litigation against OTC derivatives are slam-dunk victories for the injured plaintiffs. The biggies will pay.

This is the greatest act in history of ‘Public Be Damned’ and ‘Let them Eat Cake.’ It will not come about because in the USA it is already the hottest political potato.

The problem is that the plan of the US legislative is down right STUPID. It is an embarrassment that legislators are so publicly moronic when it comes to economics.

The problem that no one is focusing on right now is the tracking of the mortgage itself to the structured product, which has broken down. That means in these items many can’t connect the underlying mortgage to the structured investment product (derivative).

So far courts have held that the only entity that can foreclose is the entity that actually lent the money. The average guy does not know that with an attorney to protect him he has a free house!

The entity that actually lent the money has sold the mortgage and been paid. Therefore where is the incentive for original lender to foreclose? The answer is there is none. Bankers do not help bankers in the same way that sharks do not help sharks.


Because of the unthinkable size of the problem it is impossible to construct a Resurrection Trust to buy all these worthless and never to be anything but worthless items.

Should any item surface to do this it will destroy all the National currency of the central banks that participate.

If there were an attempt to construct such an entity with the cooperation of the USA, the US dollar would go much lower than .5200. Gold would go to many thousands of US dollars.

Anyone who last week assumed the problem was over and we would be improving from there on out is simply nuts.

On the recent “drop” in Gold……

March 25, 2008


Gold $1

A post from “Goldisliberty”

Please ask yourself: “What, in the context of macroecomic conditions, has changed?”

What has propelled the USD down the last eight years is, if anything, even more likely to achieve (basis the USDX) a level some 20% below where’s we are trading now. Sinclair’s target of .52 is most reasonable. Gold is essentially the anti-paper currency, the anti-dollar, if you will. It will take more and more depreciated dollars to buy an ounce of gold due to the principle of declining marginal utility.

Why? The NYFed and JPMChase BSC affair was not a rescue of the fifth-largest Primary Dealer on The Street. It was a desparate, midnight-oil-burning defense of the financial-system-entire.

Because BSC was a counterparty to trades with not just JPMChase, but all manner of other money center banking entities, its collapse would have triggered the long-dreaded “Cascading Counter-Party Default Debacle,” which may very well still occur this calendar year.

What is gold, ultimately, but a borderless currency? As GATA’s Chris Powell put it so eloquently several years ago, holding a British Sovereign in hand, “In all places, at all times, this is money.” He referenced why such .2354 ozt coins are in fighter pilot survival kits and not just banknotes of one nation; it time of true conflict, paper is poverty.

Ask yourself further, how can lower rates tease more, rather than less foreign money into dollars since those off-shore stores of value are zooming around the planet seeking the best return.

No. Take-downs occur all the time and we should look for increasing volatility, not less, going forward.

The bull’s job is too shake off those with weak hands.

1896, 1932, 1980: Approx. one ounce troy of AU buys the DJIA. It has happened three times before, it will, assuredly happen again in the next five years. 1999, 46-44 ozt buys the DJIA; today the DOW:GOLD ratio is down to 12.83; within the last week we’ve touched 11.9 and we will correct here and head down to under two ounces of the yellow metal buying the thirty industrial shares of the DJIA before 2012-3.

As the Oracle told Neo in Matrix (1st): “Somethings you know, balls to bones.”

Could I be wrong?

As much as I dislike answering questions with yet another question…please ask yourself, with just the federal budget debt level now over 9.4 Trillion dollars and Congress discussing raising the debt-ceiling to 10.2 T long before the 30 Sept 08 end of federal fiscal year…and the annual debt service on this debt over 400 billion dollars…and atleast 55 T dollars of off-balance Medicare and Soc Sec entitlements ahead…DO YOU REALLY BELIEVE THE USD will remain a unit of account, store of value, preserver of purchasing power?

If yes, sell gold and buy USD.

If not, consider days such as this a bargain.

Cause that’s what this is.

Look, the FED is now making markets…not just setting short-term rates. They are working nights and weekends.
They are, as they should be, scared.

They are talented. But ask JK, sometimes even in level 1 trauma centers, the bleeding is so bad from so many wounds the best can’t save the patient. (I’m not a doctor; he is.)

Algorithms are calculated (back to finance and gold) and stops are well known. If you’re short and you can trigger a stop-loss sell program, you can achieve carry-on selling and make more on the downside. Non-program traders take over, so to speak, and fear drives the short-timers from the game. Kinda like sight of blood for the neophytes and uninitiated.

Here’s the deal and Sinclair has turned it into a mantra: If you’re not leveraged, you own physical, the ounces don’t shrink if the dollar-denominated prices bounce around wildly.

I’ll end with a direct quote from Jim Sinclair:

“Gold is going to $1650 and no camouflage of conditions can stop it because the dollar is hopeless.”

JS has stressed we are approaching $100 swing days.

Get used to it.

Get long (un-leveraged) and Stay Strong. All the dollars created since 2000 are headed this way and no dam on earth will stop their having EJ’s Poom effect (as in Ka-Poom).

Prosper & be well.

Inflation Fairy-Tales…..

March 21, 2008

Large dollar purchasing chart

What’s America’s real inflation rate?
If rate is so low, how come food and energy cost so much?

By Jerome R. Corsi
© 2008 WorldNetDaily:
Why is it that the federal government says the U.S. has virtually no inflation – less than 2 percent – but everything keeps getting more expensive, especially food and gasoline?Today, gasoline is well above $3.00 a gallon. “Sticker shock” comes not just from the cost of buying a new car, but from the $50.00 or more it costs to fill up the gas tank, even if you don’t own an SUV.You’re lucky if $100 buys two bags of groceries at the supermarket, even if you avoid the filet mignon.

Take a family of four to a movie theater to see a first-run film and it can cost $75 even in the Midwest. You will shell out somewhere between $6 and $9 just for one adult ticket, and you can end up spending somewhere between $65 to $75 total if all you do is spring for the luxury of popcorn and sodas.

Still, the U.S. Department of Labor’s Bureau of Labor Statistics reported in August 2007 a remarkably low inflation rate of only 1.7 percent.

Solving this riddle – that is, why everything costs so much when the government tells us inflation rates are low – is simple:

The Bureau of Labor Statistics lies.

Inflation numbers are intentionally manipulated to keep cost-of-living numbers low.

If the average chief executive officer cooked balance sheet numbers the way the U.S. Bureau of Labor Statistics calculates the Consumer Price Index, the CEO would be in jail, even without Sarbanes-Oxley reporting standards.

Why does the federal government lie about inflation?

Again, the direct answer is simple.

Telling the truth about inflation would require the Federal Reserve to raise interest rates and that would be bad for economic growth.

Besides, hundreds of billions of dollars in government entitlement payment outflows depend on the inflation number.

For instance, federal law mandates that Social Security checks increase thanks to “cost-of-living adjustments,” or COLAs, that are supposed to compensate for inflation.

So, higher inflation numbers cost the federal government millions more in increased Social Security payments.

But when the Bureau of Labor Statistics intentionally rigs the Consumer Price Index calculations to low-ball the inflation rate, Social Security entitlement payments are kept level.

As a result, retirees quietly lose billions of dollars that should have been paid out, had the cost of living numbers been reported honestly. But the government saves the expense.

How does the federal government manipulate inflation numbers?

The Consumer Price Index, or CPI, is the central statistic the federal government uses to calculate inflation.

The CPI is a complex government statistic that was introduced in the 1920s to track the market cost of a “basket of goods and services.”

Beginning during the Carter administration, federal economists cleverly redefined the CPI, with the goal of removing from the index expensive items, including food and energy, that would push the CPI higher.

Today, the Federal Reserve when setting interest rates focuses on a variation of the CPI that measures “core inflation.”

According to the Forbes “Investopedia,” core inflation excludes items such as food and energy because food and energy “face volatile price movements.”

In other words, since food and energy prices can spike upwards, as they have this year, the Bureau of Labor Statistics calculates “core inflation” without food and energy prices, under the rationale that food and energy price spikes are merely temporary price shocks that would distort the measurement of underlying long-term inflation.

To a family faced with paying rising food costs to feed the kids and skyrocketing gas costs just get to work, the definition of “core inflation” at 2 percent is a joke, not at all reflective of the increased dollars the family has to shovel out just to get by.

Even more disturbing, the Bureau of Labor Statistics’ calculation of “core inflation” is not limited merely to throwing food and energy prices out of the CPI.

The price of any good or service in the CPI market basket prone to spiking can be thrown out, under the rationale that the items with the largest price changes reflect passing market disequilibrium that would distort the measurement of long-term trends.

When removing expensive items from the CPI market basket of goods and services was not enough to depress inflation numbers, the Bureau of Labor Statistics innovated even more, changing the “weighted factors” used in calculating CPI statistics, so the results end up under-reporting the true inflation people experience in everyday living.

Econometrician John Williams maintains a website and publishes a newsletter devoted to tracking federal government manipulations of economic statistics.

Williams estimates that current Social Security payments are roughly half of what they should be if the U.S. Bureau of Labor Statistics reported the Consumer Price Index honestly.

Many of the CPI manipulations were masterminded by Alan Greenspan, chairman of the Board of Governors of the Federal Reserve from 1987 under President Reagan to 2006 under President George W. Bush.

Williams points out that one of Greenspan’s manipulations of the CPI involved the consideration that when steak got too expensive, the consumer would substitute hamburger for the steak. So, Greenspan argued, the inflation measure should reflect the costs of buying hamburger, not steak.

“Of course, replacing hamburger for steak in the calculations would reduce the inflation rate,” Williams commented, “but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival.”

“The old system told you how much you had to increase your income in order to keep buying steak,” Williams noted. “The new system promised you hamburger, and then dog food, perhaps, after that.”

Williams properly concluded that Greenspan’s arguments violated the “intent and common usage of the inflation index.”

“The CPI was considered sacrosanct within the Department of Labor, given the number of contractual relationships that were anchored to it,” Williams wrote. “The CPI was one number that never was to be revised, given its widespread usage.”

Williams calculates that the manipulations of the CPI index cause inflation to be under-reported by as much as 7 percent.

The results of this under-reporting are dramatic, with the compounding effect just since the early 1990s reducing annual cost-of-living adjustments in Social Security by more than a third.

Greenspan’s recently released autobiographical book, “The Age of Turbulence,” openly admits how political the calculation of inflation is.

He notes that Richard Nixon imposed wage-and-price controls in 1971, even though the rate of inflation then was less than 5 percent.

Greenspan argues that the 4.5 percent inflation we experienced for the half century since we abandoned the gold standard may become the norm for the future, with the unfortunate consequence that such a high rate means we will see our saved dollars lose half their purchasing power “in fifteen years or so.”

At the height of the gold standard, between 1870 and 1913, just prior to World War I, the cost of living as calculated by the Federal Reserve Bank of New York rose only 0.2 percent annually, Greenspan notes.

The dilemma the Fed faces under our fiat currency system is that to keep inflation truly low, the Fed has to keep interest rates high.

“Yet to keep the inflation rate down to a gold standard level of under 1 percent, or even a less draconian 1 to 2 percent range,” Greenspan wrote, “the Fed, given my scenario, would have to constrain monetary expansion so drastically that it could temporarily drive up interest rates into the double-digit range not seen since the days of Paul Volcker.”

High interest rates constrict the money supply, make borrowing difficult, and generally depress economic growth.

Greenspan’s own solution was to keep interest rates artificially low, as low as the 1 percent interest rates Greenspan in 2003 aspired to hold that low for years – while simultaneously rigging the CPI numbers.

The Greenspan years can be characterized as a strategy of lying about inflation to avoid the adverse political consequences of being honest and facing the true cost-of-living music.

By lying about inflation, Greenspan justified 1 percent interest rates, which in 2003 were the lowest rates in 45 years, in a determined plan to keep the economy growing while he was at the helm.

But one result of the Greenspan liquidity party was to fuel real inflation.

So, when you wonder why food and gasoline cost so much when the government says inflation is low, just remember: You are being lied to – something we suspect you figured out long ago, just by going to the supermarket and the gas station.

More War in Store……

March 20, 2008

On Sunday 17 February 2008 the first phase of Iran’s oil and petrochemical bourse in Kish Island was inaugurated, paving the way for “all major currencies of the world” to be used in future oil transactions. To understand the significance of this event, let’s take a look back at our history, starting with World War I. The following short video (2:08) recaps the events that resulted in Britain landing troops in Iran in 1914, and consequently occupying Iraq. A more detailed and glorified recollection of these events can be witnessed through one of the greatest epic movies of all time, ‘Lawrence of Arabia’.

We fast-forwarded to the first attempt of Middle Eastern countries to free themselves of Western control of their resources with Iran in 1951, when the democratically elected presented, Dr. Mohammed Mosaddeq, nationalizated Iran’s oil industry. Unfortunately however, Western powers would not stand idly by while Iranians took control of their own resources, which is why in 1953 the CIA, following instructions from Britain, organized a coup against Dr. Mosaddeq and overthrew the government. This was a well documented event and general knowledge among all those who lived in the Middle East and Asia for decades, but was not well known in the West until the year 2000 when the United States government released documents on the operation, and apologized to Iran and its people for the devastation that it unleashed. The following short video (4:39) is a good introduction to this topic.

Let’s now discuss the purchasing power of the US dollar.

Since the end of the Second World War, the US dollar has become the international reserve currency. The need for countries to maintain US dollar reserves was solidified in 1974 during the Nixon administration, when negotiations with Saudi Arabia assured that the oil would only be sold in US dollars, and surpluses from oil proceeds would be invested in U.S. Treasury Bills. In return the US would militarily and economically protect the Saudi regime. Since that time, US dollars have dominated world markets – until the year 2000 that is.

