Gold World News Flash 2

saveyourassetsfirst3

The myth of riskless debt
EZCorp: Very Cheap, But Read The Fine Print First
New Interview - Chris Martenson and Harvey Organ "Get Physical Gold and Silver"
Precious Metals Stock Review Q1 2012
George Washington: Influential Senator Warned in 1975: “Th[e National Security Agency's] Capability At Any Time Could Be Turned Around On The American People, And No American Would Have Any Privacy Left …There Would Be No Place To Hide. [If A Dictato
Links Earth Day 2012
Precious Gold 101: As Reliable as Ever
Gold in the ancient world
How Government Steals Your Wealth
Michael Hudson: Productivity, The Miracle of Compound Interest, and Poverty
Andy Hoffman: Achilles of the Cartel is Physical
Jim Rickards: Central Banks Rig Gold Market to Ensure Orderly Rise

Posted: 22 Apr 2012 01:39 AM PDT

Much has been learned from the ongoing financial debacle that has been painfully rattling the world's financial structure in recent years. Foremost among these valuable lessons is the realisation that all financial assets have risks.

Even the bonds of many sovereign nations are being called into question, and rightly so. Though often deemed to be "riskless" because of a country's ability to extract tax from its citizens, logic tells us that nothing in life is risk-free. This conclusion can also be reached by even a cursory reading of monetary history, or in a more meaningful and instructive way, just by closely observing financial events in recent years. Unquestionably, sovereign bonds have risks.

In fact, there are three of them. Each of these risks needs to be seriously considered and analysed before purchasing the bond of any sovereign nation.

1) Currency risk – There are two types of currency risk. The first is inflation, which has been eroding the purchasing power of currencies ever since governments abandoned the classical gold standard decades ago. This risk is particularly acute in today's environment in which continuous central bank intervention manipulates artificially low interest rates, with the consequence that the interest income earned on a bond is not likely to completely offset the loss of purchasing power of the currency in which the bond is denominated. The other currency risk comes from fluctuating exchange rates. A declining exchange rate will reduce the value of bonds denominated in a foreign currency. For example, any euro-based investor who owned bonds denominated in British pounds saw their wealth eroded when the pound's exchange rate collapsed against the euro a few years ago.

Keep on reading @ goldmoney.com

EZCorp: Very Cheap, But Read The Fine Print First

Posted: 22 Apr 2012 12:02 AM PDT

By Igor Novgorodtsev:

Summary:

This is a short version of a presentation that was given at NYU Stern School of Business this week. I would like to credit Amit Bapat, a Stern MBA student, for working with me on the presentation and providing the majority of the Discount Cash Flow analysis. All tables and figures are either author's calculations or taken directly from SEC filing, unless noted otherwise.

After I wrote this article last week, EZPW reported somewhat disappointing Q2 2012 results on April 19. The stock plunged over 13% the next day. Ironically, some of the inventory issues related to the price of gold were already anticipated in this article. With the price of forward P/E around 9, little net debt, and a still very respectable top line and bottom line growth of over 15%, EZPW is very attractively priced. However, there are some serious legislative threats and governance issues which should

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New Interview - Chris Martenson and Harvey Organ "Get Physical Gold and Silver"

Posted: 21 Apr 2012 11:45 PM PDT

This one was really good, part one of two. I am registering on his website to hear part 2 of 2 (which talks about silver). BTW, is that picture of the 200 gram gold bar in the picture real?

http://www.chrismartenson.com/blog/h...d-silver/73933

Quote:

Harvey Organ: Get Physical Gold & Silver!

Friday, April 20, 2012, 6:10 pm, by Adam Taggart

Harvey Organ has been analyzing the bullion markets closely for decades. The quality and accuracy of his work is respected enough to have earned him an invitation to testify before the CFTC on position limits for precious metals back in 2010.

And he minces no words: Gold and silver prices are suppressed. With extreme prejudice.

In this detailed interview, Harvey explains to Chris the mechanics of how he sees this manipulation occurring, why he predicts this fraudulent pricing scheme will collapse soon, and why it's critical to be holding physical (vs. paper) bullion when it does.

The real suppression of the metals started in 1988. That's when the leasing game started and was invented by J.P. Morgan.

These guys would go around to the mining companies and say, "Listen, I'm going to pay you for your gold in the ground and I will sell it. You just pay me as you bring it out." So that was cheap financing to the miners. Barrick, the biggest mining company of them all, went in on this and it financed a lot of Nevada projects.

Once the leasing game came, the actual selling, the extra selling, suppressed the price. In the first five years, it started at maybe three hundred to four hundred tons. It didn't start to get really bad until probably '97-'98 with the Long Term Capital affair. And that's when the leasing started to become around maybe 1,000 tons of gold. And it hasn't stopped.

And silver is the same.

And that's why you've had a long-term, 20 years of suppression of the metals. The problem now is that the physical is now gone. Where is going? It's gone from West to East.

A lot of people don't know that China used to refine close to 80% of the world's supplies of silver, because it's very toxic. Up until probably '85, the Chinese handled 80% of the world's refining of silver. Now they're down to 40%, but that's still a major part of China's industry. They are keeping every single silver ounce they refine, and gold. They are keeping it for themselves; their reserves are rising (though they don't tell exactly). Two years ago they went up to 1,054 tons and I can assure you it's probably triple that now. These guys are not stopping. Just like they are not stopping in oil. They know what the game is and they are slowly taking all their U.S. dollars that are on their shelf and converting them to gold, oil, copper – anything that's real.

And the game ends when the last ounce of gold has left London -- not COMEX, because in a nanosecond it will come back to here.

The big problem in London is that their derivatives on gold are about 50 to 100-to-1. That's the amount of derivatives. So if I take out that 1 ounce, the balloon around it -- the derivative -- is getting bigger and bigger and bigger until it's ready to totally implode.

And that's what you are seeing now. So right now, people are going to say: how high can it go? And I'm going to tell you: you are going to go to sleep on Thursday night and gold may be $1,670. And then you wake up the next day and it's going to be a banking holiday. And gold will be $3,000 bid, no offer. No offer -- and it will be a banking holiday. Because there will be a failure to deliver.

You've got to have physical coins or bars. If all you have is a piece of paper -- that's all it is! It will just blow up in smoke.

So just go buy your physical and be thankful that you are getting it at a cheaper price today.

Precious Metals Stock Review Q1 2012

Posted: 21 Apr 2012 11:41 PM PDT

By Stockmarketopedia:

In our detailed analysis of the precious metal stocks trading on the North American stock markets, we see both reasons for optimism that the stocks will improve and concern that there could be additional downward pressure on the precious metal stocks trading on the North American stock markets.

Gold commodity prices remain flat again in Q1 2012 whereby gold prices averaged $1,691 / oz in Q1/12, virtually flat from Q4/11 ($1,683 / oz) and Q3/11 ($1,706/oz), but a 22% increase from Q1/11. Average silver prices increased a modest 3% to 32.64/oz in Q1/12, and only 2% from a year ago.

