Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Markets At Crossroads: Huge Moves Brewing In Stocks And Gold - 6th May 16
The Bitcoin Drama Continues: Craig Wright Disappears and Andresen Says He Was Bamboozled - 6th May 16
When Gold Confiscation Is a Personal Choice - 6th May 16
Stock Market Getting Ready for the Next Flash Crash - 6th May 16
arclays 100% Mortgage Pours Fuel on UK House Prices Bull Market - 5th May 16
Central Planners Versus Contrarian Logic - 5th May 16
Euro Desperation will achieve Self Destruction - MAP Wave Analysis - 5th May 16
Stocks Extended Their Short-Term Downtrend But Will They Continue Lower? - 5th May 16
Monetary Liquifaction, Gold And The Time Of The Vulture - 5th May 16
US 2016 Election Is a Global Risk - 5th May 16
A Few Facts About Gold That Nay-Sayers Conveniently Ignore - 5th May 16
Save the Environment and Your Retirement: Sell Tesla - 4th May 16
Silver Bullion Has Key New Player – China Replaces JP Morgan - 4th May 16
Gold Stock Picks Up Over 400%, What's Next ? - 4th May 16
U.S. Treasury Secretary Jack Lew: Puerto Rico Needs Urgent Action - 4th May 16
Technical Trading Mastery for Traders & Investors - 4th May 16
Derivatives Crisis Of Banks…Worldwide - 3rd May 16
Bank of North Dakota Soars Despite Oil Bust: A Blueprint for California? - 3rd May 16
Stock Market Technical Analysis - 3rd May 16
Central Banks Need a Higher Gold Price : Hello GATA - 3rd May 16
A Currency War Battle That Europe and Japan Can’t Afford To Lose - 3rd May 16
When the Truth is Found to be Lies, Confidence in Currency Dies - 2nd May 16
How Brexit Could Help All of Europe - 2nd May 16
US House Prices Outpacing Official Inflation Rate, Household Income - 2nd May 16
USD Still Declining... - 2nd May 16
Gold & Silver Rally Huge as Central Bankers & Analysts Flub - 2nd May 16
Stock Market Bounce Day - 2nd May 16
Stock Market Uncertainty Following Two-Month Long Rally - Will It Continue? - 2nd May 16
Stock Market Correction Underway "Upside Objective Reached" - 2nd May 16
USD, Yen and an ‘Inflation Trade’ Update - 2nd May 16
Gold Commitments of Traders and More - 1st May 16
The Magic of Gold Ratio Charts - 1st May 16
Consensus Forming: China Heading Back Into Financial Crisis - 30th Apr 16
The Next Technical Price Targets for Gold & Silver - 30th Apr 16
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

The Fed’s Final Days, The Temple Of Paper Money Is Under Seige

Interest-Rates / Central Banks Dec 15, 2010 - 04:47 AM GMT

By: Darryl_R_Schoon

Interest-Rates

Diamond Rated - Best Financial Markets Analysis ArticleIn 2008, America suffered a massive economic heart attack. Its doctors, thought to be the world’s best, believed the US to be in good health, having recovered from a similar though smaller crisis in 2000.

But America hadn’t recovered. In fact, the Fed’s palliative for the 2000 crisis, i.e. lower interest rates, soon created an even larger crisis, i.e. the 2002-2006 US housing bubble whose collapse caused global credit markets to contract and investment banks to fall, necessitating government intervention on such a massive scale it led to today’s sovereign debt crisis as private losses were absorbed onto public balance sheets; and, now, in 2010, the crisis continues to fester and spread.


Fed Chairman Ben Bernanke’s solution for our current problems is but a more extreme version of the Fed’s near fatal prescription in 2001, i.e. lower interest rates, but this time combined with a new iteration of voodoo economics, a witch’s brew called QE II, a monetary gesture as futile and impotent as a Hail Mary pass thrown by an atheist as time runs out.

IN TIMES OF EXPANSION WATCH STOCKS
IN TIMES OF CONTRACTION WATCH BONDS
BUT ALWAYS, ALWAYS, ALWAYS, WATCH THE FED

When central banks became the primary driver of economic prosperity, the free market supply and demand of goods and services became subsumed by the supply of credit from central banks.

This is because the supply and demand dynamic is distorted by the availability of banker’s credit—the more credit, the greater the distortion, the greater the distortion, the greater the consequent recession or depression.

In case you didn’t get it the first time, here it is again:

The free market’s fundamental supply and demand dynamic is distorted by the banker’s credit—the more credit, the greater the distortion, and the greater the distortion, the greater the consequent recession or depression.

This is how economic cycles of expansion and contraction became commonplace, boom and bust cycles are but lagging indicators of credit growth; and recessions and depressions are the lagging indicators of credit contractions, the inevitable consequence of economies dependent on central bank credit.

The current historic credit boom began in the 1980s when a combination of US government borrowing and easy credit from the Fed ignited what was thought to be the greatest economic expansion in the history of capitalism.

