“Thirteen years ago, it took a bit more than 42 ounces of gold to buy the DOW. In the year 2007, when the DOW made a brand new all time high in nominal terms, it took half the amount of gold to buy that same Dow, namely a bit more than 20 ounces. Today, as the DOW is once again flirting with moving back towards the all time high in 2007, it takes an astonishing LESS THAN 8 OUNCES of GOLD to buy that same DOW!
“Are you getting the point of all this? All that the elitist monetary masters are creating in their alchemy laboratories is a RAMPANT case of paper asset inflation of the stock market. Stocks are losing value against gold and have been so doing since 1999. The more QE the Fed wants to spit out, the further this ratio is going to collapse until at some point it will probably end up with 3-4 ounces of gold being able to purchase the DOW.
“Another way of stating this is: Do not be hoodwinked by the claptrap coming from the mouth of the monetary elites at the FOMC that inflation is tame and that expectations are subdued. We are witnessing one of the single greatest instances of inflation in the stock market in our domestic history!”
“Stock Market Rally Nothing but Paper Asset Inflation”, Dan Norcini,
The trend to which the most Astute Trader Dan refers – ongoing and accelerating Paper Asset Price Inflation – is a Reality Now, and for the future. (Indeed, Real Price Inflation is already Threshold Hyperinflationary at, for example, 9.33% in the U.S. per shadowstats.com – see Note 1).
Dan rightly refers to the claim that “Inflation is tame” as the “claptrap coming from Monetary Elites.”
That “claptrap” is just another in a series of lies, frankly, coming from those Elites – And that too is a reflection of another trend we earlier named “Disinformation to Infinity.” Going forward, Savvy Investors should expect more such Disinformation more often, and seek Independent sources of Information.
Focusing on the Real Trends and disregarding Disinformation is essential for Investors’ Profit and Protection.
Yet Another Key Ongoing Trend is the increasingly flawed actions of the Central Banks – flawed that is, if rescuing The Middle Class or The Economies of Sovereign Nations is one’s Primary Goal.
For example, even though the Central Banks’ Quantitative Easing 1 and QE2 have not achieved the CB’s stated goals for them – improving economies and decreasing unemployment – (of course their Real Goal is to facilitate the Mega-Banks continuing Profitability) both The Fed and ECB have recently decided to give out more QE ad infinitum via QE3. This Trend reflects continuing avoidance of addressing the Real Structural Economic Problems (e.g., Debt Saturation) and instead reflects a decision to Kick the Can Down the Road to the Cliff.
Indeed, increasingly Risky and Irresponsible actions are Odiferously Emanating from the Central Banks such as …
“On 6 September 2012 the Governing Council of the European Central Bank (ECB) decided on additional measures to preserve collateral availability for counterparties in order to maintain their access to the Eurosystem’s liquidity-providing operations.
“Change in eligibility for central government assets: The Governing Council of the ECB has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations ...
“Any way you choose to slice or dice this, it means the ECB is taking on more credit risk as it significantly expands its own balance sheet. …
“And this exposure flows indirectly into the Bundesbank balance sheet. This should help you understand why Germany is so keen on controlling budgets of the other countries it is effectively exposing itself to.” (emphasis added)
“Next on the ECB’s Collateral List: Goats, Wine, and Cheese Wheels?”, Jack Crooks, moneyandmarkets.com, 09/08/12
Another Key Trend is that the CBs have helped, and will continue to help, so long as they are allowed to be laws unto themselves, mainly the Mega-Banks [of course, the CB’s Public Statements that they act ‘to help the economy, the unemployed’ etc, are just Political Cover.]
Indeed, the Record Reveals that their mainly and arguably their only beneficiaries are the Mega-Banks, some of which in the private for-Profit Fed’s case are its shareholders – Quite Incestuous.
“The first ever GAO (Government Accountability Office) audit of the US Federal Reserve was recently carried out due to the Ron Paul/Alan Grayson Amendment to the Dodd-Frank bill passed in 2010. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, while leading the charge for an audit in the Senate, watered down the original language of house bill (HR1207) so that a complete audit would not be carried out. Ben Bernanke, Alan Greenspan, and others, opposed the audit.
What the audit revealed was incredible: between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments by giving them US$16,000,000,000,000.00 – that’s 16 TRILLION dollars.”
It gets worse, much worse, in fact it’s downright incestuous….
* Banks like JP Morgan benefited from the foreign bailouts - they are some of the largest creditors of the bailed out countries. Instead of having to write off their foreign losses the US Federal Reserve bailouts enabled them to be paid in full. …
“In Dimon's (JPMorgan Chase CEO Jamie Dimon)case, JPMorgan received some $391 billion of the $4 trillion in emergency Fed funds at the same time his bank was used by the Fed as a clearinghouse for emergency lending programs. In March of 2008, the Fed provided JPMorgan with $29 billion in financing to acquire Bear Stearns. Dimon also got the Fed to provide JPMorgan Chase with an 18-month exemption from risk-based leverage and capital requirements. And he convinced the Fed to take risky mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired the troubled investment bank.
“During the Financial crisis, Citibank received over $2.4 Trillion in total financial assistance from The Fed…
“Another high-profile conflict involved Stephen Friedman, the former chairman of the New York Fed's board of directors. Late in 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap loans from the Federal Reserve. During that period, Friedman sat on the Goldman Sachs board. He also owned Goldman stock, something that was prohibited by Federal Reserve conflict of interest regulations. Although it was not publicly disclosed at the time, Friedman received a waiver from the Fed's conflict of interest rules in late 2008. Unbeknownst to the Fed, Friedman continued to purchase shares in Goldman from
November 2008 through January of 2009, according to the GAO. …
“The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. …Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.” Mises.ca
“The financial sector parasites, the banksters and their political puppets, that have historically fed on our society have never been so brazen. …
“This is all happening because our elected politicians do not work for the people, our elected leaders have stuck their snouts deep in the trough of power and self indulgence, representative democracy has been co-opted by big-moneyed interests and political parties represent their establishment not the people’s interests.
“The lending suites that were set up for months and years, beyond the initial crisis point, were focused on how to keep banks profitable, not just how to keep them alive. The banks were able to access emergency lending facilities, or change themselves into bank holding companies overnight, to borrow at next to nothing, and if they chose, lend back to the government at a tidy profit. You didn’t have to think at all to make money. And you didn’t have to worry about that toxic balance sheet, because the government was going to help you grow your way out of it. They will also facilitate mergers to help decimate your competition. The money that the banks borrowed for nothing could have just as easily gone to underwater homeowners. There’s nothing special about the banks except that they know the Fed policymakers personally.” David Dayen, firedoglake.com
“Fed loans at near-zero interest rates, incestuous bailouts, secret waivers, no-bid contracts, and a failed representative democracy should be on all our radar screens. Are they on yours?
Rick Mills, Ahead of the Herd,
The Fed’s Printing of $16 Trillion, and more, decreases the Purchasing Power of $US Holders (as does the ECB’s Euro-printing the Purchasing Power of Euro Holders) thus constituting a de facto tax on Businesses and Citizens, a Tax in effect “paid” to the Mega-Banks.
The one-time, limited(!) GAO Audit thus provides an insight into the Extraordinary Power of the Major Central Banks and other Shareholder/Client Banks.
But perhaps even more relevant to Citizen-Investors is the Audit’s clear Revelation: The Fed and ECB act almost entirely to support the Major Banks and Maintain their profitability, contrary to the Mega-Banks Public Statements.
And if those Actions occasionally also benefit Sovereign Nations, Citizens or Businesses, that appears to be accidental.
So what are the prospects for reform? Neil Barofsky, Special Inspector-General of the TARP Program gives his sophisticated view.
HR: Were the original goals ever accomplished?
Neil Barofsky: No. If you look at the original goals, you can only conclude that the TARP was a failure.
Neil Barofsky: The justification for putting money into banks was that it was going to increase lending. Having used that justification, there was an obligation, in my view, to take policy steps to achieve that goal, but Treasury officials didn’t even try to do it. The way it was implemented, there were no conditions or incentives to increase lending.
HR: What policy steps could the U.S. Department of the Treasury have taken to help the economy?
Neil Barofsky: There are all sorts of things that Treasury could have done. For example, they could have reduced the dividend rate—the amount of money that the banks had to pay in exchange for being bailed out—for lending over a baseline, which would have decreased the bank’s obligations. Or, they could have insisted on greater transparency so that banks had to disclose what they were doing with the funds. Treasury chose not to do any of these things.
Neil Barofsky: The real issue is the potential for another financial crisis because we haven’t fixed the core problems of our financial system. We still have banks that are “too big to fail.” Standard & Poor’s estimated last year that the up-front cost of another crisis, including bailing out the biggest banks yet again, would be roughly 1/3 of the U.S. gross domestic product (GDP) or about $5 trillion. The resulting problems will be even bigger.
HR: What were the problems resulting from the 2008 financial crisis?
Neil Barofsky: When you look at the fiscal impact of the 2008 crisis, you have to look at it not only in terms of lost tax revenues and increased government debt, but also in terms of the loss of household wealth. People who became unemployed suffered tremendous losses and the government’s social benefit costs expanded accordingly. One of the reasons we had the debt ceiling debate last year, when the U.S. credit rating was downgraded, and why we are facing a fiscal cliff ahead is the legacy of the 2008 crisis. We have a lot less dry powder to deal with a new crisis and we almost certainly will have one. (emphasis added)
HR: Why do you expect another financial crisis?
Neil Barofsky: It just comes down to incentives. A normally functioning free market disciplines businesses. The presumption of bailout for “too big to fail” institutions changes the incentives of a normally functioning free market. In a free market, if an institution loads up on risky assets with too little capital standing behind them, it will be punished by the market. Institutions will refuse to lend them money without extracting a significant penalty. Counterparties will be wary of doing business with companies that have too much risk and too little capital. Allowing “too big to fail” institutions to exist removes that discipline. The presumption is that the government will stand in and make the obligations whole even if the bank blows up. That basic perversion of the free market incentivizes additional risk.
HR: Are “too big to fail” banks taking more risks today than they did before?
Neil Barofsky: Bailouts give bank executives an incentive to max out short term profits and get huge bonuses, because if the bank blows up, taxpayers will pick up the tab. The presumption of bailout increases systemic risk by taking away the incentives of creditors and counterparties to do their jobs by imposing market discipline and by incentivizing banks to act in ways that make a bailout more likely to occur.
HR: Is it just a matter of the size of banking institutions?
Neil Barofsky: The big banks are 20-25% bigger now than they were before the crisis. The “too big to fail” banks are also too big to manage effectively. They’ve become Frankenstein monsters. Even the most gifted executives can’t manage all of the risks, which increases the likelihood of a future bailout.
HR: Since bank executives are accountable to their shareholders, won’t they regulate themselves?
Neil Barofsky: The big banks are not just “too big to fail,” they’re ‘too big to jail.’ We’ve seen zero criminal cases arising out of the financial crisis. The reality is that these large institutions can’t be threatened with indictment because if they were taken down by criminal charges, they would bring the entire financial system down with them. There is a similar danger with respect to their top executives, so they won’t be indited in a federal criminal case almost no matter what they do. The presumption of bailout thus removes for the executives the disincentive in pushing the ethical envelope. If people know they won’t be held accountable, that too will encourage more risk taking in the drive towards profits.
HR: So, it’s just a matter of time before there’s another crisis?
Neil Barofsky: Yes…
HR: How are OTC derivatives related to the risk of a new financial crisis?
Neil Barofsky: Credit default swaps (CDS) were specifically what brought down AIG, and synthetic CDOs, which are entirely dependent on derivatives contracts, contributed significantly to the financial crisis. When you look at the mind numbing notional values of OTC derivatives, which are in the hundreds of trillions, the taxpayer is basically standing behind the institutions participating in these very opaque and, potentially, very dangerous markets. OTC derivatives could be where the risks come from in the next financial crisis.
HR: Can anything be done to prevent another financial crisis?
Neil Barofsky: We have to get beyond having institutions, any one of which can bring down the financial system. For example, Wells Fargo alone does 1/3rd of all mortgage originations. Nothing can ever happen to Wells Fargo because it could bring down the entire economy. We need to break up the “too big to fail” banks. We have to make them small enough to fail so that the free market can take over again.
HR: Do you think the U.S. presidential election will change anything?
Neil Barofsky: No. There’s very little daylight between Romney and Obama on the crucial issue of “too big to fail” banks. Romney recently said, basically, that he thinks big banks are great and the Obama Administration fought against efforts to break up “too big to fail” banks in the Dodd-Frank bill. Geithner, serving the Obama White House, lobbied against the Brown-Kaufman Act, which would have broken up the “too big to fail” banks.
HR: What will it take for U.S. lawmakers to finally take on the largest banks?
Neil Barofsky: Some candidates have made reforms like reinstating Glass-Steagall part of their campaigns but the size and power of the largest banks in terms of lobbying campaign contributions is incredible. It may well take another financial crisis before we deal with this.
“Neil Barofsky: Another Financial Crisis All But Inevitable”
Ron Hera, Hera Research, LLC, 09/18/2012, via lemetropolecafe.com
So the Bankers are not likely to cede or lose Power any time soon. And The Icelandic Solution (see Deepcaster’s earlier article, “Gaining from Gargantua” in the ‘Articles by Deepcaster Cache’ at deepcaster.com ) appears further and further out of reach for some Sovereign Nations, but is still a Realistic Alternative for others. (See Notes 2 & 3 below re Deepcaster’s Recommendations aimed at Profit and Protection despite the foregoing Challenges.)
But what will likely happen in the Markets and Economy as this QE to Infinity and Disinformation to Infinity proceeds?
Daryl R. Schoon has the correct Forecast. We know “IT” is correct because “IT” – Stagflation – has begun already. One needs merely to look at the Real Numbers (Note 1) rather than the Bogus Official Ones.
“Stagflation is where economic growth slows, unemployment is high and prices rise.
“Stagflation’s appearance in the 1970s was like an outbreak of three-headed children. It wasn’t supposed to happen. Prevailing wisdom—an oxymoron among economists—held that high employment and rising prices were economic handmaidens; and that, conversely, slowing economies and inflation were mutually exclusive …
“In the 1970s, for the first time in capitalism’s history stagflation appeared, i.e. prices rose and economic growth stagnated; and, while economists would search for reasons to explain the apparently inexplicable, it was only because they avoided the obvious that they did not find the answer.
“In August 1971, President Nixon upon the advice of Milton Friedman—the same Milton Friedman who erroneously taught Ben Bernanke economic contractions can be reversed by monetary expansion—ended the convertibility of the US dollar to gold.
“The consequences of cutting ties between paper money and gold were not what Friedman expected. Friedman believed—belief is the operant word here—that ‘FREE-market forces’ would bring floating currencies into orderly market-driven valuations. Friedman was wrong—again.
“The historic severing of ties between money and gold instead would result in extreme currency swings along with slowing growth, rising unemployment and rising prices, i.e. stagflation….
“…Previously, the US dollar was linked to gold, and other currencies were linked to the dollar. Everything was stable. It is no longer so. Once the pin connecting gold and paper money was removed, everything changed. The axle of international commerce began to vibrate and lately it’s been getting much worse. The fear is that the wheels are now about to come off.
“Stagflation was the result. No longer constrained by the need to exchange costly gold for increasingly worthless pieces of paper money, governments began to debase their currencies until monetary restraint was as rare as celibacy in an era of drug induced free-love.
“Cutting the link between the US dollar and gold not only allowed governments to debase their currencies (the US dollar had previously connected all currencies to gold), it would eventually bring about the destruction of capitalism itself via excessive levels of debt….
“Capitalism’s demise could well result from today’s hyper-variant form of stagflation—stagflation in extremis. Instead of a slowing economy and rising prices as in the 1970s, today we are facing a contracting economy along with unceasing money printing by central banks.
“As a result, hyperinflation…
“Today, we are about to experience stagflation but this time it will be stagflation in extremis; and this time gold’s rise will be explosive. …
“Stagflation compared to the 1970s, i.e. in extremis, is now in motion….
“Gold’s final resting place will be atop the banker’s crematorium where the ashes of their paper money will be the only evidence left of the immense power they once held over humanity….
“Buy gold, buy silver, have faith.”
“Stagflation in Extremis & the Explosive Rise of Gold,” Daryl R. Schoon,
Yes indeed, Buy Gold. Buy Silver. But in addition to Faith, One Needs Knowledge and Wisdom – Stay Independently Informed.
September 20, 2012