For the precious metal stocks trading on the North American stock markets, we expect a slight decrease in producer margins, as a result of flat commodity prices and continued cost inflation. This would mark the second straight quarterly decrease in producer margins for the precious metal stocks trading on North

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George Washington: Influential Senator Warned in 1975: “Th[e National Security Agency's] Capability At Any Time Could Be Turned Around On The American People, And No American Would Have Any Privacy Left …There Would Be No Place To Hide. [If A Dictato

Posted: 21 Apr 2012 05:36 PM PDT

Senator Church's Prophetic Warning

Senator Frank Church – who chaired the famous "Church Committee" into the unlawful FBI Cointel program, and who chaired the Senate Foreign Relations Committee – said in 1975:

"Th[e National Security Agency's] capability at any time could be turned around on the American people, and no American would have any privacy left, such is the capability to monitor everything: telephone conversations, telegrams, it doesn't matter. There would be no place to hide. [If a dictator ever took over, the N.S.A.] could enable it to impose total tyranny, and there would be no way to fight back."

Now, the NSA is building a $2 billion dollar facility in Utah which will use the world's most powerful supercomputer to monitor virtually all phone calls, emails, internet usage, purchases and rentals, break all encryption, and then store everyone's data permanently.

The former head of the program for the NSA recently held his thumb and forefinger close together, and said:

We are, like, that far from a turnkey totalitarian state

So Senator Church's warning was prophetic.

Spying Began Before 9/11

While you might assume that the NSA's spying on Americans is a response to 9/11, the government's illegal spying on Americans actually began before 9/11.

Bloomberg reported in 2006:

The U.S. National Security Agency asked AT&T Inc. to help it set up a domestic call monitoring site seven months before the Sept. 11, 2001 attacks, lawyers claimed June 23 in court papers filed in New York federal court.

"The Bush Administration asserted this became necessary after 9/11," plaintiff's lawyer Carl Mayer said in a telephone interview. "This undermines that assertion."

"The U.S. Department of Justice has stated that AT&T may neither confirm nor deny AT&T's participation in the alleged NSA program because doing so would cause `exceptionally grave harm to national security' and would violate both civil and criminal statutes," AT&T spokesman Dave Pacholczyk said in an e-mail.

U.S. Department of Justice spokesman Charles Miller and NSA spokesman Don Weber declined to comment.

And see this and this.

In other words, the NSA's trashing of the constitutional rights of American citizens had nothing to do with 9/11.

NSA Heard the 9/11 Hijackers' Plans from Their Own Mouths … But Didn't Stop Them

Indeed, the NSA was listening in on the 9/11 hijackers' phone calls before 9/11, but didn't do a whole lot to stop them:

The National Security Agency and the FBI were each independently listening in on the phone calls between the supposed mastermind of the attacks and the lead hijacker. Indeed, the FBI built its own antenna in Madagascar specifically to listen in on the mastermind's phone calls

According to various sources, on the day before 9/11, the mastermind told the lead hijacker "tomorrow is zero hour" and gave final approval for the attacks. The NSA intercepted the message that day and the FBI was likely also monitoring the mastermind's phone calls

Shortly before 9/11, the NSA also intercepted multiple phone calls to the United States from Bin Laden's chief of operations

According to the Sunday Herald, two days before 9/11, Bin Laden called his stepmother and told her "In two days, you're going to hear big news and you're not going to hear from me for a while." U.S. officials later told CNN that "in recent years they've been able to monitor some of Bin Laden's telephone communications with his [step]mother. Bin Laden at the time was using a satellite telephone, and the signals were intercepted and sometimes recorded." Indeed, before 9/11, to impress important visitors, NSA analysts would occasionally play audio tapes of bin Laden talking to his stepmother.

And according to CBS News, at 9:53 a.m on 9/11, just 15 minutes after the hijacked plane had hit the Pentagon, "the National Security Agency, which monitors communications worldwide, intercepted a phone call from one of Osama bin Laden's operatives in Afghanistan to a phone number in the former
Soviet Republic of Georgia", and secretary of Defense Rumsfeld learned about the intercepted phone call in real-time (if the NSA monitored and transcribed phone calls in real-time on 9/11, that implies that it probably did so in the months leading up to 9/11 as well)

As we reported in 2008, the NSA even monitored the hijackers within the United States:

We've previously pointed out that the U.S. government heard the 9/11 plans from the hijackers' own mouth. Most of what we wrote about involved the NSA and other intelligence services tapping top Al Qaeda operatives' phone calls outside the U.S.

However, as leading NSA expert James Bamford - the Washington Investigative Producer for ABC's World News Tonight with Peter Jennings for almost a decade, winner of a number of journalism awards for coverage national security issues, whose articles have appeared in dozens of publications, including cover stories for the New York Times Magazine, Washington Post Magazine, and the Los Angeles Times Magazine, and the only author to write any books (he wrote 3) on the NSA – reports, the NSA was also tapping the hijackers' phone calls inside the U.S.

Specifically, hijackers Khalid al-Mihdhar and Nawaf al-Hazmi lived in San Diego, California, for 2 years before 9/11. Numerous phone calls between al-Mihdhar and Nawaf al-Hazmi in San Diego and a high-level Al Qaeda operations base in Yemen were made in those 2 years.

The NSA had been tapping and eavesdropping on all calls made from that Yemen phone for years. So NSA recorded all of these phone calls.

Indeed, the CIA knew as far back as 1999 that al-Mihdhar was coming to the U.S. Specifically, in 1999, CIA operatives tailing al-Mihdha in Kuala Lumpur, Malaysia, obtained a copy of his passport. It contained visas for both Malaysia and the U.S., so they knew it was likely he would go from Kuala Lumpur to America.

ABC News reported in 2002:

Shortly before Sept. 11, NSA intercepts detected multiple phone calls from Abu Zubaida, bin Laden's chief of operations, to the United States. The intercepts were never passed on.

And Raw Story wrote in 2008:

Author James Bamford looked into the performance of the NSA … and found that it had been closely monitoring the 9/11 hijackers as they moved freely around the United States and communicated with Osama bin Laden's operations center in Yemen. The NSA had even tapped bin Laden's satellite phone, starting in 1996.

"The NSA never alerted any other agency that the terrorists were in the United States and moving across the country towards Washington," Bamford told PBS.

PBS also found that "the 9/11 Commission never looked closely into NSA's role in the broad intelligence breakdown behind the World Trade Center and Pentagon attacks. If they had, they would have understood the full extent to which the agency had major pieces of the puzzle but never put them together or disclosed their entire body of knowledge to the CIA and the FBI."

In a review of Bamford's book, former senator and 9/11 Commission member Bob Kerrey wrote, "As the 9/11 Commission later established, U.S. intelligence officials knew that al-Qaeda had held a planning meeting in Malaysia, found out the names of two recruits who had been present — Khalid al-Mihdhar and Nawaf al-Hazmi — and suspected that one and maybe both of them had flown to Los Angeles. Bamford reveals that the NSA had been eavesdropping for months on their calls to Yemen, yet the agency 'never made the effort' to trace where the calls originated. 'At any time, had the FBI been notified, they could have found Hazmi in a matter of seconds.'"

Former CIA analyst Michael Scheuer told PBS, "None of this information that we're speaking about this evening's in the 9/11 Commission report. They simply ignored all of it."

Spying Unrelated to Keeping Us Safe

As we've previously documented, the spying isn't being done to keep us safe … but to crush dissent …

and to help the too big to fail businesses compete against smaller businesses (and here).

Indeed, the NSA monitoring efforts will not focus on spying on potential terrorists – or even criminal activity – but in recording every phone call, email, internet search or other communication in the country.

Not Just the NSA: Other Agencies and Shady Foreign Groups Spying on Americans As Well

It's not just the NSA.

As Nat Hentoff writes:

Thirty years after Church's principled stand, the Washington Post reported that the NSA had already been enlisting other intelligence
agencies to assist its surveillance of "people inside the country suspected of having terrorist connections" ("Bush Authorized Domestic Spying," Dan Eggen, Dec. 16, 2005).

On what basis? That's classified.

And Bamford reports that shady companies with ties to Israel are wiretapping Americans for the NSA:

One of the [National Security] agency's biggest secrets is just how careless it is with that ocean of very private and very personal communications, much of it to and from Americans. Increasingly, obscure and questionable contractors — not government employees — install the taps, run the agency's eavesdropping infrastructure, and do the listening and analysis.

And with some of the key companies building the U.S.'s surveillance infrastructure for the digital age employing unstable employees, crooked executives, and having troubling ties to foreign intelligence services, it's not clear that Americans should trust the secretive agency ….

***

Secretive contractors with questionable histories and little oversight were also used to do the actual bugging of the entire U.S. telecommunications network.

According to a former Verizon employee briefed on the program, Verint, owned by Comverse Technology, taps the communication lines at Verizon, which I first reported in my book The Shadow Factory in 2008. Verint did not return a call seeking comment, while Verizon said it does not comment on such matters.

At AT&T the wiretapping rooms are powered by software and hardware from Narus, now owned by Boeing, a discovery made by AT&T whistleblower Mark Klein in 2004. Narus did not return a call seeking comment.

What is especially troubling is that both companies have had extensive ties to Israel, as well as links to that country's intelligence service, a country with a long and aggressive history of spying on the U.S.

In fact, according to Binney, the advanced analytical and data mining software the NSA had developed for both its worldwide and international eavesdropping operations was secretly passed to Israel by a mid-level employee, apparently with close connections to the country. The employee, a technical director in the Operations Directorate, "who was a very strong supporter of Israel," said Binney, "gave, unbeknownst to us, he gave the software that we had, doing these fast rates, to the Israelis."

Because of his position, it was something Binney should have been alerted to, but wasn't.

"In addition to being the technical director," he said, "I was the chair of the TAP, it's the Technical Advisory Panel, the foreign relations council. We're supposed to know what all these foreign countries, technically what they're doing…. They didn't do this that way, it was under the table." After discovering the secret transfer of the technology, Binney argued that the agency simply pass it to them officially, and in that way get something in return, such as access to communications terminals. "So we gave it to them for switches," he said.

"For access."

But Binney now suspects that Israeli intelligence in turn passed the technology on to Israeli companies who operate in countries around the world, including the U.S. In return, the companies could act as extensions of Israeli intelligence and pass critical military, economic and diplomatic information back to them. "And then five years later, four or five years later, you see a Narus device," he said. "I think there's a connection there, we don't know for sure."

Narus was formed in Israel in November 1997 by six Israelis with much of its money coming from Walden Israel, an Israeli venture capital company. Its founder and
former chairman, Ori Cohen, once told Israel's Fortune Magazine that his partners have done technology work for Israeli intelligence. And among the five founders was Stanislav Khirman, a husky, bearded Russian who had previously worked for Elta Systems, Inc. A division of Israel Aerospace Industries, Ltd., Elta specializes in developing advanced eavesdropping systems for Israeli defense and intelligence organizations. At Narus, Khirman became the chief technology officer.

A few years ago, Narus boasted that it is "known for its ability to capture and collect data from the largest networks around the world."

The company says its equipment is capable of "providing unparalleled monitoring and intercept capabilities to service providers and government organizations around the world" and that "Anything that comes through [an Internet protocol network], we can record. We can reconstruct all of their e-mails, along with attachments, see what Web pages they clicked on, we can reconstruct their [Voice over Internet Protocol] calls."

Like Narus, Verint was founded by in Israel by Israelis, including Jacob "Kobi" Alexander, a former Israeli intelligence officer. Some 800 employees work for Verint, including 350 who are based in Israel, primarily working in research and development and operations, according to the Jerusalem Post. Among its products is STAR-GATE, which according to the company's sales literature, lets "service providers … access communications on virtually any type of network, retain communication data for as long as required, and query and deliver content and data …" and was "[d]esigned to manage vast numbers of targets, concurrent sessions, call data records, and communications."

In a rare and candid admission to Forbes, Retired Brig. Gen. Hanan Gefen, a former commander of the highly secret Unit 8200, Israel's NSA, noted his former organization's influence on Comverse, which owns Verint, as well as other Israeli companies that dominate the U.S. eavesdropping and surveillance market. "Take NICE, Comverse and Check Point for example, three of the largest high-tech companies, which were all directly influenced by 8200 technology," said Gefen. "Check Point was founded by Unit alumni. Comverse's main product, the Logger, is based on the Unit's technology."

According to a former chief of Unit 8200, both the veterans of the group and much of the high-tech intelligence equipment they developed are now employed in high-tech firms around the world. "Cautious estimates indicate that in the past few years," he told a reporter for the Israeli newspaper Ha'artez in 2000, "Unit 8200 veterans have set up some 30 to 40 high-tech companies, including 5 to 10 that were floated on Wall Street." Referred to only as "Brigadier General B," he added, "This correlation between serving in the intelligence Unit 8200 and starting successful high-tech companies is not coincidental: Many of the technologies in use around the world and developed in Israel were originally military technologies and were developed and improved by Unit veterans."

Equally troubling is the issue of corruption. Kobi Alexander, the founder and former chairman of Verint, is now a fugitive, wanted by the FBI on nearly three dozen charges of fraud, theft, lying, bribery, money laundering and other crimes. And two of his top associates at Comverse, Chief Financial Officer David Kreinberg and former General Counsel William F. Sorin, were also indicted in the scheme and later pleaded guilty, with both serving time in prison and paying millions of dollars in fines and penalties.

Links Earth Day 2012

Posted: 21 Apr 2012 05:15 PM PDT

Drone Use Takes Off on the Home Front Wall Street Journal (Lambert)

Japanese tsunami debris reaches Alaskan shores Guardian (John L)

Megaupload Trial May Never Happen, Judge Says TorrentFreak (Cap'n Magic)

'They're killing us': world's most endangered tribe cries for help Guardian (John L)

Torture claims emerge in China's Bo Xilai scandal BBC

Dutch prime minister says government austerity talks collapse Washington Post. Weird. This is serious weekend news (from the markets' perspective) which is not being treated as serious news if you look at the usual suspects.