But the expansion, however, was only an asset bubble in disguise, a stock market bubble that took the Dow from 777 in 1982 to 11,722 in 2000 before collapsing then reflating to 14,100 and falling and rising again to 11,440.

Today, the historic 25 year credit boom is ending and the massive debts accumulated on the way up are starting to default; and the US Fed, the primary source of global credit, is directly responsible for what is now happening.

Of course, the Fed denies any responsibility at all, instead blaming others for the crisis it caused. In 2005, then Fed Governor Ben Bernanke identified the problem as a “savings glut”, i.e. Asia being the primary culprit/saver; and in a distorted self-serving way, Bernanke was right.

..over the past decade a combination of diverse forces has created a significant increase in the global supply of saving--a global saving glut--which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today.
http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/

Bernanke’s convoluted logic stems from Asia’s traditional emphasis on frugality and savings, a tradition that unexpectedly slowed the flow of leveraged credit between the east and west, creating a so-called “savings glut”; akin, if Bernanke is to believed, to a monetary embolism affecting the on-going flow of credit and debt necessary in debt-based economies

But despite Bernanke’s self-serving observation, Asia has the absolute right to save all it has earned—just as the US has the right to spend all it can possible borrow and spend it on Asian goods; whether or not it is prudent to do so is another question.

TEA STAINS AND THE FED

Today, the Republican Party must be ruing the day it first courted disaffected Dixiecrats, i.e. southern Democrats, then looking for a haven from an increasingly socially liberal Democratic party. This alliance beginning in the 1970s fueled 40 years of Republican dominance but the price for doing so is now being extracted.

Sarah Palin is causing William Buckley to roll over in his grave.

Traditionally the bastion of Wall Street money and power, the Republican Party’s price to pay for 40 years of political power may be the continued existence of the Federal Reserve. Since the 1970s, the Republican Party gave increasing voice to disaffected Dixiecrats in return for their support and only now are realizing the cost.

Note: Traditionally, the sworn enemies of northern power and money, i.e. Yankee bankers, southern Dixiecrats swallowed their pride for an increasing role in Republican affairs, trading their opposition to Wall Street bankers in return for an increasingly conservative social agenda.

The collapse of the US economy, however, is putting pressure on this politically motivated alliance. As the Republican Party hierarchy retreats to its traditional base, i.e. banking, corporate and wealthy special interests, much to their chagrin, its indebted and increasingly unemployed socially conservative newly acquired base is blaming not only women, hippies, gays, abortionists and Mexicans for their myriad problems, they’re now blaming the Federal Reserve as well.

This resurgent populist movement known as the Tea Party may be the critical driver in ending the economic dominance of the Federal Reserve Bank in America; and, ironically, the Democratic Party, the traditional opponent of corporate and banking interests in America, now finds itself the unexpected ally of the Fed.

The Faustian pact between banking and the Democrats was forged in the 1990s when the Democrats, desperate for an answer to the new Republican coalition welcomed Wall Street bankers, Goldman Sachs, into their ranks much as Republicans welcomed the Dixiecrats.

The alliance would be a great success for both Wall Street and the Democrats. The loser would be America. No longer having any significant opposition in Washington DC, Wall Street immediately began assembling a banker’s wish list which was approved during Clinton’s two terms with now bipartisan support.

Beginning with dismantling any significant oversight of markets, the bankers proceeded to protect the extraordinarily dangerous but lucrative derivatives markets from government regulation and ended the decade by successfully repealing the Glass-Steagall Act.

This allowed Wall Street to bet the savings of America as they did prior to the Great Depression, which they again proceeded to lose; and, by 2000, the stage would be set for what would soon follow, the collapse of the American economy in concert with record riches for the bankers on Wall Street.

The only hope of America now lies in the electorate’s collective disgust with both the Republican and Democratic parties—and the Federal Reserve itself. On December 9th Bloomberg New reported:  A majority of Americans are dissatisfied with the nation’s independent central bank, saying the U.S. Federal Reserve should either be brought under tighter political control or abolished outright, a poll shows.

Although the same special interest groups control both the Republican and Democratic parties, the Tea Party’s challenge to the Republican hierarchy is an opening wedge in this collusive tyranny masquerading as electoral democracy.

Newly elected Tea Party candidate, Rand Paul, is also the son of tenured Congressman Ron Paul, yesterday’s gadfly and today’s chief gladiator in America’s fight to free itself from the tyranny of the Federal Reserve.
Although strongly opposed by the Republicans party hierarchy, Congressman Ron Paul will soon chair the House Subcommittee on Domestic Monetary Policy. Regarding that appointment, CNN reported:
Ben Bernanke has had his hands full since his first day on the job as Federal Reserve chairman nearly five years ago. It's about to get even tougher…His harshest critic on Capitol Hill, Rep. Ron Paul of Texas, is about to become one of his overseers.
Ron Paul’s appointment to oversee the Federal Reserve is tantamount to King George III appointing George Washington to oversee England’s colonial affairs in 1775. Today, perhaps another great shift in history is about to take place; and, again, as before, nothing less than America’s future is at stake.