The following article, “The Real Reasons for the Upcoming War With Iraq”, which was written before the US invasion of Iraq, lays forth an argument that the war in Iraq was not just about oil but about the currency in which oil is traded. It is mandatory reading for anyone who wants to understand the basic concepts of American foreign policy, economics, and its military operations around the world. This article states that the principle reason why the United States invaded Iraq was because Saddam Hussein in the year 2000 went ahead with his plans to stop using the US dollar in its oil business and start using the Euro.

The trading of oil for the Euro instead of US dollars is an extremely important historical precedent set by Iraq that must be understood to fully grasp the implications of Iran’s announcement in December of 2006 that they would “use Euro instead of US dollar in (their) next year’s budget.” If the United states was willing to invade Iraq to prevent oil from being traded in any other currency than the dollar, then it would be logical to assume that they will also confront Iran regarding their plans to permanently and absolutely phase out the US dollar.

This now brings us full circle to the opening of Iran’s Oil Bourse. Since Saddam Hussein’s declaration that Iraq would begin to sell oil in other currencies, a few very significant events have taken place. Iran’s announcement that it would follow suit is just the tip of the iceberg. Many other countries have already started to sell the US dollar and to convert to other currencies. Some of these countries include: Sweden, Cuba, U.A.E., China, Russia, India, Indonesia, North Korea, Venezuela, and many more.

It is a fact that oil is the only reason the US dollar has maintained its value and acceptance as the world currency. Once countries can buy oil in non-US dollars then the complete collapse of the American Empire will occur.

All countries are aware that the US has been printing absurd amounts of their fiat currency, and they are no longer willing to hold reserves that continue to devalue. This devaluing has become accelerated since the discontinuance of the M3 report. “On March 23, 2006, the Board of Governors of the Federal Reserve System” ceased publishing the M3 monetary aggregate. The M numbers (M1, M2, and M3) are “components of the United States money supply”, which “show the amount of dollars in circulation”.

click to enlarge source

“M1 is the most volatile, equivalent to cash on the loose. M2 is less volatile, equivalent to savings account deposits. M3 is least volatile, equivalent to Rich Folks Money which they park.” Clearly, the data indicates that “there has been substantial money growth since 2000”. If there is more money in circulation then it becomes devalued.

Not knowing how much money the Banks are printing means that there is no longer an accurate indication of how much currency is in circulation. This basically means that we are playing Monopoly with people who can take money out of the bank anytime they want, because they are the bank. This should be raising alarm bells across the United States the way it has done across the world, as the dumping of the US dollar by most countries indicates. After all, why would anyone want to hold on to a currency that has lost more than 67 percent in five-years relative to its peers? This is one of the main reasons why Iran and other OPEC countries have been so adamant on switching from the US dollar to other currencies (which is what the Oil Bourse will accomplish).

The United states now finds itself between a rock and a hard place, because they will either need to invade, bomb, or enforce sanctions against Iran along with any other OPEC country that decides to stop using US dollars, or they will have to watch the complete collapse of their economy and the devaluing of the Federal Reserve currency known as the US dollar.

Corporate conglomerates are well aware of what is happening. The following short video (10:07) is from a Senate hearing about Halliburton’s dealings with Iran. Keep in mind that if US companies are doing business in Iran then they are making their profits in non-US dollars. On the bright side, private individuals and small companies are becoming wise to this. In the last few months ‘Euros accepted’ signs have popped up in New York City which tells us that the “US dollar just ain’t what it used to be”.

This escalation between the US and Iran is also reaching its climax at a time when news sources are reporting that Vice President Dick Cheney wants to bomb Iran instead of negotiating for a peaceful resolution. While at the same time Bush has approved CIA plans to destabilize Iran, hoping to achieve the same result as in the 1950s when the CIA overthrew Dr. Mohammed Mosaddeq’s democratically elected government.

In addition, in recent weeks a few major events have unfolded that should give rise to concern. These events include:

View Larger Map

This unparalleled build-up of military forces by both the United States and Iran is dangerously close to a full confrontation. Unfortunately for the world, the predicated casualties for any military escalation in the Middle East are astronomical.

Are you pissed yet? You should be, especially considering that well over one million innocent civilians have been killed in Iraq.

NOTE: The significance of CIA’s meddling in the affairs of sovereign countries can not be overemphasized. It was the ‘success’ of this Iranian coup that paved the way for US covert intervention across the globe that has brought us to the present crisis, to the brink of Nuclear World War III.

Liars and Thieves….Exposed!

March 19, 2008