IMF allows eurozone to stay in its fantasy world Telegraph

Archbishop of York victim of "naked racism", claims ally Telegraph

Surviving In an Unstable World Using A Secret Weapon Known As Literature Slacktavist (Lambert)

Exclusive: National Security Agency Whistleblower William Binney on Growing State Surveillance Democracy Now (Thomas R)

Facts, 360 B.C.-A.D. 2012 Chicago Tribune (Lambert)

Independent and Principled? Behind the Cato Myth Mark Ames, Nation

Paul Krugman is Very, Very Wrong Ken Houghton, Angry Bear (Aquifer)

Employees, Too, Want a Say on the Boss's Pay Gretchen Morgenson, New York Times

The growing optimism on housing is not justified Credit Writedowns

The Central Question Posed by the Great Crash masaccio, Firedoglake

Just Banking Presentation Steve Keen

Is high public debt harmful for economic growth? Ugo Panizza and Andrea F Presbitero, VoxEU

Antidote du jour:

Precious Gold 101: As Reliable as Ever

Posted: 21 Apr 2012 04:30 PM PDT

Resource Investor

Gold in the ancient world

Posted: 21 Apr 2012 04:30 PM PDT

goldipedia

How Government Steals Your Wealth

Posted: 21 Apr 2012 04:28 PM PDT

Most readers know that I favor hard assets as opposed to paper assets. By hard assets I mean precious metals, land and things that will hurt you if you drop them on your foot. Paper assets are stocks and bonds. My position regarding hard versus soft assets is a recent one. Up until probably 2001,

Michael Hudson: Productivity, The Miracle of Compound Interest, and Poverty

Posted: 21 Apr 2012 03:09 PM PDT

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

From Hudson's presentation at the Italian MMT Summit, which was also recorded by Bonnie Faulkner of Pacifica Radio's Guns and Butter show

Suppose you were alive back in 1945 and were told about all the new technology that would be invented between then and now: the computers and internet, mobile phones and other consumer electronics, faster and cheaper air travel, super trains and even outer space exploration, higher gas mileage on the ground, plastics, medical breakthroughs and science in general. You would have imagined what nearly all futurists expected: that we would be living in a life of leisure society by this time. Rising productivity would raise wages and living standards, enabling people to work shorter hours under more relaxed and less pressured workplace conditions.

Why hasn't this occurred in recent years? In light of the enormous productivity gains since the end of World War II – and especially since 1980 – why isn't everyone rich and enjoying the leisure economy that was promised? If the 99% is not getting the fruits of higher productivity, who is? Where has it gone?

Under Stalinism the surplus went to the state, which used it to increase tangible capital investment – in factories, power production, transportation and other basic industry and infrastructure. But where is it going under today's finance capitalism? Much of it has gone into industry, construction and infrastructure, as it would in any kind of political economy. And much also is consumed in military overhead, in luxury production for the wealthy, and invested abroad. But most of the gains have gone to the financial sector – higher loans for real estate, and purchases of stocks and bonds.

Loans need to be repaid, and stocks and bonds receive dividends and interest. For the economy at large, people are working longer just to maintain their living standards, which are being squeezed. Women have entered the labor force in unprecedented numbers over the past half-century – and of course, this has raised the status of women. Mechanization of housework and other tasks at home has freed them for professional life outside the home. But on balance, work has increased.

What also has increased has been debt. When World War II ended, John Maynard Keynes and other economists worried that as societies got richer, people would save more. For them, the problem was to keep market demand high enough to buy all the output that was being produced.

And indeed today, markets are shrinking in many countries. But not because people are saving out of prosperity. The jump in reported "saving" in the National Income and Product Accounts (NIPA) in recent years has resulted from repaying debts. It is a negation of a negation – and hence, a statistical "positive."

Paying off a debt is not the same as building up liquid savings in a bank. It reflects something that only a very few economists have worried about over the past century: the prospect of debts rising faster than income, leading to financial crashes that transfer property from debtors to creditors, and indeed polarize society between what the Occupy Wall Street movement calls the 1% and the 99%.

What also was expected universally fifty years ago – indeed, until about 1980 – was that governments would play an increasingly important economic role, not only as forward planners but as direct investors in infrastructure. To Keynesians, government spending served to pump money into the economy, maintaining demand and employment in cyclical downturns. And for hundreds of years, governments have undertaken basic infrastructure spending so that private owners would not use monopoly privileges to charge economic rent.

Nearly all observers expected the fruits of technology to trickle down, not be siphoned up to the top, to the banking sector whose "financial engineering" played no directly technological role in the production process. Textbook models describe – or rather, assume – that rising productivity will be passed on to labor in the form of lower prices (reflecting falling costs of production, enabling wages to buy more) or, if prices are "sticky," higher wages.

According to what the textbooks called Say's Law, there is a circular flow between producers and consumers. Workers must be able to buy the results of what they produce. This correlation between output and consumption goes back to the Physiocrats prior to the French Revolution, who created economics and account keeping. Their founder, François Quesnay, was a medical doctor and a surgeon. He created the basic format of national income accounting on the analogy of the circulation of blood within the body. An increase in production had to find its counterpart in increased consumption, creating its market by paying workers who spent their wages on buying the products they produced.

Working Harder, Producing More, but Going into Debt to Buy It

After World War II many women stayed home and raised families. But since the 1950s they have been forced increasingly into the labour force for what are called two-job families – and now, three-job families (with only two family members). If you project labor participation rates, by the year 2020 every woman will have to work 18 hours a day or economic trends will falter.

What was applauded as a post-industrial economy has turned into a financialized economy. The reason you have to work so much harder than before, even when wages rise, is to carry your debt overhead. You're unable to buy the goods you produce because you need to pay your bankers. And the only way that you can barely maintain your living standards is to borrow even more. This means having to pay back even more in years to come.

That is the Eurozone plan in a nutshell for its economic future. It is a financial plan that is replacing industrial capitalism – with finance capitalism.

Industrial capitalism was based on increasing production and expanding markets. Industrialists were supposed to use their profits to build more factories, buy more machinery and hire more labor. But this is not what happens under finance capitalism. Banks lend out their receipt of interest, fees and penalties (which now yield credit card companies as much as interest) in new loans.

The problem is that income used to pay debts cannot simultaneously be used to buy the goods and services that labor produces. So when wages and living standards do not rise, how are producers to sell – unless they find new markets abroad? The gains have been siphoned off by finance. And the financial dynamic ends up in austerity.

And to make matters worse, it is not the fat that is cut. The fat is the financial sector. What is cut is the bone: the industrial sector. So when writers refer to a post-industrial economy led by the banks, they imply deindustrialization. And for you it means unemployment and lower wages.

Financial Dynamics vs. Industrial Dynamics

The accumulation of payments on interest-bearing debt leads companies to search for new loan markets, just as industrialists seek out new markets for their expanding output. This search means looking for assets in place to be pledged as collateral. The largest asset in any economy is real estate – mainly the land's site value. So about 80 percent of bank loans are mortgage loans. But by 1980 property prices had turned down as interest rates rose during the Vietnam War and the general Cold War buildup throughout the world. Overseas military spending obliged the Federal Reserve to raise interest rates to borrow abroad to prevent the dollar's exchange rate from declining.

So in the 1980s banks found a new market: corporate raiders treated companies much like real estate, to be bought on credit and managed to create a capital gain. The rise in interest rates to 20 percent by 1980 forced most states to revoke their usury laws, and credit card companies played states against each other in a race to the bottom when it came to protecting consumer rights. So the high-interest junk bond was born, largely at the hands of Michael Milken's gang at Drexel Burnham.

American industry began to be financialized (and in the process, criminalized). But running a company to make a financial gain is different from running an industrial firm to expand production. Cash flow that was not paid to bankers and bondholders for the credit to buy out stock holders was used for purposes other than direct capital investment – above all for stock buybacks to support their price, and for mergers and acquisitions to acquire yet more companies.

The aim was not to increase production but to increase balance-sheet wealth – while extracting revenue from companies much like landlords bleeding a building. That is the time frame of finance capital, in contrast to industrial capital. It is short-term, not long term. This is why it is extractive rather than productive. The revenue has no counterpart in new direct investment in output, but rather in overhead debt extracting a rising flow of interest from the economy.

"Wealth creation" by debt leveraging – that is, asset-price inflation – was celebrated as a post-industrial economy, as if this were a positive and natural evolution. But in reality it is a lapse back into a rentier economy, and even into a kind of neofeudalism. The post-2008 bailouts have vested a new rentier elite to lord it over the 21st century, thanks to the fact that most gains since 1980 have gone to the 1% – mainly the financial sector, not to the 99%.

In the end this shrinks the economy – and that means that more and more loans will go bad, until crisis levels are reached at the point where lenders realize that there is no more room to extract more, and stop lending. But in the absence of government budget deficits, bank lending is the only support for demand – so the financial rug is pulled out from under the economy. That is the point at which banks demand bailouts – giving them the money, rather than giving the economy the revenue to spend and pull itself out of depression. So government debt is increased by giveaways to the banks, not by spending into the "real" economy.

Economics textbooks teach supply and demand curves. Every marginal increase in supply lowers the price of what is being supplied. For the job market this means that the higher the unemployment rate, the lower wages will fall. Conversely, the more workers you hire, the more you have to pay to attract workers. Government officials and bankers are indoctrinated in these textbooks and conclude that the less employment there is, the more wages will fall – thereby presumably leaving a wider profit margin, assuming that the goods can still be sold at a steady price. So employers seek to earn more by keeping employment low enough to prevent wages from rising. This maximizes the power of wealth over labor.

Economists conclude that to make economies more competitive, they need to keep wages low so as to undersell other countries. So a race to the bottom develops. But what seems to help countries compete actually hurts their domestic market.

Back in the 19th century this was called the reserve army of the unemployed. Unemployment keeps labour down. And even more important, to the extent that incomes do rise, they are paid out as debt service. A dynamic is put in place in which debt keeps labor down – not only by eating up its wages in debt service, but in making workers suffer sharp increases in the interest rates they have to pay or even risk losing their homes if they miss a payment by going on strike or being fired. Alan Greenspan explained that unemployment was not needed to keep labor down these days. All that is needed is to traumatize and disable them politically by debt leverage.

This is why, despite the fact that productivity has risen so dramatically, the real economy and its wage levels have tapered off in an S curve. The magic of compound interest has increased debt (and the savings of the 1%) to more than absorb the productivity gains. And this financial overgrowth has accrued to the 1%, not to the 99%.

Finance is what makes today's economy different from that of 1945. We are at the end of a long cycle. Back in 1945 the private sector in every country was relatively free of debt. There was little civilian output for consumers to buy during the wartime years. Companies had little reason to invest, except for the government's military demand. So most families had little debt – and a lot of savings, and good job opportunities after the return to peace. But today the economy is in reverse. Savings have been run down and consumers, real estate and industry is left in debt.

Untaxing Land Rent and Monopoly Rent so that It Can be Paid to the Bankers, not to Government

  To stop this reversal, it is necessary to understand its causes. They are not only financial. The banking interests have gained sufficient power to distort tax policy, creating a dual fiscal-financial problem. Taxes have been shifted off the major bank customers – real estate and monopolies – onto labor and consumers. In the United States, two-thirds of state and local tax revenues in the 1930s came from the property tax. Today the proportion has fallen to only one-sixth. States and cities replaced property taxes with income and sales taxes. Europe and the post-Soviet economies have adopted the most anti-labour tax of all – the value added tax.

The rationale is that it is easy to collect. But it falls on consumers, not on the economy's free lunch of economic rent as advocated by classical free market economists. The value added tax adds to consumer prices and shrinks the market, preventing labor from buying the goods it produces. This is done simply to free more land rent, natural resource rent and monopoly rent from taxation so that it can be paid to bankers as interest.

When voters threaten to elect politicians to pursue less bank-friendly policies, the EU announces that the country needs a technocrat to impose more taxes to bail out the banks for their bad loans. It is all in vain without changing the system, because today's financial business plan cannot work for more than a short time. Being extractive rather than productive, it leaves a swath of bankruptcy in its wake. Yet it is the banks that the technocrats are saving, not labor and industry, the "real" economy's employment, social spending and public wealth.

Changing Social Security from Being Paid out of Progressive Taxation to a Regressive Labor Tax

In 1982, bank lobbyist Alan Greenspan was appointed to head a U.S. commission to shift Social Security out of the public budget (where it was funded largely by progressive taxation) and fund it by user fees that fall on employees and employers. The aim was to privatize it Chilean style. Wall Street's dream is to turn wage set-asides over to money managers to buy stocks and create a stock market boom (and in the end, siphon off commissions and push contributors into high-risk bets on the losing side of the deal with large financial institutions, Goldman Sachs style). In effect, Mr. Greenspan's position was that Social Security should not be a public service. It should be a user fee, so that prospective retirees would pay for it in advance. Their savings were to be lent to the government to enable the Treasury to slash taxes on the higher income and wealth brackets. So the effect was to reverse the long trend toward progressive taxation.

The upshot of the Greenspan tax increases (only on labor, not on wealthy earners) was to create a budget surplus for the Social Security Administration, enabling the government to cut taxes on real estate, on finance, and for the rich in general. Capital gains taxes in particular were cut in half. And real estate investors (absentee owners, not homeowners) were allowed to pretend that the value of their holdings were depreciating rather than rising in price, by junk accounting based on junk economics.

The end game came when the Bush and Obama administrations announced, in effect, "We're broke. So now we have to balance the budget by cutting social spending and raising the Social Security tax further. We've cut taxes on the rich by so much that the workers have not paid enough to cover this give-away, not to mention fighting the Bush-Cheney war in Iraq and the Obama Administration's war in Afghanistan – or for that matter, the class war against labour.

Under Pension Fund Capitalism, employees are encouraged to think of themselves as capitalists in miniature – and provide for their retirement by employee stock ownership programs rather than saving up their wages themselves or having pensions financed on a pay-as-you-go basis out of future production. The idea is to make money from money (M→M'), not by producing commodities (M-C-M'). In America, half the employee stock ownership plans (ESOPs) have gone bankrupt, mainly by being grabbed by the corporate employers. Corporate raiders borrow credit from bankers and bond investors to fund management buyouts. The plan is to buy out stockholders, pledging the earnings to pay out as interest. And not only earnings; they loot the employee pension plans. George Akerlof won the 20– Nobel Prize for describing this. But novelists have recognized it more than economists. It was Balzac who said that behind every great family fortune is a great theft, often long forgotten to be sure.

Today's economy is based on theft under the euphemism of "free enterprise." It's sometimes called "socialism for the rich" because they receive most government subsidy. But it's not the kind of socialism that people talked about a hundred years ago. It is a travesty of social democracy and socialism. In a word, it's oligarchy. But we're living in an Orwellian world. No party calls themselves fascist today, or even anti-labor. They call themselves social democracy. But it's the opposite of what social democracy meant in the 19th and early 20th century.

Social Security has not yet been privatized, but education has – not only privatized, but financialized. Students no longer get free or low-priced education. In order to qualify for professional jobs in America, they have to take out loans that put them deeply in debt. Then, when it comes time to start a family, they have to take on a lifetime 30-year mortgage debt. They need to take out an auto loan to buy an automobile to drive to work, especially where public transportation has been dismantled as in Los Angeles. And when their paychecks are squeezed more, they can maintain their living standards and social status only by taking on credit card debt.

Paying the carrying charges on this debt diverts spending away from the goods and services that employees produce. The result is debt deflation. Employees have less and less ability to buy what they produce – except by taking on even more debt. That's why banks and bondholders have ended up with the increase in productivity – almost synonymous with the 1%. They are the core of the Finance, Insurance, and Real Estate (FIRE) sector that now absorbs most of the economic surplus in the form of various types of economic rent: land and natural resource rent, monopoly privilege and financial overhead.

The Inversion of Classical Free Market Reform to its Diametric Opposite

Classical political economy sought to mobilize democratic government to tax the rentiers: landlord, monopolists and bankers. The objective was to create an industrial surplus and, in the process, raise productivity, wage levels and living standards. To keep prices low and hence national economies competitive, governments were to undertake society's largest spending programs: basic infrastructure such as transportation, power production, communications – all of which happen to be natural monopolies as well. So the aim was not only to provide basic infrastructure needs freely or at subsidized prices, but to prevent private owners from erecting tollbooths on roads and charging monopoly prices for power, phone systems (as in Telmex in Mexico or similar phone monopolies in the post-Soviet kleptocracies).

Post-classical economics (deceptively called neoclassical) seeks to untax the rentiers, and shift the costs of government onto labor and even onto industry. To achieve this, democracy is rolled back to oligarchies. But this time they are controlled not by landlords as in the case of Europe's landed aristocracies, but bankers and financiers. And their aim is to privatize the public domain with its monopolies. Bankers advance the credit to buyers, who install tollbooths and raise prices for basic needs. By paying out their revenue in a tax-exempt form, as interest, they keep their income out of the hands of government – forcing national treasuries to tax labor and industry, consumers and producers rather than finance, insurance and real estate. Governments thus become the protectors of monopoly and its financing.

It is a short-term policy. By raising domestic price levels, financialized economies price themselves out of global markets – unless than can create a world order in which all economies are symmetrically debt-burdened. This is where the International Monetary Fund, World Bank and World Trade Organization are brought into play – to financialize globalization, excluding countries as pariahs if they do not join this self-destructive and self-terminating system.

An object lesson of the shift from classical democracy to post-classical oligarchy is a country that is held out to you as a success story: Latvia, where neoliberals had a completely free hand, as they did in Russia. What they call a neoliberal paradise turned out to be debt-ridden kleptocracy. The country has a set of flat taxes on employment of 59 percent – and only a 1 percent real estate tax.

You can imagine what happened with real estate taxed so low and labor taxed so high. Employment was high-cost – but there was a real estate bubble. When I was Research Director at the Riga Graduate School of Law, I visited the government agency in charge of property assessments, and asked how they got the 1 percent. I was told that they based it on the most recent real estate appraisal they had. This turned out to be back in 1917, before the Russian Revolution. (The lead assessor had written her doctoral dissertation on this survey.) Whatever the tax collector gives up and relinquishes in taxes, is available to be paid to the banks as interest. So housing prices are bid up in price – on credit – while the tax collector has to turn to labor and industry for the revenue that has been given up. Instead of paying taxes, new homebuyers pay interest to the bankers. The upshot is that the banks end up with the rent that used to accrue to the landed aristocracies of Europe. This is making bankers the new aristocracy.

When I headed an international investigative economic team in 2010, we visited Latvia's bank insurance agency and were told that they had anticipated a collapse of the bubble. Their response was to advise banks to back their mortgage loans not only with the property as collateral, but to get as many family members as possible to co-sign the loan. That way, if and when default occurred, the parents, siblings or other relatives would be personally liable.

  The bank regulators did not urge the government to tax real estate more. That would have squeezed homeowners on their bank loans – and left less new rental income to be capitalized into new bank loans. But it would have enabled the government to reduce its heavy taxes on employment. This was not the bank regulators' concern – and bankers themselves saw their main business in lending to fuel real estate, not industry, given what the neoliberals did to Latvia's economy and that of the other Baltic states!

Unfair? Economically polarizing and destructive? Of course. But the bank insurers said that their task was to protect bank solvency, not create an optimum economic structure.

One result is that a recent EU survey found that one-third of Latvia's population between the age of 20 and 35 either had emigrated or was planning to do so. As of 2012 the country's population recently has shrunk by 15 percent. Marriage and birth rates are falling off, as they are throughout the post-Soviet economies. After all, who can marry and buy a house when your wages are taxed at 59 percent and you have to take on a debt?

Iceland provides another object lesson. Even more than Latvia, it became a rogue banker's paradise – and also one for vulture banks. Their loans are indexed to the consumer price index – which means in practice to the foreign exchange rate. The krónur plunged after the banks crashed in 2008. The result a 1,000 krónur debt has become perhaps 1,800 – against property that has fallen from the equivalent of 1000 krónur down to perhaps 400 krónur. This leaves many families in negative equity. And they are personally liable.