THE END OF THE FED

The end of central banking in the US will come in one of two ways: (1) Through a constitutional amendment that bypasses the US Congress, or (2) through the complete collapse of the monetary system that leaves the Federal Reserve and all central banks bankrupt.

The latter is perhaps the most probable as fiat money systems have an average lifespan of 40 years. It was in 1971 that President Nixon removed the gold backing from the US dollar and all currencies became fiat. Do the math: 1971 + 40 = 2011.

If the historical mean is any reassurance, the collapse of paper money and central banking is imminent. The following chart shows just how exposed the Fed is to the increasingly precarious state of the US economy.

The Federal Reserve is now the largest holder of US debt. Not only are China and Japan vulnerable to a US default, so, too, is the Federal Reserve. It would indeed be justice if the Federal Reserve collapsed because those they indebted were unable to pay them back.

A less drastic alternative, however, is a constitutional amendment that bypasses the US Congress. This is necessary because powerful interests would prevent the US House or Senate from ever repealing the Federal Reserve Act.

Only by using state legislatures could the US Congress and powerful banking interests be circumvented: …The second method prescribed is for a Constitutional Convention to be called by two-thirds of the legislatures of the States, and for that Convention to propose one or more amendments. These amendments are then sent to the states to be approved by three-fourths of the legislatures or conventions. This route has never been taken, and there is discussion in political science circles about just how such a convention would be convened, and what kind of changes it would bring about. http://www.usconstitution.net/constam.html

But for this to happen, conservatives and liberals would first have to join forces in order to overcome the powerful elites that will seek to maintain the status quo. Special interests in both parties have a vested interest in the present monetary system and will do everything possible to save the Federal Reserve, no matter how destructive it is to America.

If Americans want to end the Fed, they will either have to cooperate in what would be the greatest political undertaking since the American Revolution—or wait for a cataclysmic economic collapse to make that choice for them.

PONZI-SCHEMES AND THE ENDGAME

I had joked with friends that “someday this [investment with Madoff] will turn out to be a Ponzi scheme, but I’ll have my money out by then.”
Michael Klein, former investor with Bernard Madoff, NY Times, December 11, 2010

While the Federal Reserve central bank substitution of debt for money is a more subtle ponzi-scheme than Bernard Madoff’s, it is nonetheless still a ponzi-scheme. Ponzi-schemes are dependent on the constant influx of more participants, i.e. in the case of Madoff, more investors and, in the case of the Fed, more debtors.

When the influx slows, ponzi-schemes become increasingly unstable until they eventually collapse. This is where we are today, in the endgame, where the collapse of the Fed’s 97 year ponzi-scheme is imminent.

Today, the vast majority of investors still have their money fully invested in the banker’s paper assets. Like Mr. Klein, they believe they will get their money out in time. Like Mr. Klein, they won’t.

THE US GOLD AND SILVER COIN MARKET

While the US makes it difficult for Americans to protect themselves in a time of monetary disarray, there is nonetheless a thriving secondary market in the US for gold and silver coins.

Ralph Foster, a coin dealer in Berkeley, California and author of Fiat Money, the History and Evolution of our Currency, gives some tips and insights in the buying of gold and silver coins. To view my interview with Mr. Foster on youtube, see http://www.youtube.com/user/... and http://www.youtube.com/user...

Additionally, I will be hosting a call-in show, Dollars & Sense with Darryl Robert Schoon, on local Tucson TV, Saturday, December 18th, at 8 pm MST. I will be answering questions about the economic crisis. The program can be viewed live on the internet at www.accesstucson.org.

We are moving towards a financial rendering of epic proportions. Prepare and center yourselves for what will be an historic shift towards a far better world; and, remember, despite how things appear to be, we are all in this together.

End the Fed.

Buy gold, buy silver, have faith.

By Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
blog www.posdev.net

About Darryl Robert Schoon
In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later.

In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that - preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters.

In October 2005, Marshall Thurber, a close friend from law school convened The Positive Deviant Network (the PDN), a group of individuals whom Marshall believed to be "out-of-the-box" thinkers and I was asked to join. The PDN became a major catalyst in my writings on economic issues.

When I discovered others in the PDN shared my concerns about the US economy, I began writing down my thoughts. In March 2007 I presented my findings to the Positive Deviant Network in the form of an in-depth 148- page analysis, " How to Survive the Crisis and Prosper In The Process. "

The reception to my presentation, though controversial, generated a significant amount of interest; and in May 2007, "How To Survive The Crisis And Prosper In The Process" was made available at www.survivethecrisis.com and I began writing articles on economic issues.

The interest in the book and my writings has been gratifying. During its first two months, www.survivethecrisis.com was accessed by over 10,000 viewers from 93 countries. Clearly, we had struck a chord and www.drschoon.com , has been created to address this interest.

Darryl R Schoon Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife