Busted: Bankers and The Global Economy

April 3, 2011

The World’s Greatest Ponzi Scheme

Filed under: central bank, credit, economy, government, inflation, money, recession — Tags: , , , , , , , — digitaleconomy @ 9:11 pm

house of cardsIn the month of March, the U.S. government spent more than eight times its monthly tax receipts, including money spent for maturing U.S. treasuries.

The U.S. treasury cleared $128.18 billion in tax receipts during the month of March, but paid out a total of $1.05 trillion, which included $49.8 billion in Social Security benefits, $47.4 billion in Medicare benefits, $22.58 billion in Medicaid benefits and $37.9 billion in defense spending. The real financial beating springs from maturing U.S. treasuries where the U.S. paid out $705.3 billion.

In order for the U.S. government to stay afloat with only $128.18 billion in tax receipts, it had to spend $72.5 billion from the balance of cash on hand. This closed the month at $118.1 billion, including the sales of $18 billion worth of TARP assets. Most importantly, the U.S. treasury had to sell $786.5 billion in new treasury bonds, which it will be required to mature at a still higher in the future in order to keep the shirt of its’ back. Surely this is the greatest Ponzi scheme ever executed on the world as the government endlessly seeks to outrun the debt that it creates. The nation is able to fund government expenditures and pay off maturing debt instruments by issuing new and larger amounts of debt. Up to now the Federal Reserve interest has made this debacle survivable.

At this time the interest payments on the United States national debt is the government’s largest monthly expenditure. The world is waking up to the fact that the U.S. government is truly insolvent and that the benefits of propping up the U.S. dollar will no longer be worth the expense to foreign creditors. The U.S. government Ponzi scheme is being exposed for the world to see.

China is becoming more reluctant to continue buying U.S. treasuries as it positions the yuan to be the world’s new reserve currency. Japan needs to raise $300 billion to rebuild parts of their country that were destroyed by the earthquake, tsunami, and nuclear disaster. They will be unable to invest handily in the U.S. or may opt to invest outright in China as money is available. The U.S. desperately needs Japan and the Arab world to roll over national treasuries into larger amounts of new ones. With Arab revolutions taking place across major Saudi states and the U.S. occupying Libya for no good reason at all, the nation is likely see a global disdain for its previously valued treasures that it must sell to cope with the runaway spending and deficits of Congress.

December 31, 2010

2011: A New Year for Dogs & Ponies

It’s been a great year if you haven’t looked much at the world around you, but there is always potential, especially for Wall Street leveraging and central bankers. Since I’ve retired in earnest, I sometimes shut off the news because I’d rather think about something else. Perhaps you’ve been doing this too. If so, you may not for much longer. Scuttlebutt at the G20 has it that the dollar won’t be the darling of the world much longer. So what, you say! That kind of talk has been going on for years. Apparently, the G20 finance ministers have decided that on May 4, 2011 that the dollar will no longer be the “world reserve currency.” So what you say? Even if you don’t believe it, the scenario is rather entertaining, i.e., would make a great movie. It’s a real dog and pony show.

Even now silver and gold paper is highly leveraged, much like the dollar is with the fractional reserve. There is so much leveraged paper out there that the system in place is likely to implode from the panic. There isn’t enough silver and gold bullion in the marketplace, or rather, in the storehouses. This is already heating up into a potential crisis, a run on the bank, as it were. Won’t that make gold and silver more valuable? Only if you have your gold or silver in real gold or silver. In that case, you won’t have worthless paper securities, but a real danger of having your life taken from you if anyone knows you have it. Because of this, you won’t be able to spend it either, because if you did, somebody would know you had it.

As I said, the demand for the real gold and silver will be terrific as the former world reserve currency plunges into oblivion. Either singular scenario means hyperinflation. With OPEC oil being the USA major import, the nation will shut down from lack of fuel or rather, the ability to buy it. The nation has an oil reserve, but that won’t last long the way America consumes it. Too bad we can’t leverage the oil reserve to pretend there’s more. I’m not finished yet.

The Fed has initiated Quantitative Easing (known as QE2) that spells an end to the Bretton Woods accord with the idea of replacing it with a different system. Trading partners are nervous, but they aren’t the only ones. For now, export-dependent nations recycle capital to USA markets in order to sustain demand. The Federal Reserve decided that the only way to fight deflation and high unemployment in the USA was by weakening the dollar to make USA exports more competitive. That means that the USA will be battling for the same export market as the rest of the world, which will shrink global demand for goods and services. Never mind that China’s decision to back off on the dollar would be enough to cause a dollar crisis. Never mind that the multinationals will hate this as profits plunge. Government officials will wet their pants in panic. Number of jobless Americans will go through the roof, if we had one. Wal-Mart, so dependent on China exports will close. Inventories will be short. National GDPs will shrink. Economies will contract. Ooh. It’s not pretty.

Paul Volcker recently opined: “The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate…” Everyone has rode the pony too hard. Now the powers that be are preparing to run the show in a way that is untested. We aren’t sure whether the dogs can carry the weight. All those “risk-free” treasury bonds are in real danger. The whole system is bankrupt. The USA stands to lose all its status. Central bankers know this, but they already hold all the valuables, and the means for a new system.

The world doesn’t care about the USA deficit, as long as it’s used to bail out the world in some sense. 100 major cities are facing bankruptcy this year unless they get a federal bailout. Even though Great Britain opted for austerity measures, the USA doesn’t really have this for a choice because they hold the debt bag for the global standard. Central bankers have the valuables and the credit to prolong the current system as they please or not. Meanwhile, Main Street and the population is more tightly squeezed than ever. Those trained dogs are walking a tightrope, but for how long? President Obama needs to hold everything together with a grand distraction so that he will be handily re-elected. What do you think that will be? It’s sure to be glorious.

In the meantime, go ahead and shut off your TV until something better comes along. Have a party while you can. You might not have long to wait.

December 22, 2010

Federal Reserve Contributed to Economic Crash

Filed under: banking, central bank, economy, federal reserve — Tags: , , , , , , , — digitaleconomy @ 1:19 pm

Back in early 2005, President George Bush excitedly told the nation how great the country was doing. Behind the scenes was another matter.  The housing market was overheated. Economic danger signs were in the air. The Fed had an opportunity to reduce the risk among banks, notably smaller ones. The Federal Reserve Board is also guilty of regulatory inaction that directed contributed to the mortgage meltdown.

The leadership of the Federal Reserve rejected advice from one of the nation’s top banking regulators, a professional accounting board and the Fed’s own staff for restrictions on commercial bankers use of special debt securities to raise capital. The exponential growth and lack of tracking ability for these securities threatened the fabric of banking operations.

Chairman Alan Greenspan and the other six Fed governors voted unanimously to reaffirm a nine-year-old rule allowing liberal use of what are called trust-preferred securities. Previous to that time community banks had few ways to raise capital without issuing more common stock and diluting share price. The Fed allowed the banks to count the securities as debt that they could loan against, even while counting the proceeds as reserves. Through the fractional reserve, banks were then free to borrow and lend in amounts 10 times or more than the value of the securities being issued. This kind of leveraging became the norm. The Fed enabled Wall Street bankers to encourage community banks to take on huge debt and to plunge the borrowings into real estate loans.

Institutions relying on these instruments took more risks and failed more often than those that did not include the use of these trust-preferred securities. Investment banks on Wall Street aggressively pooled these community-bank securities into complex bonds, much like the complex mortgage bonds that nearly brought down the financial system in 2008.

The consequences have continued to build for small bankers. More and more banks are defaulting, requiring intervention by the FDIC. The bank failures have already left more than $1 billion of the complex bonds on the books of the FDIC bank rescue fund.

The Securities and Exchange Commission is now investigating how securities firms promoted the sale of these complex bonds in a poorly understood,  billion dollar offshore market for debt issued by banks, insurers and real estate trusts without checking their greed. Everyone was making money and delighted by the results. As the market became saturated, bankers refused to conduct business, becoming sitting ducks in a frozen banking system. Eventually, in October 2008, the system faced a complete collapse.

McClatchy Newspapers Article

FDIC report

Fed’s mysterious policy: How do we know if it’s working?

April 16, 2009

Economic Lies that the System Promotes

snake-oilYeah. Yeah. You’ve heard it all and everybody is trying to sell you something. The snake oil salesmen are all around. Washington is no different. The lie continues to spread that investing your money in banks or the latest government bonds are safe and sound investing. Think again.

The problem is that we have a ‘dumbing down’ of the American economic system as foreign investors pile on to invest their otherwise worthless American greenbacks and you are the one that will suffer through devaluation and hyperinflation because you base your life on money and monetary acquisition that central bankers run. Your economic livelihood and future is at stake if you have piles of money or owe piles of money. That applies to most Americans. Your investment is an illusion, the same as the thin air that central bankers and banks have created.

The fact remains that there is little monetary defense or value in trying to tell the average American that they can somehow defend their monetary wealth when the central bankers continue to erode that wealth into nothing in a hopelessly compromised financial system. Central bankers are riding the dark horse as they plow the dollar into non-existence so that they can rebuild a new monetary system from the ashes they have created. Naturally, this is to their advantage. The sad thing is that Washington politicians are hopelessly compliant and cooperative in an effort to create a new system from the ashes of your financial lives and years of servitude to their system. We are the fools and most Americans will undoubtedly foolishly listen the advice of the financial sages. What is Washington D.C. up to? CONTROL.  What are central bankers up to? CONTROL. Never forget that what you are being told by mainstream politicians and financial media is designed to secure the system over your life or means of livelihood at your expense.

Gold? Unless you hold the nuggets of goodness in your meaty little hand, don’t buy the snake oil. Gold investment certificates aren’t worth a thunder mug full of waste. Remember the old proverb that possession is nine-tenths of the law. In this case, physical possession is your safest bet, but far from perfect. Your stuff is only as secure as you are. The little guy can easily be pulled from his stuff during a crisis.

I am linking to this electroblurb because it is the right thing to do overall. I do not advocate the sales of the product or the conclusion reached. I ask you to read the facts and forget about buying anything that involves a significant portion of your money, devalued or otherwise, because the money you earn represents your life.

May 18, 2008

Paradox of Market Turmoil

World financial market turmoil has revealed two paradoxes. The first is that after several years of high profits the global banking sector was thought to be well capitalized, even bullet-proof. Actual capital buffers and provisioning in banking were much less robust than they had seemed. Everyone forgot to measure risk and looked at the profit. Little, if nothing has changed.

The second paradox is that elements of a massive liquidity freeze occurred in certain financial market segments (for example, the United States) within a context of overall excess dollar liquidity worldwide. In other words, because of bad bank securities and the risk of accepting them or trading value-for-value, bankers on a global scale began to refuse to trade with fellow bankers to protect themselves.

World bankers are looking at these arenas for salvation: risk management in financial institut- ions; the originate-to-distribute business model of the large banks; and the coordination of financial regulation and supervision across financial institutions, markets and national borders.

World bankers say that improvement in financial literacy can be made by realigning the incentives among the originators and other participants in the securitization chain through attention to detail. (more…)

April 14, 2008

Investment Banks Continue Borrowing from Fed

A central bank report said Wall Street Investment Bankers averaged $32.6 billion in daily borrowing over the past week. That compares with $38.1 billion in the previous week and $32.9 billion before that. The Fed said it would make as much as $200 billion worth of Treasuries available through weekly auctions. In the three auctions so far, the Fed has provided $133.95 billion worth of Treasury securities.

The CNN Media engine suggested that the central bank auctioned only $33.95B of the $50B in securities made available to investment banks, suggesting demand for super-safe government Treasury Bonds could be easing. You can see that very little change has occurred and that average levels are still in the $30 billions. The reality is that investment banks have not soaked up all the funds that they could have received. Whether this reality is a strength or weakness can be debated. The fact that investment banks are not using all the funds allowed could be considered as a strength. The fact that investment banks are using the Fed at all could be considered as a weakness. (more…)

April 3, 2008

Bernanke’s Optimism Flags

Filed under: banking, federal reserve, government, money — Tags: , , , , , , , , , , — digitaleconomy @ 12:04 am

bernanke-defends-fed.jpgBernanke appeared less amiable and quietly confident as he spoke is more tense tones. He admitted that “recent actions appear to have helped stabilize the situation somewhat”, but that markets remained strained. Clearly Chairman Bernanke put a new floor under the U.S. economy. The economy would be rife would failure if the Fed had not gradually opened the floodgates of the market credit and proceeded to make an emergency infusion upon the failure of Bear Stearns. Last month alone, the Fed credited more than $300 billion in economic support to keep the banking economy in functional condition.

Bernanke recited that bankers were unwilling to loan to each other because of the large amount of securitized banking instruments on hand. Banks have been unwilling to take any changes holding bad debt or collateral. Since the Federal Reserve has been dealing with the securities (more…)

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