When the crooked banks of Iceland went under (and they've only recently begun to arrest some of the crooks) the government took them over and, on European advice, sold them to vulture investors, for around ten cents on the dollar. Despite the fact that Iceland's constitution said that they were not allowed to increase debts by indexing, this is just what the banks did. If the government had taken over, it could have written down the debts to the ability to pay. But the new vulture banks have not done this. And the Social Democratic government backed their rights to make as much as they can, rather than giving priority to the welfare of the Icelandic people.

What I find so striking is how far to the right wing of the political spectrum the Social Democratic and Labour parties have moved. Iceland's Social Democratic leadership explained that it wanted to be part of Europe. But this meant acting on behalf of the British and Dutch bankers, not democratically on behalf of Icelanders. They acted on behalf of the emerging financial oligarchy.

I've known many of the social democratic leaders of America and the world since I was a young boy. My father was a socialist labor leader and political prisoner from Minneapolis, which was the high point of American labor history as a result of its great General Strike in the 1930s. I was told by a Socialist Party leader (Terence McCarthy) in the early 1960s that the travel and hotel expenses of nearly every member of the Socialist International (the Second International, of which Dmitri Papandreou of Greece is President as of autumn 2011) was paid for by the CIA or its front organizations. I watched the Socialist Party in America come to support the Vietnam War, and Michael Harrington ban criticism of the war in its youth magazine – driving it to quickly lose most of its members.

Harrington and his mentor, Max Shachtman, took this position because they believed that the West could not be persuaded to be Marxist until the world was freed from the Stalinist travesty that claimed to be Marxist. So the Social Democratic Party of America joined the Cold War effort. Politics was turned upside down by the triangulation of socialism, Stalinism and the ability of the United States to back and finance European social democrats to support the banks and "centrists." This became the tragedy of the old non-Stalinist left in America and other countries. So the Social Democratic leadership imagined (or simply sold out to pretend to believe) that "free financial markets" would lead the world into economic progress.

This was just the opposite from the Progressive Era and indeed, what industrial capitalism promised. The Social Democratic parties of Iceland, Britain, Greece, Scandinavia and other European countries have adopted the position that the way to re-employ labor is to impose austerity. Budgets are to be balanced by lowering wages by 30 percent, and shifting taxes off the finance, insurance and real estate sector onto consumers.

Taxes on labor add to its cost. So competitive power would be maximized by untaxing labor and consumer goods, by getting rid of the value-added tax. But not all taxes are bad. The classical free market economists endorsed taxes on unearned income: land rent and natural resources, monopoly rent and financial privilege. These categories of income have no counterpart in a cost of production undertaken by the rent recipient. The more that governments can shift the tax burden onto land and property, the lower housing prices will be – and the less governments will need to tax labor by income and sales taxes.

Bankers back anti-government ideology because they want to obtain all of the untaxed rental revenue as interest. So taxes that otherwise would be paid to the government will be paid to the bankers. The result – what you're seeing today in Europe and North America – is an economic grab that is in many ways like that which gave birth to European feudalism. But this time around it is financial, not military.

Andy Hoffman: Achilles of the Cartel is Physical

Posted: 21 Apr 2012 10:05 AM PDT

We interviewed Andy Hoffman to ask about the current state of the Gold Cartel's Manipulation in the Gold and Silver markets and how the U.S. Dollar will fair in the current collapse.

from victoryindependence:

~TVR

Jim Rickards: Central Banks Rig Gold Market to Ensure Orderly Rise

Posted: 20 Apr 2012 11:51 PM PDT

¤ Yesterday in Gold and Silver

Gold traded within a five dollar price band through most of the Friday trading day on Planet Earth...exceeding it only briefly between 8:10 a.m. at 9:40 a.m. Eastern time. Those two times represented the high and low price ticks of the day...such as they were.

I was particularly impressed by the fact that 'free-market forces' were able to thread the needle by closing gold on Friday in the 60 cent price gap between the Wednesday close and the Thursday close. I hope there was a prize for doing that.

Gold closed on Friday at $1,642.40 spot...down twenty cents from Thursday. Net volume, at 77,000 contracts, was the lightest since I can't remember when.

Silver's price action was rather similar to gold's, but the price was more 'volatile'...with the high and low price ticks come at approximately the same times as gold. The silver price actually broke through the $32 price mark on its high tick [$32.01 spot] for the second day in a row but, as you can tell, it wasn't allowed to close anywhere near that price.

Silver closed at $31.70 spot...down a dime from Thursday. Net volume was a shockingly light 19,000 contracts.

The dollar index hung in around the 79.60 mark until about 10:00 a.m. Hong Kong time on their Friday morning...and then rolled over. Most of the decline was in by 10:30 a.m. Eastern time in New York...and the index basically traded sideways from there. The dollar index closed down about 34 basis points at 79.14.

Four out of the five days this week, gold stocks opened in positive territory...and then quickly got sold off into negative territory regardless of the price action in gold that followed...with stock prices continuing to erode all day along. The Friday trading action was exactly that as well. The HUI closed on its low of the day, down 0.97%. In my twelve years of watching this market, I've never seen anything like this. It's unnatural.

Virtually all of the silver stocks finished down on the day as well...including all the stock represented in Nick Laird's Silver Sentiment Index. It closed down 0.17%...the same amount it closed up on Thursday.

(Click on image to enlarge)

The CME's Daily Delivery Report was a yawner, as only 11 gold contracts were posted for delivery on Tuesday.

There were no reported changes in GLD yesterday, but over at the SLV ETF an authorized participant withdrew 1,262,086 troy ounces of silver.

For the third day in a row there was no sales report from the U.S. Mint.

The Comex-approved depositories reported receiving 732,023 troy ounces of silver on Thursday...and shipped only 4,966 ounces out the door. Since Wednesday, JPMorgan's precious metals warehouse has added another million ounce of silver to their stash, which now sits at 14.0 million ounces. The link to that action is here.

The Commitment of Traders Report that came out yesterday [for positions held a the close of Comex trading on Tuesday] was basically a non-event. There was virtually no change in the Commercial net short position in silver...less than a hundred contracts but, as Ted Butler pointed out to me, the total open interest blew out by almost 7,000 contracts, so a lot of spread trades were put on during the reporting week.

In gold, the Commercial traders increased their net short position by a hair over 5,000 contracts, or 500,000 ounces. Nothing to see here, folks.

As expected, The Central Bank of the Russian Federation updated their website with the March numbers...and they showed that they had purchased 500,000 ounces of gold to add to the 28.3 million ounces they already held. I must admit that after seeing nothing added in January...and 100,000 ounces sold in February...I was relieved to see this number. I thank Nick Laird for his wonderful chart below.

(Click on image to enlarge)

Here's a chart that Washington state reader S.A. sent our way yesterday. It's entitled "Total Credit Market Debt Owed"...and needs no further embellishment from me.

(Click on image to enlarge)

Here's an interesting story that appeared in an Australian newspaper just the other day. It includes a photo of the Perth Mint's 10 kilogram "Year of the Dragon" gold and silver 'coins'. I thank Australian reader Brad Ellett for sending it to me...and Australian reader Wesley Legrand for putting it in a format that I could use in this column. You'll certainly need the 'click to enlarge' feature for this one.

(Click on image to enlarge)

I have the usual number of stories for a Saturday, including a bunch that I've been saving all week for today's column. I hope you have the time to run through them all over the weekend.

As Ted Butler has pointed out countless times, it's what JPMorgan et al do on the next rally that will determine how it unfolds.

Gold: Precious in All But Recent Perception. CFTC Commissioner Bart Chilton Talks About Silver on BNN. John Hathaway: Fed to Print More Money and Gold to Hit New Highs.

¤ Critical Reads

Rising Fears That Recovery May Once More Be Faltering

Some of the same spoilers that interrupted the recovery in 2010 and 2011 have emerged again, raising fears that the winter's economic strength might dissipate in the spring.

In recent weeks, European bond yields have started climbing. In the United States and elsewhere, high oil prices have sapped spending power. American employers remain skittish about hiring new workers, and new claims for unemployment insurance have risen. And stocks have declined.

There is a "light recovery blowing in a spring wind" with "dark clouds on the horizon," Christine Lagarde, managing director of the International Monetary Fund, said Thursday, at the start of meetings here that will focus on Europe's troubles and global growth. Ms. Lagarde implored world leaders not to become complacent.

This story was posted over at The New York Times website on Thursday...and I thank reader Phil Barlett for sending it. The link is here.

View full GSD edition

IMF to Secure $430 Billion in Crisis Funds

Leading world economies on Friday pledged $430 billion in new funding for the International Monetary Fund, more than doubling its lending power in a bid to protect the global economy from the euro-zone debt crisis.

The promised funds from the Group of 20 advanced and emerging economies aim to ensure the IMF can respond decisively should the debt problems that have engulfed three euro zone countries spread and threaten a fragile global recovery.

"This is extremely important, necessary, an expression of collective resolve," IMF Managing Director Christine Lagarde said. "Given the increase that has just taken place, we are north of a trillion dollars actually. So I was a bit mesmerized by the amount."

This Reuters story was posted on the cnbc.com website shortly after midnight last night...and I thank West Virginia reader Elliot Simon for digging it up on our behalf. The link is here.

View full GSD edition

Chris Whalen: The Fallacy of "Too Big To Fail"–Why the Big Banks Will Eventually Break Up

In a riveting interview on the banking industry, Christopher Whalen of Tangent Capital Partners in New York joins Jim on Financial Sense Newshour to discuss the fallacy of "too big to fail," conflicts of interest in the derivatives markets, problems with the 2005 bankruptcy laws, and why politicians let MF Global investors get taken.

The audio interview runs for 24:22...and there's also a transcript if you wish to read it, instead of listen. It was posted on the financialsense.com website yesterday...and I thank reader Dennis Meredith for sending it my way. The link is here.

View full GSD edition

An Eye on France, Italy and the Speculators: Doug Noland

I wanted to dive a little deeper into John Taylor's March 29, 2012, Wall Street Journal op-ed, "The Dangers of an Interventionist Fed - A century of experience shows that rules lead to prosperity and discretion leads to trouble." The monetary policy "rules vs. discretion" debate is near and dear to my analytical heart, and I again tip my hat to Dr. Taylor for adeptly raising this critical issue. For this Bulletin I'll shift the focus somewhat.

From John Taylor's article: "The Fed's discretion is now virtually unlimited. To pay for mortgages and other large-scale securities purchases, all it has to do is credit banks with electronic deposits—called reserve balances or bank money. The result is the explosion of bank money… Before the 2008 panic, reserve balances were about $10 billion. By the end of 2011 they were about $1,600 billion. If the Fed had stopped with the emergency responses of the 2008 panic, instead of embarking on QE1 and QE2, reserve balances would now be normal. This large expansion of bank money creates risks. If it is not undone, then the bank money will eventually pour out into the economy, causing inflation. If it is undone too quickly, banks may find it hard to adjust and pull back on loans. The very existence of quantitative easing as a policy tool creates unpredictability, as traders speculate whether and when the Fed will intervene again. That the Fed can, if it chooses, intervene without limit in any credit market—not only mortgage-backed securities but also securities backed by automobile loans or student loans—creates more uncertainty and raises questions about why an independent agency of government should have such power."

I've been a huge fan of Doug's ever since I discovered his writings over at David Tice's prudentbear.com website over ten years ago. It's always a must read for me every Friday evening...and this one is worth your while if you have the time. I thank reader U.D. for sending it our way...and the link is here.

View full GSD edition

David Galland: Après Moi, le Deluge

This was the title to yesterday's edition of Casey's Daily Dispatch. I consider David to be one of the top writers on the Internet...and he's certainly at the top of his game in this, his weekly column. It's an absolute must read from beginning to end...and the video in the "Friday Funnies" is a must watch as well.

If you're not already a subscriber, you can rectify that [for FREE] when you bring up his commentary on your screen. The link is here.

View full GSD edition

Spanish PM: 'We have no money for health or education'

Spain has approved €10 billion of spending cuts and higher fees for education and health in a bid to show investors it is getting its deficit under control.

Speaking on the eve of the cabinet decision on Friday (20 April), centre-right Prime Minister Mariano Rajoy said he does not have enough money.

"It's necessary, imperative because at this moment there is no money to pay for public services ... There's no money because we have spent so much over the last few years. So we have to do this so that in the future we can get out of this situation," he told national media.

This story was posted over at the euobserver.com website back on April 12th...and I thank Roy Stephens for his first offering of the day. The link is here.

View full GSD edition

Franco-German Schengen Proposal: A Vote of No Confidence in Europe

Germany and France's joint proposal to allow Schengen-zone countries to temporarily reintroduce border controls as a means of last resort might sound harmless. But doing so would damage one of the strongest symbols of European unity and perhaps even contribute to the EU's demise.

Germany and France are serious this time. During next week's meeting of European Union interior ministers, the two countries plan to start a discussion about reintroducing national border controls within the Schengen zone. According to the German daily Süddeutsche Zeitung, German Interior Minister Hans-Peter Friedrich and his French counterpart, Claude Guéant, have formulated a letter to their colleagues in which they call for governments to once again be allowed to control their borders as "an ultima ratio" -- that is, measure of last resort -- "and for a limited period of time." They reportedly go on to recommend 30-days for the period.

The proposal is far from harmless and would throw Europe back decades. Since 1995, the citizens of Schengen-zone countries have gotten used to freely traveling within Continental Europe. Next to the euro common currency, free movement is probably the strongest symbol of European unity. Indeed, for many people, it's what makes this abstract idea tangible in the first place.

This story was posted on the German website spiegel.de yesterday...and is Roy's second offering of the day. The link is here.

View full GSD edition

Scottish independence: Who'll pay the price?

Scottish nationalists are calling for a boycott of The Economist.

Words such as "contemptible", "sneering" and "offensive" are being used to describe the front page of its latest edition, which shows a

Save Your ASSets First

Sunday, April 22, 2012